DRAFT FOR DISCUSSION Investment in Crackle Australia

Transcription

1 Investment in Crackle Australia Overview August 2013

2 Executive Summary SPT Networks is seeking approval to make an additional investment in Crackle Australia Foxtel has recently decided not to renew TV1 and Sci-Fi s ( SF ) affiliate agreement. The elimination of Foxtel s subscriber fees has forced the TV1/SF joint-venture between SPT, CBS Studios and Comcast/NBC Universal to begin the process of winding down the business In light of these developments, SPT can capitalize on this window of opportunity to realign SPT s strategy in Australia by positioning Crackle to be the premium AVOD service in Australia filling a market gap left by the impending shutdown of the TV1/SF JV Crackle Australia launched in 2010 and has been able to build an audience with minimal investment in programming and marketing with a free ad-supported video on demand ( AVOD ) anywhere, anytime With a rapidly growing mobile advertising market, national rollout of a new high speed broadband network over the next decade, and lack of entrenched competition, Australia is well positioned for an expanded Crackle presence Investment will be used to significantly increase the content offering, expand marketing budget to $1.4MM and add 8 in headcount in Year 1 From a SPT view, expected DWM of ($6.9M) and payback period of 6 years From a SPE view, expected DWM of ($3.3M) and payback period of 4 years

3 Australian Advertising Market Overview The Australian digital video advertising market is expected to grow at a 45% CAGR from $91MM in 2012 to $582MM in 2017 The Australian TV advertising market is expected to grow at a 5% CAGR from $4.1BN in 2012 to $5.2BN in 2017 Source: PwC.

4 Australian Market Overview Broadband households in Australia expected to grow at a 3% CAGR from 2012 to 2017 with significant uptick expected once the National Broadband Network project finishes rollout in 2022 Smartphone users expected to reach 70% of the population by 2017 due to the lag in broadband connectivity Fixed Broadband Households (MM) Smartphone Users (MM) and % Penetration of Population Source: emarketer as of April to May 2013 and PwC.

5 Australian National Broadband Network Project The National Broadband Network ( NBN ) is a national mandate to develop a high speed broadband network to reach 100% of Australian premises with a combination of fiber, fixed wireless and satellite technologies Broadband speeds up to 100 Mbps Operated by government-owned enterprise, NBN Co. Goal is to rollout over 10 years with commencement in 2011 Services available in New South Wales, Queensland, Victoria, Tasmania and South Australia Expected costs to reach ~A$36B with funds to come from a government investment of A$27B and NBN Co s own revenues and private debt markets NBN accelerates opportunity for digital growth in Australia Tablet/smartphone penetration at 65% of population at end of 2012 with current high-speed infrastructure an obstacle Broader high-speed access enhances demand for digital services such as AVOD, SVOD and other mobile applications NBN Fiber Australian Coverage Source: NBN website.

6 Competitive Landscape Opportunity to capitalize on limited premium AVOD content in online market as consumer appetite is rapidly building for on-demand entertainment Existing AVOD services are primarily catch-up services focusing on TV Increase in penetration of smart TV, tablets, and mobiles and faster internet supporting growth in streaming Amazon Instant, Hulu and Netflix are not offered in Australia Viewster, Crackle s direct competition in Australia, is increasing it s international presence, particularly in APAC region VOD Providers Viewster Recent Developments Australia and New Zealand s only subscription online DVD rental and streaming service Subscription and PPV streaming of 3,000+ movies HBO invested $10MM for a ~16% stake in Feb 2012 Leading cinema exhibitor with top DVD rental kiosk network Plans to launch online streaming service in late 2013 May 2013: Announced licensing deal for 240 hours of programming from Starz Digital Media, Shine Group, ALL3MEDIA, and KBS Media catering to its young audience April 2013: Viewster announced plans to open an office in Australia in addition to the US, UK and Singapore March 2013: Reported 29MM global uniques, of which 8.3MM in the U.S. and 3.7MM in the UK Ad Supported Video Services Subscription services that offer access to Australia s FTA television channels in addition to subscription channels, radio, games and PPV content Well distributed TVOD service offering mainstream movies and TV Currently only offering TVOD movies but potential to expand offering Public estimates of ~11MM monthly uniques on YouTube

7 Strategic Benefits to SPT, SPE, and Sony Elevate the Crackle brand to be the premiere destination for premium long form content free to the consumer Solidify position in the Australian market while digital ad spend grows sharply in the coming years coupled with the rollout of a new high-speed broadband infrastructure backed by the government Further grow Crackle s international presence while creating synergies from leveraging Crackle s technology backend Exploit SPT s movie and television products to generate incremental licensing revenue in Australia Utilize ad inventory to market SPE television and film products, as well as consumer electronics such as next generation PS4

8 Critical Success Factors Hire local team with strong digital expertise Secure distribution deal with PlayStation Australia 95% fill rate and floor net network CPM of $17 and net direct sales CPM of $30 guaranteed by an ad sales house Ability to selectively acquire exclusive AVOD rights of Sony and third party content (e.g., CBS) at reasonable pricing Current pricing for Sony and third party content are preliminary estimates and not yet negotiated Foxtel has indicated a willingness to offer a significant premium above current pricing estimates to acquire the entire library from Sony and CBS Cheaper, higher quality broadband made more widely available to Australians via NBN

9 Operating Assumptions Distribution Ad Sales Content / Programming Expand (re-launch) in Australia in April 2014 on Web, Mobile and CTV 800k uniques / month in FY15 growing to 1.9MM uniques / month in FY streams / unique in FY15 growing to 5.2 streams / unique in FY19 (average) $3.7MM of net revenue in FY15 growing to $17.8MM of net revenue in FY19 Crackle Australia: 184k uniques in July 2013 (54%/22%/24% for Web/Mobile/CTV) Network CPMs: FY15 FY19 Net CPM of $17-$19 for Web/Mobile/CTV Direct Sales CPMs: FY15 FY19 Direct Sales CPM of $30 for Web/Mobile/CTV Direct Sales Ad opportunities at 40% in FY16 growing to 85% in FY19 95% streams monetized in FY15 for Web/Mobile/CTV and staying flat to FY ads / stream in FY15 growing to 5.6 ads / stream in FY19 (across all platforms) Content mix: Movies and TV 98 monthly movie titles in FY15-FY19 Movie content license from third parties: 20% in FY19 growing to 40% in FY19 27 monthly TV shows at launch in FY15 growing to 31 in FY19 TV content license from third parties: 20% in FY15 growing to 40% in FY19 Operations Utilize Crackle s Digital Platform Group for core platform and app development support: $339k in FY15 growing to $517k in FY19 Australia hires 8 new employees starting in January 2014 and leverages existing management. Hire an additional 4 employees starting in April 2016 Assumes hiring of one finance employee as part of Home Office Marketing Annual marketing support of $1.4MM in FY15 growing to $2.0MM in FY19 (includes $150k launch marketing) Note: US dollars.

10 Uniques by Platform Uniques are based upon Crackle s current distribution on the following platforms in Australia: CTV: Bravia, LG, Samsung, Xbox Mobile: Android, Blackberry, ios, Windows 7 Phone Web: Google Chromeapp, Windows 8 Crackle plans to add apps for PlayStation 4, FetchTV/Optus IPTV set-top boxes ( STB ) and Wowtel IPTV STBs

11 Ad Projections (US$ in thousands) (1) Assumes $150K in sponsorship revenue per Original TV show. (2) Source: PwC. Data shown during periods available.

12 Financial Projections (US$ in thousands) (1) Source: PwC. Data shown during periods available. (2) Does not include Finance headcount. (3) Cash flow assumes 2 month lag on inflow of cash and 1 month lag on outflow of cash. Includes Finance headcount. (4) Cash flow after Licensing Revenue to SPT. Includes Finance headcount.

13 Appendix

14 KPI Across Plans

15 Programming (US$ in thousands except per title/episode costs) Assumes 10% rate card increase every year for movies and TV Rate card for Sony and 3rd party content is the same Assumes 100% of linear rate card for TV shows based upon TV1/SyFy pricing Total annual programming cost of $3.4M in FY15 growing to $6.2M in FY19 (1) Assumes 10% rate card increase every year. (2) Includes Anime, Bewitched, I Dream of Jeanie and Jackie Chan Adventures.

16 Marketing (Figures in thousands and US$) (1) Assumes CTV promotions through partner marketing.

17 Headcount (US$ in thousands) Assumes hiring of an Australia operations team of 8 new employees starting January 2014 in advance of proposed launch in April 2014 Hiring of remaining Australia operations team consisting of 4 new employees to occur in April 2016 (1) Assumes 15% bonus. (2) Assumes fringe benefits of 20% on salaries and 4% on bonuses.

18 Illustrative Programming Ratings & Costs The table below represents TV shows categorized into ratings based upon current linear channel market pricing for TV1/SyFy Shows are not categorized based on qualitative ratings Factors to consider are competition for these rights (e.g., Foxtel), AVOD pricing vs. linear TV pricing and ability to select shows from a library offering Rating A B C D E Cost per Episode per Year ($20K-$35K) ($15K-$20K) ($10K-$15K) ($5K-$10K) (~$5K or less) Sony The Client List (current) NA Re-runs of current shows The Nanny The Young and Helix (current) Community Just Shoot Me the Restless The Lost Girl (current) Drop Dead Diva Mad About You The Dr. Oz Show Necessary Roughness Seinfeld Ripley's Believe it (current) Unforgettable or Not The Big C Pan Am CBS CSI NCIS Everybody Loves Becker Charmed Raymond Numb3rs Wolf Lake Frasier Rules of Hawaii Five-0 Engagement Star Trek NBC Defiance Law & Order: UK (new) Eureka 30 Rock NA Law & Order: SVU (new) House Battlestar Galactica Warehouse 13 Law & Order: CI Covert Affairs Royal Pains Fairly Legal