BUDGET PRESENTATION Fiscal Year 2015 February 2014
FY14 Accomplishments SPT achieved several critical milestones in FY14 and will outperform budget despite a challenging economic environment Networks Distributio n/ Ad Sales Grown revenue year over year and maintained total EBIT despite significant FX headwinds (in excess of $25MM) Simple margin maintained in high teens (17%) After adjusting for FX, all regions of the portfolio increased their prior year revenue (10%) Launched/acquired several new operations across the world Europe: SET Germany, Animax UK SVOD and UK Freeview expansion Asia: Dori Indonesia was acquired and GEM Vietnam launched Americas: Kalixta was launched in Latin America and Get TV in the US in February Rationalized operations where appropriate with the profitable sale of SPT interests in Dolphin Ad Sales (UK) and FEARnet (completion pending), as well as a profitable and strategic pending deal with SPT s SPIN properties in Latin America and Brazil Global programming initiatives Hannibal and Crossing Lines earned critical and ratings successes on various SPT channels around the world with both properties recommissioned for 2nd season In spite of ad revenue shortfalls, Crackle is up 50% in terms of unique visitors, enjoyed over 35MM app downloads on mobile and TV and achieved more than 25MM views on its top-rated and Emmy nominated show, Comedians In Cars Getting Coffee US & International Distribution teams combined efforts to create the first global Netflix deal for Breaking Bad and Saul International Distribution generated another record breaking year of revenue at $1.74BN Generated over $40MM in revenue for Russian sitcoms including The Voronins (Everybody Loves Raymond) and Happy Together (Married with Children) Sold 5th cycle Seinfeld and 3rd cycle King of Queens Sold Young & the Restless to TVGN as Soapnet shutdown Struck significant long-term deals in major markets with key partners such as HBO Latam, TF1, Sogecable, Foxtel, Seven Network, Shaw, Televisa, Globo, Azteca Sold and launched The Blacklist around the world, generating record ratings and the highest revenue ever for an SPT one hour drama Added 11 new advertisers to the 2013-14 upfront with an overall increase of upfront dollars of $13.1MM The Queen Latifah Show garnered the highest CPMs of any new talk show Successfully sold integrations in The Queen Latifah Show to Cover Girl, Pantene, and SC Johnson Revenue for doctoroz.com continued to grow (calendar year): $3.6MM (2011); $5.1MM (2012); $6.3MM (2013) Secured ad representation of the Rural Media Group s two TV networks, RFD-TV and FamilyNet, with a target of $15MM for CY14 Negotiating 1st ever substantial guild residual changes, freeing up library product and cable-to-cable product to sell
FY14 Accomplishments Int l Productio n US Productio n Successfully launched Release the Hounds (ITV) followed by German (ProSieben) and pending US (FOX) orders Drove Left Bank US co-pros (Outlander, Mad Dogs US, Craving) and supported development and sale of The Crown Latin America: Hired new LatAm MD; acquired 100% of Teleset; launched Mexico production (El Mariachi); in conjunction with SPT International Distribution, negotiating volume deals with Televisa, RCN and pan regional cable channels to fortify 5 year business plan for high quality Spanish language programming Held WWTBAM summit with key license holders and instigated quarterly review to optimize format Identified territories for expansion: Scandinavia, Turkey, Netherlands, Australia, N. Ireland and launched Electric Ray in UK Restructured Silver River, integrating Left Bank, and divested interest in Tuvalu Collaborated across Sony divisions and companies to maximize business opportunities with SPT International Distribution, SPT Networks, Sony Music, Sony ATV, and Sony Technology Networks Produced and launched SPT s first Arabic language telenovela, Betty La Fea, to pan-regional Arabic audience Grew unscripted IP creation and ownership - The Patch, Tough Young Teachers, Five Minutes to a Fortune, Raid the Cage, Odd Squad, You're Booked, Milky Way Mission, Jokers, among others Built scripted reality business in Germany, Holland, Russia and the Middle East Breaking Bad $275MM ultimate profit, winning the first Emmy and Golden Globe awards for Best TV Series drama as well as, awards from the DGA, SAG, PGA and WGA Agreed principal terms with IGT for an extension of rights with a nominal guarantee of $225MM Shark Tank rose to record ratings ranking as #1 Friday night program two seasons in a row, and successfully launched into syndication with highest rating for CNBC in 6 years Sold Better Call Saul to AMC which will be profitable from year one SPT has orders for six direct-to-series shows; Helix, Outlander, Better Call Saul, Unt. KZK, Battle Creek, Before Crack The Blacklist is the highest rated new series this season and has received an early second season order from the network, where it is their highest rated series among total viewers in a decade and broke US DVR records; The Blacklist is also a worldwide phenomenon, scoring the highest rating telecast in the history of the Sky Living channel in the UK, and was the highest rated new US series launch in Germany in the past 5 years The Goldbergs emerges as self starter breakout hit series for ABC ranking as #1 Tuesday comedy and beating New Girl Capitalizing on the global market by creating original programming for new global platforms like Netflix where SPT has sold Unt. KZK Series project and Before Crack. Both series are expected to be profitable year one and projected to generate over $100MM in profit each in success Young and the Restless and Days of Our Lives have been renewed through the 16/17, and 15/16 broadcast seasons, respectively Masters of Sex 2nd season order
Gross Revenue Generated by SPT For All Product Gross Revenue Summary Gross Revenue by Product
SPT Financial Summary TV Product & Channel Revenue TV Consolidated EBIT
SPT Financial Summary
Variance to Budget / Prior MRP EBIT
Net Overhead Summary
1. Networks
Networks FY15 Outlook In FY15, Networks will cross the $300MM EBIT threshold, over a 35% CAGR across eight consecutive years of record earnings Major new financial milestones will be achieved by SPT Networks FY15 budget Revenue will surpass $2BN EBIT will exceed $330MM This represents year over year revenue and EBIT growth of 25% and 37%, respectively Despite the year over year progress, Networks EBIT is projected to be ($60MM) behind the MRP target for FY15 due to variances from two businesses MSM is ($48MM) behind MRP following a ($30MM) EBIT miss in FY14 as a result of a very difficult ad market and lower ratings on the flagship channel and the inclusion of launching MAX2 (movie channel) in FY15 ($4MM) GSN is ($11MM) behind plan due largely to a lower outlook for the Digital business based upon lower performance levels than anticipated in FY14 Branded channels are in line with MRP The year over year earnings growth will be achieved while also continuing to invest in the business to help sustain the strong growth profile into the future. Specific growth opportunities factored into the Budget include: A GEC channel in India An Indian movie channel CineSony France Dori Israel Included within the Budget are several significant assumptions that add an element of risk to the outlook The MSM Budget assumes that there will be significant ratings growth on the flagship channel The UK operation has an inflection point year as it seeks to fully monetize the new investment in Freeview distribution Latin America has an aggressive outlook with EBIT growth underpinned by channel ratings increases across the region Crackle US is projected to become profitable based largely upon a 30%+ increase in base business ad revenues year over year
Networks Financial Summary vs. Budget/PY MRP Revenue EBIT Revenue and EBIT targets missed across the portfolio in FY14 with material EBIT downside in MSM (-$25MM incl. Challenge), Crackle (-$8.5MM), and GSN (-$11MM) FY15 downside versus MRP largely from MSM (-$48MM) and GSN (-$11MM) Note: Revenue unfavorable FX variance is ($93MM) in FY14, ($52MM) in FY15; EBIT unfavorable FX variance is ($38MM) in FY14, ($17MM) in FY15. Note: EBIT excludes 3Net EBIT of ($4MM) in FY14 forecast.
Networks Competitor EBIT Margins (LTM 3/31/13) US-Owned Branded International Channels Branded International Channels 60% Business model based primarily on acquiring US scripted content 40% 20% 22% 25% 20% Average 22% 0% Sony Int'l Networks (1) Fox Int'l Channels (ex Nat Geo) (2) Chellomedia Factual-Based Programming Business model based on factual and reality programming which is cheaper than US scripted content 60% 40% 20% 0% 41% 40% 44% (3) Discovery Scripps NatGeo (Fox) (2) Average 42% Programming Allocated from US Parent US parent supplies own programming at an allocated cost, which may not always be at true market rates 60% 40% 20% 0% 25% 28% Viacom Source: Company filings and CapIQ. (1) Excludes US Networks, GSN, Crackle GSN Purchase Price Amort. and Home Office Overhead Allocation. Includes MSM. (2) FIC estimated margin range of 25%-30%; NatGeo and FIC margins for FY12 as per FIC Investor Presentation (3) Per Citi, 33%-34% pro forma for SBS and Euro Sport acquisitions (4) Includes MTV/VH1, Nickelodeon, Comedy Central International Networks margin estimate per Citibank, reported Media Networks margin of 41% (5) Per Citibank guidance, mid/high 20%. Disney (4) (5) Average 27%
Networks Competitor EBIT Margins (LTM 3/31/13) 100% India Networks 80% 60% 51% 40% 20% 25% 27% 25% Average (ex-sun) 25% 0% (1) (2) Sony MSM Sun Star Zee US Basic Cable Networks 100% 80% 60% 40% 20% 33% 34% Average 34% 0% Sony GSN (3) AMC Source: Company filings and CapIQ. (1) Sun s business model allows them to realize higher margins through its library with rights in perpetuity and revenue sharing arrangements with content providers (2) Star margin estimates per MSM India and include Hindi GEC + Movies business; overall EBIT margin including Sports and regional channels is 7%. (3) GSN excludes purchase price amortization.
Networks Financial Summary
2. Distribution & Ad Sales
US Distribution FY15 Outlook Broadcast: Cable: SVOD: Renewed Queen Latifah Create new development/syndication model with Hearst or Tribune Increase licensing of library product in diginet space (Antenna, Cozi, Bounce, MeTV, GetTV) Maximize and secure top offnet value for The Blacklist Further progress guild waiver negotiations to free up residually-locked current and library TV product for monetization in broadcast, cable and diginet space Working with FX to close feature slate output deal Split rights with Turner to sell an additional Seinfeld window License English language product to US Spanish networks Sell second window of Days of Our Lives; sold cable-to-cable shows based on residual waivers Close SPA output deal Negotiate AVOD/SVOD Amazon deal Negotiate OTT Comcast library deal Maximize offnet value for The Blacklist and Helix Concentrate efforts on building sales team Maximize value of key properties
US Distribution Financial Summary
US Distribution Motion Picture Revenue Library/Flow Motion Picture Revenue Current Motion Picture Revenue Pay DBO ($B) $0.97 $0.91 $0.92 $0.86 Note: Based on film slate as of 1/22/14.
US Distribution TV Revenue
US Ad Sales FY15 Outlook Marketplace Upfront volume key to growth in pricing Low upfront volume created challenging scatter market Q4 was extremely slow with reduced pricing Direct response was critical to Q4, 30% of inventory vs. 15% of inventory a year ago Lining up new upfront prospects for 14/15 to improve volume Broadcast Cable Only new entry to syndication daytime will be Meredith Vieira. Cancellation of Katie should boost revenue for Queen Latifah and Dr. Oz Sell advertisers across slate of comedy (Seinfeld, King of Queens, Community, and Rules of Engagement). Increase variety of clients in Rules of Engagement and Community :10 s challenge of $2MM with new 20 second unit Integrations critical to delivering budget goals Representing RFD Channel for CY 2014 Rural Entertainment in 50MM homes Deliver $15MM budget (RFD) with a combination of direct response and general rate
US Ad Sales Financial Summary (1) Effective FY15, PlayStation is reflected within Crackle.
International Distribution FY15 Outlook Outperforming historical high revenue in FY14, reaching a new record in FY15 Revenue of $1.85BN projected in FY15 - $115MM up from FY14, $89MM up on MRP US and International scripted TV product sales are the main drivers of growth Delivering higher value through better exploitation of flow/library content Maximize growth opportunities across SVOD and Emerging Markets: Netflix and Amazon are rolling out services to more countries, plus more local SVOD players (e.g., DLA, Avex, Rogers) Buying patterns are evolving away from bulk to more targeted buying (e.g., Netflix Breaking Bad/Saul deal) Partner with new SVOD and AVOD platforms and grow in emerging markets (e.g., China, Indonesia, Russia, India and Africa) Work within SPT to find new ways to create shows EMEA co-productions with US Production Look for local content creation opportunities (e.g., UK, Russia, LatAm) Partnering with Crackle to create original content Key Deal Road Map Country/ Deal Estimated Completion Estimated Term Value ($MM) Collaborate across Sony divisions to maximize opportunities Russia/ FTV Q3FY15 3 Years $100 - $120 Negotiate carve-outs (SEN) S. Korea/ BC/ Pay Q4FY15 3 Years $75 - $100 Italy/ Pay Extension (Sky) Q3FY15 3 Years $100 - $120 Develop Millionaire Project in India, Middle EastItaly/ FTV Q4FY15 3 Years $50 - $80 Tie in with Playstation in Japan and France The Blacklist opportunity with Sony Mobile Supplement/reallocate resources in key markets to support continued growth Total $325 - $420
International Distribution Financial Summary
International Distribution Motion Picture Revenue Library/Flow Motion Picture Revenue Current Motion Picture Revenue
International Distribution TV Revenue
Key Feature and TV Drivers FY15
3. Production
International Production FY15 Outlook Create IP that travels Strong growth from Production across UK and Europe Support creation, launch and sales of formats that travel: The Patch, Fan Band, Popheads, Beat Shazaam among others Maximize prelaunch of The Crown through integrated sales, marketing and publicity campaign Rebuild SPT Russia s capacity to produce enduring sitcoms and dramas that travel Explore expansion opportunities for network of production companies in key strategic markets Scandinavia, Turkey, Netherlands, Australia, N. Ireland Support and strengthen existing production companies Support SPT Latin America/Teleset to execute 5 year plan to build high quality, sustainable library of Spanish language programming for the region Monitor progress of Toro Italy, Floresta (Brazil), SPT Arabia Seek extension of HUASO (China) license and restructure operation Support startup and integration of Electric Ray into SPT Continue internal collaboration to drive business across Sony companies SPT International Distribution: Continue close collaboration to maximize profits from new and library programming SPT Networks: Expand original production opportunities with SPT s network group Sony Music: Continue to work on individual projects and build wider strategic partnership
International Production Financial Summary Revenue EBIT
International Production Detailed Revenue
International Production Detailed EBIT
US Production FY15 Outlook Further strengthen portfolio by creating and selling content in all genres Drama Maximize value of worldwide appetite for quality drama across all outlets with continued emphasis on broadcast and cable and additional focus on new platform opportunities Comedy Maintain and support a strong comedy strategy as part of our overall portfolio business as comedy continues to maintain strong value in the syndicated marketplace First Run Syndication Stabilize and grow the Queen Latifah daytime series for the 14/15 broadcast season and look to expanding the business into new lower cost opportunities Long Form Continue to be the industry leader in MOW and limited series production, expanding our partners to include networks like FX, SyFy, Starz and Cinemax Non Scripted Capitalize on growth opportunities in cable (USA, TBS, AMC, WE) and continue to strengthen our foothold in broadcast Content will continue to be created and sold across all platforms Digital / Online Capitalize on growth opportunities in emerging platforms (Amazon, Netflix, Hulu) Cable Consistently profitable with some of the most critically acclaimed and respected series in the industry Broadcast Global market creates increased demand for content Leverage the strength of our international partners to increase global demand and extend life of series on air in the US Continue to invest in top tier creative talent
US Production Assumptions
Projected Value of Shows in Syndication Attractive returns with upside potential for shows that prove to be a hit Current Examples Show in Syndication / Expected to Syndicate Breaking Bad Dr. Oz Justified Drop Dead Diva Rescue Me Damages Rules of Engagement Community Anticipated Value to SPE(1) $275MM $90MM $53MM $49MM $45MM $33MM $30MM $21MM Projected Examples Before Crack (6 Seasons) Family Murder Mystery (KZK) (6 Seasons) Dr. Oz (8 Seasons) Better Call Saul (5 Seasons) Unforgettable (5 Seasons) New Network series such as: The Goldbergs (5 Seasons) or The Blacklist (6 Seasons) (1) Values are on an ultimate basis; current and projected values are as of January 2014. $140MM $109MM $105MM $100MM $65MM $75MM $145MM
US Production Current Series, Pilots & Development Cost Revenue EBIT
US Production Current Series, Pilots & Development Cost
US Production New Series Investment & Development Represents ONLY development expense and deficit pilots/series and EXCLUDES profitable series
US Production FY14 Q4 New Series Investment & Development Note: Includes allocation of departmental overhead.
US Production FY15 Budget New Series Investment & Development Note: Includes allocation of departmental overhead.
US Production Library and Net Overhead
US Production Product Library Revenue EBIT
Year Over Year EBIT