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Transformation Management Office 2
AGENDA
Trends in the Consumption of Entertainment Content
Sony Network Service Summary
– Proposed Offering and Value Proposition
– Target Markets & Customer Segments
Operational and Implementation Summary
– Content Acquisition
– Hardware/Device Integration
– Marketing & Sales Strategy
Financial Plan
– Projected Financial Impact
Next Steps
Transformation Management Office 3
AGENDA
We will discuss…
1. Shifts in how entertainment is consumed
2. How industry incumbents are adjusting to these shifts
3. Why these shifts create opportunities for Sony
Transformation Management Office 4
KEY TRENDS IN THE CONSUMPTION OF ENTERTAINMENT CONTENT
Transformation Management Office 5
KEY TRENDS IN THE CONSUMPTION OF ENTERTAINMENT CONTENT
CDs
MP3 downloadsof singles (iTunes)
Side loadedfrom PC to player Cloud storage
of personal content library
Subscriptionmusic from the
cloudContinuum of Music
Consumption
New physicalbusiness models: Red Box & Netflix
VOD and free with cable
subscription
VHS / DVD
PPVin limited
windows and show times
Continuum of Film
Consumption
Digital sell through and side loading
PersonalizedInternet radio (ad supported)
$19.95 / album $0.99 / single $9.95 / month
VHS/DVD: $19.95
PPV: $7.95
“Freemium”mostly free content with a
charge for premium content
Redbox: $1.00/nightNetflix:
$8.99+/month
$9.99 VOD: $4 to $6 / 24 hours
Some film content with subscription
Transformation Management Office 6
KEY TRENDS IN THE CONSUMPTION OF ENTERTAINMENT CONTENT
Consumer preferences:
– Unbundling of film and music content in favor of an à la carte approach
– Escaping the frustrations of maintaining libraries in multiple formats and managing them via side loading
– Accessing content anywhere (cloud-based services are a solution)
– Flexibility in content access across all film “windows” Ability to enjoy film content earlier and on more devices
– Paying for purchase of content only once for use on multiple devices
– Higher quality experiences should no longer be sacrificed for convenience Examples: consumer preferences for higher bit rates for music, HD for video,
and 3D for video, as well as strong sales of higher quality headphones
Changing patterns in content consumption are weakening economics for content providers and distributors, but improving consumer experiences
Transformation Management Office 7
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
Transformation Management Office 8
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
All have emerging strategies, but none is currently sufficient to meet consumer desires
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
Retailers
CE Manufacturers
Consumers
Transformation Management Office 9
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
Action Pursuing “TV Everywhere”
Rationale Trying to keep users from
“cutting the cord”
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
Retailers
CE Manufacturers
Consumers
Transformation Management Office 10
Cable companies, through a project called “TV Everywhere”, are beginning to experiment with offering subscribers access to their cable content on devices other than televisions
– Comcast has begun operating Fancast XFinity TV, a program that allows subscribers to access 24 channels of TV shows and movies on up to 3 computers
Comcast is planning to extend these privileges beyond computers, to smart phones and tablets
Time Warner Cable is planning on launching a similar service to its subscribers “TV Everywhere” is an “interim” solution, as what consumers truly want is content without having
to purchase a full cable subscription These cable operator solutions do not address consumers’ desires for unbundling content Consumers are increasingly able to replicate (via the internet) much of the video content of the
traditional cable operators
REACTIONS TO KEY TRENDS: CABLE OPERATORS
Implications: Reduced overall revenue for cable operators over the long term
Revenue mix will shift from traditional cable programming to data services
Transformation Management Office 11
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
Action Offering streaming content online on
ad-supported web sites
Rationale Exploring new business models that
accommodate consumer demands
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
Retailers
CE Manufacturers
Consumers
Transformation Management Office 12
Hulu has emerged as the leading online ad-supported destination for viewing television content and is growing quickly
– Owned by the television broadcasting businesses of NBC Universal, News Corp, and Disney Hulu is pursuing subscription-based offerings on internet connected devices such as the iPad and
televisions
– First move beyond computer screens Hulu has been slow in moving from laptop to televisions because its owners are fearful of
antagonizing cable operators Concerns regarding Hulu:
– Monetization has been disappointingly slow for content owners
– Some content owners are removing content from the site YouTube and VEVO have also emerged as key video content destinations
REACTIONS TO KEY TRENDS: CABLE AND BROADCAST NETWORKS
Implications: As cable operators suffer declining revenues, they will have less money available to pay cable
programmers for content Broadcast and cable programmers will need to be much more aggressive with over-the-top TV
strategies and with monetizing content, representing an opportunity for new service offerings from Sony
Transformation Management Office 13
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
Rationale Participating in service revenues by
dictating inclusion of their video and other services to CE manufacturers
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
Retailers
CE Manufacturers
Consumers
Action Walmart bought Vudu Best Buy bought Napster
Transformation Management Office 14
Retailers that participate heavily in sale of physical forms of entertainment content, have begun acquiring digital delivery platforms
– Wal-Mart purchased movie streaming company Vudu
– Best Buy purchased music streaming company Napster Because major retailers have considerable power over CE manufacturers, they can
compel these companies to include the retailers’ services on their devices, resulting in increased revenues to the retailers
REACTIONS TO KEY TRENDS: RETAILERS
Implications: Retailers have historically not been successful service providers and content
aggregators As a result, these retailer strategies are not expected to have a large impact on
the value chain
Transformation Management Office 15
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
Retailers
CE Manufacturers
Consumers
Action Pursuing a new, open standard for
making “buy once, play anywhere” a reality for consumers
Experimenting with new windows
Rationale Improving value proposition of
traditional packaged goods
Creating new revenue streams
Transformation Management Office 16
Multiple new “buy once and play anywhere” solutions are emerging
– Two similar studio-led solutions store user’s content in “the cloud” for use on multiple devices Digital Entertainment Content Ecosystem (DECE)
Consortium of companies involved in digital entertainment whose purpose is to come up with technical specifications that content distributors and manufacturers can follow to ensure content compatibility across multiple devices
Disney’s “Keychest” Technology with similar goals to DECE
– DVD with electronic copy (interim solution) Experimentation with “Early Window”
– DVD release dates moved forward (Disney’s Alice in Wonderland, Paramount’s GI Joe)
– Films streamed directly to internet-connected TVs (Sony’s Hancock and Cloudy With a Chance of Meatballs)
Studios have been permitting services such as Vudu, Netflix, and Amazon On Demand to put their library content directly on televisions
REACTIONS TO KEY TRENDS: FILM STUDIOS
Implications: Given the fear of antagonizing theater owners, cable operators, and DVD retailers, studios have been
reluctant to make dramatic changes to the current window model As the monopoly positions of the traditional distributors weaken, content will become the key
differentiator for the new entertainment delivery ecosystem
Transformation Management Office 17
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
Retailers
CE Manufacturers
Consumers
Action Adding apps an services to
televisions, BD players, game consoles, etc.
Rationale Margins are low in CE; apps are a
potential source of additional revenue
Transformation Management Office 18
REACTIONS TO KEY TRENDS: CURRENT GENERATION OF INTERNET-CONNECTED TVs ARE AN INTERIM SOLUTION
Google TV(browser experience)
Widgets(e.g. weather)
True Over-the-Top TV(interactive TV
experience)Standard TV Apps for Services
Evolution of Internet-Connected TV
• Samsung: movie services like Vudu, Blockbuster and Netflix as well as social networking, news, and streaming music apps
• Panasonic: Amazon on Demand streaming movies and YouTube• Toshiba: Vudu movie rental service, as well as YouTube, Pandora, Facebook and Twitter• Vizio: Vudu movie service, Netflix, Amazon on Demand, Yahoo! Video, Pandora, Twitter, Facebook, and
more• Sony: video services on BIVL such as Netflix, YouTube, Sony Pictures Television, Yahoo! Video, and
internet apps such as Yahoo! Weather, Twitter, and Flickr
Other internet-connected set-top boxes (BD players, game consoles, etc) leverage similar approaches
The current lineups of all major consumer electronics manufacturers include internet-connected TVs that feature apps for movie, music, and social networking services:
2008 2009
2010
future
Transformation Management Office 19
Potential incremental revenue-generating services
– Access to films in variouswindows
– Channel subscriptions
– Games / PS2 emulation
– Advertising / placement
– Monetization of consumer data
– Applications / e-retail / peripherals
– Music related purchases(video purchasing, concerts)
– Extended warranty
Potential incremental annual revenue from above services (based on currentPSN/Qriocity content offerings): $50
• Provides a true interactive TV experience– not an internet browsing experience
• Intelligent program recommendations and ad serving• Deep integration with social networking applications (on-screen
texting, chat and recommendation links, etc.)• Sorting of content choices based on popularity among social
network and previous behavior
Over-the-Top Televisionsdo not require cable or satellite
THE FUTURE OF TV IS OVER-THE-TOP
There are already 50,000 hours of broadcast and cable network content
available to consumers for free over the internet
Transformation Management Office 20
INDUSTRY INCUMBENTS HAVE YET TO DEVELOP HOLISTIC SOLUTIONS
All have emerging strategies, but none is currently sufficient to meet consumer desires. However, the CE industry is best equipped to aggressively compete in providing entertainment to consumers.
Film Studios
Cable and Broadcast Networks
Cable / Satellite Operators
RetailersConsumers
CE Manufacturers
Transformation Management Office 21
RECAP
Shifting consumer desires require changes in how CE companies, cable/satellite companies, cable networks, and content companies deliver entertainment experiences to consumers
These industry incumbents are not taking aggressive enough action in this regard
– Fear of traditional distributors limits their aggressiveness
– Traditional distributors are losing their monopoly status due the ubiquity of the high speed I/P Network
CE manufacturers are best positioned to be aggressive in addressing consumer desires
– CE manufacturers are not captive to cable and satellite operators or other incumbents
Within the CE industry, Sony is the best positioned to take advantage of this opportunity to provide a holistic approach that will attract consumers
– Sony has a large network of users across a broad range of connected products
– Sony Pictures and Sony Music are two of the world’s largest content companies
Transformation Management Office 22
SONY’S OPPORTUNITY
If we provide superior entertainment experiences that are unique to Sony devices, we will deliver a strong value proposition to our consumers and enhance our
hardware margins
Sony needs to start treating its consumer base as a connected network of addressable users
Across our consumers’ network of enabled devices, Sony maintains relationships with more than 40MM connected users worldwide
Transformation Management Office 23
AGENDA
Trends in the Consumption of Entertainment Content
Sony Network Service Summary
– Proposed Offering and Value Proposition
– Target Markets & Customer Segments
Operational and Implementation Summary
– Content Acquisition
– Hardware/Device Integration
– Marketing & Sales Strategy
Financial Plan
– Projected Financial Impact
Next Steps
Transformation Management Office 24
THERE IS A LOT OF EXPERIMENTATION AROUND BUSINESS MODELS AND CONTENT RIGHTS, BUT NO ONE HAS FIGURED IT OUT
Sony can take a leadership position and WIN if we move FAST and go BIG
With improvements in broadband technology and changes in customer buying behavior for digital content, market readiness for network services is high now
Our competitors are not standing still; the market is becoming increasingly crowded as many players try to enter this market
However, no competitor has figured out the “winning play”
Transformation Management Office 25
THE TIME IS NOW: APPLE HAS A $10 BILLION CONTENT BUSINESS
Published Market Estimates
Published Growth Rates
$6.0 Billion Apps Estimate2,3
+55%
YoY GrowthYoY Growth
iPhones1
+34%Music & Video1
$5.2 Billion iTunes media sales5
$11.2 Billion 2010 Online Revenues$11.2 Billion 2010 Online Revenues
$3.0 Billion App run rate in Dec 20092,3
$4.0 Billion iTunes media sales in 20091
$7.0 Billion Total Run Rate, Dec 2009$7.0 Billion Total Run Rate, Dec 2009
2010 Revenue Forecast
+100%iTouch1
Most Analysts Believe Apps, Content Profitable
30% Gross Margins1
Well Controlled Costs
Estimated Operating Margins
Bandwidth costs 1-3%4
Infrastructure & operations costs 3-5%4
Payment processing around 5-8%3,4,5
14-22%6,7,8
Sources: (1) Apple annual reports & press releases (2) Gartner Group (3) GigaOm Analysts (4) New York Times (5) IBM Analysis (6) Seeking Alpha Financial Analysis site, (7) MacInsider (8) Pacific Crest Securities
Transformation Management Office 26
Sources: Apple annual reports & press releases, iSuppli, Factiva, New York Times
Hardware Devices Gross Margin
iPad 32GB 3G 60%
iPhone 3GS 16GB 58%
iPod Shuffle 4GB 55%
iPod Classic 160GB 45%
iPod Nano 8 GB 45%
Mac Mini Desktop 22%
MacBook Pro 13 inch 2.53Ghz
15%
Apple Case Study
CONTENT HELPS APPLE TO DRIVE OUTSIZE RETURNS ON HARDWARE DEVICES
Retail Price: $599
Gross Margin: 22%
Retail Price: $199 Gross
Margin: 58%
Retail Price: $1,499Gross Margin: 15%
Retail Price: $79 to $249
Gross Margin: 45%-55%
Retail Price: $729
Gross Margin: 60%
Transformation Management Office 27
Sources: “Apple Dominates Social Brand Ranking”. Adweek. Jan 4, 2010, Apple Press Releases, Microsoft Press Releases, Samsung Press Releases, CES Interviews
Apple‘Mega digital content aggregator’
Microsoft’s future play‘Xbox become altenarive to cable’
Extend “Live Anywhere” initiative for TV (Xbox), PC, Window Mobile based phones, Zune and other devices
23 million users (10 million paid)
Operates in 26 countries (16 for video)
Shifting to incorporate streaming, advertising and subscription models
Over 1 billion user accounts
Operates in 90 countries (13 for video)
Extensive content library– 10 billion songs /3 billion apps /200 million videos downloaded
Live Anywhere: ‘3 Screen, 1 Cloud’
Largest Digital Content Retailer & Top Social Brand in the World
Creating cable/satellite TV alternative package and is aggressively pursuing content/programming deals (e.g., ESPN for live sports streaming)
ABC's iPad app has 212,000 downloads, gets higher ad rates than network TV
Developing subscription TV service (ad-free TV for $30 per month)
KEY COMPETITORS ARE BUILDING ONLINE SERVICES & CONTENT OFFERINGS
Transformation Management Office 28
KEY COMPETITORS ARE BUILDING ONLINE SERVICES & CONTENT OFFERINGS
Sources: “Apple Dominates Social Brand Ranking”. Adweek. Jan 4, 2010, Apple Press Releases, Microsoft Press Releases, Samsung Press Releases, CES Interviews
Apple‘Mega digital content aggregator’
Launched Fancast Xfinity TV service for online content access in Dec. 2009 for existing pay TV/cable subscribers
Programming from 30 content providers, including major cable channels HBO, Starz and Cinemax
Utilizes Move Networks’ adaptive streaming technology to deliver service
TV Everywhere: Multi-Screen Strategy (TV, PC, Mobile Phone)
Acquired NBC Universal
Launched Samsung Apps Store for mobile phones and PCs in September 2009
Partnerships with online content providers (e.g., Pandora, Vudu, Netflix, Blockbuster, etc.)
Plans to launch premium apps for purchase with Internet@TV feature on select HDTVs, Blu-ray players and home theater systems in July 2010
Device Dominance With Scale & Integrated Content
Global content team (600 resources) for securing content for emerging markets & HW integration
Transformation Management Office 29
TURBO-CHARGE SERVICE OFFERING CONCEPT
Differentiated and exclusive content (e.g., films, TV, games, etc.)
Interactive online services (e.g., apps, social networking/communities
for Health & Wellness, Education, etc.)
TURBO-CHARGE PLAN
Key Features: “One-stop” shopping for multiple content types
(video, music, games, etc.) in a single account– Full-scale VOD & EST store– Music store powered by Omnifone
Easy to use, personalized user interface (e.g., design, search, recommendation)
Accessibility by a wide range of Sony devices
1
2
Uniquely bundled/personalized packages & pricing options
3
+Music
Films
TV
Books
Games
Apps
Service will include multiple content types
QRIOCITY
Infrastructure scalability and seamless hardware integration
Aggressive marketing campaigns to increase Qriocity’s visibility
4
5
Transformation Management Office 30
• Access to select network and popular cable/satellite content available on demand online (e.g., ESPN, CNN, Disney, TNT, etc.)
• Ability to select, personalize/customize content/programming stack
• Innovative and flexible pricing options
OUR INITIAL FOCUS IS TO TURBO-CHARGE A COMPETITIVE OFFERING AND TO THEN DEVELOP A BETTER ALTERNATIVE TO CABLE/SATELLITE
Music
Films
TV
Books
Games
Apps
Service will include multiple content types
VISION: BETTER VALUE ALTERNATIVE TO PREMIUM
CABLE/SATELLITEDifferentiated and exclusive content
Interactive online services
TURBO-CHARGE PLAN1
2
Uniquely bundled/personalized packages & pricing options3
Infrastructure scalability and seamless hardware integration
Aggressive marketing campaigns to increase Qriocity’s visibility
4
5
Transformation Management Office 31
TO TEST OUR SERVICE OFFERING, WE HAVE INITIALLY FOCUSED OUR MARKET RESEARCH ON THREE LARGE MARKETS
Sources: PricewaterhouseCoopers Global Entertainment & Media Outlook 2009-2013
2012 Online Entertainment Content Market Spend (US $ Billions)
U.S. Canada U.K. Germany France Japan S. Korea China India Brazil Russia Taiwan
TV
Films
Games
Music
eBooks
$115.5
$7.9
$21.9
$11.0
$21.0
$10.0
$15.8
$6.3
$2.9
$14.0
$5.3
$2.4
32
KEY FINDINGS FROM FOCUS GROUP RESEARCH
Preliminary Market Research Findings
Customers express interest in interactive online services and online apps (e.g., health & wellness, education, etc.)
Expect an easy-to-use, common user experience across devices and want personalization and community features
Dislike a closed platform, but majority would be willing to buy Sony devices to access content and services
Prefer multiple pricing options and flexibility to select change based on personalized or uniquely bundled content packages
1. “One-Stop” Service Concept
A ‘one-stop shop’ service with access to multiple content types (e.g., films/TV, games, music) is very appealing with customers
2. Differentiated, Exclusive Content
3. Interactive Online Services
4. Pricing/ Packaging
5. Features & Functionality
6. Sony Device Uplift
Customers want and are willing to pay for differentiated, exclusive (e.g., ‘hard-to-find’, ‘must-have’) content
Source: Directional feedback from customer focus groups
7. Scalability Scalable demand for global/US contents (Sports, US film/dramas) , but different price sensitivity among markets
Transformation Management Office 33
CUSTOMERS ARE WILLING TO PAY FOR EXCLUSIVE, PREMIUM CONTENT
Preliminary Market Research Findings
Premium TVPremium Movies
Early Release
Unlocked HBO
Target: All segments Target: All segments
Award Winning & Critics Pick
$20 per movie
$5-10
Oscar-nominated films, Indie films
HBO-quality OriginalProgramming
Best ComedySeinfeld, Family Guy, The Simpsons, Faulty Towers, etc. $10-20
‘Yes, especially for award-winning, critically acclaimed movies.’ (M35-49)
Mixed Martial ArtsUFC, Boxing $30-50
Exclusive Sports
‘I’d pay $50-60 a month for major prizefights and regular fights also.’ (M35-49)
Motor SportsNASCAR, Formula 1, IRL, MotoGP $10-20
Sports ClassicsClassic NBA, NFL, MLB $5-10
‘Love it. I will pay extra to avoid the hassle of going to theater.’ (F18-34)
‘This is appealing because TV lately is all reality, it is no longer creative.’ (M35-49)
‘Very appealing...I would want to be able to pick 3-4 comedies like every season of The Simpsons.’ (M35-49)
Target: Mostly male, all-ages
$5-10
$10-20
Source: Directional feedback from customer focus groups
Soccer (Premier league)Tennis $10-20
Global Sports
Transformation Management Office 34
Health & Wellness
Fitness & Exercise
Health & Wellness
‘If I could have different cooking shows and diet/exercise tips.’ (F50+)
‘It could mean replacing going to gym and that is very appealing for parents!’ (F35-49)
Yoga, Pilates, Fitness Instruction
Dr. OzDietary/Nutrition
$5-10
Education & Learning
Family & KidsSesame Street, Dora the Explorer, Disney, Anime(videos, games, books) $5-10
Education for AdultsLanguage classes, online tutorials, online classes
$5-10
$5-10
Ultimate 3D
3D Content 3D movies, concerts, interactive games
$5-10
‘Disney & educational content would be great for my grandkids.’ (F50+)
‘I’d like interactive shows like Sesame Street, LeapFrog.’ (F35-49)
‘Sporting events, concerts in 3D would be great.’ (M35-49)
‘Wow. I would be interested in, but I would need to test it out first.’ (M35-49)
‘If 3D is available across devices I’d pay 5,000 yen a month.’ (M18-34)
Target: Older male/females Target: Mostly younger males
CUSTOMERS ARE WILLING TO PAY FOR EXCLUSIVE, PREMIUM CONTENT
Target: Parents, Older males/females
Preliminary Market Research Findings
Transformation Management Office 35
CUSTOMERS EXPECT A WORLD-CLASS EXPERIENCE AND WANT PORTABLE DEVICE ACCESSIBILITY
Features/Functionality Device Integration
Easy-to-use, easy-to-navigate
Personalized recommendation
Advanced search capabilities
Ability to customize experience
Fast, reliable performance
Ability to access service and view content from multiple devices- Stream from digital locker (cloud)
Very strong interest in portable, mobile devices especially smartphone access
Preliminary Market Research Findings
‘I like it , it’s easy to navigate. I’d like to get recommendations tailored to my interests.’ (M35-49)
‘I would want to be able access this service from all my devices. Portability is important….’ (M18-34)
Transformation Management Office 36
FOCUS GROUPS CONFIRMED MAJORITIY OF CUSTOMERS WOULD BE WILLING TO BUY SONY DEVICES IF SERVICES DESCRIBED ARE AVAILABLE
• Customers like ability to access network service from a wide range of Sony devices, but dislike ‘closed’ platform
• Customers are willing to buy Sony devices for access, especially:
- When considering new purchases (difficult to ‘switch’ or replace existing TV just for the service)
- Adding ‘small ticket’ new devices (e.g., PS3, Blu-ray players, smartphones)
‘Yes, it would push me over the edge to buy Sony if buying new.’ (F35-49)
‘I wouldn’t replace anything currently, but would consider additional device.’ (F35-49)
‘If Sony’s the only one to offer the service, I’d buy a Sony…but I wouldn’t want to be locked in long term.’ M18-34)
Preliminary Market Research Findings
‘It would push me towards Sony devices even though I am against proprietary devices.’ (M35-49)
Transformation Management Office 37
AGENDA
Trends in the Consumption of Entertainment Content
Sony Network Service Summary
– Proposed Offering and Value Proposition
– Target Markets & Customer Segments
Operational and Implementation Summary
– Content Acquisition
– Hardware/Device Integration
– Marketing & Sales Strategy
Financial Plan
– Projected Financial Impact
Next Steps
Transformation Management Office 38
Preliminary Market Research Findings
Movies
Sports
Original Productions
Health/Wellness
Education
Television Series
Source: Directional feedback from customer focus groups
Other
- “HBO Quality” Series- Video Game-based Series- Digital Movies
- Educational TV programs (e.g., Sesame Street, Dora the Explorer in Spanish)- Online interactive games and services (e.g., online classes, tutorials)- Potential Acquisition
- Exclusive Rights to Iconic Series- Rights to other series target by demographic
- Health & Wellness TV programs (e.g., Dr. Oz)- Original Fitness Videos (e.g., Jillian Michaels)- Online interactive services (e.g., calorie counter, fitness tracker, etc.)
- Early Release Films - Unlimited Availability of Digital Download
- Exclusive Rights to Niche Sports- Premium Sports Packages (non-exclusive)
- Aggregate 3rd party cable networks (non-exclusive)
OUR CONTENT INVESTMENT WOULD BE ALLOCATED TO SPECIFIC CATEGORIES IMPORTANT TO CONSUMERS SPE Involvement
Transformation Management Office 39
Bravia, Handycam, CyberShot, Blu-ray,
Smartphones
Target Demographic:Professional Families
Up and coming young professionals 35 to 49 yrs
Families with kids (core for HandyCam/CyberShot)
Wants “new” things / “wow” factor
BraviaBlu-ray, Smartphones
Target Demographic:Established Baby Boomers
Established 50+ year olds; affluent, power seekers
Loves TV (core for Bravia), brand conscious
Will pay premium for brand and quality
WE LOOK AT DEVICE SALES TO IDENTIFY CUSTOMER TARGET SEGMENTS
Illustrative - For Discussion Purposes Only
Target Demographic:Social Gaming Generation
18 to 34 year olds; mostly young males and females
Core for PS3 market
Want to exciting and new experiences and to share instantly with friends
PlayStation,VAIO, Walkman
Transformation Management Office 40
Bravia, Handycam, CyberShot, Blu-ray,
Smartphones
Target Demographic:Professional Families
BraviaBlu-ray, Smartphones
Target Demographic:Established Baby Boomers
AND TARGET OUR CONTENT PROGRAMS TO SATISFY UNMET DEMANDS
Target Demographic:Social Gaming Generation
PlayStation,VAIO, Walkman
Multiple Early Release Movies Per MonthUnlimited Availability of Studio Films for Digital Download Movies
Ultimate Fighting Championship Sports Formula 1 Tour de France
Video Game Based SeriesOriginal Digital MoviesOriginal
“HBO Quality” Series
“HBO Quality” Series
Premium Sports Packages(Non-exclusive)Other
Education ServiceKey Networks (non-exclusive)
Health/WellnessKey Networks (non-exclusive)
Illustrative - For Discussion Purposes Only
Transformation Management Office 41
CONTENT COMBINED WITH INTERACTIVE SERVICES CAN CREATE BETTER, DIFFERENTIATED CUSTOMER EXPERIENCES
International/ Ethnic Programming
• International news
• Ethnic programming (e.g., Korean dramas, tele-novelas)
• Foreign films (e.g., Bollywood)
• Translator• Dictionaries• Video foreign
language lessons
• World music (Latin music, African drums, Reggae, Celtic, Caribbean, etc.)
• Foreign language podcasts
• Download short foreign language lessons
• Local language books
• Spanish to English dictionary
• Make friends around the globe
Motor Sports (e.g. Formula 1, NASCAR, IRL)
• Watch races• Driver
interviews
• Race-related documentaries
• Track driver stats
• Car specs
• Soundtracks,• Driving playlists
• F1 games• Gran Turismo• MotorStorm
• Driver biographies
• Racing, car books, and magazines
• Auto racing rantasy leagues, standings
Music
Films
TV
eBooks
Games
Apps
Social
Networks
Illustrative - For Discussion Purposes Only
Transformation Management Office 42
5-10 USD/month10-20 USD/month
WE WILL DESIGN FLEXIBLE, PERSONALIZED PRICNG MODEL (ILLUSTRATIVE EXAMPLE OF AN ‘A LA CARTE’ CONTENT STACK) 30-50 USD/month
eBooks
TV shows, News
3D films
Sport classic
Kids & Family
Learning: Other languages & cultures
Fitness & Exercise (e.g., yoga, Pilates, dance)
Mixed Martial Arts (UFC, Boxing)
Motor sports (NASCAR, F1)
Original
Indie Films
Best Comedy
Early release
Dr. Oz
Interactive Game Shows
Unlocked HBO
Base line($10-15/mo)
Ultimate 3D
PremiumTV/Films
Sports
Health & Wellness
Unlimited downloadPay per download or prepaid
VoD or prepaid
Dietary/Nutrition and Healthy Cooking
3D TV 3D Concerts3D Games
Kids & family
/Education
Global sports
Cable alternative
Health Management Books, Podcasts, Apps
Music
Films
TV
Games
Apps
Social
Networks
Traditional, Out-of Market
Foreign Films
• Community• Experience• Sharing• Recom-mendations
Live/concert
• Subscription (Monthly, Annual),
• Pay per use
• Pre-paid
• Mix ofpay per download+subscription
Strong ‘personalization’ demand of customers
…with different payment preference
Illustrative - For Discussion Purposes Only
Transformation Management Office 43
DEVICE STRATEGY TO BE FURTHER SYNCHRONIZED WITH TURBO-CHARGED NETWORK SERVICE PLAY
Home Entertainment Personal Devices
Define strategic position /roles of each device for network services play
- Android based devicesand non-Android based devices
- TV and BD players/DVR
Product roadmap to define ‘Symbolic’ personal device for network services
• Accelerate same UX development across all devices• Functionality and Software design for easy NW service usage• Synchronization across 3 (+1) screens (TV/PC/Smartphone +Tablet) is a must
Illustrative - For Discussion Purposes Only
Transformation Management Office 44
COMPELLING CUSTOMER ACQUISITION / MARKETING STRATEGY TO BE DEVELOPED AND EXECUTED AS ‘ALL SONY EFFORT’
Attract withStrong ‘Hook’
Activatewith
‘All Sony’ effort
Retain/Expand
‘Killer feature’ to drag sizable customers (i.e. early film releases)
Exclusive contents appealing to each segment
Cool and stylish ‘symbolic ’ device
All Sony synchronized activation campaign
Subsidy for new device/free trial period
Sony Electronics/SCE/SPE/SME
Affiliation, Group discount, 3rd party partnership etc.
Uniquely designed, cross medium programs that ties to personalization and community
Flexible pricing/subscription
Continuous content renewal / events arrangement
Illustrative - For Discussion Purposes Only
Transformation Management Office 45
FY2011 FY2012 FY2010
Lock in PSN users
• Bold, big bang marketing among entire SONY group
Basic one-stop- services( Movie VOD, music subscription, game subscription )
3D
Premium film/TV packages, Core sports packages
Interactive packages (Health & wellness, Education)
Application / services
Major cable/TV equivalent contents
Local contents
• Iconic’ Personal device launch for new service (NEO, Xperia. Tablet ?)
• Iconic personal device as alternative to TV/PC for major emerging countries?
• Create a buzz
•Service open to all non-Sony device
Illustrative - For Discussion Purposes Only
Markets
Competition
Contents / Services
Device Roadmap
Marketing
Launch Turbo-charged Qriocity
A top online service aggregator +
best device provider
A new global entertainment platform, alternative to
TV/cable/satellite
Expand to global marketsMilestones
• Android based device- TV/BD- Rachael phone
• 3D/BIVL TV/BD
•New video PS3 UX
Client Software
Server infrastructure
•New UX for Mobile -Android + SEMC -Pivot middleware
•Stream media to all Sony devices
•Backup/sync to cloud services
Norway, Sweden, Finland, Benelux, Switzerland, Ireland, Denmark, New Zealand, Hong Kong, Korea and Taiwan
NW Platform
All countries where we run PSNUS, Australia, Italy, Canada
•New UX for Android TV/BD
•eBook Integration•Future personal device integration•Digital locker
•Capacity Enhancements• Global Registration / Acct. Mgmt• SonyStyle Single Sign-on
POTENTIAL ROADMAP FOR TURBO-CHARGED PLAN
Prepare for a big launch
Turbo play in red
• Continuous marketing
Transformation Management Office 46
AGENDA
Trends in the Consumption of Entertainment Content
Sony Network Service Summary
– Proposed Offering and Value Proposition
– Target Markets & Customer Segments
Operational and Implementation Summary
– Content Acquisition
– Hardware/Device Integration
– Marketing & Sales Strategy
Financial Plan
– Projected Financial Impact
Next Steps
Transformation Management Office 47
KEY ESTIMATE: PATH TO LEADERSHIP
X X= $7
Billion
Number ofPotential Customers
Average Revenue Per Customer
Average Active Customer Ratio
Games $5
Music $3
eBooks $5
Video (Films/TV) $15- 20
Examples:• Early film window• Sports• Premium movie/TV
library• Health & Wellness• Education • Music• Games• E-book• Community / Apps APPS
Illustrative - For Discussion Purposes Only
135 million
350 mil Sony connectable devices*55-60% device connected ratio**
1.5 devices per user
15%** $20- 30 per month($240-$360 per year)
Note: *2-40% uptake from MRP assumed due to the turbo-charged play (assumption varies by device categories)**Varies by device categories.
Transformation Management Office 48
TURBO-CHARGE COMPARISON
$772 $922
$3,711
$2,310
$441
Network Services Total Revenue ($ Million USD)
Games
Video
MusiceBooks
2010 2011 2012
$3,224
$6,534
2009BUD MRP MRPTurbo Turbo Turbo
x2.0
Connected Devices in Units
53 55 77 90 111 13535mil +3% +16% +22%
Illustrative - For Discussion Purposes Only
Transformation Management Office 49
THIS SCENARIO REQUIRES INVESTMENT IN FY10, BREAKEVEN IN 2011 AND IS PROFITABLE IN 2012
Illustrative - For Discussion Purposes Only
Integrated Turbo Plan Revenue and Cost Model ($ Million USD)
Note: Financial projections have been developed using best available data and assumptions. Models are quite sensitive to changes in underlying assumptions.
Transformation Management Office 50
TURBO CHARGE PLAN COMPARISON TO BASELINE
Revenue
OperatingProfit
Cash flow
FY10 FY11 FY12(Mil USD)
772
-145
-135
Base
922
-208
-405
Turbo
2,309
175
167
Base
3,711
-81
-116
Turbo
3,224
268
260
Base
6,534
769
747
Turbo
+61%+19% +103%
-86-63 +509
-116-270 +479
Transformation Management Office 51
AGENDA
Trends in the Consumption of Entertainment Content
Sony Network Service Summary
– Proposed Offering and Value Proposition
– Target Markets & Customer Segments
Operational and Implementation Summary
– Content Acquisition
– Hardware/Device Integration
– Marketing & Sales Strategy
Financial Plan
– Projected Financial Impact
Next Steps
Transformation Management Office 52
EXECUTION ISSUES
Ongoing Management Structure
Human Resources Issues
Device Roadmap
Marketing Capability
Technical Execution
Alliances Strategy
Transformation Management Office 53
WE NEED YOUR SUPPORT TO DRIVE THIS CRITICAL INITIATIVE FORWARD
Compelling customer
acquisition plan
Fast, and integrated Execution
Strong ‘hook’ design (early release, symbolic device)
Group-wide, bold marketing strategy
End-to-end, synchronized execution planning– Content/service– Device roadmap– NW platform– Marketing
Business Structure / Design
NEXT STEPS & DELIVERABLES FOR NEXT 3 MONTHS
ROI optimized content/service portfolio – ‘Exclusive’ contents acquisition plan– 3rd party contents/service aggregation
Recurring revenue, high retention, high margin business platform
– Optimized pricing/bundling design– Ad revenue model – Application platform
Sustainable ‘eco-system’ as business model
WHAT WE NEED
1. Dedicated, scaled up cross functional implementation team (Phase 1)
- Quantitative survey
- Content/Service strategy
- Business model refinement
- Execution
2. Authorization to begin content negotiations
3. Secured funding for next phase implementation (i.e. research etc)
Transformation Management Office 54
Local teamsLocal teams
Steering Leadership Michael Lynton Dave Hendler George Bailey (Chair)
Hiroshi Yoshioka Kaz Hirai Tim Schaaff
PROPOSED DEDICATED TEAM STRUCTURE FOR PHASE 1 IMPLEMENTATION
Hiroko Sasaki (TMO)
Sean Carey (SCA) ・ Hiroko Sasaki (TMO)
Project Management
Marketing
TBDTBD
Integrated Service Execution/ Delivery Planning
TBD
Contents/Service Roadmap(SPE)
Marketing Strategy (Expert & SPE/GSMG/
BUMK/SNE/SME)
Content/Service Development
TBD
Integrated ServiceModel/Pricing
(SPE )
Programming/Packaging(SPE and/or expert )
Premium Content Acquisition(SPE)
3rd Party Application (SNE or expert)
Ad Revenue Strategy (SPE)
Game (SCE)/Music(SME)E-book (SNE)/
Social network(SNE)
Business Case/ FinancialJin Hagimoto
Customer Research(SPE/SNE)
Device Roadmap on NW Service
(CPDG/NPSG)
NW PF Roadmap(SNE concurrent)
Marketing Roadmap(TBD)
SPE marketing/SME marketingGSMG/BUMKSCE marketing
2-3
2-3
1
2-3
2-3
1
1
3-4 champions+11-15 dedicated team members
to be added
Local teams
Transformation Management Office 55
Competitive market dynamics are changing dramatically– Customers are increasingly consuming more digital content and online content
availability is more widespread
– Consumers want entertainment solutions and quality experiences that combine both anywhere access to content and device form factor
Sony is the best positioned to take advantage of this opportunity to provide a holistic approach that will attract consumers
We can leverage our content assets/knowledge to acquire and manage exclusive, “must-have content” to develop differentiated offerings
The industry is moving fast and our competitors are not standing still – we need to accelerate investment in order to win
Sony can take a leadership position if we move fast and go big!
CONCLUSION
Transformation Management Office 56
Network ServiceTurbo-Charge
PlanAPPENDIX
April 20, 2010
DiscoverDiscover
CommunicateCommunicate
ShareShare
LearnLearn
CreateCreatePlayPlay ListenListen
WatchWatch
Transformation Management Office 57
OUR PLAN CALLS FOR A INCREASED INVESTMENT IN CONTENT, SOME OF WHICH WILL BE ALLOCATED TO SPE
Movies
Sports
Original
Health Wellness
Education
TV
3rd Party Services
TotalTotal
Upfront Payment
Revenue Share
Upfront Payment
Upfront Payment
Revenue Share
Upfront Payment
Upfront Payment
Upfront Payment
Upfront Payment
SPE SHARE
0
200
65
0
45
560
250
0
FY11
239
88
120
73
45
30
146
974
165
68
FY12
530
159
257
121
49
49
0
1,773
513
95
TOTAL
795
272
398
219
119
89
216
3,000
683
208
FY10
26
25
20
25
25
10
253
70
6
45(Mil USD)
Upfront PaymentRevenue Share
Total
404 1,043 1,47932570 730 1,521221
Illustrative - For Discussion Purposes Only
Transformation Management Office 58
ADDITIONAL OPERATING COSTS BREAKDOWN FOR TURBO PLAY
FY10 FY11 FY12
Contents / Services
Marketing
Infrastructure
Flat fee
Rev share
151 424 730
162 723 1,340
313 1,147 2,069
16 186 219
11 13 14
Total
Others 31 191 289
Turbo-chargePlan OP cost
Base line OP cost
Integrated OP cost
+
=1,765Total
129 227 404
500 2,996
(Mil USD)