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SEAN CAREYEVP, DIGITAL DISTRIBUTION & PRODUCT ACQUISITION

SONY PICTURES HOME ENTERTAINMENT

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GROUPER UPDATE

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Agenda

Grouper acquisition update

Product update

Revenue strategy and financial projections

Cross-Sony integration

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Grouper Acquisition Summary

SPE completed the Grouper Networks acquisition on August 21, 2006 Total consideration of up to $65MM

$52.5MM was paid at closing $12.5MM contingent consideration

Deal Status

Service Summary

Multi-platform Video Distribution Network focused on watching, sharing, and creating user generated video Significant traction demonstrated with customers Robust technology

Syndicates video to other sites through one-click posting P2P proprietary technology Video portability to multiple devices (PSP, iPod) Widely distributes easy-to-use video editing tools

Strategic Rationale

Represents a compelling standalone business opportunity Provides SPE opportunity to participate in the growth of online

advertising Offers potential support for other Sony businesses

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Media Coverage Has Been Positive, Citing Grouper’s Value as a Standalone Service and the Opportunity to Leverage Sony Content and Devices

A good strategic grab. Grouper was a shiny target for Sony.(Business Week Online)

A good strategic grab. Grouper was a shiny target for Sony.(Business Week Online)

Immediately gives Sony a significant presence in Internet video distribution.(Variety)

Immediately gives Sony a significant presence in Internet video distribution.(Variety)

Reinforces positive investment thesis for the broadband video sharing subsector, driven by: (1) strong usage growth, (2) current excess of demand relative to supply of advertising inventory, (3) synergies with mainstream content, (4) the proliferation of digital video capture devices for consumers, and (5) innovation in consumer-oriented video editing tools.(Rutberg & Co)

Reinforces positive investment thesis for the broadband video sharing subsector, driven by: (1) strong usage growth, (2) current excess of demand relative to supply of advertising inventory, (3) synergies with mainstream content, (4) the proliferation of digital video capture devices for consumers, and (5) innovation in consumer-oriented video editing tools.(Rutberg & Co)

Gives Grouper access to Sony’s television and movie content, enabling it to develop video community sites around the new material, thus generating more traffic and ad dollars.(Business Week Online)

Gives Grouper access to Sony’s television and movie content, enabling it to develop video community sites around the new material, thus generating more traffic and ad dollars.(Business Week Online)

A way to distribute video content through broadband Internet connections directly to the TV.(Variety)

A way to distribute video content through broadband Internet connections directly to the TV.(Variety)

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Grouper Has Provided SPE an Entrance into the Growing and Quickly Evolving User-Generated Video Space

• Partnerships forming to extend user generated video across platforms

• Content owners have determined that User-Generated Video sites are a viable means of distribution

• Warner Music licensing music and videos to YouTube, through a revenue sharing agreement

• Acquired Atom Entertainment for $200MM

• Yahoo!/Current TV distributing programmed channels of high-quality user generated content across TV and PC

• Signed an exclusive promotional deal with Helio allowing users access to their MySpace homepage via mobile device

Grouper must respond quickly to remain competitive

• User generated video is demonstrating the ability to create hits with mass market potential

• “Lonelygirl15” generated over 5MM views and has now become a serial on Revver

• Brooke Brodack, a popular poster on YouTube, recently received a production deal from Carson Daly Productions

Trends Examples

• Important channel for promoting studio content

• Sony Pictures releasing trailers of upcoming films on Grouper

• Sony Pictures and other studios regularly creating character pages to promote new releases

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Grouper Service Highlights: Watch Videos

•Home page with “video wall” of user generated content (80% click-through)

•Content can be discovered through:–Rotation in video wall–Search–Channels

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Grouper Service Highlights: Share Videos

1. P2P client enables download of original, high quality files to desktop and portable devices

2. One click publishing to other sites

3. Instantaneously add video comments via web cam

4. E-mail to friends in users’ MSN, Hotmail, and Yahoo accounts

1.

2.

4.3.

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Grouper Service Highlights: Create Videos

•Real-time recording and upload from web cams

•Proprietary client with easy-to-use editing tools–Select video–Select photos and tracking / panning effects

–Select music

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Grouper Product Roadmap

Device Support

New Features

FY07

Expansion of embedded player Integrate search, upload, comments,

and “shoutout” features into player

1-Click publishing (e.g., Digg, EBay)

Family Filter

Initial camera integration (Pure Digital)

FY08

Continue expansion of embedded player

Add real-time community features including chat

Add geographic data and search

Personalized recommendations/channel

Customized functionality User profiles, instant messaging

Content

Basic user-generated video

Movie trailers

Music videos

Higher quality user-generated video(“prosumer”)

Premium content (ad-supported)

Expand premium content offering (ad-support/sell-thru)

Mashups

Send video from/to mobile phone

Hardware integration (e.g., PCs, Cameras)

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Overview of Grouper Revenue Strategy

Video ads

Sponsored placement

Search

Banner ads• Traditional banner ads driven by

page views, banner CPM, and inventory sales rate

Leverage SPT ad sales • Incorporate with offerings to traditional

customer base• Expand to new customers• Dedicated new media sales force• Leverage ad agency relationships

Revenue drivers Description Operational Approach

Leverage distribution relationships• Strike partnership deals with major

internet portals (e.g., Google)

• In-stream pre-roll ads placed in 1/4 to 1/3 of videos driven by number of ad-supported streams, ad duration, video CPM, and inventory sales rate

• Premium advertising, placement, and promotion bundles customized for select major advertisers

• Contextual ads delivered during the search process

Ad Revenues Commencing Early CY 2007

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Grouper Financial Projections

(millions) FYE2007 FYE2008 FYE2009 FYE2010

P&L Performance

In-Stream $1.42 $10.06 $28.25 $43.02Banner / Ad-words 1.18 5.66 12.80 20.99 Sponsored Search 0.46 2.87 10.46 19.51

Total Revenue $3.07 $18.60 $51.50 $83.51

Total COGS $1.68 $6.99 $15.13 $22.81

Gross Profit $1.39 $11.60 $36.37 $60.70

Total Operating Expenses $10.23 $18.82 $23.28 $29.80

Operating Profit ($8.85) ($7.22) $13.09 $30.91

Operating Margin N.M. N.M. 25.4% 37.0%

Amortization ($1.43) ($2.86) ($2.86) ($2.86)

EBIT ($10.28) ($10.08) $10.23 $28.05

EBIT Margin N.M. N.M. 19.9% 33.6%

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Cross-Sony Integration

SPE is eager to discuss opportunities to collaborate with Sony divisions

We are in the process of hiring additional engineering and business resources to ensure that we are able to execute on the discussed opportunities

It is critical that Grouper focuses on a select number of initiatives Primary focus over next 12 months needs to be customer and

revenue growth

Therefore, it is important that we work together to systematically prioritize initiatives, and adhere to a coordinated execution timeline

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Cross-Sony Grouper Integration Timeline

Primarily focus on growing traffic

Complete basic integration: Finance, Ad sales, HR, Legal, Marketing

Expand content offering

Phase 1 Phase 2 Phase 3

Grouper focus

Cross-Sony marketing and product integration

Simple co-marketing campaigns requiring no product modifications ( e.g., messaging on product box)

Initiate standard, API-based integration

Corporate Alliances working closely with Tim Schaaff to facilitate communications between Sony divisions and Grouper

Co-marketing requiring simple product modifications (e.g., link to Grouper on device)

Investigate/validate feasibility of complex integration ideas and prioritize accordingly

Primarily focus on growing traffic; begin monetizing traffic

Implement limited number of high-impact new features

Premium content (ad-supported/sell-through)

March 2007 Sept 2007 March 2008

In-depth cross-Sony marketing campaigns

Fully integrated products, e.g., custom software incorporated into devices

Cross-platform promotions (e.g., print, TV, radio)

Initiate top 2-3 customized product integrations

Primarily focus on growth and increase focus on revenue

Implement limited number of high-impact new features

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Technology Strategy / Business Development Groups

Examples of Cross-Sony Integration Opportunities

PlayStation• Incorporate Grouper into PS3

online service

mylo• Include Grouper in second

generation product

Televisions• Align IPTV plans with Grouper

product roadmap

Camcorders• Potential direct posting of video

from WiFi enabled camcorders

Digital Cameras • Potential direct posting of video from WiFi enabled digital cameras

VAIO• Inclusion of a Grouper shortcut on

the VAIO desktop

eBooks• Download of Grouper content if

eBooks expand to support video

Connect (hardware)• Incorporate Grouper in product

planning for Digital Video Players

Sony Hardware Products

• Add music videos to Grouper

Other Sony Business Units

Sony BMG

• Upload videos from mobile phonesSony Ericsson

• PSBG EyeVi Group

• SEL Corporate Development

• SCA Advanced Technologies

• Tokyo Electronics Strategy

• Tokyo IPTV Group

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