CONFIDENTIAL

Key Trends, Issues and Opportunities for SPE’s Mid-Range Plan

August 27, 2010

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Entertainment Industry Megatrends (1 of 2)

• In the next five years, digital technologies will accelerate as means of accessing all forms of entertainment and media

– Rapid expansion in broadband, worldwide broadband households are projected to increase at a 7% CAGR from 487.2MM in 2009 to 677.1MM in 2014*

– Proliferation of technologies for viewing video digitally

• Worldwide 3G-enabled smartphone shipments are expected to grow at a 50% CAGR from 131MM units in 2009 to 656MM units in 2013**

• The worldwide installed base for TV game consoles is expected to grow at a 16% CAGR from 128.4MM in 2009 to 264.8MM in 2014*

• STAT ON INTERNET CONNECTED TVS (NOT IPTV)

Changing Consumption

Patterns

Accelerating Pace of Digital

Access

• Increasing consumption of filmed entertainment

– B.O. admissions and ticket prices grew through 2009; future revenue growth expected to be primarily from ticket price increases, including premium for 3D

– HE total transactions were up through 2009 as customers adopted new business models and accessed content through new platforms

• However, lower priced rental models have emerged to capture much of the increase in demand

– Kiosk and subscription rentals are projected to continue to grow, accounting for 52% of the US consumer rental spending in 2013***

• Global video piracy is still strong and is expected to increase, driven in part by rising broadband penetration

Source: * ScreenDigest

** Morgan Stanley, "The Mobile Internet Report," December 15, 2009

*** SPE Home Entertainment

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Entertainment Industry Megatrends (2 of 2)

• Physical retailers are converging with digital offerings (Wal-mart/Vudu, Best-Buy/CinemaNow, Amazon, Blockbuster/Movielink)

– Digital value models differ signficantly from physical, yet retailers are attempting to blend the two, squeezing the studio’s for margin

• Pure “rentailers” like Blockbuster are facing bankruptcy and studios are losing shelf space

Emerging Markets

Retail Partners

• Emerging markets will see the fastest growth in media spend, but cannot be handled with a uniform approach

– Spending on M&E: Latin America 8.8%, Asia Pacific 6.4% CAGR (’10-’14) vs. North America 3.9% and Europe/Middle East 4.6%

– Not all markets work well for media: China’s media spend is forecast to grow at 12%, but piracy concerns, quotas, and poor retention for Western content results in limited profit opportunity

– India, by contrast, is showing rapid growth, including TV subscription revenue forecast to grow at 12.3% CAGR through 2014

Source: * PricewaterhouseCoopers, Global entertainment and media outlook: 2010-2014

** ScreenDigest

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Impact on Entertainment Economics and Industry Responses (1 of 2)

• Declining home entertainment market driven by shift from higher-margin sell-through to lower margin kiosk and subscription rental

– New release sell-through box office factor is 39% below 2006 peak

– Rental transactions are roughly flat, but margins down with shift to kiosk and subscription

– Catalog revenues are declining at a concerning rate

Home Entertainment – Experimentation w/ new models

Home Entertainment –

Impact on Economics

• Studios seek to sustain physical where possible by emphasizing higher-margin Blu-ray and using superior functionality (including 3D) and bundles (BD/DVD) as drivers

• Studios are emphasizing higher margins within emerging models

– Experimenting with windowing strategies, including day-and-date VOD and early windows

– Limiting impact of lower margin offerings, including subscription, by delaying window

Continued Importance of

Physical Revenues

• Despite higher percentage growth in digital revenues, traditional/physical revenue streams will remain significantly larger than digital revenues for the next five years

WW HOME ENTERTAINMENT CONSUMER SPEND($ in billions)

2009 % Mix 2013 % Mix 09-'13 CAGR

Physical $49.6 94% $49.4 86% -0.1%Digital $3.1 6% $7.7 14% 25.9%

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Impact on Entertainment Economics and Industry Responses (2 of 2)

TV Revenues

Film Production

• 3rd party film financing sources are demanding improved economics under attractive terms, less capital is available

• Franchises remain critical drivers of studio profits and must be maximized across all revenue streams

• Studios are increasingly focused on tight cost management. However talent costs, production budgets, and marketing have not dropped sufficiently

Networks• Network revenues are expected to see continued growth

– Subscriber revenue has proven recession-proof– Key ad markets are rebounding

• Competition is increasing to roll-out channels worldwide, but numerous opportunities still exist to launch new networks

Distribution• New digital players in the U.S. (e.g., Hulu, Netflix) are acquiring content in the

premium subscription window, creating an additional customer for SPE• Broadcast and cable partners are seeking expanded digital and cross-platform

rights to remain competitive with emerging competitors

Production• U.S. demand for dramas (procedurals) and comedies is on the rise;

non-scripted is still in-demand but only a few series break-out• International production is rapidly consolidating but opportunities still remain

in key markets (UK, India)

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SPE-specific Issues and Initiatives (1 of 2)

• Pursue opportunities to generate cash with a goal of becoming cash flow positive

• Increase margins and overall operating income to exceed $500 mil in FY13 and FY14

Film Economics

Overall Economics

• Improve economics from release slate

– Secure and fully exploit franchise films

– Continue to reduce talent costs

– Emphasize films with international potential

Home Entertainment

• Experiment with new release windows

• Emphasize higher-margin models, including continued efforts to grow the electronic sell-through model

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Networks• Continue to invest in television networks internationally, including channels in India • Continue to invest in U.S. channels and increase U.S. channels contribution

Production• Increase television production presence in highly strategic markets including UK and expand to emerging territories• Expand number of television shows in syndication in the U.S.

Distribution• Expand SPT's distribution presence in selected emerging markets (Middle East, Africa, Hungary, Central and Easter Europe) and key

markets (Netherlands and Scandanavia)• Capitalize on new distributors, complete direct-to-video deal with Netflix

SPE-specific Issues and Initiatives (2 of 2)

Additional Growth

Opportunities

Television

• Pursue growth opportunities in 3D across entire business (theatrical releases, Blu-ray releases, television networks, and technology)

• Leverage Sony United collaboration opportunities

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Opportunities for Sony to Facilitate SPE Growth

• Launch a robust content service across all Sony devices

– License existing SPE content to benefit devices

– Provide a platform for launching new film and TV content

• Ensure Sony hardware supports digital rights locker models, including Ultraviolet that will help grow higher margin EST model

• Include HDMI cables with all devices to support digitally secure offerings in earlier windows (e.g. premium home theater)

• Continued commitment of capital to enable ongoing investment in international networks, a key driver of the business' growth