CONFIDENTIAL Grouper Acquisition Opportunity July 2006

CONFIDENTIAL

Grouper Acquisition Opportunity

July 2006

page 2

Agenda

• Acquisition Highlights

• Executive Summary

• Detailed Analysis– Grouper Detail– Trends in Digital Distribution– Digital Video Service Categorization

CONFIDENTIAL

ACQUISITION HIGHLIGHTS

page 4

Grouper Acquisition Highlights

• Cornerstone to a full range of digital video services

• Vehicle for marketing and distributing existing studio content online

• Differentiated technology

• Undervalued relative to competitors in the space

• Addresses a core demographic

• Broadens base of content to new forms

• Opportunity to participate in growth of online advertising

• Platform for further experimentation based on direct customer information

page 5

Grouper Overview

Service Summary

• Company is pre-revenue, received $5.1MM funding to date

• Ownership is divided 40% management, 45% institutions (1), 12% employee options, 3% friends and families

• Received a competitive acquisition bid of at least $50MM

• Multi-platform Video Network dedicated to watching, sharing, and creating user generated video

• Enables video portability to multiple devices (iPod, PSP)

• Attracts users from other sites through one-click posting (MySpace, Friendster, Everyone’s Connected, WordPress, Blogger)

• Widely distributes easy-to-use video editing tools (Proprietary client, Instant upload from webcams and mobile phones)

• Ad-filtering tools place ads based on a wide range of content tags

• Leverages P2P software client; increases video quality; decreases delivery costs

Differentiators

Funding and Deal Status

Demonstrated Traction

• #2 independent video community (Hitwise May report)

• Launched beta version of site and attracted 7MM global UU’s (3.0 MM US)

• Over 60,000 uploaded videos programmed across 18 channels

1. Investors include Accela LLC, Applegreen Capital, DAG Ventures, and T-Online Venture Fund

CONFIDENTIAL

EXECUTIVE SUMMARY

page 7

Executive Summary

• SPE is faced with tremendous opportunity through digital distribution

– Infrastructure for digital delivery is now in place

– Consumer time and advertising revenues are shifting online, creating risks for our existing base of business

– Direct-to-consumer digital service creates an opportunity to expand in new areas

• Digital distribution service efforts to-date have been loosely coordinated and would benefit from an acquisition to accelerate deployment

– Numerous efforts currently in-process

– Studio competitors are investing heavily

– Window may be limited for a reasonably priced acquisition

• At $60-$70MM, a Grouper acquisition could accelerate time-to-market and be a cornerstone for a full bouquet of digital services

– Grouper would provide experienced management, market-leading technology, content, and demonstrated traction with users

– Potential price in-line with comps and at a discount to recent acquisitions

page 8

Digital Video Distribution is Becoming Mainstream

• Infrastructure is nearly in place– Roughly 50% broadband penetration of U.S. households– Compression technologies continue to improve– Content owners digitizing libraries

• Consumers are engaging with more content, in ways that are unique to a two-way, interactive medium

– Over half of Internet users have visited a social networking site– U.S. video downloads exceeded 18 billion in 2005

• Traction is being demonstrated by multiple players, large and small, new and old– Leading online destinations extending brands to video– Traditional networks establishing online presence– Start-up video and social networking sites building large audiences

page 9

Changing Distribution Landscape and User Behavior Create Opportunities for Sony Pictures

• IP-delivery is decreasing traditional distribution partners’ control and increasing the importance of two-way communications

– Time spent watching cable and network TV forecast to remain flat while time spent with interactive media (online, games, mobile) will grow 10%-30% annually

• Advertising is becoming increasingly important in the online space– Online advertising grew 30% in 2005 (compared with 6% for traditional media)– Online advertising expected to reach 25% of the $115 BN domestic advertising market

• Unlimited shelf space is increasing the importance of niche content– Major studio content composes 95% of volume for brick-and-mortar retailers but only 80% for

online retailers

• SPE is creating digital video services to capitalize on these trends– Increase control of distribution and build direct, two-way relationships with consumers– Broaden base of content to include user generated and short-form– Increase ownership of ad-supported content– Build an additional avenue for distribution and marketing of TV and Film product

page 10

Evolving Infrastructure Represents an Opportunity to Build Direct Relationships with End-users and Increase Control of Distribution

Broadcast Model

Cable Model

Digital Distribution – Licensing/Syndication

Broadcast Network

Broadcast TVLocal Affiliate

Production CustomerDistributionAggregation

SPE

Cable Network

Cable TVCable MSOSPE

Portal PC or TVBroadband ISPSPE

Customer-facing Service

SPE-owned Service

PC or TVBroadband ISPSPE

page 11

Expansion of Sony’s Digital Distribution Strategy

Expansion of StrategySony Efforts to Date

• Nanofilms• Chat Cinema• Broadband Channels• Sony Connect• MovieLink• Bundling films on digital media

–Memory Sticks–Flash Memory–Computer Hard Drives

• Marketing new releases online–$36MM in FY06 spend, $64MMin FY07

• Early digital distribution efforts depended on

home-grown technology and focused on

sell-through and subscription services

• Current efforts expand SPE’s digital

distribution efforts to address:

–Social networks and increased

interactivity

–Short-form and user generated content

–Ad-supported revenue models

• Current efforts increasingly leverage

third-party technology

• Screen Blast• SoapCity• iFilm (early investor)

Current

Previous

page 12

51.4

20.1

7.7

3.0 2.0 0.8

20.5

7.0

13.9

9.3 9.3 8.04.4 3.2 3.2 2.1

8.5 8.05.4 4.7

Social Network Store Channel Promotional

Source: Nielsen NetRatings. Figures as of 6/21/06.* Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded. Worldwide unique users total approximately 8 million.

• Provide interactivity between users

• Increasingly dependent on user-generated video

• Primarily advertising based revenues

• Aggregates video across content providers for purchase

• Uses a range of models including sell-thru, rental, and subscription

• On-demand videos in programmed micro-channels or on a show-by-show basis,

• Business model primarily includes advertising, with some upsell to subscription

• Predominantly short video clips that promote the site owner’s content, merchandise, and brand

• May include some advertising, and minimal commerce capabilities, but is promotional in nature

Monthly Unique Users (mm)

Social Networks are Growing Quickly and Attracting the Largest Audiences for Digital Video Content

page 13

Competitors Are Investing in Social Networks and Consolidating the Space

• Acquired iFilm for $49 MM

• Acquired Intermix / MySpace for $580MM

• Acquired IGN for $650 MM and Scout for $170MM

• Acquired iVillage for $592MM

• Promoting new series on YouTube

• Acquired Lightningcast for online video ad insertion technology

• Licensing content through BitTorrent and Guba (social network)

Social Networks Generate Value for Traditional Content Owners

Social Networks Generate Value for Traditional Content Owners

Attracting large audiences and creating legitimate alternative distribution channels

Offering user-generated video and driving advertising revenue

Two-way medium with high degree of interactivity, customer engagement and feedback

Provide opportunities to create derivatives of existing properties

Harness users’ creativity to identify and develop new concepts

Attracting large audiences and creating legitimate alternative distribution channels

Offering user-generated video and driving advertising revenue

Two-way medium with high degree of interactivity, customer engagement and feedback

Provide opportunities to create derivatives of existing properties

Harness users’ creativity to identify and develop new concepts

page 14

SPE Should Acquire to Address Historical Challenges in Digital Distribution

Acquisition BenefitsHistorical Challenges and Implications

• Sony faces challenges in developing differentiated technologies in-house

• Early services demonstrated the difficulty of attracting large audiences to new brands

• Success requires a significant investment in marketing and infrastructure

• Acquiring established brands and technology can be more cost efficient and faster

• Accelerate time-to-market by providing:–Differentiated technology–Traction with customers–Management with domain expertise

• Decrease cost of entry

• Gain access to new content

• Own a marketing platform to supplement SPE current online ad spend

page 15

Acquisition Targets Must Meet the Following Criteria

• Proven track record and domain expertiseStrong Management

• Service operation and design

• Tools / software development

• Consumer data usage

Differentiated Technology

• Large and growing base of user-generated contentBreadth of Complementary Content

• Sufficient traction with customers to validate interest and potential for growth

• Pay for skill not scale

Demonstrated Customer Traction

page 16

SPE Target and Competitive Landscape

Technology Capabilities

Low High

Lo

w (

< 3

mm

)H

igh

(>

3m

m)

Exi

stin

g S

ervi

ce P

enet

rati

on

Google (97.2)

Yahoo (105.5)

AOL (72.0)

YouTube (20.1)

MySpace (51.4)

Grouper* (3.0)

Brightcove (0.2)Veoh (0.1)

FOX.com (8.5)ABC.com (8.0)

MLB.com (9.3)

Facebook (7.7)

Connect (1.2)

iTunes (20.5)

CBS.com (5.4)MTV Overdrive (4.4)

(Monthly Unique Users in millions)

Source: Nielsen NetRatings. Figures as of 6/21/06.•Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded. Worldwide unique users total approximately 8 million.

Blinkx (0.01)

Metacafe (1.9)

Friendster (0.8)

AddictingClips (1.7)

iFilm (3.2)

Revver (0.1)

Dailymotion (0.4)

vidiLife (0.7)

VideoEgg (NA)

vimeo (0.4)

MovieLink (0.6)

CinemaNow (0.3)

vSocial (0.5)

Guba (0.9)

Roo Media (0.6)

page 17

Grouper Service Highlights

WatchWatch

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

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

• Ability to download content to multiple devices (iPod, PSP)

ShareShare CreateCreate

• Easy upload of user videos

• One click publishing to other sites

• Import address from MSN, Hotmail, and Yahoo to create email groups

• P2P client enables download of original, high quality files

• Add video comments

• Real-time recording and upload from web cams and mobile phones

• Proprietary client with easy-to-use editing tools

– Select video– Select photos and tracking /

panning effects– Select music

Differentiated from YouTube and Other CompetitorsDifferentiated from YouTube and Other CompetitorsCompetes with YouTubeCompetes with YouTube

page 18

Grouper Management Team

• Josh Felser, CEO & Co-founder– President & Co-founder Spinner (Sold to AOL for $320M); GM AOL’s music brands;

Business development at News Corp

• Dave Samuel, President & Co-founder– CEO and Co-founder Spinner; VP Technology AOL, MIT

• Aviv Eyal, CTO & Co-founder– CTO and Co-founder Friskit; Lead engineer Microsoft Multimedia

• Mike Sitrin, VP Revenue & Co-founder– Director Marketing and Commerce AOL, Director of Sales Spinner

• Jonathan Shambroom, VP Product– VP Product Jumpstart, Director Product: Evite (Sold to IAC), When.com (Sold to AOL),

PF.Magic (Sold to Learning Co)

page 19

Grouper Performance Against Competitors

Ease of UseCommunity

ConnectionsFeaturesQuality of Content P2P Client

TechnologyTechnology ContentContent ManagementManagement

Strength of Leadership

MonthlyUnique

Users (mm)

3.0

1.7

0.4

0.9

3.2

1.6

NA

0.1

0.1

0.7

0.4

0.5

20.1

• Strong, experienced team

• Unknown

• Unknown

• Weak team

• Strong (but captive to Viacom)

• Unknown

• Unknown

• Average

• Unknown

• Unknown

• Unknown

• Unknown

• Young, limited experience

page 20

Cross-Sony Opportunities for Grouper

• Personal Solutions Business Group is considering Grouper as a strategic partner for its eyeVi content service in Japan

• Platform could expand Connect’s service capabilities, by adding user-generated content and distributing across all device types

• Grouper technology built to support ad-based and transactional business models; can expand to become a broadband channel

• Management team has domain expertise required for user generated video and ad-based models

• Brand has demonstrated traction and strong growth potential

• Grouper has positioned itself to meet the high demand for online video advertising (supports ad insertion in both streamed and downloaded content)

• SPE ad sales team could sell ad space

Cornerstone for Digital Strategy

SPE Ad Sales Opportunities

Complementary to Other Sony Services

page 21

Grouper Management Projections

ConsiderationsConsiderations

2006 EBIT impact of $5MM appears realistic

$5MM full year EBIT investment compares to $3MM current run-rate

Doubling current burn rate due to increased staff

2008 and 2009 expected to be profitable

Management forecast for profitability level may be aggressive

2006 EBIT impact of $5MM appears realistic

$5MM full year EBIT investment compares to $3MM current run-rate

Doubling current burn rate due to increased staff

2008 and 2009 expected to be profitable

Management forecast for profitability level may be aggressive

(millions) 2006 2007 2008 2009

Operating Metrics

End of Period Uniques 16.9 33.4 49.5 69.9 Unique User Growth N.M. 97.9% 48.3% 41.1%

Financial Metrics

Revenue $1.0 $14.1 $50.0 $102.6

COGS $0.8 $5.5 $13.4 $23.5

Gross Profit $0.2 $8.5 $36.6 $79.1Gross Margin 22.9% 60.7% 73.2% 77.1%

Payroll $3.5 $6.8 $8.7 $10.5Marketing $0.2 $0.8 $2.9 $1.5G&A $1.7 $2.7 $3.5 $0.6

Total Operating Expenses $5.4 $10.3 $15.1 $21.3OpEx as % of Revenue 514.9% 73.1% 30.2% 20.7%

Operating Profit ($5.1) ($1.7) $21.5 $57.8Operating Margin N.M. N.M. 43.1% 56.4%

page 22

Grouper Actual Monthly Performance Year-to-Date

(millions) Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06

Operating Metrics

End of Period Uniques - - 0.8 4.5 7.0 6.4 Unique User Growth NM NM NM 455.7% 56.3% -8.7%

Financial Metrics

Revenue $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

COGS $0.00 $0.00 $0.00 $0.02 $0.03 $0.03

Gross Profit ($0.00) ($0.00) ($0.00) ($0.02) ($0.03) ($0.03)Gross Margin NM NM NM NM NM NM

Payroll $0.20 $0.20 $0.20 $0.20 $0.21 $0.26Marketing $0.01 $0.01 $0.01 $0.01 $0.01 $0.01G&A $0.04 $0.08 $0.07 $0.07 $0.09 $0.24

Total Operating Expenses $0.24 $0.29 $0.28 $0.28 $0.31 $0.51OpEx as % of Revenue NM NM NM NM NM NM

Operating Profit ($0.24) ($0.29) ($0.28) ($0.30) ($0.34) ($0.54)

(1)

1. May to June unique user decrease due to change in Yahoo! search engine algorithm

page 23

Risks and Mitigation

MitigationRisks

• Customer retention / increased competition • Differentiated technology provides a better user experience than competitors

• Leverage strategic partners for growth (less dependent on “fads” in user taste)

• Lack of interest in commercial content by user base

• Management projections not heavily dependent on commercial content

• Ensure SPE tailors programming for the audience

• Integration challenges • Structure incentives for acquired management• Allow new management to retain decision-making

authority

• Lack of interest by advertisers • Grouper’s first deal is in place with MTV• AOL and Google report sold-out ad inventory

page 24

Comparable Company Analysis Supports a $70-$100MM Valuation

Big FishRound of Amount Unique EV / Unique Post Money Value Based On

($ mil) Date Funding Raised Users (mm) Users Valuation EV/UU Multiple**

Facebook 4/19/2006 2 $25.0 7.7 $11.16 $71.4 - $100.0 $33.5

Friendster* 11/6/2003 1 $13.0 1.7 $31.18 $53.0 $93.5

Metacafe 7/1/2005 2 $15.0 1.9 $26.40 $42.9 - $60.0 $79.2

Brightcove 11/22/2005 2 $16.2 0.2 $220.00 $44.0 NM

YouTube 3/31/2006 2 $8.0 6.0 $4.57 $22.9 - $32.0 $13.7

BitTorrent 9/27/2005 1 $8.8 0.4 $123.13 $35.0 - $58.3 NM

Veoh Networks 4/18/2006 1 $12.5 0.1 $250.00 $25.0 NM

Median $46.7 $56.3

Implied Acquisition Valuation (at 25% Premium) $58.3 $70.4

iVillage 3/3/2006 ACQ $600.0 14.0 $42.86 $600.0 $128.6

Intermix / MySpace 7/18/2005 ACQ $580.0 17.7 $32.77 $580.0 $98.3

thePlatform 6/1/2006 ACQ $80.0 -- -- $80.0 NM

Median $580.0 $113.4

Implied Acquisition Valuation NM $113.4

Source: Funding information provided by VentureSoruce.com. Unique user data from Nielsen NetRatings and ComScore MediaMetrix.* Post money valuation for Friendster provided at $53.0 million.** Big Fish value based on EV/UU based on US unqiue users of 3.0 million.

Comparable Company Statistics

page 25

Grouper Process • Submit non-binding term sheet to Grouper• Initial feedback on status of bids• Initiate negotiations of binding terms

Grouper Process • Submit non-binding term sheet to Grouper• Initial feedback on status of bids• Initiate negotiations of binding terms

SPE Due Diligence• Analyze due diligence materials• Meet with Company• Finalize acquisition valuation

SPE Due Diligence• Analyze due diligence materials• Meet with Company• Finalize acquisition valuation

Process Timeline

Activities/WorkstepsActivities/Worksteps

TimelineTimeline

Internal Approval• Review drafts with Calkins and Carey• Present to Feingold• Present to Lynton and Hendler• Present to SCA (Wiesenthal and Kanagawa)• Tokyo Approval to Negotiate

Internal Approval• Review drafts with Calkins and Carey• Present to Feingold• Present to Lynton and Hendler• Present to SCA (Wiesenthal and Kanagawa)• Tokyo Approval to Negotiate

6/266/26 6/276/27 6/286/28 6/296/29 6/306/30 7/37/3 7/47/4 7/57/5 7/67/6 7/77/7 7/107/10 7/117/11 7/127/12 7/137/13 7/147/14 7/177/17 7/187/18 7/197/19 7/207/20 7/217/21

CONFIDENTIAL

DETAILED ANALYSIS:Grouper Detail

page 27

Grouper Features As Compared to Competitors

Grouper

2.2 Y ouTube

Addicting

Clips ifilm Metacafe Revver Veoh Videoegg Vidilife

Tech & ScalabilityP2P client Cost-efficient scalability for all downloads TV & HD-capable client for sharing Affiliate Network (enable turn key co-branding)

WatchVideo player size 500 x 375 450 x 340 430 x 320 405 x 330 500 x 310 480 x 390 540 x 405 variable 360 x 270Video wall (75% click thru) Download Video to Devices (iPod, PSP) Flash player, Embed Video Video Groups Client now, Web: July Subscriptions Favorites / Playlists July My Channel July Porn-Free n/a

ShareParallel (faster) web upload Batch upload (fastest) from client Cell phone email sharing (from phone) Aug Cell phone browser sharing Sep

CreateWebcam Real-time recording (no install req'd) Video creation tools - client & webcam Music video / lip-sync creation tool

Innovative FeaturesSmart address book (app) 1-click publishing Webcam Video Comments Subscription Push to desktop Aug Geographic Mashup Sep

page 28

Grouper Features As Compared to Competitors

Grouper

2.2 Vimeo vSocial Guba

Y ahoo

video

Google

video RooTV

MySpace

Video Blinkx

Tech & ScalabilityP2P client Cost-efficient scalability for all downloads TV & HD-capable client for sharing Affiliate Network (enable turn key co-branding)

WatchVideo player size 500 x 375 400 x 300 320 x 240 600 x 445 variable variable variable variable variableVideo wall (75% click thru) Download Video to Devices (iPod, PSP) Flash player, Embed Video Video Groups Client now, Web: July Subscriptions Favorites / Playlists July My Channel July Porn-Free

ShareParallel (faster) web upload Batch upload (fastest) from client Cell phone email sharing (from phone) Aug Cell phone browser sharing Sep

CreateWebcam Real-time recording (no install req'd) Video creation tools - client & webcam Music video / lip-sync creation tool

Innovative FeaturesSmart address book (app) 1-click publishing Webcam Video Comments Subscription Push to desktop Aug Geographic Mashup Sep

page 29

Grouper Traffic Statistics

page 30

20%

40%

60%

80%

100%

Week of

4/9

Week of

4/16

Week of

4/23

Week of

4/30

Week of

5/7

Week of

5/14

Week of

5/21

Week of

5/28

Week of

6/4

Week of

6/11

% of Visitors from Bookmarks or directly referred URLs% of Visitors from Yahoo

Grouper Source of User Traffic

Note: Source of traffic reflects only Grouper.com traffic and excludes embedded uniques. When looking at total Grouper traffic Yahoo! sources 34% and 7% the weeks of 4/9 and 6/11, respectively.

• There has been a recent dip in Grouper.com traffic, which is primarily the result of overloaded servers and a Yahoo! search engine algorithm change

• The change by Yahoo!, though negative in the short term, will not have any lasting affect • It was never intended that Grouper would rely on any single third party for a significant portion of its

traffic and the Company believes the reduction of Yahoo!’s significance was inevitable

CONFIDENTIAL

DETAILED ANALYSIS:Trends in Digital Distribution

page 32

Broadband Access and Content Availability Are Driving Growth in Digital Video

Source: SG Cowen Research dated June 7, 2005, Morgan Stanley Broadband Update, April 2005

20.125.0

29.433.5 36.6 38.8

13.1

17.6

21.6

25.428.5

30.8

2004 2005 2006 2007 2008 2009

Cable DSL

30% 38% 46% 52% 57% 61%

33.2

42.6

51.0

58.9

69.665.1

1998 2005

Broadband-enabled U.S. Households (MM) Video Downloads (BN)

0.28

18.0

page 33

Downloadable Video Should Drive Growth in Filmed Entertainment

$0

$5

$10

$15

$20

$25

$30

1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995

Rev

enu

e ($

Bill

ion

s)

Pay TV/ Subscription VHS/ Rental DVD/ Sell thru

Evolution of Content Distribution & Revenue Growth of Filmed Entertainment Industry in the US*

New consumer benefits

Introduction drivers

Movies without advertising

Consumer controlled viewing

Ownership, high quality, additional features

New cable network entrants

Consumer electronics manufacturers

Warner Home Video & CE industry

100%=$4Bn

100%=$18Bn

Complete library, convenience & control

Technology Companies

IP Delivery

$37Bn

$47Bn

2004 2008e

$2Bn

$9Bn

Video/DVD

7%TV41%

Box Office52%

Video/DVD41%

TV32%

Box Office27%

Source: Entertainment Industry Economics Vogel 4th ed., PricewaterhouseCoopers Global Entertainment & Media Outlook 2004-2008.

• Models with unique consumer benefits have been consistently adopted by Hollywood• Adoption has often been led by outside entrants and new industry players• Double digit annual growth has doubled the market approximately every 7 years

1995

1980

* Includes revenue generated by films from major studios across content distribution windows – box office, video (rental, sell thru), television (ppv, pay, network, made for TV), and foreign revenues for each

page 34

Digital Video Delivery Represents an Opportunity to Reach a Younger Demographic

Source: Pew Internet & American Life Project, December 2005

27%

22%

14%

8% 8%

Gen Y Gen X Trailing Boomers Leading Boomers Matures

Percent of Each Age Group Downloading Video

(18-28) (29-40) (41-50) (51-59) (60-69)

page 35

SPE Can Best Reach Younger Demographics with Models that Include Two-way Interactivity and Social Networking

Source: Pew Internet & American Life Project, December 2005

66%

52%

38%42%

33%

41%

30%

20% 21%19%

Gen Y Gen X Trailing Boomers Leading Boomers Matures

Percent of Each Age Group Participating in Online Activity

(18-28) (29-40) (41-50) (51-59) (60-69)

Instant Message Read a Blog

page 36

Changein Hours %

1990 2000 2005 2006 2007 2008 2009 ('05-'09) Change

Box Office 12 12 12 12 12 11 11 (1) (8.3%)

Interactive TV/Wireless Content - - 15 19 26 32 42 27 180.0%

Cable & Satellite TV 674 869 871 877 891 881 12 1.4%Broadcast TV 793 679 684 678 675 681 2 0.3%

Consumer Internet 1 104 183 190 195 200 203 20 10.9%Home Video 38 43 76 84 91 95 99 23 30.3%Video Games 12 64 78 82 86 93 96 18 23.1%

Radio 1,135 942 978 975 974 984 984 6 0.6%Recorded Music 235 258 179 175 175 169 165 (14) (7.8%)Daily Newspapers 175 201 183 179 175 170 165 (18) (9.8%)Consumer Magazine 90 135 124 122 122 122 121 (3) (2.4%)Consumer Books 95 107 106 106 106 106 106 0 0.0%

TOTAL MEDIA CONSUMPTION 3,263 3,333 3,482 3,499 3,517 3,548 3,554 72 2.1%

1,470

Consumer Time Shifts in MediaHours Per Person Per Year

Consumers are Shifting Time Away from Traditional Media Toward Online and Interactive Media

Note: Consumer Internet includes both dial-up and broadband

Source: Veronis Suhler Stevenson, Val Morgan, Harris Interactive, L.E.K. Analysis, Jupiter analyst interview, Corporate Development Analysis

• Cable and satellite TV hours rise slightly due to increase in channels, VOD and PPV services• Consumer time spent on broadcast TV may flatten with emerging technologies (a la TiVo)• But the real growth is in Interactive/wireless, home video, internet and games

page 37

New Distribution Models are Shifting Consumer Consumption toward “Long-Tail” Titles

page 38

Studio Content May not Be as Dominant in Emerging Channels

Sources: Nielsen Videoscan data, Wired 2.0, Industry Interviews, select store visits across Los Angeles area

Product Mix of Units

85%70%

30%15%

Bookstore Amazon

Books

98%78%

22%2%

Music Stores Digital

Music

80%

95%

20%5%

"Mart" Retailers Online Retailers

Home Video

Surveyed 6 B&N and Borders stores Calculated number of SKU’s for a sample of fiction titles

Reviewed 8 to 12 stacks Counted the number of separate SKU’s Determined which titles were major (including sub-labels)

Amazon figures are units sold in 2005 (source Wired 2.0 and Bain consumer study)

Publishing analysts from First Research conclude that there is a strong correlation between SKU’s and units sold

Methodology

Niche (All Others)

Major (RH, TW, Simon, HC, Pearson)

Niche (All Others)

Major (Uni, War, Sony/BMG, EMI)

Niche (All Others)

Major (7 Majors)

Surveyed 5 Borders and Best Buy stores Calculated number of SKU’s for a sample of new release and catalog

titles Reviewed 6 to10 stacks Counted the number of separate SKU’s Determined which titles were major (including sub-labels)

Digital figures are units sold in 2005 (source Wired 2.0 and Bain consumer study)

Units sold figures for music via traditional stores is being researched through Nielsen Musicscan data

Surveyed 7 WalMart, Best Buy and Target stores Calculated number of SKU’s for a sample of new release/catalog titles

Reviewed 12 to15 racks Counted the number of separate SKU’s Backed-up SKU findings with units sold data from Nielsen

VideoScan Digital figures are units sold in 2005 via Amazon & other online retailers

page 39

Media spending does not yetreflect consumption

Advertising dollars are shifting online to address the current gap

2003-’05 US Advertising CAGR

Contribution to Growth

Television:

TV Stations 1.5% 2%

Cable Networks 15.6% 19%

Cable MSOs 8.1% 3%

CBS Net, FOX Net 5.8% 9%

Total Television 7.0% 34%

Magazines 8.9% 5%

Newspapers 3.4% 11%

Radio 0.2% 0%

Outdoor 7.1% 5%

Online 50.4% 45%

Total 8.4% 100%

SUMMARY

Traditional Media 5.1% 55%

Online 50.4% 45%

Total 8.4% 100%

Ad Market is Changing Significantly as Ad Dollars Follow Consumers and Two-way Infrastructure Becomes Available

Network TV20%

Cable TV25%

Radio27%

Other11%

Magazines4%

Newspaper5%

Games2%

Internet6%

Network TV24%

Cable TV19%

Radio29%

Newspaper6%

Magazines4%

Other14%

Internet2%

Games2%

1999

2005

page 40

Online Advertising is Forecast to Reach 25% of $115BN Domestic Market

36.6 40.0 39.6 43.2 44.0 47.2 48.2 52.2 53.3

14.214.7 16.3

18.9 21.724.3 26.9

29.733.4

7.16.0 7.3

9.612.6

16.120.0

24.128.2

$0

$20

$40

$60

$80

$100

$120

$140

2001 2002 2003 2004 2005 2006 2007 2008 2009

Broadcast Netw orks Cable Netw orks Online

US

$ (

Bil

lio

ns

)

Overall ’05 – ’09 Projected CAGR: 10.1%

Broadcast ’05 – ’09 Projected CAGR: 4.9%

Cable/Sat ’05 – ’09 Projected CAGR: 11.4%

Online ’05 – ’09 Projected CAGR: 22.3%

TV

& O

nli

ne

Ad

ve

rtis

ing

Sp

en

d

Source: Veronis Suhler, 2005 Note: Cable/satellite growth expected to be driven by increasing audience share of prime time ratings, ability to target within specific demographic groups, improved sales system; broadcast growth expected to be driven by sustained ratings and ad rates, continued appeal as optimal means to reach large audiences

Online %: 12% 10% 12% 13% 16% 18% 21% 23% 25%

57.9 60.7 63.271.7

78.3

87.695.1

106.0114.9

CONFIDENTIAL

DETAILED ANALYSIS:Digital Video Service Categorization

page 42

Digital Video Offerings Can be Divided into Four Main Categories

Promotional Channel StoreSocial

Network

• Predominantly short video clips that promote the site owner’s content, merchandise, and brand


• Includes on-demand videos available in programmed micro-channels, on a show-by-show basis, or in a traditional channel lineup

• Business model primarily includes advertising, with some upsell to subscription



• Generally consists of short video clips from users of the service

• May also provide tools for creating video clips or interacting with video content

• Primarily ad-based business models

page 43

Key Attributes of Digital Video Services

Content AccessibilityContent Accessibility1

Low Medium High

Content ValueContent Value2

Range of Content ProvidersRange of Content Providers3

Content BreadthContent Breadth4

Degree of InteractivityDegree of Interactivity5

Connected Portable Anytime, Anywhere

Promotional User-Generated Produced

Company Owned Aggregated

Single Genre Multi Genre

On-Demand Ancillary(e.g., blogs and ratings)

Real-Time(e.g., chat, story navigation)

Business Model(Cost to Consumer)Business Model(Cost to Consumer)

6Free Ad-Based Pay

page 44

Promotional Video Websites

OverviewOverview AttributesAttributes

• Predominantly consist of short video clips to promote site owner’s content, merchandise, and brand


Content BreadthContent Breadth4 Single Genre Multi Genre

Low Medium High

Content AccessibilityContent Accessibility1 Connected Portable Anytime, Anywhere

Content ValueContent Value2 Promotional User-Generated Produced

Range of Content ProvidersRange of Content Providers

3 Company Owned Aggregated

Degree of InteractivityDegree of Interactivity5 On-Demand Ancillary

(e.g., blogs and ratings)

Real-Time(e.g., chat, story

navigation)


6 Free Ad-Based Pay

page 45


Broadband Video Channels


Low Medium High








navigation)

• Includes on-demand videos available in programmed micro-channels, on a show-by-show basis, or in a traditional channel lineup

• Business model primarily includes advertising, with upsell to subscription


6 Free Ad-Based Pay

page 46

Video Store (Content Aggregation)





Low Medium High








navigation)


6 Free Ad-Based Pay

page 47

Social Network (User-generated Video Sites)


• Consists of short video clips from users of the service

• May also provide tools for creating video clips or interacting with video content

• Primarily ad-based business models


Low Medium High








navigation)


6 Free Ad-Based Pay

Documents

CONFIDENTIAL Grouper Acquisition Opportunity July 2006