Privileged and Confidential Sony Pictures Entertainment and Sony Network Entertainment: Project Update February 1, 2012

Privileged and Confidential

Sony Pictures Entertainment and Sony Network Entertainment:Project Update

February 1, 2012


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• Since meeting in December, we have made progress on three initiatives that will help differentiate Sony from competitors in the digital network entertainment space

– Marketing and promotional content to drive traffic

– Unique transactional models, including “PVOD with ownership”

– Programmed video service called Crackle Plus on Sony platforms with exclusive originals and exclusive films to drive usage

• Completed milestones include

– Preliminary marketing and promotional opportunities identified, several in progress

– Specifics of unique transactional offerings identified

– Crackle Plus content volumes identified and costed in more detail

• Critical next steps include

– Incorporate in budgets

– Completion of preliminary technical feasibility analysis on each project

– Continue execution, including investment in content and technical build-out

Executive Summary


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Marketing and Promotional Content


Marketing and Promotions

• Marketing and promotional opportunities will serve to:

– Drive awareness of the SEN brand and service

– Drive traffic to the SEN site

– Enrich the SEN experience with unique content

• Early success with the December trailer launch for Men in Black 3 across SEN and other digital platforms

– Launched in 34 countries in 20 different languages

– 20 million online trailer views to date (13 million in the first week)

– Became a global trending topic on Twitter within the first half hour of our launch

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Marketing and Promotions

InitiativeInitiative First AvailFirst Avail First Title / Property

First Title / Property

Other Potential Titles / Frequency

Other Potential Titles / Frequency

Trailer Launches

DVD & BD Marketing Avails

(Inserts, sizzle reels)

TV Ad Avails(Channels and channel

websites)

Theatrical Field Promotions

(One sheets, postcards)

Full Sony United launch: Dec 2011

Other launches: Jan 2012

April 2012

September 20122

• Full Sony-United launches: 2-4 per year

• Additional launches with strategic titles

• A Separation, The Vow, 21 Jump Street, Underworld 4, Men in Black 2, Ghost Rider: SoV, and 4 additional titles

• From April 2012 onward

• Other potential titles include Planet B-Boy and additional Screen Gems titles1

• Target frequency: 1-2 titles per quarter

1. Subject to contractual obligations with other studios, production companies, etc.2. Based on theatrical release timing. One Sheet likely to be earlier.

March / April 2012

Includes TV and digital platforms from:

Territories include: U.S., U.K., Spain, Italy, Germany, Australia, Canada and Japan

(full)

Exclusive DVD & BD Extras

Early April 2012

• Men in Black 2, Ghost Rider: Spirit of Vengeance, 21 Jump Street

• From April 2012 onward

(4/3 street date)

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Unique Transactional Models


U.S. National Exclusive “PVOD with Ownership” Product Concept

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2-day rental of hit films such as MIB3 streamed to a Sony connected device (e.g., PlayStation) for approximately $25(1); available significantly before the DVD is released

Digital copy automatically populates personal UltraViolet locker roughly 2 weeks prior to DVD release at no additional cost

(1) Pricing under discussion, PVOD availability may vary by title.


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Potential Roll-out of “PVOD with Ownership”

Title Theatrical Release

Potential PVOD Window

Tentative DVD Street Date

Pirates! Band of Misfits April 27th Mid July August 14th

MIB3 May 25th Late August December 11th

I Hate You Dad June 15th Mid September November 13th

The Amazing Spider-Man July 3rd Early October December 4th

Total Recall August 3rd Early November December 18th

Note: All availability dates subject to change.

Overall PVOD Market Roll-out

- Above titles exclusive to SEN on a national basis in the U.S.

- Some potential for a two local market test for Fall titles to be delivered through cable

- Exhibitor and distributor discussions in process regarding Fall test

- Potential Fall test could mean other studios’ titles are an opportunity for SEN

- Future titles to be non-exclusive to SEN


“PVOD with UltraViolet Ownership” Integration Requirements

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By Summer Launch

By Summer Launch

• PVOD Enhanced Security:

– Forensic watermark requirement lifted on first 4 titles to accelerate time-to-market

– Turn off analog outputs; already enabled on PS3 and connected Blu-ray players

• UltraViolet Roles / Compliance: “SEN Lite Integration”

– SEN generates e-mail to PVOD consumers with redemption code and link to SPE site

– SPE as a “UV Retailer” handles UV account creation via PC, code redemption, and adds titles to UV locker

– SEN initially only as a “UV LASP”: enable access to UV locker via service link; enables streaming of all titles in locker from all studios

By OctoberBy October

• PVOD Security

– Forensic water-marking enabled

• UltraViolet Roles / Compliance: “SEN Full Integration”

– SEN as a UV Retailer / DSP, LASP and Client Implementer

– SEN sells UV EST, create UV accounts and adds rights to UV locker

– Sony enables playback of UV CFF on PS3

– Can also enable DVD-to-Locker conversions via PS3 / service


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Crackle Plus


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• Free to consumer originals and exclusives with video experiences optimized for the Sony networked device audience

– Ad-supported / free-to-consumer to attract largest audience

– Develop slate of original content: “TV quality” series

– License exclusive film avails (i.e., recent and library titles)

– Highly curated experience run by experts who program target audiences worldwide

– Initial U.S.-only launch with later international expansion

• Integrated with and driving up-sell to SEN’s paid services

plus : Summary of Concepts


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Invest in Content Exclusive to SEN (i.e., “Only on Crackle Plus, Only on Sony”)Invest in Content Exclusive to SEN (i.e., “Only on Crackle Plus, Only on Sony”)

Original Shows

Original Shows

• 2-3 TV caliber series annually (i.e., approximately 19 episodes in partial year FYE13 and approximately 39 episodes in full year FYE14)

• Shows released weekly for regular programming• Differentiated and premium (i.e., Pan Am / Breaking Bad level quality) to attract

and engage consumers on a regular basis

Curated FilmsCurated Films

• Approximately 15 2-3 yr old, exclusive driver titles in the network window like District 9, Salt, Battle L.A. refreshed monthly

• Approximately 100 incremental library titles (i.e., incl. SPE and 3 rd party titles) relative to current Crackle service (i.e., 300 total)

Inside Looks, Music, and

Events

Inside Looks, Music, and

Events

• Behind the scenes, movie and pilot premieres, new game releases, and coverage of most relevant pop culture gatherings (e.g., Comic-Con, E3, SxSW)

• Live concerts, music festivals, unplugged sessions with artists, “secret” shows

Include Crackle’s Existing Base of Content to Offer ScaleInclude Crackle’s Existing Base of Content to Offer Scale

plus : Content on SEN

FilmsFilms• Approximately 200 library titles (i.e., predominantly SPE titles) and 3

additional 2-3 year old driver titles in the network window like Step Brothers, Talledega Nights, Pineapple Express refreshed monthly

Television and Originals

Television and Originals

• Approximately 1,800 full-length and short-form television episodes including Seinfeld and Married With Children

• Over 40 original series featuring notable talent including Neil Patrick Harris, John Hamm and Christina Applegate


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Milestone Potential Timing

Budgets submitted that reflect funding of all contemplated initiatives Feb / March

Launch in-depth research related to original content creation February

Original content greenlit May

Crackle Plus Service and show-specific marketing campaigns begin August

Crackle Plus service launched Q3 FYE13

1st original content aired on Crackle Plus service Launch + 1 month

plus : Timing


Status• Technical teams have met

• General agreement that Crackle Plus free-to-consumer content needs:

– To have its content searchable within the Crackle Plus experience and the PlayStation store

– Dynamically inserted ads

– Prominent “what’s new” placement for service, originals, and free movies– Dedicated CRM that facilitates ongoing e-mail pushes to engage and update customers

with content

Open Issues• Determining best placement of the Crackle Plus app / experience (e.g., either free-standing

app with deep links to store or all Crackle Plus content inside the store)

Next Steps• Wire framing potential alternatives

• Proposed solution to be completed by next update meeting

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plus : Integration


Crackle Plus Economics

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($MM) FYE13

Revenue

SPE Incremental Revenue$6

Gross Investment

Content($55)

Headcount/Tech(7)

Sub-total($62)

Net Investment in SNEI and SPE Budgets($56)

Marketing(15)

Total Sony Investment($71)

($MM) FYE14

Revenue

SPE International Sales$18

SPE Ad Revenue4

Sub-total$22

Gross Investment

Content($88)

Headcount/Tech(13)

Sub-total($101)

Net Investment in SNEI and SPE Budgets($79)

Marketing(15+)

Total Sony Investment($94+)

• $56MM investment to be incorporated in SNEI and SPE budgets as described on the next page

• SNEI and SPE anticipated budget impact excludes $15MM of marketing

• Need to discuss alternatives for addressing marketing, either as a dedicated Corporate effort, shared across Hardware and Service divisions, or housed in a single division

To be mitigated by benefits not yet quantified including:

‒ New customer acquisition

‒ Service revenue per user uplift

‒ Hardware sales growth

FYE13: Partial Year FYE14: Full Year


Crackle Plus Budget Impact

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• Economics would be incorporated in SPE and SNEI FYE13 budget submissions; specifics being resolved but preliminary proposal is:

SNEISNEI

• Pays SPE a flat fee equal to estimated content costs less estimated ancillary revenues (e.g., international, video etc.) and also bears bandwidth, data center and cloud costs

• Retains uplift in service revenues

• FYE13 SNEI budget impact of this approach being finalized; currently estimated to be ($50MM)

SPESPE

• Responsible for its own investment in headcount and infrastructure

• Retains ad revenue

• Bears actual content cost and execution risk on ancillary revenue opportunities

• FYE13 SPE budget impact of this approach being finalized; currently estimated to be ($6MM)

Note: Above are SNEI and SPE specific budget impacts and are before the recommended $15MM of marketing. Need to discuss approach to marketing.


Marketing Considerations and Benchmarks

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ObjectivesObjectives

• Successful launch of compelling free-to-consumer content that drives trial among existing device owners

• Create recurring incentive for audience to consume Sony content on Sony devices

Launch Spend Comparables

Launch Spend Comparables

ImplicationsImplications

ShowOff-Air

Spend ($MM)

Avg HBO 1-hr ~$15

Boardwalk Empire ~$20

Avg 1-hr Cable Drama ~$10

Avg ½ hr Bcast Comedy ~$7

• Price of awareness for comparable launches, excluding use of on-air inventory and spend on 3rd party networks, is a material expense

• Need to discuss alternatives for addressing marketing, either as a dedicated Corporate effort, shared across Hardware and Service divisions, or housed in a single division

(1)

(1) Note: SPE Corp Dev estimates.


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Update on SPE Licensing Activity


Digital Licensing Overview

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• Key players are emerging in the online video space that are bidding competitively for digital (SVOD, ADVOD) streaming rights

• The entrance into the market of Internet SVOD services and the increased number of buyers is buoying pricing and driving incremental television distribution revenue

This has allowed SPT to secure additional fees for SVOD rights, while often preserving rights for other SPT revenue streams (i.e., cable and broadcast customers) including the ability to

air content on Sony-owned AVOD platforms


Digital Licensing Approach

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Replace Traditional Buyers

• Outside the U.S. SPT has replaced the current movie windows licensed by traditional Pay or Free TV buyers with SVOD customers who license a similar set of rights

- They are output deals which are exclusive against all forms of TV and FVOD/AVOD & SVOD platforms- SPT may hold back some of the slate for license to other customers or for air on SEN platforms, and/or;- SPT can carve out the movies to air on SEN platforms for a reduction in fee - Similar to TV customer deals, these SVOD deals also include specific library movies and current and library TV series

on a non-exclusive basis (in some cases exclusive against FVOD/AVOD)- Examples of such deals are with Netflix in the UK, Lovefilm in the UK, and Netflix in Canada

• On a more limited basis SPT has replaced the current TV series windows licensed by traditional Free TV buyers with SVOD customers who license a similar set of rights

- The deals are exclusive against FVOD/AVOD & SVOD platforms- Outside the U.S. the deals are also generally exclusive against all forms of TV since the customer is licensing the 1 st

TV window (in the U.S. the customers are licensing the 2nd TV window)- Examples of such deals are Breaking Bad and Damages with Netflix in the UK and Rules of Engagement and

Breaking Bad with Netflix in the U.S.

License New Rights

• SPT has licensed the TV series Community on Hulu Plus in the U. S. exclusive to SVOD- SPT may license the series to cable and broadcast customers- SPT may air the series on SEN AVOD platforms via the Crackle service

• SPT licenses library movies and current and library TV series on a non-exclusive basis- Examples of these deals are with Netflix and Amazon in the U.S., Hulu in Japan, and Netflix Latin America (also

includes current movies, Telefonica, JComm, Quickflix


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• Incorporate in budgets

• Complete technical feasibility analysis on each project

• Continue execution, including investment in content and technical build-out

• Schedule next Executive update meeting for March

Next Steps

Documents

Privileged and Confidential Sony Pictures Entertainment and Sony Network Entertainment: Project Update February 1, 2012