Starz Negotiations Update Document August 2012 CONFIDENTIAL – Attorney Work Product/Attorney-Client Communication page 2 Landscape Summary 1. Sellers: Little direct competition from other studios at present. Disney is only a partial competitor. Universal is exploring but is likely to renew with HBO. Over the next two years, Paramount (if EPIX fails) and Fox may be shopping. 2. Buyers: EPIX: Interested in Sony, but they don’t have DirecTV carriage that they were hoping to get by way of a Viacom lawsuit. They may be in trouble. We would like to nail down a pay deal before EPIX implodes and floods the market HBO: Would be willing to talk to us if Universal falls thru, but that could take a year to determine. If Universal wants in, they will likely renew with Universal because they need carriage on Comcast Comcast: Interested in talking; need to be educated; not clear if they’d actually do the deal or if they are just fishing for market information Netflix: Interested in Columbia titles, less interest in Classics and Screen Gems titles Amazon/Hulu: Interest in a subset of pictures. Not clear to them what impact this will have on their subscribers / viewers so it may be difficult for them to know how to value the product for lack of experience. Expect some feedback in the next few weeks Showtime: Interest in Screen Gems and perhaps a portion of Columbia slate DirecTV: Interested in exploring a shared output deal, e.g., where DirecTV takes a window after Pay1, shared with another linear or SVOD service We could end up splitting the slate 3 ways (Netflix, Showtime, Hulu/Amazon) based on the current buyer landscape, but it’s still too early to tell CONFIDENTIAL – Attorney Work Product/Attorney Client Communication page 3 Shared Output Deals: Potential Structures Scenario Description Pay 1 Network Pay 2 Network Pay 3 1 Starz Only (possible) 2 Linear/SVOD Share Output (last 6 months) 3 Linear/SVOD Share Output (post 90 days) (delay TBD) 4 New STB, SVOD, OTT 5 SVOD Split Slate (Col; SG; SPA) (Col; SG; SPA) (SPC) (SPC) 6 Linear/SVOD Split Slate (some Columbia/SG) (some Columbia/SG) (Col; SG; SPA) (Col; SG; SPA) (SPC) (SPC) CONFIDENTIAL – Attorney Work Product/Attorney Client Communication page 4 Action Plan • Take advantage of multiple interested parties in the market and limited competition from other studios to move deliberately towards a new deal • Gather specific proposals/bids on pricing and rights requirements from all parties • Engage Starz on stand-alone issues (UV, DRM modifications) to slow the discussion until we have market intelligence with which to respond to their offer • Aim to have proposal back to Starz in September with an ability to move quickly to closure with the party/parties we have identified CONFIDENTIAL – Attorney Work Product/Attorney Client Communication page 5 APPENDIX CONFIDENTIAL – Attorney Work Product/Attorney Client Communication page 6 Buyers Landscape – Detail Subscribers • Starz: 19.6 million • Largest footprint/exposure • Comparable footprint/exposure to Starz • Comparable footprint/exposure to • Encore: 35 million • HBO: 28.4 million, 44 million int’l • Showtime: 21.3 million Starz but will grow if gets MSO • Cinemax: 17 million • The Movie Channel (TMC): N/A, carriage packaged with Showtime. ala carte with • 2011: 9.8 million (MSOs) DirecTV and Dish • Content also available to 23M Netflix subscribers Current Studios / • Sony (2016), Disney (2015), • Fox (2017, believed to have • IFC, Weinstein (2015), Miramax, • Paramount, MGM, Lions Gate Deal Timing Overture extended to 2019), Warner Bros. Dimension, DreamWorks SKG (2015) (est. thru 2015, based on Netflix (sister co.), Universal (2016), deal timing) Summit (2017) Financial Stability • Strong • Strong • Strong • Uncertain (Launched in 2009) • 2011: Revenue – $1.6B, Cash • 2011: Revenue – $4.1B, Cash Flow • 2011: Revenue – $1.5B, Cash Flow – • 2011: Revenue – $406M, Cash Flow – $362M – $1.3B $607M Flow – $123M (large portion assumed from Netflix deal) Movie Output • Seeks 2 studios only • Probably not a buyer for Sony; may • Expressed interest in a small (e.g., • Movies from JV partners Strategy / Buyer • Pays strongest pricing in pay drop from 3 to 2 studios if Universal Screen Gems) portion of SPE’s slate as • Liquidity concerns and LT viability Profile market on more reasonable terms leaves; legal issues if tried for 4 other deals lapse in question than HBO studios • Studio output agreements have become • Due to limited carriage and • In discussions with Amazon and • Fees less attractive than Starz less relevant (lost Paramount, MGM, LG fewer feeds than the other pay Redbox/Verizon for a potential • Requires onerous holdbacks and Summit) as shifted to originals channels (8 for EPIX vs. 16 for OTT partnership impacting EST/UV and cable FOD • Pays low prices for film and therefore Starz) they put more titles on buys in the low end market SVOD than the other services • Demanding OTT rights on all deals (3,000) without an articulated growth strategy Ownership • Liberty Media • Time Warner • CBS Corporation • Paramount/Viacom, MGM and Lions Gate Growth Strategy • Aims for original programming but • Leader in original programming • Heavy investment in original TV • Carriage on Cox, FiOS and Dish, limited success • HBO GO/Max GO are their programming ~$600M, paying off based including an authenticated SVOD • Has been willing to grow with low authenticated online video portals, on increased Emmy wins/nominations platform (epixhd.com) and OTT margin over-the-top SVOD in the preserving branding and driving • Showtime Anytime is authenticated app via Netflix (they say they’ll have past value to cable (~HBO GO) driving value to cable another OTT service soon) • Now seeking a low-margin SVOD • OTT strategy is undefined • 5 year deal with Netflix for $1 OTT strategy for Encore and high- billion (Sept 2010-2015) with priced SVOD for Starz/Pay1 exclusive window for cable • Launching apps for authenticated viewing CONFIDENTIAL – Attorney Work Product/Attorney Client Communication page 7 Buyers Landscape – Detail (Cont’d) Subscribers • 23 million • 1.5 million • 8-10 million overall instant • N/A (partnership announced video subs 2/2012) Current Studios / • DreamWorks Animation (begins in • Library only (Crackle, Criterion, • Library only • In discussions with Starz and Deal Timing 2013), EPIX (est. through 2015), Film Lifetime MOWs) EPIX on potential deals District, Relativity, Open Road, Miramax Financial Stability • Moderate? • Moderate • Strong • Moderate • 2011: Revenue – $3.2B, Cash Flow – • 2011: Revenue – $420M $226M Movie Output • Netflix entered premium pay space • No output strategy (library only) to • No output strategy (library • Untested Strategy / Buyer with Starz (deal expired) date only) to date • No SVOD purchasing to date Profile • Signed premium EPIX ($1B) and • Intends to spend $500M in 2012 on • Potentially willing to Relativity deals; appetite for catalog content (no split between TV/film) contemplate an output deal diminishing • Pursuing original production (unknown timing) • Potentially willing to contemplate • Known to pay low prices for another output deal (unknown timing) film and TV product for all or part of SPE’s output (e.g., a window share for SPC) • Heavy TV buyer, perhaps limited feature buyer • Rights package may be favorable to SPE i.e., flexible partner • Pursuing original production Ownership • Publicly traded • NBC/Comcast, FOX, ABC, • Publicly traded • Verizon:65%, Redbox Providence Equity (Subsidiary of Coinstar): 35% Growth Strategy • Looking to become a cable channel • Hulu Plus, for premium content • Potential to spin SVOD • Redbox moving away from like HBO allows for dual revenue stream service out of Prime hard DVD business to online • Seeking carriage on MSOs model • SVOD service may help model similar to Netflix • Expansion across multiple devices • UK and Japan with Kindle sales (or vice- and into int’l territories versa) • May strike additional deals with premium Pay TV providers/studios for content CONFIDENTIAL – Attorney Work Product/Attorney Client Communication page 8 Buyers Landscape – Detail (Cont’d) Xfinity StreamPix Subscribers • Footprint/exposure comparable to • Footprint/exposure comparable to • N/A [12million?] • +90M total accounts Starz Starz • FOD service only available • ~12-18M active worldwide • Potentially available to 22 million • 19.2 million on Time Warner Cable and accounts Comcast Xfinity subs Bright House Networks • ~5-7M U.S. accounts • Also affiliated with Comcast and Cox Current Studios / • N/A • N/A • N/A • N/A Deal Timing Financial Stability • Uncertain (large parent company) • Strong • Uncertain • Strong • 2011: Revenue – $27.2B, Net Income – $2.6B Movie Output • Rumors of a pay deal with Universal • Unknown whether DTV plans to shift • No output strategy (library • No SVOD purchasing to date Strategy / Buyer • No proven output strategy (library from carrying Pay TV channels on its only) to date • Currently an a la carte Profile only) to date service to buying content directly from • Any commitment to movie service where customers can studios and launching their own output deal would require purchase/rent films and TV service as a direct competitor full JV board to agree: TW, shows • Potential Internet access hurdle Comcast, Cox, BH Ownership • Comcast • Publicly traded • Comcast, Cox • Sony • Major shareholders include Liberty Communications, Time Media and Warren Buffet Warner Cable, and Bright House Networks Growth Strategy • Launch video streaming service to • Expected to