Transcript Discussion Document 9.2.10

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Project Sunrise Discussion Document
September 2010
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Goals and Working Hypothesis
• The over-arching goal is to merge as much of our Home Entertainment businesses as
possible into a Newco in order to extract as much cost as possible and create greater
efficiencies
• Working hypothesis is that, at minimum, the following can be merged into the Newco
– Back office
– Sales and Marketing for all forms of physical distribution (both New Release and Catalog)
• Working hypothesis is that digital is handled independently by the partners outside of Newco
– As many customers now handle both physical and digital, distinction is by business model not
by customer
– Partners handle VOD, EST, and Digital Streaming independently even when distributing digitally
through customers that also handle physical (e.g., Partners will separately handle Netflix
streaming relationship, Amazon VOD relationship)
• For management of key decisions (Wholesale Price, Street Dates, Marketing), partners will
separately set general guidelines for their respective titles and Newco will make decisions on
how to execute within those guidelines
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Complexities to be Discussed
• If digital is out
– How can / should Newco approach sales relationships with partners that have both physical and
digital distribution
– Is Newco to be a short-term business only for the remaining life of physical media
• Is Newco structured as a JV? Does it retain profit or run at break-even
– How do the partners allocate non-direct costs under any structure
• 50/50 if a JV and so long as volume of titles does not differ greatly by partner?
• Or activity based (# of titles released, units shipped, country-level activity, etc.)?
– If feasible, how would the partners bring in additional partners later if structured as a 50/50 JV
• Go-to-market strategy
– Comparison of current strategies for each partner
– Potential complexities for Newco, including market confusion if Newco is managing varied
windowing guidelines for each partner [(e.g., 28 day delay with Netflix)]
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Management of Key Decisions: Physical Retail (e.g., Wal-mart)
New Release
Catalog
Partners
Independently
Determine
Newco
Partners
Independently
Determine
Newco
Street Date
Determine window
[(e.g., street no
earlier than theatrical
+ 90 days)]
Set specific street
date within the
window
N/A
N/A
Wholesale
Price
Set deemed
minimum
Set specific
wholesale price
Set deemed
quarterly margin
goals by format and
age
Set specific
wholesale price
Marketing
Determine marketing
budget by title;
deliver marketing
materials; production
creation
Execute marketing
within budget and
using assets from
respective partner
Set marketing
budget across all
titles
Execute marketing
plan
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Management of Key Decisions: In-Store Physical Rentailers (e.g., Blockbuster)
New Release
Catalog
Partners
Independently
Determine
Newco
Partners
Independently
Determine
Newco
Street Date
*Determine window
[(e.g., street date
same day as retail)]
*N/A [(tied to retail)]
N/A
N/A
Wholesale
Price
*TBD
*TBD
Set deemed
quarterly margin
goals by format and
age
Set specific
wholesale price
Marketing
Determine marketing
budget by title;
deliver marketing
materials; production
creation
Execute marketing
within budget and
using assets from
respective partner
Set marketing
budget across all
titles
Execute marketing
plan
*Varies from prior page
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Management of Key Decisions:
Online Physical Rentailers (e.g., Netflix Physical)
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New Release
Catalog
Partners
Independently
Determine
Newco
Partners
Independently
Determine
Newco
Street Date
* Determine
window [(e.g., 28
day delay )]
N/A (tied to retail)
N/A
N/A
Wholesale
Price
TBD
TBD
*Contractual
N/A
Marketing
Determine marketing
budget by title;
deliver marketing
materials; production
creation
Execute marketing
within budget and
using assets from
respective partner
Set marketing
budget across all
titles
Execute marketing
plan
*Varies from prior page
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page 5
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Management of Key Decisions: Physical Kiosk (e.g., Redbox)
New Release
Catalog
Partners
Independently
Determine
Newco
Partners
Independently
Determine
Newco
Street Date
Determine window
[(e.g., 28 day delay )]
N/A (tied to retail)
N/A
N/A
Wholesale
Price
* Enter Contracts
with Customers
(copy depth / price
or revenue share)
N/A
Contractual
N/A
Marketing
Determine marketing
budget by title;
deliver marketing
materials; production
creation
Execute marketing
within budget and
using assets from
respective partner
Set marketing
budget across all
titles
Execute marketing
plan
*Varies from prior page
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Next Steps and Process Issues
• Next steps
– NDA
– Diligence requests sent
– High-level structuring / concepts meeting (in parallel with gathering responses to due diligence)
• Who to involve; when to involve them
– Detail experts that don’t reside in Home Entertainment - Booz?
– Junior resources (Corporate Development, Legal, Finance)
– Senior finance resources
• Work streams
– Scope of Newco
• Is digital / VOD in or out
• Decisions left with partners independently vs. within Newco
– Legal implications / considerations
– Newco business model (profit or break-even, cost allocations)
– Organization structure
– Comparison of each partners’ relevant high-level business models
• Areas of relative experience
• Potential cost savings opportunities through synergies
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