Strictly Private and Confidential
Project Blue Opportunity to invest in Australia‘s leading on demand platform
24 MAY 2013 Strictly Private and Confidential
EXECUTIVE SUMMARY
Media consumption habits and technologies are experiencing fundamental structural change. Hoyts, with its existing powerful movie consumer touch-points, will leverage these developments to create a new high growth business model in the Australian home entertainment / TV channel, in partnership with Studios
Significant untapped Hoyts has the The standalone Business structure on demand revenues resource, skills and business case is in Australia assets to succeed attractive
• High per capita • Leading, trusted • Extensive EST, tVOD and • Hoyts is seeking traditional media entertainment brand — sVOD content offer investment in its Stream consumption No. 1 cinema brand in (through Studio and Kiosk business of up • Pay-TV only 25-30% of Australia partnerships) will be to 49% homes; EST, tVOD and • Deep customer base of attractive to consumers • Seeking investment from sVOD all undeveloped movie lovers and active • Broad device coverage up to 3 Studios based on DVD renters (Kiosk) and clear development cash equity investment • Strong loyalty program roadmap and revenue share and ‗single CRM‘ system • Low cost customer content supply acquisition and delivery arrangements model returns value to • Dual returns to Studios consumers and Studio — incremental content partners revenues and equity • 15-20% EBITDA margins upside, while creating a at scale new sustainable channel in the Australian and New Zealand markets
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VALUE CHAIN
The entertainment value chain is evolving. Hoyts provides the opportunity to accelerate growth in new channels and growth in the overall value chain for studio partners
• Hoyts Exhibition, Stream and Kiosk are uniquely placed to drive additional value through the entire lifecycle of content • Hoyts operates in the growth areas of the entertainment value chain • Opportunity to reverse the growing trend of piracy through a compelling digital proposition • Hoyts Stream offers the ability to monetise TV content currently not broadcast in Australia
2 Strictly Private and Confidential LINKING TOGETHER OF HOYTS EXHIBITION & HOME ENTERTAINMENT
Hoyts will be well positioned to distribute relevant content through all windows powered by an embedded CRM Single View of the Customer
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AGENDA
1. Market readiness
2. Customer value proposition
3. Opportunity size
4. Business model
5. Competition and sustainable advantage
6. Market, sales and partners
7. Platform
8. Executive team
9. Next steps
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MARKET READINESS
The Australian market is primed for a credible, Netflix-style market entrant to secure significant share of the untapped on demand video market
1. The consumption in the 2. The technology is ready for 3. The on demand market is 1 home entertainment market 2 mass-market on 3 primed for rapid growth are very strong demand services Consumers are migrating from physical Australia has a very high per capita Broadband take up is now at 73% DVDs to digital video entertainment, consumption of DVD purchases and Average caps are now at 50-200Gb creating a significant tVOD / EST rentals with $211 per household pa opportunity FOXTEL only has 27% penetration, leaving over 70% HHs with no subscription service, creating a significant sVOD opportunity
Home entertainment spend per household per month ($A) 2012 Broadband Penetration 2012 Pay-tv penetration 2012 (excl. premium pay-tv) 88% 85% $19.30 90% 90% 73% 75%
$12.90 $11.30 54%
27%
Australia UK US Australia US UK Canad Australia UK Canada US a 5 Strictly Private and Confidential
CUSTOMER VALUE PROPOSITION
Hoyts Stream will offer customers a critical mass of movie and TV titles, across devices, from a highly trusted entertainment brand PRODUCT MARKETING Deep, Rich, Fresh Content Trusted Entertainment Brand
Strong blockbuster led EST and tVOD Hoyts is the dominant cinema brand across Australia and New Zealand ‘Pockets’ of sVOD exclusivity and aVOD capability Research shows strong trust and affinity Critical mass of circa 5,000 movie / TV sVOD titles across Exhibition and Home Entertainment and 2,500 tVOD / EST titles at launch… Roadmap to reach all devices Deep Customer Database
Web Hoyts will market the service to more than 2.6m entertainment loving customers through Mobile: iOS phones and tablets; Android its channels and loyalty programme
TV: Smart TVs; Blu-ray; Playstation, XBox CRM ‗Single View‘ of the customer
An Engagement-Driven Approach Marketed Aggressively
Excellent UI and UX (search, metadata, etc.) Hoyts Stream will invest more than $80m over five years in marketing and customer Innovative sVOD / tVOD / physical bundles acquisition to build a market leading position
Full social media integration and Cross-promotion through theatres and kiosks personalisation of content
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OPPORTUNITY SIZE
The rapidly growing sVOD, tVOD and EST markets will be worth circa A$1.5bn by 2020
Total home entertainment market (A$m) Projected Hoyts market share 2020 4,766 4,783 4,668 4,708 4,754 sVOD Market tVOD Market EST Market 4,606 4,573 4,602 4,633 577 Total = A$760m Total = A$473m Total = A$245m 724 649 883 802 967 1,054 226 1,237 1,144 266 A$91m A$46m 308 A$248m 351 (~33%) (~20%) (~20%) 395 442 490 A$512m A$382m A$199m 540 591 (~67%) (~80%) (~80%)
2,503 2,532 Other 2,559 Hoyts 2,584 2,607 • We expect the Australian sVOD market to reach 25% 2,627 penetration of HHs by 2020. In the US, Netflix alone has already 2,645 2,662 reached this 25% figure 2,608 245 • We are targeting one third of this market by revenue — 226 FOXTEL and Telstra as well positioned to compete in the sVOD 208 473 179 429 market, but they will be wary of cannibalising their premium base. 388 153 325 If FOXTEL‘s premium subscriptions and revenues do get eroded 128 105 267 more quickly, then this represents upside for Hoyts 216 665 760 69 85 170 467 567 • We expect the tVOD and EST market to reach parity with the 254 363 6 94 130 13 137 DVD market by 2020. In the US, the combined tVOD and EST 2012 2013 2014 2015 2016 2017 2018 2019 2020 market is already at 63% of the size of the DVD rental market • We are targeting 20% of this market by revenue — iTunes DVD Retail Revenue Premium Pay-TV Revenue tVOD Revenue will also remain a significant player in these markets (circa 65- 70% of the US market) DVD Rental Revenue EST Revenue sVOD Revenue • Upsides to the opportunity exist by expansion into New Source: Venture Consulting, AHEDA, PWC, NPD Zealand, linear broadcasting and aVOD
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BUSINESS MODEL
Hoyts is developing a low cost business model that will maximise returns to content owners and equity partners
EFFICIENT COST STRUCTURE Conceptual revenue and cost structure
• Low Customer Acquisition Costs through utilising the Revenue Kiosk existing customer base of the Kiosk business and Hoyts Cinemas EST • Low delivery costs — as compared to satellite / cable delivery networks • Low head office costs — utilising existing Kiosk sVOD business and leveraging staff from the Hoyts Cinema Business until the new joint venture reaches generates tVOD meaningful revenue
SUSTAINABLE BUSINESS MODEL — Cost MAXIMISING RETURNS Other • Targeting 15-20% EBITDA margin at scale Overhead • Variable content cost maximising return to content owners Delivery • Efficient cost structure maximising equity return to shareholders
Marketing Content
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COMPETITION & SUSTAINABLE ADVANTAGE
Only Hoyts can combine exhibition and home entertainment across brand, content, pricing, marketing, customer data and CRM, maximising returns to studio partners
Deep, Full Affordable Low Cost rich, Tier 1 Strategic Lifecycle Deep Trusted to the Potential Full Value Delivery fresh content Device Marketing CRM & customer entertainment mass market players Positioning vs. Hoyts Chain Structure content offered agnostic Plan Data database brand market HOYTS
Foxtel Fear of cannibalisation More expensive offerings
Telstra, T-Box Traditionally focused on product over customer experience. Must be Telstra Bigpond customer Fetch TV Reliance on telcos for customer acquisition. Must be Optus or iinet customer Quickflix No cash, losing money, poor platform and content, opportunity missed? Apple TV, No subscription base, no focus iTunes on marketing to the local market JB HiFi Now, Lack of focus on VOD Video EZY, business leaves service under- Woolworths resourced
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STRONG ESTABLISHED BRAND REACH & CUSTOMER BASE
Hoyts is planning a strategic, integrated marketing launch campaign that uses existing channels — including our 750,000 loyalty members — to drive take-up efficiently
• Hoyts has broad and deep entertainment-based We will engage extensively and customer interactions 750k directly with loyalty members to every day members upsell streaming • Leading cinema exhibitor 1.1m in Australia and New We will use EDM to promote the registered Zealand service to our registered customers membership • Network of 53 cinemas and 437 screens • Owns Val Morgan, 1.8m monthly We will use every web visit to drive awareness / engagement Australian‘s dominant unique web visits and to encourage trial cinema screen advertiser Extensive in-cinema • National kiosk network marketing including ‗Hoyts 2.2m unique cinema customers lounges‘ that allow interaction • Strategically located at 350k Kiosk customers convenient locations with the service throughout ‘On’ and ‘In’ kiosk urban areas marketing and cross- Serves 20m admissions per annum promotion to drive trial 5m rented through kiosks Cross-sell and cross- platform offers
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PLATFORM
We are launching a world class OTT delivery platform
In addition to the planned services sVOD, tVOD, EST the platform provides the capabilities to launch aVOD and linear channels
Content delivery from studios VIOMEDIA
• BuyDRM License Server – rights management • Platform and product administration • Vouchers and promotions management • Customer service Ingest, encoding and • Content encryption • Recommendations Engine mezzanine file production • Stream preparation
VIOSTREAM AND WEBSITE • Single sign-on • Mezzanine file storage • eCommerce interface • Customer analytics Content metadata • Streaming content • Content playback management • Marketing & Comms provider storage • Other systems LAUNCH PHASE 2
Windows PC Samsung Smart TV & Blu-Ray Sony Smart TV & Blu-Ray Xbox Games Console
Content Mobile & Tablet Delivery Mobile & Tablet
Network LG Smart TV Apple iOS & Mac
Games Console 11 Sony PS3 Games Console Strictly Private and Confidential
GOVERNANCE & LAUNCH EXECUTION TEAM
Team in place to set up new business, key roles to be agreed by joint venture partners KEY HOYTS STAKEHOLDERS
David Kirk Delfin Fernandez Chairman Hoyts Group CEO Hoyts Entertainment
David Kirk's career spans the top level of both business and sport. He has Delfin is the CEO of Hoyts Entertainment. He joined Hoyts in 2005 after achieved success in both the public and private sectors. David is currently spending seven years as CEO and Managing Director of Hoyts General Co-founder and Managing Partner of Bailador Investment Management, Cinema in South America. Delfin supervised the development and Chairman of the publicly listed Trade Me and Chairman of The Hoyts Group. expansion of Hoyts General Cinema in Latin America in 5 countries. In Prior to this, he was Chief Executive Officer of Fairfax Media. 2012, Delfin was awarded the prestigious ―International Exhibitor of the Year‖ Award at CinemaCon. SET UP EXECUTION TEAM
Crispin Tristram Vincent Lloyd Adam Wrightson Hoyts Group CDMO Hoyts Group CFO Hoyts Group CTO`
Crispin joined Hoyts in May 2012 from SingTel Vincent is the CFO of the Hoyts Group. He joined Adam has over 20 years experience in Group where he was the Senior Director for in 2000 after spending three years with KPMG in developing and managing mission critical IT Ecommerce and Digital Marketing, leading the their assurance and consulting practices. Vincent solutions in Manufacturing, Banking and digital transformation across the Group. Holding has overseen M&A within the Hoyts Group Cinema industries. Over the past 5 years, 18+ years international Consumer Marketing including the acquisition and integration of Adam‘s focus has been on deploying digital and Digital experience within globally cinema chains, the DVD kiosk business, several cinema and creating a technical services recognised brands including Optus, Orange, 02 outdoor advertising businesses and also the division which services both internal and Vodafone. divestment of the Hoyts Distribution business. businesses as well as external clients.
The interim Management Team will manage a dedicated Hoyts Stream Team of 8 FTEs and a Hoyts Kiosk Team of 15 FTEs and share resources (e.g. HR, Finance) with the Hoyts Group
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OPPORTUNITY SUMMARY—HOYTS HOME ENTERTAINMENT
There is a unique opportunity to partner with Hoyts, Australia‘s largest theatrical exhibitor, as it builds the nation‘s leading independent video streaming service
Market readiness Australia is primed for a credible, Netflix-like, OTT player to enter and win the largely untapped on 1 demand market • The fundamentals of the Australian home entertainment market are very strong with a per capita spend of $533 pa • The broadband market is mature and able to support streaming services • The on demand market is primed: DVD sales are moving rapidly to digital and pay-tv penetration is low relative to overseas • Hoyts is well resourced and passionate about quality content, whereas competitors are struggling to make a mark
Customer value Hoyts Stream will offer customers a critical mass of titles, across any device, from a trusted entertainment brand 2 • Hoyts Stream is a blockbuster tVOD/EST service integrated with an sVOD mix of films and episodic TV. At launch, a proposition critical mass of around 5,000 sVOD titles (library and first run flagship) and 2,500 tVOD / EST titles • Available on PC, Tablet and connected TV. High quality customer experience based on great UI and recommendations • Looking forward, linear and aVOD capability provide ‘second horizon’ expansion opportunities
Opportunity size Hoyts Stream will target the rapidly growing sVOD, tVOD and EST markets, worth circa A$1.5bn by 2020 3 • In 2012 the transaction video market in Australia was worth $2.0bn. The subscription video market was worth $2.6bn • FOXTEL is well positioned to offer VOD services, but it will be wary of cannibalising its small base • Therefore, we expect to secure 33% of the sVOD market by value and 20% of the more competitive tVOD / EST market • In competitive markets, like the US, UK and Canada, committed challengers have flourished (e.g. Netflix / LoveFilm)
Business model Hoyts is developing a low cost business model that will maximise returns to content owners and equity partners 4 • Efficient cost structure maximising equity return to shareholders • By 2020, we will be delivering very healthy revenues to content partners, whilst also earning a reasonable EBITDA margin
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OPPORTUNITY SUMMARY—HOYTS HOME ENTERTAINMENT
Competition and Only Hoyts can combine exhibition and home entertainment across brand, content, pricing, marketing, customer 5 sustainable data and CRM, maximising returns to studio partners • Trusted: Hoyts is the #1 cinema brand in Australia with 20m admissions pa, and is trusted to deliver on demand content advantage • Resourced: Hoyts has has access to a large, entertainment loving customer base through its customer database and is resourced to drive customer acquisition aggressively • Focused: Hoyts is an entertainment company focused on growing a sustainable market position
We are planning a strategic, integrated marketing launch campaign that uses existing channels to deliver very Market, sales and 6 low SACs partners • Heavy promotion through Hoyts channels including in theatre foyers will drive extremely low subscriber acquisition costs • Smart bundled offers across tVOD / sVOD / theatres and promotion to the Hoyts customer database of 1.1m registered customers • Sophisticated ongoing digital marketing of the service coupled with periodic above the line support, especially at launch
Platform Hoyts is building a world class delivery platform 7 • Platform build underway with Viocorp on a fixed price contract • Integration services through Neon Stingray • CDN network agreement in place with Akamai • Single loyalty / CRM system in place by end of 2013
Executive team Experienced Board and Management team 8 • Experienced team in place to set up new business • The interim Management Team will manage a dedicated Hoyts Stream Team of 8 FTEs and a Hoyts Kiosk Team of 13 FTEs and share resources (e.g. HR, Finance) with the Hoyts Group
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NEXT STEPS
Hoyts is in discussions with a number of parties seeking the right partners for the business TIMING
1 • Discussions with potential partners (CAs) Late May – early June
2 • Information Memorandum and management presentation Early June
3 • Expressions of interest Late June
4 • Shortlist parties Early July
5 • Due diligence and negotiate contracts July – mid September
6 • Sign definitive contracts Early October
7 • Complete transaction Mid October
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Appendix Strictly Private and Confidential
COMPANY OVERVIEW
Leading cinema exhibitor in Australia & New Zealand and the #1 supplier of screen advertising
Entertainment Advertising
Exhibition Kiosks Streaming Val Morgan Val Morgan Outdoor
• Leading cinema • #1 DVD rental kiosk • Online movie • #1 supplier of cinema • Network of 755 plasma exhibitor in Australia network in Australia streaming business to screen advertising digital advertising and New Zealand with 580 kiosks be launched 2H 2013 services in Australia screens in 165 and NZ with 2,136 shopping centers in • Network of 53 cinemas • Exclusive provider of • LeveragesHoyts‘ cinema screens and Australia and 437 screens kiosks to Woolworths unique customer and 290 digital foyer • Further 954 screens • Serves 20m (Australia‘s largest brand position screens across 113 gas admissions per annum supermarket chain) • ~95% of Australia and stations in Australia • Cinemas principally NZ cinema screen • 1,240 screens situated in major advertising spend managed for TAB metropolitan shopping centres
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COMPANY HISTORY
Hoyts is a leading entertainment brand in the market with over a 100 year history of innovation
Under PEP's ownership, management has successfully grown the business organically and through acquisitions, with capital investment of ~A$170m
HOYTS INNOVATION Hoyts completes digital upgrades Hoyts Stream, an Hoyts introduces large online streaming screen format service, to be Hoyts Hoyts Hoyts Launched (IMAX and Xtreme) launched in 2H13 Pictures first introduces introduces Launched Launched first Launched established stadium first premium first 3D Hoyts Ben & Jerry first food seating offering screen Rewards location emporium
1908 1995 1996 2002 2005 2007 2008 2009 2010 2011 2012 2013
Listed on ASX Acquired by Acquired Berkeley Hoyts Distribution PBL and WAN Acquired Outpost Cinema Group sold to StudioCanal in a 50:50 JV Media (rebranded Acquired Acquired Acquired PumpTV Hoyts Distribution Val Morgan Outdoor) Instant Australian and Innov8 (Val established DVD Multiplex Cinemas Morgan Outdoor) (rebranded Hoyts Acquired full Kiosk) ownership of Val Morgan CORPORATE ACTIVITY
Source: Hoyts Group Management 18 Strictly Private and Confidential HOYTS BRANDS REMAINSHoyts brands THE DOMINANTremains the dominant CINEMA cinema BRAND ACROSS AUSTRALIAbrand across& NEW Australia ZEALAND and New Zealand
Conversion rate Awareness of cinema brands Preferred cinema if all equally awareness: Preference (% respondents) convenient (% respondents) (% respondents)
Hoyts 90 34 38
Event Cinemas 73 29 39
Greater Union 62 5 8
Birch, Carroll & Coyle 37 3 8
Village Cinemas 69 10 14
Reading Cinemas 49 6 13
Dendy 28 2 8
Palace Cinemas 24 3 14
Grand Cinemas 12 2 18
Other cinema 9 5 54
Source: Hoyts brand strategy research February 2013 Q7 and Q10 19 Base: Respondents who have been to the cinema in the last 3 months (n=916)
Strictly Private and Confidential HOYTS IS WELL POSITIONED EXPAND ITS HOME ENTERTAINMENT OFFERING
Hoyts Home Entertainment: Impact of brand on likelihood to use (% respondents)
Less likely More likely
11 37
13 34
16 29
22 26
23 20
21 19
Source: Hoyts brand strategy research February 2013 Q29 Base: All respondents (n=1,010)
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