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SPTI’s Unscripted Format Strategy Business Plan and Investment Requirements November 15, 2004.
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Transcript of SPTI’s Unscripted Format Strategy Business Plan and Investment Requirements November 15, 2004.
SPTI’s Unscripted Format Strategy
Business Plan and Investment Requirements
November 15, 2004
2
Executive Summary
• Unscripted / Reality TV dominates the TV landscape and will be remain an important genre in the future
• To benefit from the opportunities in this space, SPTI plans to leverage its worldwide production infrastructure, build on the successful Starling acquisition in France and expand its Reality TV efforts in Germany
• Such an initiate will significantly close the gap to market leaders Endemol and Fremantle and keep SPTI ahead of the studio competition
• Under conservative assumptions, this initiative will require investment capital of $11MM and new SPTI headcount of 7 in FY 06 (10 eventually).Pre-tax returns are very attractive: NPV of $6MM, IRR 38%
We request approval of the strategy and permission to start implementation asap
3
Agenda
• Unscripted/Reality TV Overview
• Proposed SPTI Strategy
• Financial and Organizational Analysis
• Next Steps
4
Unscripted TV Is Here To Stay
• Reality TV covers 22% of U.S. network primetime schedules in 04/05,
vs. 10% in 03/04
• 7 of Top 20 shows in 03/04 were Reality:
– 1. Idol, 4. Survivor All Stars, 6. The Apprentice, 19. Fear Factor
• 63 Reality shows in 04/05 across all U.S. cable & broadcast networks
• Launch of Reality-themed channels
– Fox Reality Channel (2005)
– Reality 24-7 (previously Reality Central)
– ‘Reality TV’ channel (35MM subscribers, 125 countries)
• Formats are being exported and exploited globally
– Worldwide sales of The Apprentice, Queer Eye for the Straight Guy, The
Bachelorette, Joe Millionaire, The Restaurant, The Simple Life, The Swan,
Next Action Star, etc.
Trista, Donald and Richard have established a bona-fide genre
While the recent rush to Reality TV will abate, the unscripted genre will remain a key component of
network schedules in the future
5
Economics Of Reality TV Highly attractive returns provide a strong incentive for networks to keep commissioning Reality TV shows
0%
10%
20%
30%
40%
50%
60%
70%
Gro
ss
Pro
fit
Ma
rgin
(2
00
1/0
2)
ABC CBS FOX NBC Big 4
Gross Profit - Reality TV Gross Profit - All Other Genres
Source: Primetime Programming Cost Analysis, Morgan Stanley, March 2003
• Higher profit margins for the networks due to lower production/commission expenses
• Reality TV show cost $500K-1MM per hour, compared to average scripted shows of $2-3MM
0
50
100
150
200
250
300
350
400
450
Av
g A
dv
ert
isin
g R
ev
en
ue
pe
r 3
0"
Sp
ot
Survivor AllStars
TheApprentice
Idol Bachelor Bachelorette Friends Raymond CSI Law & Order The OC 8 SimpleRules
• Successful Reality TV hits generate the same or higher advertising rates as scripted shows • Advertiser capitalize on new promotional opportunities, upside for producers and networks
(e.g. GM/Viacom deal to make Saturn Ion the car of Survivor: The Amazon)
Source: Variety, 4/25/2004
6
Unscripted TV Hits
Season Series 18-49 Rating
Networks Gross
Profit ($MM)
Profit Margin
99/00
00/01
01/02
Millionaire
(ABC)
7.9
4.4
2.5
$511.4
$648.4
$50.3
85%
81%
54%
00/01
01/03
02/03
The Mole
(ABC)
5.0
2.7
5.4
$22.9
$16.0
$12.8
83%
69%
58%
01/02
02/03
The Bachelor
(ABC)
4.6
7.9
$5.2
$80.0
55%
88%
99/00
00/01
01/02
02/03
Survivor
(CBS)
2.5
12.2
8.4
8.5
($1.3)
$118.0
$161.9
$224.8
-7%
80%
78%
82%
00/01
01/02
Temptation Island
(Fox)
7.8
3.8
$10.9
$0.5
76%
4%
00/01
01/02
02/03
Fear Factor
(NBC)
7.1
6.8
6.9
$4.2
$49.6
$37.9
29%
74%
53%
00/01
01/02
Weakest Link
(NBC)
n/a
6.0
$26.4
$21.8
48%
47%
The big performers have proven to be highly profitable endeavors for the networks
Source: Primetime Programming Cost Analysis, Morgan Stanley, March 2003
7
Origin Of Unscripted FormatsInternational markets are a proven ground for developing successful formats with worldwide appeal
Country of Origin
Year Original Producer
U.S. Debut
U.S.
Network
Big Brother Netherlands 1999 Endemol 2000 CBS
Survivor Sweden (‘Expedition Robinson’)
1997 Strix / Planet 24
2000 CBS
Idol/Popstars U.K. 2001 19 Televisions & Fremantle
2002 FOX
Who Wants To Be A Millionaire
U.K. 1998 Celador 1999 ABC
Weakest Link U.K. 2000 BBC 2001 NBC
The Mole Belgium 1998 T.T.T.I. 2001 ABC
Wife Swap U.K. 2003 RDF Media 2004 ABC
8
SPTI Is Currently Not A PlayerSPTI’s unscripted format library (primarily game shows) has been exhausted and can no longer provide momentum for the format business
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004
Acquisition
Library/Fremantle
• Sales growth increasingly comes from titles acquired from 3rd parties• Limited funds for acquisitions provide access to B and C product only• Biggest revenue drivers in the past were Dating Game and Russian
Roulette, both of which have passed revenue peaks
9
Agenda
• Unscripted/Reality TV Overview
• Proposed SPTI Strategy
• Financial and Organizational Analysis
• Next Steps
10
Crossroads For SPTI’s Format BusinessIn order to take advantage of the global TV format opportunities, SPTI needs a new strategic direction
MaintainStatus
Quo
Increase Acquisition
Efforts
Strategic Alliances with
Producers
Original Format
Development
• Continue to exploit declining library
• Pursue low-cost acquisitions without significant investments
• Acquire formats and filmed episodes with guarantees
• Co-finance development efforts
• Form close associations to guarantee early access to fresh formats
• Establish capabilities to develop formats with global appeal
• Rapid worldwide implementation
–Limited or no growth–SPTI marginalized as
format player
New Unscripted / Reality TV Initiative
11
Strategic Goals
Become a relevant global creator and producer of Unscripted / Reality TV
SPTI has set specific strategic goals for the Unscripted TV Format space
Close the gap to market leaders Endemol & Fremantle
Stay ahead of the studio competition & other emerging players
Contribute high profit margins to SPE after initial short period of investment
Strategic Goals
12
Format Development Focus
Pure Game Shows
Pure RealityShows
SPTI Format Focus
To meet broadcaster’s shifting demands, SPTI will pursue the full range of unscripted programming
Reality-based Competitions
• Distinctions between categories are increasingly blurred• Demand from broadcasters is shifting across categories• Diversification protects against risk of betting on single niche genre
13
SPTI’s Leveragable InfrastructureSPTI’s worldwide production presence is a key competitive advantage for a new direction in Unscripted Formats
Russia
Latin America
SpainItaly
U.K.
Germany
France
Worldwide Reach• Ability to leverage staff and
relationships with broadcasters in all key markets
‘Project 2004’ in Germany• Enhance successful Reality TV
project–9 months (thru 12/04)–6-person team
• 20 formats created so far, 3 considered marketable
–1 being pitched to RTL, 1 to ZDF• Low-budget experiment; total
expenses of <$250K
‘Starling’ in France• Capitalize on acquisition of 2nd
largest light entertainment production company in France
• Starling is actively developing and pitching new formats
• FY 05 revenue of Starling of $31MM, EBITDA $5.5MM
14
Operational Strategy
• Key territories
• Develop original unscripted concepts
• Adapt 3rd party formats from around the world
• Localize SPTI formats
• Align with proven production companies to develop formats
• Leverage expertise & relationships of local players
• Overcome barriers to entry
Tactic 1:Establish Worldwide Development Teams
Tactic 2:Enter into Strategic
Alliances
SPTI plans to enhance its existing infrastructure in key markets and establish partnerships with proven players everywhere else
Dual StrategyGoal: Balance between solid presence in key
markets and rapid global establishment
15
Tactic 1: Development Teams
Senior Format Executive
(Los Angeles)
Local Format Executive (one per territory)
Head of InternationalProduction
Development team1 Senior Producer
4 Freelance Jr. Producers(per territory)
• Key executive in charge of unscripted/reality strategy• Strategic guidance of local reality teams• Management of Reality network
• Manage development and acquisition effort in territory• Coordinate creative process with other territories• Collaborate closely with local head of production to sell
formats to local broadcasters
• Develop and test formats• Tap into local trends at early stage• Assess third party formats
Roles & Responsibilities
Dedicated development teams would be established in the key markets U.K., Germany and France (existing Starling operation)
16
Tactic 2: Strategic Alliances
Forge close association with established local players– first-look deals, co-development efforts, etc.
Partners provide access to fresh formats and relationship to broadcasters SPTI provides production infrastructure, library and international distribution Potential equity investments in attractive local players Relationship managed by local/regional SPTI production executive
• U.K. • Germany• France
Major MarketsAlliances will suplement SPTI’s dedicated development teams
Non-Major MarketsStrategic Alliances are SPTI’s main
effort to establish presence
• Spain & Italy - core E.U. markets for SPTI production
• Benelux & Scandinavia - proven talent pool for successful formats
• Latin America - strong overall growth potential
Alliances will expand SPTI’s reach into new territories and solidify the presence in the major markets
17
Possible Alliance Targets
United States United Kindgom Spain10 By 10 Entertainment 12 Yard ZZJ ( first look alliance partner)
Banyan Productions Celador Productions Boomerang
Hallock & Healy Chatterbox Partnership
Lighthearted Entertainment Monkey AustraliaLMNO Productions Princess Crackerjack
Mark Burnett Productions RDF Media Jigsaw
Nash Entertainment So TV Zig Zag
Next Entertainment Talkback/Thames (Fremantle)
Pilgrim Films & Television TVC ScandinaviaRocket Science Laboratories Wall to Wall MTV Mastiff
Scout Productions Strix
Stone Stanley Latin AmericaTermite Art Productions Telefe ItalyVin Di Bona Productions JJ Harding EinsteinNely Galan Productions Promofilm Magnolia
18
Targeted Format InfrastructureSPTI’s Unscripted Format network will have critical mass and be able to compete with format players on a global level
Large and culturally diverse creative pool
Immediate assessment of worldwide appeal for new formats
Tap into local trends early
Rapid and coordinated implementation of formats across many markets
Synergies during production efforts in different markets
Dedicated Development Teams and potentially strategic alliances
Strategic Alliances only
19
Agenda
• Unscripted/Reality TV Overview
• Proposed SPTI Strategy
• Financial and Organizational Analysis
• Next Steps
20
Business VolumeSPTI will focus on fewer, but higher quality and higher margin formats than in the past
MEGA A B C• Format revenues of
$20-30MM over 5 years
• Produced in 6 of top 10 world markets
• Steady sales of $2MM per year over 10 years
• $7 - $10MM in format revenues over 3 years
• Sales in 4 of top 10 markets, or to over 20 markets worldwide
• $1.5 - 3MM in revenue over 3 years, or
• Sales to more than 10 markets, including 2 of the top 10
• Less than $500K revenues per year, or
• Sales in less than 10 markets
Idol
Millionaire
Wheel of Fortune
Big Brother
The Apprentice
Survivor
Jeopardy
Popstars
Fear Factor
Fort Boyard
The Mole
Wife Swap
The Farm
The Vault
Airline
Faking It
FY 02 FY 03 FY 04 FY 05
MEGA 0 0 0 0
A 0 0 0 0
B 1 0 0 0
C 1 5 3 7
TOTAL 2 5 3 7
FY 06 FY 07 FY 08 FY 09 FY 10
MEGA 0 0 0 1 0
A 0 0 1 0 1
B 1 2 1 3 3
C 1 0 0 0 0
TOTAL 2 2 2 4 4
Historic Product Volume/Mix(Number of Acquisitions)
Planned Product Volume/Mix(Number of Acquisitions & Original Productions)
21
Estimated Production Slate
FY 06 FY 07 FY 08 FY 09 FY 10 TOTAL
Developed Product Mega A 1 1
A 1 1 2
B 1 1 1 3
C 1 1
1 1 1 2 2 7
Acquired Product Mega A 0
A 1
B 1 1 1 2 2 7
C 0
1 1 1 2 2 8
TOTAL 2 2 2 4 4 15
Number of New Formats Brought To Market(Conservative Base Case)
Long-term focus on original development and higher-quality acquisitions
• Move towards higher quality acquisitions will require increased investment in upfront guarantees• Business plan assumes $2MM upfront budget per year• Acquisitions assume revenue split of 40% to original creator
22
Focus On Original DevelopmentOriginally developed shows will be the main long-term driver for revenues and profitability
0
5
10
15
20
FY 06 FY 07 FY 08 FY 09 FY 10
Gross Revenue - Original Development
Gross Revenue - Acquisitions
Re
ven
ue
in U
S$
MM
23
Proposed Organization
• New headcount of 10 required (5 per chart + 5 support admin staff)• 8 Jr Producers in development teams are freelance and not part of SPTI overhead• Personnel & freelance expenses starting at $2.2MM per year ($4.3MM in FY 10)• Local Format Execs closely cooperate with Head of Production in their respective territory
Head of International Production
Sr. Format ExecLos Angeles
(existing headcount)
U.K.Format
Exec(existing)
Sr. Producer(new, FY 06)
GermanyFormat
Exec(existing)
Sr. Producer(new, FY 06)
France
(Starling)
SpainFormat
Exec(new, FY 07)
ItalyFormat Exec
(new, FY 07)
Lat AmFormat
Exec(new, FY 07)
Strategic Alliance
Strategic Alliance
Strategic Alliance
PotentialStrategic Alliance
PotentialStrategic Alliance
PotentialStrategic Alliance
4 Jr Producers(freelance)
4 Jr Producers(freelance)
24
Financial Summary
• Significant upside opportunities if production slate performs better than assumed in conservative financial base case model
The financial base case applies very conservative revenue assumptions and provides attractive financial returns
(US$ 000s) FY 06 FY 07 FY 08 FY 09 FY 10 TOTAL
FORMAT REVENUE 1,208 2,941 6,353 11,710 15,630 37,842
Format Development / Acquisition 2,400 2,700 2,920 3,320 3,620 14,960 Personnel ($) 2,198 3,565 3,983 4,142 4,308 18,195 G&A 549 891 996 1,036 1,077 4,549 TOTAL EXPENSES 5,147 7,156 7,899 8,498 9,005 37,704
EBIT (3,939) (4,215) (1,546) 3,212 6,625 138
NET CASH FLOW (4,039) (4,617) (2,369) 1,924 5,683 (3,418)
Required Investment: (11,026) NPV (4x exit multiple): 5,966 IRR (4x exit multiple): 38%
25
Additional Upside Opportunities
TV Distribution / Syndication
Home Entertainment
Product Merchandising
• Self-contained shows have
high syndication potential
• FX paid $30 million over 4
years for Fear Factor.
• AXN networks worldwide
have paid $4.8MM for U.S.
Versions of Amazing Race,
Survivor and Fear Factor
• Survivor: Higher volume of
sales in English speaking
markets than format sales
• Launch of multiple reality
cable channels provides
another outlet for prints
derived from int’l formats
• Celebrity reality formats
have significant Home
Entertainment potential
• Sequential shows have more
upside
• Simple Life sold 40K units
on DVD
• Survivor and The Apprentice
also released on DVD
American Idol:
• Sold over $50M at retail (May
2004)
• Merchandising includes
music, fashion, beauty,
lifestyle and fan products;
reaches a wide-spread
audience loyal to the TV
show and Idol brand
26
Next Steps
• Approve strategy
• Hire Sr. Format Exec
• Set up development teams in key territories – U.K., Germany, France
27
Appendix
28
Detailed Financials
(US$ 000s) FY 06 FY 07 FY 08 FY 09 FY 10 TOTAL
Format Revenue Mega A - - - 6,500 5,500 12,000 A - - 4,000 2,000 5,000 11,000 B 1,000 2,750 3,050 4,850 5,800 17,450 C 500 450 400 - - 1,350
Total 1,500 3,200 7,450 13,350 16,300 41,800
Revenue from Exisiting Library 300 300 300 300 300 1,500
TOTAL REVENUE 1,800 3,500 7,750 13,650 16,600 43,300 Timing Lag To Market 120 (592) (559) (1,397) (1,940) (970) (5,458) NET REVENUE 1,208 2,941 6,353 11,710 15,630 37,842
Format Development / AcquisitionDevelopment / Piloting / Guarantuees 2,000 2,000 2,000 2,000 2,000 10,000 Revenue Split (Acquisitions) 40% 400 700 920 1,320 1,620 4,960
Total Content Expenses 2,400 2,700 2,920 3,320 3,620 14,960
Personnel ($) 2,198 3,565 3,983 4,142 4,308 18,195 SPTI Headcount (#) 7 10 10 10 10 G&A 25% 549 891 996 1,036 1,077 4,549
TOTAL EXPENSES 5,147 7,156 7,899 8,498 9,005 37,704
EBIT (3,939) (4,215) (1,546) 3,212 6,625 138
Working Capital A/R 90 (298) (427) (841) (1,321) (967) (3,854) A/P 30 197 25 18 33 25 298
NET CASH FLOW (4,039) (4,617) (2,369) 1,924 5,683 (3,418) Cumulative Cash Flow (4,039) (8,657) (11,026) (9,102) (3,418)
Required Investment: (11,026) NPV (4x exit multiple): 5,966 IRR (4x exist multiple): 38%