Investment in Crackle UK. Overview June 2013

Transcription

1 Investment in Crackle UK Overview June 2013

2 Internet Usage in the UK The UK internet user market is one of the most advanced in the world with the highest Internet penetration rate in Western Europe 74% of the population is online as of 2012 and expected to increase to 78% by 2017 The majority of this online activity takes place at home, though the availability of public Wi-Fi and on-the-go usage of smartphones and tablets will continue to bring internet access outside of the home An advanced broadband infrastructure supports the UK s robust internet penetration with the ubiquity of superfast fixed broadband attracting more consumers seeking out increased upload and download speeds 67% of UK households have broadband at home as of 2012 The government s plans to improve broadband coverage and provide higher-capacity networks in regions with lower penetration rates will boost further growth to 75% of UK households by 2017 As with internet users in the US, leisure activities such as , search, social networking, shopping, gaming and video viewing continue to be the most popular online activities UK Internet Users (millions) and Penetration Fixed Broadband Households (millions) and Penetration % % % % % % % % 75.0% 70.0% % % % % % 74.0% 74.8% % 70.0% 65.0% 60.0% 55.0% % % Internet Users % of Population Fixed Broadband Households % of Households 1 Source: emarketer, UK Internet Users, March 2013.

3 Robust Growth of Connected Devices While the number of internet users in the UK is expected to reach saturation in the near future, the way people connect to the internet is rapidly evolving In particular, users will increasingly turn to smartphones, connected TVs and tablets to access social networks, music, games and specifically, video Smartphone Users (millions) and % of Population (1) 48% 42% 34% % % 62% % 50% 25% --% Smartphones: The iphone and Samsung Galaxy smartphone models have attracted customers in substantial numbers, and the drop in price of older models has also given price-conscious customers more incentive to purchase smartphones for the first time Connected TVs: Each year, more TV manufacturers such as Sony, Samsung and LG are including internet connectivity and apps as a standard feature in their TVs Smartphone Users % of Population Connected TVs (millions) (2) Tablets (millions) (2) Tablets: Tablet growth has outpaced the growth of desktops and notebooks given the price point, ease of use and interactive features (1) Source: emarketer, UK Mobile Users, June (2) Source: Screen Digest.

4 UK Advertising Market Total entertainment and media ad spending in the UK grew 4% in 2012, and is expecting constant growth at a 4% CAGR through 2017 However, the fastest growing segments of the entire media ad market are mobile and online video ad spending, growing at a 26% and 27% CAGR from 2012 to 2017 Online video advertising comprises the lions share of the entire online video market (e.g. subscription, advertising, digital rental, digital retail) throughout the projection period Internet ad spend comprises the largest portion of ad spending in the UK, more than most other countries By 2017, online video and mobile ad revenue will comprise a combined 25% of overall internet ad spending, an increase from 13% of the overall internet ad spending in 2012 UK Media and Entertainment Advertising Market (millions) CAGR '12 - '17 Mobile $805 $1,271 $1,687 $2,021 $2,316 $2,581 26% % Growth 164% 58% 33% 20% 15% 11% % of Internet Total 10% 14% 17% 19% 20% 20% Online Video $211 $273 $352 $448 $559 $685 27% % Growth 33% 29% 29% 27% 25% 23% % of Internet Total 3% 3% 4% 4% 5% 5% Other Internet (1) 6,938 7,348 7,843 8,407 8,985 9,511 7% % Growth 5% 6% 7% 7% 7% 6% Total Internet $7,954 $8,892 $9,882 $10,876 $11,860 $12,777 10% % Growth 13% 12% 11% 10% 9% 8% Television 5,867 6,079 6,415 6,706 7,062 7,378 5% Other Advertising (2) $9,873 $9,705 $9,623 $9,616 $9,654 $9,713 (0%) Total UK Entertainment and Media Advertising (3) $22,209 $22,996 $24,079 $25,167 $26,389 $27,505 4% % Growth 4% 4% 5% 5% 5% 4% 3 Source: PwC Global entertainment and media outlook Note: US dollars in millions. (1) Other internet advertising includes classified, display, search and other internet advertising. (2) Other advertising includes business to business, magazine publishing, cinema, newspaper, radio, and video games advertising. (3) Digital advertising components such as online television, online radio, digital newspaper, digital consumer magazine, digital trade magazine and digital directory advertising are included in the respective segments and in the Internet advertising segment but only once in the overall total to avoid double counting.

5 UK Online Video Competitors Overview Service Type SVOD SVOD SVOD Digital Retail / Digital Rental / AVOD Live TV / Catch-Up TV Ownership Amazon Netflix BSkyB Tesco Arqiva, BT, Talk Talk, Channel 4, Channel 5, ITV and BBC Pricing 4.99 ($7.98) per month 5.99 ($9.58) per month Sky Movies: 8.99 ($24) per month (1st 3 months) then ($24.00) per month Varies 299 ($479) one-time fee Sky Sports: 9.99 ($15.98) 24-Hour Pass Subscribers ~2M+ in Europe 1M+ N/A 2M to 3M users per month 16M+ Clubcard Members 400K Homes Content Type Movies / TV Movies / TV Movies / Live Sports Movie / TV Movie / TV / Live Broadcasting Platforms CTV, Tablets, Game Consoles, Blu-ray Players, STB CTV, Tablets, Mobile, Game Consoles, Blu-ray Players, STB Tablets, Mobile, Xbox 360, STB CTV, Tablets, Game Consoles, Blu-ray Players, STB Youview STB 4 Source: Company website and press releases. Note: All FX conversions at rate of 1.6 USD: GBP.

6 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 UK market where Internet ad spend comprises the largest portion of ad spending in the UK, more than most other countries Further grow Crackle s international presence while creating synergies from leveraging Crackle s technology backend with minimal incremental investment and management team to oversee operations Exploit SPT s movie and television products to generate incremental licensing revenue in UK Utilize ad inventory to market SPE television and film products, as well as consumer electronics such as next generation PS4 5

7 Operating Assumptions DISTRIBUTION Expand (re-launch) in UK in April 2014 on Web, Mobile and OTT 1.0M uniques / month in FY15 growing to 3.3M uniques / month in FY streams / unique in FY15 growing to 4.6 streams / unique in FY22 (average) $3.4M of net revenue in FY15 growing to $28.8M of net revenue in FY22 Crackle UK: 313k uniques in April 2013 (43%/32%/26% for Web/Mobile/OTT) AD SALES Direct CPMs: Starting in FY17 - Net CPM of $30 for Web/Mobile/OTT and staying flat to FY22 Network CPMs: FY15 - Net CPM of $24 for Web/Mobile/OTT and decreasing by $2 per year until FY ads / stream in FY15 growing to 6.2 ads / stream in FY22 (across all platforms) 95% streams monetized in FY15 for Web/Mobile/OTT and staying flat to FY22 CONTENT / PROGRAMMING Content mix: Movies and TV 189 monthly movie titles at launch in FY15 growing to 299 in FY22 Movie title content mix at launch: AAA (4), AA (4), A (13), B/C/D (168) Movie content license from third parties: 20% in FY15 growing to 60% in FY22 63 monthly TV shows at launch in FY15 growing to 144 in FY22 TV show content mix at launch: A (3), B/C/D (35), Anime (10), Originals (10), Other (5) TV content license from third parties: 21% in FY15 growing to 50% in FY22 OPERATIONS Utilize Crackle s Digital Platform Group for core platform and app development support: $400k in FY15 growing to $1.0M in FY22 Hire 9 new employees starting in April 2014 and scaling to 24 in FY22 (including 9 ad sales and 3 ad sales planner) Introduce 4 ad sales and 1 ad sales planner starting in FY17 MARKETING $1.5M to $2.8M of annual marketing support (includes $300k launch marketing) In-kind barter advertising from SPT regional pay TV channels not contemplated in plan 6 Note: US dollars.

8 Uniques and Ad Projections (US$ in thousands) Crackle UK FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Monthly Uniques 1,000,000 1,406,731 1,885,716 2,275,368 2,667,005 3,174,879 3,234,494 3,294,879 Implied Devices to Uniques Conversion Rate 0.9% 1.0% 1.2% 1.4% 1.6% 1.8% 1.7% 1.7% Streams per Unique 2.9x 3.4x 3.7x 3.9x 4.2x 4.3x 4.4x 4.6x Monthly Streams 2,890,000 4,795,187 6,953,153 8,949,856 11,132,326 13,668,190 14,319,048 14,993,035 Ads per Stream 4.5x 4.9x 5.0x 5.4x 5.5x 5.6x 6.0x 6.2x Monthly Ad Opportunities 13,080,000 23,658,579 34,859,365 48,516,890 60,701,117 76,346,738 86,166,606 92,330,954 Monetized Ad Opportunities - % 95% 95% 95% 95% 95% 95% 95% 95% Monetized Ad Opportunities 12,426,000 22,475,650 33,116,397 46,091,046 57,666,061 72,529,401 81,858,275 87,714,407 Monetized Ads per Stream 4.3x 4.7x 4.8x 5.1x 5.2x 5.3x 5.7x 5.9x Direct Ad Streams Opportunities - % 0% 0% 40% 55% 70% 80% 90% 90% Monetized Direct Ad Opportunities ,246,559 25,350,075 40,366,243 58,023,521 73,672,448 78,942,966 Network Filled Ad Streams Opportunities - % 100% 100% 60% 45% 30% 20% 10% 10% Network Filled Ad Opportunities 12,426,000 22,475,650 19,869,838 20,740,971 17,299,818 14,505,880 8,185,828 8,771,441 Direct CPM NA NA $30 $30 $30 $30 $30 $30 Annual Direct Net Revenue $-- $-- $4,769 $9,126 $14,532 $20,888 $26,522 $28,419 Network Filled CPM $24 $22 $20 $18 $18 $18 $18 $18 Annual Network Filled Net Revenue $3,579 $5,934 $4,769 $4,480 $3,737 $3,133 $1,768 $1,895 Net Revenue $3,579 $5,934 $9,538 $13,606 $18,269 $24,022 $28,290 $30,314 % UK Video Advertising Market (1) 1.0% 1.3% 1.7% 2.0% NA NA NA NA 7 (1) Source: PwC. Data shown during periods available.

9 Financial Projections (US$ in thousands) Crackle UK FY14 Budget FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Net Revenue $596 $3,579 $5,934 $9,538 $13,606 $18,269 $24,022 $28,290 $30,314 % Growth 65.8% 60.7% 42.7% 34.3% 31.5% 17.8% 7.2% % UK Video Advertising Market (1) 1.0% 1.3% 1.7% 2.0% NA NA NA NA Movie Programming Costs $1,261 $1,483 $1,903 $2,378 $2,696 $2,966 $3,263 $3,589 TV Programming Costs 963 1,482 1,695 2,303 2,973 3,385 3,723 4,096 Total Programming Costs $336 $2,223 $2,965 $3,599 $4,681 $5,669 $6,351 $6,986 $7,685 Hosting / Bandwidth $53 $201 $339 $513 $678 $862 $809 $885 $967 Partner's Revenue Share ,245 1,635 1,981 2,163 Ad Serving Fees Traffic & Music Fees Other Cost of Sales $158 $743 $1,177 $1,760 $2,410 $3,114 $3,720 $4,329 $4,692 Gross Profit $102 $612 $1,791 $4,179 $6,515 $9,485 $13,951 $16,975 $17,937 % of Revenue 17.1% 17.1% 30.2% 43.8% 47.9% 51.9% 58.1% 60.0% 59.2% Marketing $220 $1,564 $1,736 $1,998 $2,112 $2,198 $2,519 $2,628 $2,729 Headcount 203 1,027 1,250 2,724 3,539 4,235 5,068 5,220 5,377 Other G&A Digital Platform Group Allocation Total SG&A $736 $3,198 $3,723 $5,648 $6,750 $7,667 $8,975 $9,341 $9,692 EBIT ($634) ($2,586) ($1,932) ($1,469) ($234) $1,819 $4,975 $7,635 $8,245 % of Revenue NM NM NM NM NM 10.0% 20.7% 27.0% 27.2% SPT EBIT (add back SPE Content Costs) ($781) $35 $530 $2,014 $4,237 $7,667 $10,595 $11,502 SPT Cash Flow (2) ($2,587) ($2,039) ($1,577) ($344) $1,706 $4,821 $7,756 $8,779 SPT Cumulative Cash Flow (2,587) (4,626) (6,203) (6,547) (4,841) (20) 7,736 16,515 SPE Cash Flow (3) ($1,574) ($860) ($371) $1,005 $3,164 $6,454 $9,554 $10,757 SPE Cumulative Cash Flow (1,574) (2,434) (2,806) (1,801) 1,363 7,817 17,371 28,128 8 (1) Source: PwC. Data shown during periods available. (2) Cash flow assumes 2 month lag on inflow of cash and 1 month lag on outflow of cash. (3) Cash flow after Licensing Revenue to SPT.

10 Appendix

11 KPI Across Plans Web Mobile OTT Total Monthly Uniques (thousands) UK - FY ,000 United States - MRP FY15 13,100 3,000 5,500 21,600 Women's Network - FY15 3, ,718 LatAm - FY15 6, ,747 8,970 Streams per Unique UK - FY15 2.0x 3.0x 4.0x 2.9x United States - MRP FY Women's Network - FY LatAm - FY Ads per Stream UK - FY15 3.0x 4.0x 6.0x 4.5x United States - MRP FY Women's Network - FY LatAm - FY Ad Opportunities (thousands) UK - FY15 2,400 3,720 6,960 13,080 United States - MRP FY15 119,600 68, , ,000 Women's Network - FY15 23,061 1,166 1,598 25,825 LatAm - FY15 50,822 5,426 17,477 73,725 10

12 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 3 rd party content is the same Assumes approximately 50% to 60% of costs allocated to movies per year Total annual programming cost of $2.2M in FY15 growing to $5.6M in FY19 Cost Per Average Shows Per Month Rating Episode (US$) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 A $ B C D Anime (B) Bewitched I Dream of Jeannie Jackie Chan Adventures Originals Other Total TV Shows Per Month % Sony 79% 70% 60% 56% 50% % 3rd Party 21% 30% 40% 44% 50% Episode Cost Per Average Episodes Per Month Rating Month (US$) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 A $ Title Cost Per Average Titles Per Month B Rating Month (US$) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 C D AAA $5, Anime (B) ,050 1,050 1,050 AA 3, Bewitched AA 1, I Dream of Jeannie B Jackie Chan Adventures C Originals D Other Total Movies Per Month Total TV Episodes Per Month 1,782 2,785 2,987 3,345 3,732 % Sony 80% 70% 60% 50% 40% % Sony 83% 75% 66% 61% 55% % 3rd Party 20% 30% 40% 50% 60% % 3rd Party 17% 25% 34% 39% 45% Annual Movie Programming Cost $1,261 $1,483 $1,903 $2,378 $2,696 Annual TV Programming Cost $963 $1,482 $1,695 $2,303 $2,973 11

13 Marketing (Figures in thousands and US$) FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Uniques by Platform Web Uniques (Monthly) ,063 1,050 1,037 Mobile Uniques (Monthly) ,192 1,208 1,219 OTT Uniques (Monthly) ,039 Total Uniques (Monthly) 1,000 1,407 1,886 2,275 2,667 3,175 3,234 3,295 % Total Uniques Across All Platforms Web Uniques (Monthly) 40% 38% 36% 36% 36% 33% 32% 31% Mobile Uniques (Monthly) 31% 33% 35% 35% 36% 38% 37% 37% OTT Uniques (Monthly) 29% 29% 29% 29% 28% 29% 30% 32% % Total Uniques Across All Platforms by Marketing Budget Paid 65% 61% 54% 48% 43% 41% 41% 41% Retained 6% 10% 13% 19% 26% 26% 26% 26% OTT 28% 29% 29% 29% 28% 29% 30% 32% Organic 0% 0% 3% 4% 3% 4% 2% 1% Marketing Budget Web SEO $75 $125 $138 $151 $166 $183 $201 $221 Web SEM Paid Web Uniques $375 $455 $501 $551 $606 $666 $733 $806 Mobile OTT (1) Subtotal $625 $833 $1,034 $1,202 $1,384 $1,628 $1,707 $1,789 Newsletter $20 $21 $22 $23 $24 $26 $27 $28 Launch Marketing Public Relations Social Media Custom Advertising Solutions Research Organic Shortfall Total Marketing Budget $1,564 $1,736 $1,998 $2,112 $2,198 $2,519 $2,628 $2, (1) Assumes OTT promotions through partner marketing.

14 Headcount (US$ in thousands) FY 2015 FY 2016 FY 2017 Title Start Date Location Salary Bonus (1) Total Comp. Salary Bonus (1) Total Comp. Salary Bonus (1) Total Comp. 1 GM - Business Owner FY15 UK $150 $23 $173 $155 $23 $178 $159 $24 $183 2 Ad Operations / QA FY15 UK Lead Producer / Tech PM FY15 UK Web Producer / Tech PM FY15 UK Programming Manager FY15 UK Metadata/Programming Coordinator FY15 UK Video Ops FY15 UK Partner Marketing FY15 UK Art/Creative 1 FY15 UK Art/Creative 2 FY16 UK SEO/SEM FY16 UK Art/Creative 3 (Ad Sales Support) FY17 UK Ad Sales 1 FY17 UK Ad Sales 2 FY17 UK Ad Sales 3 FY17 UK Ad Sales 4 FY17 UK Ad Sales Planner 1 FY17 UK Total Before Fringe Benefits $720 $108 $828 $877 $131 $1,008 $1,683 $564 $2,247 Fringe Benefits (2) Total After Fringe Benefits ,027 1, ,250 2, , (1) Assumes 67% bonus for ad sales team and 15% bonus for other employees. (2) Assumes fringe benefits of 27% on salaries and 4% on bonuses.