Digital Services & Distribution Update

July 8, 2008

Confidential

[DRAFT]

2

[DRAFT]Executive Summary

• Demand for all forms of digital content continues to increase

– Increasing number of DST / VOD partners, platforms, and transactions

– Streaming of ad-supported content, including long-form, is on the rise

– Online advertising gaining traction

• Our Licensing and Mobile businesses are strong and highly profitable

– Forecasting $62MM of revenue in FY09

– 64% year-over-year growth

– Expected to contribute $56MM to SPE on a net basis

• Our digital networks are being re-focused to better capitalize on growth opportunities in ad-supported content

– Shifting emphasis from the best technology to the best content

– Better leveraging our entertainment assets and strengths

– Streamlining the organization and improving operational efficiencies

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[DRAFT]

Digital Licensing

4

[DRAFT]Market Update

The digital consumption of movies and TV continues to grow and gain consumer acceptance

• iTunes successfully launched movies on VOD (Jan) and DST (May)

• Averaging upwards of 70k transactions per day

• Increasing consumption of SVOD service

• Roku box sold out at retail

• Significant increase in viewership

• Verizon FiOS has 1.3MM subscribers

• Increasing download speeds to 50 Mbps

• Largest digital VOD partner (outperforms iTunes by 2x)

• Launching soon (7/18)

• [Speak to date about X-Box launch]

5

[DRAFT]Licensing Philosophy

• Create new distribution outlets for SPE content across platforms and devices

– Build a broad distribution network with all major digital players

– Manage all business models: EST, VOD, SVOD

– Drive incremental, high-margin revenues for all SPE product

• Develop new markets and business models through innovation

– Identify and execute on new content delivery methods (e.g., bundling w/ PSP, VAIO)

– Create new features to enhance the experience and grow sales (e.g., digital copy)

– Find new ways to reach consumers (e.g., virtual theaters in Gaia)

• Maximize value of assets through merchandising, operations, and windowing

– Work directly with partners to promote SPE content and secure valuable real estate

– Industry leading digital operations group for delivery and partner management

– Close coordination on windowing strategy with traditional TV distribution team

6

[DRAFT]SPT Performance

• We have made more content available across more partners than any other studio

– Over 600 movie titles available to-date (1,000 by end of year)

– All next day TV and broadest library TV offering in the market

– 21 online and mobile licensing partners…and growing

• We are out-merchandising the competition

– Securing featured placement and promotional inventory on all leading sites

– Running weekly programs with each of our digital partners

– Generating disproportionate market share relative to DVD share

• Forecasting $42MM in licensing revenues in FY09

– iTunes currently generating $300k per week…and growing

– Netflix forecasted to generate $6MM in FY09 (pre-renewal)

Content Partners

7

[DRAFT]

Mobile Entertainment

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[DRAFT]Market Update

• Large and expanding domestic subscriber base

– Currently 230MM subs (compared to 246MM TV viewers ages 12+)

• Mobile video adoption increasing with significant growth potential

– Expected to increase from 9MM domestic subs today to 24MM by 2010

• Mobile game market continues to expand

– Monthly downloads estimated to hit 134MM in next three years

– Domestic revenues forecasted to increase 130% to $1.7BN by 2011

• Handsets are rapidly evolving into entertainment devices

– Increasing memory (16GB = 40 hours of video)

– Improved experience (3” screens, video out to TV, stereo Bluetooth

– Better access to content (full internet browser w/ Wi-Fi)

Source: Gartner, 2007

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[DRAFT]Mobile Entertainment Philosophy

PersonalizationPersonalization

Mobile GamesMobile Games

SMSInteractivity

SMSInteractivity

Mobile Video

Mobile Video

MobileApplications

MobileApplications

Full Suite of Mobile Content Products

Comprehensive Marketing and Distribution Footprint

CarriersCarriers

HandsetsHandsets

AggregatorsAggregators

Direct to ConsumerDirect to

Consumer

+

10

[DRAFT]SPT Performance

• We are now the #5 mobile game publisher in the US

– SPE leads all studios; only pure plays with 2x the product are ahead of us

– Won “Game of the Year” each of the last 2 years (Ratchet & Clank and God of War)

• Expanding video service to become a true Mobile Entertainment company

– Launched video on all video-capable US carriers

– PIX selected as 1 of only 10 channels on AT&T’s MediaFLO service

• Launching new services and creating new mobile business models

– Continues global memory card leadership position

– Sprint PPV is our 3rd largest VOD customer (users avg 72 mins / day)

– 1st to launch an off-deck ad-supported video service (Minisodes on Sprint)

• Forecasting revenues of $19.6MM in FY09

– Includes nearly $8MM in global memory cards

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[DRAFT]

Digital Video Networks

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[DRAFT]Overview

• There continues to be significant opportunity for digital networks, despite recent challenges

– Demand for online content, including long form, is strong and growing

– We continue to execute against distribution philosophy

– Past internal and external issues have resulted in a delay to the business

• Success requires a shift from Crackle as a technology company to an online entertainment network

– Producing higher quality content with the stars of today and tomorrow

– Programming as a true network, not just a website

– Providing a deeper, richer community experience with the best Web 2.0 features

• Planning to re-organize Crackle to better facilitate this transition

– Consolidating all functions under one roof and streamlining the organization

– Building on the past and current success of the existing digital group in Culver City

– Further integrating with the overall studio

13

[DRAFT]Market Update

• By every measure, consumption of online video is growing

– 130MM streamers generated 11BN streams in April (up 30% YOY)

– Average time spent per month increased from 150 to 227 minutes over past 12 months

• Long-form content has seen the greatest growth, particularly among target demo

– 39% of video viewers (A18-25) watch TV shows regularly online; 25% watch movies

– Hulu generated 87MM streams in May

• Increased investment in original short-form content

– More studios are producing scripted series for the web (e.g., ABC’s Stage 9)

– Quality of talent and production values are rising (e.g., Seth McFarland, Afterworld)

• While search dominates, online video advertising gaining traction

– Forecasted to exceed $7BN by 2012

– CPMs and sell-out rates continue to increase

– Lack of standards across sites presents challenges to major advertisers

Sources: comScore, 2008; Frank M. Magid Associates, 2008; Forrester Research, 2007

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[DRAFT]Distribution Philosophy

Partners

• Crackle is the hub of our distribution network

• Digital originals debut on Crackle

• Deeper, richer & more robust user experience

– Community features

– Interaction w/ content producers

– Search and discovery tools

• We own premium digital shelf space and ad inventory on all major distribution outlets

• We program and control our content across partners and platforms

• We syndicate the Crackle environment and, wherever possible, the Crackle player

• Over 40 online and mobile implementations

Vault

Digital Networks

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[DRAFT]Crackle Traffic

39.8

17.8

22.2

31.8

5.7

20.4

0

5

10

15

20

25

30

35

40

45

Apr '08 May '08 June '08

Budget Actual

• Writer’s strike delayed production of new content

• Prolonged departure of founders affected mgmt & operations

• UMG lawsuit (now settled) prevented full integration with SPE

Past Challenges

Domestic Streams (MM)

($1.7) ($1.9)

($6.7)

($8)

($7)

($6)

($5)

($4)

($3)

($2)

($1)

$0

Budget YTD Actual YTD Full Year

EBIT ($MM)

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[DRAFT]Crackle Traffic [ALT VERSION]

22.231.8

39.849.0

64.1

79.875.5

100.8107.8

98.7

87.291.9

33.1

47.156.9

29.220.6 17.1 16.0 13.8 14.3

8.0 5.7

17.8

43.236.9

20.4

0

20

40

60

80

100

120

Apr '07 Jun '07 Sep '07 Nov '07 Jan '07 Mar '07 May '08 Jul '08 Sep '08 Nov '08 Jan '09 Mar '09

Budget Actual

• Writer’s strike delayed production of new content

• Prolonged departure of founders affected mgmt & operations

• UMG lawsuit (now settled) prevented full integration with SPE

Past Challenges

Domestic Streams (MM)

($1.7) ($1.9)

($6.7)

($8)

($7)

($6)

($5)

($4)

($3)

($2)

($1)

$0

Budget YTD Actual YTD Full Year

EBIT ($MM)

Crackle re-launch FY09 Budget/Actuals

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[DRAFT]The Crackle Network

Crackle YouTube MySpace Hulu Others Total

Crackle * 10,177 - - - 6,149 16,326

C-Spot 416 1,211 151 49 11 1,838

Minisodes 1,053 216 269 24 5 1,567

SPT Vault - - - 670 59 730

PIX June Sept -- July -- --

Total 11,646 1,427 420 743 6,224 20,461

June ’08 Streams (000s)

29% monthly CAGR since March

* Total domestic onsite Crackle streams (11,646) less C-Spot (416) and Minisodes (1,053) on Crackle

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[DRAFT]Evolution of the Crackle Service

Current Future

• Two separation locations with overlapping functions

• A single, streamlined organization in Culver City that is better integrated with the overall studio

• High volume of low-quality content with a large amount of UCG

• Fewer, higher-quality original scripted series with no UGC

• Large number of channel brands across many genres

• Focus on three key genres that are in-line with studio’s strengths

• Extensive feature set and complex user interface / navigation

• Simplified, show-focused search and discovery tools with the best, most relevant Web 2.0 features

• Technology-based website • An online entertainment networkFocus

Operations

Content

Programming

User Interface

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[DRAFT]Reorganization Overview

Goal of reorganization is to improve operational performance

• Create a centralized management structure and reporting lines

• Unify all headcount under one roof in Culver City

• Better leverage studio resources (talent, marketing, ad sales, etc)

• Eliminate duplicate positions

• Outsource non-core technology

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[DRAFT]Reorganization Process

• Targeting internal announcement date of July [xx]

• Transitioning all Crackle positions to Culver City

– Reduce overall digital headcount by 9 people

– Personnel critical to the transition offered stay bonuses

• Technology to be transitioned over next 2-3 months

– Focus on keeping site fully operational during transition

– Targeting to complete transition to Culver City by October

– Planning to outsource non-core technology services to Connect [name]

• Exploring options for exiting Sausalito office lease

• New HC to ramp up over the next 4 months and be added to expanded space in Building J at the Culver Studios

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[DRAFT]Headcount Variance (preliminary)

FY09 Revised Variance

Executive 6 4 (2)

Content 9 7 (2)

Licensing & Distribution 9 9 0

Programming 10 9 (1)

Mobile 14 14 0

Engineering & Operations 29 25 (4)

Marketing & Product 6 6 0

Partnerships & Ad Ops 3 3 0

Total 86 77 (9)

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[DRAFT]4 Tier Content Strategy

Library

Stars of Tomorrow

Stars of Today

Blockbuster• Angel of Death• Boom Studios• Quentin Tarantino

• High production value, talent-driven vehicles with significant revenues in ancillary markets

• Original series for studio-level talent (actors, producers)

• Dating Brad Garrett• Jason Alexander• Barry Sonnenfeld

• Shows from online “stars” witha proven audience

• Leverage SPT’s deep TV and film assets

• Owen Benjamin• Michael Jai White• Sebastian Foucan

• Men-in-Black• Ghostbusters• 3 Stooges

DescriptionTier Examples

Building off a base of existing successful shows (e.g., Buried Alive)

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[DRAFT]New Media Blockbuster Model (Angel of Death)

Planning to replicate model 4-6 times per year

Release Plan Ultimate

• Premiering on Crackle with an exclusive first run

• Wide ad-supported digital distribution across partners and platforms

• DVD and DST release

• Exploiting domestic TV window

• International TV and digital distribution

($000s) Base Case

RevenuesDomestic Ads / Sponsorship $142Domestic EST $205Domestic TV $50Domestic DVD $801International Digital $200International TV $400

Gross Revenue $1,798

Production Costs ($995)Distribution Costs ($381)Marketing Costs ($75)

Profit $347

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[DRAFT]Programming Strategy

• Programming as a true network, not just a website

– 4 seasons showcasing the best content

– Original series in three genres (comedy, action, and reality)

• New episodes debut daily, giving viewers multiple reasons to come back

– 7 new episodes per day

– New episodes from different shows each day (M-F)

– Shows marketed by specific day of the week (e.g., Video Village on Fridays)

• At least one blockbuster per season

• Premium content (TV and movies) programmed specifically for theCrackle audience

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[DRAFT]Crackle Summer ’08 Season (6/16/08)

Monday Tuesday Wednesday Thursday Friday Weekends

ComedyThe Rascal That Guy

Owen Benjamin Presents

The Roadents

Comedy Gumbo

Movie #1Script Cops Mr. Deity

30 Second Bunny

Purple Onion OPEN

Action OPEN Rescue Me Devil’s Trade 30 Days The Cell

Reality

Mr. Justice & Powerful Girl (Brad Garrett Sub Page)

Horowitz Ep 1

____________

Everlast Video (7/7)

Take Away Shows Jace Hall Horowitz Ep 2

Movie #2

Penn Says Penn Says Penn Says Penn Says Penn Says

Rocketboom Rocketboom Rocketboom Rocketboom Rocketboom

Movies Men-in-Black, Fifth Element, Ghostbusters, Jerry Maguire, Underworld Evolution

Already Posted Anchor Show

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[DRAFT]Crackle Winter ’09 Season (12/15/08)

Monday Tuesday Wednesday Thursday Friday Weekends

ComedyJason

AlexanderThe

Groundlings

Owen Benjamin Presents

Star-ving: David

FaustinoVideo Village

Movie #1

Action Afterworld Action Theater Buried AliveAngel of Death

Cell 2

Reality

Creator’s Show

Esquire’s Ten Things You

Don’t …

Inside Sony Pictures

Anytime w/ Bob Kushell

American Dreamers

Movie #2Penn Says Penn Says Penn Says Penn Says Penn Says

Rocketboom Rocketboom Rocketboom Rocketboom Rocketboom

Esquire Joke …Woman

Esquire Joke …Woman

Esquire Joke …Woman

Esquire Joke …Woman

Esquire Joke …Woman

Movies (PIX) Go, Seven Years in Tibet, My Best Friend’s Wedding, The Quick and the Dead, Donnie Brasco

TV Married with Children, News Radio, Party of Five, The Animated Spider-Man, The Tick

Anchor Show

27

[DRAFT]Crackle 4.0

• Show focused discovery (highlight content that appeals to core demo)

• Incorporates additional ad inventory

Continuous UI improvements with the best Web 2.0 features

28

[DRAFT]Integration with SPE

• Live streaming of premieres (started w/ Prom Night)

• Streaming HD trailers (Columbia and others)

• Producing / programming podcasts

• MPG committed to spending $2MM over next 16-18 months on Crackle

Crackle works closely with the studio divisions to promote titles to SPE’s core demo