Confidential Starz Deal Summary January 9, 2009. Confidential 1 Deal Overview.

Confidential

Starz Deal Summary

January 9, 2009

2Confidential

Deal Overview

3Confidential

Deal Summary

• Secured 3 year extension to the Starz deal

• Original deal expired December 2013; New deal provides Sony security of a Pay TV deal through December 2016

• License fees and bonus continue to be above market

• New deal provides framework for Starz services on the internet, ensuring premium access and premium messaging

– Minimum bundle pricing

– Also available on a la carte basis Rate card for “Open Internet” subscribers only

– Cap on number of subscribing households

• Deal expands Sony’s rights to offer on-demand services before and during the Starz windows

4Confidential

Overall Deal Terms

License Fees and Bonus

Current term (2009 – 2013)• Rate card unchanged 2009 – 2011; Rate

card reduced 12.5% 2012 – 2013• Annual Bonus of $47.5MM unchanged

• Sony maintains the only studio bonus in the industry• Rate card remains well above market throughout current term • Although reduced, rate card in extension continues to be above

market

Extension term (2014 – 2016)• Rate card reduced 35%• Annual Bonus of $38.7MM

Extension valued at $500MM - $600MM

Annual Qualifying Films

• Up to 50 films per year • All studios have Pay TV title caps; ours is the highest and offers greater flexibility within our slate

• Cap exceeds historical and projected SPE slates

InternetSOD • Premium pricing / access

• Premium branding Incremental fees

• Structure is in the spirit of traditional Pay TV flat fee mode l; but provides clear definition for “Pay TV on the internet”

• Potential additional upside for Sony

OtherBenefits

• 72 hour PPV/VOD viewing• Reduce Pay 2 EST Floor to $3.50• Pay 2 Black Periods eliminated• Mobile/Cellular rights for Sony subscription

offering between Pay 1 & 2 for up to 6 pictures /year at less than $50MM DBO

• SCA allowed to exhibit up to 2 pictures /year on FOD basis if packaged with a Sony consumer electronics product >$100 / transaction

• MFN for PSN to offer Starz Play

• Increases Sony value in pre-Pay TV windows• Creation of 1 additional month of network window for Sony to

monetize• Improves Sony’s mobile/cellular offering• Improves Sony’s consumer electronics offering

Terms Comments

5Confidential

Title Caps / Qualifications [Thanda / Chris]

Section would include one or two slides explaining the applicable title caps,

Qualifications, ability to move between “A” and “B” – through 2013 and thereafter

6Confidential

Rate Card and Bonus

7Confidential

Rate Card and Bonus

• Current term (2009 – 2013)

• Rate card unchanged from 2009 – 2011

• Rate card reduced 12.5% for “A” titles and SPC titles during 2012 – 2013

• Annual Bonus of $47.5MM unchanged

• Extension term (2014 – 2016)

• Rate card reduced 35% from 2009 levels

• Addition of low volume rate card discounts

• Annual Bonus of $38.7MM (Note: Sony has three options to elect)

• Supercaps

• Starting with 2012 releases, the deal eliminates the current higher rate card for “two pictures per year” and limits the $22.5MM tiers in standard rate card to no more than 4 total, no more than 1 in any year

8Confidential

Rate Card – 2009, 2010 and 2011

• For Pictures with General Theatrical Release (or, if no General Theatrical Release has occurred, Initial Theatrical Release) in Years 2009, 2010 and 2011:

• Starz will pay a license fee equal to 65% of the applicable License Fee in the above table for each “B” film, however, that in no event shall such license fee be greater than $7.0MM for any 3rd Party Rent-A-System Film

Film Rentals: IncrementalPercentage:

Cumulative Fee atHighest Point in Range:

<$1 million 100% $1.0 million

$1 ≤$2 million 85% $1.85 million



$30 ≤$50 million 22.7% $17.65 million


$175 ≤$207.34 million 15% $22.5 million

> $207.34 million 0% $22.5 million

9Confidential

Rate Card for Supercap Titles – 2009, 2010 and 2011

• Two Pictures with a General Theatrical Release (or, if no General Theatrical Release has occurred, Initial Theatrical Release) in each of Years 2009, 2010 and 2011 with the highest Film Rentals shall be calculated in accordance with the following table:

Film Rentals: IncrementalPercentage


<$1 million 100% $1.0 million




$30 ≤$50 million 22.7% $17.65 million

$50 ≤ $73.5 million 10% $20.0 million

$73.5 ≤ $175 million 0% $20.0 million

$175 ≤$191.67 million 15% $22.5 million


10Confidential

Rate Card – 2012 and 2013

• For Pictures with General Theatrical Release (or, if no General Theatrical Release has occurred, Initial Theatrical Release) in Years 2012 and 2013:

• Up to 1 Picture, in each of 2012 and 2013 may have a License Fee of greater than $15.44MM, but in no case more than $19.69MM

• Starz will pay a license fee equal to 65% of the applicable License Fee in the above table for each “B” film, however, that in no event shall such license fee be greater than $7.0MM for any 3 rd Party Rent-A-System Film



<$1 million 87.5% $875,000

$1 ≤$2 million 74.38% $1.62 million


$15 ≤$30 million 26.25% $11.47 million

$30 ≤$50 million 19.86% $15.44 million


$175 ≤$207.34 million 13.13% $19.69 million


11Confidential

• For Pictures with General Theatrical Release (or, if no General Theatrical Release has occurred, Initial Theatrical Release) in Years 2014, 2015 and 2016:

• Up to 1 Picture, in each of 2014-16 (but no more than 4 Pictures over 2012-2016) may have a License Fee of greater than $11.47MM, but in no case more than $14.63MM

• Low volume rate card:

Rate Card – 2014, 2015 and 2016



<$1 million 65.00% $650,000



$15 ≤$30 million 19.50% $8.52 million

$30 ≤$50 million 14.76% $11.47 million


$175 ≤$207.34 million 9.76% $14.63 million


# of Wide Release A/B Films (incl. up to 1 SPC Film): Percentage Reduction:

12 to 14 6.5%

9 to 11 13%

Less than 9 33%

12Confidential

2009 – 2013

• In addition to the license fees, Starz will pay the amounts set forth below on the dates set forth below for Years 2009, 2010, 2011, 2012 and 2013:

2014 – 2016

• Starz shall pay to Sony, at Sony’s election (such election to be made on or before December 31, 2009), either: (a) $40 million on June 30 of each of 2015, 2016, and 2017; or (b) $38.73 million on March 15 of each of 2015, 2016, and 2107; or (c) $20 million on Feb 28/29 of each of 2015, 2016, and 2017 and $20 million on Oct 31 of each of 2015, 2106, and 2017.

Bonus

Payment Amount: Payment Due Date:

$47.5 million January 15, 2010





13Confidential

Bonus Schedule for 2014 – 2016 (12-Month Snapshot)

1/15/15 2/15/15 3/15/15 4/15/15 5/15/15 6/15/15 7/15/15 8/15/15 9/15/15 10/15/15 11/15/15Scenario 1 -$ -$ 38.7$ -$ -$ -$ -$ -$ -$ -$ -$ ($38.73M every March 15)

Sum 116.2$ NPV 109.9$

1/31/15 2/28/15 3/31/15 4/30/15 5/31/15 6/30/15 7/31/15 8/31/15 9/30/15 10/31/15 11/30/15Scenario 2 -$ -$ -$ -$ -$ 40.0$ -$ -$ -$ -$ -$ ($40.0M every June 30)

Sum 120.0$ NPV 112.1$

Scenario 3 -$ 20.0$ -$ -$ -$ -$ -$ -$ -$ 20.0$ -$ ($20.0M every Feb/Oct)

Sum 120.0$ NPV 112.1$

Revenue Recognition1/15/14 2/15/14 3/15/14 4/15/14 5/15/14 6/15/14 7/15/14 8/15/14 9/15/14 10/15/14 11/15/14

Scenario 1Revenue/EBIT 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ 3.05$ Interest Income 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ 0.18$ Total Net Income 3.23$ 3.23$ 3.23$ 3.23$ 3.23$ 3.23$ 3.23$ 3.23$ 3.23$ 3.23$ 3.23$

1/31/14 2/28/14 3/31/14 4/30/14 5/31/14 6/30/14 7/31/14 8/31/14 9/30/14 10/31/14 11/30/14Scenario 2Revenue/EBIT 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ Interest Income 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ Total Net Income 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$

Scenario 3Revenue/EBIT 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ 3.11$ Interest Income 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ 0.22$ Total Net Income 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$ 3.33$

Cleaning Up

14Confidential

Internet Terms for Starz Play Service

15Confidential

Overview of Internet Approach

• Overall philosophy is to ensure that online Starz is offered on a premium basis, primarily by video-based services

• A cap on total digital subscribers ensures service is offered to no more than roughly half of broadband households

• Suggested retail prices ensure service is positioned as premium

– Online services may offer below suggested retail prices; however doing so will use the cap more quickly

• Marketing and messaging further ensure premium positioning

16Confidential

Examples

Incremental Compensation

Premium

TV + Broadband DSL Only Open Internet

(cable TV + broadband)

(DSL)

Starz Play only marketed as part of packages that include TV (e.g., double play / triple play).

Must include an ALC offer with suggested pricing

No offers marketed as “free”

Available as an a la carte “add-on” or part of a premium tier each with suggested minimum pricing


Available as an a la carte “add-on” or part of a premium tier each with suggested minimum pricing


Subscriber Caps to Ensure Premium

Internet SOD: Overview

17Confidential

Suggested Retail Prices

Cable DSL Open Internet

Bundles

Not applicable; but may only bundle with

packages that include basic cable

Greater of $33 ($29.99 Verizon) or

Basic+$5.99+$.01

$33 threshold moves up and down with market

changes

$13.99 through 2012

$16.99 thereafter

A La Carte in addition to a video service

N/A

$5.99 through 2012

$7.99 thereafter

A La Carte without an

underlying video service

$5.99 through 2012

$7.99 thereafter

$13.99 through 2012

$16.99 thereafter

Note: through June 2009, Netflix SRP will be $7.99 ALC, $8.99 bundled. Thereafter, Netflix SRP will be the same as other Open Internet services

18Confidential

Subscriber Cap Adjustment

HH Cap

Internet SOD: Household Cap and Rate Card

Rate Card

• Cap applies to all instances of Starz Play (TV+BB, DSL Only, and Open Internet)

• Household cap for Starz Play is 35MM in 2009; growing to 50MM in 2013

• Post 2013, cap grows as a % of growth in high-speed internet households (but never less than 50MM)

• Subscribers purchasing below suggested retail price are subject to a lower cap than other subscribers

• Example:

• Rate card applies to Open Internet subscribers only (i.e., excludes TV+BB and DSL Only and excluding Netflix)

• Total annual fees to SPE capped at $20MM (expected value is less than $20MM as much of cap likely to be filled by TV+BB and DSL Only subs)

• Separate Netflix settlement: $2MM per year for next 3 yrs (if Netflix terminates, SPE receives single $2MM payment)Year HH Cap

2009 35MM

2010 40MM

2011 45MM

2012 50MM

2013 50MM

% Decrease from Retail

Price

Subscriber Multiplier

0 – 10% 1.75x

10 – 20% 2.5x

20 – 50% 3.25x

50 – 80% 4x

80 – 100% 10x

10M subs at retail price

10.0M

10M subs at 15% below retail price

25.0M

(10.0 x 2.5 = 25.0)

Total Subs 35.0M

Subs (MM)

Rate Card

Incremental/ Max Total

(MM)

0-10 $0.33/yr $3 / $3

10-15 $0.50/yr $3 / $6

15-20 $0.75/yr $4 / $10

20-25 $1.00/yr $5 / $15

25-30 $1.25/yr $5 / $20

19Confidential

• May only be marketed as a bundle with offering that includes cable TV service

• Can not be marketed as a bundle with data only by cable companies

• A la carte pricing made available

• No pricing restrictions for Starz Play as a result of it being bundled with TV

• Must maintain Starz branding

• Household cap applies

• Rate card does not apply

Acceptable Marketing Messages

• “Sign up for Comcast ‘Double Play’ and get TV, Starz Play, and Broadband”

Unacceptable Marketing Messages

• “Get Starz Play when you sign up for HSIP”

• Bundling with TV likely within Starz’ rights; nearly all cable broadband households have cable TV service

- May offer Starz Play to these households without incremental fees to SPE

- Marketing must still focus on access included with TV or premium packages

- Cap on total households reinforces premium access

Basic Terms

Rationale

Examples

SOD Scenario 1: TV (Cable/Sat/IPTV) + Broadband

20Confidential

• Can be bundled with any tier above basic as long as minimum price is $33/month ($29.99 for Verizon)

- Today, only allows Starz Play to be bundled with highest of 3 tiers on Verizon and highest of 4 tiers on AT&T

• Can be offered a la carte for $5.99 initially ($7.99 beginning in 2013) on top of any tier

• Can not be positioned as “free” to consumer; value must be clearly identified



• Rate card does not apply

Current Verizon DSL Plans

• “Starter” plan: $19.99 Starz Play available a la carte at $5.99 (initially)

• “Power” plan: $29.99 Starz Play can be bundled

• “Turbo” plan: $42.99 Starz Play can be bundled at no extra charge

Potential Verizon DSL + Starz Bundled Plan

• “Power Plus” plan: $33.00 Starz Play plus “Power” plan

• DSL providers shifting to cable-like offerings of IPTV + broadband (e.g., FIOS)

• Starz views cable-like treatment as critical; rate card does not apply

• $33 minimum price ensures premium position even if DSL prices fall

Basic Terms

Rationale

Examples

SOD Scenario 2: DSL Only

21Confidential

Basic Terms

Rationale

Examples (Current)

• Limited to content provider websites

• Can be offered a la carte for $5.99 initially ($7.99 starting in 2013) in addition to basic video subscription of $4.99

• Minimum bundled price of $13.99 initially ($16.99 starting in 2013)

• If website has no subscription, Starz Play can be offered a la carte for $13.99 initially ($16.99 starting in 2013)



• Rate card applies

Hulu (no base subscription)

• Starz Play costs $13.99 ALC

Blockbuster

• “1 at a time” minimum plan for $9.99 Starz Play available a la carte for $5.99

• “2 at a time” premium plan for $13.99

• Starz Play can be bundled

• Applying rate card acknowledges that rights are incremental to output deal

• Subscription requirement is analogous to cable

- Ensures Starz continues to bundle with content (not software)

- Today, $4.99 basic video, $5.99 a la carte fee, plus $20 for BB requires customers pay ~ $31 before Starz Play is bundled

- As BB prices decline, $13.99 (then $16.99) price ensures Starz Play remains premium

SOD Scenario 3: Open Internet (excluding Netflix)

22Confidential

Sony Platform Considerations

23Confidential

Starz Deal Overview

• In exchange for substantial license fees, our previous Starz deal licensed exclusive rights to our films during the Pay window through 2013

• Like other Pay TV channels (HBO, Showtime) Starz’ exclusivity placed certain restrictions on the studio’s ability to offer on-demand services through traditional customers (MSOs, DBS) and owned platforms (BIVL, PSN)

• Under our new deal through 2016, we have significantly improved our ability to offer on-demand services including some new rights specific to Sony-owned platforms

– PPV / VOD / EST

Cable / broadband / IPTV -- Broadened our rights to offer PPV / VOD / EST for final 3 months of Pay 1 and Pay 2, subject to minimum pricing

New media – Retained ability to offer PPV / VOD / EST over the internet at any time (including during Starz window) and clarified that we can offer PPV / VOD / EST on mobile and future media services at any time

– PPV / VOD viewing period -- extended viewing period from 24 hours to 72 hours

– Free on-demand -- Secured right to bundle 2 “free on demand” titles per year with Sony products >$100 at any time for up to 2 months

– Starz Internet Service -- Secured MFN, ensuring Sony can offer the Starz linear Pay TV or subscription on-demand channel on Sony internet platforms with favorable terms

– Pay TV over Mobile -- obtained right to exhibit 6 titles (<$50m DBO) per year on our mobile linear Pay TV channels during network window

– EST -- Reduced EST pricing floor during Pay 2

– Open Market -- Clarified our right to offer digital locker re-delivery of PPV / VOD / EST

24Confidential

• Deal prohibited PPV / VOD / EST on cable, satellite, and IPTV platforms during Starz window

• Permitted PPV / VOD / EST on internet services any time, including during Starz window

Deal Terms

Implications

PPV / VOD / EST During Starz Window

• If BIVL or PSN is delivered over the open internet (i.e., not a closed system) or operated as a web site service they could offer PPV / VOD / EST titles at any time, including during Starz window

• If BIVL or PSN morphed into an IPTV provider (effectively a cable competitor) they were prohibited from offering PPV / VOD / EST titles during Starz window

Previous Starz Deal New Starz Deal

• Secured rights to offer PPV / VOD / EST on cable, satellite, and IPTV platforms during last 3 months of Pay 1 and last 3 months of Pay 2

• Retains right to offer PPV / VOD / EST when delivered over the open internet (including BIVL and PSN when not as a closed system) and adds rights for mobile and any future media at any time, including during Starz window

• If BIVL and PSN become closed systems, adds rights for PPV / VOD / EST to overlap with Starz windows during last 3 months of Pay 1 and last 3 months of Pay 2

• Adds mobile rights to PPV / VOD / EST to the same extent as rights over open internet

25Confidential

• Sony’s PPV / VOD offerings (through MSOs, DBS, and owned platforms) was limited to a 24 hour viewing period

• Sony’s PPV / VOD offerings (through MSOs, DBS, and owned platforms) extended to a 72 hour viewing period

Deal Terms

Implications

PPV / VOD Viewing Period

• Limited the value of potential VOD offerings on BIVL and PlayStation

• Limited our ability to drive PPV / VOD revenue through 3rd parties


• Significantly increases the value and appeal of PPV / VOD offerings on Sony platforms and 3rd party providers

26Confidential

• Sony was not allowed to offer pictures on a free-on demand basis prior to the end of Pay 1

• Sony is allowed to exhibit 2 pictures per year on FOD basis at any time including prior to the end of Pay 1, if bundled with a Sony consumer electronics product priced > $100 in a single transaction and promotion can be up to 2 months per picture

• No box office restriction (can offer our best titles)

• No timing restrictions (can offer at any time after theatrical release)

Deal Terms

Implications

Free On-demand and Implications for Sony Hardware Bundles

• “Hancock” was not able to be bundled “free” with the purchase of a BIVL


• Going forward, Sony can bundle a free on-demand viewing of our two biggest titles each year with the purchase of a BIVL, PlayStation, or other Sony hardware or service so long as it is priced > $100 in a single transaction

27Confidential

• Starz could make subscription make subscription on-demand offerings available on its own platforms (e.g., Vongo) or through third parties (e.g., Fancast for Comcast cable customers) without allowing Sony to offer Starz Play on our own platforms

• Starz must make Starz Play available for Sony internet platforms (e.g., PSN and BIVL) directly or through partners on no less favorable terms than those offered to third parties, provided however Sony must match all terms and conditions including technical implementation

• MFN on service terms is in place through February 2012

Deal Terms

Implications

Subscription on-demand during Starz Window

• Created risk of Starz Play channel being available in multiple places online, yet not on PSN and BIVL


• Provides BIVL and PlayStation leverage for favorable deal terms through February 2012

28Confidential

• Subscription on-demand was not allowed during the network window (between Pay 1 and Pay 2)

• Obtained right to exhibit 6 titles (with under $50MM in domestic box) per year on Crackle / Pix mobile pay television channels during the network window

Deal Terms

Implications

Mobile

• Crackle and Pix mobile could only have library titles on pay television (non-ad supported) channels


• Enables Crackle and Pix to introduce quality titles into subscription mobile channels earlier

29Confidential

• EST was allowed in Starz window but with pricing floors

• Wholesale pricing floor during Pay 2 was $6.95

• Wholesale pricing floor during Pay 2 reduced to $3.48Deal Terms

Implications

EST Pricing Floor During Pay 2

• Pricing floor was unrealistically high for older (Pay 2) titles, limiting the EST business


• More realistic pricing will help grow EST during the Pay 2 window

30Confidential

• Prohibited an Open Market “digital locker” redelivery of a film purchased via the internet during the Starz windows

• Allows an Open Market “digital locker” redelivery during the Starz windows

Deal Terms

Implications

Digital Locker and the Open Market Philosophy

• Titles initially purchased from BIVL and PSN could not later be re-delivered through other services (e.g., cable STB or mobile carriers to cell phones) during the Starz windows

• Restrictions limited the feasibility of the Open Market initiative and created a confusing consumer offering


• Improves the value of EST on BIVL and PSN platforms

• Provides benefits for the Open Market initiative

31Confidential

Windows

32Confidential

Timeline of Current and Proposed Windows

Theatrical Release

Theatrical Release

DVD / VOD Day & Date

DVD / VOD Day & Date

PPV / VOD Standard

PPV / VOD Standard

10 months from theatrical (was 12 months)

3.5 months from VOD (was 8 months; not necessary with home theater carve-out)

4.5 months from DVD (was 6 months)

3.5 months from PPV (was 6 months)

Home Theater / Early WindowHome Theater / Early Window

Pay 1 Triggers

Pay 1 Window: No Black; 16 mos. current,

18 mos. in extension (was 15 plus black)

Pay 1 Window: No Black; 16 mos. current,

18 mos. in extension (was 15 plus black)

No Pay 1 trigger

Confidential Starz Deal Summary January 9, 2009. Confidential 1 Deal Overview.

Documents

Transcript of Confidential Starz Deal Summary January 9, 2009. Confidential 1 Deal Overview.