Industry Surveys Movies & Entertainment Tuna N. Amobi, CFA, CPA, Consumer Discretionary Sector Equity Analyst

DECEMBER 2014

Current Environment ...... 1

Industry Profile ...... 9

Industry Trends ...... 12

How the Industry Operates ...... 18

Key Industry Ratios and Statistics ...... 24

How to Analyze an Entertainment Company ...... 25

Glossary ...... 30

Industry References ...... 32

CONTACTS: Comparative Company Analysis ...... 34 INQUIRIES & CLIENT SUPPORT 800.852.1641 clientsupport@ This issue updates the one dated June 2014. standardandpoors.com

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S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Redistribution or reproduction in whole or in part (including inputting into a computer) is prohibited without written permission. To learn more about Industry Surveys and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of McGraw Hill Financial: Douglas L. Peterson, President, and CEO; Jack F. Callahan, Jr., Executive Vice President, Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs;Lucy Fato, Executive Vice President and General Counsel. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.

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CURRENT ENVIRONMENT

A continued evolution of over-the-top streaming video

The past few months have witnessed several announcements across the media and entertainment landscape geared toward an acceleration of Internet television offerings—also known as over-the-top (OTT) streaming services—generally bypassing the need for cable or satellite subscription. Notable among these are plans by, HBO, a premium cable channel owned by Time Warner, Inc., to launch a stand-alone streaming video service in 2015. Of note, HBO recently had approximately 30 million subscribers in the US, while Netflix had about 7 million more. Household viewers have been paying for cable to watch live sports at ESPN or popular HBO shows such as Game of Thrones; however, in the past couple of years, viewers have been seeking more choices online, resulting in cancellations in what TV viewers perceive as expensive cable subscriptions.

It is expected that the HBO streaming service will be priced at $13–$16 a month, compared with the current HBO subscription cost of about $15 a month, which is split with cable and satellite TV providers, as these are the companies that promote the service. HBO CEO Richard Plepler said that the service would attempt to target 10 million US homes that have high-speed Internet but not a cable TV subscription.

Separately, another move toward streaming videos among programming giants is the multi-year licensing deal signed by Walt Disney Co.’s ESPN and the National Basketball Association (NBA). Pursuant to that deal, the cable TV company acquired rights for a potentially imminent launch of a new OTT service, which would stream out-of-market NBA games. The NBA, which currently offers a streaming product called “League Pass,” will be part owner of the service.

Other potential entrants set for intensifying battles in OTT streaming Separately, CBS Corp. recently unveiled its own digital subscription video service for both live streaming and video on demand (VOD). The service will be available across the company’s 14 US markets and will include episodes of current shows, such as The Big Bang Theory and NCIS, one day after live broadcast. More than 5,000 episodes of “CBS Classics” will also air, including Star Trek, Cheers, and MacGyver. According to CBS, advertisements on the live stream will be the same as those on the traditional CBS broadcast, but the typical 12 to 16 minutes an hour of on-demand programming ads will be cut 25%. CBS Classic shows will be ad-free.

In additional announcements, other companies also announced plans for OTT services. For example, Sony Corp.’s OTT service is expected to debut in 2015. This will include programming from Viacom—the parent network of Comedy Central, MTV, and Nickelodeon, among others. Also expected to launch a new OTT offering in 2015, DISH Network Corp. recently secured programing rights from Disney, Scripps Networks Interactive, Inc., and others. Yet other pay TV providers, such as DirecTV and Verizon Communications, Inc. have unveiled their own OTT plans, as well.

Netflix unveils potentially disruptive plans for movie releases In October 2014, Netflix announced that it would release next year’s sequel to Crouching Tiger, Hidden Dragon, at the same time as it hits IMAX theaters. However, top major theater chains, Regal Entertainment, Carmike Cinemas, and Cinemark USA, balked at the plan and said they would not screen the film in their theaters, which comprise about one-quarter of the 418 IMAX theaters in the US. They argued that the simultaneous release of the sequel is the latest encroachment of Netflix into the traditional entertainment industry. According to an article in the Los Angeles Times on October 1, 2014, Netflix is intensifying its portfolio by improving its line-up of movies and TV shows in the face of rising competition from Amazon and Hulu.

Also in October, Netflix signed a deal with screen actor Adam Sandler to produce and star in four feature films that will be available exclusively on Netflix. This marks the first time that the company plans to produce its own film. Following the announced simultaneous showing of Crouching Tiger, the partnership

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 1 with the actor, who ranks as one of the most popular on Netflix, is the second announced deal that reflects how the company has upset the traditional model for releasing movies.

BOX OFFICE PACE RETREATS FROM PRIOR RECORD

As of early December, the 2014 year-to-date domestic box office gross receipts had tallied $9.66 billion, which represent a 4.8% retreat from a record $1.05 billion achieved in both 2013 and 2012, according to data from boxofficemojo.com. In large part, this was due to a sharp decline over the last summer, after four consecutive seasonal records DOMESTIC THEATRICAL MOVIE INDUSTRY PROFILE through the summer of 2013. AVERAGE TICKET Trade publication Variety noted on --- BOX OFFICE --- -- ADMISSIONS ------PRICE ------NO. OF August 28, 2014 that, except for YEAR MIL. $ % CHG. IN MIL. % CHG. DOLLARS % CHG. SCREENS* Guardians of the Galaxy and The 2014* 8,948 NA 1,102 NA 8.12 NA NA Fault in Our Stars, this year’s 2013 10,923 0.8 1,344 (1.3) 8.13 2.1 NA blockbusters and sequels were Table B03: DOMESTIC 2012 10,837 6.5 1,362 6.1 7.96 0.4 39,056 lacking the “thrill of discovery,” THEATRICAL MOVIE 2011 10,174 (3.7) 1,283 (4.2) 7.93 0.5 38,974 resulting in commercial 2010 10,566 (0.3)INDUSTRY 1,339 PROFILE (5.2) 7.89 5.2 38,902 repercussions. The top-grossing 2009 10,596 10.0 1,413 5.3 7.50 4.5 38,605 films in 2014 included Guardians 2008 9,631 (0.3) 1,341 (4.5) 7.18 4.4 38,201 of the Galaxy, Captain America: 2007 9,664 3.8 1,405 (0.1) 6.88 5.0 38,159 The Winter Soldier, The LEGO 2006 9,210 (5.2) 1,406 (8.1) 6.55 3.2 37,765 Movie, Transformers: Age of 2005 8,841 1.6 1,379 (1.3) 6.41 3.0 37,040 Extinction, Maleficent, X-Men: 2004 9,381 (0.2) 1,511 (4.0) 6.21 4.0 35,795 Days of Future Past, Dawn of the 2003 9,240 11.4 1,532 8.5 6.03 2.7 35,016 Planet of the Apes, The Amazing NA-Not available. Note: Percentage changes based on unrounded data. Spider-Man 2, Godzilla (2014), Source: Box Office Mojo; *National Association of Theatre Ow ners. and 22 Jump Street.

Through the current year-to-date period, approximately 1.18 billion movie tickets were sold, versus annual totals of 1.34 billion and 1.36 billion in 2013 and 2012, respectively. Meanwhile, the average ticket price for the current year period was $8.12, little changed from $8.13 in 2012 but up 2.1% versus $7.96 in 2012.

Domestic box office gross receipts reached a record $10.9 billion in 2013, up 0.8% from $10.8 billion in 2012, according to data from boxofficemojo.com, an online source for movie and box office information. Last year marked the fifth consecutive year of US SCREENS BY TYPE domestic box office receipts that topped $10 (In thousands) 45 billion. Domestic box office gross receipts were up 40 6.5% in 2012, but fell 3.7% and 0.3% in 2011 35 and 2010, respectively. Attendance (as measured 30 Chart H06: US by tickets sold) was down 1.3% to an estimated 25 SCREENS BY TYPE 1.34 billion tickets in 2013, compared with 1.36 20 billion tickets in 2012. In the first ten months of 15 2014, the domestic box office gross receipts 10 totaled nearly $8.3 billion. 5 0 2008 2009 2010 2011 2012 2013 The share of 3D revenues is declining domestically, Digital 3D Digital non-3D Analog even as the 3D market is witnessing growth

Source: Motion Picture Association of America. internationally. According to “Theatrical Market Statistics 2013,” published by the Motion Picture Association of America (MPAA), 3D box office revenues were down 1% in 2013, despite the increase in the number of 3D screens in the US and Canada to 15,782 in 2013 compared with 14,734 in 2012.

International box office stays on rescue path After a sharp 15% decline in last summer’s domestic box office, Hollywood is turning more than ever to the international marketplace to rescue sales, even if the World Cup hurt box office revenues in key soccer

2 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS markets this year. According to an article in the Hollywood Reporter in October 2014, the foreign appetite for American movies remains strong. Growth in sales has been remarkable in China and Brazil, according to the article, as Chinese box office rose 32% to $3.55 billion in the first nine months of 2014, almost equal to the full-year total in 2013. Topping the list was Transformers: Age of Extinction, which raked in more than $300 million in China and more than $1.07 billion globally.

STALLING THE HOME ENTERTAINMENT MARKET

Since reaching a peak of $21.8 billion in 2004, aggregate US home entertainment spending (i.e., combined sell-through and rentals across all formats, including DVDs, Blu-ray, and digital) has declined or stayed flat. Spending totaled $18.2 billion in DOMESTIC THEATRICAL MOVIE HITS — 2014 2013, up 0.7% from $18.0 billion in (Ranked by US box office, in millions of dollars) 2012, which in turn was up 0.2% BOX OFFICE (MIL.$) from $17.96 billion in 2011. Year to MOVIE DISTRIBUTOR US WORLDWIDE date through September 2014, Guardians of the Galaxy Paramount 330.5 770.1 spending totaled $12.51 billion, a Captain America: The Winter Soldier Buena Vista 259.8 714.1 0.9% decline from a year ago. The LEGO Movie Buena Vista 257.8 468.1 Transformers: Age of Extinction Fox 245.4 1,087.4 According to data from the Digital Maleficent Buena Vista 241.4 757.7 Entertainment Group (DEG), an B01: DOMESTIC X-Men: Days of Future Past Sony 233.9 746.0 industry trade organization, consumer THEATRICAL Dawn of the Planet of the Apes Fox 208.5 707.9 spending on formats, such as Blu-ray MOVIE HITS The Amazing Spider-Man 2 Fox 202.9 709.0 (high-definition) discs, electronic sell- Godzilla (2014) Warner Bros. 200.7 525.0 through (EST), and subscription 22 Jump Street Fox 191.7 330.7 streaming, remains relatively healthy Teenage Mutant Ninja Turtles (2014) Paramount 191.2 474.4 and growing. In 2013, sales of How to Train Your Dragon 2 Warner Bros. 176.9 618.8 packaged media declined 8.1% to Gone Girl Universal 152.6 318.8 $7.8 billion, which was offset by Rio 2 Warner Bros. 131.5 498.8 growth of 5% in Blu-ray discs. Lucy Paramount 126.6 458.8 300: Rise of An Empire Warner Bros. 106.6 331.1 In the third quarter of 2014, home Noah Sony 101.2 362.6 entertainment spending declined 1.2% Edge of Tomorrow Fox 100.2 369.2 from the third quarter of 2013 to The Maze Runner Paramount 100.1 330.1 Interstellar Fox 96.9 322.7 $3.92 billion, in line with the fall in NOTE: Movies released in 2013; all receipts w ere not necessarily collected in cumulative box office for films released the year that a movie w as released. *Data through October. in the home entertainment window, Source: boxofficemojo.com. according to the DEG. Sales of packaged media declined 8.0% to $1.3 billion in the third quarter of 2014. The top sellers in 2014 included Frozen, The Hunger Games: Catching Fire, The LEGO Movie, Despicable Me 2, and The Hobbit: The Desolation of Smaug.

We expect packaged media to face more pressure over the next few years, but continued strong growth in Blu- ray should increasingly mitigate the decline. By the end of the third quarter of 2014, the US installed base of Blu-ray disc playback devices (including set-top box and game consoles) was around 80 million homes, according to the DEG. In addition, the DEG estimated HDTV penetration at more than 104 million US households by the third quarter of this year.

Electronic sell-through stays on growth trajectory Digital transactions are proving to be a bright spot for the home video market, with the electronic sell- through (EST) market reaching more than $1 billion in the first half of 2014. In the third quarter of 2014, according to the DEG, consumer spending on home entertainment through digital outlets was flat compared with the same quarter in 2013, reflecting stability in the market, while overall EST spending rose 26% compared with the same period a year ago. The growth was primarily driven by an 88% year-to-date rise in spending on EST for new theatrical releases.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 3

In 2013, consumer spending on home entertainment through digital outlets jumped 23.9% to $6.5 billion, according to the DEG, reflecting 4.8% and 47.1% growth in VOD and EST outlets, respectively; digital subscription-based streaming services reported growth of 32.1% in 2013. Digital spending accounted for around 35% of the domestic home video market in 2013, up from 29% in 2012. Personalization and time shifting have spurred the advent of VOD services, as well as EST outlets such as Apple’s iTunes and Amazon.com. Although EST’s contribution to digital spending is less than half of the contribution from other platforms, its remarkable growth is propelling digital sales. Furthermore, based on the data from leading studios, EST margins are much higher than those of other digital platforms are.

As sell-through spending declined over the past few years, more consumers began shifting to relatively lower-priced rental services such as Netflix. Hence, the overall rental category has been in decline. In the third quarter of 2014, total US consumer spending on home entertainment rentals (excluding VOD) dropped 17.9%, to about $793.2 million, due to a 30.4% decline in brick-and-mortar outlets, an 11.5% decline in kiosks, and a 17.7% decline in subscription-based mail-order and streaming services. In 2013, total US consumer spending on home entertainment rentals (excluding VOD) declined 9.2%, to about $6.1 billion, as brick-and-mortar rentals fell 14.2%, subscription-based mail-order and streaming services declined 19.1%, and kiosks were down 1.0%. We expect disappearing brick-and-mortar stores to exert further pressure on home video rentals, against continued gains by Netflix and other online video platforms. (See the “Industry Trends” section of this Survey for further discussion on the growing impact of Netflix and other over-the-top video services.)

UltraViolet platform fosters ownership rights In late 2011, the Digital Entertainment Content Ecosystem (DECE)—a consortium of more than 70 major entertainment companies, including studios, consumer electronics manufacturers and retailers, and cable TV operators—launched UltraViolet (UV), a “locker service” that allows users to pay for the content once, store it online, and then download or stream it on multiple platforms.

The locker service has not been able to attract most consumers, nor has it been a threat to its counterpart, Apple’s iTunes Store. However, this could change. Amazon.com Inc. held talks with Warner Bros. Pictures, Sony Pictures, and Universal Pictures to join the UV consortium, according to an article published in the trade publication The Verge in October 2014. The deal could help expand Hollywood’s online movie business, which is worth more than $2 billion, making Amazon a bigger threat to industry leader Apple Inc.

Continued improvements in the user experience helped the UV service grow to more than 20 million accounts as of November 2014, with more than 100 million movies and TV shows in their UV libraries, according to data from the DEG.

After Wal-Mart Stores launched a campaign in 2012 to convert DVDs into digital formats for a nominal fee per movie, many other retailers are promoting the service to their own customers, a move they hope will also help them sell their own digital offerings. Nevertheless, the service is facing several issues. For instance, due to different formats for digital rights management (DRM), the service cannot be used on all devices, which is marketed as a key feature of the service. In addition, Disney and Apple are not yet supporting the service, mainly because they are operating their own services.

MUSIC BLUES CONTINUE ON DECLINING ALBUMS

Sales of digital music, which includes streaming outlets or “on-demand” services, such as Spotify, Rhapsody, and Google Play Music All Access, make up about 68% of total sales revenue for the recorded music industry. According to a New York Times article dated September 25, 2014, the US currently has 7.8 million people who have paid subscriptions to digital services, up from 6.1 million at the end of 2013.

However, based on data from the Recording Industry Association of America (RIAA), which collects sales figures from major record companies, this change in trend has not been enough to offset the dropping sales of CDs and downloads. The RIAA reported that the first half of 2014 saw a 4.9% decline in music sales from the same period in 2013, amounting to less than $3.2 billion. During this period, downloads and

4 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS streaming together remained flat at $2.2 billion compared with the same period last year, with downloads comprising only 60%.

As for music albums, sales declined in 2012 and 2013 after showing some encouraging trends in 2011, which marked the first gain for the music industry since 2004. According to market research firm Nielsen SoundScan, total album sales across all formats—both physical and digital (minus track-equivalent albums)—dropped about 8.0% in 2013, to 289.4 million units (on a 5.8% drop in current albums, and an 11.1% fall in catalogs). Leading the sales charts in 2014 are Frozen (various artists), Beyonce (Beyonce), Outsiders (Eric Church), Pure Heroine (Lorde), Ghost Stories (Coldplay), Now 49 (various artists), Crash My Party (Luke Bryan), Prism (Katy Perry), Now 50 (various artists), and GIRL (Pharrell Williams).

The decline continued into the first half of 2014, with digital albums down 11.6% from the first half of 2013, to 53.8 million units, and compact disk (CD) album sales falling 19.6% to 62.9 million units, according to Nielsen SoundScan. Pharrell Williams’ Happy was the top-selling digital song, with 5.6 million scans.

For the music industry, a continued erosion of CD sales triggered by secular headwinds (i.e., the transition from physical formats) had led to double-digit sales declines over the past several years. In 2013, CD album sales were down 14.0% to 165 million units from 193 million units in the previous year. In 2012, CD album sales dropped 13.5% to 193 million units, following a 5.7% decline in 2011 and a 13% decline in both 2010 and 2009.

Amid shifts in music consumption, the past several years also saw significant shrinkage of retail shelf space for CDs sold through mass merchants and big-box outlets such as Wal-Mart Stores Inc., Best Buy Co. Inc., and Target Corp. We have also seen the bankruptcies of other major chains selling CDs, such as Circuit City, as well as other independent specialty outlets.

Streaming provides a bright spot for digital music sales Digital music sales, mainly comprising online and mobile downloads, have kept the music industry stable, helping to partly offset continued declines in CD sales. Apple’s iTunes store remains the dominant player in the US digital music market, having overtaken Wal-Mart Stores in February 2008 to become the largest US music retailer. Amazon Inc.’s MP3 store is also garnering a growing portion of digital music sales.

According to the RIAA’s 2013 sales and revenue released in March 2014, streaming is the fastest-growing segment of the recorded music industry. In addition, paid music subscriptions grew 57% year over year during 2013, with an average of 6.1 million consumers subscribed to free-listening services, such as Spotify and Pandora. Labels and artists received payments totaling $628 million from subscription last year, while royalty payments from ad-supported free-listening services reached $220 million, representing a year-over- year increase of 29%.

PricewaterhouseCoopers, a consulting firm, released its “Global Entertainment and Media Outlook 2014– 2018,” in which it forecasts compound annual growth rate (CAGR) of music-streaming revenues at 14.5%, with the earnings pie increasing from $848 million to $1.7 billion during this period. Revenues from streaming are expected to account for 37% of total digital recorded music revenues, up from 23% in the previous year.

In 2013, US sales of digital tracks dropped 5.7% to 1.26 billion units, from 1.34 billion units in 2012, which in turn was up 5.1% from the previous year, according to Nielsen SoundScan. Year to date through mid-2014, sales declined 13.0%, year over year, to 594 million units from 682 million units. Sales of digital songs in 2014 were led by Pharrell Williams’ Happy, Katy Perry’s Dark Horse (featuring Juicy J), John Legend’s All of Me, Jason Derulo’s Talk Dirty (featuring 2 Chainz), and Idina Menzel’s Let It Go. Sales of digital albums were flat in 2013. In the first half of 2014, digital album sales were down 11.6% to 53.8 million units, from 60.8 million in the same period of 2013.

According to data from “2013 RIAA Music Industry Shipment and Revenue Statistics,” digital album revenues exceeded $1.2 billion in 2013, up 2.4% from 2012. By volume, digital albums accounted for 40% of total album sales, up from 35% in 2012. Digital track revenues totaled $1.6 billion in 2013, down 3.4%

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 5 from 2012. Combined revenues from all digital formats grew to $4.36 billion in 2013, up 7.6% from $4.05 billion in 2012. Further, digitally distributed formats accounted for 64% of total US market shipments (by dollar value), up from 59% in 2012.

Cloud-based music services continue to evolve A new generation of cloud-based (or so-called “locker”) music services has emerged to foster a seamless personalization of content across multiple platforms. Through Internet or mobile network connections, consumers may access files or applications from remote servers and download to various devices such as laptops/PCs, smartphones, tablets, and other gadgets.

This space has increasingly attracted major technology companies such as Amazon.com Inc., Google Inc., and Apple Inc. All three companies have unveiled cloud-based music offerings, which are free or available for monthly price points ranging from $20 to $24.99 (depending on storage capacity, entitlements, and other features).

Competition in the cloud-based music space further increased with the US launch in July 2011 of Spotify, a fast-growing “all-you-can-eat” streaming service. As of November 2014, it had more than 50 million active users and 13 million paid subscribers. In collaboration with the major labels, Spotify’s three-tiered offering includes a free ad-supported service, a $4.99/month ad-free version, and a $9.99 premium plan that includes mobile streaming.

On June 12, 2014, The Wall Street Journal enumerated today’s popular streaming music options. The list includes Pandora, with 1.5 million songs for $3.99 per month of premium ad-free service; Apple iTunes Music and iTunes Radio, with 40 million songs in store (Apple charges a la carte for music, but also has $24.99-per-year iTunes Match streaming); Google Play Music, with 22 million songs, available through an “All Access” pass worth $9.99 a month; Amazon’s Prime Music, with 20 million songs in MP3 store, and more than a million available for a subscription fee of $99 per year; and Rdio, with more than 20 million tracks that cost $9.99 per month for main plan. Other options include $4.99 student plan and discounts for families; and Beats Music (bought by Apple for $3 billion), also with 20 million songs, but no free option— the cost is $9.99 per month or $99.99 per year—as it merges the strengths of Spotify, Pandora, and Rdio, according to the article. Almost all of these options have free ad-supported options for mobile and web.

Other music services worth mentioning include YouTube, Google’s free video service that allows people to watch or listen to music, old and new. Meanwhile, the following are priced at $9.99 per month: Microsoft’s Xbox Music and Sony’s Music Unlimited, each offering unlimited streaming services with millions of songs; Songza, Pandora’s competitor that offers mood-matching services, available in both free and premium streams; and Rhapsody/Napster, called “the grandfather of the streaming web music scene,” which offers a global catalog of 32 million songs.

Concert attendance on the rebound According to an analysis from trade publication Pollstar published in January 2014, the concert industry generated a record $5.1 billion in North America in 2013, due to near-record prices and major acts. Overall, the top 50 worldwide tours had $3.8 billion revenue, up 27.6% from 2012, with Bon Jovi leading with $259 million in gross sales, followed by Beyonce’s tour ($189 million). In terms of domestic revenue, Taylor Swift grossed $113 million, beating Bon Jovi’s $107.3 million. The increase in performance dates accounted for the boom in concert attendance, compensating for declining record sales. Pollstar cited Paul McCartney as an example—the artist played 29 shows in 2013, about twice the number he played the previous year. Bon Jovi, Beyonce, and Pink each did more than 100 concerts last year.

In 2013, total ticket revenue generated by the top 20 tours grossed $2.4 billion, reflecting a 24% year-over- year increase and a new record for the top 20 touring acts. Notably, most of the top 10 highest-grossing tours during that year are relatively young acts who have just established their careers during the past decade. The Rolling Stones, which charged an average of $288 on its “50 and Counting” tour, garnered the most number of ticket sales among the top 20 grossing tours last year. The British teen pop band, One Direction, sold the least expensive tickets, which cost an average of $63 per seat.

6 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS

The Internet, particularly social media such as YouTube, Facebook and Twitter, helped spur this development, according to Live Nation, the world’s largest concert promoter.

REGAL ENTERTAINMENT EXPLORES A SALE

In late October 2014, Regal Entertainment Group, operator of the country’s largest theater chain, said that it was exploring “strategic alternatives” that could include a sale of the company. Regal Entertainment’s net income for the quarter was $26.7 million, down from $75.1 million in the year-earlier period, while revenue dropped about 15% to $693.8 million, from $813.1 million.

The New York Times Dealbook stated that the announcement came right after the worst summer for the movie industry in more than a decade, and during the time when Netflix is successfully moving into the movie business. Dealbook mentioned that Asian companies have recently being eyeing Hollywood properties. We think Chinese companies Ali Baba and Wanda are among the foreign entities with potential interest in Hollywood assets.

Fox pulls its bid on a rebuff from Time Warner In August 2014, 21st Century Fox withdrew its proposal to acquire Time Warner Inc. for about $85 billion in cash and stock. That aborted transaction would have combined two of Hollywood’s major operators of film and television studios, while also potentially allowing Fox to challenge ESPN’s dominance in sports broadcasting. Earlier, Time Warner had rebuffed Fox’s overtures citing a host of concerns including valuation and riskiness, as well as corporate governance and management for the combined company.

OUR OVERALL MOVIES & ENTERTAINMENT INDUSTRY OUTLOOK

As of early December 2014, we had a neutral near-term outlook on the movies and entertainment sub- industry, amid a continued weak consumer-spending environment. While traditional formats (DVDs, CDs) and channels have likely reached saturation, we see a continued evolution of newer distribution windows across emerging distribution platforms: M OV IES & ENT ERT AINM ENT ST OCK INDEX PERFORM ANCE online, streaming, electronic sell-through (EST), video on demand (VOD), and 450 2,100 mobile devices (including tablets and 400 1,900 smartphones). 350 1,700 We think that secular headwinds seem to 300 be buffeting the DVD sell-through Chart H01: MOVIES & 1,500 market (despite gains in Blu-ray), with 250 ENTERTAINMENT rentals pressured by the closure of STOCK INDEX 1,300 200 several brick-and-mortar stores. The PERFORMANCE 1,100 150 music environment should stay challenging, as declining CD sales further 900 100 weigh on overall album sales. Still, 50 700 growing digital music sales (e.g., iTunes, 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* Amazon, Pandora) are partly offsetting Movies & Entertainment Index (Dec. 30, 1994 = 100; left scale) declining CD sales. In addition, we see a S&P 500 Composite (1941-43=10; right scale) blurring of lines across recorded music, *Data through October. concert promotion, artist management, Source: S&P Capital IQ Indices. and ticketing.

With the 2014 domestic box office set to retreat from last year’s record pace after a lackluster movie season, our cautious near-term outlook reflects secular pressures on movie attendance (amid growing consumer options for out-of-home entertainment). However, increased rollout of premium-priced 3D movies could help support modest increases in average ticket prices. Still, we note continued shifts in media consumption brought about by changing consumer behavior, creating potential opportunities and challenges for content providers.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 7

Changing consumer habits should spur a convergence of content, technology, and services. With Netflix, Amazon, and Hulu becoming popular video streaming destinations, and new business models for web-TV authentication under experimentation, we think that online video could provide a potentially compelling longer-term opportunity for content providers, which are increasingly embracing social media as important outlets (e.g., Facebook, Twitter, and YouTube).

Amid a recent wave of M&A activity by multichannel video programming distributors, we also see further opportunities for industry consolidation among entertainment content providers and theatrical exhibitors, while also noting a recent move by Regal Entertainment to explore its strategic alternatives (including a potential sale). Other notable deals in recent years include Disney-Lucasfilm; Lionsgate-Summit; Disney- Marvel; Comcast-NBCU; and EMI-Sony and Universal. While the large companies may also be exploring potential “tuck in” deals in the digital space, we also note some interest in Hollywood assets from foreign entities, potentially including Chinese companies such as Ali Baba and Wanda.

After significantly outperforming the broader market again in 2013 with a 54.0% advance, versus a 30.1% gain for the S&P 1500 Index, the S&P Movies & Entertainment Index was up 15.2% year to date through December 5, 2014, versus an increase of 11.6% for the broader market benchmark. 

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INDUSTRY PROFILE

The many forms of entertainment

The growth in digital formats has sharply boosted competitive conditions in the media and entertainment landscape. With the expansion of media outlets and the continued creation of new ways to package and format content, the convergence of media platforms are providing opportunities and challenges for all participants. The explosion in social networking and user-content sites is not only accelerating content fragmentation, but is also moving a large degree of control away from businesses and into the hands of consumers.

DIVERSIFIED OPERATIONS & ASSETS OF MAJOR MEDIA AND ENTERTAINMENT COMPANIES NBC NEWS SONY TIME AREA CBS CORP. DISNEY UNIVERSAL CORP. CORP. WARNER VIACOM Basic cable netw ork(s) ■■■■■ ■■ Billboards/posters ■■ Book publishing ■■■■ Broadcast TV netw ork(s) ■■■■ ■ Broadcast TV station(s) Table■■■■ B04: Diverse Film production/library Entertainment■■■■■■■ operations Internet/broadband sites & assets■■■■■■■ of Movie & TV Magazines/new spapers companies ■■ Merchandising ■■■■■■■ Premium cable netw ork(s) ■■■ Radio stations/netw orks ■■ Recorded music label(s) ■■ Theme parks/resorts ■■ TV production/library ■■■■■■■ Note: Some relatively minor operations may be excluded. Includes significant equity interests in joint ventures or other companies. Source: S&P Capital IQ Equity Research.

Historically, the US movie and entertainment business has experienced remarkable growth since the early 1990s, thanks to expanding audiences, pipelines, and content. These industries provide products and services for audiences around the world, including new films shown in theaters, video and music titles, and a wide range of television shows. Through distribution arrangements, content owners receive revenues from various sources, such as the sale or rental of their products, advertising sales, and subscription services.

THE FILM INDUSTRY

Movies remain a cornerstone of the US entertainment industry, with consumers paying billions of dollars annually to watch films in various formats. In 2013, around 1.34 billion movie tickets were sold in North American theaters—an average of about 3.7 million tickets per day—for a box office total of about $10.9 billion. Meanwhile, consumers also spent approximately $18.2 billion on home video purchases and rentals across a variety of formats, up approximately 0.72% from around $18.0 billion in 2012. Through early May 2014, around 418.5 billion movie tickets were sold in North American theaters—an average of about 3.4 million tickets per day—for a box office total of about $3.33 billion.

For any given film, box office receipts and home video sales (both domestic and international) account for an overwhelming portion of revenues. However, other channels, such as TV licensing and pay-per-view, as well as emerging platforms such as video-on-demand (VOD) and Internet downloads, also contribute a meaningful (although significantly smaller) portion of a film’s total ultimate earnings over its life span.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 9

The movie releases of six major film studios—all owned by conglomerates—have typically accounted for 80%–85% of domestic box office revenues in any given year. These companies are Warner Bros. (Time Warner Inc.), Paramount Pictures (Viacom Inc.), 20th Century Fox (News Corp. Ltd.), Walt Disney Pictures (The Walt Disney Co.), Sony Pictures Entertainment (Sony Corp.), and Universal Pictures (Comcast Corp.).

DOM ESTIC BOX-OFFICE M ARKET SHARES Among the independent studios (In percent) are Metro-Goldwyn-Mayer 2014* (MGM); Lionsgate Entertainment BOX OFFICE Corp., DreamWorks Animation REVS. SKG Inc. (whose films are DISTRIBUTOR 2009 2010 2011 2012 2013 2014* (MIL. $) distributed by Viacom’s 20th Century Fox3 10.5 13.1 14.0 9.5 9.7 17.8 1,565 Paramount), DreamWorks SKG Buena Vista 10.5B02: 11.6 DOMESTIC 13.8 14.3 15.7 16.1 1,417 (distributed by Disney’s 1 BOX-OFFICE Warner Bros. 18.4 19.8 18.2 15.4 17.1 14.9 1,313 Touchstone Pictures); The MARKET SHARES Sony / Columbia 13.2 13.7 12.1 16.6 10.5 13.5 1,185 Weinstein Co., and CBS Corp.’s Univ ers al2 11.0 8.4 8.3 12.2 13.1 10.9 959 CBS Films. Summit Entertainment Paramount 16.4 13.9 16.2 8.4 8.8 10.2 901 LLC was acquired by Lionsgate in Lionsgate4 4.5 3.8 4.9 11.5 9.8 4.7 417 January 2012, which made Weinstein Company 0.5 1.9 0.8 2.4 4.5 2.1 182 Lionsgate the largest of the Relativity 0.0 0.0 0.1 1.9 2.2 1.9 170 independent Hollywood studios by Open Road Films … … 0.2 1.3 1.4 1.7 150 far, while two other formerly Total, major distributors 85.0 86.2 88.6 93.5 92.8 93.8 8,257 independent studios—Pixar Others 15.0 13.8 11.4 6.5 7.2 7.2 551 Animation Studios and Marvel TOTAL 100.0 100.0 100.0 100.0 100.0 101.0 8,808 Entertainment LLC—were 1 2 Currently ow ned by Time Warner Inc. Currently ow ned by NBC Universal, w hich is acquired in 2006 and 2009 by 3 4 80% ow ned by General Electric Co. Largely ow ned by New s Corp. Lionsgate Disney, which in turn divested acquired Summit Entertainment in January 2012. *Data through October. Miramax Films to certain Source: Box Office Mojo. independent parties in 2010.

LARGEST NORTH AMERICAN THEATER CHAINS Movie theaters (Ranked by number of screens, as of July 2013) Movie theaters retain about 50% of the dollars AVERAGE NO. that consumers spend at the domestic box office, NO. OF NO. OF OF SCREENS with the remainder going to the distributors as CHAIN LOCATIONS SCREENS PER LOCATION film rental fees. The three largest film exhibitors— Regal Entertainment Corp. 574 7,318 12.7 Regal Entertainment Group, AMC Entertainment AMC Entertainment* 344 4,988 14.5 Inc., and Cinemark USA, Inc.—represent around Cinemark USA**Table B05: 332 Larg 4,434est 13.4 45% of the 39,783 US theatrical indoor movie Carmike CinemasNorth American 249 2,476 9.9 screens. Including Carmike Cinemas Inc. and Cineplex EntertainmentTheater Chains 136 1,672 12.3 Cineplex Entertainment LP, the top five theater Marcus Theatres 55 687 12.5 chains represent more than half of the total screen Harkins Theatres 31 440 14.2 count in the country. National Amusements 32 423 13.2 Bow Tie Cinemas 63 388 6.2 TELEVISION Georgia Theatre Company 32 326 10.2 Totals 1,848 23,152 12.5 The Big Four English-language broadcast networks *Includes Loew s Cineplex. **Includes Century Theatres. in the US are ABC Television Group (The Walt Source: National Association of Theatre Ow ners. Disney Co.), CBS (CBS Corp.), FOX (News Corp.), and NBC (Comcast). The CW Network, a merger of CBS’s UPN and Time Warner’s WB networks, debuted in fall 2006. Two major Spanish-language networks broadcast in the US: Univision (Univision Communications Inc.) and Telemundo (Comcast).

In January 2012, News Corp. entered the Spanish-language market through the formation of a joint venture with Colombia-based RCN Television Group to run MundoFox, a new Spanish-language television network catering to the US Hispanic market that was launched in August of that year. In late July 2012, ABC News signed a definitive agreement to form a joint venture with Univision News to launch an English-language

10 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS network. The new network, known as Fusion, has a TV channel, along with a website and social media platform that provide English-speaking and bilingual Hispanics with news and other programs focused on them. The TV channel was launched on October 28, 2013.

In addition, the entire US spectrum has approximately 500 cable and satellite TV networks. These include basic cable channels (e.g., ESPN, TNT, TBS, USA, MTV, Nickelodeon, Lifetime, Syfy, FX, Cartoon, Discovery, Fox News, CNN), an array of Spanish-language networks (e.g., Univision’s Galavisión, Discovery en Español, FOX Sports en Español, MUN 2, ESPN Deportes, and GOL TV), as well as premium subscription channels (e.g., HBO/Cinemax, Showtime, and Starz/Encore, and EPIX).

THE MUSIC BUSINESS

Total US album sales across all formats—both physical and digital (minus track-equivalent albums)— dropped 8.0% in 2013 to 289.4 million units from 316 million units in 2012. In 2012, album sales were down 4.4%. In 2011, album sales increased about 1.3%, to nearly 331 million units, up from 326 million units in 2010, according to Nielsen SoundScan, a market research firm. We think that over 60% of the industry’s current revenue base derives from the sales of CDs and other physical formats, with digital revenues (downloads, RECORDED MUSIC INDUSTRY SALES PROFILE—FIRST HALF, 2014 mobile, etc.) accounting --- UNITS SHIPPED (MIL.) ------VALUE (MIL. $) ------for the remainder. 2000* 2004** 1H2014 2000* 2004** 1H2014 PHYSICAL SHIPMENTS (MILLION UNITS SHIPPED) Three distributors CD 942.5 767.0 56.3 13,214.5 11,446.5 715.6 dominate the worldwide CD Single 34.2 3.1 0.7 142.7 15.0 3.4 recorded music industry: LP/EP 2.2 1.4 6.5 27.7 19.3 145.7 Universal Music Group Vinyl single B08: 4.8 RECORDED 3.5 0.3 26.3 19.9 3.5 (part of France-based Music video MUSIC 18.2 INDUSTRY 32.8 1.4 281.9 607.2 29.0 Vivendi SA), Sony Music Total physical shipments† 1,079.2SALES PROFILE 814.1 57.4 14,323.7 12,154.7 898.0 Entertainment (part of DIGITAL DOWNLOADS (MILLION UNITS DOWNLOADED) Japan-based Sony), and Singles 0.0 139.4 643.6 0.0 138.0 752.9 Warner Music Group Albums 0.0 4.6 54.3 0.0 45.5 543.7 Corp. (based in the US). Kiosk‡ 0.0 0.0 0.8 0.0 0.0 1.3 These three companies Music video 0.0 0.0 3.3 0.0 0.0 6.6 typically account for Total digital shipments 0.0 144.0 702.0 0.0 183.5 1,304.5 Ringtones & ringbacks 0.0 0.0 15.9 0.0 0.0 39.5 close to 90% market Subscription 0.0 0.0 7.8 0.0 0.0 371.4 share of US music sales. Digital performance & In November 2011, synchronization royalties … … 0.0 6.9 88.2 Universal and Sony agreed to acquire UK- , , , , , based EMI Group PLC, *Peak year for CD sales. **First year of digital sales. Note: Sales represent manufacturers' the world’s third largest shipments, net of returns. Dollar values are based on suggested retail prices, w hich in many cases exceeded actual prices. †Includes DVD audio and SACD. ‡Includes singles and albums. music company, in two Source: Recording Industry Association of America. separate deals, subject to regulatory approvals. Universal’s deal to acquire EMI’s music division received regulatory approval in September 2012, while Sony Music completed its deal to acquire EMI’s publishing arm in June 2012.

The live entertainment segment of the industry mainly generates its revenues from ticket sales related to the promotion of music concerts and other events. Concert promoters also derive a growing portion of revenues from ancillary sources such as online fan clubs, sponsorships, merchandising, and endorsements. The live entertainment market is highly consolidated, with the newly created Live Nation Entertainment Inc. by far the dominant player, while Anschutz Entertainment Group’s AEG Live is the second largest.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 11

INDUSTRY TRENDS

Technological developments continue to rapidly modify the traditional means of content distribution, creating further shifts in the industry’s economics. Continued changes in consumer behavior have spurred these trends, amid a shift toward increased personalization of on-demand content.

Facing declining sales on the saturation of physical formats such as CDs and DVDs, the music labels and film/TV studios are actively seeking to monetize their content by expanding into digital distribution. For example, these content providers are leveraging the growing popularity of various direct-to-consumer online distribution channels and rapidly growing social networking sites, while also addressing the needs of consumers who wish to have access to such content while on the move.

In the TV business, cable networks have significantly ratcheted up their investments in original programming, helping them to garner a greater share of viewers from the major broadcast networks that have faced steady audience erosion. The Internet and other emerging platforms also contribute to a secular increase in audience fragmentation across the TV landscape.

Consumers are increasingly making personal recordings at home directly onto their computers or wireless handheld devices. For content providers, changing consumer habits and a proliferation of online and mobile platforms have necessitated a new way of thinking on delivery mechanisms, as older technologies become increasingly obsolete. S&P Capital IQ (S&P) expects consumer time shifting and place shifting to spur further convergence of content, technology, and services.

STREAMING VIDEO PROVIDERS RAMP UP PROGRAMMING

The competitive landscape for multichannel video programming distributors (MVPD) is undergoing some major changes, as fiber-based video (and broadband) services from telcos go against traditional cable and satellite TV providers (for a more detailed discussion, see the Broadcasting, Cable & Satellite Survey). In more recent years, we have also seen the rise to prominence of online video distributors (OVD), the continued evolution of which we expect to have longer-term implications for content providers and distributors.

The relatively nascent and rapidly growing OVD space—essentially providing streaming video over broadband connections (also known as “over-the-top” services)—has a number of major players. These include Netflix Inc., Hulu, and Amazon.com Inc., as well as Wal-Mart Stores Inc.’s Vudu. For years, Netflix was the market leader in the OVD space; more recently, it has emerged as a major catalyst for change in the movie and entertainment landscape through its distribution pacts with all of the major film studios and several television networks. Netflix has firmly established itself as a major player in the acquisition of content rights, placing it in competition with the traditional TV providers and premium cable channels.

Competition in the online video space is, however, likely to intensify in the years ahead. For instance, in December 2012, Verizon Communications Inc. and Coinstar Inc. (now Outerwall Inc.) together launched Redbox Instant, an online streaming video service that competes with Netflix by allowing streaming and downloading of video content both online and through various devices such as smartphones, in addition to physical DVD rentals at kiosks.

Hulu is a joint venture of three major broadcast networks (Disney’s ABC, News Corp.’s FOX, and Comcast’s NBC) and one of the top US online video destinations. The site offers a large selection of television shows (including prime-time hits) and movies from about 260 individual content providers. Initially launched in 2008 as an ad-supported service, the site in 2010 added a subscription-based offering that also provides access for a selection of smartphones (including the iPhone) and Internet-connected devices (e.g., smart TVs and game consoles), Blu-ray players, and tablet devices such as Apple’s iPad.

These players, in addition to their online video-streaming services, have begun to ramp up their investments in original programming in the last few years. For instance, Hulu made its initial foray with the launch of two original content programs: A Day in the Life, a documentary, in 2011, and Battleground, a sitcom, in

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February 2012. Upcoming Hulu Originals include an original miniseries created by novelist Stephen King and J.J. Abrams, who is known for Lost and Fringe.

Netflix, in its first foray into original content series, launched Lilyhammer in February 2012, and subsequently premiered other series, such as House of Cards, Hemlock Grove, and Orange is the New Black. In 2016, Netflix will release two seasons of its new series entitled Love by Judd Apatow, producer of the hit comedy, Anchorman 2: The Legend Continues. Other Netflix Originals will premiere in late 2014 and 2015, including a drama based on the travels of Marco Polo, a new comedy entitled Grace & Frankie, and other series (Between, Sense8, and Narcos). In addition, Netflix will release the sequel to Crouching Tiger, Hidden Dragon online, which is expected to premier simultaneously in IMAX theaters nationwide on August 28, 2015. Meanwhile, Amazon is a strong competitor among OVD players. For online streaming, Amazon, in February 2011, launched its Prime Instant Streaming service that offers over 15,000 movies and TV series. The company’s offer of unlimited streaming of a growing selection of movies/TV titles to members of its Prime loyalty program is accessible through web browsers on computers, smartphones, and tablets, as well as certain Blu-ray players and some set-top boxes. The company enjoys a competitive advantage, as it provides streaming services at a lower price than competitors such as Netflix.

In September 2014, Amazon released all ten episodes of its new original, Transparent, and it will stream a second season in 2015. Aside from Transparent, the Amazon Original Alpha House had its second season, which premiered on October 24. Other Amazon originals that will debut in 2015 include a sci-fi mystery series, The After (from the creator of the X-Files); Hand of God; and a coming-of-age sitcom, Red Oaks.

TV Everywhere makes progress amid challenges The TV Everywhere (TVE) initiative was launched in the summer of 2010. It represents an attempt by traditional pay TV providers, in collaboration with certain programmers, to defend their business turf against a continued encroachment by OVD players amid increased concerns with “cord cutting”— consumers’ decision to drop their traditional pay TV subscriptions as they switch to online video distributor (OVD) platforms (as further discussed in the Broadcasting, Cable & Satellite Survey).

With TVE, authenticated pay TV subscribers are provided access to streaming videos of full-length episodes of a growing selection of TV shows and movies) across multiple platforms, both within or outside the home (e.g., TV, PC, tablets, and mobile devices) at no additional cost. For example, Comcast’s Xfinity online TV service offers more than 20,000 TV episodes and 2,000 movies.

More than four years have passed since the first public announcement of TVE, and the initiative is slowly gaining ground.

Despite the industry trend toward over-the-top, direct-to-consumer subscription video products, TVE services are proving to be on the upswing, according to an article published in the industry publication Multichannel News on October 21, 2014. The article, “TV Everywhere Still Growing,” cited Adobe’s latest Video Benchmark Report, which showed that the total amount of online TV authenticated video starts spiked 388% year over year in the second quarter this year. Adobe’s report was based on 165 billion total online video starts and 1.53 billion TVE authentications across 250 US pay TV service providers. Broadcast and cable networks with online TV saw a 146% increase in unique monthly viewership across all online TV channels, according to the report, while the amount of online TV content watched per viewer rose 55%.

In terms of authenticated video starts, gaming consoles and OTT access types rose significantly by 194% year over year. Adobe’s report added that more video consumption is going online. During the second quarter of 2014, Adobe’s customers produced a record 38.2 billion video starts, up 47.3% from the same period a year ago. Moreover, among all devices, smartphone have surpassed tablets in terms of video starts, but smartphones were not the fastest-growing video platform; it was the gaming consoles as well as other OTT devices, with usage skyrocketing 127%, compared with the 59% growth in smartphone online video starts and 29% in the tablet category.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 13

DIGITAL CINEMA HERALDS A NEW ERA

By the end of 2013, several of the major US theater operators, including Regal Entertainment, AMC Entertainment, and Cinemark, had substantially completed their transition to digital cinema (from the traditional 35mm format) that had begun a DIGITAL SCREENS few years earlier. Intended to enhance (In thousands) moviegoers’ experience and to foster 120 increased operating efficiency, the initial phase of the transition entailed a buildout of 100 a relatively significant base of 3D screens by 80 Chart H04: DIGITAL the theater operators, followed by outfitting SCREENS the remaining screens with digital projection 60 equipment.

40 Following Avatar’s record-breaking 20 performance in 2009, an accelerated pace of 3D deployment seems evident from a rapid 0 growth in the number of digital 3D screens 2006 2007 2008 2009 2010 2011 2012 2013 worldwide, which more than doubled to US/Canada International 22,000 screens in 2010, grew to 35,400 Source: Motion Picture Association of America. screens in 2011, to 45,500 in 2012, and to 53,100 based on data from IHS Screen Digest, a market research firm. In the domestic market, by the end of 2013, nearly 14,500 of the 39,800 US screens were 3D-capable.

In 2007, the Digital Cinema Implementation Partners (DCIP)—a joint venture of Regal, AMC, and Cinemark, the three largest US exhibitors—had announced plans for a multi-year buildout of 3D screens. According to DCIP, since March 2010, it has deployed more than 14,000 digital systems in theaters operated by these three companies in the US. Regal, AMC, and Cinemark operate over 35% of the theater screens in

US/CANADA 3D FILM RELEASES AND BOX OFFICE

3D FILM RELEASES US/CANADA 3D BOX OFFICE 50 12 (BILLIONS OF DOLLARS) 45 10 40 Chart H03: 35 US/CANADA 3D8 30 FILM RELEASES 25 AND BOX OFFICE6 20 15 4 10 2 5

0 0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013

3D Box office 2D Box office Source: Motion Picture Association of America. the US and generate more than 50% of total domestic box office receipts annually. In Canada, DCIP has managed the deployment of over 1,800 digital systems in theaters operated by Cinemark and Empire, the two largest exhibitors in Canada, since June 2011. Cinemark and Empire operate over 55% of the theater screens in Canada and generate more than 80% of that country’s total annual domestic box office receipts.

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3D movie releases in stabilization mode The buildout of 3D screens led to a steady increase in the number of domestic 3D releases in recent years. From just six films in 2007, the number of 3D releases more than tripled to 26 in 2010 and to 45 in 2011, according to data from Rentrak, an audience measurement firm. However, the number of 3D releases dropped to 40 in 2012, before climbing back to 45 in 2013.

In 2010, 3D films accounted for approximately 20% of the domestic box office tally, thanks to premium ticket pricing of 25%–30% above regular 2D tickets. In 2011, 3D films accounted for 18% of domestic box office sales, while in 2012, the share of 3D films dropped to 17%. The top movies in 2010 in 3D were Toy Story 3, Alice in Wonderland, Despicable Me, Shrek Forever After, and How to Train Your Dragon. In 2011, there were also some major 3D releases (a total of 35 3D films and 13 IMAX films), including Harry Potter and the Deathly Hallows: Part 2, Pirates of the Caribbean: On Stranger Tides, Cars 2, Kung Fu Panda 2, and Captain America: The First Avenger. In 2012, five of the top 10 movies were 3D releases, including Marvel’s The Avengers, The Amazing Spider-Man, Brave, Hobbit: An Unexpected Journey, and Madagascar 3: Europe’s Most Wanted. In 2013, eight of the top 10 movies were 3D releases, including Iron Man 3, Despicable Me, Man of Steel, Monsters University, Frozen, Gravity, Oz The Great and Powerful, and Star Trek Into Darkness.

INTERNATIONAL MARKETS GAIN FURTHER PROMINENCE

Amid an increasingly saturated domestic box office, US film and television studios have increasingly looked for stronger growth opportunities in the international markets of Asia Pacific, Latin America, and Eastern Europe and, to a lesser extent, the Middle East and Africa. Among several emerging markets that have experienced superior growth in box office in recent years (relative to developed markets) are China, India, Russia, Brazil, South Africa, and the United Arab Emirates.

The international presence of the US entertainment industry is extensive. Despite increased competition from local productions, American movies and TV shows typically account for a substantial market share in several international territories, where consumer interest and access to US WORLDWIDE BOX OFFICE (Billions of dollars) entertainment have been boosted by the construction of multiplex theaters (e.g., 40 in Europe) and growth in the number of 35 broadcast, cable, and satellite outlets. Chart H02: 30 WORLDWIDE BOX Foreign demand is typically strong for the 25 OFFICE big-budget films that are a staple of the 23.9 25.0 22.4 20 18.8 21.0 US movie industry. In the US, films are 16.3 16.6 18.1 marketed to a domestic population of 15 more than 300 million—far greater than 10 the populations of many other developed countries. The large US market, plus the 5 9.2 9.6 9.6 10.6 10.6 10.2 10.8 10.9 acceptance of English as an international 0 language, gives US moviemakers a much 2006 2007 2008 2009 2010 2011 2012 2013 bigger prospective revenue base than US/Canada International their foreign counterparts. In addition, Source: Motion Picture Association of America. movie videos from US companies enjoy a sizable overseas market.

Consequently, the proportion of international contributions to overall box office performance has steadily increased over the past decade. This is especially true of popular franchises with global appeal—such as Harry Potter, Star Wars, Spider-Man, Shrek, Pirates of the Caribbean, Toy Story, and Transformers—for which international contributions can far eclipse the film’s domestic box office performance. With 3D deployment continuing at a steady pace, international markets accounted for about 70% of worldwide 3D screens that had been rolled out by the end of 2013 (3D deployment is discussed in more detail later).

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 15

Meanwhile, US suppliers of TV programs have also been tapping new international opportunities amid increased demand for licensing of their shows, especially as more channels become available throughout Europe and Asia Pacific, as well as Latin America, the Middle East, and Africa. Worldwide demand for programming should benefit from expanded services, including satellite TV.

China beckons as Hollywood studios seek new partners China—the world’s most populous country and one of the fastest-growing emerging markets—has posed myriad challenges for filmed entertainment companies in the US, after relatively fruitless attempts in the past decade. Among such hurdles were censorship of content, protectionism, stringent media ownership caps and regulations for foreign-controlled entities, lack of legal and political transparency, cultural differences, bureaucracy, and piracy.

Based on recent developments, however, it appears that the Chinese market is becoming more welcoming of foreign studios. For instance, under its previous quota system, China had allowed only 20 foreign film releases into its market each year, primarily outside of an imposed blackout period that coincided with popular movie-going seasons (e.g., the Chinese New Year). However, following an announcement in February 2012 by Chinese Vice President Xi Jinping and his US counterpart Joe Biden, this limit was raised to 34 for films made in 3D or IMAX formats. China has also increased the share of earnings for foreign studios from about 13%–17% to 25% of the movies’ box office sales in China.

These developments received a positive response from the Hollywood film studios that have been trying for years to break into one of the world’s most lucrative markets. While box office revenue growth in the US and Canadian markets has been dropping, China’s box office revenues have been growing at a fast pace. China’s box office revenues grew 30% in 2012, to $2.74 billion, from around $2.1 billion in 2011 and $1.6 billion in 2010, thereby becoming the second-largest market in the world. In 2013, China’s total box office revenues grew 27.0% to $3.6 billion, according to the data from China’s State Administration of Press, Publication, Radio, Film and Television (SAPPRFT).

According to an article published in Variety on September 10, 2013, despite the growth, China continues to pose various challenges for foreign films released in the country. Issues that have surfaced recently include awarding arbitrary slots (that change unexpectedly) to Hollywood movies by the China Film Bureau; imparting inadequate information to distributors regarding slots; operating blackout periods in which foreign films are not released; and selecting only those films for release that have done well in the US. In 2012, Hollywood accounted for only 6% of the 55% cumulative market share garnered by foreign films in China. In the first nine months of 2013, foreign films’ box office revenues in China declined 5.2% to $1.13 billion. For the first six months, foreign films’ box office revenues in China were down 21.3%.

SOCIAL MEDIA REINVENT FILM MARKETING

Social media have been contributing to the pale performance of the movie industry over the past five years, but the Internet and digital media have also helped filmmakers market movies, engage moviegoers, and sway media consumption—a trend that S&P expects to continue in the years ahead. Currently, this fast- growing domain is benefiting from continued strong growth of Facebook, Twitter, YouTube, and others, each of which has several hundred million users.

Corroborating this is the study published in the Hollywood Reporter in March 2012, conducted by Penn Schoen Berland (PSB), a market research firm. Most of the respondents noted that visiting a social networking site while watching a movie in a theater improves their overall experience. Around half of them noted that they prefer going to a theater that allows them to text or surf the web. One out of every three users of social networking sites visited a theater after reading a related post on a social networking site. According to the survey, 72% of the respondents post on social networking sites after watching a movie, while 20% post before watching it, and 8% post while watching. According to the PSB survey, though social networks cannot predict the box office performance before the release, the online hype before the release helps to increase the opening weekend’s performance. Based on industry analysts’ comments, PSB noted that audience posts on social networking sites influence public opinion, as well as ticket sales, in the initial crucial weeks of a movie’s release.

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As more users embrace emerging social media platforms, movies and entertainment content providers have sought increased collaboration toward social integration. For example, in March 2011, Warner Bros. studio launched a pilot test to make certain titles (e.g., The Dark Knight) available for rental on Facebook for up to 48 hours. In July, this test also included Paramount Pictures, which placed the entire catalog of its Jackass films for rental on Facebook. While these studios have offered previously released movies on Facebook for rental, Lionsgate in January 2012 piloted an offering of its new release, Abduction, on Facebook on the same day that it was sold through other channels such as DVDs, download, and Blue-ray.

We think Lionsgate’s release of The Hunger Games movie offers one example of a successful social media campaign. The company undertook marketing initiatives for over a year before its release, which not only helped in creating a huge fan base for the movie, but also in selling millions of copies of the Hunger Games trilogy in the US alone. Lionsgate spent around $45 million for the promotion, compared with more than $100 million usually spent on such major releases. The movie was marketed through all major social networking sites such as Facebook, Tumblr, Twitter, and YouTube, which included the exclusive movie stills, posts about actor and movie quotes, high-quality pictures of leading characters at various events, and quizzes related to the movies; also, behind-the-scenes information links to ticket booking sites were put up to increase audience participation.

We think Paramount Pictures’ release of Paranormal Activity offers another successful case study on the use of clever marketing and word-of-mouth buzz to help transform a micro-budget film into a blockbuster movie event in 2009. Beginning its theatrical run with midnight-only screenings in 12 college towns across the US, the film quickly developed into a nationwide hit. After more than a million requests by fans visiting the film’s website demanding a showing in their city, Paramount expanded the film’s release nationally, where it played to packed theaters for four months, propelling the $15,000 movie to more than $100 million at the domestic box office.

These social networking sites have become increasingly valuable tools for the studios to generate audience buzz well before a film’s release, as well as during its early theatrical run. Various factors such as popularity, accessibility, and varied formats make social networking sites a powerful publicizing tool. The information put on such sites can be easily forwarded and shared with others, thereby increasing its efficacy as a marketing tool.

The traditional ways of marketing and promoting movies are changing, as studios take increasingly dramatic cost-containment measures, while at the same time respond to rapid changes in technology and consumer habits. Over the next several years, we expect traditional film marketing functions to continue to evolve, as studios experiment with new ways to reach their audiences through the most cost-efficient means.

Shifting paradigm for content distribution channels With a continued saturation of traditional windows of film distribution—theatrical release, home video, and pay TV—the major content providers are aggressively exploring newer channels to exploit such content. As a result, we see a shifting paradigm for content distribution, aiming to counterbalance the desire for faster growth from emerging distribution platforms, against a potential cannibalization of traditional distribution platforms that still account for an overwhelming portion of the studios’ revenues and profits.

Under the traditional release windows, studios would typically release films into the home video market after a 90- to 120-day theatrical run. Meanwhile, the gap between the theatrical and home video windows has shrunk systematically in the past few years, even for some high-profile films such as Disney’s 2010 release of Alice in Wonderland. This trend has consequently encountered increased resistance from theater operators such as Regal Entertainment Group, AMC Entertainment, and Cinemark Holdings Inc.

In addition, the gap between the DVD and VOD release windows, which has traditionally ranged from 30 to 45 days, has shrunk (or increasingly overlapped) in recent years. In 2010, for example, the number of titles released into both windows simultaneously (day-and-date) more than quadrupled from only 10 such releases in 2007. These trends have accelerated as studios increasingly grapple with a variety of windows for newer rental channels, such as Netflix and Redbox.

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HOW THE INDUSTRY OPERATES

Companies in the movie and home entertainment industry are involved in the creation and delivery of various kinds of programming for consumers. Traditionally, this programming is recorded on film, tape, or disc so that it can be seen or heard repeatedly.

Increasingly, recorded entertainment is being stored in various other newer digital formats (online, mobile, etc.), which can preserve a higher quality of images and sounds, and make them easier to transmit and copy. In addition, many entertainment events that are broadcast live are likely to be recorded, and then rebroadcast at future times and/or made available to consumers across various formats.

Large, diversified companies dominate the industry. Among the biggest are The Walt Disney Co., News Corp. Ltd., Time Warner Inc., CBS Corp., and Viacom Inc., as well as Comcast Corp. (which controls NBC Universal Inc.) and Sony Corp. These companies finance the development of new products, have extensive libraries of products, and often own distribution channels for bringing content to the public.

The ownership of diverse entertainment businesses creates opportunities for cross-promotion. Companies can gain an economic edge from owning both the product (such as a TV show) and the distribution channel (such as a broadcast network). Additional opportunities to leverage trademarks, copyrights, and “creative assets” (i.e., writers, producers, actors, and the content they produce) are arising in the evolving multimedia sector. For example, a popular movie can spawn a best-selling music album or a video game, a novel can inspire a film, and so on.

However, a single company’s ownership of both content and distribution is no guarantee that its offerings will be received well by audiences. Ultimately, consumers will spend their money on the movies, programs, and music that they like and that are delivered conveniently and economically. In addition to self-produced content, several programming packagers and distributors rely on content from outside sources.

MOVIES: AN ESCAPE FROM REALITY

Hollywood’s six major film studios are Time Warner’s Warner Bros., Walt Disney’s Buena Vista, News Corp.’s 20th Century Fox, Viacom’s Paramount, Sony/Columbia, and NBC Universal Inc.’s Universal. These studios typically account for close to 80% of the market share in terms of box office revenues.

Movies today are usually made under a contract signed by a major distributor, a production company, and a collection of freelance talent. With a major theatrical film, a distributor typically funds a movie from start to finish or provides a portion of the financing in return for fees and a share of the proceeds. In some cases, a producer grants theatrical distribution rights to one party and sells home video rights to another; on occasion, the international rights may also be parceled out separately.

In many cases, the company handling the film’s theatrical release also owns its distribution rights in the home video market. After arranging to have videos manufactured, the distributor usually sells them to video retailers. It may also distribute them through a revenue-sharing agreement, under which the distributor and retailer share consumers’ rental fees for a video title, or otherwise makes them available for purchase or rentals through electronic services.

For many films, movie theater sales are no longer the principal source of revenues. Today, profitability often depends heavily on a film’s home video sales, as well as pay TV licensing and merchandising, and increasingly, new media outlets. Still, box office performance will likely influence a film’s performance in other back-end channels; strong ticket sales can create built-in consumer awareness that could allow a film to continue to generate revenues in ancillary channels for several years thereafter.

Spiraling film costs increasingly on the radar In addition to the costs of film production, other expenses associated with film distribution include advertising and duplication (making multiple copies for theaters), dubbing or subtitling the movie for

18 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS foreign markets, and manufacturing and marketing the film’s home video release. Creative talent involved in a movie may be contractually entitled to a portion of the film’s revenues or profits.

Production costs vary widely. While the average cost to make and market a movie is more than $100 million, some high-profile special-effects movies, such as Avatar or Pirates of the Caribbean, can cost several hundred million dollars. From a financial standpoint, the spiraling cost of film production creates a high downside risk for high-priced films that significantly underperform lofty box office expectations, of which there are numerous examples. Still, a significant number of low-budget films (costing $15 million or less) have also produced outsized returns across the various distribution windows taken together.

Even so, most movies are not big moneymakers, and breakout commercial successes are typically rare. In this business, as in the music and television sectors, the successes must pay for the failures. According to the MPAA, six of ten movies lose money on their original investment in their domestic theatrical run. Thus, most films must rely on the home video and other back-end channels to recoup their investment and make a profit. In addition, a recent influx of money hedge funds and private equity firms has allowed studios to hedge their downside risks.

Dynamics of scale efficiencies and entry barriers In the filmed entertainment business, scale has some obvious advantages. A large firm can diversify its risk by developing a variety of projects, while the sheer volume of its products gives it more influence with theater owners and TV networks. In addition, factors such as brand-name recognition, management experience, relationships with creative talent, and product distribution capabilities, tend to favor the larger, more established companies.

Relative to some capital-intensive or highly regulated sectors, entry barriers in the filmmaking and distribution business are not extreme. The industry has seen a growth market in the past five years for independent films (“indies”). Despite some retrenchment, a number of newer players have arrived on the scene, including CBS Feature Films, The Weinstein Co., Relativity Media LLC, and Summit Entertainment (acquired by Lionsgate Entertainment in January 2012).

However, long-lived success does not come easily. The ability of smaller companies to join the ranks of the industry leaders varies according to sector. Salient factors include access to capital, regulatory barriers, and management skill.

Movie exhibitors as key stakeholders Many of today’s cinemas are multiscreen theater complexes. This format lets theater operators attract more moviegoers by offering a variety of films—and thus maximizes the value of their real estate. Multiscreen theater complexes also permit economies of scale, in that employees and facilities—the concession stands and box office, for instance—can serve patrons of more than one movie. Multiplex (or megaplex) facilities typically have fewer seats per screen than do single-screen theaters, so this format can also boost average capacity utilization.

A theater operator’s largest expense is the rental of movies from distributors. Exhibitors license films by either negotiating directly with distributors or submitting bids to them. Rental fees, which average roughly 50% of ticket sales, are based largely on a revenue-sharing formula. Typically, if the fee is determined in advance, a distributor will receive either a percentage of box office receipts (which may decline as a film’s theatrical run lengthens) or a percentage of the amount that admission revenues exceeded a negotiated figure.

During a film’s theatrical run, if the movie exhibitor’s weekly percentage of box office receipts increases over time, it provides an incentive for the exhibitor to keep the film on its screens longer. In addition, rental fees may be subject to a settlement process that is negotiated after a film’s theatrical run has concluded, based upon a movie’s performance.

A given film typically reaps the bulk of its box office revenues within just a few weeks of its release—with the highest in its opening week—before increased competition sets in as other releases jump into the fray. Still, a

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 19 film’s life span can last several years before its entire revenue stream is exhausted. Although a movie’s box office revenues often are tallied publicly, a specific movie’s full cost structure is seldom disclosed.

During the 1990s, the US movie theater industry over-expanded, opening more than 15,000 new movie screens while closing an insufficient number of older screens. Due to this and other factors, about half of the 12 largest US film exhibitors entered bankruptcy proceedings between 1999 and 2001. By the end of 2013, the US had more than 39,700 US movie screens, based on our extrapolation of data from the National Association of Theater Owners, an industry trade group.

Home video: physical and digital formats A staggering variety of filmed entertainment remains available to consumers for purchase or rental in various physical formats (e.g., DVDs) in either standard or high-definition resolution (e.g., Blu-ray). Increasingly, however, consumers have been accessing their needs through a proliferating number of digital outlets, including video-on-demand (VOD) and electronic sell-through (EST) services such as Apple’s iTunes; online video platforms such as Netflix, Amazon, and Hulu; and other rental services such as Outerwall Inc.’s Redbox kiosk-based service, or Netflix’s DVD-by-mail service. While movies have notably remained the primary vehicle for home video consumption, television shows (or episodes) have experienced significant growth in the home video market over the past several years, reflecting the growing popularity of online video services.

Suppliers of home videos seek to maximize revenues and profits by forecasting levels of demand from retailers and consumers at different price points. Videos that have a relatively high retail purchase price ($25 or more) are generally targeted for rental activity, while lower-priced DVDs, particularly those available for less than $20, are more likely to be purchased by consumers, though they also generate significant rentals. In some cases, especially with videos that are aimed at rentals by consumers, a retailer may acquire a video at a relatively low cost, and then have a revenue-sharing arrangement with the distributor, whereby consumer rental spending is split between the two parties. In other cases, a retailer may pay more for a video but is entitled to retain all of the customer’s rental fee or purchase price.

TV LANDSCAPE: A GAME OF MUSICAL CHAIRS

ABC, CBS, NBC, and FOX—the four major broadcast networks—remain a primary force in US television programming. These networks are the largest providers of high-profile, first-run shows—as well as “event programming” extravaganzas like the National Football League’s Super Bowl and the movie industry’s Academy Awards—that provide advertisers with the broadest audience reach possible.

Nevertheless, audiences are continuing to migrate from TV broadcasters to the cable networks, many of which have significantly increased their overall programming investments. Some popular and award- winning original cable shows, past and present, include Sex in the City, The Sopranos, True Blood, and Game of Thrones (on HBO); Rizzoli & Isles and The Closer (TNT); The Shield, Nip/Tuck, and Rescue Me (FX); Dexter, Weeds, and Brotherhood (Showtime); Monk and Burn Notice (USA); Army Wives (Lifetime); Mad Men and Breaking Bad (AMC); and SpongeBob (Nick). Many cable networks also present off-network reruns of shows that originally aired on the broadcast networks.

Networks as marquee programming conduits All of the major broadcast network companies own TV stations; they also have affiliate relationships with TV stations owned by others. The networks typically provide their owned stations and affiliates with 15 to 22 hours of programming per week. In exchange, networks obtain the right to sell the bulk of the advertising time during the periods when their shows are airing. Many affiliates also receive a fee, called “compensation,” from their networks.

When affiliates are not airing a network show, they offer programming that they have either purchased independently (such as a syndicated show) or produced in-house (such as local news). Although costs are typically higher for shows that they produce themselves, affiliates get to sell more advertising time during such programs than during network offerings. At times, an affiliate chooses to fill traditional network time

20 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS with shows that the station has acquired independently from other program suppliers. (For more details, see the “Syndication: a complementary business model” heading later in this section.)

Independent stations as local distribution allies Independent stations, which are not affiliated with a broadcast network, bear full responsibility for filling their schedules with programming and for selling advertising time. They incur all of the costs and keep all of the revenues associated with doing so.

Program suppliers as arbiters of content The production of TV shows is similar to the movie business in many ways. Good cash flow from program libraries helps finance new shows. Larger companies often contract for or jointly produce shows with smaller firms, and often distribute and market programs produced by others. The creation of a successful show by any production business can help generate additional network commitments.

Major program suppliers for the networks include Time Warner Inc.’s Warner Bros. Television Group, News Corp.’s Twentieth Century Fox Television, CBS Corp.’s CBS Paramount Television, NBC Universal Television Group, Sony Pictures Television, and Walt Disney Co.’s Touchstone Television Productions LLC. All of these businesses (or their parent companies) also are full or part owners of a broadcast network and/or cable networks.

Network licensing for program schedules The broadcast networks often obtain first-run prime-time shows from program suppliers through license agreements, which let them air each episode of a series several times. This arrangement is generally more affordable for the networks than producing programs themselves, the cost of which can significantly exceed the network license fee—especially in the early years of production.

When a program supplier licenses a show to a network for less than the cost of production, it may offset some or all of the deficit by selling the program to foreign markets. However, even after foreign sales are included, a supplier may accept a deficit in the hope of ultimately profiting through off-network syndication (selling reruns to individual TV stations or cable channels). The desirability of a program’s rerun rights is determined largely by the size of its audience and its longevity on broadcast network TV.

In a licensing arrangement, the program supplier retains ownership of a show. However, broadcast network companies are increasingly producing or acquiring ownership interests in shows that they air. Doing so usually involves a higher initial investment, but it can also generate greater returns if a program becomes a hit.

Syndication: a complementary business model Syndicating a TV program means licensing a program to individual TV stations around the US on a market- by-market basis. TV programs are also licensed to cable networks. Network affiliates and independent TV stations alike buy syndicated shows, although each has a different amount of time to fill. The syndication market comprises sales to both kinds of stations, as well as to cable networks.

Affiliates buy such programs to fill airtime that is not used for network programming. While the affiliate must pay such programming costs, it may keep any advertising revenues gained during that time. Independent stations, which must fill their own schedules entirely—because they do not have a network to do so for them—have an even greater need to license syndicated shows.

The peak viewing period for syndicated shows is typically from 7 p.m. to 8 p.m. in the eastern and Pacific time zones, and from 6 p.m. to 7 p.m. in the central and mountain zones—the hour before the broadcast networks start their prime-time schedules.

The development of the FOX network, as well as the now-defunct UPN and WB networks, had convinced many independent stations to become affiliates, reducing the need for syndicated programming. Two kinds of syndication—first-run syndication and off-network syndication—are described later in this section. (In September 2006, the UPN and WB networks merged into a single new network, the CW Network.)

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 First-run syndication. First-run syndication involves new shows created specifically for licensing in the syndication market. A program supplier may decide to distribute a program this way if networks are not interested in airing it for various reasons—because they already have similar shows, do not like the proposed program, or consider its potential audience too narrow. For some program suppliers, having a show debut in first-run syndication may be more lucrative than licensing it first to a network and then as reruns.

Few first-run syndicated shows succeed in attracting audiences comparable to the prime-time network offerings. Many syndicated shows air during the daytime or late evening, when overall viewership is relatively low. None of the first-run syndication shows that have debuted in recent years has become a big hit.

Many first-run syndicated programs, such as talk and game shows, are relatively low-budget productions. For program suppliers, this eases the cost of getting into the business. However, first-run syndicated programs also can create a glut of programming alternatives, making the market highly competitive.

 Off-network syndication. Off-network syndication involves program episodes that are licensed for airing as reruns after first being shown on network TV. Such shows have strong market appeal, due to viewers’ familiarity with and loyalty to them.

Some programs enter rerun syndication while new episodes are still being produced for a network—CSI: Crime Scene Investigation, with new episodes airing on CBS, is one example. Other syndicated shows, such as I Love Lucy, left the networks long ago. A new crop of off-network or rerun shows becomes available each fall, at about the same time that the networks present their new first-run programming.

Suppliers base the prices they charge to show reruns on various factors: the show’s degree of network success, the financial health and programming needs of prospective buyers, and the supply of similar shows being offered at a given time. Prices may vary widely.

Syndicated reruns can be highly lucrative for a program supplier, helping to offset the losses from failed shows. In addition, reruns of half-hour comedies generally tend to attract larger audiences (and thus to earn more for the station selling the ad time) than those of hour-long dramas. Recently produced hour-long dramas (which cost more to produce than comedies) have aired primarily on cable channels.

With many syndicated programs, suppliers receive at least a portion of their revenue from selling ad time on the stations that air their shows. This process, known as bartering, is similar to the arrangement that broadcast networks have with affiliates. In return for providing a show, the program supplier receives ad time rather than monetary compensation from the TV station. The supplier, in turn, sells the ad time to other parties.

When purchasing time on syndicated shows, national advertisers typically look for shows that can reach at least 70% of the TV households in the US—a large enough audience to attract the interest of national advertisers. The more a show is expected to be watched, the greater success a syndicator will have in selling it to a group of TV stations.

MULTICHANNEL DISTRIBUTORS: CHALLENGING THE STATUS QUO

Pay TV service in the US—otherwise known as multichannel video—is primarily received through one of three major providers: cable and satellite TV operators, and most recently, one of the two major traditional phone companies. By the end of 2013, nearly 100 million of the 116 million US TV homes, or nearly 86%, were subscribers to one or more of those services, a highly saturated market. (A further discussion of the key players may be found in the Broadcasting, Cable & Satellite issue of Industry Surveys.)

Cable system operators provide a convenient delivery medium for entertainment and information, and thus have a significant bearing on the usage and value of content that it delivers to consumers. The cable industry—which recently accounted for about 52% of the US pay TV market in terms of subscribers— comprises hundreds of pipeline companies that deliver cable signals to consumers’ homes via wired systems in return for monthly fees, which are partly used to defray programming costs and to support their infrastructure investments.

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In contrast, there are just the two major US satellite TV (direct broadcast satellite, or DBS) providers, namely, DirecTV Group Inc. and DISH Network Corp. Both deliver programming across a national platform to subscribers equipped with dish antennas to receive their signals. The DBS industry emerged in the mid-1990s and has since grown rapidly, recently representing nearly 34% of the overall US pay TV market.

Verizon Communications Inc. and AT&T Inc. have also become increasingly important players in the pay TV market, representing more than 13% of the overall market size (in terms of subscribers). (For an in- depth discussion of the US telecom industry, see the Telecommunications issue of Industry Surveys.)

Cable and satellite programming networks Hundreds of networks are now available from cable and satellite operators. These networks, as well as local broadcast stations, are offered by cable and satellite TV operators as part of various monthly subscription packages covering hundreds of programming channels.

Among those offerings are ad-supported basic channels (e.g., CNN, ESPN, TNT, USA), which have carved out some niche programming or feature a broad sampling of broadcast network reruns, movies, and sports, as well as premium channels (e.g., HBO, Showtime), which are offered for an additional monthly subscription. Several of the fully distributed channels in this group reach over 90 million subscribers.

Why are cable-only outlets called networks? Just as ABC, CBS, NBC, and FOX provide their affiliates (individual TV stations) with programming, the cable networks also deliver shows to affiliated cable system operators. Another similarity is that they often split commercial time with their affiliates.

The larger cable networks receive revenue in two principal ways: by selling advertising time and by charging fees to affiliated cable systems. The fees that they charge cable system operators are typically levied on a monthly per-subscriber basis. However, cable system operators have limited channel space, so new cable networks have to fight increasingly hard to be carried by cable systems.

To win the competition for shelf space and to gain audience exposure, new channels sometimes waive their carriage fees for several years or even agree to pay cable system operators to carry their signal. In such cases, ad revenues may become the new channel’s sole revenue source—intensifying its need to build an audience and thus advertising demand. However, if a new network or channel becomes popular enough, its owner may be able to charge cable systems to show it in the future.

Cable networks have increased their investment in original programming, as well as major-league sports events and made-for-TV movies. As competition grows, there is a rising need for signature programming— shows that viewers identify with a particular channel, such as The Newsroom on HBO and The Daily Show with Jon Stewart on Comedy Central.

For the pay TV networks, such as HBO, Showtime, and Starz, movies remain the principal programming fare. Theatrical films typically become available on one or more of the pay networks about a year after they debut in theaters, after the video rental demand has dwindled.

MUSIC LABELS: HEDGING THEIR BETS

Each of the music industry leaders offers products under a number of different labels. Their relationships with artists are important: contractual obligations mean that musicians tend to record for a single company and label exclusively over a number of years. Radio and television (e.g., MTV) are significant factors in acquainting consumers with new music, as are a host of online sites for music discovery (e.g., Spotify, Pandora, Vevo, YouTube, and Lastfm).

A recording company typically pays an upfront fee to an artist who is to produce a new album, but it looks to recover its costs before the artist receives any additional payments. After deduction of such costs (including the advance), the artist is then likely to receive sales-based payments equal to somewhere between 5% and 13% of the record’s suggested retail price. The amount of the advance payment and the artist’s royalty percentage usually reflect the past sales success of the artist’s music and the expectations for the new recording.

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Today, consumers are significantly increasing their consumption of digital music, obtained through a proliferating number of online and mobile outlets. While the digital music market is still dominated by pay- for-download services such as Apple’s iTunes (with Amazon MP3 store still a distant second), we have been witnessing a growing popularity of subscriptions-based streaming services such as Spotify, Rdio, and Rhapsody, while the field becomes increasingly crowded with newer entrants like Google. Meanwhile, music labels have sought more comprehensive relationships with artists beyond traditional recording partnerships, with such expanded rights deals increasingly providing an opportunity to exploit additional revenue streams such as merchandising, touring, artist management, fan club, online services, and so on.

KEY INDUSTRY RATIOS AND STATISTICS

Macroeconomic factors such as employment, consumer confidence, and personal income generally do not have a significant impact on the entertainment business. The reason is that most movie and home entertainment products are relatively modest in price, so consumers can typically afford them even during periods of economic difficulty.

Factors that have more of a bearing on the industry include technological change, which can lead to new products, means of distribution, and competition; the extent to which content creators produce filmed entertainment or music that appeals to consumers; and, especially for TV networks and stations, the amount of support that programming receives from advertising dollars.

 Television ratings. The size of a show’s TV audience is an important determinant of its advertising revenue. The number of rating points for a given show in national distribution typically indicates what percentage of TV households watches that show. Nielsen Media Research Inc., a research firm, measures audience size. One national rating point (1.0) is equal to 1/100 of all the television homes, or about 1.15 million households. According to Nielsen’s 2014 National Television Household Universe Estimates, there were more than 116.4 million US television households before the start of the 2014–2015 TV season, up 0.5%from the same period a year ago.

Data are also collected on the percentage of people watching television at a given time, who are tuned in to a particular show. This number, which excludes potential viewers who are not watching TV, is known as “share.” Advertisers are likely to place a particular emphasis on specific demographic groups, such as 18- to 49-year-olds, who are thought to be big buyers of consumer products. Information published on ratings and share is provided by Nielsen Media Research and can be found in various periodicals and Internet sites.

 Upfront television advertising sales. This category comprises advertising sales made by networks to national advertisers during the upfront season—typically May and June, before the beginning of a new TV season. Advertising time unsold during the upfront period is then made available in the “scatter market,” from which advertisers purchase time closer to the date of broadcast. The disadvantages of buying from the scatter market are that it offers a narrower choice of slots and prices may be higher than during the upfront season. A potential advantage is that, if advertising demand is weak, prices may fall below those charged during the upfront market.

If a TV show does not deliver its projected audience, which is typically measured by Nielsen Media Research, the network may compensate advertisers with “make-good” time—scatter time provided free or at a discount. Indications of how well upfront sales are going can be obtained from various publications during the spring or summer, as well as from discussions with industry participants.

 Box office results. To gauge how much audience interest a theatrical movie is generating, analysts consider overall ticket sales, the average amount of ticket spending per screen, and the number of screens where a film is playing. Some movies are widely released (typically to between 3,000 and 5,000 screens), while others may get a limited release, at least initially.

Opening weekends are particularly important because they are a leading indicator of a film’s longer-term audience interest. If a film opens poorly, a distributor may cut back on advertising, and theaters may lose

24 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS interest in retaining the movie. If early audiences like a film, however, favorable word-of-mouth can help build future business.

The performance of theatrical movies is reported in various media, with particular attention given to the amount of weekend ticket sales that a film generates. Reported domestic box office totals for individual movies reported in the press typically include both the US and Canada. However, industrywide domestic totals may be limited to the US. Various domestic box office information provided by Nielsen EDI, a box office measurement and research firm for the motion picture industry. Another source of box office information is the Box Office Mojo website.

 DVD sales and rentals. Information or estimates about demand for individual titles, as well as industrywide figures, can be obtained from trade organizations, research firms, and various publications. For example, Rentrak Corp., a media measurement and research company, provides weekly tables with performance rankings for DVD and Blu-ray sales and rentals, video on demand (VOD), and domestic and international box office, and “TV engagement.”

 Music sales. The Recording Industry Association of America (RIAA) measures domestic industry sales volume based on manufacturers’ shipment levels, minus returns. These data are released on a semiannual basis. When consulting these data, keep in mind that the RIAA’s cited dollar amounts (value of shipments) are based on suggested retail price, while many albums actually may be sold to consumers at lower prices. At times, unit shipment levels are not a close approximation of the volumes that consumers are really buying. This could occur, for example, if retail space—and related inventory stocking—grows faster than consumer sales.

Industry volume at the retail level is tabulated by Nielsen SoundScan, which tracks sales of music and music video products in the US and Canada. Certain SoundScan numbers are reported regularly in the back pages of Billboard magazine.

HOW TO ANALYZE AN ENTERTAINMENT COMPANY

The first step in analyzing an entertainment company is to determine its lines of business. What place does it hold in the chain of creating and delivering products to consumers? In addition, what are its competitive advantages or disadvantages? Does it have enough financing to create new products and withstand failures? Finally, a detailed study of the company’s financial statements can reveal a lot about its past performance and foundation for future results.

LINES OF BUSINESS

The kind of assets and businesses that an entertainment company emphasizes determines the category to which it belongs. The four basic categories are content creators, distributors, packagers, and pipelines. The most prominent entertainment firms generally operate multiple businesses and belong to more than one category. Each of their operations may be attractive on a stand-alone basis, but it is important to ask if value is being added by having various assets under the same corporate roof. Does a company have opportunities to build brands and cross-promote its assets?

For example, a company’s theme park attractions might use some of its movie characters, while some of its cable TV networks help to promote shows that are debuting on a broadcast TV network owned by the company. Such interrelationships are sometimes said to create synergy—a combined effect that separate businesses would be less capable of achieving alone.

On the other hand, some businesses might do better and be more appreciated by investors if they were separated from a larger parent company through such means as an asset sale or a spin-off. For example, when separated, a smaller business may become quicker or more agile with its decision-making, requiring fewer levels of approval than it did when part of a larger corporate parent.

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 Content creators. Some firms are primarily content creators, producing movies, TV shows, music albums, or all three. To succeed, these companies must have both adequate financing and a means of delivering their product to the public. Delivery may involve the support of large distribution companies, which often help with the financing and marketing of a product in exchange for a significant share of the revenue.

 Distributors. Various forms of entertainment reach consumers through the marketing efforts of distributors, whose function is to arrange for movies, TV shows, videos, and music to become available to consumers through such outlets as theaters, TV stations, and retail stores. A distributor often receives its fee either as a portion of the sales price or a piece of the revenue generated from consumers. In addition, distributors sometimes help to finance a project (e.g., a movie production), which typically boosts the distributor’s share of the project’s future revenue stream.

 Packagers. A packager is a company (often, a TV network or station) that organizes or schedules what consumers see or hear. This can include content produced by the packager or by affiliates, as well as programming that it licenses or buys from third-party producers/distributors. There is a growing emphasis on packaging and delivering entertainment content that is tailored to the specific interests of individual consumers, particularly through specialized cable TV networks such as Home & Garden TV and the Golf Channel.

For a TV network, success is largely determined by how many households are capable of viewing its programs and, of course, by how many of those who could watch are tuning in. Advertisers seek viewers whose buying patterns and interests match up with their products, and many especially value viewers in the 18–49 age group.

 Pipelines. Pipeline companies, which physically deliver entertainment to consumers, range from movie theaters and video stores to cable TV systems and Internet service providers. Important factors affecting their operations include capital spending plans (such as the cost to upgrade a cable system so new services can be offered) and the extent to which new competition is emerging (e.g., delivery systems available on cell phones and other devices via the Internet).

SUCCESS FACTORS

A number of factors influence the fortunes of an entertainment company. These range from company- specific issues to matters affecting the entire industry, as outlined below.

 Copyrights to big-name characters. In evaluating a provider of filmed entertainment, it is important to consider the company’s copyrights to any popular characters or brand names. To what extent have these assets been exploited successfully in different formats? What sort of track record does the business have in creating new consumer franchises?

Given the growing number of entertainment choices being offered to consumers, it is becoming more important for entertainment companies to develop brands (e.g., Viacom Inc.’s MTV) and signature programming (e.g., The Daily Show with Jon Stewart on Comedy Central). Successful brands help a company to stand out.

With the introduction of digital technology, piracy—the illegal reproduction, acquisition/downloading, sale, purchase, or distribution of copyrighted products such as recorded music and videos—has become a serious threat to copyright owners. The extent to which companies benefit from new digital delivery systems depends in part on how successful they are in being paid for the content to which they have ownership rights.

 New technology. New or improved delivery systems help increase demand for various kinds of entertainment, while also affecting how consumers spend their time and money. In some cases, new technology—such as music or video downloading on the Internet or a service that allows TV watchers to bypass advertisements—may threaten the traditional business of an entertainment-related company. For example, during the early years of public Internet use, consumers became accustomed to getting information and entertainment on the Internet free of charge (apart from the cost of an Internet service provider). In

26 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS particular, music industry sales were hurt by fans’ ability to download songs on their computers without paying a fee to the tunes’ copyright owners.

Over time, companies may increasingly be able to use a new technology for their benefit, especially if it provides a new revenue source. Nonetheless, we think that the use of file-sharing client programs over the Internet has created a challenge for entertainment companies to translate their market power into profits. In this case, companies must find a way to ensure that downloaded purchases more than offset the negative impact of unauthorized free downloading.

 Management. As in any other business, management quality is a key success factor for entertainment companies. S&P Capital IQ looks favorably on seasoned management teams that have performed well relative to their peers in both good times and bad. In addition, we generally prefer situations in which top executives own stock in the company, because that should bring managers’ interests more in line with those of other shareholders.

We advise investors to keep an eye out for whether top executives are adding to their holdings or are lightening up on what they own. While there can be personal reasons for buying or divesting stock (e.g., estate planning issues), executive purchases and corporate buybacks often can be viewed as an expression of confidence in the underlying business and in the value of the stock.

Some executives excel at cost containment, while others are better at creating new products or managing expansion activity. In evaluating a company, it is a good idea to look at top managers’ track records—both with that company and with other firms—in addressing the same kinds of needs and goals that are currently pertinent to the company. Furthermore, it is a good idea to look at the ongoing relationships and contractual commitments a company has with important product suppliers, distributors, packagers of programming, and/or pipeline companies. One must also keep an eye on the consequences of contracts that are not renewed. Even a new contract between the same parties (e.g., a cable system paying to carry a cable network through its wires) could alter profitability. At various times, the balance of power in negotiations can change depending on such factors as competitive conditions.

At a time when individual industries are increasingly overlapping (e.g., entertainment, telecommunications, and computer services), a company’s ability to form complementary and favorable alliances with others is likely to be of growing importance for entertainment-related businesses.

 Access to capital. When evaluating a company that has sizable capital requirements, looking at its current debt and cash, as well as its cost of borrowing, is important. How much operating cash flow will likely be available to service the debt? Is the company in a good position to refinance its debt or to borrow more funds in the future?

One way to investigate a company’s financial strength is to check ratings of its debt by a major credit rating agency, such as Standard & Poor’s Ratings Services or Moody’s. Another way is by assessing whether a company has made capital or borrowing commitments that may be difficult to meet if the business environment changes.

Selling equity (stock) is another means for a company to raise capital. In general, we look for a well- managed company to sell shares when market conditions for its stock are good and to repurchase shares when the stock appears under-priced.

 Size. Is bigger better? A large company tends to enjoy economies of scale, with overhead expenses supported by a bigger revenue stream and spread over a larger asset base than those of a smaller firm. A large company is also more likely to have stronger purchasing power and greater influence with customers.

Small companies, however, may be more nimble than big firms are in responding to market conditions. To the extent that its management is more entrepreneurial in spirit, a small firm is less likely to become bogged down in the multilevel decision-making process that hampers bigger companies. In general, we would expect smaller companies to be more willing and likely to take risks with newer kinds of entertainment or content.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 27

A principal advantage of big, established entertainment companies is the cash flow from their large libraries of older products. Revenues from licensing or selling such products (e.g., movies produced years ago), for viewing in such formats as television and home video, can help to finance new production.

 Diversification. For companies that produce movies and TV shows, successful ventures must cover the cost of many failures. Thus, we would be wary of a company that was betting the farm on one or two unproven films, TV shows, or other entertainment products. Consumer response is difficult to predict, so it is preferable to spread risks across a slate of creative efforts. Companies also can try to limit their risk by banking on highly popular movie stars or producing a sequel to an earlier hit film, even if the costs of such productions tend to be relatively high.

A similar argument can be made for diversifying into multiple industries, because improving conditions in one sector may offset a slowdown elsewhere. However, diversification also carries risks: it may dilute the focus of top management or distract the company from its core strengths.

 Regulation. Regulatory constraints—typically promulgated by Congress or the Federal Communications Commission—should be considered. For example, is a company likely to be affected by restrictions on ownership of certain kinds of businesses? Media ownership may be limited both on a national and local basis. At times, however, the regulatory environment may ease, contributing to such activity as industry consolidation. For geographically diverse companies, regulatory bodies may affect merger activities and other plans.

 New products. Successful new products are the lifeblood of most movie, TV, and music companies. Do a firm’s new products have pizzazz? Has the inclusion of popular actors or compelling story lines boosted the success of its movies? One way to gauge a company’s efforts is to read trade magazines such as Billboard and Variety, which cover current popular movies and music albums.

 Supply and demand. The success of entertainment products such as movies and TV shows is likely to be affected by the balance between the amount of programming being produced and the level of interest or demand from both consumers and pipeline companies. For example, if movie production is growing, particularly among the major companies, costs for creative talent may rise and theater screen space may become hard to obtain. Marketing expenditures may also increase along with efforts to differentiate movies from their competitors.

 Labor contracts. Since many entertainment industry employees are represented by unions or labor organizations, it is advisable to know when major contracts are scheduled to expire. What are the prospects for a new contract being signed without labor unrest or a strike, or a significant change in the company’s labor costs? For example, if the Screen Actors Guild goes on strike, what impact could this have on a company’s ability to create and release new product? However, if a strike shuts down production at one major production company, it is likely to do the same to competitors.

ANALYZING FINANCIAL STATEMENTS

An analysis of an entertainment company involves scrutinizing the firm’s financial statements. Some important factors to consider are listed following.

 Revenues and customer base. What are the revenue sources, and how diverse is the customer base? Some companies, such as broadcasters, rely principally on advertisers, while others, such as video retailers, sell directly to the public. For content owners, distribution and marketing are relevant considerations. To reach the audience, it is important to have favorable distribution outlets (e.g., a time slot on a popular TV network) and the ability to favorably differentiate a firm’s content from that of other providers.

 Growth prospects. Are industry revenues expanding, or will a company have to take market share from competitors in order to grow? Are there opportunities to expand through sales to international markets? US movies and recorded music are often hot items with foreign consumers.

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 Quality of earnings and one-time factors. Are there any one-time factors to consider? When looking at either revenues or profits, try to assess any one-time factors that may have inflated or depressed results. For example, earnings may be unsustainably high due to a gain from an asset sale, or they may be unusually low because of a restructuring charge or a one-time write-down of an asset’s value.

Other items that can cause peculiarities in reported profits or in year-to-year earnings comparisons include unusual tax rates and accounting rule changes. If there are significant one-time or nonrecurring items in an earnings report, it is advisable to adjust the numbers to what would be considered normalized levels, which should help to reveal the underlying growth and quality of the company’s profits.

A change in accounting standards can affect year-to-year comparisons when calculating growth rates. For example, an accounting change in 2002 caused many companies to cease amortizing goodwill as an ongoing expense on their income statements. As a result, reported net income and earnings per share improved, but this should have had little or no impact on actual cash flow. (Goodwill is essentially the extent to which the purchase price for an acquisition exceeds the book value of the asset acquired; previously, its amortization was considered a noncash expense.) Nor did the improved results related to the absence of goodwill expense reflect underlying growth or business health. Going forward, we expect that companies will periodically review the value of goodwill on their balance sheet. If the value appears inflated, we would expect companies to take a one-time charge for goodwill impairment.

 Employee stock options. S&P Capital IQ also advises examining the extent to which a company issues options to employees and the impact that they have on a company’s earnings. Furthermore, if the company has significant pension or employee benefit plans, is the company accounting for them in a realistic and conservative manner?

 Cash flow. How healthy is cash flow? Reported earnings may not be an accurate reflection of a company’s cash flow generation or financial strength. Keep in mind that some expenses on a company’s income statement—such as depreciation, amortization, and write-downs—are noncash items (i.e., they do not represent an actual cash outlay).

Companies also generally have cash expenditures—such as production costs for movies that have yet to be released, debt repayment, and dividends to shareholders—that are not included on the income statement. With movies and TV shows, there may be a period of several years between the start of production and the time, if ever, that the project generates a positive cash flow.

To get at least a partial picture of these costs, look for the entertainment company’s balance sheet and cash flow statement. The balance sheet, for example, may indicate what level of investment in movies or TV shows has yet to be recognized as costs on the company’s income statement, while the cash flow statement should give an indication of both sources and uses of cash.

We recommend considering whether the company has potential liabilities or obligations that are not clearly reflected on the balance sheet. These could include, for example, guaranteed payment of a loan that was made to another party.

 Asset valuations. When looking at a balance sheet, it is also important to judge whether the values reported are accurate measures of the assets’ total worth. For example, intangible assets, such as brand names or management ability, may not be reflected. At the same time, the value of some assets may need to be revised—such as those obtained through an acquisition, or an investment in a costly film that will actually turn out to be a failure. Such assets will likely be reappraised downward in the future. Also, look for noncore assets that could possibly be divested, generating proceeds that could be used to reduce debt, repurchase stock, or invest in other businesses. 

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 29

GLOSSARY

Analog—The conventional system of storing and transmitting sound, pictures, or other material as an electrical wave (or wave form) that is a facsimile, or analog, of the original signal. This analog signal, or waveform, may be amplified, attenuated, or otherwise altered but retains the characteristics of its original signal. Of varying frequency and amplitude, these signals can be susceptible to noise interference.

Average revenue per unit/user (ARPU)—Term used by telephone carriers and cable system operators for measure of average monthly revenue generated by each customer unit; also referred to as revenue generating units (RGUs).

Bandwidth—The overall capacity of a transmission system to carry information, measured in bits per second (Bps) for digital lines and hertz (Hz) for analog lines. In electronic communication, bandwidth is the width of the range (or band) of frequencies that an electronic signal uses on a given transmission medium. In computer networks, bandwidth is often used as a synonym for data transfer rate and is usually expressed in bits (of data) per second, or Bps.

Bits per second (Bps)—A measure of the speed by which information is transmitted over certain electronic media. A “bit” is a single binary pulse of information; megabits per second (Mbps) is million bps; kilobits per second (Kbps) is 1,000 Bps.

Broadband—High-speed Internet access, whether wired or wireless, with data transmission systems carrying multiple signals simultaneously. The term describes any transmission medium that supports a wide frequency range, including audio and video frequencies. It can be multiplexed to carry several independent channels, each in its own bandwidth. Broadband transmission is often in the range of one MHz or more.

Broadband satellite service (BSS)—A radio communications service that transmits or retransmits broadcast signals via space stations.

Broadcast—A signal transmitted to all user terminals in a service area.

Cable modem—A broadband access device which enables a computer to transmit data over a cable line.

Cable television (CATV)—A delivery system over a network of coaxial or fiber-optic cable that gives subscribers hundreds of video channels. A cable system includes the headend, trunk lines, feeder lines, and drop lines.

Catalog—Older releases of recorded product that are not readily available in current retail display or rotation unless otherwise noted or advertised.

Compilation—A collection of previously released songs sold as a one album unit, or a collection of new material, either by single or multiple performers, sold as a collaborative effort on one musical recording.

Digital—A method of recording, transmitting, or reproducing sound, video, or other material by sampling an analog signal and translating those samples into digital information, or data.

Digital subscriber line (DSL)—A technology for bringing high-bandwidth information to homes and small businesses over ordinary copper telephone lines. It consists of a twisted-pair copper wire connection with a special modem at either end that filters out background noise and interference and allows high-speed data transfer.

Digital television (DTV)—Digital TV refers to televisions that can receive and display the digital TV signals that are broadcast over the air or transmitted by cable or satellite systems. The digital format enables the broadcast industry to deliver programs comparable in quality to other digitally delivered services, such as direct broadcast satellite and cable. In the US, digital broadcasting replaced analog in June 2009.

DVD—An optical disc storage medium (formerly called digital video disc or digital versatile disc). The technology permits high- density data storage, including movies with high video and sound quality. DVDs come in several formats. DVD-Video is the format designed for full-length movies compatible with television sets. DVD-Audio is a CD-replacement format with about seven

30 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS times the capacity of a CD. The extra capacity in the disc is used to achieve a high-quality, multichannel surround sound that is significantly better than current CDs, and may also be used to include features such as text, graphics, video and interactivity.

High-definition TV (HDTV)—The highest quality digital TV available, offering more than five times the sharpness of analog television, plus digital surround-sound capability. (HDTV has 1125 lines of resolution, versus 525 lines for analog.) The shape of the HDTV picture is more rectangular (widescreen) because the aspect ratio (the relationship of the width to the height of the picture) is different from analog TV. HDTV is one of the two formats available with digital television (standard definition TV is the other).

Interactive TV—A TV broadcast that allows a viewer to do other activities such as getting more information, submitting an email, or making a purchase, aside from watching programs.

International Standard Recording Code (ISRC)—The international identification system for audio and video recordings on compact discs (CDs). Each ISRC is a unique and permanent identifier for a specific recording, and can be permanently encoded into a product. The code consists of 12 characters (letters and numbers, separated by dashes) for the country, registrant, year of reference, and designation code. Because it identifies the owners and other participants in sound and music video recordings, the encoded ISRC can be used for distribution of royalty payments. Recording owners, copyright organizations, broadcasting organizations, and libraries use ISRC codes.

Internet-Protocol television (IPTV)—Television and/or video signals are distributed to subscribers or viewers using a broadband connection over Internet Protocol (the method by which data is sent from one computer to another over the Internet.)

Modem—A device that enables a computer to transmit data over telephone or cable lines.

MP3 (MPEG audio layer-3)—The compression technology commonly used to make digital audio computer files relatively small while maintaining high audio quality. It is one of many formats used for uploading and downloading on the Internet. MPEG is the designation for a group of audio and video coding standards agreed upon by the Moving Picture Experts Group.

Network—A broadcast entity that airs programming and sells commercial time nationally via affiliated and/or licensed local stations. Examples are the NBC television network, the ESPN cable network, and the ABC radio network.

Podcasting—A method of distributing multimedia files, such as audio programs or music videos, over the Internet for playback on mobile devices and personal computers.

Standard definition TV (SDTV)—One of the two formats available with digital television (high-definition TV is the other). Compared with analog TV, SDTV delivers clearer pictures, but the industry is moving toward even higher resolution with HDTV. SDTV offers 704 lines of resolution, versus 525 lines for analog. (See High-definition TV.)

Triple play—A consumer package that includes Internet, telephony, and television services. Offering triple play on a broadband connection requires the use of IPTV and IP telephony (VoIP).

Video on Demand (VOD)—A system by which viewers can watch video programs transmitted from a central server to their own TV sets at the time that they choose. Most major cable operators offer VOD to their digital subscribers—some at no extra charge, others for an extra monthly nominal fee. A variant of this service is subscription video on demand (SVOD).

VoIP (Voice over Internet Protocol)—A technology for routing voice conversations over the Internet or any other IP-based network. VoIP involves sending voice information in digital form in discrete packets rather than by using the traditional circuit- committed protocols of the public switched telephone network. A major advantage of VoIP is that it avoids the tolls charged by ordinary telephone service. Cable operators have been launching VoIP telephony service across their footprints since 2004. 

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 31

INDUSTRY REFERENCES

PERIODICALS DEG: The Digital Entertainment Group http://degonline.org/ Billboard An industry-funded corporation that advocates and http://www.billboard.com promotes benefits associated with DVDs and provides Weekly; covers the recorded music industry. information related to the DVD format.

Boxoffice Pro Magazine Entertainment Merchants Association (EMA) http://pro.boxoffice.com http://www.entmerch.org Monthly; covers the movie industry. Group representing those engaged in the sale and/or rental of entertainment software. Broadcasting & Cable http://www.broadcastingcable.com Independent Film & Television Alliance Weekly publication covering the television industry. http://www.ifta-online.org Comprises small companies that develop, finance, produce, The Hollywood Reporter and/or distribute English-language movies and TV programs http://www.hollywoodreporter.com worldwide. Daily and weekly; covers filmed entertainment. International Federation of the Phonographic Multichannel News Industry (IFPI) http://www.multichannel.com http://www.ifpi.org Weekly publication; covers cable television, Seeks to represent the music industry and has some 1,400 telecommunications, Internet video, and multimedia members in 66 countries. IFPI opposes music piracy, and network news. seeks to help develop legal conditions and technologies for the recording industry in the digital era. TelevisionWeek http://www.tvweek.com Motion Picture Association of America (MPAA) Weekly; covers the broadcast, cable, and interactive media http://www.mpaa.org industries. Represents mostly larger movie companies. Publishes annual statistical overview of the movie industry. Variety http://www.variety.com National Association of Theatre Owners Daily and weekly; emphasis on filmed entertainment. http://www.natoonline.org Represents owners and operators of US and overseas BOOKS movie screens. Entertainment Industry Economics: A Guide for National Cable & Telecommunications Association Financial Analysis http://www.ncta.com By Harold L. Vogel Represents cable systems, networks, hardware suppliers, Cambridge University Press, 2007 and cable TV service firms; provides information on the US Fact-filled discussions of leisure-time industries, including cable TV industry, including subscriber counts. movies, TV, and music. Recording Industry Association of America (RIAA) TRADE ASSOCIATIONS http://www.riaa.com Produces semiannual data on industry shipments; also Consumer Electronics Association (CEA) certifies best-selling recordings. http://www.ce.org Produces numerous publications; monitors shipments of consumer electronic products.

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RESEARCH FIRMS GOVERNMENT AGENCIES

Forrester Research Inc. Federal Communications Commission (FCC) http://www.forrester.com http://www.fcc.gov Reports on and analyzes technological change, including Independent US government agency, responsible directly to that related to the entertainment industry. Congress; regulates interstate and international communications by radio, television, wire, satellite, and The Nielsen Co. cable. http://www.nielsen.com/us/en.html Provides consumer research and analysis worldwide. Its CORPORATE INFORMATION Media & Entertainment segment, which includes TV, radio, music, books and DVDs, online, and video games, EDGAR Database specializes in audience measurement, advertising http://www.sec.gov/edgar/searchedgar/webusers.htm effectiveness, and overall marketing performance and Website maintained by the US Securities and Exchange cross-platform strategies. Nielsen SoundScan is the sales Commission that provides access to corporate documents, source for the Billboard music charts, making it the official such as 10Ks and 10Qs. source of sales records in the music industry. Quarterly and annual reports can be obtained directly from Rentrak Corp. various companies. For product and other information, see http://www.rentrak.com company websites, such as: Media measurement and research company providing The Walt Disney Co.: http://www.disneyinternational.com/ content measurement and analytical services to the Viacom Inc.: http://www.viacom.com entertainment industry. In addition to measuring box office, home video, set-top box TV and VOD, provides information ONLINE RESOURCES on consumer entertainment behavior across all digital media distribution platforms. CNET Networks (part of CBS Interactive) http://www.cnet.com Screen Digest http://www.zdnet.com/news https://technology.ihs.com/Industries/450465/media- Sources of technology industry information, including news intelligence provided through ZDNet News and CNET News.com. Provides market data and financial analysis of the filmed entertainment and interactive media markets. Now part of The following sites provide news or data on the IHS Electronics & Media. entertainment industry and/or industry-related links: http://www.boxofficemojo.com SNL Kagan http://www.medialifemagazine.com http://www.snl.com/Sectors/Media http://www.the-movie-times.com Provides news, forecasts, and financial data on TV, movies, http://www.zap2it.com radio, and Internet media.

Veronis Suhler Stevenson http://www.vss.com Private equity firm that invests in the communications, media, information, and education industries in North America and Europe. Publications include Investment Considerations for the Communications Industry and Communications Industry Forecast, which contain data related to television, movie, recorded music, and other industries.

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COMPARATIVE COMPANY ANALYSIS

Operating Revenues

Million $ CAGR (%) Index Basis (2003 = 100) Ticker Company Yr. End 2013 2012 2011 2010 2009 2008 2003 10-Yr. 5-Yr. 1-Yr. 2013 2012 2011 2010 2009 M OV IES & ENT ERTAINM ENT ‡ CNK † CINEMARK HOLDINGS INC DEC 2,682.9 2,473.5 2,279.6 A 2,141.1 1,976.5 A 1,742.3 NA NA 9.0 8.5 ** ** ** ** NA DIS [] DISNEY (WALT) CO SEP 45,041.0 42,278.0 40,893.0 38,063.0 36,149.0 37,843.0 27,061.0 5.2 3.5 6.5 166 156 151 141 134 DWA † DREAMWORKS ANIMATION INC DEC 706.9 A 749.8 A 706.0 784.8 725.2 650.1 301.0 8.9 1.7 (5.7) 235 249 235 261 241 LYV § LIVE NATION ENTERTAINMENT DEC 6,478.5 5,819.0 5,384.0 5,063.7 A 4,181.0 D 4,166.8 D 2,707.9 A 9.1 9.2 11.3 239 215 199 187 154 TWX [] TIME WARNER INC DEC 29,795.0 D 28,729.0 28,974.0 26,888.0 25,785.0 D 46,984.0 39,565.0 D (2.8) (8.7) 3.7 75 73 73 68 65

FOXA [] TWENTY-FIRST CENTURY FOX INC JUN 27,675.0 A,C 33,706.0 C 33,405.0 A,C 32,778.0 30,423.0 A 32,996.0 A 20,080.6 3.3 (3.5) (17.9) 138 168 166 163152 VIAB [] VIACOM INC SEP 13,794.0 13,887.0 14,914.0 9,337.0 H 13,619.0 14,625.0 NA NA (1.2) (0.7) ** ** ** ** NA

OTHER COS WITH SIGNIFICANT ENTERTAINM ENT OPERATIONS CKEC CARMIKE CINEMAS INC DEC 634.8 A,C 539.3 A,C 482.2 A,C 491.3 D 514.7 D 474.4 D 493.1 2.6 6.0 17.7 129 109 98 100 104 CBS [] CBS CORP DEC 15,284.0 14,089.0 D 14,245.0 14,059.8 13,014.6 13,950.4 A 26,585.3 A,C (5.4) 1.8 8.5 57 53 54 53 49 CNK † CINEMARK HOLDINGS INC DEC 2,682.9 2,473.5 2,279.6 A 2,141.1 1,976.5 A 1,742.3 NA NA 9.0 8.5 ** ** ** ** NA CMCSA [] COMCAST CORP DEC 64,657.0 62,570.0 55,842.0 A,C 37,937.0 35,756.0 34,256.0 18,348.0 D 13.4 13.5 3.3 352 341 304 207 195 LGF LIONS GATE ENTERTAINMENT CP # MAR NA 2,708.1 1,587.6 A 1,582.7 C 1,583.7 A 1,466.4 A 384.9 A NA NA NA NA 704 412 411 411

MGM MGM RESORTS INTERNATIONAL DEC 9,809.7 9,160.8 7,849.3 A 6,019.2 5,978.6 7,208.8 3,908.8 D 9.6 6.4 7.1 251 234 201 154 153 RGC REGAL ENTERTAINMENT GROUP DEC 3,038.1 A 2,824.2 A 2,681.7 2,807.9 2,893.9 2,771.9 A 2,489.9 A 2.0 1.9 7.6 122 113 108 113 116 SNI [] SCRIPPS NETWORKS INTERACTIVE DEC 2,530.8 2,307.2 2,072.0 D 2,067.2 1,541.2 D 1,590.6 NA NA 9.7 9.7 ** ** ** ** NA

Note: Data as originally reported. CAGR-Compound annual grow th rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change. Net Income

Million $ CAGR (%) Index Basis (2003 = 100) Ticker Company Yr. End 2013 2012 2011 2010 2009 2008 2003 10-Yr. 5-Yr. 1-Yr. 2013 2012 2011 2010 2009 M OV IES & ENT ERTA INM ENT ‡ CNK † CINEMARK HOLDINGS INC DEC 148.5 168.9 130.6 146.1 97.1 (48.3) NA NA NM (12.1) ** ** ** ** NA DIS [] DISNEY (WALT) CO SEP 6,136.0 5,682.0 4,807.0 3,963.0 3,307.0 4,427.0 1,338.0 16.5 6.7 8.0 459 425 359 296 247 DWA † DREAMWORKS ANIMATION INC DEC 55.1 (36.4) 86.8 170.6 151.0 142.5 (184.6) NM (17.3) NM NM NM NM NM NM LYV § LIVE NATION ENTERTAINMENT DEC (43.4) (163.2) (83.0) (224.2) (136.5) (320.2) 57.0 NM NM NM (76) (286) (146) (393) (239) TWX [] TIME WARNER INC DEC 3,554.0 3,019.0 2,886.0 2,578.0 2,079.0 (13,402.0) 3,146.0 1.2 NM 17.7 113 96 92 82 66

FOXA [] TWENTY-FIRST CENTURY FOX INC JUN 6,820.0 1,179.0 2,993.0 2,539.0 (3,378.0) 5,387.0 1,213.7 18.8 4.8 478.5 562 97 247 209 (278) VIAB [] VIACOM INC SEP 2,407.0 2,345.0 2,146.0 1,175.0 1,591.0 1,233.0 NA NA 14.3 2.6 ** ** ** ** NA

OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CKEC CARMIKE CINEMAS INC DEC 5.5 95.7 (7.5) (12.6) (15.0) (41.2) 106.4 (25.6) NM (94.2) 5 90 (7) (12) (14) CBS [] CBS CORP DEC 1,873.0 1,634.0 1,291.0 724.2 226.5 (11,673.4) 1,435.4 2.7 NM 14.6 130 114 90 50 16 CNK † CINEMARK HOLDINGS INC DEC 148.5 168.9 130.6 146.1 97.1 (48.3) NA NA NM (12.1) ** ** ** ** NA CMCSA [] COMCAST CORP DEC 6,816.0 6,203.0 4,160.0 3,635.0 3,638.0 2,547.0 (218.0) NM 21.8 9.9 NM NM NM NM NM LGF LIONS GATE ENTERTAINMENT CP # MAR NA 232.1 (39.1) (53.6) (19.5) (163.0) (94.2) NA NA NA ** NM NM NM NM

MGM MGM RESORTS INTERNATIONAL DEC (156.6) (1,767.7) 3,114.6 (1,437.4) (1,291.7) (855.3) 237.1 NM NM NM (66) (746) 1,314 (606) (545) RGC REGAL ENTERTAINMENT GROUP DEC 157.7 144.8 40.3 77.6 95.5 72.5 185.4 (1.6) 16.8 8.9 85 78 22 42 52 SNI [] SCRIPPS NETWORKS INTERACTIVE DEC 505.1 681.5 472.8 400.9 273.2 23.6 NA NA 84.6 (25.9) ** ** ** ** NA

Note: Data as originally reported. CAGR-Compound annual grow th rate. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. **Not calculated; data for base year or end year not available.

34 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS

Return on Revenues (%) Return on Assets (%) Return on Equity (%) Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 M OV IES & ENT ERTAINM ENT ‡ CNK † CINEMARK HOLDINGS INC DEC 5.5 6.8 5.7 6.8 4.9 3.7 4.6 3.8 4.4 3.1 13.6 16.1 12.8 15.2 11.4 DIS [] DISNEY (WALT) CO SEP 13.6 13.4 11.8 10.4 9.1 7.9 7.7 6.8 6.0 5.3 14.4 14.7 12.8 11.1 10.0 DWA † DREAMWORKS ANIMATION INC DEC 7.8 NM 12.3 21.7 20.8 2.6 NM 4.9 10.8 11.2 4.0 NM 6.6 14.2 13.9 LY V § LIV E NA TION ENTERTA INMENT DEC NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM TWX [] TIME WARNER INC DEC 11.9 10.5 10.0 9.6 8.1 5.2 4.4 4.3 3.9 2.3 11.9 10.1 9.2 7.8 5.5

FOXA [] TWENTY-FIRST CENTURY FOX INC JUN 24.6 3.5 9.0 7.7 NM 12.7 2.0 5.1 4.7 NM 32.7 4.4 11.0 10.5 NM VIAB [] VIACOM INC SEP 17.4 16.9 14.4 12.6 11.7 10.4 10.4 9.6 5.3 7.2 38.1 29.1 23.9 13.1 20.2

OTHER COS WITH SIGNIFICANT ENTERTAINM ENT OPERATIONS CKEC CARMIKE CINEMAS INC DEC 0.9 17.8 NM NM NM 0.7 16.9 NM NM NM 2.8 133.2 NA NM NM CBS [] CBS CORP DEC 12.3 11.6 9.1 5.2 1.7 7.1 6.2 4.9 2.7 0.8 18.6 16.2 13.1 7.7 2.6 CNK † CINEMARK HOLDINGS INC DEC 5.5 6.8 5.7 6.8 4.9 3.7 4.6 3.8 4.4 3.1 13.6 16.1 12.8 15.2 11.4 CMCSA [] COMCAST CORP DEC 10.5 9.9 7.4 9.6 10.2 4.2 3.8 3.0 3.1 3.2 13.6 12.8 9.1 8.3 8.7 LGF LIONS GATE ENTERTAINMENT CP # MAR NA 8.6 NM NM NM NA 8.4 NM NM NM NA 104.0 NM NM NM

MGM MGM RESORTS INTERNA TIONA L DEC NM NM 39.7 NM NM NM NM 13.3 NM NM NM NM 68.6 NM NM RGC REGA L ENTERTA INMENT GROUP DEC 5.2 5.1 1.5 2.8 3.3 6.4 6.4 1.7 3.0 3.6 NA NA NA NA NA SNI [] SCRIPPS NETWORKS INTERACTIVE DEC 20.0 29.5 22.8 19.4 17.7 11.8 16.8 12.9 12.6 11.5 25.8 38.9 27.4 25.4 21.6 Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year.

Debt as a % of Current Ratio Debt / Capital Ratio (%) Net Working Capital

Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 M OV IES & ENT ERTAINM ENT ‡ CNK † CINEMARK HOLDINGS INC DEC 1.8 2.5 2.1 2.1 1.8 62.0 60.0 59.0 59.0 61.9 606.6 373.5 525.2 542.2 735.0 DIS [] DISNEY (WALT) CO SEP 1.2 1.1 1.1 1.1 1.3 20.9 20.7 21.8 20.5 24.8 542.6 NM 671.7 845.2 396.6 DWA † DREA MWORKS A NIMA TION INC DEC NA NA NA NA NA 17.6 10.9 0.0 0.0 0.0 NA NA NA NA NA LYV § LIVE NATION ENTERTAINMENT DEC 1.0 1.0 1.1 1.1 1.0 48.4 51.2 50.1 49.8 49.2 NM NM NM NM NM TWX [] TIME WARNER INC DEC 1.5 1.4 1.5 1.5 1.5 38.2 37.4 37.5 32.1 30.5 450.5 552.8 432.4 367.6 362.0

FOXA [] TWENTY-FIRST CENTURY FOX INC JUN 1.8 2.0 2.3 2.0 1.5 45.2 35.4 31.6 31.3 30.9 228.8 154.4 126.6 144.0 234.8 VIAB [] VIACOM INC SEP 1.8 1.3 1.3 1.3 1.2 66.3 51.6 45.2 41.7 42.6 404.2 794.8 556.6 639.5 979.4

OTHER COS WITH SIGNIFICANT ENTERTAINM ENT OPERATIONS CKEC CARMIKE CINEMAS INC DEC 1.9 1.2 0.5 1.1 0.6 64.6 74.2 101.8 100.0 97.0 545.9 NM NM NM NM CBS [] CBS CORP DEC 1.3 1.5 1.4 1.3 1.2 34.0 34.0 35.3 36.2 40.4 510.7 331.9 370.1 456.3 736.0 CNK † CINEMARK HOLDINGS INC DEC 1.8 2.5 2.1 2.1 1.8 62.0 60.0 59.0 59.0 61.9 606.6 373.5 525.2 542.2 735.0 CMCSA [] COMCAST CORP DEC 0.7 1.2 0.6 1.1 0.4 34.8 28.3 28.9 28.9 28.3 NM NM NM NM NM LGF LIONS GA TE ENTERTA INMENT CP # MA R NA NA NA NA NA NA 83.7 95.7 88.8 95.6 NA NA NA NA NA

MGM MGM RESORTS INTERNATIONAL DEC 1.2 1.3 1.6 1.2 1.3 66.9 66.5 61.1 68.8 65.3 NM NM NM NM NM RGC REGAL ENTERTAINMENT GROUP DEC 0.9 0.7 1.0 0.7 1.1 145.5 153.7 140.1 133.0 114.2 NM NM NM NM NM SNI [] SCRIPPS NETWORKS INTERACTIVE DEC 6.7 5.9 7.4 6.9 4.7 38.3 41.4 41.6 30.3 35.4 87.5 112.4 93.3 71.5 114.6 Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year.

INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 35

Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %) Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 M OV IES & ENTERTAINM ENT‡ CNK † CINEMA RK HOLDINGS INC DEC 27 - 20 19 - 12 19 - 15 15 - 10 17 - 8 72577358813.7- 2.7 4.7 - 3.1 5.0 - 3.8 5.9 - 3.8 10.7 - 4.8 DIS [] DISNEY (WA LT) CO SEP 22 - 15 17 - 12 17 - 11 18 - 14 18 - 9 22191617201.5- 1.0 1.6 - 1.1 1.4 - 0.9 1.2 - 0.9 2.3 - 1.1 DWA † DREA MWORKS A NIMA TION INC DEC 55 - 24 NM- NM 30 - 16 22 - 13 23 - 10 0 NM 0 0 0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 LY V § LIV E NA TION ENTERTA INMENT DEC NM - NM NM - NM NM - NM NM - NM NM - NM NM NM NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 TWX [] TIME WA RNER INC DEC 18 - 13 15 - 11 14 - 10 15 - 12 19 - 10 30 33 34 37 43 2.4 - 1.6 3.1 - 2.1 3.4 - 2.4 3.2 - 2.5 4.2 - 2.2

FOXA [] TWENTY-FIRST CENTURY FOX INC JUN 12 - 954- 38 16 - 12 18 - 12 NM- NM 6381314NM0.7- 0.5 1.0 - 0.7 1.1 - 0.8 1.2 - 0.8 2.4 - 0.9 VIAB [] VIACOM INC SEP 18- 11 13 - 10 14 - 10 21 - 14 12 - 5 232422160 2.1- 1.3 2.3 - 1.8 2.3 - 1.5 1.1 - 0.7 0.0 - 0.0

OTHER COS WITH SIGNIFICANT ENTERTAINM ENT OPERATIONS CKEC CA RMIKE CINEMA S INC DEC NM - 53 3 - 1NM- NM NM - NM NM - NM 0 0 NM NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 CBS [] CBS CORP DEC 21 - 12 15 - 11 15 - 918- 11 43 - 9 16171819591.3- 0.7 1.6 - 1.1 1.9 - 1.2 1.6 - 1.0 6.5 - 1.4 CNK † CINEMA RK HOLDINGS INC DEC 27 - 20 19 - 12 19 - 15 15 - 10 17 - 8 72577358813.7- 2.7 4.7 - 3.1 5.0 - 3.8 5.9 - 3.8 10.7 - 4.8 CMCSA [] COMCA ST CORP DEC 20 - 14 16 - 10 18 - 13 17 - 12 14 - 9 30283629212.1- 1.5 2.7 - 1.7 2.8 - 2.0 2.5 - 1.7 2.4 - 1.5 LGF LIONS GA TE ENTERTA INMENT CP # MA R NA - NA 10 - 5NM- NM NM - NM NM - NM NA 0 NM NM NM 0.6 - 0.3 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0

MGM MGM RESORTS INTERNA TIONA L DEC NM - NM NM - NM 3 - 1NM- NM NM - NM NM NM 0 NM NM 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 0.0 - 0.0 RGC REGA L ENTERTA INMENT GROUP DEC 20 - 14 17 - 12 58 - 43 36 - 23 24 - 14 82 196 323 416 116 6.1 - 4.2 15.9 - 11.3 7.5 - 5.6 18.3 - 11.5 8.2 - 4.9 SNI [] SCRIPPS NETWORKS INTERA CTIV E DEC 25 - 17 15 - 919- 12 22 - 16 26 - 11 17 11 13 13 18 1.0 - 0.7 1.1 - 0.7 1.1 - 0.7 0.8 - 0.6 1.7 - 0.7 Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year.

Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $) Ticker Company Yr. End 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 2013 2012 2011 2010 2009 M OV IES & ENT ERTAINM ENT ‡ CNK † CINEMARK HOLDINGS INC DEC 1.28 1.47 1.15 1.30 0.89 (4.77) (3.46) (4.16) (3.79) (5.04) 34.35 - 25.00 27.50 - 17.93 22.09 - 16.70 19.80 - 12.73 14.85 - 6.75 DIS [] DISNEY (WALT) CO SEP 3.42 3.17 2.56 2.07 1.78 5.96 5.35 4.61 4.40 5.39 76.54 - 50.18 53.40 - 37.94 44.34 - 28.19 38.00 - 28.71 32.75 - 15.14 DWA † DREAMWORKS ANIMATION INC DEC 0.66 (0.43) 1.04 2.00 1.75 12.71 13.27 15.74 14.50 12.86 36.01 - 15.90 22.98 - 16.08 30.73 - 16.34 44.77 - 26.61 40.77 - 17.32 LYV § LIVE NATION ENTERTAINMENT DEC (0.22) (0.87) (0.46) (1.36) (1.65) (5.57) (5.79) (5.54) (7.09) (0.28) 19.94 - 9.37 10.99 - 8.01 12.44 - 7.14 16.90 - 8.17 8.96 - 2.47 TWX [] TIME WARNER INC DEC 3.85 3.14 2.74 2.27 1.75 (11.41) (11.07) (10.38) (6.71) (6.32) 70.77 - 48.55 48.54 - 33.62 38.62 - 27.62 34.07 - 26.43 33.45 - 17.81

FOXA [] TWENTY-FIRST CENTURY FOX INC JUN 2.91 0.47 1.14 0.97 (1.29) (2.30) 1.84 2.37 1.17 (0.03) 35.44 - 25.98 25.55 - 18.01 18.35 - 13.38 17.00 - 11.61 14.00 - 4.95 VIAB [] VIACOM INC SEP 4.95 4.42 3.65 1.93 2.62 (13.72) (7.74) (5.04) (3.65) (5.38) 87.84 - 53.86 56.91 - 44.85 52.67 - 35.13 40.25 - 27.89 31.56 - 13.25

OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CKEC CARMIKE CINEMAS INC DEC 0.28 6.07 (0.59) (0.99) (1.19) 7.39 5.84 (1.15) (0.04) 0.78 28.45 - 14.95 15.80 - 5.98 8.11 - 5.14 19.00 - 5.36 11.54 - 1.00 CBS [] CBS CORP DEC 3.08 2.55 1.94 1.07 0.34 (8.43) (7.73) (8.05) (7.83) (9.49) 64.06 - 37.43 38.32 - 27.18 29.68 - 17.99 19.65 - 12.26 14.56 - 3.06 CNK † CINEMARK HOLDINGS INC DEC 1.28 1.47 1.15 1.30 0.89 (4.77) (3.46) (4.16) (3.79) (5.04) 34.35 - 25.00 27.50 - 17.93 22.09 - 16.70 19.80 - 12.73 14.85 - 6.75 CMCSA [] COMCAST CORP DEC 2.60 2.32 1.51 1.29 1.27 (20.37) (20.77) (21.12) (12.12) (12.61) 52.09 - 37.21 38.22 - 24.28 27.16 - 19.19 22.40 - 15.10 18.10 - 11.10 LGF LIONS GATE ENTERTAINMENT CP # MAR NA 1.73 (0.30) (0.41) (0.17) NA 0.19 (1.87) (0.82) (3.47) 37.81 - 16.71 17.02 - 8.14 8.87 - 5.69 7.84 - 4.81 7.29 - 3.65

MGM MGM RESORTS INTERNATIONAL DEC (0.32) (3.62) 6.37 (3.19) (3.41) (6.48) (6.69) (3.80) 5.26 7.80 23.65 - 11.72 14.94 - 8.83 16.94 - 7.40 16.66 - 8.92 16.89 - 1.81 RGC REGAL ENTERTAINMENT GROUP DEC 1.02 0.94 0.26 0.51 0.62 (7.00) (6.38) (4.98) (4.48) (2.84) 19.95 - 13.82 16.30 - 11.55 15.07 - 11.15 18.49 - 11.59 14.83 - 8.83 SNI [] SCRIPPS NETWORKS INTERACTIVE DEC 3.43 4.48 2.87 2.40 1.66 5.95 3.97 3.90 2.84 0.19 86.41 - 57.32 66.33 - 41.91 53.66 - 33.82 53.34 - 37.94 42.36 - 18.10

Note: Data as originally reported. ‡S&P 1500 index group. []Company included in the S&P 500. †Company included in the S&P MidCap 400. §Company included in the S&P SmallCap 600. #Of the follow ing calendar year. J-This amount includes intangibles that cannot be identif ied.

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36 MOVIES & ENTERTAINMENT / DECEMBER 2014 INDUSTRY SURVEYS

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INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / DECEMBER 2014 37