2012 State of Media Presentation

The Evolving Economics of
the Filmed Entertainment
Industry

1

Consumer Spending Trends: Media Outpacing Other Consumer
Expenditures 
"

Cumulative Growth in Consumer Spending, 1960-2009"

2

More Choices and More Complexity in Today’s Media
Environment"

Global Media Consumption: Average Hours Per Week"

3

Total Global Box Ofﬁce Revenue Expected to Grow 6%
Through 2015 to $49B"

Global Box Ofﬁce Revenue ($US MM)" Growth

9.4%

8.7%

5.8%

4.6%

Source:
PWC
4

Total Global Filmed Entertainment Revenue Expected to Grow
4% Through 2015 to $115B, With Most of the Growth Coming
from Asia Paciﬁc and Latin American Regions"

Global Filmed Entertainment Revenue ($US MM)"
Growth

6.2%

5.8%

2.8%

2.6%

Source:
PWC

5

North American Filmed Entertainment Revenue: Expected 10-
Year Growth of Only 3%, with Home Video Falling From 73% of
Total Revenue in 2006 to 67% by 2015"

Total Filmed Entertainment North America ($US MM)"

73%

67%

31%

26%

Source:
PWC
6

with aggregate film counts up 8.7%, albeit still below the high of 2008 and mostly owing to
the 13% gain for the major independents and, to a lesser extent, a 1% increase for the majors.
Exhibits 31-33 show the swings in releases by both major studios and independent producers.
More and More Films Being Released: Despite a 3-year
Given the transition in package media (BD/DVD) to digital and changing program lineups of
Downward Trend, # of Films Being Released in the US is Still
premium cable networks (HBO, Showtime, Starz, etc.), evaporation of cheap production capi-
Historically High…"
tal will eliminate the marginal film project.

Number of US Film Releases, 1990-2011"
Exhibit 31. Number of US Film Releases, 1990-2011
25% increase 6% decrease
Total Films Released

633
608 609 598
551 547 558 550
510 509 482 478
506
458
480 462 453 471 461 478
410 411

90 991 992 993 994 995 996 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011
19 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2

Source: Boxofficemojo.com, Motion Picture Association of America, and BMO Capital Markets and indus-
try estimates. 7

It is important to note that admissions are very much reflective of film product in any one
year, and 2011’s slight dip is likely a result of the somewhat lackluster film product. We be-
lieve the movie-going age demographic is widening as art, foreign, and specialty films find
…However, Movie Admission 3D films. This can Has Been Declining,
wider acceptance alongside higher-profile Per Capita only be beneficial to theater
owners who have longedPeoplediversified movie-going base and thePer Year"have
1990-2011: for a more Seeing Fewer Films opportunity to
ticket price up-charges.

Exhibit 26. Average Movie Admissions per Capita, 1990-2011"
Average Movie Admissions per Capita, 1990-2011

5.5 5.4
5.2 5.2
5.0 5.0 5.2 5.0
4.8 4.8 4.8 4.9 4.8
4.5 4.6 4.4 4.4 4.4
4.2 4.3 4.1
3.9
99
00
01
02
03
04
05
06
90
91
92
93
94
95
96
97
98

07
08
09
10
11
19
20
20
20
20
20
19
19
19
19
19
19
19
19
19

20
20
20
20
20
20
20
Source: Motion Picture Association of America, US Census Bureau, and BMO Capital Markets and indus-
try estimates. 8

Major Studio Releases Have Been Declining Steadily For the
s on the Filmed Entertainment Industry 2012While the Growth Has Been in the Release of
Past 20 Years BMO Capital Markets

Independent Films"

Exhibit 33. Films Released−Majors and Independents, 1991-2011
Films Released-Major and Independents, 1991-2011"

344
350 325
296 282 292 297
300 275
248
237
262 248 263 299 302
250 232 229 277 300
169 205
200 166 167 171 169 159 168 161 155 159 172 169 165
131 139 150 137 136 138 143 146
150 165 116 101 149 145
100 87 88 80 99 80 99
116
127 120 113 107
92 108
47
50 17 17 43
28% decrease
0
1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1
199 199 199 199 199 199 199 199 199 200 200 200 200 200 200 200 200 200 200 201 201
Other Independents Major Studios Top Independents

Source: Motion Picture Association of America, boxofficemojo.com, Hollywood Reporter, and BMO Capital
Markets and industry estimates. 9

The films released by the eight major studios (Disney, DreamWorks Animation, Fox, Univer-

es on the Filmed Entertainment Industry 2012 BMO Capital Markets

US Box Ofﬁce: Box Ofﬁce Up But Admissions Down (With a
sell tickets at a $3.00-plus premium and special events at as much as $25 premiums (Metro-
politan Opera, World CupRise etc.).Average Ticket Price)"statistics are
Large Soccer, in The North American exhibition industry
detailed in Exhibit 81.

Exhibit 81. Exhibition Statistics and Growth Trends, 2000-2011
Exhibition Statistics and Growth trends, 2000-2011"
$10,595
Domestic Box Office (MM/$) $10,565
00-11 CAGR
$10,174
=2.9% $9,663 $9,630
$9,155 $9,381
$9,240 $9,209
$8,841
$8,412 Recessionary 5 yr CAGR =
Period 1.3%
$7,448 `
Recessionary
Period

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Admissions (mil)
1,576 1,532 5 yr CAGR = -
1,487 1,511 2.2%
1,421 1,406 1,404 1,413
1,379
1,341 1,339 1,283
00-11 CAGR =-
0.9% `
Recessionary
Period Recessionary
Period

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Avg Ticket Price 00-11 CAGR = $7.89 $7.93
% Increase 3.6% $7.50
$7.18
$6.88 5.2% 0.5%
$6.41 $6.55 4.5%
$6.21 4.4%
$6.03
$5.81 5.0%
$5.66
$5.39 3.2% 2.2% 5 yr CAGR = 3.6%
3.0% Recessionary
6.0% 2.7% 3.8%
Recessionary Period
Period

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

10

2000 2001 2002 2003 2004 2005
Screens +/- -2.3% -3.1% 1.9% 0.4% 1.8% 3.0%
# Studio Films Released 3.7% 0.8% -0.8% 5.9% 8.9% -0.7%

Top Films Steady in Their Overall Share of Total Domestic Box
Office"

Percentage of Total Yearly Domestic Box Office of the Top 5, 10, 25, 50, and 100 Films"

Titanic"

11

Source:
Box
Office
Mojo


AveragetoNumber of Theaters Per Release vast majority of their ini- in the
ber October). Nonperforming films are increasingly pulled from the
Has Doubled
tial screens at the end of the initial Past four-week run. Exhibit 47 details the increases over
three- or 20 Years"
the past 20 years in the average number of theaters in which a film is released.

ExhibitAverage Number of Theaters Per Release, 1991-2011*"
47. Average Number of Theaters Per Release, 1991-2011*
2011 3,463 -1.0%
2010 3,497 6.1%
2009 3,296 -2.8%
2008 3,392 1.1%
2007 3,356 8.3%
2006 3,100 3.3%
2005 3,002 -1.2%
2004 3,038 0.9%
2003 3,011 0.5%
2002 2,996 2.3%
2001 2,930 5.7%
2000 2,773 -0.1%
1999 2,776 5.3%
1998 2,637 3.4%
1997 2,550 17.3%
1996 2,174 4.5%
1995 2,081 3.2%
1994 2,016 2.6%
1993 1,965 -1.4%
1992 1,993 17.2%
1991 1,700 -3.2%

0 500 1,000 1,500 2,000 2,500 3,000 3,500

*Based on top 50 films with openings in more than 500 theatres. Percentages listed indicate year-over-
year changes.
Source: boxofficemojo.com and BMO Capital Markets and industry estimates. 12

Over the past ten years, we estimate that the average number of theaters per release has in-
creased to 3,463 from 2,996, a 15.6% increase. The industry’s screen-to-film dynamics appear

And Number of 3D Screens Has Growing Globally"

Worldwide 3D Screen Growth (in thousands)"

13

note a lack of consumer interest or a film’s success when often that decline is more of a re-
flection that opening weekend screen counts were sufficient to satisfy initial demand and the
next event film released the following weekend captures the big audience.
Increasing Importance of Opening Weekend: It Now Makes Up
Over 32% of Total DBO"
Exhibit 46. Opening Weekend as a Pct. of Domestic Box Office,
1990-2011* Weekend as a Pct. Of Domestic Box Ofﬁce, 1990-2011*"
Opening

33%
32% 35% 33%
30% 31% 32%
32%
27% 33%
25% 31%
24%
21% 22% 22% 28% 28%
20%
18% 20% 20%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

*Based on films opening in 500+ theaters.
Source: boxofficemojo.com and BMO Capital Markets and industry estimates.
14

The average number of theaters in which a film opens decreased 1.0% in 2011 on a 0.2% in-

creators and the ability of many of these franchises to generate revenue is unparalleled in the
consumer marketplace. Others have become as successful in creating characters (Ice Age,
Madagascar, Shrek, etc.) that have long half lives and will revisit consumers with new stories
Animated Film Performance 2002 – 2011: 10-Year DBO CAGR
for its loveable characters to tell.

Exhibit 24 breaks out a number of of relevant statistics since 2002 for this genre of film. We
the Only 7%"
note that 110 notable animated films have been released theatrically since 2002.

Exhibit 24. Animated Film Performance, 2002-2011
Animated Film Performance, 2002-2011"
Films Released*
15
14 13
12 12
12 11 11
10
10 9 9
8
8
6
4
2
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

*$1 million domestic box office or more

Domestic Gross (MM/$)

$1,536.5

$1,254.9 $1,260.2
$1,210.4
$1,157.4 $1,119.0
$1,050.3

$660.4
$608.3 $590.9

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Boxofficemojo.com and BMO Capital Markets, data as of March 29, 2012 15

The eight animated films released in 2010 generated the highest level of box office dollars in

MPAA member companies, which represent statistics from seven of the nine major studios,
including Disney, Fox, MGM, Paramount, Sony, Warner Bros., and Universal and do not in-
clude studio subsidiaries such as Sony Classics and Paramount Classics.
Rising Costs to Release a Film: Production and P&A Expenses
at an All-Time High"
Exhibit 42. Average Release Cost/Film MPAA Member Companies,
2000-2011 Release Cost/Film MPAA Member Companies, 2000-2011"
Average

CAGR
= 5.6%

$138.9
($Millions) $129.1
$120.7
$110.0 $112.6 $112.6
$105.2 $104.7 $105.8

$82.1 $82.4 $82.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

Source: The Motion Picture Association of America and BMO Capital Markets and industry estimates.
16

The average cost to produce a film intended for theatrical release in 2011 increased to $138.9

success or to open a film strongly. We do not envision a scenario that will meaningfully re-
duce the spend per film in production or distribution away from the intermediate-term benefits
of the transition to digital distribution. Dollar benefits, reduced overhead, incremental 3D con-
tributions, and positive demand elements in the international market have given some studios
Studio Movies More Expensive to Produce Than Ever"
a small level of justification for the increases in average spending per film. Overhead and out-
put reduction should begin to chip away at overall average costs in the next year or two.

Exhibit 43. Average NegativeMPAA Member Companies, Companies,
Average Negative Cost/Film Cost/Film MPAA Member 2000-2011"
2000-2011

($Millions) CAGR =
75%
4.5% $88.6
$82.0
$78.5
$70.8 70%
$72.2
$66.3 $63.6
$65.7 $65.8
$54.8 65%
$47.7 $47.8

60%

55%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E
Negative % of Total Average Release Cost


17

Advertising costs for the MPAA members have become a more significant portion of total
film costs. Average per-film advertising costs for MPAA member companies were up an es-

And Cost to Market Those Films Also at an All-Time High"
the Filmed Entertainment Industry 2012 BMO Capital Markets

Exhibit 44. Average Ad Spend/Film MPAA Member Companies, 2000-
2011Average Ad Spend/Film MPAA Member Companies, 2000-2011"
($Millions) $46.3 40%
$42.1
$36.1
$39.5 $34.8 $34.5 $35.9 $36.0
$34.2 35%
$31.0
$30.4

$24.0 30%

25%

20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E

Advertising % of Total Average Release Cost

18

The print cost for the top films in release in 2011 was down as digital delivery becomes a

in small part related to currency and in large part to the success of many event films overseas.
That said, we expect the international box office to continue to generate an ever-increasing
percentage of the revenue for top films released annually as more theaters are built and “mid-
Increasing Importance of International Box Office: Making up a
dle class” economies emerge and grow.
larger and larger multiple of US Box Office"

Exhibit 27. International Box Office as a Percentage of Domestic,
2002-2011
International Box Office as a Percentage of Domestic, 2002-2011"
225.7%

200.7%

177.0% 188.0%
166.8% 171.8% 177.4%
161.5%

114.7% 118.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: Motion Picture Association of America, Variety, and BMO Capital Markets and industry estimates.
19

We believe significant growth opportunities exist worldwide for filmed entertainment product

International Box Ofﬁce Has Grown Three Times as Fast as
Domestic…"

Worldwide Box Ofﬁce ($ in billions)"

CAGR for
International = 9.6%!

CAGR for US = 3.9% !

20

…However, International Growth is Expected to Slow in the
Coming Years…"

Global Box Ofﬁce Revenue ($US MM)"

CAGR
for
all

Interna6onal
=
7.4%

CAGR
for
US
=
4.6%

Source:
PWC

21

Asia Pacific Filmed Entertainment Revenue 10-Year Growth of
6% Driven by the Growth of Box Office (43% of All Revenue in
2006 Rising to 56% by 2015)"

Total Filmed Entertainment in Asia Pacific ($US MM)"

51%

34%

63%

47%

Source:
PWC

22

the distributors' share of box office to 25% from the mid-teens) should improve the busi-
ness to some extent. China has become the second-largest foreign market for US films
(behind Japan) at $2.02 billion (up 35% in 2011) from barely a top 20 market five years
5-year CAGR 51 visualizes the growthand Admissions of 35% and 15%,
ago. Exhibit of Chinese BO in the Chinese exhibition industry since 2006.
Clearly, China is an important source ofTicket Price is on the window.
Respectively (Average growth even beyond the theatrical Rise)"

Exhibit 51. Chinese Exhibition Industry, 2006-2011
Chinese Exhibition Industry, 2006,2011"

Year Box Office ($/MM) Admissions (MM) Average Ticket Price
2006 $328.6 176.2 $1.86
2007 $433.9 195.6 $2.21
2008 $606.7 209.8 $2.89
2009 $906.2 263.7 $3.43
2010 $1,506.7 373.9 $4.03
2011 $2,026.0 414.5 $4.88

Source: I.H.S Screen Digest, BMO Capital Markets, and industry estimates.

23

Number of Movie Screens in China Has Exploded"

The Growth and Estimates of Digital Screens, 2007-2012"

24

Latin American Filmed Entertainment 10-Year Growth Also at
6% with Box Ofﬁce Making Up an Even Larger Share of Total
Revenue"

Total Filmed Entertainment in Latin America ($US MM)"

51%

34%

63%

47%

Source:
PWC

25

EMEA Filmed Entertainment 10-Year Growth Slower at Only
3% with Home Video and Cinema Advertising Making Up a
Larger Share Than in Other Territories"

Total Filmed Entertainment in EMEA($US MM)"

62%

51%

45%

34%

Source:
PWC

26

The Shrinking Window: Less Time Between Each Sales
Platform (Because of Piracy, New Platforms, New Sources of
Content)"
Filmed Entertainment Industry 2012 BMO Capital Markets

Exhibit 71. Release Windows by Month
Release Windows by Month (2011)"
Months 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 plus

Domestic Theatrical $7.93 Average Ticket Price, $11.03 for 3D, a $10.2 Billion Business

International Theatrical $24 Billion in Revenues

Super VOD (includes hotels) $25-$30 SVOD, $12-$18 Hotel

Domestic Sell Through $18 Gross Wholesale, a $9 Billion Business

International Sell Through $18 Gross Wholesale

Domestic Rental (Digital &
$10-$17 Gross Wholesale
Physical)

Streaming $2.50-$4.50

International Rental $18 Gross Wholesale

Domestic Premium Pay TV HBO, Starz, Showtime

International Premium Pay
TV
Domestic & International
Cable
Domestic & International
Broadcast

Source: BMO Capital Markets

27

VOD/streaming/subscription, etc. services are gaining traction, but the studios are still getting
paid! VOD is finally gaining traction beyond events such as sports and concerts as consumers
pushed the buy button 25% more in 2011. Increasingly, the convenience, HD quality, closure

tives on the Filmed Entertainment Industry 2012 BMO Capital Markets

The following graph delineates the number of days a film takes to go from the theater to DVD
Shrinking Theater to Video Window"
release. In a sense, Exhibit 96 may be overstating the shrinkage factor in 2011 as the exclusiv-
ity period of sell-through now masks the 28-day embargo to which most rentailers have
agreed.

Exhibit 96. Theater to Video Release Window, 2002-2011
Theater to Video Release Window, 2002-2011"
(Days)
DVD Surpases
VHS Revenues

Digital Era Begins

167
Sell Through
Peaks
155 Blu-Ray Era
Begins
146

135 134
132 133
130 130

117

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: SNL Kagan
28

The top 20 films of 2011 saw an average of 126 days between theatrical release and home

Source: SNL Kagan.

While there may be little change in the release window for theatrical film to home video re-
lease, the interval between packaged media and VOD release has reversed itself, reflecting the
Shrinking Home Video to VOD/PPV Window"
studios view of home video rental economics. The VOD window went to an average of 17
days prior to the DVD release in 2011. VOD is often available in fewer days than home video
rentals for most of the video rentailers that use either subscription- or Internet-based services.

Exhibit 67. MovieMovie Release Window, 2000- 2011"
Release Windows, 2000-2011
Home Video to VOD/PPV
PPV Era
(days)
60 58
51 VOD Era
50 45 45
44 43 Streaming
40 38 Era
34
31
30

19
20

10
4

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-10

-20 -17

Source: SNL Kagan. 29

Home Video: More Options Than Ever"

Access and Choice: Then vs. Now"

20 Years Ago" 10 Years Ago" Now"

EST"
Blu-ray 3D"
Cloud"
Kiosk
VHS" DVD" (Electronic)"
Subscription"

Blu-ray"

Flash"
UltraViolet"
Mobile Video"
VOD" DVR"
PPV/NVOD"

Digital Copy" Kiosk (Physical)"
30

Source: SNL Kagan!
Streaming"

Worldwide Home Entertainment Market: Not What it Used to
Be, But Still Thriving"

Worldwide Home Entertainment ($ in billions)"
"
Not What It Used To Be … But Still Thriving"

31

Total Global Home Video Revenue Only 2% Growth Through
2015"

Global Home Video Revenue ($US MM)"

Source:
PWC
32

home video rental and sell-through business (SNL Kagan, Nielsen Media Research, Adams
IHS, DEG, Home Media Magazine, Rentrak, etc.), some of which are within a couple of per-
centage points of each other for the variety of published home video statistics. We have en-
deavored to use estimates that are balanced within the statistical spectrum. The trends ob-
served using any of the credible sources typically reveal the same macro picture even if the
US Home Video: 10-Year Decline of Physical Sales and
dollar amounts vary: the rental market has leveled off with subscription and lower-cost kiosk
models growing, while the sell-through market has seen a meaningful decline on secular
Rentals. Digital Increasing, But Not Making Up the Gap"
changes and growing preference for digital access/storage. Blu-Ray is slowly capturing pack-
aged media buyers, helped in large part by consistent sub-$100 hardware pricing and growing
use of BD drives in laptops.

Exhibit 59. Home Video Sales and Rental Revenue, 2002-2011
Home Video Sales and Rental Revenue, 2002-2011"
Peak Sales
$20,000 (Library Benefit)
Recessionary
$15,000
$Millions

$10,000

$5,000

$0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Rentals $8,291 $7,847 $7,595 $7,496 $7,148 $6,886 $6,490 $6,178 $5,673
Sales $12,779 $14,059 $13,898 $13,871 $13,329 $12,385 $10,870 $10,026 $8,952
Digital $700 $700 $800 $1,000 $1,300 $1,600 $2,100 $2,260 $3,416
Total $21,770 $22,606 $22,293 $22,367 $21,777 $20,870 $19,459 $18,464 $18,041

Rentals Sales Digital

ctives on the Filmed Entertainment Industry 2012 and
Source: IHS, DEG, BMO Capital Markets and industry estimates BMO Capital Markets

Consumer Home Video Spending Patterns, 2003-2011"
Exhibit 60. Consumer Homerental spending on an absolute basis is threefold: 1) ki-
In our view, the decline in consumer Video Spending Patterns, 2003-2011
osks are turning $4.00 rentals into $1 per day or slightly over per $2 transaction on average;
70.0%

2) streaming-VOD is replacing both physical rental and sales models but is more heavily tak-
60.0%

ing share from the sales side; and 3) EST options are taking business away at least at the mar-
50.0%

gin. 40.0%

30.0%

Consumers are transitioning to the high-definition format (Blu-Ray), a desirable companion to
20.0%

the home 10.0%
theater and high-definition television world as well as the emerging 3D world. Blu-
Ray also has the benefit for studios/distributors of making piracy more difficult and costly.
0.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011
DVD Rental 23.3% 26.8% 29.6% 32.4% 32.4% 32.0% 31.1% 28.7% 23.6%

Each high-definition disk carries a manufacturing cost of less than $1.00 as opposed to the
Blu-Ray DVD Rentals
DVD S.T.
0.0%
48.8%
0.0%
56.5%
0.0%
60.1%
0.0%
61.3%
0.2%
60.3%
0.9%
56.3%
2.2%
50.3%
4.8%
44.8%
7.9%
37.2%

$0.60 or so cost of the DVD product. It should also be noted that high-definition movies run
Blu-Ray DVD S.T. 0.0% 0.0% 0.0% 0.0% 0.8% 3.0% 5.5% 9.5% 12.4%
Digital 3.2% 3.1% 3.6% 4.5% 6.0% 7.7% 10.8% 12.2% 18.9%

closer to 20 gigabytes versus the 3-5 gigabytes of the standardBlu-Ray DVD S.T.
DVD Rental Blu-Ray DVD Rentals DVD S.T.
DVD. Utilization of MPEG-4
Digital
33

Source: Adams Media Research and BMO Capital Markets and industry estimates.
versus the current MPEG-2 technology should bring the amount of gigabytes per film down
significantly.
There are not many positives for the video rentailers, and we are not sure that the economics
will change appreciably, even after the bankruptcy process for some, because the financial

Home Video: Digital Downloads (EST) and Rental (TVOD/
SVOD) on the Rise (With Rentals Far Surpassing Purchases)…"

We expect digital platform revenue to grow to"
$5.6 billion by 2015, driven by rental"

34

New Home Video Sell-Through Formats Carry Higher
Margins…"

New Formats Carry Higher Margins: Sell-Through"

35

…However, New Subscription/Rental Services Reduce the
Value of Content: Netflix Per-Movie Spend of $0.48 Compared
With the Old $3 Rental From Blockbuster…"

Out of the $7.99 monthly Netflix streaming fee,"
consumers are spending $0.50 per film streamed,"
lowering the incentive to consume films in other"
channels like higher studio margin EST or TVOD"

36

…A Trend That is Only Expected to Continue"

Growth in kiosk and subscription rentals shifting "
revenues to lower contribution margin"

Source: Morgan Stanley Research, Company data"
*Includes physical and digital sell-through, Brick and Mortar rentals, Cable VOD, and Transactional Online VOD (ie iTunes, Amazon, etc)"
**Includes subscription VOD (ie Netﬂix streaming, Amazon Prime, Hulu Plus), Kiosk rentals, and Netﬂix DVD-by-mail" 37

April 3, 2012
Media

…And These Streaming/Rental Services Have Cannibalized
EST at the Expense of Overall Home Video Revenue…"
onomics, New Platforms, Blu-Ray, Valuation
Exhibit C
m purchase to
nomics? Rental revenues pass sell-through in ‘11, a trend’11, expect to continue…"
Rental revenues pass sell-through in we a trend we
expect to continue...
lieves that 80% $30,000

given shifts in
70% $25,000
ell-thru.
60% $20,000

but given 50% $15,000
answer is yes.
40% $10,000
e VOD and
ars but these 30%
Rental spending surpasses sell-
thru for first time since 1998 $5,000

20% $0
98
99
00
01
02
03
04
05
06
07
08

20 E
09

20 E
10

20 1
20 E
20 E

E
1

14
12
13

15
16
19
19
20
20
20
20
20
20
20
20
20
20
20
20

despite rising
Tot HV revs (right axis) Rental as % of total (left axis) ST as % of total (left axis)

s been rising
Source: Company Data, Morgan Stanley Research
growth in
d kiosk 38

Given the relative economics of rental vs. sell-thru and
t by sharp
Kiosk and Netflix vs. other rental channels (see Exhibit D),
hysical

…Led by the Rise of Many New Online Video Distributors/
Content Aggregators"
Perspectives on the Filmed Entertainment Industry 2012 BMO Capital Markets

Major Online Video Distribution
Exhibit 15. Major Online Video Distribution Players Players"
Product How it Works Pricing & Availability Partners Outlook
Amazon VOD 50,000 + TV shows and movies available through TV Shows are $0.99-$2.99 per episode to rent or Sony, Panasonic, Roku, TiVo, Samsung, major studios a la carte model has narrower appeal than
streaming to PCs, several Internet-connected TVs, Blu- own, some free; available now and networks subscriptions; no live TV programming
ray players, set-tops, and game consoles
iTunes iTunes Store offers over 65,000 TV shows and 10,000 TV Shows are $0.99 per episode to rent or own, ABC/Disney, Fox, BBC America for rentals; major no live TV programming; $0.99 next day rentals don't
movies for rent/purchase HD movies are $3.99 to rent; available now studios and networks have wide support

Google TV Users can search for and access linear TV listings, available now Sony, Dish Network, Logitech, Best Buy initial approach is to enhance existing TV services
YouTube, and other Internet video and run Internet- and provide expanded access to Net video
based applications on TV
Hulu Free content includes 2,600 current primetime TV Hulu Plus $9.99/month; current in private beta 225 content providers, including owners NBC, Fox, content is largely broadcast shows; no live sports or
shows and 1,000 movies; Hulu Plus, premium service, and ABC news; may be "good enough' for some at an
available on various devices attractive price point
Netflix 20,000 + movies and TV shows available to stream to Subscription plans start at $7.99/month; available Tivo, Roku, Sony, LG, Panasonic, Apple, Nintendo Wii, content still lags availability on TV; no live TV
more than 100 devices, including many TVs and Blu-ray now Microsoft Xbox, Best Buy Insignia programming (except Starz's linear channel on PCs),
players but model could incorporate live events
Walmart's Vudu 16,000 + HD streaming movies on demand, many Rentals are $0.99-$5.99; Purchases are $4.99- LG, Samsung, Sharp, Toshiba, Vizio; major movie content catalog is mostly movies; aimed at high-end
available in 1080p HD, through compatible Internet $24.99, TV seasons are $15-$43 studios niche
connected TV
Apple TV Internet set-top provides streaming access to rentals of $99; available now ABC/Disney, Fox, BBC America for rentals rental model unproven and content selection limited;
TV shows and movies, plus Netflix, YouTube, Netflix feature not differentiated
purchased iTunes content
Boxee Application and web content guide designed for TV Boxee-based set-top from D-link; $299 available MLB.tv, Pandora, Comedy Central content is not differentiated, will have difficulty
displays; has nearly 40,000 TV shows primarily from now crossing over to non-tech audience
broadcast networks
Microsoft Xbox 360 Game console allows access to Netflix, ESPN3.com, $299, available now, Rentals are $4.99, Netflix, ESPN, major studios and cable networks access to ESPN3 is unique but not enough to prompt
movies, and TV shows on demand Downloads are $9.99-$24.99 cable cancellations

Panasonic Viera Cast Internet service that provides video, information, and Free with select HDTVs, Blu-ray players; Netflix, YouTube, Fox Sports, Amazon, Pandora, most attractive feature may be Netflix streaming
entertainment available now Bloomberg

Roku HD Internet set-top that provides access to Netflix on Starts at $59; available now Netflix, Hulu Plus, Amazon, MLB.tv, UFC Device's appeal is mainly as a Netflix client
demand and other content

Samsung Samsung Apps platform provides access to video, Free with select HDTVs, Blu-ray players; Blockbuster, Netflix, YouTube, Vudu, Yahoo Widgets, content lineup currently not differentiated from other
games, and information services available now Pandora, eBay, Twitter, Skype Internet connected consumer electronic devices

Sezmi Hybrid broadcast/Internet-delivered service with access Receiver system is $150; broadcast only service Local TV stations and groups; Best Buy; major movie service designed as cheap alternative to
to local TV stations, some VOD and Internet content is $4.99/month; available in 26 markets; studios; some cable programmers cable/satellite TV but traction to date is unclear
and cable programming $19.99/month with 23 cable networks in LA only
Sony PlayStation 3 Net-connected gaming console provides access to Starts at $299; available now PlaySation Network service provides TV shows and Device's main selling proposition as a game machine
Internet video content, including some original programs movie rentals and purchases; as well as Twitter, rather than TV service
Facebook, and other apps; Netflix streaming
TiVo Premiere DVR Access to Internet delivered movies, video clips, TV Starts at $299; available now Amazon, Netflix, Blockbuster, YouTube, Music Choice, DVR's core value still relies on traditional TV
shows, and apps via DVR Hulu Plus, 1,000 + Internet content publishers

LG NetCast Internet delivered TV shows, movies on demand, and Free with select HDTVs, Blu-ray players; Netflix, Roxio CinemaNow, Yahoo Widgets, Pandora, content lineup not differentiated from competing
information available now Vudu, YouTube Internet connected consumer electronic devices.

Best Buy's Cinema Now6,000 TV episodes and 3,000 films Rentals are $2.99-$3.99; Download/Own are Fox, Time Warner Access to Best Buy custimer base is helpful.
$9.95-$19.95

39

Source: Multichannel News and BMO Capital Markets and industry estimates.

The movie download business has conceptual appeal, especially if piracy issues are ad-

Net Result is Intrinsic Values of the Major Studios Has Fallen
~50% From their Peaks in 2007"

Our estimates of the intrinsic value of the ﬁlm studios "
have fallen ~50% since “peak” levels in 2007"

40

Studios Hoping Ultraviolet Will Save Home Video"

UltraViolet Usage Model"

Registered
Devices for
Downloads

HOUSEHOLD DISCRETE MEDIA STREAMING ACCESS
(12 device domain) (single copy) (three simultaneous streams)
41

Television: As Popular As Ever…"

Exhibit 104. Total Household Hours:Minutes TV Viewing Per Day,
Total Household Hours: Minutes TV Viewing Per Day, 1999-2011"
1999-2011

8:52 8:47

8:38 8:34

8:21
8:24 8:18
8:14 8:14
8:11
(Hours:Minutes)

8:09
8:01
7:55
7:55

7:42
7:39
7:40
7:31

7:26

7:12
00 01 02 03 04 05 * * * * * *
06 07 08 09 10 11
20 20 20 20 20 20 20 20 20 20 20 10
9- 0- 1- 2- 3- 4- 5- 6- 7- 8- 9- 0-
99 00 00 00 00 00 0 00 00 0 00 1
1 2 2 2 2 2 20 2 2 20 2 20 *Live +7

Source: Nielsen , BMO Capital Markets, and industry estimates.
42

Exhibit 105. Adults 18-24 Hours:Minutes TV Viewing Per Day,

The Rise of Web Video (and Related Viewing Habits) is
Undeniable"

Top US Online Content Properties Ranked by Unique Video Viewers, April 2012*"

*Total US-Home and Work Locations"
Content Videos Only (Ad Videos Not
Included)" 43

Source: comScore Video Metrix"

People Are Watching Fewer Videos on YouTube, But They Are
Watching Longer Videos and Spending More Time on the Site"

Watching YouTube"

44

And Ad Spending is Expected to Follow Suit and Increasingly
Move Online…"

US TV vs. Online Ad Spending, 2011-2016 ($ in billions)"

45

2012 State of Media Presentation

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