Strictly confidential

Project Rainbow

5 June 2012 Final Report

Amit Zutshi Vaibhav Saini Partner Associate Vice President Transaction Advisory Services Transaction Advisory Services T +91 22 6192 0249 T +91 22 6192 2095 M +91 98 1931 9814 M +91 98339 62600 F +91 22 6192 3000 F +91 22 6192 3000 E [email protected] E [email protected] Strictly confidential Transmittal Letter

As requested, we enclose a copy of our final confidential report in accordance with our engagement letter and its attachments (our "Engagement Letter"). This report has been prepared on the basis of field work carried out up to April 25, 2012.

Our report is confidential and is released to you on the basis that it is not to be copied, referred to or disclosed, in whole or in part, without our prior written consent, save as permitted in our Engagement Letter. In accordance with that letter, you may disclose our report to your legal and other professional advisers in order to seek advice in relation to our work for you, provided that when doing so you inform them that, to the fullest extent permitted by law, we accept no responsibility or liability to them in connection with our report and our work for you.

The primary sources of data in preparing this report have been documented throughout this report. While we have made an attempt to source data from reputable sources, we do not accept responsibility for such information. Details of our primary information sources are stated throughout the report and we have satisfied ourselves, so far as possible, that the information presented in our report is consistent with other information which was made available to us in the course of our work in accordance with the terms of our Engagement Letter. We have not, however, sought to establish the reliability of the sources by reference to other evidence.

This engagement is not an assurance engagement conducted in accordance with any generally accepted assurance standards and consequently no assurance opinion is expressed. Our report makes reference to 'EY Analysis'; this indicates only that we have (where specified) undertaken certain analytical activities on the underlying data to arrive at the information presented; we do not accept responsibility for the underlying data.

The prospective financial information set out within our report has been based on the financial model built by the company and provided to us. This model has been prepared by the company based on several assumptions about key variables which are internal and external to the company; we do not accept responsibility for such information. In reviewing the assumptions in the prospective information, we have relied on published sources of data, third party organizations and discussion with the company's management. We must emphasize that the realisation of the prospective information is dependent on the continuing validity of the assumptions on which it is based. The assumptions will need to be reviewed and revised to reflect any such changes in economy, cost structures or the direction of the business as they emerge. We accept no responsibility for the realisation of the prospective financial information. Actual results are likely to be different from those shown in the prospective financial information because events and circumstances frequently do not occur as expected, and the differences may be material.

Our data gathering and analysis do not constitute recommendations to you as to whether or not you should proceed with the proposed transaction.

Page 2 Commercial Due Diligence Ernst & Young copyright Strictly confidential List of primary discussions

Company Category Interviewee Profile

Madison Media Planner Cadbury‟s Account Manager

HUL Advertiser Brand Manager

ITC Advertiser Brand Manager

Fulcrum Media Planner HUL Account manager

Digicable Network India Pvt. Ltd. MSO Head of AP Operations

A.C.N. Cable Pvt. Ltd. MSO Head of AP Operations

Zee Telugu Market player Ad Sales

Star Group Market player

Ex-Zee Telugu; advisor to multiple MSOs Regional market expert Consultant to MSOs in AP

Manager – Movie print processing Film distribution Manager lab

Page 3 Commercial Due Diligence Ernst & Young copyright Strictly confidential Abbrevations

Term / Term / Abbreviation Definition / Expansion Abbreviation Definition / Expansion

AP Andhra Pradesh HSM Hindi Speaking Market

Bn Billion INR Indian Rupee

Cr Crore Mn Million

CAGR Compounded Annual Growth Rate NPT Non Prime Time

C&S Cable and satellite PT Prime Time

CY Current year PTS Per Ten Second

ER Effective Rate TVR Television Viewership Rating

FCT Free Commercial Time

FTA Free To Air

FY Financial Year

GEC General Entertainment Channel

GRP Gross Rating Point

GSDP Gross State Domestic Product

Page 4 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Executive Summary (1/4)

Currently estimated at around Andhra Pradesh (AP) is an important and evolved regional market for television broadcasting INR 1,100 Cr and expected to ► It is the second largest regional C&S market with around 14 Mn C&S households grow to INR 2,000 Cr by FY16, ► Telugu content commands ~8% of the overall viewership of televised content in India, second only to Andhra Pradesh is an Tamil among regional content important regional market for ► ~85% of the Telugu speaking population in India lives in the home state i.e. AP (2); restof the Telugu television broadcasting in India speaking population is nearly equally split in Tamil Nadu, Karnataka and Rest of India

Currently estimated at around INR 1,100 Cr, the growth in AP television broadcasting market is likely to be driven by steady growth in advertising revenue and relatively high growth in subscription revenue on the back of digitization Around 65% of the viewership in AP is for Telugu channels, with movies as the most Viewership share of Telugu channels has remained stable at around 65% over the last few years popular content ► Movies and movie-based content are the most popular content in AP market, commanding a stable viewership share of around 50% over the last six quarters

► Serials (fiction content) seems to be the second most popular content category with a viewership share

ranging between 20-23%

There could be some risks The evolving regulatory framework for television broadcasting and distribution could pose some associated with the evolving risks and challenges for the broadcasting industry regulatory framework for the ► Restricting available Free Commercial Time (FCT) may impact the number of advertising slots available industry for sale by the Target thereby affecting its advertising revenue ► Reduction in viewership for some existing pay channels post digitisation, due to low pull, may lead to their migration to FTAs. This could exert pressure on Rainbow’s ability to continue to charge for its channels ► TRAI’s discussion about split of subscription revenue between various industry stakeholders may lead to a reduction in broadcaster’s share thereby impacting Target’s subscription revenue

Page 6 Commercial Due Diligence Ernst & Young copyright Strictly confidential Executive Summary (2/4)

Gemini is the market leader in Gemini (Sun TV) is the market leader in AP with 26% of the GRPs in Mar-12; Rainbow has AP; however, Rainbow, on established itself as the No. 2 player over the past few quarters account of recent channel ► Sun group (Gemini) has the widest range of Telugu channels, followed by Rainbow launches, has gained market ► While Gemini’s share of GRPs has witnessed a decline from 32% to 26% over the last six quarters, share and has established itself Rainbow has managed to nearly double its share to ~15% currently during this period; this could be as the second largest largely attributed to the launch of two new channels – Rainbow Movies and Rainbow Gold broadcasting group ► There has been consistent increase in the number of Telugu channels over the last four years, with a majority of addition in the news and movies genres ► While smaller broadcasting houses have launched Telugu channels such as Xtra, UTV Action Telugu and N TV in the last year, they have not been able to make a significant mark on the market so far

Rainbow has grown its Rainbow has grown rapidly at ~30% p.a. from ~ INR 80 Cr in FY09 to ~ INR 170 Cr in FY12; it has revenues at 30% p.a. (INR 170 improved its profitability (EBIT)from 11% to 25% during this period Cr in FY12) and improved its ► Advertising revenue accounts for ~80% of Rainbow’s total revenues across the period; subscription profitability to 25% (FY12) over revenue is the other key revenue stream the past four years

Rainbow may be able to increase ad and subscription rates as it gains further market share and Further, industry discussions realizes full benefit of its 2nd position in the market suggest that there is potential ► Significant dependence on national FMCG players such as HUL, P&G and ITC has limited Rainbow’s for Rainbow to increase its ability to negotiate higher ad rates, particularly through the CPRP model; however, industry discussions advertising and subscription suggest potential for Rainbow to increase its ad rates (flat as well as CPRP) if it continues to narrow the revenue in the future, provided gap with Gemini it manages to gain market ► Further, Rainbow’s subscription revenue is approximately a third of that of Gemini and half of Eenadu share TV (which is the third most popular group); industry discussions suggest that there is potential for

Rainbow to gradually increase subscription revenues as its channel bouquet is currently priced

significant below its regional peers

However, Rainbow would face challenges in increasing the Increasing the distribution and reach for its new channel, Rainbow Gold on the DTH platform is reach of Rainbow Gold likely to be a challenge for Rainbow primarily on account of bandwidth constraints

Page 7 Commercial Due Diligence Ernst & Young copyright Strictly confidential Executive Summary (3/4)

While Rainbow‟s GEC has the Unlike other GEC channels, Rainbow‟s overall programming success is driven by movies and non- second largest viewership in fiction content; further, there is also dependence on dubbed Hindi fiction programs during prime AP market, it is relatively weak time slots in original fiction content ► Rainbow’s GEC channel has the second highest viewership in AP market, next only to Gemini

► Fiction and movies have strong traction in the Telugu market accounting for ~30% and ~20% of

programming duration respectively; however, Rainbow appears to have relative strength in movies and

non-fiction content Further, dependence on dubbed Hindi fiction content could pose ► Rainbow’s original fiction content rates poorly compared to its peer group; further, its Top-5 programs risks in the future, particularly are either non-fiction or dubbed Hindi fiction with respect to Viacom 18 ► While there have long-term contracts for the dubbed Hindi fiction, its dependence on Hindi GECs, particularly Viacom 18, could pose risks in the future

Rainbow‟s acquisition of During a short period since its launch, Rainbow‟s movie channel has managed to gain market satellite rights of recent share away from Gemini‟s movie channel; this has been on account of increasing inventory of blockbusters; rapid creation of recent blockbuster Telugu movies movie library; and benefits ► Incumbent Gemini Moviescontinues to be the market leader in this category, with double the GRPs of from its association with top Rainbow’s channel; this is primarily due to perpetual rights to some of the biggest Telugu blockbusters production houses, have ► Rainbow has increasingly acquired a larger base of satellite rights across all movie categories over the contributed to the success of last two years; it has acquired the rights for eight of the Top 20 Telugu movies in 2010 and 2011 its movie channel ► Additionally, it appears to have benefitted from its association with its related parties, Geetha Arts and Annapurna Studios, acquiring rights for all their movies over the last two years; such benefits, which are more in terms of an informal first right to their movies, might not be sustainable in the long run

Market demand for a channel The other two channels within Rainbow‟s bouquet contribute marginally to its GRP; the concept with Rainbow Gold‟s concept for Rainbow Gold is largely untested would need some form of ► Rainbow’s music channel is a close second to Gemini’s music channel and has stable GRPs of 45 – 55 validation to determine its ► Rainbow Gold is a new channel offered by Rainbow and its concept is largely untested; there is a need success in the future for proof of concept for the same

Page 8 Commercial Due Diligence Ernst & Young copyright Strictly confidential Executive Summary (4/4)

FY12 FY13 P FY14 P FY15 P Net revenue 173 220 259 301 - Advertising revenue 136 180 214 251 Management case - Subscription revenue 33 35 39 44 - Other income 3 5 6 6 Net revenue 173 215 251 290 - Advertising revenue 136 176 204 235 EY base case - Subscription revenue 33 35 41 48 - Other income 3 5 6 6 Management case EBITDA% 30% 27% 31% 31% EY base case EBITDA% 30% 25% 27% 27%

EY base case estimate is mildly Management estimates its net revenue to grow from INR 173 Cr in FY12 to INR 301 Cr by FY15 lower than management ► Historical trends and industry discussions suggest that the growth in advertisement revenue may be estimates in terms of net mildly lower than expected by the management revenue and EBITDA margin ► Further, the EY base case considers lower revenue and EBITDA growth for the Rainbow Gold channel, since the channel concept is still relatively new and untested in the regional market ► However, management has taken a conservative view on the distribution revenue. Digitization of cable households is likely to lead to higher subscription revenue than estimated by the management

Synergies with MSM may lead Impact of synergies is expected to be realized starting FY14. The time for realizing the benefits to a potential revenue upside of of synergies is largely dependent on the time taken for MSM to gain greater control of operations ~INR 12 Cr over EY base case at Rainbow by FY15 Key synergy areas include:

► Increase in ad rates ► Higher subscription revenue through improved bargaining position with MSOs ► Increase in digital, new media and international revenue through MSM’s network

Page 9 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Andhra Pradesh (AP) is the second largest regional C&S market with an estimated 14mn C&S households

Estimate of C&S Households in key regional markets (1) Language wise viewership share for the country (2)

2011 2011

) 20 Others, 7% 89% Malayalam, 2% mn 69% 16 56% Bengali, 4%

12 69% Marathi, 5% 39% 87% 52% 8 16 14 14 Telugu, 8% 9 4 8 7 6 Hindi, 50% 0

English, 10% No. of C&S households ( households C&S of No.

Tamil, 10% xx% C&S penetration

► Andhra Pradesh (AP) is estimated to be one of the largest regional markets in the country

► ~85% of the Telugu speaking population in India lives in the home state i.e. AP (2)

► Karnataka (KN) and Tamil Nadu (TN) are each estimated to have ~5% of the Telugu speaking population in the country (3)

► TAM divides AP into two parts „Hyderabad‟ and „Rest of AP‟ which are together estimated to have ~8% of the overall television households in the country and a comparable share of viewership (4)

Telugu content commands ~8% of the overall viewership of televised content in India, second only to Tamil among regional content

Source: (1) IRS Q4 2011 ; (2) Analyst reports; (3) Industry discussions; (4) Annual Universe Update, TAM Media Research, 2012 Page 11 Commercial Due Diligence Ernst & Young copyright Strictly confidential Size of the Telugu TV broadcasting market was estimated to be INR ~1,100cr in FY2012 and is expected to grow to ~INR 2,000cr by FY16

Revenue build-up – Telugu television broadcasting in AP FY12 - FY16 (1)(2)

Overall market size (INR cr) 1,112 1,291 1,502 1,758 2,037 CAGR 2,500 („11 – ‟15)

2,000 497 23-25% 1,500 397

INR cr INR 316 252 1,000 200 14-16% 1540 1185 1351 500 912 1040 0 FY12 FY13 FY14 FY15 FY16

Advertising revenue Subscription revenue

► Advertising revenues for Telugu channels was estimated to be ~INR 900cr in FY12. Overall growth of the Andhra Pradesh (AP) economy, increasing consumerism and growth in advertising budgets of consumer product manufacturers are expected to drive growth of advertising revenue to INR 1,540cr by FY16 ► The subscription revenue for Telugu channels (Gemini, ETV, Rainbow and Zee Telugu) is estimated to be ~INR 200cr in FY12. Increase in number of television households, greater penetration of addressable digital connections and onset of VAS are likely to contribute to the growth of subscription revenue for TV broadcasters

Source: (1) Analyst reports; (2) EY analysis; Page 12 Commercial Due Diligence Ernst & Young copyright Strictly confidential Overall economic growth and increase in C&S households are expected to drive the growth of the market

AP GSDP (1) 2006 – 2011 C&S households in AP (2) 2008 - 2011 CAGR CAGR 4.0 16

FY05 and FY11 FY08 and FY11 )

tr 14 3.0 12 8.5% 10 11% 2.0 3.7 8 3.2 3.4 14

Product(INR Product(INR 3.1 12 2.7 6 12 2.5 10

Gross State Domestic State Gross 1.0 4 C&S households (mn) households C&S 2 0.0 - 2006 2007 2008 2009 2010 2011 2008 2009 2010 2011

Macroeconomic growth is expected to make AP a more Growth in number of C&S households will drive the attractive consumer market driving an increase in attractiveness of the market from both advertising and advertising spends subscription revenue perspectives

► The AP economy has grown at 8.5% annually over the last ► AP has seen a robust growth of 11% in the number of C&S five years households in the state

► With strong presence of large corporations in fast growing ► With C&S penetration of ~67%, there appears to be further sectors such as IT, pharmaceuticals and power, the outlook scope for growth in the addressable market for future growth appears positive ► Advertising spends typically have a strong correlation with overall economic growth suggesting further potential for growth of the market (3) “AP is an exciting, fast growing market. Most advertisers use “AP is an important market for us. The large consuming AP like a test market because of the number of young IT class here makes it an attractive destination for any professionals in the state” consumer product company”

- Large regional GEC broadcaster - Large consumer products company

Source: (1) Andhra Pradesh Annual Plan 2011‐12; (2) IRS data (3) “Economic Growth and Advertising Expenditures in Different Media in Different Countries”, Richard van der Wurff, 2008

Page 13 Commercial Due Diligence Ernst & Young copyright Strictly confidential Increase in the number of digital addressable households is expected lead to greater visibility of subscribers reached and grow broadcasters‟ share of subscription revenues

Split of total cable and DTH Subscriber declaration subscribers in AP – 2011(1)

14mn 60% DTH Declaration levels by cable to 27% operators varies significantly 80% depending on the consumer 100% pull and brand strength of a broadcaster 20% to 40% Cable 73% Cable DTH

► While cable subscribers constitute over 70% of the total C&S subscribers in AP, due to significant under- declaration at the ground level, they account for only ~25% of the declared subscribers ► While broadcasters have started charging higher per user subscription fees to counter under-declaration, this continues to result in significant revenue leakage within the distribution system at the level of local operators ► 73% of the cable subscribers are estimated to contribute to only about ~45% of the overall subscription income earned by a broadcaster (3) ► Post digitisation, greater subscriber visibility is likely to help broadcasters‟ increase their share of subscription revenue from the current levels of ~15% to ~25%

Source (1) "TV Distribution - Opinion", 2010, Crisil Research; (2) Industry discussions Page 14 Commercial Due Diligence Ernst & Young copyright Strictly confidential However, regulatory restrictions on free commercial time and introduction of FTA channels may hamper market growth

► TRAI released a consultation paper in Mar 2012, followed by an amendment in May 2012, recommending a reduction in the amount of free commercial time to improve subscriber viewing experience Regulation of ► The consultation paper recommends a reduction in the available FCT to 20% of total available Free airtime i.e. 12 minutes per hour

Commercial ► If implemented in its current form, the overall broadcasting industry may face some pressure on its

Time (FCT) revenues. The Indian broadcasting industry has strongly opposed the proposal and there continues to be uncertainty with respect to the implementation of the regulation. Further, the impact on shrinkage of ad-inventory (in case of implementation) is expected to be partially offset by increase in the ad rates

► With the roll out of digital addressable cable systems, subscribers will have the ability to pick and

choose specific channels to subscribe to. This may lead to increased pressure on broadcasters both

in terms of channel subscription fee and quality of content

► In Chennai, post implementation of addressable cable systems, around 67% of the subscribers, who opted for pay channels, subscribed to less than 15 channels, resulting in significant drop in viewership Advent of new ► Fall in viewership, and consequently subscription and advertising revenues, prompted several FTA channels regional channels to migrate from pay to FTA ► Similar increase in FTAs in the regional market may increase competitive intensity thereby impacting a broadcaster‟s business “In the digital regime, while newer channels would be FTA, even some of the more popular GEC broadcasters are not sure if people would choose to pay for their channels” - Leading GEC broadcaster

Resistance to regulation of advertising time andmandate for digitisation have prompted TRAI to review governance of other industry practices such as carriage fees, must carry diktat and subscription revenue split across the value chain (1)

Source (1) Indiatelevision.com Page 15 Commercial Due Diligence Ernst & Young copyright Strictly confidential Analysis indicates that the viewership share of Telugu channels has remained stable at around 65% over the last two years

A.P Market – GRP share of Telugu channels (1) Dec 2010 – Mar 2012 Regional content accounts for ~65% of the GRPs in AP compared to its Pan India share of ~34% (2) 100% ► Bi-lingual regional markets such as Gujarat and Maharashtra see lower regional viewership due to competition from Hindi 90% GECs 35% 33% 34% 34% 35% 80% 38% ► South Indian states have typically seen high viewership of 70% regional channels due to relatively low population of Hindi speaking audience 60% ► High regional viewership shares make it imperative for 50% advertisers to have a presence in regional channels to reach desired target population 40% GRP share (%) share GRP 67% 30% 65% 62% 66% 66% 65% 20% “Andhra Pradesh is a P1 market for my product (Tea). It is impossible to develop a media plan without including the 10% regional channels in the advertising mix” 0% - Consumer products company Dec-10 Mar-11 Jun-11 Sep-11 Dec-12 Mar-12

Share of Telugu channels Share of other channels “AP is used as a testing ground by lot of companies.. Regional channels are important in these markets because of their strong reach” - Media buying company

Source: (1) TAM data; (2) “Indian media and entertainment”, FICCI, 2012

Page 16 Commercial Due Diligence Ernst & Young copyright Strictly confidential Movies account for the bulk of the viewership in the AP market with about 40% share of Telugu GRPs

GRP breakup for Telugu content in AP - by content type (1) Dec 2010 – Mar 2012 Movie and movie-based content dominates the AP market 100% with about 40% of the GRPs of Telugu channels ► Share of movies and movie based content has remained 15% 14% 13% relatively stable over the last six quarters 90% 16% 16% 16% ► Serials (fiction content) seems to be the second most 6% 3% 3% 5% popular content category with a similarly stable share 80% 5% 5% 4% 4% 3% 3% 3% 3% of viewership (varying between 20-23%)

5% 6% 6% 6% 6% 7% 70% Viewership share of non-fiction content such as game 9% 9% 8% 12% 10% 8% shows and quizzes has doubled over the past two years, 60% indicating a marginal shift in viewer preference

20% 50% 23% 22% 20% 23% Mythological dramas, reality, religious, cookery and talent 22% shows are the major segments under „Others‟ accounting for ~50% of its GRPs in Mar 2012 40%

30% Genre wise GRP share (%) share GRP wise Genre

20% 41% 42% 43% 39% 36% 39%

10%

0% Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12

Movies Serials News Bulletin Film Based Magazines Film Songs Game Shows/Quiz Others

Source: (1) TAM data; Page 17 Commercial Due Diligence Ernst & Young copyright Strictly confidential The four large broadcasting networks in AP account for ~60% of the GRPs in AP; Gemini (Sun TV) is the dominant player with 26% of the GRPs in Mar „12

Share of GRPs by group (1) Gemini March 2012 Music, 1%

Gemini TV, Gemini Gemini news, 2% Maa Gold, 16% Movies, 7% 0% 1% Maa Music, Gemini group 1% 26% Maa Movies, 3% Other Telugu ETV2, 1% content 7% Maa TV, Maa group 10% 15%

ETV group ETV, 8% 9%

Zee 24 Ghantalu Zee group , 1% 8%

ETV ETV2 Zee Telugu, Non-Telugu content 8% 35%

Source: (1) TAM data; Page 18 Commercial Due Diligence Ernst & Young copyright Strictly confidential Sun group has the widest range of Telugu channels, followed by Rainbow

Telugu channels of major broadcasters in Andhra Pradesh (1) Group Channel Gemini TV Gemini TV - HD Gemini movies Gemini music Sun TV network Ltd. Gemini news Gemini comedy Kushi TV Gemini Action Gemini Life Maa TV Maa Music Maa Television Network Ltd. Maa Movies Maa Gold ETV Ushodaya Enterprises Pvt. Ltd. ETV2 Zee Telugu Zee News Ltd. Zee 24 Ghantalu

Channels launched in the last year by major broadcasters Source: (1) TRAI

Page 19 Commercial Due Diligence Ernst & Young copyright Strictly confidential Consistent addition of Telugu channels in the last 4 years; 54% of the channels added in the last 3 years have been from the „News‟ and „Movies‟ genres Launch of new Telugu channels (1) Legend 2009 - 2012 No. of Channel Channel 6 channels genre name

5 added

5 GEC MAA Junior 4 4 3 3 GEC Sitara TV (c) GEC Maa Gold (d) 3 Kids Kushi TV (a) Music Raj Musix Movie UTV Action Movie Gemini Action 2

News Andhra Jyoti Movies Gemini movies (b) Movie Maa Movies Movie Xtra Number of channels (no.) 1 News Sakshi TV News Raj News News T News Lifestyle Gemini Life 0 2009 2010 2011 YTD 2012

(a) – Kushi TV replaced Udaya news in 2009 (b) - Sitara TV was cancelled in 2010. Re-launched in 2011 (c) – Gemini movies replaced Navvulu in 2010 15 Telugu channels were added between 2009 and Q12012 at a rate (d) – Maa Gold replaced Maa Junior in 2012 of 3-5 channels each year ► Launch of 4 channels by Q1 2012 suggests a potential uptick in Channels discontinued by major the addition of channels for CY2012 broadcasters ► „News‟ and „Movies‟ have been the more popular genres for Year Group Channel addition of channels with ~54% falling under one of the two genres SUN 18 ► Addition of „Movie‟ channels has particularly picked up between 2009 Teja news Media Services 2011 and Q1 2012 with 4 of the9 channels added falling under SUN 18 the „Movies‟ genre 2010 Navvulu Media Services ► 50% of the new channels were launched by large regional players MAA such as Gemini, Maa and Raj groups 2012 MAA TV Network Junior

Source: (1) TRAI

Page 20 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Rainbow‟s share of Telugu channel GRPs has increased from 8% in Q4CY10 to 15% in Q1CY12

Share of GRPs by Channel (1) Q3FY11 – Q4FY12 Rainbow‟s GRPs have grown by ~40% between Q3FY11 and Q4FY12 100% ► GRP share of Rainbow‟s GEC channel grew from 7% to 10% of

80% 35% 38% 33% 34% 34% 35% all channel GRPs in AP ► Rainbow‟s launch of two new channels in this period is one of 60% 7% 7% 10% 9% 7% 7% 9% the key reasons for this increase 8% 9% 9% 9% 8% 10% 10% 9% 40% 9% 10% 10% 8% 11% 14% 15% 15% GRP share (%) share GRP 14% While Gemini‟s share of GRPs has fallen from 32% to 26%, other 20% 32% 27% 27% 24% 25% 26% large broadcasters have maintained market share in this period 0% ► Reduction in Gemini group‟s GRPs have primarily been on Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 account of the fall in its GEC‟s GRP share from 20% to 16% of the market in this period Gemini group Rainbow group

ETV group Zee group Other Telugu channels Others

GRP split across Rainbow‟s channel bouquet(1) Avg. “Each time a new channel is launched in the Rainbow Gold Rainbow Music Rainbow Gold weekly Rainbow Music 0% GRPs Telugu market, its effect can be seen on 13% 9% 1% Gemini’s GRPs. As the market leader, growth Rainbow Movies of newer channels is usually at the cost of its 0% Rainbow Movies channel bouquet. Now, with the 19% establishment of newer channel groups its 615 385 dominant position is under serious threat”

Rainbow TV – Large advertiser Rainbow TV 71% 87%

Dec 2010 Mar 2012

Source: (1) TAM data; Page 22 Commercial Due Diligence Ernst & Young copyright Strictly confidential Rainbow‟s revenue has grown at an annual rate of ~30% over the last three years; advertising accounts for ~80% of the revenue generated Revenue and EBIT (1)FY09 - FY12 200 EBIT Operating expenses x Net revenue 173

160

125

120 102 129

INR cr INR 78 80 101 83 40 69 43(25%) 19 (19%) 24(19%) 0 9 (11%) FY09 FY10 FY11 FY12

Advertising revenue Subscription revenue Other income FY09 - FY12 FY09 - FY12 FY09 - FY12

160 35 7 140 30 6

120 25 5

100 20 4

80

INR cr INR INR cr INR

INR cr INR 31 136 15 3 6 60 25 96 10 21 2 4 40 80 17 59 5 1 2 20 1 0 0 0 FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12

Source: (1) Information provided by Target Page 23 Commercial Due Diligence Ernst & Young copyright Strictly confidential Rainbow‟s advertising revenue is generated largely through advertisements placed by national FMCG brands such as HUL, ITC and P&G (81% in FY12) Advertiser wise break-up of advertising revenue (1) FY10 - FY12 The majority of Target‟s advertising revenues have been through sales to large national FMCG companies 1% 100% ► The share of FMCG advertisers has seen some volatility in 1% 2% 2% 3% 3% 4% the last three years which is largely complemented by the 6% 4% 3% change in share of pharmaceutical companies 90% 3% 3% 3% ► The relatively high share of income contributed by large 13% 7% FMCG companies have resulted in a higher proportion of 80% CPRP and similar deals for the Target

70%

60%

50%

85% 40% 81% 77%

Share of advertising income (%) income advertisingof Share 30%

20%

10%

0% FY10 FY11 FY12 FMCG Pharmaceuticals IT services Telecom Electronics Automotive Source: (1) TRAI

Page 24 Commercial Due Diligence Ernst & Young copyright Strictly confidential Rainbow has not been successful in negotiating higher ad rates through the CPRP model in the past…

(1) PTS slots breakup by category Revenue breakup by category(1) FY09 - FY12 FY09 - FY12

100% 100% 8% 8% 17% 18% 10% 31% 29% 27% 80% 80%

60% 60%

% % % 92% 92% 90% 40% 83% 40% 82% 69% 71% 73% 20% 20%

0% 0% FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12 Flat rate CPRP Flat rate CPRP PTS Slot rate (1) (FY09-FY12) FY09 FY10 FY11 FY12

Flat rate 1,737 1,893 2,741 2,704

CPRP rate 839 793 637 788

Rainbow sold ~27% of the their ad slots at CPRP rates in FY12 to large FMCG players such as P&G and HUL which contributed to 10% of their advertisement revenue (excluding slot sales)

► CPRP deals are done at a significant discount of ~70% to the flat rate deals

► Share of CPRP deals with large FMCG players has fluctuated between 17% and 31% of all ad slots sold by the Target

► Management has been successful in raising PTS rates for most advertisers by 16% over FY09-FY12. However CPRP rates have fallen by 2% over FY09 - FY12

Source: (1) Rainbow financial data Page 25 Commercial Due Diligence Ernst & Young copyright Strictly confidential …however, industry discussions suggest that Rainbow may be able to increase ad rates as it gains further market share and realizes full benefit of its 2nd position in the market

(1) Rainbow‟s GEC channel‟s GRPs and blended ER (FY10-FY12) Rainbow‟s Effective Rate (ER) has grown at a rate of ~14% annually between FY10 and FY12 Utilisation 78 % 76% 86% ► Industry discussions suggest there is a time lag in advertisement rate and channels performance, which is also 2,500 450 2,140 2,225 reflected in the trends in Rainbow‟s GRP and ER 400 ► Rainbow‟s ER increased by 25% in FY11 as the channel had 2,000 1,711 350 achieved high GRPs in FY10 making it the second most

300 watched channel

1,500

250 ► However in FY12, ER increased by only 4%, less than media INR

200 GRPs 1,000 inflation rate of 10-15% as channel‟s GRPs fell significantly 150 from 408 to 336

500 100 50 Rainbow has the headroom to negotiate for a higher ER 408 336 406 0 0 ► In FY12, Rainbow has managed to reclaim its second FY10 FY11 FY12 position by capturing high GRPs Avg weekly GRPs ER PTS ► Industry discussion suggest that Rainbow, with a bouquet of four channels, may be able to negotiate for a higher ER and Telugu GEC channel ER (FY12) (2) reduce the gap with Gemini, provided they are able to Channel ER for 10 seconds consistently maintain their current share of GRPs

Gemini 8,200 “Rainbow is currently selling its inventory at rates much lower than the competition” Rainbow 2,225 – Leading FMCG player ETV 2,216 “Rainbow sells its ad slots at one third of the rates offered by Zee Telugu 2,100 Gemini, with the gap between them coming down Rainbow can increase their rates”

Source: (1) Management information; EY Analysis – Large advertising agency (2) Industry discussions, EY Analysis Page 26 Commercial Due Diligence Ernst & Young copyright Strictly confidential Comparison of subscription fee with other players indicates potential to increase subscription rates

GRPs and subscription fee of major regional broadcasters Rainbow has consistently garnered the second highest GRPs March 2012 for its channel bouquet in the AP market ► Rainbow accounted for over 14% of the overall GRPs in the 1,200 14.5 16 AP market in FY12 14 1,000 ► In comparison, ETV and Zee groups had a GRP share of 12 ~10% each 800 11 11 10 Rainbow‟s channel bouquet is priced below most of its 600 8

INR INR regional peers 6 ► Rainbow‟s channel bouquet is currently priced at ~INR 6 400 6 4 per declared subscriber per month ► ETV‟s bouquet and Zee Telugu are priced at ~INR 11 while Weekly average GRPs average Weekly 200 2 Gemini‟s bouquet is priced at ~INR 15 0 0 Gemini Rainbow ETV Zee Telugu While Rainbow intends to increase subscription fee for its channels, it is likely to face some resistance from the MSOs, GRPs Subscription fee ► Subscription fee negotiations between MSOs and broadcasters are largely centered around consumer pull for a broadcaster‟s channel bouquet ► Discussions with the management indicate that they have Subscription revenue breakup for FY12 (INR Crore) initiated discussions with the MSOs for increase in subscription fee for Music, Movies and „Gold‟ channel. The Operators Gemini ETV Rainbow Zee management expects the rollout of the new prices to be a Telugu gradual process due to the resistance by MSOs DTH 20 20 10 5 “In comparison to other players, their fee is much lower.. They can consider some increase in prices” Cable 70 40 20 10 - MSO

“ETV is 11 rupees for only two channels.. Rainbow is 6 rupees for four channels..” - MSO

Page 27 Commercial Due Diligence Ernst & Young copyright Strictly confidential Channel carrying fee for Rainbow has increased by ~5 times on account of the launch of their two new channels Rainbow Gold and Rainbow Movies

Channel carrying fee (1) (FY09-FY12)

Launched 2 new channels Launched Rainbow Gold 6 Rainbow Movies and Junior 30% 27% 26% 5 25%

4 20%

Cr

3 15% % INR INR 5.21 5.15 2 7% 10% 6% 1 5% 1.08 0.90 0 0% FY09 FY10 FY11 FY12 Channel carrying fee % of Cable revenues

► In FY08 and FY09, Rainbow paid carrying fee only to Hathway cable of INR 1.1 crore andINR 0.9 crorerespectively

► Carrying fee increased by ~5 times to INR 5.2 crore in FY11 on account of two new channels i.e. Rainbow Movies and Rainbow Junior getting launched

► Management discontinued Rainbow Junior and launched Rainbow Gold in FY12 for which it had to continue to pay carrying fee to ensure that the new channels have the reach

► In FY12, ~87% of the total carrying fee was paid to Hathway and Venkata Sai Media

Source: (1) Rainbow financial data

Page 28 Commercial Due Diligence Ernst & Young copyright Strictly confidential The majority (58%) of the revenue generated by Rainbow through new media has been via Youtube

Rainbow - Revenue from new media FY12 Youtube accounted for ~58% of the revenues generated through new media Raaga Llc ► Rainbow simulcasts all serials and most of the movies (a) 3% screened on its television channels on Youtube for a share of A2 Media Pvt Ltd the advertisement income captured by Youtube Others 3% ► Increase in number of hits generated by Rainbow‟s content 7% A T - Photon has led to rise in its CPM rate from USD 0.87 in FY11 to USD 4% 2 in FY12 ► Management expects FY13 revenue generated through A T - Mobile Tv Youtube to double from the current levels of ~INR 1cr 8% INR A T - Myplex 1.8cr Rainbow provides its channel feed to some paid new media 8% distributors such as Myplex, Istream (outside India) and Tata Photon and earns a share of the subscription revenue Vuclip generated through them 9% Youtube 58% Management is also working towards the launch of applications for popular mobile platforms such as Apple‟s iOS and Google‟s Android which is expected to further increase Rainbow‟s reach in new media

Page 29 Commercial Due Diligence Ernst & Young copyright Strictly confidential Of the 6 DTH operators, Dish is the only operator that carries Rainbow Gold; Videocon, Airtel and Tata Sky have not been carrying the channel despite agreements due to bandwidth constraints

DTH Player Rainbow Main Rainbow Rainbow Music Rainbow Gold Remarks Movies

Sun Direct Carries only the main channel, new agreement is also for the main channel. However, as per management the negotiation on rates is going  on and all the four channels will be carried by them once they reach an agreement Dish TV     Agreement is for all the four channels Videocon Agreement is for all the four channels, however operator does not carry Rainbow     Gold Airtel Agreement is for all the four channels, however operator does not carry Rainbow     Gold Reliance Agreement is only for main channel. As per management operator is facing bandwidth   crunch, however once that is resolved they will carry all their four channels

Tata Sky Agreement is for all the four channels, however operator does not carry Rainbow     Gold

Source: (1) Rainbow management, Agreements

Page 30 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Rainbow‟s GEC channel has the second highest viewership in Andhra Pradesh, after Gemini

AP market - Telugu GEC channel GRPs(FY08-FY12) Overall Telugu GRPs 4,130 4,203 4,288 4,181 Rainbow GRPs 379 408 336 406

855 900 804 772 770 786 735 761 733 800 720 727 699 705 689 666 685 700 643 Gemini 600 Rainbow 500 432 434 411 422 412 ETV 379 408 387 405 365 370 347 362 Zee Telugu 400 339 334 310

300 Avg weekly GRPs weekly Avg 200 100 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY 08'09 FY 09'10 FY 10'11 FY 11'12

Rainbow was considered Rainbow’s GRPs Rainbow lost significant Rainbow on the back of as movie and event jumpedto 408 on the market share because : its strong dubbed fiction channel with movies and back of the success of its .Some of its newly content managed to events contributing to dance and music reality launched shows like “Its capture significant GRPs ~60% of GRPS shows like “Challenger” my show”, “Gata Janma and became a distinct and “Super singer” Rahasyam” did not do “No 2 Channel” well and had to be discontinued . Distribution issues with Hathway affected its reach in the Telugu Source: TAM data, Rainbow management discussion market (Hyderabad)

Page 32 Commercial Due Diligence Ernst & Young copyright Strictly confidential Fiction and movies have strong traction in the Telugu market; Rainbow‟s programming strength is in movies and non fiction

Duration and GRP wise content breakup for Telugu GEC channels

709 362 331 403 100% 4% 1% 4% 6% 4% 5% 3% 5% 20% 80% 38% 30% 20% 34% 52% 42% 50% 60% 36% 25% 24% 26% % 40% 31% 4% 22% 46% 24% 22% 39% 17% 22% 20% 5% 33% 23% 23% 20% 23% 0% 17% Duration GRPs Duration GRPs Duration GRPs Duration GRPs Gemini ETV Zee Rainbow Fiction Non Fiction Movies Other Shows News xx Avg weekly GRPs

Movies appears to have strong traction in the Telugu regional market, occupyijng ~30% (1) of the duration and contributing to ~41% (1) of the market GRPs ► Movies account for the majority share of Gemini‟s and Rainbow‟s GRPs with a 52% and 50% contribution respectively as they acquire rights for most of the blockbuster movies ► ETV has limited focus in movies and has not made any new movie acquisitions while Zee Telugu has a limited lower GRP/ duration ratio of ~1.2 Fiction has been a key driver for GRPs in Telugu market, with ~21% of programming duration generating 35% of the GRPs in Telugu GEC. Fiction content creates stickiness and loyalty to a channel, which both Gemini and ETV have achieved; Rainbow has shifted its focus to fiction with the share of its fiction GRPs increasing from 9% in FY09 to 23% in FY12 ► Gemini TV has used slot sharing and exclusivity clauses with its producers to produce successful fiction shows ► ETV because of its legacy and focus on fiction has been successful in capturing a loyal audience for its long running shows such as Chandramukhi and Bharyamani ► Amongst GECs, Rainbow „s fiction programmes have the lowest GRP/ duration ratio (~1.4) primarily because of the relatively poor performance of its original fiction content Non fiction occupies ~17% of the duration and contributes to ~18% of GRPs in Telugu GEC ► ETV and Rainbow have done well in the non fiction category with ~1.4 and ~1 GRP/ duration respectively

Source: TAM data, EY Analysis Page 33 Commercial Due Diligence Ernst & Young copyright Strictly confidential Unlike other GEC channels, Rainbow‟s programming success is driven by non-fiction and dubbed fiction content

Top programmes for Gemini Top programmes for Rainbow Programme GRPs Avg TVR Genre Programme GRPs Avg TVR Genre

Mogalirekulu 3,024 10 Fiction CID 1,470 2.4 Fiction dubbed Aparanji 1,534 5.9 Fiction Modern Mahalaxmi 1,266 2.1 Non fiction Devata 1,285 5.3 Fiction Chinnari Pellikooturu 1,140 2.7 Fiction dubbed No 23 Mahalaxmi Nivasam 1,167 5.1 Fiction Bhale Chance 812 2.9 Non fiction Rakthasambhadam 803 4.9 Fiction Airtel Challenge -3 531 1.5 Non fiction Top 10 programmes 10,932 4.7 Top 10 programmes 7,198 3 % GRP share of top 10 programmesfor the channel 30% % GRP share of top 10 programmes for the channel 34%

Top programmes for ETV Top programmes for Zee Telugu Programme GRPs Avg TVR Genre Programme GRPs Avg TVR Genre

Chandramukhi 1,380 4.3 Fiction Chinna Kodalu 1,116 3.2 Fiction-dubbed Bharyamani 1,270 3.9 Fiction Muddubidda 880 3.25 Fiction Manasu Mamata 1,229 3.7 Fiction Pasupu Kumkuma 748 2.7 Fiction dubbed Aadadhe Aadharam 988 3.1 Fiction Radhakalyanam 576 1.6 Fiction Anthahpuram 830 2.6 Fiction Kalavari Kodalu 543 2.2 Fiction Top 10 programmes 9,600 2.6 Top 10 programmes 5.940 2.1 % GRP share of top 10 programmesfor the channel 51% % GRP share of top 10 programmesfor the channel 34%

Original fiction content usually drives channel loyalty. However, fiction content does not appear to be one of Rainbow‟s top 5 programmes ► Gemini and ETV‟s Top five programmes are all fiction programmes. In contrast, Rainbow has only 2 fiction programmes amongst top 5. Further these programmes are dubbed content ► Rainbow‟s dependence on top 5 programmes (viewership concentration) is in line with other players (except ETV) Rainbow appears to haverelatively high dependence on dubbed fiction content from Hindi GECs (Colors and Sony); this could pose risks in terms of content continuity and associated risks

Source: TAMFY2012 data, EY Analysis Page 34 Commercial Due Diligence Ernst & Young copyright Strictly confidential Rainbow‟s original fiction content is struggling to garner viewership; dubbed content, particularly CID, is doing well for Rainbow in prime time

Prime time slots Top show Channel Genre Rainbow Programme Viewership (Genre) Ranking 1.2 1.5 Sri Shanidevuni Mahimalu 18:00 3.0 Jai Shree Krishna Gemini Fiction 2 0.7 (Fiction dubbed) 2.0 2.1 Shravani Vasantha Kokila 18:30 3.7 Gemini Fiction 2 1.2 Subramanyam (Fiction dubbed) 3.5 Chinnari Pellikooturu 3.7 Manthara Gemini Fiction 2 19:00 3.7 (Fiction dubbed) 1.8 2.9 2.7 Anna Chellelu 19:30 4.9 Auto Bharathi Gemini Fiction 3 Rainbow‟ 3.5 (Fiction original) s ranking 3.4 2.4 No. 23 Mahalakhmi MissammaO Aadapilla falls in 20:00 5.2 Gemini Fiction 4 4.0 Nivasam (Fiction original) original fiction 2.4 2.1 Yedureetha content 20:30 9.2 Mogalirekulu Gemini Fiction 4 3.7 (Fiction original) 2.3 3.7 Bhale Chance 21:00 6.8 Aparanji Gemini Fiction 2 2.4 (Non fiction) 2.8 Bhale Chance 21:30 3.8 Devata Gemini Fiction 2 5.1 (Non fiction) 2.6 2.5 Fiction 22:00 3.6 CID Rainbow 3.6 (Dubbed) CID (Fiction dubbed) 1 2.5 1.0 2.7 Fiction 22:30 2.1 CID Rainbow 1 1.7 (Dubbed) CID (Fiction dubbed) 0.5 0.8 Gemini News Gemini News Challenge-3 (2) 23:00 1.1 2 0.8 Content produced by Annapurna - “Yuva” and “Pelli Pandiri” - which were 0 2 4 6 8 10 telecast in prime time (19:30 to 20:30) between Jun-11 to Dec-11 had an Zee Telugu VibgyorRainbow Gemini ETV average TVR of 1.15 Source: TAMCY2012 data, EY Analysis Page 35 Commercial Due Diligence Ernst & Young copyright Strictly confidential ~60% of the contribution from dubbed content comes from Viacom‟s library, the term period for which may not be extended on expiry

Contribution breakup content wise FY12 Serial Vendor Revenue Contribution Contribu (INR *(INR Crore) tion *% Crore) Movies 33% Chinnari Pelli Viacom 18 6.2 5.1 13% Kuthuru

CID MSM 6.0 4.3 11%

Fiction Vasantha Kokila Viacom 18 2.2 1.6 4% Slots Dubbed 34% 10% Naadi Aadajanme Viacom 18 1.6 0.9 2% Events 0% Sri Shanidevi Turner GEC 1.4 0.8 2% Mahimalu Non Fiction 22% Fiction Alajadi Viacom 18 0.6 0.4 1% Original 1% Kodala Kodala Star India 0.4 0.3 1% INR 39cr Koduku Pellama

Channel has significant dependence on dubbed content at the overall margin level ► Dubbed fiction contributes to more than 30% of the overall channel level contribution. In contrast, channel‟s original content contributes~1% ► Alajadi series, which generated ~1% of the overall channel contribution, recently concluded its last episode ► Management has negotiated for complete series contract for Balika Vadhu (Chinnari Pelli Kuthuru), Na Aana is Desh Main Ladoo (Naadi Aadaianme) and Laagi Tujhse lagan (Vasantha Kokila)

Source: (1)Rainbow financials, Management discussion, Note: * Contribution = Advertisement revenue- Content procurement cost

Page 36 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Rainbow‟s movie channel, within months of its launch, appears to have gained market share from Gemini‟s movie channel

Telugu movie channels- GRPs Jan-11- Mar-12 Movies is the most popular content on Telugu channels; both Gemini and Rainbow have exclusive movie channels 350 323 ► Gemini Movieshas had a head start and continues to be 295 the market leader in this category, with double the GRPs 300 268

259 of Rainbow‟s movie channel

250 ► However, after the launch of Rainbow‟s movie channel in 207 early 2011, Gemini Movies has witnessed a significant 200 drop in its GRPs

150 127 126 114 119

Avg Weekly Weekly Avg GRPs Rainbow‟s GRPs have increased from 73 to 119, over the 100 73 last five quarters, an increase of 13% ► Rainbow has actively focused to increase its movie 50 inventory in the last 2 years 0 ► Additionally, Rainbow has an exclusivity tie up with its Q1'CY2011 Q2' CY2011 Q3'CY2011 Q4'CY2011 Q1'CY2012 promoter‟s production houses, giving it an advantage to acquire satellite rights RainbowVibgyor Movies Gemini Movies

“Gemini has a strong movie library which is difficult to replicate.. While Rainbow is acquiring movies, it will take time” – Regional broadcaster

“When Gemini started acquiring movie rights in the early 90s, they were given lifetime rights to some of the greatest classics Telugu cinema has seen. Newer movie rights are typically given for 7 years putting newer channels at a disadvantage ” – Regional broadcaster

Page 38 Commercial Due Diligence Ernst & Young copyright Strictly confidential A sample analysis of Top 20 grossing movies released in 2010 and 2011 indicates that Rainbow is at par with Gemini with respect to acquisition of satellite rights for movies Top 10 movies: Satellite rights acquisition - by channel(2010-11)

Year Name Channel Satellite right cost Box-office collection (in INR Crs.) (In INR Crs.) Endhiran Gemini TV Own Production 42.00 Simha Rainbow 3.10 33.50 Brindavanam Gemini TV 4.50 25.00 Darling Gemini TV 4.50 24.00 Maryada Ramanna Rainbow 3.50 21.00 2010 Adurs Rainbow 4.05 20.00 Namo Venkatesa Rainbow 4.10 20.00 Don Seenu Gemini TV 3.85 19.00 Orange Rainbow 5.20 17.20 Komaram Puli Gemini TV 5.00 16.00 Dookudu Rainbow 5.25 65.00 Mr. Perfect Gemini TV 5.20 32.00 Oosaravelli Gemini TV 5.50 29.00 Mirapakaya Zee Telugu 4.00 23.75 Teenmaar Rainbow 5.25 21.00 2011 Kandireega Zee Telugu 3.50 18.50 Panjaa Gemini TV 5.75 18.00 Rangam Rainbow 1.05 14.50 Sri Rama Rajyam Zee Telugu 4.50 14.00 Gaganam Gemini TV 4.50 13.00 ► Of the sample of 20 top grossing movies in 2010 and 2011, Gemini Movies acquired the satellite rights of 9 movies(including Endhiran, Sun‟s own production) while Rainbow had acquired rights for 8 movies. Zee Telugu appears to have become more active in acquisition of movie satellite rights in 2011 (3 acquisitions) ► ETV appears to be relatively inactive in the acquisition of satellite rights in this category

“Both Gemini and Rainbow are actively acquiring movie rights.. Zee Telugu is laidback .. their movie investments are low” – Ex employee, Regional broadcaster

Page 39 Commercial Due Diligence Ernst & Young copyright Strictly confidential However, the average cost of satellite rights of big budget movies has been increasing consistently over the years

Rainbow‟s satellite right acquisition and average costs by movie category 2009-2011

12 11

Blockbuster and Maha Movies in 10 9 FY12 include dubbed Tamil 8 movies(Gambler, Nene Ambani) as 8 well as other low budget successful 6 movies (Karma) 4 3 3 2

Number of moviesof Number 2 1 0 Blockbuster Maha Movies INR Lacs FY08 FY09 FY10 FY11 FY12 FY08 FY09 FY10 FY11 FY12 Acquisition 106 720 485 1,970 1,025 - - - 1,270 3,920 cost Average Acquisition 106 240 243 246 114 - - - 423 356 cost The average cost of acquisition for the satellite rights of Maha Movies and Blockbuster movies for Rainbow have been increasing over the years ► The reduction in the average acquisition cost in FY12 appears to be due to the low acquisition costs for few successful dubbed Tamil as well as low budget movies which have been considered as part of the blockbuster and Maha Movies categories; excluding these movies, FY12 average costs are similar to those of FY11 Analysis of the movie rights price for some of the leading actors also suggests a consistent increase in costs ► While the average costs for Nagarjuna movies have increased from INR 1.35 Cr in 2007 to INR 5.25 Cr for his under-production movie, the costs for Allu Arvind movies have increased from INR 70 Lacs to INR 5 Cr over the past six years

“Movie rights cost have increased significantly only over the past 2-3 years. We expect the costs to remain stable for a year or so now and then increase again” – AP-based company involved in movie distribution

Page 40 Commercial Due Diligence Ernst & Young copyright Strictly confidential While Maha and Blockbuster movies, together, account for ~9% of Rainbow‟s existing library, the cost of acquiring these movies is estimated to be 60% of the cost of the library

Category-wise number and acquisition cost of movies acquired (1)(2)

Dubbed Movies 213 39% 15 8%

Regular Movies 289 52% 57 32%

Blockbuster Movies 35 6% 56 31%

Maha Movies 14 3% 52 29%

200 100 0 100 200 40 20 0 20 40

Number of movies (no.)

Rainbow‟s movie library is categorized into dubbed, regular, blockbuster and Mahaa movies on the basis of each movie‟s expected performance in the box office

► Average movie acquisition cost varies significantly across movie categories with an average Mahaa movie (INR 4cr) costing over 50 times that of a dubbed movie (INR 7lakhs)

► Over 65% (32 movies) of Rainbow‟s Maha and blockbuster movie collection was built between FY10 and FY12. In comparison, the preceding three years contributed to the addition of 30% (15 movies) of Rainbow‟s Maha and blockbuster library

Source: (1) Information from Target management; (2) EY analysis Page 41 Commercial Due Diligence Ernst & Young copyright Strictly confidential Rainbow appears to have benefited from its association with its related parties and directors; such benefits may not be sustainable in the long run

Movie rights acquisition – Related parties and promoters The satellite rights of all movies released by Geetha Arts and (2010-11) Annapurna Studios (related parties), over the last two years, have been acquired by Rainbow Acquisition Movies Channel cost (inr cr) ► Rainbow appears to have benefited from the preferential treatment from these production houses Related Parties Rights for all the ► Management discussions suggest that the rights for Geetha arts Magadheera 5.5 Rainbow movies for 100% Love 3.0 Rainbow related parties’ „Magadheera‟ were sold to Rainbow for INR 5.5 Cr (for 7- Badrinadh 5.0 Rainbow production were years right), even when Gemini was willing to offer INR 7 Cr Annapurna studios Rajanna 5.0 Rainbow purchased by (for perpetual rights); similar instances have been cited for Maa the other movies produced by Geetha Arts Promoters & family ► Industry discussions suggest that apart from providing the Nagarjuna Kedi 4.00 Rainbow Ragada 5.10 Gemini access to the rights to Rainbow, this decision is also driven Gaganam 4.50 Gemini by the commercial considerations around gradual monetizing Rajanna 5.00 Rainbow of the movie rights 5.25 Gemini Damarukam Ram Charan Teja Orange 5.20 Rainbow Naga Chaitanya Bejawada 4.00 Gemini Rainbow has also Rainbow has also managed to acquire 7 out of 16 movies Ye Maaya 2.80 Zee Telugu acquired 7 out of involving its promoters and their immediate family over the 16 movies for the Chesave actor promoters last two years Dhada 3.50 Rainbow and their family 100% Love 3.00 Rainbow over the past two Pawan Kalyan Teenmaar 5.25 Rainbow years “Only Geetha Arts and Annapurna Studios are related Panjaa 5.75 Gemini parties, where we have an informal first right of refusal Komaram Puli 5.00 Gemini for the satellite rights. For other movies involving the Allu Arvind Vedam 4.00 Gemini promoters andtheir family, while they put in a word with Varudu 4.10 Gemini the producers to consider us, eventually, it is the Badrinadh 5.00 Rainbow producer’s decision to sell it to us or not”

– Target‟s management team

Page 42 Commercial Due Diligence Ernst & Young copyright Strictly confidential Existing movie library is expected to contribute significantly to Rainbow‟s future revenue primarily on account of „Maha‟ and „Blockbuster‟ movies Category-wise expected revenue contribution of movies acquired (1)(2) Existing Maha movies are estimated to account for the (INR cr) FY13 – FY17

majority of the future revenues expected from Rainbow‟s )

cr 57% 51% 45% 41% 36% existing movie library 60 ► While Maha movies form around 5% of the movies in 50 7 6 Rainbow‟s library by number the category forms ~37% of 6 6 7 8 8 its movie earnings in FY12 40 10 10 8 ► While the licenses for all the Maha movies in Rainbow‟s 30 14 15 14 14 14 library are expected to continue through FY17, licenses 20 of movies accounting for ~35%, ~40% and ~20% of the 25 10 19 21 23 24 TRPs are expected to expected to expire in the blockbuster, regular and dubbed categories respectively 0

Revenue contribution (INR (INR contribution Revenue FY13 P FY14 P FY15 P FY16 P FY17 P

- Maha movie - Blockbuster - Regular - Dubbed x% Existing library‟s share of overall movie revenue

FY13F FY14F FY15F FY16F FY17F

Overall revenue attributable to Movies (INR cr) 86 101 116 133 148 Movies accounting for Revenues attributable to present movie library (%) 60% 56% 53% 49% 46% ~35%, ~40% and ~20% of the TRPs are Adjustment for TRPs lost due to expiry of license (% lost) expected to expected - Maha movies 0% 0% 0% 0% 0% to expire in the blockbuster, regular - Blockbuster movies 12% 9% 3% 4% 7% and dubbed categories - Regular movies 4% 8% 22% 1% 3% respectively by FY17 - Dubbed movies 8% 0% 0% 9% 5%

Source: (1) Information from Target management; (2) EY analysis Note: The estimate for overall revenue contribution of the existing movie library is based on the PPA analysis performed independently and historical movie category wise share of revenue. The above analysis has been conducted based on assumptions that would require rigorous testing through further analysis of movie viewing behaviour Page 43 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Rainbow‟s music channel has ~45% share of the Telugu music channel GRPs

Revenue and utilisation chart Telugu music channel GRPs(Jan 2011-March 2012) FY10-FY12 Effective rate 263 226 176 Rainbow Music 43% 38% 43% 48% 45% (PT+NPT) GRPs share %

9 70% 62% 8 60% 80 73 67 7 65 70 50% 58 6 60 54 38% 50 52 36% 47

5 40% 50 45 44

% 4 8 30% 40

INR CroreINR 7 3 30 5 20% Avg.weekly GRPs 2 20 10% 1 10

0 0% 0 FY10 FY11 FY12 Q1'CY2011 Q2' CY2011 Q3'CY2011 Q4'CY2011 Q1'CY2012 RainbowVibgyor Music Revenue (net of service tax) Utilisation Gemini Music

► In the last few years overall Telugu music channel‟s share in Andhra Pradesh market GRPs has remained constant at ~3%

► In the Music category Gemini Music and Rainbow Music have emerged as the large players with 100% reach

► There are other players in the market like SS Music, City Music etc but have insignificant share because of limited reach

► Rainbow‟s share in Telugu music category has remained around 40-45% . Rainbow has reduced its effective rates fromINR 263 PTS in FY09 to INR 176 PTS in FY12 to have a higher inventory utilisation which has increased from 36% in FY09 to 62% in FY12

Source: TAM data, Rainbow management discussion

Page 45 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential Management plans to use its Gold channel to reach out to urban youth through the 2nd TV viewer; so far Rainbow Gold has primarily focused on airing game shows

► Urban audience in Hyderabad ► Kids and urban youth Target audience ► Targeting the second TV viewing audience which is ~70%1 of the TAM market, looking for differentiated content

► Expand Telugu GEC space with differentiated offering Rationale ► New viewing habits evolving with audience looking for differentiated content ► Opportunity to experiment with content

Rainbow Gold‟s programming mix

60% 52% GRP share Share of airtime 50% 40% 31% 30%

20% 13% 15% 15% 11% 10% 8% 10% Percentage share (%) share Percentage 10% 5% 5% 5% 3% 2% 1% 0% 0%

Source: TAM Data Page 47 Commercial Due Diligence Ernst & Young copyright Strictly confidential The 2nd GEC concept is still untested in the Telugu market, on comparisons with similar channels in HSM we get a wide range of GRPs

Rainbow Gold- Potential up-side(2) Rainbow Gold has an upside of 82 GRPs if it is able to emulate 140 SAB TV‟s performance which is below management‟s target Targeted GRPs: 130 GRPs of 130 120 107 100 ► Rainbow Gold currently has managed to achieve 24 GRPs and targets to achieve 130 GRPs by FY13 ► UTV Bindaas has on an average achieved ~0.6%2 of the 80 82 share of Top 4 GECs, which if Rainbow Gold emulates will 60 result in fall in their GRPs from ~25 to ~18 ► SAB TV, which is considered to be the most successful 2nd 40 18 GEC channel, has achieved 4% share of the GRPs in the HSM

Avg. Weekly GRPs Weekly Avg. market. If emulated by Rainbow Gold this may result in 107 20 GRPs for the channel 25 25 25 0 (7) “We are looking at creating a channel for the second TV viewing -20 audience on the lines of UTV Bindaas” RainbowVibgyor Gold UTV Bindaas as % Sab TV as % of of HSM HSM – Rainbow management

Current performance Additional GRPs “A focused channel with a different type of content is needed in this market as that is the best way to tell advertisers that they would find access to a new TG.” – Large advertiser

While management plans to exhibit innovative content on their Gold channel, the concept is still evolving and is largely untested

Source: (1)Management discussion, (2)TAM Data Page 48 Commercial Due Diligence Ernst & Young copyright Executive summary Andhra Pradesh: Regional TV market Assessment of Target’s business - Company overview - GEC channel - Movies channel - Music channel - Gold channel Business plan assessment

Strictly confidential EY base case estimate is mildly lower than management estimates in terms of net revenue and EBITDA margin over net revenue

Comparison of estimated revenue and EBITDA margins: Management estimates vs. EY estimates FY11 – FY15

Revenue Management Estimate EY Estimate ► Management estimates its revenues to grow 350 35% from INR173 crores in FY12 to INR 301 crores 30% 31% 31% by FY15 300 27% 30% ► EY base case revenue estimate for FY15 is 25% 30% 27% lower at ~ INR 290 crores; the lower revenue is 250 27% 25% primarily on account of lower advertising 25% 25% growth expected (than considered by the 200 20% management case) and a more conservative view on Maa Gold‟s revenues 150 301 15% ► Lower margin is primarily on account of lower 259 220 revenue growth in EY base case 100 10% 173 ► Dip in revenue in FY 13 is largely due to 125 50 5% o Higher programming cost for Maa Gold and Music 125 173 215 251 290 - 0% o Increase in Tape and Telecast expense FY 11 FY 12 FY 13 FY 14 FY 15 o Increase in estimated carriage fees

Overall EBITDA (INR FY11 FY12 FY13 P FY14 P FY15 P Crores)

Management estimate 28 48 60 80 92

EY estimate 32 * 52 * 54 68 79

*Represents adjusted EBITDA as identified during financial due diligence (adjustments – inventory amortization: INR 0.7 crores (FY 11), channel carriage fee: INR 3 crores (FY 11), INR 3.6 crores (FY 12), INR 0.1 crores (FY 12), uplinking costs: INR 0.6 crores (FY 12)) Page 50 Commercial Due Diligence Ernst & Young copyright Strictly confidential Net advertisement revenue projections for FY15 in EY base case are estimated to be ~ INR 158 crores for Maa GEC and INR 38 Crores for Maa Movies Rainbow GEC – Net Ad Revenue estimates (FY11 – FY15)

180 Management Estimate EY Estimate

160

140 ► Management‟s overall revenue forecasts are largely in line with EY estimates 120 ► The EY base case considers an annual revenue growth of 100 14-15% based on market feedback and last year‟s 80 168 performance of MaaTV 143 60 121 104 ► In addition, the utlisation percentage has not exceeded 40 90 90% in EY‟s base case compared to 100% for management

Ad revenue in INR crores INR in revenue Ad case 20 90 104 118 137 158 0 FY 11 FY 12 FY 13 FY 14 FY 15 Rainbow Movies – Net Ad revenue estimates (FY11 – FY15)

45 Management Estimate EY Estimate ► Maa Movies channel was launched in Q4-FY11. The 40 channel witnessed strong growth in advertising revenues in FY12 mainly due to rise in GRPs and full 12 months of 35 operation in FY12 against only 3 months of operation in 30 FY11 25 ► The channel‟s average weekly GRPs have now stabilized at around 120 GRPs 20 40 35 ► The management‟s revenue growth expectations appear 15 28 mildly aggressive given the stagnant GRPs 10 22 ► Ad revenue in INR crores INR in revenue Ad EY base case revenue for the channel (based on last six 5 months performance) is estimated to be ~ INR 29 Crores in 1 1 22 29 33 38 - FY13 and expected to reach INR 38 Crores by FY15 FY 11 FY 12 FY 13 FY 14 FY 15

Page 51 Commercial Due Diligence Ernst & Young copyright Strictly confidential EY‟s base case estimates of net advertisement revenue for Rainbow Gold and Rainbow Music are lower than management estimates by INR 3 cr and INR 0.5cr respectively Rainbow Gold – Net Ad revenue estimates (FY11 – FY15)

35 Management Estimate EY Estimate

30 ► Management expects advertisement revenue of ~30 crores from Rainbow Gold by FY 15 25 ► Rainbow Gold is a new channel and its performance and 20 profitability depend largely on success of the new concept. However, the demand for such content in the local market 15 30 25 is still untested 22 10 ► Due to such uncertainties, EY base case analysis considers lower revenue of around 27 Crores by FY 15 – profit after Ad revenue in INR crores INR in revenue Ad 5 tax from this channel is 0 in FY15 0 0 1 1 19 23 27 - FY 11 FY 12 FY 13 FY 14 FY 15

Rainbow Music – Net Ad revenue estimates (FY11 – FY15)

14 Management Estimate EY Estimate

12

10 ► Management estimates for ad revenue generated through 8 Rainbow Music are largely in line with EY estimates 13 ► Management plans to increase programming spends for 6 11 the music channel to drive GRPS. This increase in 10 programming expense outpaces the increase in advertising 4 8 revenue 5 Ad revenue in INR crores INR in revenue Ad 2 5 8 9 11 13 - FY 11 FY 12 FY 13 FY 14 FY 15

Page 52 Commercial Due Diligence Ernst & Young copyright Strictly confidential EY base case estimate for Cable and DTH subscription revenues is marginally higher than the management case

Cable subscription net revenue (FY11 – FY15)

35 Management Estimate

30 ► The management plans to gradually increase the crores subscription fee for its bouquet for cable from INR 6 to 25 INR 9

20 ► However, the management‟s estimate does not consider

revenueINR in impact of digitization and benefit expected to accrue to 15 broadcasters on account of higher subscriber disclosures 26 24 10 19 21 21 ► EY base case estimates consider partial rollout of digital set-top boxes over the next few years which are likely to 5 lead to higher earnings for broadcasters

Cable subscriptionCable 19 21 21 25 30 - FY 11 FY 12 FY 13 FY 14 FY 15

DTH subscription net revenue (FY11 – FY15)

Management Estimate EY Estimate 18 ► For forecasting DTH revenue, management estimate has

16 assumed a flat rate of around 12% annually across all 14 service providers. 12 ► EY base case estimate is based on the DTH subscriber growth expectations and current agreements of the 10 company with the various players 8 14 12 ► The EY revenue estimate is marginally higher than the 6 11 9 management estimates. Potential upside may exist in case 4 all of the company‟s channels are carried by Sun Direct and 6 Reliance TV DTH revenue in INR crores INR in revenue DTH 2 6 9 11 13 15 - FY 11 FY 12 FY 13 FY 14 FY 15

Page 53 Commercial Due Diligence Ernst & Young copyright Strictly confidential Management estimates for programming cost appears to be reasonable

Management Programming content cost for all channels (FY12-FY16) 140 50% 44% 44% 125 41% 45% 2 120 107 97 42% 40% 100 2 53 35% 2 80 75 44 30%

41

25% % 1 15 60 35 20%

INR CroreINR 13 12 40 30 15% 9 26 23 10% 20 12 13 16 18 21 5% 0 5 3 4 4 0% FY 12 FY 13 FY 14 FY 15

Events Serial Rights Programming Expenses Game Shows (Prime Time) Movies Other programming expenditure % of Net revenue

Programming content cost assumptions appear to be in line with Industry benchmark. Content cost as a percentage of net revenue is expected to reduce from 49% in FY12 to 42% in FY16 on account of stronger increase in revenue from ad rates and subscription rates

► There is an increase in programming cost from INR 75 crore in FY12 to INR 97 crore in FY13 on account of increase in programming budget for Rainbow Gold

► The content mix has been assumed as per historical mix with an estimated rate increase of ~14% for serial rights,~11% increase for game shows, events and other programming expense and ~18% increase for programming expense year on year

► The cost per episode appears to be in line with Industry average

Content Rainbow Industry discussion “The average cost per episode of fiction is around Fiction-Original 100K 90K-110K INR90k-110K, while that of non fiction is ~300K” Non fiction (Reality shows) 220K 200k-250k – Leading regional broadcaster

Page 54 Commercial Due Diligence Ernst & Young copyright Strictly confidential Carriage costs and telecast expenses are expected to rise in FY 13 due to addition of new channel

Carriage fees FY11 – FY15 E

10 3% 4% 3% ► Management„s carriage cost estimate is based on the current 8 3% 3% 3% agreements of the company with the MSOs and factors in the 6 additional payout on account of the new channels (especially

2% 2% Gold) 4 8 8

7 ► The management has considered a lower growth of 6-7% in INR cr INR 5 1% 2 carriage fee, post FY13. This appears reasonable considering 2 that the other competitors like ETV and Gemini currently do not

0 0% (%) revenue of Percentage pay any carriage fee FY 11 FY 12 FY 13 FY 14 FY 15

Channel Carrying fee Percentage of revenue

Tapes and telecast expense FY11 – FY15 E

14 4.3% 4.1% 4.1% 5% 12 3.4% 3.4% 4% 10 ► The largest component of tapes and telecast expenses is MCPC 8 3% charges. The MCPC charges forecasted by the management are 6 12 supported by the current contract/arrangement with Tata 11 2% communications 4 9

INR cr INR 6 1% 2 4 ► Management case consider a sharp increase in FY13, followed 0 0% by a 15% increase over the next two years

FY 11 FY 12 FY 13 FY 14 FY 15 (%) revenue of Percentage

Tapes & Telecast expense Percentage of revenue

*There may not be one to one mapping of the 'SG&A and others' cost heads due to difference in classification of expenses and EBITDA adjustments

Page 55 Commercial Due Diligence Ernst & Young copyright Strictly confidential Administrative and personnel expenses appear to be supported by historical trends

Personnel fees FY11 – FY15 E

50 16% 13% 12% 12% 12% 13% 14% ► Management‟s personnel cost estimates are largely in line with 40

12% EY base case estimates

30 10% ► Management expects sharp rise in personnel costs in FY13

8% mainly on account of increase in salaries and wages for the GEC INR cr INR 20 6% channel 4% 10 ► Post FY13, management has considered an increase in 16 21 26 31 37 2% personnel expenses at around 19% which is in line with

0 0% (%) revenueof Percentage historical rise of ~20% FY 11 FY 12 FY 13 FY 14 FY 15

Personnel Cost Percentage of revenue

Administration cost FY11 – FY15 E

12 6.0% 4.8% 10 5.0% ► The administrative and SG&A cost assumptions are in line with 3.7% 3.9% 3.8% 3.8%

8 4.0% the historical ratios : 6 3.0% ► Admin costs at about 4% of the revenues INR cr INR 4 2.0% ► SG&A expenses at about 4-5% of revenues 2 1.0% 6 8 8 10 11

0 0.0% (%) revenueof Percentage 1 2 3 4 5

Admin Cost Percentage of revenue

Page 56 Commercial Due Diligence Ernst & Young copyright Strictly confidential The synergy case factors in potential revenue upsides on account of higher ad rates, higher subscription fee and digital media revenues

Synergy area Description Start year Assumption for Synergy Increase in ad MSM‟s experience and collective bargaining power FY 15 Discussions With MSM‟s team indicate that the rates (ER) for could increase ad rates (ERs) for the Maa TV (Post ER for Maa TV could be increased by as much Maa TV network majority as 30-40% over a two year period, provided ad stake) sales are managed by the MSM team

Increase in Potential to increase subscription revenues exists FY14 ► 5% higher distribution revenue in FY14 distribution through collective bargaining with MSOs and DTH ► 10% higher distribution revenue estimated in revenues players and offering through OneAlliance EY base case in FY15 and the following years Digital and Increase in digital and new media revenues through FY14 Digital media revenues expected to double over New media, access to MSM‟s partners and joint sales the base case by FY16 international revenue Further, Rainbow could leverage MSM‟s international distribution network

Page 57 Commercial Due Diligence Ernst & Young copyright Strictly confidential High level assessment of potential synergies with MSM suggests an upside of INR 31cr and INR 24cr in revenue and EBITDA respectively by FY16 Comparison of estimated revenue and EBITDA margins: EY base case estimates vs. Synergy estimates FY11 – FY16

Revenue Base case estimate Synergy case estimate ► The synergy scenario is expected to emerge 400.0 35% from FY 14 onwards 30% 33% ► Net revenue may increase from INR 251 crores 350.0 29% 30% to INR 254 crores in FY 14 in synergy case 27% 25% 30% 25% 28% compared to base case 300.0 28% 27% 25% ► The effect is expected to be more pronounced 25% 25% in FY 15 and FY 16 with net revenue 250.0 increasing by 12 and 31 crores respectively 20% 200.0

15% EBITDA 332 150.0 290 ► EBITDA is expected to increase by 3 crores in 251 10% FY 14 and 10 and 24 crores in FY 15 and FY 100.0 215 173 16 respectively 125 5% ► Overall the margin may show incremental gain 50.0 of 2% and 4% in FY 15 and FY 16 under the 125 173 215 254 302 362 synergy case while it remains largely flat in the - 0% base case FY 11 FY 12 FY 13 FY 14 FY 15 FY 16

Overall EBITDA (INR FY11 FY 12 FY 13P FY 14P FY 15P FY 16P Crores)

EY base case estimate 32 * 52 * 54 68 79 94

Synergy estimate 32 52 54 70 88 118

*Represents adjusted EBITDA as identified during financial due diligence (adjustments – inventory amortization: INR 0.7 crores (FY 11), channel carriage fee: INR 3 crores (FY 11), INR 3.6 crores (FY 12), INR 0.1 crores (FY 12), uplinking costs: INR 0.6 crores (FY 12)) Page 58 Commercial Due Diligence Ernst & Young copyright Strictly confidential Rainbow‟s high dependence for content from other broadcasters and absence of „proof of concept‟ for Rainbow Gold may pose risks to its business

► Around 34% of the Target‟s contribution is generated through content procured from other large broadcasting groups such as Viacom and Zee Turner and dubbed for the Telugu audience Dependence on ► Target may face a challenge in extending contracts with some broadcasters due to potential content from third competitive conflicts between its content providers and investors parties ► Inability to renew the contracts for all of its dubbed content may impact the annual revenue and contribution of Rainbow by INR 18cr and INR 13cr respectively

► Rainbow‟s management plans to offer differentiated content targeted at urban youth audience on the Gold channel. However, the concept is still evolving and is largely untested Untested concept – Rainbow gold ► While channels positioned similarly exist for the HSM audience, this type of content has not been tested in regional markets such as AP. Failure to gain traction may lead to loss of investments already made by Rainbow to create and market the channel

Page 59 Commercial Due Diligence Ernst & Young copyright Strictly confidential Changes to regulations governing the broadcasting sector may impact Rainbow‟s business

► Subscribers‟ ability to select specific channels may lead to a reduction in channel reach thereby negatively impacting both subscription and advertising revenue Emergence of ► Loss in revenue may incentivize some popular regional channels to migrate from a Pay channel Emergence of FTAs FTAs to an FTA ► Emergence of regional FTAs may exert downward pressure on Target‟s ability to price its channels thereby leading to a fall in its subscription revenue

► If proposed FCT regulations is implemented in its current form, the overall broadcasting industry may face some pressure on its revenues. ► The Indian broadcasting industry has strongly opposed the proposal and there continues to be Regulation of FCT uncertainty with respect to the implementation of the regulation. ► Further, the impact on shrinkage of ad-inventory (in case of implementation) is expected to be partially offset by increase in the ad rates

Regulation of ► TRAI has indicated its intent to exercise greater control on the split of subscription revenue television between different stakeholders in the cable television distribution value chain subscription ► TRAI‟s current stance suggests that ~70% of the subscription revenue generated through cable revenue share may be retained by LCOs. This may limit the opportunity for broadcasters

Page 60 Commercial Due Diligence Ernst & Young copyright Strictly confidential Income statement

Parameters (INR cr) FY11* FY 12* FY13P FY14P FY15P FY 16P

Gross Revenue 138 190 241 281 325 372 Advertising Revenue 106 150 197 229 264 303 Distribution Revenue 28 36 39 46 54 61 Digital and New Media Revenue 3 4 5 6 7 8 Service Tax 13 17 26 31 35 40 Net Revenue 125 173 215 251 290 332 Programming expense* 61 73 97 110 127 145 Personnel Cost* 16 21 26 31 37 42 Admin Cost* 6 8 8 10 11 13 Other SG&A Expenses* 11 19 13 14 16 17 EBITDA * 32 52 54 68 79 94 Depreciation 4 6 5 6 7 8 Other Income 1 1 0 0 0 1 EBIT 28 47 49 62 72 87 Finance Charges 3 5 9 12 12 10 EBT 25 42 40 50 60 77 Tax 8 14 13 17 20 25 PAT 17 28 27 34 40 51

*Represents adjusted EBITDA as identified during financial due diligence (adjustments – inventory amortization: INR 0.7 crores (FY 11), channel carriage fee: INR 3 crores (FY 11), INR 3.6 crores (FY 12), INR 0.1 crores (FY 12), uplinking costs: INR 0.6 crores (FY 12)) Page 61 Commercial Due Diligence Ernst & Young copyright Strictly confidential Balance sheet – Equity and liabilities

Equity and liabilities (INR cr) FY11 FY 12 FY13P FY14P FY15P FY 16P

Shareholders' funds 101 126 154 188 229 280

Share Capital 59 59 60 60 60 60

Reserves and Surplus 42 67 94 128 168 220

Non-current liabilities 11 8 12 12 12 8

Long-term borrowings 11 7.4 12 12 11 7

Deferred tax liabilities (Net) - - - 0 1 1

Other Long term liabilities ------

Long-term provisions 0 0 0 0 0 0

Current Liabilities 41 55 70 76 70 59

Short-term borrowings 21 35 53 56 47 39

Trade payables 4 3 4 5 6 6

Other current liabilities 14 15 10 12 13 10

Short-term provisions 2 2 3 3 4 4

TOTAL 153 189 235 276 311 348

Page 62 Commercial Due Diligence Ernst & Young copyright Strictly confidential Balance sheet – Assets

Assets (INR cr) FY11 FY 12 FY13P FY14P FY15P FY 16P

Non-current assets

Fixed assets (Net) 23 24 28 37 44 44

Tangible assets 23 24 28 37 44 43

Intangible assets 0 0 0 0 0 1

Capital WIP 0 - - - - -

Deferred tax assets (net) 0 1 0.4 - - -

Long- term loans and advances 6 6 2 1 0 0

Current assets 123 158 205 238 266 304

Inventories 70 101 129 157 182 204

Trade Receivables 28 40 51 60 69 79

Cash and Bank Balances 3 4 8 8 9 14

Short -term loans and advances (net of provisions) 19 11 13 9 2 2

Other current assets 3 3 3 4 4 5

TOTAL 153 189 235 276 311 348

Page 63 Commercial Due Diligence Ernst & Young copyright Strictly confidential Cash flow statement

Parameters (INR cr) FY 12 FY13P FY14P FY15P FY 16P PAT 27 34 40 51 -Add Depreciation 5 6 7 8 -Increase/(Decrease) in deferred tax liabilities - 0 0 - -Increase/(Decrease) in other long term liabilities - - - - -Increase/(Decrease) in long term provisions (0) (0) 0 0 -Increase / (Decrease) in trade payables 1 1 1 1 -Increase / (Decrease) in other current liabilities (5) 3 1 (3) -Increase / (Decrease) in short term provisions 0 0 1 1 -Decrease/(Increase) in deferred tax assets 1 0 - - -Decrease/(Increase) in Inventories (28) (28) (25) (22) -Decrease/(Increase) in trade receivables (11) (9) (9) (10) -Decrease/(Increase) in other current assets (1) (1) (1) (1) Cash flow from operating activities (11) 8 15 24 -Increase/(Decrease) in long term borrowings 4 0 (0) (4) -Increase/(Decrease) in short term borrowings 19 2 (8) (8) -Decrease/(Increase) in long term loans and advances 3 1 1 - -Decrease/(Increase) in short term loans and advances (2) 4 7 - Cash Flow from financing activities 24 8 (1) (12) -Increase/(Decrease) in share capital 0 0 0 0 -Increase/(Decrease) in share premium 0 0 0 0 -Capex (9) (16) (14) (7) Cash flow from investing activities (9) (15) (13) (7) Net Cash Flow - 4 0 1 5 Opening Cash flow balance - 4 8 8 9 Closing Cash flow balance 4 8 8 9 14

Page 64 Commercial Due Diligence Ernst & Young copyright Thank you