Transcript Grouper GEC_v14

Grouper Acquisition Opportunity
Presentation for GEC
August 16, 2006
Draft v.14
CONFIDENTIAL
Executive Summary
•
SPE has tremendous opportunity through digital distribution and
ad-supported online content
– Consumer time and advertising revenues are shifting online, threatening the
ability for our core businesses to achieve growth and margin objectives
– Online infrastructure is nearly in place, with digital content at the outset of its
growth curve
– SPE competitors are investing heavily, and filling a gap between studio content
and user generated content
•
At $65MM, a Grouper acquisition would accelerate entry into ad-supported
content and could become a platform for other digital services online
– Grouper is the optimal acquisition target for SPE, due to its experienced
management, market-leading technology and demonstrated traction with users
– Price in-line with comps and at a discount to recent competitor acquisitions
– Price does not require SPE to pay premium for users, which will be acquired via
SPE marketing clout
– Service will be further enhanced by SPE content, marketing and ad sales
capabilities
page 1
Digital Transition Will Increasingly Challenge SPE’s Businesses
•
Theatrical Marketing
Content Distribution
Economics
Advertising Sales
“Grass roots” campaigns increasingly prevalent
–
Character campaigns on social networks
–
Viral distribution of ad messages
•
Market less forgiving of average to poor titles
•
New forms of content competing for consumers’ time and money
•
Traditional distribution channels’ economics under attack, pressuring
studio margins
•
Sales increasingly cross-platform
•
Budgets shifting away from traditional outlets
Achieving and exceeding SPE revenue growth and margin
targets will increasingly require entry into adjacent businesses
page 2
Competitors Are Investing in User Generated Video
7/18/2005 • Acquired Intermix / MySpace for
$580MM
9/09/2005 • Acquired IGN for $650MM and
Scout for $170MM
8/07/2006 • $900MM search advertising deal
with Google
5/18/2006 • Acquired Lightningcast for online
video ad insertion technology
8/1/2006 • Launched free video portal with
content from A&E, MTV, Warner
User Generated Video Creates
Value for Traditional Content Owners
 Attracting
large audiences and
creating legitimate alternative
distribution channels
 Offering
user-generated video and
driving advertising revenue
 Two-way
3/06/2006 • Acquired iVillage for $592MM
6/27/2006 • Promoting new series on YouTube
10/13/2005 • Acquired iFilm for $49MM
8/07/2006 • Agreed to distribute MTV content
over Google’s AdSense network
medium with high degree
of interactivity, customer
engagement and feedback
 Provide
opportunities to create
derivatives of existing properties
 Harness
users’ creativity to identify
and develop new concepts
8/09/2006 • Announced pending acquisition of
Atom Entertainment for $200MM
(includes Addicting Clips)
page 3
Grouper Stands-out Among Acquisition Candidates
Viable acquisition candidates limited to at least 1MM unique users to demonstrate
potential scalability of operations
Target
U.S. Unique Users (MM)
30.5
Acquisition Considerations
• Prohibitive valuation
(rumored to be seeking over $1BN)
• Technology weaker than Grouper
2.4
• Owned by Viacom
1.7
• Viacom acquisition pending as part of
Atom Entertainment deal
3.0
• Performs well against acquisition criteria
– Strong management
– Differentiated technology
– Demonstrated traction
2.6
• Secured $15MM in funding July 1, 2006
• Believed to be off the market
page 4
Grouper Overview
Service Summary
Demonstrated
Traction
•
Multi-platform Video Distribution Network focused on watching, sharing, and
creating user generated video
•
#2 independent video community (Hitwise May report), with 7MM global unique
users/month (3MM US)
Reaches a young demographic that is 58% male
Over 112,000 uploaded videos programmed across multiple genre-based channels
•
•
•
•
Differentiators
•
•
•
•
Funding and
Deal Status
Experienced management team
Syndicates video to other sites through one-click posting (MySpace, Friendster,
Everyone’s Connected, WordPress, Blogger)
Leverages P2P software client; increases video quality; decreases delivery costs
Enables video portability to multiple devices (iPod, PSP)
Widely distributes easy-to-use video editing tools (Proprietary client, Instant
upload from cameras, camcorders, and webcams)
Ad-filtering tools target ads based on content tags
• SPE’s acquisition would include total consideration of $65MM
– $52.5MM at closing
– $12.5MM tied to performance metrics (revenue, streams, employee retention)
• Company is pre-revenue, received $5.1MM funding to date
• We were informed that Grouper received a competitive acquisition bid of at least $50MM
• Entered into exclusive negotiations with SPE through 8/18/2006
(1) Investors include DAG Ventures and T-Online Venture Fund
page 5
Grouper Would Provide Opportunities for SPE and Sony
Standalone Business
Growth Opportunity
Traditional SPE
Business Opportunity
Could Provide Value to
Sony Devices
•
Grouper technology built to support ad-based and transactional
business models
•
Management team has required expertise
•
Brand has demonstrated traction and strong growth potential
•
Platform for SPE to market and distribute studio content online
•
Enhance SPE’s existing advertising revenues
•
Build software capabilities
•
Address core business challenges in meeting growth objectives
•
Could help address needs for complementary services
•
Potentially complementary to existing service efforts
– Enable users of Sony cameras and camcorders increased interactivity with content
– Provides initial base of unprotected content for PSP and Walkman
– PSBG eyeVi initiative selected Grouper to develop its service prototype
– Expands Connect’s service capabilities by adding user-generated content
page 6
Grouper Service Highlights
Watch
• Home page with “video wall”
of user generated content;
80% click-through
Competes with YouTube
Share
• Share with users
• Post videos to personal
pages on other sites
Create
• Easy-to-use downloadable
tools for creating and editing
videos
Differentiated from YouTube and Other Competitors
page 7
Grouper Service Highlights: Watch Videos
• Home page with “video
wall” of user generated
content (80% clickthrough)
• Content can be
discovered through:
–Rotation in video wall
–Search
–Channels
• Ability to download
content to multiple
devices (iPod, PSP)
page 8
Grouper Service Highlights: Share Videos
• Easy upload of user
videos
• One click publishing to
other sites
• E-mail to friends in
users’ MSN, Hotmail,
and Yahoo accounts
• P2P client enables
download of original,
high quality files
• Add video comments
page 9
Grouper Service Highlights: Create Videos
• Real-time recording
and upload from
web cams
• Proprietary client
with easy-to-use
editing tools
–Select video
–Select photos and
tracking / panning
effects
–Select music
page 10
Comparable Company Analysis Supports a $80-$110MM Valuation
Comparable Company Statistics
Date
Amount
Raised
Unique
Users (mm)
EV / Unique
Users
Facebook
4/19/2006
2
$25.0
7.68
$11.16
$71.4 - $100.0
$33.5
Friendster**
11/6/2003
1
$13.0
1.70
$31.18
$53.0
$93.5
Metacafe
7/1/2005
2
$15.0
1.95
$26.40
$42.9 - $60.0
$79.2
Brightcove
11/22/2005
2
$16.2
0.20
$220.00
$44.0
NM
YouTube***
3/31/2006
2
$8.0
6.00
$16.67
$100.0
$50.0
BitTorrent
9/27/2005
1
$8.8
0.38
$123.13
$35.0 - $58.3
NM
Veoh Networks
4/18/2006
1
$12.5
0.10
$250.00
$25.0
NM
Median
$51.4
$64.6
Implied Acquisition Valuation (at 25% Premium)
$64.3
$80.8
($ mil)
Recent
Fundings
Recent
Acquisitions
Grouper
Value Based On
EV/UU Multiple*
Round of
Funding
Post Money
Valuation
iVillage
3/3/2006
ACQ
$600.0
14.0
$42.86
$600.0
$128.6
Intermix / MySpace
7/18/2005
ACQ
$580.0
17.7
$32.77
$580.0
$98.3
thePlatform
6/1/2006
ACQ
$80.0
--
--
$80.0
NM
$580.0
$113.4
NM
$113.4
Median
Implied Acquisition Valuation
Source: Funding information provided by VentureSoruce.com. Unique user data from Nielsen NetRatings and ComScore MediaMetrix.
* Grouper value based on EV/UU based on US unqiue users of 3.0 million.
** Post money valuation for Friendster provided at $53.0 million.
*** Pre money valuation for YouTube on latest round of funding from Sequoia Capital has been discussed at $100 mllion. Guidance has been
provided by Montogomery & Co. and sources at Sequoia.
Analysis excludes Viacom’s August 9 acquisition of Atom Films for $200MM
page 11
SPE Projections – Base Case (lower than Management Case)
FY 2006
(millions)
FY2007
FY2008
FY2009
User Activity
End of Period Uniques
20.9
37.2
53.9
76.3
Page Views
899.7
3,385.2
7,621.5
12,506.4
Total Searches
171.5
798.0
1,941.8
3,251.7
1,534.9
5,967.7
12,003.4
17,543.6
Total Streams
P&L Performance
In-Stream
Banner / Ad-words
Sponsored Search
$
1.42
1.18
0.46
$
10.06
5.66
2.87
$
28.25
12.80
10.46
$
43.02
20.99
19.51
Total Revenue
$
3.07
$
18.60
$
51.50
$
83.51
Sales Commission
Video Streaming
Page View Bandwidth
$
0.21
1.39
0.08
$
1.30
5.39
0.31
$
3.60
10.84
0.69
$
5.85
15.84
1.13
Total COGS
$
1.68
$
6.99
$
15.13
$
22.81
Gross Profit
$
1.39
$
11.60
$
36.37
$
60.70
Total Operating Expenses
$
10.23
$
18.82
$
23.28
$
29.80
Operating Profit
$
(8.85)
$
(7.22)
$
13.09
$
30.91
$
(1.43)
$
(2.86)
$
(2.86)
$
(2.86)
$
(10.28)
$
(10.08)
$
10.23
$
28.05
$
149.62
$
(65.00)
$
88.99
Amortization
(1)
EBIT
Impact on SPE
DCF Value (2)
Total Consideration
(3)
NPV
47%
IRR
Deepwater Mark
(1)
(2)
(3)
(4)
(4)
Mar-08
$
(76.36)
EBIT reflects operating profit less estimated amortization of technology/software assets totaling $20MM over 7 years. Initial estimate requires third party review for final figures. Assumes
transaction close at 9/30/2006.
4 year discounted pre-tax cash flow analysis (2006-2009) performed with a discount rate of 16.5% (in-line with SPE’s normal rate); terminal EBIT multiple of 8.0x.
Total consideration includes $52.5m at closing; $12.5m contingent on performance and paid over the course of 2007 through 2009.
Deepwater mark represents cumulative cash position.
page 12
Risks and Mitigation
Risks
Mitigation
• Customer retention / increased competition
• Differentiated technology provides a better user
experience than competitors
• Syndicate content to other sites (less dependent
on “fads” in user taste)
• Lack of interest by advertisers
• Grouper’s first deal is in place with MTV
• AOL and Google report sold-out ad inventory
• Potential for infringing or indecent
content on site
• Grouper has procedures to remove
inappropriate or infringing content
• Grouper has a policy of banning users
and / or terminating accounts of users who
post such content
• Separate branding from Sony
• Integration challenges
• Structure incentives for acquired management
• Allow new management to retain decisionmaking authority
page 13
Ensuring a Managed Grouper Integration within Sony
Defined SPE
Point Reporting
and Cross-Sony
Liaison
Coordination with
Tim Schaaff and
within SPE
Divisions
• Designated SPE senior manager with full operating authority (hire/fire) and to
act as liaison with Tim Schaaff between Grouper and other Sony divisions
– Manage Grouper’s 3 year development plan to defined performance
targets
– Work jointly with Tim directly to identify software linkages where
appropriate
– Coordinate implementation of cross-Sony opportunities
– Collaborate within SPE to prioritize new opportunities
– Help Grouper management to develop inter-Sony relationships as
necessary
• Close working relationship between Tim Schaaff and Grouper engineering
team/CEO to coordinate SEL development opportunities and overall agenda
• Tim to help manage interface to SEL and Tokyo to help ensure Grouper
succeeds
• Monthly or as needed meetings with defined business unit team members (VP
level) to identify and implement specific opportunities, eg - Theatrical
Marketing, SPHE, SPT, SPD
• Senior SPE management meets quarterly to review progress and resolve
issues
• Cross-Sony involvement carefully managed during initial start-up phase
page 14
Grouper Acquisition: Summary
•
Provides entry into an adjacent media business at a compelling valuation
•
Represents a compelling standalone business opportunity
•
Provides SPE opportunity from the growth of online advertising
•
Establishes direct, interactive relationships between SPE and consumers
•
Provides upside opportunity as Grouper leverages SPE’s content and advertising
sales, and SPE’s traditional businesses work with Grouper
•
Offers potential support for other Sony businesses and additional digital services
page 15
Appendix
CONFIDENTIAL
Grouper Acquisition Highlights
•
Moves SPE into growing area of ad-supported user generated content and enables SPE to
participate in the growth of online advertising
– Online advertising growing 22% annually to reach $28BN in 2009
•
Differentiated technology and more expansive management vision than competition
•
Demonstrated traction with users in a core demographic
•
Inexpensive relative to competitors’ acquisitions of video content websites
•
Compelling as a standalone business
•
Complements current SPE efforts to market and distribute content online
•
Potential to become a platform for additional services and Sony hardware,
including international expansion (e.g., eyeVi)
•
Accomplished management team
– Previously developed Spinner, a Sony Music investment, which was sold to AOL
for $320 MM in 1999
page 17
Grouper Management Team
•
Josh Felser, CEO & Co-founder
– President & Co-founder Spinner (Sold to AOL for $320M); GM AOL’s music brands;
Business development at News Corp
•
Dave Samuel, President & Co-founder
– CEO and Co-founder Spinner; VP Technology AOL, MIT
•
Aviv Eyal, CTO & Co-founder
– CTO and Co-founder Friskit; Lead engineer Microsoft Multimedia
•
Mike Sitrin, VP Revenue & Co-founder
– Director Marketing and Commerce AOL, Director of Sales Spinner
•
Jonathan Shambroom, VP Product
– VP Product Jumpstart, Director Product: Evite (Sold to IAC), When.com (Sold to AOL),
PF.Magic (Sold to Learning Co)
page 18
User-generated Content Risks
•
There are risks associated with publishing user-posted content -- for example,
it can violate another's copyright or trademark or be inappropriate or
defamatory
•
Damages associated with these risks can be reduced to a certain extent by
quickly taking down infringing, trademarked, inappropriate or defamatory
content after learning about them
•
Damages associated with these risks can also be mitigated to a certain extent
under the Digital Millennium Copyright Act of 1998 ("DMCA") if certain notice
and "takedown" policies are implemented and under the Communications
Decency Act ("CDA")
•
Grouper has implemented policies and procedures designed to mitigate
damages associated with these risks under the DMCA and the CDA
•
Grouper bans users and/or terminates the accounts of users who post
infringing or inappropriate content
page 19
Consumer Time is Shifting Online and Driving Growth in
Internet Advertising
Overall ’05 – ’09 Projected CAGR: 10.1%
Broadcast ’05 – ’09 Projected CAGR:
4.9%
Cable/Sat ’05 – ’09 Projected CAGR: 11.4%
Online ’05 – ’09 Projected CAGR: 22.3%
$140
TV & Online Advertising Spend
US $ (Billions)
Broadcast Netw orks
Cable Netw orks
Online
114.9
$120
106.0
95.1
$100
87.6
78.3
$80
71.7
57.9
$60
$40
$20
60.7
63.2
6.0
7.3
14.7
16.3
36.6
40.0
2001
12%
7.1
14.2
28.2
24.1
20.0
16.1
12.6
9.6
29.7
24.3
26.9
33.4
18.9
21.7
44.0
47.2
48.2
53.3
43.2
52.2
39.6
2002
2003
2004
2005
2006
2007
2008
2009
10%
12%
13%
16%
18%
21%
23%
25%
$0
Online %:
Source: Veronis Suhler, 2005
Note: Cable/satellite growth expected to be driven by increasing audience share of prime time ratings, ability to target within
specific demographic groups, improved sales system; broadcast growth expected to be driven by sustained ratings and ad rates,
continued appeal as optimal means to reach large audiences
page 20
Consumer Time is Shifting Online and Drove 50% Annual Growth in
Online Ad Spending Over the Last Three Years
Media spending does not yet
reflect consumption
Advertising dollars are shifting online to
address the current gap
1999
2003-’05 US
Advertising
1999
Other
14%
Magazines
4%
Newspaper
6%
Games
2%
Network TV
24%
Internet
2%
Cable TV
19%
Radio
29%
Today
2005
Other
Magazines
11%
4%
Newspaper
5%
Network TV
20%
Games
2%
Contribution to Growth
CAGR
Television:
TV Stations
1.5%
2%
Cable Networks
15.6%
19%
Cable MSOs
8.1%
3%
CBS Net, FOX Net
5.8%
9%
Total Television
7.0%
34%
Magazines
8.9%
5%
Newspapers
3.4%
11%
Radio
0.2%
0%
Outdoor
7.1%
5%
Online
50.4%
45%
Total
8.4%
100%
Traditional Media
5.1%
55%
Online
50.4%
45%
Total
8.4%
100%
SUMMARY
Internet
6%
Cable TV
25%
Radio
27%
page 21
Early Market Results Support Grouper’s Revenue Model
•
Grouper will derive advertising revenue through three distinct business models
– In-stream video ads
– Banners and ad-words on the Grouper.com website
– Sponsored searches
•
The market has demonstrated a willingness to pay premium CPMs for streaming video ads
– Independent analysts and Sony experience support online video CPMs of $20 to $30 (1)
– Online video CPMs are now in-line with traditional TV CPMs and expected to benefit from the
overall growth in online advertising
– Grouper model assumes video CPMs ranging from $12 to $16
•
Recent deals validate the overall potential for advertising associated with user generated
video and social networking sites
– Google / MySpace / Newscorp – Google will pay Fox Interactive Media $900M in advertising
revenue from 2007 through 2010 in exchange for the right to provide search services to
MySpace and other Fox Interactive sites
– Google / MTV – MTV struck a deal with Google to include music videos in Google’s
“AdSense” network
– Studios / MySpace – Major studios are paying MySpace for the ability to create user profiles
in support of upcoming theatrical releases
– Google has already closed initial deals with MTV
(1)
Josh Bernoff, Forrester Research; Allie Savarino, SVP World of Worldwide Marketing, Unicast; Jeff Lanctot, VP of Media Buying, Avenue A Razorfish.
page 22
Evolving Infrastructure Represents an Opportunity to Build Direct
Relationships with End-users and Increase Control of Distribution
Broadcast Model
Production
Aggregation
Distribution
Customer
SPE
Broadcast
Network
Local Affiliate
Broadcast TV
Cable
Network
Cable MSO
Cable TV
Cable Model
SPE
Digital Distribution – Licensing/Syndication
SPE
Portal
Broadband ISP
PC, TV or
Device
SPE-owned
Service
Broadband ISP
PC, TV or
Device
Customer-facing Service
SPE
page 23
User Generated Video is Growing Quickly and Attracting the Largest
Audiences for Digital Video Content
54.1
Monthly Unique Users (mm)
30.5
22.0
15.2
User Generated Video
Store
• Offers access to a wide variety of user
posted content
• Allows users to browse content or
search in genre-based channels
• Provides interactivity between users
• Primarily advertising based revenues
• Aggregates video across
content providers for
purchase
• Uses a range of models
including sell-thru, rental,
and subscription
2.4
1.1
Channel
• On-demand videos in programmed
micro-channels or on a show-byshow basis,
• Business model primarily includes
advertising, with some upsell to
subscription
Source: Nielsen NetRatings. Figures as of 8/10/06.
* Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and
embedded. Worldwide unique users total approximately 7 million.
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Promotional
• Predominantly short video
clips that promote the site
owner’s content,
merchandise, and brand
• May include some
advertising, and minimal
commerce capabilities, but
is promotional in nature
page 24
Studios and User Generated Video Partnerships Fill a Gap in Current
Content Offerings
Current Gap
User Generated Video Sites
“Professional”
“Prosumer”
“Consumer”
Studio / UGC
Partnership

Increase distribution
for near-professional
quality user
generated videos

Broaden base of
Studio content and
increase ability to
target
Dozens
Number of People Viewing
Millions
Studios
Thousands
Millions
Number of Videos in the Category
page 25
SPE Target and Competitive Landscape
High (> 3mm)
Low (< 3mm)
Existing Service Penetration
(Monthly Unique Users in millions)
Yahoo (106.6)
MSN (95.6)
AOL (74.5)
YouTube (30.5)
Google (95.3)
MySpace (54.1)
iTunes (22.0)
MLB.com (10.5)
Facebook (8.5)
ABC.com (8.3)
MTV Overdrive (4.7)
NBC.com (4.6)
CBS.com (4.2)
FOX.com (3.2)
Connect (0.8)
MovieLink (0.5)
CinemaNow (0.4)
Grouper* (3.0)
Metacafe (2.6)
iFilm (2.4)
AddictingClips (1.7)
vidiLife (1.2)
Friendster (1.1)
Veoh (1.0)
Guba (1.0)
Dailymotion (0.5)
Revver (0.5)
Roo Media (0.5)
vSocial (0.5)
vimeo (0.3)
VideoEgg (0.03)
Low
Brightcove (0.2)
Blinkx (0.01)
High
Technology Capabilities
Source: Nielsen NetRatings. Figures as of 8/10/06.
•Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded.
Worldwide unique users total approximately 7 million.
page 26
Upside Through Sony Pictures Ownership
Content *
•
•
•
•
Existing content library and new releases
Developed short form content, potentially for mash-ups
Talent relationships and events
Basis for building community and UGC experience
Marketing Reach
•
•
•
SPE websites
SPT promotional spots on-air
Linkage to theatrical marketing campaigns
Advertising Sales
•
•
SPT ad sales force and relationships
Existing ad volume for leverage and cross-platform sales
Corporate
Infrastructure
•
•
•
Corporate functions (e.g. – human resources, accounting)
Business processes
Business relationships and third-party service providers
* July 13, 2006 survey showed 33% of UGC users would be more interested in UGC sites with inclusion of studio content, only 15% were less interested.
Survey commissioned by SPE and conducted by J. Rost Associates LLC.
page 27
Grouper Service Highlights
Watch
• Home page with “video wall” of user
generated content; 80% click-through
• Content can be discovered through:
– Rotation in video wall
– Search
– Channels
• Ability to download content to
multiple devices (iPod, PSP)
Competes with YouTube
Share
• Easy upload of user videos
• One click publishing to other sites
• Import address from MSN, Hotmail,
and Yahoo to create email groups
• P2P client enables download of
original, high quality files
Create
• Real-time recording and upload from
web cams and mobile phones
• Proprietary client with easy-to-use
editing tools
– Select video
– Select photos and tracking /
panning effects
– Select music
• Add video comments
Differentiated from YouTube and Other Competitors
page 28
Agenda
• Executive Summary
• Industry Transition to Digital Distribution
• Grouper Overview
• Financials and Valuation
• Risks and Mitigation
• SPE Integration
page 29