Latin America and Brazil Networks Regional Overview February 2013 2
Latin America and Brazil Market Evolution
• The Pay TV industry has experienced strong growth across the region due to the improved macroeconomics and growth of the middle class. International channel packages were launched approximately 20 years ago and have expanded offerings.
HBO Distributed Group
Group of 18 channels including premium and basic channels
Includes HBO and Cinemax, SPT Channels Warner, AE, History, Bio, and E! Operations based in Miami and Caracas with sales offices across region
SPT sold remaining interest in HBO LatAm in March 2011
SPT is distributed by HBO under a five year agreement which has a five year renewal option
Fox Group
Group of 21 channels including premium and basic cable
Includes Telecine, Movie City, Fox, FX, Nat Geo
Distributing Universal channels in Latin markets (Universal has joint venture with Globo in Brazil)
Launched Fox Sports in Brazil in 2012
Operations based in Los Angeles and Argentina with sales offices across region
Turner Group
Group of 15 channels
Includes TNT, CNN, Space and Cartoon Network
Launched TBS Very Funny channel in 2012 by converting local channel brand Purchased Chilevision (Free TV) in 2010
Operations based in Atlanta and Argentina with sales offices across region 3
Latin America and Brazil Market Evolution
Discovery Group ● Group of nine channels ● Includes Discovery, Animal Planet, TLC ● Rebranded Liv to Discovery ID in 2012 ● Operations based in Miami with sales offices across the region
Viacom Group ● Group of four channels ● Includes MTV, VH1, Nick and Comedy Central ● Licenses MTV brand to Abril in Brazil and has been rumored to be for sale ● Launched Comedy Central in 2012
Disney Group ● Group of five channels ● Includes Disney, XD and ESPN ● Operations based in Argentina with sales offices across the region
Liberty/Chellomedia ● Group of 10 channels ● Includes MGM, Cosmopolitan, Casa Club and El Gourmet ● Recently consolidated the operations of the two companies, MGM Latin America and Pramer. ● MGM channels were acquired in 2012 ● Cosmopolitan channel 50% ownership from Hearst was acquired in 2012. 4
Latin America and Brazil Market Evolution
Growth of local cable channel offerings
Globosat in Brazil • Group of 33 Channels • Telecine, Globo News, Sport Tv, Canal Futura • Sharing of sports rights between Free and PayTV channels. • Utilization of telenovela content from free channels to have “best of” novela channels
Televisa Networks in Mexico: • Group of 15 channels • Canal 5, American Network, Canal de las Estrellas, Golden and Unicable • Must carry on Televisa owned systems limits space for other channel packages • Uses muscle of Free TV, and cable/DTH ownership to control Pay TV market
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Latin America and Brazil
Miami
Mexico City and •Population of 590M Monterrey
•Total TV Households: 135M Caracas Panama •Pay TV Households: 50M Bogota •21 Countries and select Caribbean islands •Largest Markets ‒ Brazil ‒ Mexico Sao Paulo and Rio ‒ Colombia
‒ Argentina Buenos Aires ‒ Chile
SPT office locations 6
Market Focus - Brazil
• Population: 193M • Total HHs: 58M • Total TV HHs: 55M • Pay TV HHs: 15M • Pay TV Penetration: 28%
• Globo Media group leads Brazilian TV market ‒ Free TV 70% share of rating and 75% share of advertising ‒ Globosat group of channels has 50% share of PayTV advertising • Pay TV doubled number of households in last three years. • Largest increase is in C class penetration. • Telmex owned Claro (Carlos Slim) completed acquisition of Net Brazil system in 2012. 7
Brazil Market Overview
Affiliate Market Share by Groups 2012 Ad Sales Market US$ 12.6B
7.2% 2.9% NET Services (Slim) 5.9% Sky (Liberty) Radio; 4%Cinema;OOH;Others; 0%3% 1% 38.4% Pay TV; 4% 16.5% Via Embratel(Local) Online; 5% Magazine; 6% TVA (Telefonica) Newspaper; 11% Open TV; 65% Oi (Local)
29.1% Others
• DTH had stronger growth than cable • Increase in middle class (C) penetration is driving affiliate growth. • Pay TV Ad market softer than expected in 2012. • SPT Channels projected to grow by 9% versus 3% for other LAMAC channel members. • Growth despite new TV regulations and ad restrictions. Brazil Pay TV Subscriber Growth
30000
+41 25000 +37% +34 % +28% +31% 20000 % 19900 18500 17300 15000 16100 Subscribers 15000
10000 Penetration
5000
0 2012 2013 2014 2015 2016
Source – PWC Entertainment Report 8 9
Market Focus - Mexico
• Population: 112M • Total HHs: 26M • Pay TV HHs: 11M • Pay TV Penetration: 42%
• Televisa group is largest broadcaster and Pay TV channel operator (51% market share) • Televisa has ownership in large affiliate systems (Sky Mexico, Cablemas and Cablevision) • Televisa applied market influence to control growth of international programmers advertising. Ad minute restriction to six minutes per hour was enforced in 2012 and negatively impact SPT channel sales. Reduction from prior market selling practice of 10-12 minutes. Lobbying efforts continue with TAP and USTR on adjusting restriction • Presidential election in September 2012 and Enrique Pena Nieto took office in Dec 2012. Nieto has strong ties with Televisa. 10
Mexico Market Overview
Affiliate Market Share by Groups 2012 Ad Sales Market (subscribers) US$5B Total
OOH; 9% Other; 1% (Dish Corp) Online; 7% Cinema; 2% (Televisa) News Paper; 8% (Televisa) Magazines; 3% Open TV; 56% (Televisa)
(Televisa) Radio; 9%
Pay TV; 7%
• Increase in Pay TV penetration to over 40% in 2011 with growth of introductory cable packages. • Highest growth in DTH with launch of Dish Mexico in Dec 2008 and rapidly grown to over 3M subscribers. Dish is expected to expand in 2013 and is looking for opportunities in Brazil market • Ad Sales growth for SPT Channels despite ad minute restriction thru increased spot rates and use of other day parts. Mexico – Pay Tv Subscriber Growth
20000
+52% +50% 15000 +47% +42 +44% 13226.51 13836.14 12510.84 11742.17% 1000011000 Subscribers
Penetration 5000
0 2012 2013 2014 2015 2016
Source – PWC Entertainment Report 11 12
Latin America and Brazil Programming Strategy
• SPT operates three very distinct linear channels in the region with approximately 50% of its revenue generated from Cable & DTH and 50% generated from advertising.
• Our goal is to provide a channel offering that has great value to the operators, as well as the strongest advertising revenue potential.
• In the last three years, the Cable & DTH market has changed dramatically. As the high income A & B households reached high saturation levels, operators have focused on growing penetration in the lower C (also referred to as the middle class) households.
• Higher penetration of local cable offerings in Mexico and Brazil and stronger competition from international programmers.
• Historically, SET and AXN have aired subtitled US series & movies.
• Though we still are Top 5 ranked in the DTH homes where there are predominantly upscale households, we have seen a loss in ranking in the new C cable households.
• Our goal today is to continue to lead in the upscale homes where the Pay TV advertising is still most prevalent, while creating an upside opportunity in the middle class sector.
• SET, AXN and the “new” SPIN has accomplished this by focusing each channel on a very specific demographic, as well as more effectively scheduling our shows to compete on a local basis with customization of our 17 feeds.
• Due to the amount of “studio” competitors, we have locked in an output deal with Disney and a volume deal with SPT to secure a pipeline of content.
• The price of primetime series has risen over 82% in the last three years due to market demand. 13
Latin America and Brazil Programming Strategy- SET
• SET is our flagship brand.
• SET is a general entertainment channel targeting AD 18-49, but skewing W18-49.
• SET airs mostly US sourced series such as Grey’s Anatomy, The Client List, Revenge, Once Upon a Time and Nashville. In Brazil, we also air CSI on SET.
• SET has focused on producing local shows in our two key markets Brazil and Mexico.
• SET Brazil is currently in production of Agora Vai, a sitcom based on a dysfunctional ad agency and SET Mexico is in pre-production of season 4 of our hit series Mexico’s Next Top Model.
• In all cases when we source local productions, we heavily weigh both rating potential, as well as advertising integration opportunities.
• Due to the Brazilian Ancine law, we are using local production incentives to fund our local shows when possible.
• SET has customized schedules in Brazil, Mexico, the Andes Region and the Southern Cone.
• Brazil has begun dubbing our key series and all our movies to great success.
• Latin America has kept to a mostly sub-title strategy, which continues to be more effective in the Northern Regions, but we are exploring dubbing as we head south. 14
Latin America and Brazil Programming Strategy- AXN
• AXN is our highest rated channel.
• AXN is a drama oriented general entertainment channel also targeting AD 18-49, but skewing AD25+.
• AXN airs mostly US sourced series such as Criminal Minds, CSI, CSI NY, NCIS, Breaking Bad, Last Resort, and The Firm. (Brazil airs CSI on SET.)
• AXN also has a very strong movie offering.
• AXN has not focused on local productions due to the cost of this genre, but we have capitalized on Network Productions such as The Firm and Hannibal to create local advertising customizations to give us an edge.
• To comply with the Brazilian content law, we are acquiring local content.
• AXN is focused on customized schedules in Brazil, Mexico, the Andes Region and the Southern Cone.
• Dubbing strategy for AXN Brazil and Latin America is the same as SET. 15
Latin America and Brazil Programming Strategy- SPIN
• Spin has the lowest distribution of our channels and the lack of operator capacity has made expanding distribution a challenge. Without distribution, it has been very hard to achieve our advertising targets.
• Targeting the volatile youth audience in the linear space has proved to be a challenge.
• We have attempted to reduce programming costs, but that has put our existing affiliate distribution at risk as operators constantly threaten to take the lowest ranked channels off their systems.
• We have therefore developed a strategy with HBO Distribution team to improve SPIN’s value proposition to the operators by targeting the C segment.
• SPIN will target the C segment by scheduling 100% dubbed and local content. Programming will be scheduled in horizontal strips to appease the viewing habits of this C segment.
• SPIN will source both dubbed local versions of series from our output and volume deals such as Dona Barbara, Zorro, Grey’s Anatomy, and Ghost Whisperer.
• We will continue to keep content costs low, while delivering a very aspirational C appealing channel.
• The channel will provide a “barker” value proposition to the operator to sell tier package upgrades.
• Spin’s broader audience will allow us to target large bulk advertisers (ie - Colgate, Proctor & Gamble). 16
Brazil Programming Highlights
• Brazil regulations were implemented in 2012 that requires local produced content to be shown in primetime. Implemented in stages and by Oct 2013 will require 3.5 hours weekly in primetime. Channels have had to acquire local content to be in compliance.
• Performance of key programs:
• SET showed improved ratings in FY13 due to focus on bringing viewers back to channel. Movement of CSI from AXN back to SET had strong ratings.
• AXN strong performing shows are Criminal Minds and Unforgettable.
• Original Programming:
• Agora Vai is first scripted program for SET and in pre-production now. Funded 100% from Ancine funds (local production incentive).
• Breakout Brazil
• Music contest done in conjunction with YouTube and Sony Music. • Over 2,000 submissions with over 2M page views and over 100K votes. • Will be on air in March 2013. Main sponsor was Fiat.
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Brazil 2012 Channel Rankers Pay Entertainment Channels (including Local), Ranking 2012 MON-SUN 18:00-24:00 People AB 18-49 Women AB 18-49
14% higher vs. same time last 6% year. higher vs. same time last year.
Fonte: Ibope MW – 8 mercados Pay TV. Jan-Dec 2012 18
Brazil 2012 Channel Rankers Pay Entertainment Channels (including Local), 2012 MON-SUN 18:00-24:00 People AB 25+ Women AB 25+
-5% vs. -11% vs. same time same time last year. last year.
Fonte: Ibope MW – 8 mercados Pay TV. Jan-Dec 2012 19
Sky Brazil 2012 Channel Rankers BRA Pay Entertainment Channels, Ranking Mon-Sun 18:00-24:00 Households Mon-Sun 18h-24h Mon-Fri 21h-23h
Period: Jan-Dec 2012 Target Period: Jan-Dec 2012 Target Rk# Daypart: Mon-Sun 18:00-24:00 DTV HH's Rk# Daypart: Mon-Fri 21:00-23:00 DTV HH's Brasil - sem kids/sport TRP (avgW) Brasil - sem kids/sport TRP (avgW) Total 16,81 Total 18,00 1 Globo News 1,87 1 Globo News 1,89 2 Canal Viva 0,78 2 AXN 0,75 3 Warner Channel 0,65 3 Fox 0,71 4 AXN 0,64 4 Warner Channel 0,70 5 GNT 0,57 5 Canal Viva 0,67 6 Universal Channel 0,56 6 Universal Channel 0,62 7 Fox 0,56 7 Sony Entertainment Television 0,61 8 Turner Classic Movies 0,52 8 GNT 0,61 9 Telecine Premium 0,47 9 History 0,50 10 TNT 0,46 10 Turner Classic Movies 0,48 11 History 0,41 11 TNT 0,45 12 Sony Entertainment Television 0,40 12 Telecine Premium 0,44 13 Megapix 0,39 13 National Geographic Channel 0,40 14 Telecine Pipoca 0,37 14 FX 0,40 15 FX 0,37 15 Megapix 0,39 16 NHK World TV 0,36 16 Discovery Channel 0,38 17 Discovery Channel 0,36 17 Telecine Action 0,37 18 National Geographic Channel 0,35 18 Telecine Cult 0,36 19 Telecine Action 0,33 19 Telecine Pipoca 0,33 20 Space 0,32 20 NHK World TV 0,32
Source: Sky Ratings 20
Mexico Programming Highlights
• Performance of key programs
– Greys Anatomy - #1 show for Pay TV in its time period
– The Client List has proven to be a success with its first season in Mexico, where it has become Sony’s current second strongest show among Women 18-49 High+Medium. In its time slot, it ranks Sony #2 among the competition and #3 among All Pay TV
– Continued strong performance of CSI series on AXN • Production of MNTM Season 3 for SET
– Sony #3 among All Pay TV during its time slot in Mexico in Women 18-49 High+Medium
– #1 Reality Show in its time period in 11 different targets
– #2 program in GE after The Simpsons 21
Mexico 2012 Channel Rankers Pay Entertainment Channels (including Local), MON-SUN 18:00-24:00
Pay People 18-49 High+Medium Pay Women 18-49 High+Medium
9% higher than same time last year.
18% higher 15% higher than than same same time time last last year. year.
6% higher than same time last year.
Source: IBOPE Media 22
Pan-Regional 2012 Channel Rankers Pay Entertainment Channels, MON-SUN 18:00-24:00
Pay People 18-49 High+Medium Pay Women 18-49 High+Medium Pan
AXN is up in rank vs. AXN is 2011 and stable with stable in 2011. rating%.
SET is stable SET is with 2011. stable with 2011.
Source: IBOPE Media DirecTV 2012 Channel Ranker Pay Entertainment Channels, December 2012 MON-SUN 19:00-25:00
DirecTV Household Ranker (Arg, Col, Chi, Per, Ven, Uru)
AXN ranked among the Top 2 International Entertainment channels and SET ended the year within the Top 10.
DTV has a larger sample size than Ibope and is in more upscale HH’s.
*NOTE Brazil is not contemplated in the DTV Pan Regional average because the system does not allow it. 23 24
Market Focus – Other Latin Countries
• Venezuela ‒ Ongoing channel operation in Caracas with approx 80 personnel. Prior to decentralization personnel HC was at 159. ‒ Have been monitoring situation since Chavez won re-election in October 2012. ‒ In December announced cancer return and underwent additional surgery where he remained until February 18th return to Caracas. Medical condition remains unknown the Vice President Nicolas Maduro has been acting as President. ‒ Bolivar currency was devaluated in February 2013. The official exchange rate moves from VEF/USD 4.3 to VEF/USD 6.3. Impact to FY13 of approx ($1.2M) from balance sheet and revenue reduction.
• Argentina ‒ Opened Ad Sales office in April 2012 and have small channel team. ‒ Regulation forcing Grupo Clarin to divest of some affiliate system assets was delayed due to local influence. Largest cable system in market. ‒ Ongoing concerns over Argentine Peso and risk of devaluation.
• Colombia • Opened Ad Sales office in April 2012 25
Channel Financial Performance Subscriber Actual Trend
250000 216928.23 186112.26 200000 170152
150000 Revenue 100000 Ebit 54881 56459 59377 50000
0 FY12 -Actual FY13 -EOY FY14 - Budget
Channel Market Revenues
250000 216928.23
200000 186112.26 170152.57
150000 Brazil (In Thousand subs)
103454.76 Mexico 100000 88082.03 Other Latam Markets 76790.84 Total Revenue 64601 54802 57373.23 48872.48 50000 38559.72 40657
0 FY12 -Actual FY13 -EOY FY14 - Budget 26
Digital Networks Crackle Enjoying An Early Success In Latin America and Brazil
27 Crackle Enjoying An Early Success In Latin America and Brazil
28 Crackle Expansion in Latin America and Brazil
• Plans to launch Women’s Channel in FY14 to expand digital offering.
• Demand for female skewed content by users and advertisers.
• Broaden SPT offering to cover men, women and adults.
• Strategically important digital and linear brand offering for advertisers.
• Digital demand from agencies continues to grow.
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