REQUEST FOR APPROVAL DOCUMENT

Transcription

1 REQUEST FOR APPROVAL DOCUMENT Date: May 7, 2012 Sponsor Division: Primary Executive Contact: General Description of Activity or Transaction: Business Justification: Sony Pictures Television Andy Kaplan, President, SPT Networks Launch of Animax digital SVOD service and linear branded block in the UK for an expected total investment of $0.2M to comprise as follows: - SVOD Animax branded service launching on stand-alone website and then extending to connected devices (e.g. Playstation (within 3 months after launch), phones, tablets etc) - Animax branded programming block on UK Men&Movies channel acquired as part of the Dolphin acquisition in early 2012 SVOD Animax digital service will provide SPT digital business with its first premium digital service in the UK that will sit alongside Crackle as an AVOD offer. Anime offerings in the UK are currently very limited with most UK anime fans using the US CrunchyRoll service. Animax SVOD 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 UK SVOD launch is the first step in SPT Networks strategy to develop a bouquet of standalone digital services across EMEA alongside the digital extensions of its linear channels. Learnings from the Animax SVOD launch will be applied as other digital services are launched throughout EMEA. Goal of Animax branded block on Men&Movies is to create a late night cult-audience destination on the male-skewing channel and deliver potential upside as the existing audience during this daypart is minimal. Concurrent linear and digital launch provides program buying leverage for both services.

2 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 1 July 2012 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 SVOD service assumes an average of 30K unique users per month in Year 1 (FY13) rising to 123K per month by FY17. Plan assumes a $9 monthly retail subscription with a 10% conversion to the subscription service and a $1.50 PPV transaction fee with a 5% conversion to PPV customers. All content will be available for subscribers, a selection of simulcast/current content and library content will be available on a PPV basis. Non-transaction users will be monetized through pre- and mid-roll advertising in nonpremium content. The first episode of each simulcast season and a small selection of library content will be made available on an AVOD basis primarily as a means to encourage new users to try the service before up-selling them to the subscription service. 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 FY15. NPV $0.2MM ($2.2MM including terminal value) and IRR 46% Sensitivity analysis around subscription conversion rates would deliver the following: - Low case (7% SVOD conversion, 7.5% PPV conversion) DWM $0.3MM, NPV $0MM ($1.3MM including Terminal value) and IRR 11% - Upside case (12% SVOD conversion, 7.5% PPV conversion) DWM $0.2MM, NPV $0.6MM ($3.6MM including terminal value) and IRR 105% 2

3 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 July 2012 Territory: UK and Ireland Volume of content Current/Simulcast 100 hours per year (titles under negotiation include Bleach and Naruto) Library 200 hours 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 marketing, commissions on advertising and transactions, streaming) All platforms (including online, tablets, mobile, games consoles) via Animax branded channel Linear rights: English language (dubbed) 18 month deal starting from 1 July episodes (option to increase volume) $200 per episode base fee with potential bonus based on commercial impact delivery Territory: UK and Ireland Unlimited runs Included within Men&Movies programming budget List of All Agreements: Program license agreement with Viz Media Business Plan: Description of Any Material Financial Risks: Description of Any Material Legal/ Regulatory Risks: Description of See page 1of Exhibit #1 for base case business plan projections. No material financial risks. No material legal or regulatory risks associated with this investment. 3

4 Any Material Tax Implications: Other Material Information: There are no material tax exposures that will result from this investment. 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 SPE BOARD OF DIRECTORS APPROVAL (AUTHORIZATION DELEGATED TO HOWARD STRINGER) 5

6 EXHIBIT #1 Animax UK Financial Overview

7 YEAR ENDED (US$'000) Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Unique users (year-average) Total UK Facebook users who are Anime fans 450, , , , ,000 Total Animax UK unique users 30,564 69,331 94, , ,584 Ad supported users 25,215 58,498 79,862 98, ,119 Subscription users 3,056 6,933 9,402 11,599 12,258 Transaction users 2,292 3,900 4,760 5,872 6,206 Revenue: Ad revenues $ 37,481 $ 141,913 $ 193,741 $ 224,159 $ 252,588 Subscription Revenue $ 234,951 $ 639,551 $ 867,338 $ 1,033,619 $ 1,199,649 Transaction Revenue $ 87,371 $ 178,372 $ 217,712 $ 259,451 $ 301,126 Gross Revenue 359, ,837 1,278,791 1,517,229 1,753,363 Ad commission $ 11,244 $ 42,574 $ 58,122 $ 67,248 $ 75,776 Payment commission $ 24,700 $ 57,855 $ 67,380 $ 78,184 $ 90,647 Platform commission $ 24,174 $ 61,344 $ 81,379 $ 96,980 $ 112,558 Net Revenue 299, ,064 1,071,911 1,274,817 1,474,382 YOY Growth 166% 34% 19% 16% Expenses: Streaming fees $ 34,660 $ 94,346 $ 127,948 $ 152,478 $ 176,971 Marketing $ 79,310 $ 73,920 $ 92,400 $ 101,985 $ 117,951 Revenue Share with Content Provider $ 92,857 $ 314,899 $ 425,781 $ 510,177 $ 589,731 Site development $ 115,000 $ 15,000 $ 15,000 $ 75,000 $ 15,000 Ongoing site/server costs $ 15,853 $ 21,833 $ 22,660 $ 23,645 $ 24,819 Overhead $ 181,427 $ 209,337 $ 215,617 $ 222,086 $ 228,748 Total Expenses 519, , ,407 1,085,371 1,153,219 EBIT (219,422) 68, , , ,163 EBIT as a % of Net Revenue -73% 9% 16% 15% 22% Tax (@28%) $ - $ - $ 6,107 $ 53,045 $ 89,926 Cash Flow (219,422) 68, , , ,237 Cum Cashflow (219,422) (150,693) 15, , ,342 Terminal value ,211,630 NPV (cashflows FY13-FY17) $ 219,086 NPV Terminal value $ 1,994,170 Total NPV $ 2,213,256 IRR 46% 2