Crackle Russia Business Plan July 2013
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DRAFT – FOR DISCUSSION Crackle Russia Business Plan July 2013 DRAFT – FOR DISCUSSION Russian Market Overview Russia has the Largest Online Population of any European Country • Broadband households in Russia are expected to grow at a 8% CAGR from 18.7mm in 2012 to 25.4mm in 2016, representing approximately 22%-28% of total U.S. broadband households each year • Mobile phone users in Russia are expected to grow at a 2% CAGR from 102.2mm in 2012 to 110.9mm in 2016 while mobile internet penetration is expected to increase from 24% in 2012 to 55% in 2016 Broadband Households Mobile Phone Users (millions) (millions) 30.0 55.0% 115.0 80.0% 110.9 25.4 70.0% 110.0 108.8 25.0 23.9 106.6 60.0% 22.3 45.0% 20.5 105.0 104.4 54.9% 50.0% 20.0 18.7 43.4% 102.2 [ New – Check ad spend41.2% with 99.9 31.9% 48.8% 100.0 40.0% 16.3 38.9% 42.1% previous page ] 35.0% 23.7% 36.2% 30.0% 15.0 29.2% 95.0 16.6% 33.3% 20.0% 10.0 25.0% 90.0 10.0% CY 2011 2012 2013 2014 2015 2016 CY 2011 2012 2013 2014 2015 2016 Broadband Households Penetration Mobile Phone Users Mobile Internet Penetration 2 Source: Screen Digest and eMarketer 2 DRAFT – FOR DISCUSSION Russian Market Overview (cont.) Traditional television dominates ad spending budgets in Russia and is expected to account for half of Russia’s total ad spending over the next few years; however, online ad spending is the second largest platform • Digital ad spending is expected to grow at a 16% CAGR from $1.7bn in 2012 to $3.1bn in 2016 as a result of advertisers’ growing familiarity with internet advertising and the potential for new advertising purchase paths such as real-time bidding • Russia’s online ecosystem is dominated by Russian, homegrown, websites with an emphasis on social media (78% of internet users, or 58mm people, will access a social network at least once a month in 2013) Digital Ad Spending in Russia Top 10 Websites Among Internet Users in Russia ($ in billions) Monthly Uniques (millions) $3.5 1 yandex.ru 50.9 $3.1 2 mail.ru 50.9 $3.0 $2.8 3 vk.com 42.2 $2.5 4 Google 39.3 $2.5 5 odnoklassniki.ru 37.0 $2.1 6 YouTube 31.7 $2.0 $1.7 7 wikipedia.org 23.5 8 facebook.com 21.6 $1.5 $1.3 9 ucoz.ru 18.7 10 avito.ru 17.7 $1.0 ivi.ru 16.0 $0.5 Tvigle(1) - Current 10.0 Tvigle(1) - CY16E 42.1 $-- Crackle Russia - FY15E 4.1 2011 2012 2013 2014 2015 2016 Crackle Russia - FY19E 10.2 Source: eMarketer 3 (1) Tvigle monthly uniques include users from Tvigle.ru, partner sites and connected devices. Tvigle projects 31%-38% of uniques from Tvigle.ru in CY13-CY17. 3 DRAFT – FOR DISCUSSION Discussion of Content • Piracy is currently one of the key market challenges in the online video space to both internet properties and content providers as only 5% of content is downloaded from legal sources in Russia – Crackle addresses this problem through its focus on the free for user AVOD distribution model and its premium content • There is strong evidence that piracy will decline significantly in the next 2-3 years • Government policies and content holders are increasingly focused on reducing illegal content online (particularly due to Russia joining WTO in 2012) – The Agreement on Trade-Related Aspects of Intellectual Property Rights sets the minimum international standards of intellectual property rights recognition and protection and has been adopted as a result of Russia joining the WTO – In the past, internet users were liable for the uploading of illegal content, however; recent laws have changed to make service providers liable for distributing illegal content in the Internet • New measurements recently implemented to reduce online piracy include: – Creating an open-to-public register of digital movies which will be fulfilled by content right owners on a voluntary basis and enabling information intermediaries to check the legal status of the content prior to their upload on web resources – Obliging information intermediaries (internet providers, domain name owners, web-sites and social networks administrators) to track the content uploaded by users, to instantly block access to pirated content and prohibit its further distribution, and prohibiting indexation of the information about sites containing illegal content by search engines 4 4 DRAFT – FOR DISCUSSION Competitive Landscape • Opportunity to capitalize on limited premium AVOD content in online market as consumer appetite is rapidly building • Hulu and Netflix are not offered in Russia, but representatives of Hulu and Netflix are understood to have held preliminary talks in 2012 about the possibility of entering the Russian market • Ivi.ru raised $40M in 2012 to fight off the threat of Hulu, Netflix and YouTube Top Competitors Ad Supported Video Services • Ivi .ru is considered to be the “Hulu of Russia” • Offers streamed premium TV and films from international and local big-name content holders • In 2012, it raised a $40M round of funding expected to be used to build out the company’s technology as well as its content catalog • More than 10M monthly uniques Films • 98% of content is free, 2% is reserved for paid subscribers (ivi+) • Streams TV episodes, webisodes and other videos • Offers content from Disney, FOX, ABC, and BBC, amongst other networks • 10M monthly uniques(1) • Distribution model based on syndication of content TV through partner sites and related advertising revenue sharing arrangements • 2012 gross revenue and gross profit of $10M and $2M, respectively • Seeking a $20M investment to fund content Clips Full Length acquisition, marketing and personnel expenses; also key shareholders selling 27% interest 5 (1) Tvigle monthly uniques include users from Tvigle.ru, partner sites and connected devices. Tvigle projects 31%-38% of uniques from Tvigle.ru in CY13-CY17. 5 DRAFT – FOR DISCUSSION Russian Online Video Competitors Overview Service Type AVOD AVOD (98%), SVOD, TVOD AVOD, SVOD Monthly Uniques 4 million (FY15) 16 million 10 million(1) Russian and Russian and Russian and Content Type international movies and international movies and international TV shows TV shows TV shows and clips Warner Brothers, Paramount Pictures, Fox, Sony Pictures, NBC Disney, FOX, ABC, BBC Content Providers TBD Universal, Disney, BBC, All3Media, and others National Geographic, Mosfilm, Lenfilm, STV, and others Platforms TBD Web, Mobile, CTVs, STBs Web, Mobile, CTVs, STBs 6 (1) Tvigle monthly uniques include users from Tvigle.ru, partner sites and connected devices. Tvigle projects 31%-38% of uniques from Tvigle.ru in CY13-CY17. 6 DRAFT – FOR DISCUSSION CPMs Bridge • Net network CPMs of $7-$9 based on conversations with Sony’s ad sales team and information from Russian video service providers and ad networks. Premium net CPMs can reach $12 • The following tables provide a bridge from gross to net CPMs Russian CPMs Sensitivity Range Network Direct Sale Rate Card $20 $25 $30 $35 Rate Card Discount - 40% (8) (10) (12) (14) Discounted CPM $12 $15 $18 $21 Super (Agency) Commission - 25% (3) (4) (5) (5) Discounted CPM after Agency Commission $9 $11 $14 $16 Sellers (Ad Network) Commission - 22% (2) (2) (3) (3) Net CPM $7 $9 $11 $12 % of Rate Card 35% 35% 35% 35% Crackle Russia Net CPM Assumptions $8 $14 • CPMs for Tvigle were $9 in 2012 • The following table provides Tvigle’s historical and projected bridge from gross to net CPMs Tvigle Investor Presentation 2012 2013 2014 2015 2016 2017 Rate Card (RUR) 975 887 852 826 810 793 Exchange Rate 0.03 0.03 0.03 0.03 0.03 0.03 Rate Card ($USD) $29 $27 $26 $25 $24 $24 Rate Card Discount & Super Commission - % 60.0% 60.0% 55.0% 50.0% 48.0% 45.0% Rate Card Discount & Super Commission - $ ($18) ($16) ($14) ($12) ($12) ($11) Discounted CPM after Agency Commission $12 $11 $12 $12 $13 $13 Sellers Commission - % 22.0% 23.0% 22.0% 20.0% 19.0% 17.0% Sellers Commission - $ ($3) ($2) ($3) ($2) ($2) ($2) Net CPM $9 $8 $9 $10 $10 $11 % of Rate Card 31% 31% 35% 40% 42% 46% Crackle Russia Net CPM Assumptions - Direct Sale NA $12 $13 7 Crackle Russia Net CPM Assumptions - Network $8 $8 $8 7 DRAFT – FOR DISCUSSION Operating Assumptions • Launch in Russia in October 2014 on Web, Mobile, and CTV • 4.1M uniques / month in FY15 growing to 10.2M uniques / month in FY19 DISTRIBUTION • Uniques % by platform: 54%/26%/17% for Web/Mobile/CTV in FY15 shifting to 50%/28%/22% in FY19 • 2.4 streams / unique (average) in FY15 growing to 3.7 streams / unique in FY19 (average) • $1.4 of revenue in FY15 (assumes mid-year launch) growing to $19.2M of revenue in FY19 • Direct ad sales headcount of 5 starting in FY16 and growing to 9 by FY17 • Revenue mix: FY15: 0% direct sales / 100% network, shifting to 50% direct sales / 50% network in FY19 • Direct Sales CPMs: FY15-FY19: $12 -$14 for Web/Mobile/CTV AD SALES • Network CPMs: FY15-FY19: $8 for Web/Mobile/CTV • Streams monetized FY15-FY19: 70%-85% for CTV/Mobile/Web • 2.8 monetized ads / stream in FY15 (average) growing to 3.9 monetized ads / stream in FY19 (average) • Content mix: Movies and TV • 311 movie titles per month in FY15 growing to 450 in FY19 CONTENT / – Movie content licensed from third parties: 33% in FY15 growing to 59% in FY19 PROGRAMMING • 85 TV shows per month in FY15 growing to 108 TV shows in FY19 – TV content licensed from third parties: 26% in FY15 growing to 51% in FY19 • Utilize Crackle’s Digital Platform Group for core platform and app development support OPERATIONS • Hire 12 new employees in FY15, an additional 5 employees in FY16 and an additional 4 employees in FY17 MARKETING • $1.6M of marketing support in FY15 (includes $300K launch marketing).