Animax UK April 2012 EXECUTIVE SUMMARY • Opportunity to launch Animax in to the UK • Few places in the UK for Anime audiences to legally watch their favourite shows • Launch initially in UK with SVOD digital service and branded block on linear channel • Option to roll out to multiple markets in phase 2 (not included in plan) • Deliver key learnings to support ongoing development of SPT Networks digital business • Leverages existing infrastructure • Develop SVOD service based on global Animax website platform • Branded block will launch on existing “Men&Movies” channel • Extends existing European program acquisition relationship with Viz Media • Ad sales provided by in-house agency Dolphin (who already service UK SET website and Crackle) • Projected SPT investment risk and requirement capped at $0.2MM • Includes initial cost to adapt existing website platform of $115k • EBIT and Cashflow positive from FY14, cumulative breakeven achieved in FY15 • NPV $0.2MM ($2.2MM including terminal value) and IRR 46% • Request approval to proceed and finalise Viz Media deal CUSTOMER PROPOSITION Linear Programming block •Sony’s existing UK channels are available to over 10MM households •Further channel launches are planned which will provide opportunities to expand reach and exposure for key anime content •Planned Launch: July 2012 Digital on demand streaming service •Ad supported promotional and library content • Available to all customers for free via website and Playstation •Premium content • Pay per view: £0.99 per episode rental • Subscription: £5.99 per month • Available via all devices •Planned Launch: July 2012 © 2010 Sony Pictures Television. All rights reserved. PRIVATE & CONFIDENTIAL Partner PARTNER RESPONSIBILITIES responsibilities Sony Viz Media Program acquisition and delivery of material Localisation (where required) Transcoding and Metadata Service management & operations Billing/Payments (via Invideous) Ad sales (via Dolphin/Videology) Marketing Business Plan Assumptions • Assumed 30k average for FY13 rising to 123k by FY17 • Launch on website (PS3, iOS and Android to follow) Unique users • Conversion - Subscription 10% - Transactional 7.5% FY13 falling to 5% FY15 • £14 gross CPM • Ad revenue 15% media agency and 30% sales agency commissions • Sell out ratio ramps up to 90% by FY14 • Managed by in-house ad sales agency Dolphin Subscription/ • Transaction fee £0.99/ep Transaction • Subscription fee £5.99/month revenue (benchmarked against existing services and Animax market research) • Combined average Transaction/Platform commission of 15% Business Plan Assumptions Streaming • Bandwidth fee of $0.027 per stream fees • Annual account fee of $3k, annual geo-filtering fee of $3k Site • Initial development budget of $95k for website and PS3 and $20k for iOS and Android to create video focused service leveraging existing channel development website template – ongoing budget of $15k p.a. for updates and • Site will be hosted and supported by LA as part of the global channel overheads website arrangements • SVOD content based on 50:50 revenue share with Viz Media after deductions for marketing, streaming costs and commissions Program • Viz Media responsible for acquiring content rights from Japan (including any MGs), localisation and formatting license fees • Potential to move to flat fee structure in the future • Linerar rights provided at discount to market rates (included in Men&Movies channel programming budget) • 3 heads – Channel Manager Staffing – Channel Co-ordinator – Finance assistant (to support existing UK finance team) (Whilst approval is sought for 3 heads it is anticipated that contract staff will be used during launch phase (6-12 months) before moving to FTE once the business has been established) FINANCIALS BASE CASE YEAR ENDED (US$'000) Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Unique users (year-average) Total UK Facebook users who are Anime fans 450,000 450,000 450,000 450,000 450,000 Total Animax UK unique users 30,564 69,331 94,024 115,987 122,584 Ad supported users 25,215 58,498 79,862 98,516 104,119 Subscription users 3,056 6,933 9,402 11,599 12,258 Transaction users 2,292 3,900 4,760 5,872 6,206 Revenue: Ad revenues $ 37,481 $ 141,913 $ 193,741 $ 224,159 $ 252,588 Subscription Revenue $ 234,951 $ 639,551 $ 867,338 $ 1,033,619 $ 1,199,649 Transaction Revenue $ 87,371 $ 178,372 $ 217,712 $ 259,451 $ 301,126 Gross Revenue 359,803 959,837 1,278,791 1,517,229 1,753,363 Ad commission $ 11,244 $ 42,574 $ 58,122 $ 67,248 $ 75,776 Payment commission $ 24,700 $ 57,855 $ 67,380 $ 78,184 $ 90,647 Platform commission $ 24,174 $ 61,344 $ 81,379 $ 96,980 $ 112,558 Net Revenue 299,685 798,064 1,071,911 1,274,817 1,474,382 YOY Growth 166% 34% 19% 16% Expenses: Streaming fees $ 34,660 $ 94,346 $ 127,948 $ 152,478 $ 176,971 Marketing $ 79,310 $ 73,920 $ 92,400 $ 101,985 $ 117,951 Revenue Share with Content Provider $ 92,857 $ 314,899 $ 425,781 $ 510,177 $ 589,731 Site development $ 115,000 $ 15,000 $ 15,000 $ 75,000 $ 15,000 Ongoing site/server costs $ 15,853 $ 21,833 $ 22,660 $ 23,645 $ 24,819 Overhead $ 181,427 $ 209,337 $ 215,617 $ 222,086 $ 228,748 Total Expenses 519,106 729,335 899,407 1,085,371 1,153,219 EBIT (219,422) 68,729 172,503 189,445 321,163 EBIT as a % of Net Revenue -73% 9% 16% 15% 22% Tax (@28%) $ - $ - $ 6,107 $ 53,045 $ 89,926 Cash Flow (219,422) 68,729 166,396 136,401 231,237 Cum Cashflow (219,422) (150,693) 15,704 152,104 383,342 FINANCIALS UPSIDE CASE YEAR ENDED (US$'000) Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Unique users (year-average) Total UK Facebook users who are Anime fans 450,000 450,000 450,000 450,000 450,000 Total Animax UK unique users 31,117 77,221 110,977 142,682 152,486 Ad supported users 25,049 63,611 92,042 118,337 126,468 Subscription users 3,734 9,267 13,317 17,122 18,298 Transaction users 2,334 4,344 5,618 7,223 7,720 Revenue: Ad revenues $ 37,248 $ 154,316 $ 223,288 $ 265,886 $ 306,805 Subscription Revenue $ 287,045 $ 854,799 $ 1,228,463 $ 1,506,712 $ 1,790,745 Transaction Revenue $ 88,953 $ 198,671 $ 256,966 $ 315,169 $ 374,582 Gross Revenue 413,245 1,207,786 1,708,717 2,087,767 2,472,131 Ad commission $ 11,174 $ 46,295 $ 66,986 $ 79,766 $ 92,041 Payment commission $ 28,220 $ 68,340 $ 89,726 $ 109,913 $ 130,520 Platform commission $ 28,200 $ 79,010 $ 111,407 $ 136,641 $ 162,400 Net Revenue 345,651 1,014,142 1,440,597 1,761,448 2,087,171 YOY Growth 193% 42% 22% 18% Expenses: Streaming fees $ 37,303 $ 111,087 $ 159,647 $ 195,808 $ 232,720 Marketing $ 79,310 $ 73,920 $ 92,400 $ 140,916 $ 166,974 Revenue Share with Content Provider $ 114,519 $ 414,567 $ 594,275 $ 712,362 $ 843,739 Site development $ 115,000 $ 15,000 $ 15,000 $ 75,000 $ 15,000 Ongoing site/server costs $ 15,853 $ 21,833 $ 22,660 $ 23,645 $ 24,819 Overhead $ 181,427 $ 209,337 $ 215,617 $ 222,086 $ 228,748 Total Expenses 543,412 845,744 1,099,600 1,369,817 1,512,000 EBIT (197,760) 168,397 340,997 391,631 575,171 EBIT as a % of Net Revenue -57% 17% 24% 22% 28% Tax (@28%) $ - $ - $ 87,258 $ 109,657 $ 161,048 Cash Flow (197,760) 168,397 253,740 281,974 414,123 Cum Cashflow (197,760) (29,363) 224,377 506,351 920,474 TIMELINE Apr 2012 Submit business plan to Sony Management for approval Apr - June Finalise content deal with Viz Media and build platform 2012 July 2012 Channel launch APPENDIX Opportunity to create THE Anime service for the UK market Research on Anime audiences has shown that they are: • early adopters with relatively high discretionary income • multi-tasking consumers of cross-platform content • leaders in the use of latest communication innovations • Few places in the UK for Anime audiences to legally watch their favourite shows • Crunchyroll is already available in the UK but with limited content and no active marketing VIZ MEDIA • Headquartered in Paris, France, VIZ Media Europe (VME) is a subsidiary of San Francisco- based VIZ Media, LLC • VME specializes in managing the development, marketing and distribution throughout Europe of Japanese animated entertainment and graphic novels (manga) • Viz also owns and operates an Anime Pay TV channel in France (KAZE TV) in partnership with French animation house MOONSCOOP • Recently launched “Anime-on-demand” service in UK • Viz are currently one of the principal anime distributors to our Animax channels in Germany and Central Europe VIZ MEDIA AND SONY PARTNERSHIP • In markets where there is demand from operators and audiences for a linear channel then Viz partnership would provide an opportunity to secure volume deals to reduce the cost of programming • However in many markets Anime content remains a niche proposition and business case for a stand alone linear channel is challenging • Propose launching Animax digital service(s) • lower risk due to lower cost of development and ongoing operation costs • targets anime audiences where they spend most of their time (online) • Launch low cost linear programming block on Sony channels to cross-promote to digital service • Linear program rights offered at significant discount by Viz as part of overall partnership deal UK ANIME RESEARCH Standard target age group 14 – 35 years old. 450K UK Facebook Breakdown of overall sample: users “like” anime 26% were 15-19 years old programming 37% were 20-25 years old 24% were 26-34 years old Gender split: 60% male : 40% female Misc/tech stats: 50% of overall sample said they own a PS3 26% of overall sample said they own a standalone blu-ray player.