TV1-SF-SET Australia Opportunity Overview

Transcription

1 TV1-SF-SET Australia Opportunity Overview May 2013 [PRELIMINARY DRAFT]

2 Executive Summary Sony Pictures Television ( SPT ) is seeking approval to take over the assets and liabilities of the TV1 and Sci-Fi (SF) partnership and utilize the TV1/SF infrastructure and management team to launch a 3rd Sony branded Sony Entertainment Channel ( SET ) in Australia on the Foxtel platform SPT, CBS Studios, and Comcast/NBC Universal are currently equal partners in Australian Pay-TV channels TV1 and Sci-Fi (SF) on the Foxtel platform Recent affiliate renewal negotiations has Foxtel significantly reducing subscriber fees for both TV1 and SF which have historically contributed ~50% to total revenue The fee reductions have forced the board/management to consider (1) dissolving the partnership or (2) reducing programming and operating costs to off-set the expected decline in subscription revenue SPT is proposing a 3rd option which would have SPT take on the assets and liabilities of the TV1 and SF partnership (subject to legal structuring and tax issues), streamline their operations and utilize their infrastructure/team to launch a 3rd channel branded SET SPT s proposed SET channel would consist of TV and film product from various genres, leveraging Sony s extensive content library New SET channel to be created in parallel to running TV1 and SF and assumes a Jan 1, 2014 launch date The current consolidated business plan has projected NPV of $32.8M (NPV of $3.2M for cash flows w/o exit) and a DWM of ($2.0M). NPV of $37.6M (NPV of $8.0M for cash flows w/o exit) and (1) Incremental license fees assumes 75% of SET channel content will be SPE library content. Includes 15% for residuals and 40% in taxes. 2

3 Situation Overview SPT is in a strong position to successfully take control of TV1 and SF while launching a Sony branded general entertainment channel in Australia SPT is in discussions with CBS and NBCU to take over the partnership and to secure longterm output deals for TV1, SF and the new SET channel The TV1/SF partnership will be dissolved with CBS and NBCU selling their stakes to SPT for $1/each This allows viable product licensees to remain in the market, and creates a new one with SET Further, it prevents a shutdown of the TV1/SF business and possibly Ignite Media Brands (TV1/SF has an ownership stake in Ignite who is their 3rd party ad sales representative), and avoids significant write downs for the partners (NOTE: SPT is expecting an impairment of $5.1M) SPT is negotiating with Foxtel to secure a long-term carriage agreement for the new SET channel Foxtel has agreed to carry the newly formed channel on the basic tier, however, additional terms in the agreement still need to be discussed (i.e., content commitment, etc.) SPT s proposed channel will be fully ad-supported with no subscriber fees and be positioned as the home of addictive primetime dramas and long running daytime soaps from the U.S. and Australia TV1/SF management has provided improved ad sales projections and cost reductions to the TV1/SF long-term business plan which have significantly off-set the reduction in subscriptions revenues from Foxtel Revised revenue forecasts to capture an uptick in Pay TV ad sales; TV1/SF ad sales 3

4 Strategic Benefit to SPE SPT has an opportunity to expand our international network footprint and gain immediate operational control of TV1 and SF with limited capital investment SPT to take ownership and operational control of TV1 and SF Deal structured for SPE to consolidate earnings for TV1 and SF Capitalize on restructured operations leading to significant cost savings and synergies SPT to launch a wholly owned channel, creating long-term asset value, while leveraging TV1 and Sci-Fi s pre-existing infrastructure Sony branded channel to be positioned as the home of addictive primetime dramas and long running daytime soaps from the U.S. and Australia Enhance brand value for SPE by introducing a Sony branded channel into the Australia market SPT to capture a revitalizing ad market in Australia through 3 distinct channel brands Recently improved consumer confidence is driving higher growth in the overall ad market Pay TV advertising revenue is expected to continue to outgrow FTA with a forecast of $801M in 2015 (CAGR of 7.9% from 2012) Newly launched SET channel to generate ~$3 4M/year in incremental ad sales revenue Generates incremental licensing revenue for SPE library product of approximately $2.4M/year or $12.0M cumulative over 5 years (1) Channel will draw heavily on SPE titles including library films and unique TV product that has yet to be seen in Australia All titles will be non-exclusive and licensed at market-rate terms (1) Incremental license fees assumes 75% of SET channel content will be SPE library content. Revenue is not net of residuals or taxes. 4

5 TV1-SF-SET (Consolidated) Financial Overview Sony Fiscal Year ending, March REVENUE Subscriber Revenue $13,841,150 $6,634,785 $6,773,103 $6,901,805 $7,033,093 Advertising Revenue $16,773,848 $26,245,866 $28,414,409 $29,916,380 $31,412,199 Advertising Costs ($5,986,850) ($7,558,652) ($7,254,278) ($7,310,611) ($7,492,262) Net Ad Rev $10,786,998 $18,687,213 $21,160,131 $22,605,769 $23,919,937 TOTAL REVENUE $24,628,148 $25,321,998 $27,933,234 $29,507,574 $30,953,030 COSTS Content ($15,239,841) ($19,299,747) ($15,570,377) ($13,950,222) ($13,981,449) Local Content ($1,042,717) ($1,892,674) ($1,557,038) ($1,395,022) ($1,398,145) Opex ($7,437,730) ($8,707,331) ($8,734,250) ($8,948,975) ($9,170,142) Playout ($225,000) ($900,000) ($900,000) ($900,000) ($900,000) TOTAL COSTS ($23,945,288) ($30,799,752) ($26,761,664) ($25,194,219) ($25,449,735) Depreciation ($256,000) ($334,001) ($334,001) ($334,001) ($334,001) EBIT $426,860 ($5,811,754) $837,568 $3,979,354 $5,169,294 Cumulative EBIT $426,860 ($5,384,894) ($4,547,326) ($567,972) $4,601,322 Less: PPA (1) $0 $0 $0 $0 $0 EBIT AFTER PPA $426,860 ($5,811,754) $837,568 $3,979,354 $5,169,294 CASH FLOW SPT EBIT (After PPA) $426,860 ($5,811,754) $837,568 $3,979,354 $5,169,294 Add: Changes in Net Working Capital $1,021,583 ($86,097) ($841,511) ($431,820) ($254,301) Add: Depreciation $256,000 $334,001 $334,001 $334,001 $334,001 Add:PPA $0 $0 $0 $0 $0 Adjustment for Content Amortization $1,577,718 $586,341 $0 $0 $0 Adjustment for Australian Content $899,717 ($367,326) $0 $0 $0 Less: CAPEX ($380,000) ($334,001) ($334,001) ($334,001) ($334,001) Less: Taxes ($128,058) $0 $0 $0 ($1,380,397) Total Cash Flow $3,673,820 ($5,678,836) ($3,943) $3,547,534 $3,534,597 Exit Value (2) $45,949,755 Total Net Cash Flow $3,673,820 ($5,678,836) ($3,943) $3,547,534 $49,484,351 Cumulative Cash Flow $3,673,820 ($2,005,016) ($2,008,959) $1,538,575 $51,022,926 Add: Sony Incremental License Fees (3) $352,012 $1,553,734 $1,414,874 $1,368,872 $1,409,938 SPE View $4,025,832 ($4,125,102) $1,410,932 $4,916,406 $50,894,289 Cumulative Cash Flow $4,025,832 ($99,270) $1,311,661 $6,228,067 $57,122,356 Channel SPE View Total Investment/ DWM ($2,008,959) ($99,270) NPV of Cash Flows $3,214,481 $7,999,984 NPV of Exit $29,618,520 $29,618,520 Combined NPV (2) $32,833,002 $37,618,504 (1) PPA currently assumed to be zero based on the premise that the average market participant would shut this business down - Sony is willing to carry on for strategic/synergy reasons. 5 (2) Assumes 12% discount rate and 4% perpetuity growth rate. Exit value based on perpetuity growth calculation with assumed EBITDA multiple of 8.3x.

6 Additional Financial Considerations SPT has taken a look at financial outcomes based on possible downside assumptions Deep Water Mark (DWM) / NPV Based on Channel View (1) Projected Ad Sales Growth 5.0% 3.0% 0.0% Current Rate ($2.0M) / $32.8M ($2.9M) / $26.9M ($4.2M) / $4.1M Progr ammi ng Rate s (2) +10% ($2.9M) / $28.5M ($3.7M) / $13.9M ($6.3M) / ($5.0M) +20% ($3.7M) / $16.5M ($4.8M) / ($0.5M) ($9.8M) / ($7.5M) +30% ($4.9M) / $2.2M ($8.0M) / ($6.2M) ($13.4M) / ($10.1M) +40% ($7.8M) / ($6.1M) ($11.6M) / ($8.8M) ($17.0M) / ($12.6M) Current Case NOTE: Boxed portion includes positive NPV results. (1) Based on Channel View. Does not include incremental SET license fees back to SPE. Does not account for exit value if EBIT is not positive. (2) Assumes all programming rates for all channels increase at the same rate. 6

7 Risks and Opportunities Risks Cannot agree on carriage terms for new Sony branded channel with Foxtel Cannot renew output deals with NBCU and CBS under agreeable terms New competition driving up prices for content rights Not achieving estimated subscriber fees/carriage from operators in later years Lower than expected ratings curb expected ad revenue growth Competition from other channels entering marketplace Risk Mitigators Do not proceed with a channel launch at the moment, but instead delay a channel launch into the future (via a possible channel put) A 3rd channel can help off-set any financial impacts to a renewed licensing agreement Stress notion that dissolving the TV1/SF partnership would lead to a dearth of buyers in the market Long term output deals with key suppliers Establish long term distribution deals Popularity of content and brands in the marketplace Ignite to continue providing ad sales going forward Proven programming expertise in int l markets Broad supplier relationships will enable SPT to secure exclusive rights to key titles New digital platforms emerging TV1 and new Sony SET channel to be nonexclusive Overestimated cost reductions for TV1/SF/SET Management expected to manage overhead inline with plans or risk channel dissolution 7

8 Next Steps Finalize programming needs for the three channels TV1, SF and SET Deliver initial content licensing term sheets to NBCU and CBS Review and provide counter to the SET channel carriage agreement provided by Foxtel Discuss terms with NBC and CBS to purchase their stakes in the TV1/SF partnership Negotiate and finalize all necessary licensing, content and purchase agreements Deal approvals and RAD sign-off Begin pre-launch procedures/expenditures for new SET channel in parallel to running TV1 and SF 2013 New channel launches Jan 1,

9 APPENDIX 9

10 TV1-SF-SET Summary Financials and Fiscal Year Ending March 31, Assumptions TV Total Avg Annual Assumptions Subscriber Revenue 9,485, , , , ,702 12,178,391 2,435,678 0c Transfer Price TV1 Advertising Revenue 13,633,317 19,321,452 20,287,524 21,301,901 22,366,996 96,911,189 19,382,238 5% YOY Growth Advertising Costs 5,132,207 6,076,488 5,674,590 5,688,528 5,820,787 28,392,600 5,678, m ignite, 10% agency, 811k other ad costs 3%, ( FIC $500k savings F15) Net Ad Rev 8,501,110 13,244,963 14,612,934 15,613,373 16,546,208 68,518,589 13,703,718 Total Revenue 17,986,287 13,900,750 15,278,607 16,292,426 17,238,910 80,696,980 16,139,396 Content 8,966,595 9,070,950 7,187,965 5,976,000 5,768,000 36,969,510 7,393, Hours from 7500 Local Content 950, , , , ,800 3,750, ,196 10% of content Opex 5,760,112 4,248,000 3,578,750 3,686,113 3,796,696 21,069,670 4,213,934 3% on F 15 base Playout 75, , , , ,000 1,275, , k EBITD 2,233,892 (625,295) 3,493,096 5,732,713 6,797,414 17,631,820 3,526,364 Fiscal Year Ending March 31, SF Total Avg Annual Assumptions Subscriber Revenue 4,355,973 5,978,998 6,107,430 6,222,752 6,340,392 29,005,545 5,801,109 30c Transfer Price SF Advertising Revenue 2,890,531 4,049,414 4,251,885 4,464,479 4,687,703 20,344,012 4,068,802 5% YOY Growth Advertising Costs 754, , , , ,724 4,605, , k ignite, 10% agency, 198k other ad costs 3% Net Ad Rev 2,135,888 3,083,500 3,309,696 3,507,396 3,701,979 15,738,459 3,147,692 Total Revenue 6,491,861 9,062,498 9,417,126 9,730,148 10,042,370 44,744,004 8,948, Content 5,352,954 6,166,748 4,683,394 4,395,472 4,527,336 25,125,904 5,025, Hours from 5500 Local Content - 616, , , ,734 1,977, ,459 10% of content Opex 1,226,964 2,959,949 3,578,750 3,686,113 3,796,696 15,248,471 3,049,694 3% on F 15 base Playout 75, , , , ,000 1,275, , k - - EBITD (163,057) (980,874) 386, , ,605 1,117, ,467 Fiscal Year Ending March 31, SET Total Avg Annual Assumptions Subscriber Revenue - - 0c Transfer Price Advertising Revenue 250,000 2,875,000 3,875,000 4,150,000 4,357,500 15,507,500 3,101,500 builds, then 5% from 2017 Advertising Costs 100, , , , ,750 2,604, ,900 agency 10%, plus 250k other ad costs 3% Net Ad Rev 150,000 2,358,750 3,237,500 3,485,000 3,671,750 12,903,000 2,580,600 Total Revenue 150,000 2,358,750 3,237,500 3,485,000 3,671,750 12,903,000 2,580,600 - Content 920,292 4,062,049 3,699,018 3,578,750 3,686,113 15,946,222 3,189,244 builds, then average 7000 Local Content 92, , , , ,611 1,557, ,464 10% on content Opex 450,654 1,499,382 1,576,750 1,576,750 1,576,750 6,680,286 1,336,057 Breakdown per detailed budget, flat opex from 2015 Playout 75, , , , ,000 1,275, , k - EBITD (1,387,975) (3,871,585) (2,708,170) (2,328,375) (2,259,724) (12,555,829) (2,511,166) 10

11 Australian Advertising Market Overview Australian TV advertising growth has been flat over the last few years going from $3.7B in 2010 to $3.6B in 2012 due to low consumer and business confidence During this same period, pay TV advertising has increased from $555M in 2010 to $638M in 2012 (CAGR of 7.2%) driven by sports, lifestyle and the launch of new channels (FX and A+E) $555 $577 $ % CAGR $684 $750 $801 TV advertising is forecast to grow to $4.0B in 2015 (CAGR of 3.6%) Recently improved consumer confidence is driving higher growth in the overall market Pay TV advertising revenue is expected to continue to outgrow FTA with a forecast of $801M in 2015 (CAGR of 7.9%) $3,105 $3,018 $2,988 $3,042 $3,148 $3,236 Growth in the Pay TV ad market is expected to outpace Free-to-Air (FTA) with 28% of surveyed media executives expecting Pay TV (STV) to perform better than expected in 2013 compared to 2012 vs. 11% for FTA (1) (1) Source: Starcom Media Futures 2013 Forecast. $ Pay TV FTA 11

12 Sample SET Programming Grid TIME Sunday MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY TIME 6am Movie Mad About You Movie 6am 630am Feature Just Shoot Me Feature 630am 7am Game Shows 7am 730am Drop Dead Diva The Good Wife, The Client List, Unforgettable, Necessary 730am 8am Mad About You Fairly Legal PAN AM Covert Affairs Roughness Mad About You 8am 830am The Young & The Days of Our Lives Days of Our 830am 9am Restless (8:40am) Lives 9am 930am (Weekly Catch-up) The Young And the Restless (Weekly Catch-up) 930am 10am (9:20am) 10am 1030am Talk Shows (e.g. Dr Oz, Kathy, Queen Latifah) 1030am 11am Mad About You and Just Shoot Me (10:50am) 11am 1130am Monk/Drop Dead Diva/Covert Affairs/Royal Pains/Necessary Roughness/ 1130am NOON The Client List/Nashville/PAN AM/The Good Wife/Fairly Legal/Unforgettable NOON 1230pm Necessary The Good Wife, The Client List, Unforgettable, Necessary 1230pm 1pm MOW Roughness Fairly Legal PAN AM Covert Affairs Roughness MOW 1pm 130pm Days of Our Lives 130pm 2pm 2pm 230pm Mad About You The Young And the Restless Mad About You 230pm 3pm Just Shoot Me Just Shoot Me 3pm 330pm Games Show Monk/Drop Dead Diva/Covert Affairs/Royal Pains/Necessary Roughness/ Games Show 330pm 4pm The Client List/Nashville/PAN AM/The Good Wife/Fairly Legal/Unforgettable 4pm 430pm Talk Show (e.g. Dr Oz/ Talk Shows (e.g. Dr Oz/ Kathy/Queen Latifah) Talk Show (e.g. Dr Oz/ 430pm 5pm Kathy/Queen Latifah) Kathy/Queen Latifah) 5pm 530pm Drop Dead Diva Game Shows Nashville, 530pm 6pm The Big C, Royal Pains 6pm 630pm Unforgettable, Mad About You The Client List/ 630pm 7pm Covert Affairs Just Shoot Me PAN AM 7pm 730pm Necessary Monk/Drop Dead Diva/Covert Affairs/Royal Pains/Necessary Roughness/ The Good Wife, 730pm 8pm Roughness The Client List/Nashville/PAN AM/The Good Wife/Fairly Legal/Unforgettable Fairly Legal 8pm 830pm Movie The Good Wife, The Client List, Unforgettable, Necessary Nashville, Movie 830pm 9pm Feature Fairly Legal PAN AM Covert Affairs Roughness The Big C, Royal Pains Feature 9pm 930pm Days of Our Lives 930pm 10pm (9.30pm) 10pm 1030pm The Young And the Restless 1030pm 11pm MOW (10.20pm) MOW 11pm 1130pm Talk Shows (e.g. Dr Oz, Kathy, Queen Latifah) (11.10pm) 1130pm MIDNIGHT Mad About You MIDNIGHT 1230am Unforgettable, Game Shows The Client List/ 1230am 1am Covert Affairs (12:25am) PAN AM 1am 130am The Young & The The Good Wife, The Client List, Unforgettable, Necessary Nashville, Days of Our 130am 2am Restless Fairly Legal PAN AM Covert Affairs Roughness The Big C, Royal Pains Lives 2am 230am (Weekly Catch-up) Monk/Drop Dead Diva/Covert Affairs/Royal Pains/Necessary Roughness/ (Weekly Catch-up) 230am 3am The Client List/Nashville/PAN AM/The Good Wife/Fairly Legal/Unforgettable (1.50am) 3am 330am Days of Our Lives 330am 4am (2:50am) 4am 430am The Young And the Restless (3:40am) 430am 5am Game Shows (4:30am) 5am 530am Just Shoot Me Talk Shows (e.g. Dr Oz, Kathy, Queen Latifah) (5:20am) Just Shoot Me 530am 12