REQUEST FOR APPROVAL DOCUMENT. Andy Kaplan, President, Worldwide Networks, SPT

Transcription

1 REQUEST FOR APPROVAL DOCUMENT Date: December 7January 2nd, Sponsor Division: Primary Executive Contact: General Description of Activity or Transaction: Business Justification: Sony Pictures Television Andy Kaplan, President, Worldwide Networks, SPT Launch of Animax digital SVOD/VOD/AVOD service ( Animax Digital Service ) and linear branded programming block in the UK for an expected total investment of $0.2M to comprise as follows: - SVOD Animax Digital branded Sservice launching on standalone website, Playstation, ios and Android and then extending to other connected devices. - Animax branded linear programming block on existing Sony UK channel channel TBD. The SVOD Animax Ddigital Sservice will provide SPT digital business with its first premium digital service in the UK that will sit alongside Crackle as an SVOD/VOD/AVOD offer. Anime offerings in the UK are currently very limited with most UK anime fans using the US CrunchyrRoll service. Animax SVOD Digital Service will provide UK anime fans with a premium anime destination through a partnership with Viz Media, one of the leading publishers and distributors of Anime product, for content. Animax Digital Service UK SVOD launch is the first step in SPT Networks strategy to evaluate and develop direct to consumer digital services across EMEA as both standalone channels, ondemand services and extensions of existing linear channels. Animax SVOD Digital Service will enable SPT to test the business opportunity for SVOD services in a single market before evaluating strategy for further territory and brand launches. The ggoal of Animax branded linear programming block on Sony UK Channel is to create a late night cult-audience destination, cross-promote to the SVOD Animax Digital Sservice and deliver potential upside as the existing audience during this part of the scheduledaypart [?] is minimal. Concurrent linear and digital launch provides program buying leverage

2 for both services. Investment requirement is mitigated by leveraging existing SPE infrastructure including the global Animax website platform and ad sales representation from in-house agency Dolphin. Anticipated Closing Date: Channel launch planned for April 2013 Total Investment/ Payment to SPE: Three/Five Year Projections: Investment deepwater mark of $0.2M under SPT s base case including initial platform development for the Animax digital service of $0.1M with an additional $0.1M net investment in operational funding. Content will be licensed on a revenue share basis with Viz Media to mitigate investment risk. There is no incremental investment associated with the linear branded block. See page 1of Exhibit #1 for base case business plan projections. Summary Valuation/ Underlying Assumptions: The site assumes an average of 76K unique users per month in Year 1 (FY14) rising to 142K per month by FY18. All content will be available on an ad-free basis for subscribers as well as on a PPV VOD basis. Nontransaction AVOD users will be monetized through pre- and mid-roll advertising. Each episode of new simulcast seasons will be made available on an AVOD basis for a short window of 2 weeks to encourage new users to try the service before up-selling them to the subscription service. SVOD service assumes 2.5% - 2.8% of unique users are converted to monthly subscribers at a retail price of $10 per month. VODPPV service assumes 5% of unique users are PPVVOD users at a transaction fee of $1.60. Advertising will be sold as part of the existing deal that Crackle has with Dolphin and Videology. Projected deepwater mark of $0.2MM. EBIT and Cashflow positive from FY14, cumulative breakeven achieved in FY17. NPV $0.1MM ($1.0MM including terminal value) and IRR 22% Sensitivity analysis around retention and conversion rates would deliver the following: Lifetime of a subscriber reduces from 6 months to 3 months - DWM increases by $188k Retention rate for new users reduces from 40% to 20% - DWM increases by $25k Subscription conversion rate reduces from 2.5%-2.8% down to 2

3 1.8%-1.5% - DWM increases by $132k If all 3 downside scenarios occur together then total impact on DWM is potentially up to $643k Detailed Description of Material Terms: Content partner, Viz Media, is responsible for acquiring content (including any MGs), localization and formatting. Digital Rights: English language (dubbed or subtitled) 3 year deal starting from 1 April 2013 Viz Media will be the exclusive provider of content to the Animax UK Digital Service with the exception of Sony owned content Territory: UK and Ireland Volume of content Current/Simulcast 200 episodes per year (titles under negotiation include Bleach and Naruto) Library 500 episodes per year All content is streamed (no download) Program rights Transactional (rental) Subscription Free/Advertising supported Fees: 50% net revenue share after deduction of direct costs (incl commissions on advertising and transactions, streaming fees, platform fees etc) All platforms (including online, tablets, mobile, games consoles) via Animax branded channel Linear rights: English language (dubbed) 18 month deal starting from 1 April episodes (option to increase volume) $200 per episode base fee with potential bonus based on commercial impact delivery Territory: UK, Ireland and Malta Unlimited runs List of All Agreements: [#Any agreements required for formation of the business?] No agreements required for the formation of the business but will need to enter into agreements for the operation of the services including: -Program license agreements with Viz Media (no agreement in placeto be finalized) -Payment solution agreement with Invideous (to be finalized) 3

4 -Platform agreements with Playstation, itunes, android market other applicable platforms (no agreements in place) App development agreements (no agreements in place) -User Agreement (not yet created) -PRS license (to be negotiated) -Website Terms of Use and Privacy Policy will need to be modified -Ad Sales Agreements (TV and online) existing agreements in place to be extended operationally to include new service -Website development agreement with Smashing Ideas existing agreements in place to be extended operationally to include new service Business Plan: Description of Any Material Financial Risks: Description of Any Material Legal/ Regulatory Risks: Description of Any Material Tax Implications: Other Material Information: See page 1 of Exhibit #1 for base case business plan projections. No material financial risks / implications with a maximum investment of $200k.TBD TBD TBD [#To discuss umbrella structure adopted for payment solution agmt with Invideous to minimise VAT exposure as part of the future roll-out of SVOD services which will be subject to a separate RAD(s).] None 4

5 _ BUSINESS LINE EXECUTIVE DIVISIONAL PRESIDENT LEGAL GROUP SPE GENERAL COUNSEL CORPORATE FINANCIAL COMPLIANCE SONY TAX CORPORATE DEVELOPMENT (EQUITY INVESTMENTS/DISPOSITION) DIVISION CHIEF FINANCIAL OFFICER SPE CHIEF FINANCIAL OFFICER SPE CHIEF EXECUTIVE OFFICER _N/A SPE BOARD OF DIRECTORS APPROVAL 5

6 EXHIBIT #1 Animax UK Financial Overview YEAR ENDED (US$'000) Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Unique users (year-average) Total Animax UK unique users - 76,000 98, , , ,641 Ad supported users - 66,849 87, , , ,833 Subscription users - 5,351 6,224 7,127 7,549 7,926 Transaction users - 3,800 4,934 6,651 6,879 7,882 Revenue: Ad revenues $0 $168,490 $275,741 $337,274 $388,025 $446,856 Subscription Revenue $0 $512,854 $596,486 $703,545 $767,513 $805,889 Transaction Revenue $0 $180,576 $234,460 $294,134 $346,818 $397,366 Carriage fees $0 $57,600 $57,600 $57,600 $57,600 $57,600 Gross Revenue $0 $919,520 $1,164,287 $1,392,553 $1,559,956 $1,707,710 Ad commission $0 $50,547 $82,722 $101,182 $116,407 $134,057 Payment commission $0 $42,206 $50,457 $60,461 $67,460 $72,795 Platform commission $0 $37,997 $49,056 $56,200 $62,771 $67,780 Net Revenue $0 $788,771 $982,052 $1,174,710 $1,313,317 $1,433,078 YOY Growth 25% 20% 12% 9% Expenses: Streaming fees $0 $89,476 $114,064 $141,733 $165,232 $187,078 Marketing $30,400 $94,900 $110,021 $117,693 $126,498 $135,980 Revenue Share with Content Provider $0 $302,197 $378,983 $457,642 $510,794 $555,009 App development /maintenance $115,000 $38,540 $39,096 $104,096 $39,669 $39,669 Ongoing site/server costs $0 $45,976 $51,519 $56,853 $61,198 $64,124 Overhead $42,400 $174,688 $179,929 $185,326 $190,886 $190,886 G&A $32,480 $42,938 $35,986 $37,065 $38,177 $38,177 Total Expenses $220,280 $788,715 $909,598 $1,100,409 $1,132,454 $1,210,924 EBIT (220,280) 56 72,454 74, , ,153 EBIT as a % of Net Revenue 0% 7% 6% 14% 16% Tax (@23%) $0 $0 $0 $0 $24,700 $51,095 Cash Flow (220,280) 56 72,454 74, , ,058 Cum Cashflow (220,280) (220,224) (147,771) (73,470) 82, ,751 Terminal value ,119,628 Discount rate 15% NPV (cashflows FY13-FY18) $51,040 Terminal Value multiple 9.54 NPV Terminal value $921,169 IRR 22% Total NPV $972,210 DWM $ (220,280)