Executive Summary

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Page 1

N O R T H S T A RE N T E R T A I N M E N T

NStar Entertainment (“NStar” or the “Company”), a feature film distribution company, is seeking an equity investment of $35 million to fund the launch and the first five operating years of an integrated entertainment company focusing on the multibillion-dollar urban film market. NStar brings together a top-flight management team to execute a new, highly-profitable distribution model that provides a greater ROI on urban-themed feature films than the traditional studio movie system. The required funds will be used to fund as-needed procurement of services from a top-notch theatrical distribution company; acquire services from an urban research and marketing firm; and acquire, co-finance, produce and distribute a slate of 16 films.

It is common industry knowledge that feature film distribution is where the real money in the filmed entertainment industry is made. Distribution companies make the lion’s share of the money when a movie is produced and released. Its payoff is highest in the “food chain.” This sector is where NStar intends to make its name — and money for its investors.

NStar represents a strategic advancement on the distribution model for such urban filmed entertainment (theatrical, DVD, Pay-TV/cable). Investors will have a lower downside risk with a higher upside potential than with the traditional Hollywood studio model. That model (with its higher overhead costs) pressures studios to produce and distribute large-budget movies, while making them less profitable on smaller or niche films, particularly on those with urban themes. NStar will be able to reduce its costs (compared to major studio films) at several key points in the film development process. By spending less to produce and market its films, then releasing them in the top urban markets that represent the lion’s share of urban box office dollars, the break-even point where each film becomes profitable is lower. This is where NStar has a clear advantage.

The urban film market provides a great investment opportunity. Since the early 1990’s, there has been a steady wave of low to moderately budgeted urban films which have turned a solid profit, due to very strong support from the African American market and the “cross-over” of these films to Hispanic and mainstream audiences.

The success of Tyler Perry is the most obvious example. His 2009 film, Madea Goes to Jail, earned $41 million and 34% of the weekend movie-going audience (according to Exhibitor Relations) at the box office during its opening weekend1, and held off America’s mainstream teen idols (The Jonas Brothers: The 3D Concert Experience) in its second week.2

Perry (and the money he has made) has proven to the film industry that there is a hungry, neglected audience for Black-themed films. Clearly, this audience’s needs and desires had not been met in the same way by urban films that came through the traditional Hollywood system. The reason for his success is that Tyler Perry knows his audience inside and out — and he delivers what they want — a mixture of comedy, faith and consciousness. His independent films have multi-generational and across-class appeal, particularly to Black women.

Executive SummaryNStar brings together a

top-flight management

team to execute a

new, highly-profitable

distribution model

that provides a greater

ROI on urban-themed

feature films than

the traditional studio

movie system.

Page 2

N O R T H S T A RE N T E R T A I N M E N T

The hundreds of millions of box office dollars generated by Perry films demonstrate that there are opportunities that NStar can leverage. As Perry knows his audience, NStar will know ours just as well, through our research-based content development process. At the same time because of our production team, we will be able to offer more upscale writing, direction and production values than Perry’s films. The NStar model will have stories that resonate more strongly with urban audiences. NStar will apply its discipline-focused research paradigm to align the films we distribute to the consumers that will experience them. Our content development process will ensure that each production reflects an authentic, objective understanding of the audience, which leads to high audience engagement. NStar will be alone in its use of research-informed production, distribution, and marketing to create a more predictable and profitable film investment model. In addition, we will completely control the distribution for our films, allowing NStar to maximize the profits from its audience-driven stories.

The film industry overall is recession-resistant. Even in the current economic downturn, Americans are still going to movie theaters, even if only to escape the harsh realities of hard times.3 Box-office revenues remained strong at the start of 2009. African Americans, NStar’s core audience, are loyal and ardent movie-goers. They represent a disproportionately larger share of the film industry, making up 25%-30% of the movie-going public.4 The urban segment is an expanding market totaling over $3 billion5 of the total $9.6 billion annually in America.6 In addition, urban culture is followed and copied enthusiastically around the world, meaning that NStar can develop a global marketing strategy as revenue builds.

The market for urban-themed films, while lucrative, is not being serviced well. NStar’s new model seeks to take advantage of this market reality. NStar will be a streamlined, tightly-focused and audience-driven company, with the flexibility and nimbleness to constantly be responsive to the urban consumer market. The NStar stories (like those of Tyler Perry) will resonate with their audiences, because as any film industry executive knows, “content is king.”

A major component of the launch plan includes partnering with MEE Productions Inc., an urban communications and marketing firm that has been involved in the development (concept testing) and marketing (ad testing) of more than 70 urban-themed films and TV shows. MEE has conducted comprehensive audience research with the urban youth market for nearly two decades, and its film entertainment expertise spans the entire process, from pre-production audience research to creating “street buzz” for successfully launching new movies and television programs. MEE will leverage its Community Network, a 20,000-member database of urban community-based organizations (CBOs) across the key markets to develop strong direct-to-consumer relationships and build pre-release awareness of NStar films. (See pages 8-9 for a detailed description of MEE.)

NStar will cost-effectively bring films to market by hiring (renting) a distribution company with strong exhibitor relationships in top urban markets to launch each feature film. The theatrical distribution strategy will be focused, to maximize profitability, in the highest-return urban/African American markets. This company

NStar represents a

strategic advancement

on the distribution

model for such urban

filmed entertainment

(theatrical, DVD, Pay-

TV/cable). Investors

will have a lower

downside risk with

a higher upside

potential than with the

traditional Hollywood

studio model.

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N O R T H S T A RE N T E R T A I N M E N T

NStar will cost-

effectively bring films

to market by hiring a

distribution company

with relationships in

top urban markets to

launch each feature

film. The theatrical

distribution strat-

egy will be focused, to

maximize profitability,

in the highest-return

urban/African

American markets.

will be able to leverage its insider knowledge of these markets with focused marketing, efficiently and effectively generating word-of-mouth that translates to strong box office numbers. Leading this effort will be the winning management team of urban marketing, theatrical entertainment and film distribution industry professionals with more than 100 years of combined experience and an extensive and proven track record. The unique combination of capabilities and relationships our team brings to this venture will allow NStar to “own” the urban audience.

Simply put, there is no existing enterprise that creates, distributes and markets to the urban audience with a similar model of development and production. Within a short period, NStar will build the reputation of providing urban-themed film products that are commercial, critical and audience successes. Producer of three Academy Award-nominated films (Do the Right Thing, Tupac: Resurrection and Malcolm X), Preston Holmes (see page 18), President of Acquisition and Production, will utilize his Hollywood-insider knowledge and experience to lead MEE’s films-for-distribution acquisition and production strategies. Film distribution and marketing expert Russell Schwartz, respected throughout the film industry, will bring innovative distribution and advertising strategies to every NStar project. And Dwight Williams, Executive Producer of Hustle & Flow, will leverage the contacts and processes that keep film production on track and profitable. Exhibitors and DVD retailers will know an NStar product is always of high quality, in demand within the urban marketplace and reflective of the trendsetting urban lifestyle.

Once established, NStar Entertainment will be the leading brand in the lucrative urban film market. The equity investment will fund this strong, unique concept. Based on projections, the company can return profits within five short years. Investors can expect returns of over 30% on their initial investment. Our research has shown that the entertainment industry is ready for an innovative development — an audience-focused distribution and research-informed production model that is tightly integrated in every step to the urban market place. NStar Entertainment brings the next generation model for film distribution — an innovation whose time has come.

Give Get Total

Scenario 11 Investor

$35 Million 50% = 45% (+ 5% bonus) $35 Million

Scenario 22 Investors

$25 million$10 Million

35% = 32.15% (+ 2.85% bonus) 14% = 12.85% (+ 1.15% bonus) 49%

$35 Million

Scenario 33 Investors

$25 Million$5 Million$5 Million

35% = 32.15% (+ 2.85% bonus) 6.5% = 6.45% (+ 0.05% bonus) 6.5% = 6.45% (+ 0.05% bonus) 48%

$35 Million

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N O R T H S T A RE N T E R T A I N M E N T

The Hollywood Way The NStar Way

BUSINESSMODEL

Vertical integration with high overhead, high production and high P&A costs

A focused, research-informed production and distribution model. Vertical integration to the urban marketplace with lower overhead, production and P&A costs

BUDGETIn Hollywood, even a “low-budget” film can cost up to $25 million to shoot

A typical NStar film will be budgeted at $3 - $5 million

DEVELOPMENT

A Hollywood film can easily take years of preparation and development (scripts, rewrites, planning, casting, etc.)

Development will take less time and be more effective, because research with the target audience will inform script content and casting choices, before film production begins

SHOOT TIME

Typical Hollywood films are shot in about 100 days

NStar’s experienced Production Heads (Holmes & Williams) will enable a typical NStar film to be shot in 25-35 days. Lower production cost means lower break-even point for films

MARKETINGSTRATEGIES

Primarily utilizes expensive and traditional outlets (television, print and outdoor media)

Targeted traditional media, plus non-traditional and new-media strategies that reflect oral communications culture and create word-of-mouth

DISTRIBUTIONSTRATEGIES

Hollywood is forced to “open wide” in order to recoup the larger production costs. Typical films open on 2,000 or more screens. This results in significantly higher P&A costs

Targeted openings in the Top 10 to 25 highest-return urban markets. Lower P&A costs mean a lower break-even threshold for NStar films

RETURN ONINVESTMENT

A typical Hollywood film returns only pennies for every dollar invested, through domestic box-office, international, DVD and ancillary markets

NStar promises an initial rate of return (IRR) of greater than 30%

NStar Entertainment: Profitable, High-Quality Films for the Urban Consumer