Latin America and Brazil Networks Regional Overview February 2013 2 Latin America and Brazil Market Evolution • The Pay TV industry has experienced strong growth across the region due to the improved macroeconomics and growth of the middle class. International channel packages were launched approximately 20 years ago and have expanded offerings. HBO Distributed Group Group of 18 channels including premium and basic channels Includes HBO and Cinemax, SPT Channels Warner, AE, History, Bio, and E! Operations based in Miami and Caracas with sales offices across region SPT sold remaining interest in HBO LatAm in March 2011 SPT is distributed by HBO under a five year agreement which has a five year renewal option Fox Group Group of 21 channels including premium and basic cable Includes Telecine, Movie City, Fox, FX, Nat Geo Distributing Universal channels in Latin markets (Universal has joint venture with Globo in Brazil) Launched Fox Sports in Brazil in 2012 Operations based in Los Angeles and Argentina with sales offices across region Turner Group Group of 15 channels Includes TNT, CNN, Space and Cartoon Network Launched TBS Very Funny channel in 2012 by converting local channel brand Purchased Chilevision (Free TV) in 2010 Operations based in Atlanta and Argentina with sales offices across region 3 Latin America and Brazil Market Evolution Discovery Group ● Group of nine channels ● Includes Discovery, Animal Planet, TLC ● Rebranded Liv to Discovery ID in 2012 ● Operations based in Miami with sales offices across the region Viacom Group ● Group of four channels ● Includes MTV, VH1, Nick and Comedy Central ● Licenses MTV brand to Abril in Brazil and has been rumored to be for sale ● Launched Comedy Central in 2012 Disney Group ● Group of five channels ● Includes Disney, XD and ESPN ● Operations based in Argentina with sales offices across the region Liberty/Chellomedia ● Group of 10 channels ● Includes MGM, Cosmopolitan, Casa Club and El Gourmet ● Recently consolidated the operations of the two companies, MGM Latin America and Pramer. ● MGM channels were acquired in 2012 ● Cosmopolitan channel 50% ownership from Hearst was acquired in 2012. 4 Latin America and Brazil Market Evolution Growth of local cable channel offerings Globosat in Brazil • Group of 33 Channels • Telecine, Globo News, Sport Tv, Canal Futura • Sharing of sports rights between Free and PayTV channels. • Utilization of telenovela content from free channels to have “best of” novela channels Televisa Networks in Mexico: • Group of 15 channels • Canal 5, American Network, Canal de las Estrellas, Golden and Unicable • Must carry on Televisa owned systems limits space for other channel packages • Uses muscle of Free TV, and cable/DTH ownership to control Pay TV market • 5 Latin America and Brazil Miami Mexico City and •Population of 590M Monterrey •Total TV Households: 135M Caracas Panama •Pay TV Households: 50M Bogota •21 Countries and select Caribbean islands •Largest Markets ‒ Brazil ‒ Mexico Sao Paulo and Rio ‒ Colombia ‒ Argentina Buenos Aires ‒ Chile SPT office locations 6 Market Focus - Brazil • Population: 193M • Total HHs: 58M • Total TV HHs: 55M • Pay TV HHs: 15M • Pay TV Penetration: 28% • Globo Media group leads Brazilian TV market ‒ Free TV 70% share of rating and 75% share of advertising ‒ Globosat group of channels has 50% share of PayTV advertising • Pay TV doubled number of households in last three years. • Largest increase is in C class penetration. • Telmex owned Claro (Carlos Slim) completed acquisition of Net Brazil system in 2012. 7 Brazil Market Overview Affiliate Market Share by Groups 2012 Ad Sales Market US$ 12.6B 7.2% 2.9% NET Services (Slim) 5.9% Sky (Liberty) Radio; 4%Cinema;OOH;Others; 0%3% 1% 38.4% Pay TV; 4% 16.5% Via Embratel(Local) Online; 5% Magazine; 6% TVA (Telefonica) Newspaper; 11% Open TV; 65% Oi (Local) 29.1% Others • DTH had stronger growth than cable • Increase in middle class (C) penetration is driving affiliate growth. • Pay TV Ad market softer than expected in 2012. • SPT Channels projected to grow by 9% versus 3% for other LAMAC channel members. • Growth despite new TV regulations and ad restrictions. Brazil Pay TV Subscriber Growth 30000 +41 25000 +37% +34 % +28% +31% 20000 % 19900 18500 17300 15000 16100 Subscribers 15000 10000 Penetration 5000 0 2012 2013 2014 2015 2016 Source – PWC Entertainment Report 8 9 Market Focus - Mexico • Population: 112M • Total HHs: 26M • Pay TV HHs: 11M • Pay TV Penetration: 42% • Televisa group is largest broadcaster and Pay TV channel operator (51% market share) • Televisa has ownership in large affiliate systems (Sky Mexico, Cablemas and Cablevision) • Televisa applied market influence to control growth of international programmers advertising. Ad minute restriction to six minutes per hour was enforced in 2012 and negatively impact SPT channel sales. Reduction from prior market selling practice of 10-12 minutes. Lobbying efforts continue with TAP and USTR on adjusting restriction • Presidential election in September 2012 and Enrique Pena Nieto took office in Dec 2012. Nieto has strong ties with Televisa. 10 Mexico Market Overview Affiliate Market Share by Groups 2012 Ad Sales Market (subscribers) US$5B Total OOH; 9% Other; 1% (Dish Corp) Online; 7% Cinema; 2% (Televisa) News Paper; 8% (Televisa) Magazines; 3% Open TV; 56% (Televisa) (Televisa) Radio; 9% Pay TV; 7% • Increase in Pay TV penetration to over 40% in 2011 with growth of introductory cable packages. • Highest growth in DTH with launch of Dish Mexico in Dec 2008 and rapidly grown to over 3M subscribers. Dish is expected to expand in 2013 and is looking for opportunities in Brazil market • Ad Sales growth for SPT Channels despite ad minute restriction thru increased spot rates and use of other day parts. Mexico – Pay Tv Subscriber Growth 20000 +52% +50% 15000 +47% +42 +44% 13226.51 13836.14 12510.84 11742.17% 1000011000 Subscribers Penetration 5000 0 2012 2013 2014 2015 2016 Source – PWC Entertainment Report 11 12 Latin America and Brazil Programming Strategy • SPT operates three very distinct linear channels in the region with approximately 50% of its revenue generated from Cable & DTH and 50% generated from advertising. • Our goal is to provide a channel offering that has great value to the operators, as well as the strongest advertising revenue potential. • In the last three years, the Cable & DTH market has changed dramatically. As the high income A & B households reached high saturation levels, operators have focused on growing penetration in the lower C (also referred to as the middle class) households. • Higher penetration of local cable offerings in Mexico and Brazil and stronger competition from international programmers. • Historically, SET and AXN have aired subtitled US series & movies. • Though we still are Top 5 ranked in the DTH homes where there are predominantly upscale households, we have seen a loss in ranking in the new C cable households. • Our goal today is to continue to lead in the upscale homes where the Pay TV advertising is still most prevalent, while creating an upside opportunity in the middle class sector. • SET, AXN and the “new” SPIN has accomplished this by focusing each channel on a very specific demographic, as well as more effectively scheduling our shows to compete on a local basis with customization of our 17 feeds. • Due to the amount of “studio” competitors, we have locked in an output deal with Disney and a volume deal with SPT to secure a pipeline of content. • The price of primetime series has risen over 82% in the last three years due to market demand. 13 Latin America and Brazil Programming Strategy- SET • SET is our flagship brand. • SET is a general entertainment channel targeting AD 18-49, but skewing W18-49. • SET airs mostly US sourced series such as Grey’s Anatomy, The Client List, Revenge, Once Upon a Time and Nashville. In Brazil, we also air CSI on SET. • SET has focused on producing local shows in our two key markets Brazil and Mexico. • SET Brazil is currently in production of Agora Vai, a sitcom based on a dysfunctional ad agency and SET Mexico is in pre-production of season 4 of our hit series Mexico’s Next Top Model. • In all cases when we source local productions, we heavily weigh both rating potential, as well as advertising integration opportunities. • Due to the Brazilian Ancine law, we are using local production incentives to fund our local shows when possible. • SET has customized schedules in Brazil, Mexico, the Andes Region and the Southern Cone. • Brazil has begun dubbing our key series and all our movies to great success. • Latin America has kept to a mostly sub-title strategy, which continues to be more effective in the Northern Regions, but we are exploring dubbing as we head south. 14 Latin America and Brazil Programming Strategy- AXN • AXN is our highest rated channel. • AXN is a drama oriented general entertainment channel also targeting AD 18-49, but skewing AD25+. • AXN airs mostly US sourced series such as Criminal Minds, CSI, CSI NY, NCIS, Breaking Bad, Last Resort, and The Firm. (Brazil airs CSI on SET.) • AXN also has a very strong movie offering. • AXN has not focused on local productions due to the cost of this genre, but we have capitalized on Network Productions such as The Firm and Hannibal to create local advertising customizations to give us an edge. • To comply with the Brazilian content law, we are acquiring local content. • AXN is focused on customized schedules in Brazil, Mexico, the Andes Region and the Southern Cone. • Dubbing strategy for AXN Brazil and Latin America is the same as SET. 15 Latin America and Brazil Programming Strategy- SPIN • Spin has the lowest distribution of our channels and the lack of operator capacity has made expanding distribution a challenge.