Prime Time EIS October 1 2013
Contents Overview EIS Why invest in Television Market Opportunity Investment Strategy Investment Team Questions 2
Overview Attractive opportunity to invest in a portfolio of companies (Investee Companies) engaged in the creation and exploitation of global entertainment content for film, television and video game markets Blended investment strategy, supported by the benefits of the Enterprise Investment Scheme (EIS), designed to deliver investors: -significant levels of downside protection -protected returns based on contracted income streams -uncapped equity returns, free of Capital Gains Tax OFFER DETAILS Target Fund Size: 10m 1 Minimum Investment: 10,000 Closing Date: 5 April 2014 Diversification of risk through a discretionary investment management portfolio, with each client receiving a pro-rata interest in the Investee Companies A Manager that has invested in excess of 6 billion in over 500 projects in the sector with unrivalled access to premier media investment opportunities Highly competitive cost structure Investee Companies granted advanced assurance by HMRC 3 1 Maximum 5 million per investee company at Issuer s discretion 2 Or earlier, subject to investments being received, at Manager s discretion
EIS Enterprise Investment Schemes (EIS) have the following tax benefits: 30% Income Tax Relief for investments up to 1 million per annum, reducing net cost to investors to 70p per 1 invested Tax Free Growth no capital gains tax payable on gains realised on investment 1 Share Loss Relief losses to net cost (i.e. below 70p per 1 invested) can be offset against income in year of disposal or previous year, 4 reducing capital at risk to 38.5p per 1 invested 2 Capital Gains Tax Deferral capital gains deferred up to amount subscribed for shares. Applies to gains arising three years prior to, and one year after, issue of qualifying shares 100% relief from inheritance tax for EIS qualifying investments held for more than two years or immediately if investment qualifies as replacement property 1 Applies only if EIS held for minimum relevant period (currently three years) 2 Applies for a 45% tax payer
Why invest in Television A pipeline of EIS-qualifying investments already identified to produce one or more television series with broad commercial appeal to the US domestic and international marketplace. Pre sales secured in advance, which offer significant downside protection when combined with EIS relief 3 year exploitation window ties in with anticipated life of EIS company Television remains a significant growth sector, with the global audience forecast to increase by 40 million to 3.7 billion viewers in the next couple of years: half of the world s population remains untapped providing for continued expansion of the industry. Evolving technology will underpin growth through increased broadband penetration and other technology platforms driving online content consumption; spending in this area forecast to rise at a 21.0% compound annual rate, overtaking the TV subscription market in 2012 5
Why invest in Television The new business model is reducing risk, while also increasing revenue potential: Tax incentives for television productions have increased over the past 2 years reducing costs Cable syndication, home entertainment, online streaming and video-on-demand provide new viable revenue opportunities Full-season upfront commitments have established a buoyant market in international pre-sales of TV-series, as overseas buyers no longer risk picking up incomplete programming. Structural changes in the industry have significantly reduced the timing of recoupment and provide for much higher potential revenues: Home video has now become a viable exploitation window for TV-series after only 1 season and for TV movies within a year of the initial premiere. Diminishing importance of the traditional syndication window has eroded the requirement to wait 4-5 years before 2 nd cycle exploitation. Emergence of new buyers has eroded the exploitation windows imposed by the broadcast networks, thereby opening up new exploitation opportunities. Attractive tax incentives for television productions have been introduced globally and are likely to remain in place given a programme s ongoing production requirements. 6
Investment Strategy The Manager will invest in a diversified portfolio of companies, providing investors with a mix of stable investments and high risk/high return opportunities. Synergies will be maximised across the portfolio through project collaboration, information sharing and asset pooling to strike better commercial terms: PRIME TIME EIS TYPE A TYPE B 50% ALLOCATION 50% Businesses with majority of revenues comprising pre-sales or capped, but priority shares of receipts, generated from exploitation of the created IP BUSINESS FEATURES Businesses where income is volatile and contingent entirely on the ultimate performance of the IP created and owned Limited upside, but targeting a gross margin of between 10% - 40% per project EXPECTED RETURNS Significant upside, targeting a gross margin of between 50% 100% per project 7 After 3 years REALISATION Between 3 to 5 years, exact timing to maximise valuations
Illustration Downside Case Downside Case Assumes all Type B investments fail. 100,000 ( 70,000 net) 70,000 net) Investment Subscription Total ( 50,000) 50% in Type A 50% in Type B ( 50,000) Investee Companies Investee Companies ( 100,000) 15,000 Income Tax Relief 15,000 30,000 53,981 Distributions(¹) 2,046 56,027 0 Share Loss Relief(²) 14,829 14,829 68,981 Total Return to Investor inc Reliefs 31,875 100,856 ¹ Assumes that all Type A investments perform to Low Case estimates. Distributions to investors are estimated net of all costs, fees and performance fees. ²Assumes investor elects to claim relief against income tax at the upper marginal rate of 45% 8 Past performance is not a guide to the future and may not be repeated. The value of an investment in the Fund can go down as well as up and you may not get back the full amount invested. Returns are stated net of all fees and costs.
Illustration Target Case 100,000 ( 70,000 net) Investment Subscription Total 50,000 50% in Type A 50% in Type B 50,000 Investee Companies Investee Companies 100,000 ( 15,000) Income Tax Relief ( 15,000) ( 30,000) 65,827 Distributions(¹) 102,979 168,806 0 Share Loss Relief(²) 0 0 80,827 117,979 Total Return to Investor inc Reliefs 198,806 ¹ Assumes that all Type A investments perform to Low Case estimates. Distributions to investors are estimated net of all costs, fees and performance fees. ²Assumes investor elects to claim relief against income tax at the upper marginal rate of 45% 9 Past performance is not a guide to the future and may not be repeated. The value of an investment in the Fund can go down as well as up and you may not get back the full amount invested. Returns are stated net of all fees and costs.
Minimum Criteria Minimum Criteria for TV-series Projects Will Manage Risk, While at the Same Time Maximizing Revenue Potential Risk Management Financing for the show will be dependent on 75% of the production budget being contractually secured through the aggregate of (i) guaranteed revenues from US Domestic Distribution, (ii) International Pre-Sales, and (iii) Production Tax Incentives. US Domestic Distribution Guaranteed US Domestic Distribution for a full first season of a TV-series or a minimum amount of episodes is the driver of all subsequent revenue opportunities and a threshold criteria for investment. International Pre-Sales International pre-sales to networks in key territories will be a key factor to determine international appeal and potential commercial success. Production Tax Incentives Unless Minimum Guarantees for US Domestic Distribution and International Pre-Sales already exceed the required risk ratio, Production Tax Incentives will be a core component to manage upfront risk. Expert Validation of all Sales US distribution or publishing agreement in place prior to commencement of production activities, together with independent, expert validation of all sales estimates. Experienced Management Teams Experienced management teams, with strong track record of high-profile project origination and delivery. No Hollywood Accounting Revenues will be received by a neutral third party (a Collection Agent ) who will distribute them in accordance with the agreed waterfall set out in the long form agreements. 10
Cost and Fees The Fund offers a success-orientated fee structure, thereby maximising returns and aligning the interests of the Manager with those of the investors: Costs A one-off investment evaluation fee of up to 6.50% of gross subscriptions charged upfront by the Manager to each Investee Company upon subscription for shares by the Fund. An annual advisory fee of 0.50% of gross subscriptions charged by Daedalus Partners LLP to each Investee Company. Performance fee to incentivise the Manager and Daedalus set at an aggregate 25% of distributions (or value) realised by an Investee Company, subject to an investor having first received 105p for every 100p invested in the Fund 11
Investment Team Over 500 media transactions with over US$10 billion invested: INCENTIVE FILMED ENTERTAINMENT Co-arranged or otherwise collaborated with a broad cross-section of media companies and banks: 12
Tim Levy - Director Tim Levy is the founder of Future Capital Partners, which he established in 2000, and a director of the Aramid Entertainment Fund. He has been involved in over 500 media transactions and in the process deployed in excess of US$10 billion of investment capital. He has an unrivalled knowledge of structuring investment and commercial arrangements with a view to delivering effective risk mitigation and attractive returns to investors. Mark Huffam Director Based at Pinewood Studios, Mark is one of the most successful film and television producers working in the UK today. His production track record spans 25 years and includes many award winning projects, including Mamma Mia!, Johnny English, Saving Private Ryan, Captain Corelli s Mandolin, The Hours and Johnny English In 2010, Mark was the producer of HBO s multi-award winning fantasy TV series, Game of Thrones. Ivar Combrinck Director At Screen Capital International LLC, Ivar has spent the past decade sourcing, negotiating and implementing investment transactions in the film and television sector with an aggregate volume of over $7.5 billion. 13
Future Capital Partners Investment Manager Future Capital Partners (FCP) was established by Tim Levy in 1999. FCP has completed in excess of 6 billion of media financing transactions. FCP established and acted as technical adviser to the Aramid Entertainment Fund. The fund, which continues to operate, has invested over $450 million in 62 different positions and, despite operating almost entirely during the financial crisis, has delivered a net IRR of 8% on realised investments and projects, and projects a net IRR of about 5% on its overall portfolio (including estimates for unrealised investments). FCP is the only investment manager in the UK with such an extensive track record in managing global media investments. FCP employs 65 investment professionals in its Mayfair offices. 14
Daedalus Partners Adviser Daedalus Partners LLP ( Daedalus ) is a manager, authorised and regulated by the Financial Services Authority, which specialises in the creation, promotion and management of alternative investment funds across the fields of interactive entertainment, real estate and renewable energy. Daedalus has extensive experience of structuring and implementing film transactions involving well-known and commercially successful intellectual properties such as Thor, The Nanny Diaries, The Bourne Ultimatum and Hugo. In addition, Daedalus manages a specialist Seed Enterprise Investment Scheme qualifying fund, which has successfully raised capital to invest into a portfolio of thirteen companies operating in the wireless, online and console gaming sectors. 15
Appendices 16
Why invest in Television A pipeline of EIS-qualifying investments already identified to produce one or more television series with broad commercial appeal to the US domestic and international marketplace. Pre sales secured in advance, which offer significant downside protection when combined with EIS relief 3 year exploitation window ties in with anticipated life of EIS company No undertaking of development activities, including the production of TV-series pilots, but rather collaborating with highly experienced producers who control rights to projects matching the timing and risk/reward parameters targeted by the Manager. Suitable TV projects will typically have US domestic distribution in place (typically in the form of a basic or premium cable network, a broadcast network or first-run syndication), as well as a minimum level of international territories pre-sold. 17
Industry - Television Television remains a significant growth sector, with the global audience forecast to increase by 40 million to 3.7 billion viewers in the next couple of years: half of the world s population remains untapped providing for continued expansion of the industry. Evolving technology will underpin growth through increased broadband penetration and other technology platforms driving online content consumption; spending in this area forecast to rise at a 21.0% compound annual rate, overtaking the TV subscription market in 2012 Disposable income growth in international markets is supporting global demand, increasing the overall size of the sector and offsetting the slowdown in more mature markets Television advertising share of total Online Video Sales ($ millions) 18 42% 41% 40% 39% 38% 37% 36% 35% 2007 2008 2009 2010 2011 2012 Source: Deloitte $1,000 $800 $600 $400 $200 $- $390 $963 2010 2011 Source: IHS Screen Digest SVOD VOD * EST ** Miramax Library Valuation ($ millions) $600 $850 2010 2011 Disney Sale Refinance Source: Proprietary Information
Business Opportunity Traditional television landscape is undergoing a fundamental change: The big US broadcast networks are no longer the gatekeepers, driving the selection, financing, creation and exploitation of all television content, but cable networks and new business models are now the driving factors for new TV content. Simultaneously, advertising growth for television is dependent on gains in cable and television viewing, which is at an all time high. New demand for content: US TV-households now receive, on average, over 100 different channels and demand for content has increased significantly similarly overseas. International co-productions have emerged as viable business models for the production and delivery of cost-effective programming. The new business model is reducing risk, while also increasing revenue potential: Tax incentives for television productions have increased over the past 2 years reducing costs Cable syndication, home entertainment, online streaming and video-on-demand provide new viable revenue opportunities Full-season upfront commitments have established a buoyant market in international pre-sales of TVseries, as overseas buyers no longer risk picking up incomplete programming. 19
Business Opportunity Foreign Sales a Significant Consideration Full first-season orders make US programmes a much more attractive investment for foreign networks, with European demand for US programming increasing by 24% over the past decade. Prices paid by foreign broadcasters for US shows are at historic highs for top-tier product and continue to demonstrate robust growth. Some US content CSI in France for example - is now more popular abroad than its domestic market. The New Business Model Structural changes in the industry have significantly reduced the timing of recoupment and provide for much higher potential revenues: Home video has become now a viable exploitation window for TV-series after only 1 season and for TV movies within a year of the initial premiere. Diminishing importance of the traditional syndication window has eroded the requirement to wait 4-5 years before 2 nd cycle exploitation. Emergence of new buyers has eroded the exploitation windows imposed by the broadcast networks, thereby opening up new exploitation opportunities. Attractive tax incentives for television productions have been introduced globally and are likely to remain in place given a programme s ongoing production requirements. 20
Type A investments Type A investments of up to 5 million will be made in companies creating, owning and exploiting entertainment IP, where revenues comprise largely domestic and international pre-sales, production tax-credits, fixed production fees or capped, but priority, income entitlements Must be a commitment to a full season or minimum number of episodes in the case of television projects, and minimum guarantees or similar for films and video games Investee companies will target a minimum gross profit margin of 10% from entertainment assets, with potential to rise to ~40% through underlying commercial performance based on forecasts validated by an independent expert All Type A companies must deliver the Base Case illustrated returns before the Manager can commit to proceeding 21
Type B investments Type B investments of up to 5 million will be made into companies pursuing high risk business models that offer the opportunity to generate significant, uncapped equity returns Investee companies must be capable of yielding a gross margin of between 50% and 100% on the entertainment IP created, owned and exploited by licence or sale Experienced management teams, with strong track record of high-profile project origination and delivery US distribution or publishing agreement in place prior to commencement of production activities, together with independent, expert validation of all sales estimates Focused exclusively on established franchises, brands and creative talent to ensure that entertainment projects are consumer-led Targeting entertainment assets that possess global appeal through collaboration with an extensive network of international contacts and other investee companies 22
TV Exploitation Windows Domestic First Run Network First Run Syndication First Run Syndication Barter Digital/SVOD Home Entertainment Originally the domain of US broadcast networks (ABC, CBS, NBC and Fox), nowadays basic and pay cable networks (HBO, Showtime, Starz, AMC, USA, TNT, etc.) have become big buyers of original scripted TVshows. Each of the 210 local TV markets in the US has individual TV stations which show their affiliated network s programming during prime time (ABC, NBC, CBS or Fox), but they have to license/create their own programming during all other times. In order to fill their programming schedules, they prefer licensing multiple seasons of a show to fill certain timeslots in their schedule. Most syndication deals see the content owner license the show for a fixed license fee, plus a certain amount of air-time during which the content owner (or designated agents) can sell advertising. A new window in the TV exploitation chain, Amazon, Netflix, Hulu, etc. are paying significant license fees to add TV-series content to their library offerings, though any digital/svod licensing of a show will likely diminish its subsequent syndication value (if any). Although home entertainment has been declining, higher prices for TVseries season sets and consumer demand for premium show home entertainment product has somewhat mitigated the decline. Early indicators for 2012 also point to a slower subtraction as previously estimated, partially due to strong blue-ray demand. 1 st Year 1 st Year 1 st Year 1 st Year (or later) After 1 year 23
TV Exploitation Windows Domestic (continued) Basic Cable Syndication Basic Cable Barter 1st Cycle Syndication A new syndication window, when basic cable networks license multiple seasons of a show to fill certain timeslots in their schedule (e.g. every Monday-Friday or Saturday/Sunday at a given time for multiple months or years). Most syndication deals see the content owner license the show for a fixed license fee, plus a certain amount of air-time during which the content owner (or designated agents) can sell advertising. Similar to First Run Syndication, though these deals usually involve multiple seasons of a show, thus generating a lot more cash. After 1-3 years After 1-3 years After 3-5 years 1st Cycle Syndication Barter Similar to First Run Syndication Barter After 3-5 years Subsequent Cycles/Syndication After the end of the original syndication deal, which is often tied to the original end of the show, additional syndication deals (broadcast or basic cable syndication) might be struck. As an example, Seinfeld was sold into syndication 5 subsequent times after the end of its initial broadcast syndication deal ended and made 3.5x the amount of revenue of the first syndication deal. TBD 24
TV Exploitation Windows International Free Television Pay Television Home Entertainment Digital/SVOD Subsequent Cycles/Syndication 25 Foreign sales, also often called foreign syndication, for US television shows were historically difficult, due to the lack of control that foreign buyers had on the longevity of a show. Full season orders and increased chances that US shows will continue for more seasons have increased foreign appetite for domestic shows. Despite macro-economic uncertainty television consumption remains one of the better and cheaper entertainment alternatives. As such, growth can be expected to accelerate as emerging markets become more affluent and sophisticated, increasing the purchasing power of their TV networks. Behind foreign Free Television sales in volume, due to lower penetration and weaker purchasing power from foreign Pay TV networks, international Pay Television sales are an important part of foreign sales. With Blu-Ray predicted to reverse the home entertainment decline of recent years due to slowing DVD sales and increased purchasing power in emerging countries, prospects for international home entertainment exploitation remain good. Due to the battle for digital/svod distribution in the US heating up, competitors are setting their sights on the international market and can be expected to pay high license fees for exclusive digital/streaming rights. Dependent on a multi-season success, television licensing, home entertainment sales and digital/svod licensing can be expected to continue and/or grow as the worldwide demand for high quality USproduced content achieves new hights. 1 st Year 1 st Year After 1 st season 1 st Year (or later) TBD
Additional Information Applications After reading the Information Memorandum, please complete the Application Form and submit, together with the relevant anti-money laundering documents, to Future Capital Partners, 10 Old Burlington Street, London W1S 3AG by no later than 5:30pm on 5 April 2014 Investors will be contacted to confirm acceptance of the application and receipt of funds Post closing of the offer (typically within 6 weeks), the Manager will contact the investor again to confirm their share allocations 26
Additional Information EIS Income Tax and Capital Gains Tax Relief The Manager will obtain an EIS 3 certificate from HMRC after each investee company has been trading for four months An investor may then claim relief by either: - Making a claim in his/her tax return following receipt of the EIS 3 certificate - Submitting the EIS 3 to HMRC with a request for relief to be allocated to his/her PAYE coding 27
Risks The Fund will invest in high-risk, small businesses and consequently, an investment may not be suitable for all types of investor. The value of an investment in the Fund can go down as well as up, investors will have capital risk and an investor could lose part or all of the capital subscribed. EIS are not suitable for promotion to the general public but may be promoted to high net worth and sophisticated investors. EIS are illiquid and an investment should be made for the medium term. This information does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any investments. Nothing in this document or the Information Memorandum constitutes investment, tax, legal or other advice. Any references to tax benefits in this document are subject to change. The Manager strongly recommends that all potential investors seek independent financial and tax advice from a suitably qualified professional adviser before undertaking investment in the Fund. The projected levels of returns, the availability and timing of any tax reliefs and recovery of an investor s capital will be contingent on a wide range of volatile assumptions and risks including: - Amendments to tax legislation, applicable rates, the interpretation thereof by HMRC and an individual s personal circumstances - Changing trends or factors affecting the media and entertainment industry which impact on the ability of an Investee Company to procure resources efficiently and on a timely basis or generate the targeted revenues - The ability of the Manager to identify and secure suitable EIS qualifying investment opportunities Full details of potential risk factors can be located in the Risk Factors section of the Information Memorandum. 28
Important Information This presentation relates to the Prime Time EIS Fund (the Fund ) and is issued and approved by Future Capital Partners (FS) Limited ( Manager ), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. This presentation is subject to the provisions of the information memorandum ( Information Memorandum ) for the Fund published by the Manager, as amended and/or supplemented from time to time. The terms of the Information Memorandum shall prevail in the event of a conflict between the terms of this presentation and the Information Memorandum. Any decision in connection with an investment in the Fund should therefore be made only on the basis of information contained in the Information Memorandum issued in connection with the offer and not on this document. Nothing in this presentation is intended to constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for the Fund. If you are in any doubt about the content of the Information Memorandum, and/or this document and/or any action you should take, you are strongly recommended to seek advice immediately from an independent financial adviser authorised under the Financial Services and Markets Act 2000 (FMSA) who specialises in advising on opportunities of this nature. Potential investors should seek their own professional advice on the taxation consequences of investing in the Fund. Nothing in this document or the Information Memorandum constitutes investment, tax, legal or other advice by the Manager. An investment in the Fund will not be suitable for all recipients of this document or the Information Memorandum and your attention is drawn to the section headed Risk Factors in the Information Memorandum. All statements of opinion or belief contained in this document or Information Memorandum and all views expressed, statements made and all projections and forecasts regarding future events or the anticipated future performance of the Fund represent the Manager s own assessment and interpretation of information available to them as at the date of the Information Memorandum. No representation is made, or assurance given, that such views, statements, projections, forecasts or anticipated future performance are correct, attainable or complete or that the objectives of the Fund will be achieved. The views, statements, projections, forecasts and anticipated future performance are based upon various assumptions and estimates which involve significant judgment and analysis and which are subject to uncertainties and contingencies; actual results could differ materially from those set forth in such projections, views, statements, forecasts and anticipated future performance. Prospective investors must determine for themselves what reliance, if any, they should place on such statements, views or forecasts and no responsibility is accepted by the Manager in respect thereof. 29
CONTACT US 10 Old Burlington St, London W1S 3AG T: +44 (0) 20 7009 6600 F: +44 (0) 20 7009 6601 30