CONFIDENTIAL Refining SPE’s Business Detailed Analysis January 2006.
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Transcript of CONFIDENTIAL Refining SPE’s Business Detailed Analysis January 2006.
CONFIDENTIAL
Refining SPE’s Business
Detailed Analysis
January 2006
page 2
Overview: Opportunities to Refine SPE’s Business
• SPE is seeking to drive increased growth and profitability
– SPE aspires to achieve a 10% EBIT margin by FY09; however, FY06 EBIT is projected to be below 5% and FY07-09 EBIT margins are projected to be 5% to 7%
– The majority of SPE’s revenues are derived from its core Columbia Pictures business, which has considerable volatility and limited margins and growth potential
• To achieve this goal, SPE should evaluate 3 high-level strategic options
1. Optimize current assets: Maintain current portfolio of businesses, continuing to pursue incremental investments and periodically adjust capital allocation
2. Narrow focus: Define core competencies and divest non-core businesses
3. Diversify: Invest in strategic businesses where SPE has no or limited presence
page 3
Economic Overview—SPE Film Businesses
Line of business
Columbia1
Screen Gems
Revolution(production deal)
Classics
Local language
Acquisition/DTV (SPHE)4
FY03
1 Includes Oliver Twist (Tristar)2 Based on Slate Ultimates (which exclude marketing and distribution overhead); Acquisition/DTV based on P&L3 Includes Production, Development and Acquisition Spending, Capital Expenditures and Strategic Investments4 Based on P&L; Volume rebates, G&A expenses, and Other income removed to more accurately reflect Acquisition/DTV business
$3,053
12.3%
FY04
$2,690
6.9%
FY05
$2,225
19.1%
FY06E
$1,662
-22.0%
Average margin
6.4%
$30
-8.7%
$319
21.4%
$421
23.8%
$546
23.6%22.4%
$550
26.1%
$560
28.0%
$564
29.5%
$703
24.8%27.0%
$1,025
3.3%
$975
-10.0%
$1,036
0.4%
$413
-16.6%-3.7%
$80
10.6%
$80
22.3%
$155
14.7%
$87
11.5%14.7%
$37
-21.3%
$19
-2.4%
$138
16.2%
$23
5.0%7.0%
FY06 Budget capital investment3
$88
$150
$81
$27
$25
$816
Total Film $4,775
11.5%
$4,643
7.1%
$4,540
16.3%
$3,434
-3.5%8.6% $1,187
Ultimate Revenue ($M) / Margin (%)
FY06 gross profit2
$129
$174
-$68
$10
$1
-$365
-$120
P&L Revenue ($M) / Margin (%)
page 4
Economic Overview—SPE Television/Network Businesses
Businesses
TV production (Broadcast Network, Cable Network, Library)
3rd party distribution2 (Seinfeld, Just Shoot Me, etc.)
Made-for-syndication TV content (Wheel, Jeopardy!, Judge Hatchett)
Local language TV production
FY03
$451
7.6%
FY04 FY05 FY06EAverage margin
14.9%4$635
18.8%
$561
19.3%
$582
12.0%
$63
23.6%
$67
21.4%
$105
15.9%
$131
14.0%
17.5%6
1 Includes Production, Development and Acquisition Spending, Capital Expenditures and Strategic Investments2 From FY04-06E Seinfeld booked under net accounting (100% margin); all other shows booked using gross accounting (~15% distribution fee)3 Excludes SPTI networks in investing stage 4 Includes production-related overhead only (~50% of total SPT overhead)5 Total international networks capital investment 6 Excludes $8.8 million of Corporate OH per year
$306
$101
FY06E capital investment1
$108
93.3%
$250
70.6%
$125
66.2%
$99
70.2%
$334
30.8%
$380
55.6%
$236
38.7%
$227
46.9%
73.8%4
43.5%4
Total TV/Network $698$1,407
23.5%
$1,740
34.6%
$1,537
26.0%
$1,621
22.5%
26.9%
Revenue ($M) / Margin (%)
Daytime TV production
$224
27.1%
$221
25.7%
$238
21.8%
$246
19.8%
23.5%4
FY06E operating income
$107
$5
$100
$70
$18
$49
$69
$107
$365
Int’l networks - Growth stage3
$11
8.8%
$13
-15.9%
$39
0.9%
$64
10.3%
4.6%$795
$7
Int’l networks – Established3
$216
7.6%
$175
14.7%
$233
20.6%
$272
16.8%
15.2% $46
page 5
Economic Overview—SPE Digital Businesses
Line of business
Mobile entertainment1
Video games (SOE)3
Imageworks
1 “SPD contribution margin” before pass-through to film, TV businesses; capital investment is Digital Sales/Marketing development expenses2 Includes Production, Development, and Acquisition Spending, Capital Expenditures and Strategic Investments3 Margin excludes SCEA royalty
Revenue ($M) / Margin (%)
FY03
$1
-177.4%
FY04
$5
47.0%
FY05
$9
21.0%
FY06E
$7
2.0%
Averagemargin
13.8%
$86
-6.0%
$136
10.4%
$150
11.7%
$154
9.3%
7.8%
$82
-11.6%
$143
9.1%
$119
-6.2%
$214
7.0%
2.0%
Animation n/a n/a n/a n/a n/a
$6
$48
$19
$94
FY06E capital investment2
Total Digital $169
-9.6%
$284
10.4%
$278
4.3%
$375
7.9%
5.0% $167
FY06E operating income
$0
$14
$15
n/a
$29
page 6
SPE 2003-2006E P&L
1 Based on October 2005 forecast
SPE P&L ($000s) FY2003 FY2004 FY2005 FY2006E1FY05-06
Growth %
SPE Total
Revenue 6,616,440 6,781,641 6,851,682 6,859,471 0.1%
Costs (5,774,875) (6,119,008) (5,949,270) (6,300,194) 5.9%
Operating Income b/f Corp OH 841,565 662,633 902,412 559,277 -38.0%
Operating Margin % 12.7% 9.8% 13.2% 8.2%
Corporate Shared Services (150,713) (158,244) (164,491) (185,500) 12.8%
Compensation Plans and other (200,745) (161,619) (135,769) (73,500) -45.9%
Subtotal Corporate OH (351,458) (319,863) (300,260) (259,000) -13.7%
Operating Income after Corp OH 490,107 342,770 602,152 300,277 -50.1%
Operating Margin % 7.4% 5.1% 8.8% 4.4%
page 7
Strategic Options for SPE
Options Description
Narrow focus
Optimize current assets
Diversify
• Maintain current portfolio of businesses
• Continue to pursue incremental growth opportunities
• Periodically optimize capital allocation among businesses
1
2
3
Advantages
• Lowest risk strategy• No acquisitions/divestures
required• Limited change required
Disadvantages
• Assumes that SPE’s current mix of businesses is optimal
• Define SPE’s core businesses/competencies
• Divest non-core businesses and invest proceeds in core
• Enables SPE to realize value from peripheral businesses for investment in core businesses
• Increased focus of management attention, resources and capital
• Increased financial volatility• Potential to adversely
impact growth and/or margins
• Execute substantial acquisitions in strategic area(s) that strengthen SPE and Sony
• Potential to improve margins and growth
• Potential to help to smooth revenue/earnings
• Significant capital required
page 8
Optimize Current Assets – Potential Actions
• Continue to incrementally increase investment in areas with attractive growth prospects and relatively high margins
– International networks– Screen Gems– TV production– Animation– Acquisition/DTV films– Mobile gaming
• Evaluate potential to improve SPE growth and margins through reallocation of capital between businesses
page 9
Narrow Focus – Potential Actions
• Define areas of SPE competitive advantage– Motion picture production/distribution– Television production/distribution– International networks
• Divest areas outside of SPE core focus– GSN stake– Digital businesses (SOE, Imageworks, SPA)– Game show and daytime soap annuities
• Use capital realized from divestures to strengthen core business
page 10
Diversify – Potential Actions
• Invest $2 to $4 billion to build a substantial presence in aggregation, distribution and services businesses that complement the core business
– Potential targets may include• Starz/Encore ($900M - $1.2B)• Netflix ($1.2B1)• Tivo ($350M1)• BitTorrent (~$100M based on rumored funding round valuation)
• Consider divesting non-core assets to help fund new investments– SPE stake in GSN ($300-$400M)– Digital businesses
• SOE ($500M)• SPA/Imageworks ($500M)
– Game show and daytime soap annuities ($1.1 - $1.3B)
• Evaluate potential to leverage partial acquisitions/joint ventures to increase diversification while managing capital outlay
1 Enterprise Value
page 11
Potential Acquisitions Would Create a Bridge Between Sony Content and Devices
SPE Content Distribution/aggregation Sony Devices
Potential: IP and traditional
page 12
Overview of Entertainment LandscapeCompetitive Landscape Sony/SPE NBC/Universal News Corp/Fox
Time Warner / Warner Brothers Disney/ABC Viacom / Paramount
Film Production
Mainstream/big budget Columbia Universal Pictures Twentieth Century Fox Warner Bros. Touchstone PicturesParamount Pictures, Dreamworks SKG
Genre specialty Screen Gems/Tristar Focus Features Fox Searchlight Pictures New Line Cinema formerly MiramaxClassics Sony Classics
Animation SPA Blue Sky Studios Warner Bros. AnimationWalt Disney Feature Animation,
PixarLocal language Local language Warner Independent PicturesAcquisition/DTVSpecial effects Imageworks
TV Production
Domestic network TV productionLove Monkey (CBS), The
Book of Daniel (NBC)Law & Order (NBC), The Office
(NBC), Will & Grace (NBC)24, Family Guy, Prison Break,
The Simpsons (FOX) ER (NBC), West Wing (NBC)Alias, Desperate Housewives,
Grey's Anatomy, Lost CSI franchise (CBS)
Cable network TV productionRescue Me (FX), the
Boondocks (Cartoon Net)Monk (USA), Battlestar
Galactica (SciFi) Over There (FX)Nip/Tuck (FX), The Closer
(TNT)Power Ranger: SPD (ABC
Family)MTV Productions, Nick
Productions, etc.
Reality seriesQueer Eye (Bravo), Fear Factor
(NBC) American Idol Bachelor Survivor, The Amazing RaceThird-party distribution Seinfeld
Made-for-syndication TV contentJeopardy, Wheel of Fortune,
Judge HatchettAccess Hollywood, Blind Date,
Maury, Jerry SpringerLive! With Regis and Kelly,
Who Wants to be a MillionaireEntertainment Tonight, Judge
Judy, Judge Joe Brown
Daytime TV productionDays of Our Lives, The Young
and the RestlessGeneral Hospital, All My
Children Bold and the Beautiful
Sports programming NBC Sports, NBC OlympicsFox Sports Net, Fox College Sports, Fox Soccer Channel ESPN, ABC Sports CBS Sports
Game ProductionMMO games SOE (EverQuest) Warner Bros. Interactive Ent. Midway GamesPortable gamesConsole games Warner Bros. Interactive Ent. Midway Games
Online PublishingContent Sony Connect NBC.com, MSNBC.com IGN, Foxsports.com, Scout ABC.com, ESPN.com, Community MySpace
Film AggregationPremium channels STARZ/ENCORE HBO, Cinemax ShowtimeInternet NETFLIX iFilm
TV AggregationBroadcast networks - domestic NBC FOX the WB ABC CBS, UPN
Cable networks - domestic GSNMSNBC, CNBC, Bravo, Sci Fi,
USA, Telemundo
Fx, National Geographic Channel, Fox News Channel,
Fox Reality
TBS, CNN, TNT, Cartoon Network, Adult Swim, Turner
Classic Movies
ESPN, ESPN2, Disney Channel, ABC Family, Toon Disney,
SOAPNet, Lifetime, A&E, The History Channel
MTV, Nickelodeon, VH1, Comedy Central, Spike TV, CMT, Nick@Nite, TV Land,
BET, Logo, MTV2, Noggin, The N, MTVU, Sundance
Local TV stations NBC TV stations FOX TV stations ABC TV stations 40 CBS TV stations
International networksAXN, Animax, Sony
Entertainment Television
13th Street (Fr, Ge, Sp), Universal Channel (Latin
America), CNBC (Asia, Europe), Studio Universal (Ge, It)
STAR (in China, Taiwan, India, and the rest of Asia)
JETIX (Latin America, Europe), Disney International Channels,
A&E International, History International
Online AggregationPortal AOL
Film/TV DistributionCable companies Time Warner CableSatellite companies DirecTV
ServicesDVR TIVOAudience measurement
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Potential Acquisition
Potential Divestiture
page 13
APPENDIX
page 14
Appendix
• Company profiles
• Industry value chain
• Industry economics
• SPE financials
page 15
Starz Entertainment Group (SEG) OverviewCompany Overview:
Financial/Operating Statistics CY ’04:
• Largest provider of premium movie services offering 13 digital movie channels
– Starz (7 thematic movie channels): 14.1 million homes
– Encore (6 thematic movie channels): 24.9 million homes
• Also provides advanced services
• Vongo: subscription movie download service beta launched in January 2006
– Over 1,000 movies and a live streaming Starz TV channel for $9.99 per month
– VOD rental available for $3.99
• Starz On Demand: provides impulse viewing of SEG films as part of monthly subscription
• Starz HDTV: high definition version of Starz service
• Valuation: $928M - $1,237M (as estimated by analysts)
• Revenue: $963M
• EBITDA: $211M
• EBIT: $148M
• Multichannel distribution as a % of Starz’ revenue:
– Comcast (24.2%), DirecTV (23.6%), Echostar (11.3%), Time Warner (9.7%), Other (31.2%)
Recent News: • January ’06: Launched ‘Vongo’, a $9.99/month subscription movie download service that will include more than 1,000 movies, short films and programs
• June ’05: Starz and Comcast agree to offer 1,500 movies a year to Comcast’s ON DEMAND service at no extra charge to Starz subscribers
• April ‘05: Signed affiliation agreement with Verizon FiOS TV providing carriage for all 13 Starz movie channels
page 16
Netflix OverviewCompany Overview:
Financial/Operating Statistics CY ’05:
• Largest online DVD subscription service
– Standard subscription plan allows subscribers to have 3 titles at a time for $17.99/month
– Provides access to library of 35,000 movie, TV and other filmed entertainment titles
• Distributes 1 million DVDs per day from 37 shipping centers in the U.S.
• Personalization and recommendations based on database of 1 billion movie ratings from customers
• Market Cap: $1,382M (as of January 19, 2006)
• Revenue: $688M (EV/Revenue multiple: 1.8x)
• EBITDA: $115M (EV/EBITDA multiple: 10.5x)
• EBIT: $8M (EV/EBIT multiple: 158.0x)
• Cash and Equivalents: $212M
• LT & ST Debt: $0M
• Subscribers (End of Period): 4.2M
• ARPU per month: $16.89
• Average Monthly Churn: 4.3%
Recent News: • January ’06: Former Postmaster General named COO
• May ’05: Agreement to promote Wal-Mart online movie sales business in return for Wal-Mart promoting Netflix online DVD rental business
• September ’04: Agreement between TiVo and Netflix to work together to develop a joint entertainment offering (Details and current status are unknown)
page 17
TiVo OverviewCompany Overview:
Financial/Operating Statistics CY ‘04:
• Provider of technology and services for digital video recorders (DVRs)
– Subscription-based service provides consumers with easy way to record, watch, and control TV
– Technology supported by portfolio of intellectual property rights that enables TiVo to offer DVR software, hardware, and service solutions to customers like DirecTV, Pioneer, Toshiba, etc.
• Began offering advanced home media features with TiVo Series2 DVR connected to a home network
– Features include digital music and photos, multi-room viewing
– TiVoToGo offers ability to transfer recorded programs from TiVo DVR to a PC or portable device
• Market Cap: $465M (as of January 19, 2006)
• Revenue: $172M (EV/Revenue multiple: 2.1x)
• EBITDA: -$71M
• EBIT: -$76M
• Cash and Equivalents: $106M
• LT & ST Debt: $5M
• Subscribers (End of 3Q ‘05): 3.0M
– Standalone subs: 1.3M ($8.80 Monthly ARPU)
– DirecTV subs: 2.7M ($1.15 Monthly ARPU)
Recent News: • December 2005: TiVo rolled out online services to broadband connected TiVoSeries2 DVR
– View/share photos with Yahoo! Photo, browse movie information and purchase tickets via Fandango, listen to internet radio via Live365
• November 2005: Enhanced TiVoToGo feature that allows subscribers to easily transfer recorded TV programming to Apple iPod or Sony PSP devices
• November 2005: Announced plans to offer television-based advertising search solution by Spring 2006 allowing subscribers to access targeted advertising on an opt-in basis
• May 2005: TiVo and Comcast announced strategic partnership
page 18
BitTorrent OverviewCompany Overview:
Financial/Operating Statistics:
• Cooperative distribution technology that makes downloading more efficient
– Assembles digital movies and other computer files from separate bits of data downloaded from other computer users across the internet
– Decentralized nature makes downloading more efficient by reducing bandwidth and server costs
– Red Hat, Sun Microsystems, NASA, PBS, and Blizzard Entertainment currently use BitTorrent for digital distribution
• Rumored $100M pre-money valuation
• Used by an estimated 50 million users (worldwide)
Recent News: • Q1 2006: Plans to open online marketplace for digital content
– Video (film, documentary, television, music video)
– Subscription ($20/month): unlimited access to television, catalog films, and some new release movies
– Pay-per-download 30 day video rental: $3 new release, $2 catalog
– Ad-supported video
– Audio (music, podcasts, live recordings, ancillary video)
– Games (hardcore videogames, MMOGs)
– Software (applications, operating systems, updates/patches)
• November 2005: Agreement with MPAA that the founder of BitTorrent will remove Web links to pirated versions of movies from bittorrent.com upon notification from a movie studio
• September 2005: Raised $8.75 million in venture funding from DCM (Doll Capital Management) to be used for product development
page 19
Appendix
• Company profiles
• Industry value chain
• Industry economics
• SPE financials
page 20
Overview of Value Chain – Film and Television
Film
Television
Studios Exhibition (AMC, GCC, Loews)
Retailer (Wal-Mart, Best Buy, Costco)
Rentailer (Blockbuster, Movie Gallery)
Data Services (Rentrak, Nielsen, Supercomm)
Cable/Satellite Distribution(Comcast, DirecTV, DISH)
Content
Broadcast Networks (ABC, NBC, CBS, FOX, UPN)
Cable/Satellite Distribution(Comcast, DirecTV, DISH)
Cable/DSL IP Access(Verizon, SBC, Comcast)
Mobile IP Access (Verizon, Sprint, Cingular)
Cable Networks (FX, Food, Nickelodeon, MTV, AXN)
Premium pay channels (HBO,Showtime, Starz)
PPV/VOD Aggregator(inDemand, TVN)
Mainstream (Universal, Disney, Fox, Warner, Columbia)
Genre (Lions Gate, Screen Gems, Sony Classics)
Animation (Pixar, Dreamworks, SPA)
Network (Warner, Buena Vista, Touchstone, Fox, CBS)
Independent (Carsey-Werner,SPT, Brillstein-Grey, Avenue)
Kids (Nicktoons, Disney, HIT Entertainment, DIC)
Reality (Mark Burnett)
Sports (ESPN, Fox, CBS,ABC, NBC)
TV Production Time-shifting services (TIVO)
Audience Measurement (Nielsen)
Mobile/IP Distribution (Verizon, Cingular, Sprint)
Premium pay channels(HBO, Starz/Encore, Cinemax)
Internet (Netflix, MovielinkGoogle, AOL, iFILM)
SPE Presence (operating control)
Mobile Entertainment (MobiTV, Jamdat)
Internet Video(AOL, Google, Yahoo, iTunes)
Aggregation Distribution ServicesProduction
page 21
Overview of Value Chain – Games and Internet
Games
Internet
Game Development Retailer (Wal-Mart, Best Buy, EB Games, Game Stop)
Rentailer (Blockbuster)
Online (EAGames, WorldofWarcraft, Station.Sony)
Content
Dial-up IP Access(AOL, Net Zero)
DSL IP Access (Verizon, SBC)
Cable IP Access(Comcast, Time Warner)
Portals (Yahoo, Google, MSN, AOL)
Console/PC/Online (EA, THQ, VU Games, Activision, SOE)
Community(MySpace, Linked In)
Content(iFILM, ESPN.com, CNN.com, IGN, Atom Films)
Audience Measurement (Nielsen/Net Ratings)
SPE Presence (operating control)
E-Commerce(eBay, Movielink, Bit Torrent)
Aggregation Distribution ServicesProduction
page 22
Appendix
• Company profiles
• Industry value chain
• Industry economics
• SPE financials
page 23
Summary of SPE and Industry Economics for Relevant Businesses
Motion Pictures
Television Production & Distribution
15%
28%
13%
Avg. 2003-05EMargin (EBITDA)
1 Excludes Corporate Overhead, totaled $272 M (4% of Rev.) in FY052 New Release films (excludes 2nd cycle revenues)3 Based on Ultimates; excludes marketing and distribution overhead
Mainstream
Genre
CG Animation
6%2
50%
DomesticNetworks
Broadcast
Cable
Pay Channels
47%
2003-05ERevenue CAGR%
(2%)2
7%
5%
14%
Cable/Satellite Distribution
30% 12%
International Networks
18% 17%
Market Estimates
6%3
15%4
n/a
n/a
Avg. 2003-06EMargin (EBITDA)
22%3
n/a
2003-06ERevenue CAGR%
n/a
n/a
n/a
n/a n/a
18%5 11%
SPE (ex. Overhead)1
(6%)
34%
n/a
7%
n/a12%
(3%)Domestic
International n/a 8% 19%n/a
4 Excludes made-for-syndication, 3rd party distribution, and daytime TV production5 SPTI established networks margin
Thematic
page 24
Summary of SPE and Industry Economics for Relevant Businesses
Avg. 2003-05EMargin (EBITDA)
Games 23%
2003-05ERevenue CAGR%
17%
Mobile Distribution 35% 15%
Special Effects n/a n/a
Market Estimates
Avg. 2003-06EMargin (EBITDA)
8%2
2003-06ERevenue CAGR%
22%
14% 98%
2% 38%
SPE (ex. Overhead)1
1 Excludes Corporate Overhead, which totaled $272 M in FY052 Margin excludes SCEA royalty
page 25
Overview of Industry Film Margins: Major Studios
Studio
Time Warner 10.6% 14.1%
FY03-05E Average EBITDA Margin
OverallLibrary*
20.9%
Fox 7.0% 14.2%34.7%
1.7% 12.5%
25.1%**
Disney 1.6% 6.4%23.5%
Average
New Release*
* Industry analyst estimates define library as syndication TV window and catalog DVD** Weighted averageSource: Morgan Stanley
5.5%**
28.8%
11.3%**
Viacom
page 26
Overview of Industry Film Margins: Variations by Feature Type
Feature type
Specialty16.9%**
CY05 EBITDA margin
Average Domestic
B.O.
~$8M*
CG Animation50.1%***~$200 M
11.0%****~$27M*
* CY04 averages** Based on Lion’s Gate*** Weighted average of FY04-05E EBITDA margins for DreamWorks, Pixar**** Average of CY05 for Paramount, Warner, Disney and CY04 FoxSource: JPMorgan, Morgan Stanley
Overall market
page 27
Overview of Industry Television Production Margins: Major Studios
Studio
Time Warner-27.7% 12.4%
FY03-05E Avg. EBITDA Margin
OverallSyndication
31.1%
Fox-16.7% 18.8%47.1%
Viacom-25.3% 20.7%
Disney-19.5% -5.2%29.7%
Total
Primetime
36.1%
15.3%**
Viacom
* Un-weighted average** Weighted averageSource: Morgan Stanley
36.0%*-22.3%*
page 28
Overview of Industry Broadcast Network Margins: Major Players
Broadcast Networkand Stations
CBS 16.6%
FY03-05E Avg EBITDA Margin
FOX 18.8%
Viacom -0.8%
ABC 5.0%
UPN
* Weighted averageSource: CSFB
12.2%
WB
Average 12.7%*
5.6%
FY03-05E Revenue CAGR
9.3%
13.6%
-1.3%
7.7%
4.6%*
page 29
Overview of Industry Cable Network Margins: Major Players
Domestic CableNetworks
Turner Networks(Cartoon Network, CNN, TBS, TNT, TCM)
48.2%
FY03-FY05E Avg EBITDA Margin
MTV Networks(MTV, Nickelodeon, VH1, Comedy Central, Spike TV)
49.1%
36.9%
Scripps Network(HGTV, Food Network, DIY Network, Fine Living)
54.5%
Average
* Weighted average** Owned by Rainbow Media, a subsidiary of CablevisionSource: CSFB
47.0%*
Discovery Communications(Domestic Networks)
6.8%
FY03-FY05E Revenue CAGR
19.0%
14.0%
32.1%
14.2%*
AMC**
IFC**
44.0% 4.9%
36.6% 19.0%
page 30
Overview of Industry Premium Pay Channel Margins: Major Players
Premium Pay Channel
Starz26.5%
FY03-FY05E Avg EBITDA Margin
HBO30.7%
Showtime20.0%
Average
* Weighted averageSource: CSFB
27.5%*
6.4%
FY03-FY05E Revenue CAGR
6.6%
6.1%
6.5%*
page 31
Overview of Industry International Networks: Major Players
International ‘Cable’ Network
Discovery Communications (International Networks)
17.4%
FY03-FY05E Avg. EBITDA Margin
20.2%
M6 Thematic Channels (France)
7.6%*
Average
* Operating margin** Weighted average*** FY03-06E Average EBIT margin used to account for minority interest**** FY03-FY06E Revenue CAGRSource: Morgan Stanley, CSFB, SPE Corporate Finance
18.3%**
Viacom International Networks
SPTI Int’l Networks 10.5%***
20.8%
FY03-FY05E Revenue CAGR
11.6%
38.3%
16.9%**
10.5%****
page 32
Overview of Industry Interactive Gaming Margins: Major Players
Game Developer/Publisher
Electronic Arts 26.7%
FY03-FY05E Avg. EBITDA Margin
Take Two 13.6%
Viacom 22.5%
Activision 23.2%
Average
* Weighted average** FY03-FY06ESource: Morgan Stanley, Citigroup, SPE Corporate Finance
22.9%*
THQ
SOE 2.5%**
12.3%
FY03-FY05E Revenue CAGR
11.5%
27.2%
27.6%
16.5%*
21.6%**
page 33
Overview of Industry Mobile Distribution Margins: Major Players
Mobile Carrier
Cingular 29.0%
FY03-FY05E Avg EBITDA Margin
Verizon 38.2%
Sprint-Nextel 36.3%
Average
* Weighted averageSource: JP Morgan, CSFB
35.3%*
13.2%
FY03-FY05E Revenue CAGR
16.6%
15.6%
15.4%*
page 34
Overview of Industry Cable/Satellite Margins: Major Players
MSO/DTH Player
Charter 38.8%
FY03-FY05E Avg. EBITDA Margin
Cablevision 37.5%
38.7%
Comcast 38.5%
DISH
* Weighted averageSource: Morgan Stanley, Citigroup, Bloomberg
9.6%
Time Warner
DirecTV
29.6%*
4.9%
FY03-FY05E Revenue CAGR
8.9%
10.9%
10.1%
14.4%
11.5%*Average
18.0% 17.7%
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Appendix
• Company profiles
• Industry value chain
• Industry economics
• SPE financials
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SPE 2003-2006E P&LSPE P&L FY2003 FY2004 FY2005 FY2006E1
MPGRevenue 4,974,169 4,635,278 4,978,380 4,719,294 Costs (4,362,296) (4,462,176) (4,316,797) (4,385,579) Operating Income 611,873 173,102 661,583 333,715 Operating Margin % 12.3% 3.7% 13.3% 7.1%
SPTRevenue 1,158,025 1,516,505 1,178,026 1,199,200Costs (873,308) (1,027,098) (917,426) (929,400) Operating Income 284,717 489,407 260,600 269,800 Operating Margin % 24.6% 32.3% 22.1% 22.5%
SPTIRevenue 358,246 351,632 428,892 515,093 Costs (364,700) (344,336) (438,876) (532,813) Operating Income (6,454) 7,296 (9,984) (17,720) Operating Margin % -1.8% 2.1% -2.3% -3.4%
SPDRevenue 178,926 298,711 298,550 382,529 Costs (248,998) (332,156) (337,153) (375,847) Operating Income (70,072) (33,445) (38,603) 6,682 Operating Margin % -39.2% -11.2% -12.9% 1.7%
SPE Divisions before Corp OHRevenue 6,669,366 6,802,126 6,883,848 6,816,116 Costs (5,849,302) (6,165,766) (6,010,252) (6,223,639) Operating Income b/f Corp OH 820,064 636,360 873,596 592,477
Operating Margin % 12.3% 9.4% 12.7% 8.7%
Net Corporate OH (329,957) (293,590) (271,444) (292,200)
SPE TotalRevenue 6,616,440 6,781,641 6,851,682 6,859,471 Costs (6,126,333) (6,438,871) (6,249,530) (6,559,194) Operating Income after OH 490,107 342,770 602,152 300,277
Operating Margin % 7.4% 5.1% 8.8% 4.4%
Operating Margin ComparisonBefore Corporate OH 12.3% 9.4% 12.7% 8.7%After Corporate OH 7.4% 5.1% 8.8% 4.4%Difference 4.9% 4.3% 3.9% 4.3%
1 Based on October 2005 forecast