Transcript Digital Networks Presentation 111811_Final

Privileged and Confidential
Sony Pictures Entertainment and Sony Network Entertainment:
Strengthening and Differentiating the Sony Entertainment Network
November 18, 2011
Privileged and Confidential
Executive Summary
• Our goal is to take advantage of Sony’s common ownership of entertainment and network
platform assets to differentiate Sony from competitors in the digital network entertainment
space
• We’ve agreed on key points of differentiation
• We’ve agreed on “low hanging fruit” opportunities to drive traffic, several of which are
currently in progress
• We recommend launching a programmed video service including exclusive originals to drive
usage
• We recommend addressing technical constraints in Sony hardware to facilitate differentiated
business models, including exclusive and early access
• After reviewing prioritization in this forum, we should pursue key initiatives on a more formal,
project management basis with clearly defined work-streams and milestones
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Agreed Desired Points of Differentiation
• We seek to better differentiate SEN, drive brand awareness and attract customers through:
– Programming: a carefully selected base of content that is regularly updated and targets the right
demographic
– Exclusive content: original and exclusively licensed (both from SPE and 3rd parties)
– Earlier access to content vs. competing services
– Low barrier to adoption: include content that is free and encourages initial trial
– Ease-of-use: differentiated user interface with powerful easy search functionality that cuts across:
• Content type: video, music, games
• Business models: purchase, rental, ad supported / free
– Leveraging SPE’s creative experience and talent in marketing to this demographic
SPE and SNEI have identified a range of opportunities to drive these points of differentiation
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Strategies and Initiatives for Achieving Differentiation
Strategy
Initiatives
• Combined marketing opportunities where SPE’s expertise can help inform
the overall marketing message and create new marketing touch points
“Low Hanging Fruit”
• Leverage SPE’s promotional and/or low-cost exclusive content
• Take advantage of SPE programming and production expertise to drive
traffic; business model should be free-to-consumer:
– Customer acquisition: free-to-consumer offering has the lowest barrier to adoption
and attracts the most customers
– Cross-selling / monetization: new and newly engaged customers for free service
will be cross-sold paid services and Sony hardware
Free to Consumer
Originals and
Exclusives
– Budgetary consideration / competition: free-to-consumer services are still viewed
as compelling with <$100MM of content; users count on paid services like Netflix
having $1-2BN of content
• Take advantage of SPE’s content and Sony devices’ unique characteristics:
– Updatable: in many cases cable and satellite STBs are not
– Secure: can feasibly implement security protocols faster than some competitors
– "4 screen“: can reach consumers anywhere they seek entertainment
– TV connected: more often connected to TVs in the living room than pure play
services
– 3D: supports playback of 3D content
– Gracenote and new user-interface (UI): provides a unique capability to search
across multiple content types and business models
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Early and Exclusive
Access through
Unique Transactional
Models
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High-level Summary of Initiatives
•
•
“Low Hanging Fruit”: Leverage SPE marketing and existing base of content
–
SEN branding / messaging on all SPE platforms (i.e., theatrical, home entertainment, TV)
–
Early / exclusive access to red band / extended trailers and DVD extras
–
Exclusive access to 3D versions of SPT shows
–
Regular Discount Programs for VOD and EST
Free to consumer originals and exclusives: service with content exclusively available to Sony
customers on a free basis with an estimated annual content investment of ~$75MM
–
–
Service highlights:
•
Deeply integrated with and driving up-sell to SEN’s paid services
•
Ad-supported / free-to-consumer to attract largest audience
•
License exclusive film and TV avails (i.e., recent and library titles)
•
Develop slate of original content: “TV quality” series
•
Initial U.S.-only launch with later international expansion
Investment recouped through and helps support:
•
SEN revenues: uplift in paid services (i.e., Video Unlimited, Music Unlimited, PSN Plus subs)
•
SPE revenues: ad revenues and ancillary sales of originals
•
Hardware revenues: incremental hardware sales
•
Overall benefits to Sony / SEN brands
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Free to Consumer Programming Highlights
The service offers a selection of premium movies with exclusive content and TV quality
original series
Inside
Looks
Music and Live
Events
Original Shows
Curated Film and TV Content
• Behind the scenes, movie and pilot premieres, new game
releases, and coverage of most relevant pop culture
gatherings (e.g., Comic-Con, E3, SxSW)
– Cost: $2MM for video coverage
• Live concerts, music festivals, unplugged sessions
with artists, “secret” shows
– Cost: $3MM for video streaming and licensing
• Two TV caliber series annually that leverage existing and related
IP (e.g., PlayStation games) or build new IP for the company
• Differentiated and premium series to attract and engage
consumers on a regular basis
– Cost: $30MM per series for each season
• Leverage short avails of 2-3 year old movies in the Network
window (free TV only) to have continuous current and driver titles
• Pick up select shows in syndication window
– Cost: $10-20MM to license more content for variety and volume
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High-level Summary of Initiatives (Continued)
•
Unique Transactional Models: Launch transactional models that offer early content, greater ease
of use for consumers and leverages SEN’s strengths relative to cable and satellite
–
SEN as exclusive over-the-top provider for PVOD
–
SEN to offer premium EST (during period of exclusivity, only retailer offering EST in the theatrical window)
–
First-mover advantage for SEN and Sony Hardware to provide users with a cloud-based solution through
UltraViolet
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Recommended Process Going Forward
• Today:
– Review progress to-date on joint projects
– Discuss broad parameters for projects requiring shared investment, including originals
– Discuss technical priorities for transactional models, including CPSG support for UltraViolet
• Ongoing:
– SPE and SNEI coordination to execute against overall project plan
• Next meeting in January, with detailed review of plan for initiatives requiring shared investment
• Regular update meetings with:
– Corporate: Howard Stringer, Kaz Hirai
– SNEI Lead: Tim Schaaff
– SNEI Team: Shawn Layden, Mike Aragon
– SPE Leads: Michael Lynton , Steve Mosko, David Bishop
– SPE Team:
• Corporate Development: Jim Underwood
• Sony Pictures Technologies: Chris Cookson
• Crackle Plus: Andy Kaplan, Eric Berger
• Transactional: John Calkins, Jason Spivak
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Crackle as a Platform to Leverage
Sony already owns a premium content network, among only a handful in the market
• Top ad-supported channel on key television platforms (Top 5 channel on Bravia, Blu-ray, and Roku)
• Mobile downloads in line with major networks, e.g. comparable to HBO GO
• Significantly broader audience reach as a free service than several paid services, including Hulu+
and Amazon Prime
• Recognized alternative to Hulu, Netflix, and Amazon:
“People who’ve traded in pricey cable subscriptions for online alternatives
like Netflix, Crackle, and Hulu have been a hot topic recently.
—“25 Ways to Watch Movies and TV Online,” PC Mag
“A host of sites, including Hulu.com, Crackle.com and Xfinity, offer free
movies and TV shows streamable to your computer or TV.”
—“Not Netflix: Better Sites for Movie Bargains,” Wall Street Journal
“Crackle leads the way for free online movie content for a second week in
a row. Hulu, et al, you better step up your game.”
—“The Best Movies to Watch this Weekend,” CBS Interactive
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Video experiences optimized for the Sony networked device audience
• Free service creates largest user base and “out of the box” premium content experience
• Integrated upsell to PSN, PlayStation Plus, Video/Music unlimited (no 3rd party services can do this)
• Highly curated experience run by experts who Program target audiences worldwide
• Premium TV caliber original series to differentiate the network
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Deep Product Integration Drives Up-Sell
Actions on Crackle Plus…
…Drives Actions on SEN
Search: Gracenote
drives discovery of
paid content
• Watch Spider-Man as an adsupported movie option
• Watch a sneak peek of the
upcoming film
• Watch episode from prior
seasons of Community
• Search also recommends:
– Similar films for purchase or rental
– Sign-up for PlayStation Plus to get
Spider-Man game content
– Buy Spider-Man Shattered Dimensions
– Listen to the soundtrack on Music
Unlimited
– Purchase recent TV episodes
View original
series
• Watch series on Crackle based
on a PlayStation game
• Promotion spots encourage exploration on
SEN
– Buy the game
– Sign-up for PlayStation Plus
View a collection
• Explore themes tied to:
– Game content
(e.g., “Assassins,” “Heroes”
etc.)
– Music content (e.g., celebrity
playlists)
– For sale / rental titles included in
collection
– See related games on PlayStation Plus
– Explore the artist on Music Unlimited
Watch a concert
• Coldplay concert
• Add Coldplay to your Music Unlimited
favorites
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Privileged and Confidential
Crackle Plus, Exclusive to Sony
Sony already owns a premium content network, among only a handful in the market
An Out-of-the-Box Premium Video
Experience, exclusive to Sony Devices
A light version of the Network that
provides network and marketing scale
• Newer, high-quality, more movies
• Smaller selection of movies
• Premium TV caliber original series
• No or second window original series
• Exclusive TV syndication window
• Older, library TV
• HD video delivery
• Standard Def video delivery
• Fully integrated products driving up-sell
to other SEN services (transactional
movie, games, video / music
subscriptions)
• Marketing driver back to Sony
from high-traffic platforms
• Branded exclusively to Sony
• Keeps brand in competitive /
mindshare space with Netflix, Hulu,
Amazon, etc.
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Early and Exclusive Access through Unique Transactional Models
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Premium EST
Note: overall premium EST launch strategy and timing under review by SPE management
• Provide SEN users with an EST offering in the premium window (e.g., ~60 days post
theatrical release; will vary by market)
Overview
– Assumed deemed retail price of $25 or $30
– Exclusive vis-à-vis all EST providers for a limited time
– Number of eligible titles by territory to be determined
Differentiation
• During period of exclusivity:
• Only retailer offering EST in the theatrical window
• Ability to message “exclusive EST” product
• Provides a clear and compelling path to UltraViolet (UV) as a first mover (see UV offer)
• Limited, per transaction cost only; not a major investment
Cost
– 80% per transaction share to SPHE
– Costs to implement watermarking technology and other content protection measures
• Overall launch strategy and timing under review by SPE management
– SNEI to have first opportunity when strategy and timing are determined
Issues to
Address
• Subject to legal review; some product not available in all markets and potential reduction
in license fees under existing VOD/EST licenses triggered by grant of early window
• Watermarking technology (i.e., Verance/Civolution) and additional content protection
measures would be required
• Exclusivity available for a limited number of titles
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Privileged and Confidential
Premium VOD
Note: overall PVOD launch strategy and timing under review by SPE management
• Provide SEN users with VOD offering in the premium window (e.g., ~60 days post
theatrical release – will vary by market)
– Assumed deemed retail price of $20-$30
Overview
– Single view
– For a limited time, exclusive vis-à-vis OTT-only providers (i.e., iTunes, Xbox, Amazon, VUDU), but
no exclusivity vis-a-vis cable/satellite providers (i.e., DirecTV, Comcast, SKY), even if such
providers offer OTT services
– Number of eligible titles by territory to be determined
Differentiation
• During the period of exclusivity:
• Only non-cable/satellite service offering PVOD
• Ability to message a “digital exclusive”
• Limited, per transaction cost only; not a major investment
Cost
– 80% SPHE share per transaction
– Costs to implement watermarking technology and other content protection measures
• Overall launch strategy and timing under review by SPE management
– SNEI to have first OTT opportunity when strategy and timing is determined
Issues to
Address
• Watermarking technology (i.e., Verance/Civolution) and additional content protection
measures would be required
• Exclusivity available for a limited number of titles
• Subject to legal review; some product not available in all markets
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UltraViolet (UV)
• Provide SEN users with UV EST storefront which includes SPHE’s full EST catalog
Overview
– Wholesale prices for UV EST retailers discounted vis-à-vis traditional EST retailers to offset
additional UV costs
– Joint marketing programs
• First mover advantage with ability to become go-to destination in living room for UV
accessed through game consoles, connected TVs and connected Blu-ray players
• Leverage UV growth to drive SEN adoption:
Differentiation
– In the next few months, millions of physical units with UV tokens will be sold and consumers will
seek ways to access purchases in the UV cloud
– Consumers will also be able and look to convert their existing collections (i.e., millions of discs)
into UV lockers; SEN can become the preferred destination for locker conversions with a PS3
sitting next to DVD/Blu-ray collections
• Creates stronger relationship with customers as they grow accustomed to accessing the
video they already have through UV locker access via Sony devices
• Per transaction UV fulfillment costs borne by SNEI or passed on to consumer
Cost
– SPHE discounts UV wholesale prices in an effort to help SEN and other UV retailers offset such
costs
• Some UV licensing costs expected, depending on role played by SNEI in UV
ecosystem
Issues to
Address
• Hardware implementation of UV protocols
• Integration with UV coordinator
• Subject to legal review
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“Low Hanging Fruit”
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Leverage SPE Theatrical, Home Entertainment, Television Marketing
• Integrate SEN brand messaging into relevant SPE marketing assets where possible
– Theatrical: one-sheets, field promotions, in-film digital billboards, promotion of PSN or SENspecific tasks in films’ Alternative Reality Games
– Home Entertainment: DVD/Blu-Ray inserts/packaging, sizzle/spot on head of product, sizzle/spot
features on BD Live
Overview
– Television: In addition to off-air promotions, the Networks Group has committed media across
channels
•
On-air: SEN TV spots to air worldwide, SEN display and video messages to be featured on
channel websites
•
Off-air: Sony Times Square billboard, Sony Spotlight newsletter, Sony Facebook page,
Sony Twitter handle, Sony Cierge newsletter
– Cross-Divisional: Website (i.e., sonypictures.com)
Differentiation
Cost
Issues to
Address
• Increases awareness of SEN relative to its competition
• Little to no incremental cost
• Work closely with SNEI to develop appropriate branding, messaging and phasing for each avail
• Subject to legal review
• 3rd party marketing approvals
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Red Band, Extended Trailers and DVD Extras
• Provide SEN users with additional content
– Launch exclusive versions of a subset of trailers on SEN first:
•
•
Overview
Red band
Longer versions of trailers
– Feature value-added content such as outtakes, behind the scenes, cast profiles
– Prior to release of DVDs, make a subset of DVD extras exclusively available on SEN, subject to
content restrictions and 3rd party deals that can vary by title
– Ensure SEN achieves parity with 3rd party vendors (e.g., when a trailer is first launched on
Yahoo! the trailer is also available on SEN)
Differentiation
Cost
Issues to
Address
• Provides a regular flow of exclusive content that can be easily promoted
• Little to no incremental cost
• Subject to SNEI legal review of ability to show red band trailers and to SPE review of legal
issues
• Secure content to the network (e.g., prevent user upload of red band trailers to competing
outlets such as YouTube)
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Exclusive Access to 3D Versions of SPT Shows
• Provide SEN users with exclusive access to 3D versions of their favorite TV shows
– Film selected episodes of broadcast or cable network shows in 3D which will be featured
exclusively on SEN
Overview
Differentiation
Cost
Issues to
Address
•
Current shows that fit SEN demo include Happy Endings, Community, Rules of
Engagement, Breaking Bad, Franklin and Bash, Justified, Pretend Time with Nick
Swardson and Boondocks
•
2D versions air on original partner network
•
Network partner promotes availability of 3D version exclusively on SEN
• Provides a regular flow of exclusive content that can be easily promoted
• Emphasizes SEN’s unique 3D capabilities and helps drive further 3D hardware sales
• Incremental production cost of $100K – $200K per episode for existing TV series,
subject to Director and DP that accept SPT guidance on equipment and workflow
• TBD fee to buy-back exclusivity from the Network for an estimated 25%-50% of the
license fee for the nonexclusive episodes
• Confirm broadcast or cable network will allow 3D version to be distributed off-network on
an exclusive basis
• Requires identifying shows that both address the demo and have Director/DP support
• Subject to legal review
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Regular Discount Programs for VOD and EST
• Provide SEN users with regular (i.e., weekly/monthly) programs featuring
discounted EST and VOD titles
Overview
•
EST: focus on new release product
•
VOD: focus on premium catalog product
– Titles to be identified on a mutual and periodic basis
– Stunts to be programmed around genres/seasons/events/holidays
Differentiation
Cost
Issues to
Address
• When possible, discounts only available to SEN for the duration of the applicable program
• Should be viewed as a complement to other licensing programs
• Limited cost, per transaction only; not a major investment
• Title eligibility to be discussed on a market-by-market basis
• Subject to legal review
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Appendix: Strategic Considerations for Video Services
Subscription Video-on-Demand (SVOD) and
Ad-supported Video-on-Demand (AVOD)
Privileged and Confidential
SVOD and AVOD: Strategic Considerations (1 of 2)
• Previous discussions have evaluated the launch of a programmed video service as a
standalone profit driver, key considerations include:
– Investment in content and programming required to compete with leading services
– Number of customers likely to be acquired
– Revenue per customer
– Ongoing relationship with customers
• If a service is intended to be a standalone profit driver, the SVOD vs. AVOD decision
depends partly on appetite for investment and risk
– SVOD can be a high risk, high reward proposition
• Significant investment in content required given heavy investment by many competitors
• Harder to secure customers for paid service
• But SVOD offers the potential for higher revenue per customer (e.g. ~ $10/month of subscription
revenue) and an ongoing relationship
– AVOD can be a lower risk model, but with lower revenue per customer
• Success is possible at a lower level of investment; despite numerous competitors, investment in
exclusive content for AVOD services has been more modest
• Easier to secure customers for AVOD services
• But revenue per customer is lower (e.g., ~$0.03 of ad revenue per view), and programming
expertise is required to keep customers coming back
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SVOD and AVOD: Strategic Considerations (2 of 2)
• Sony’s existing revenue-generating services and connected device footprint give us the
opportunity to evaluate the SVOD vs. AVOD decision differently
• If a programmed video service is viewed as a customer acquisition tool for other revenue
generating services and hardware sales, strategic considerations change
– Strategic considerations include:
– Creating a compelling and competitive content offering with a reasonable investment
– Acquiring the greatest number of customers for the service
– Providing those customers with a reason to return on a regular basis
– Monetize by cross-selling these customers on paid services (i.e., Music Unlimited, Video
Unlimited, PlayStation Plus) and hardware
– AVOD’s characteristics better satisfy these strategic considerations:
– Lower investment in content is required to be competitive
– Free-to-consumer positioning makes it easier to acquire customers
– A well-programmed service provides a reason for customers to return on a regular basis
– Service can be deeply integrated into other paid offerings, encouraging cross-selling and
co-promotion
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Privileged and Confidential
Despite Netflix’s highly publicized subscriber numbers,
standalone SVOD services have attracted fewer customers than AVOD services
• Largest SVOD players accumulated subscriber bases of 5MM – 20MM+ by
bundling streaming service with other valuable offerings
“Bundled
SVOD”
21MM subscribers(1); until recently digital streaming bundled free with
subscription to physical disc rental service
5MM subscribers(2); digital streaming bundled free with subscription
to Amazon Prime shipping
• Standalone SVOD services, both pure-play and unbundled, have struggled to
accelerate and/or maintain growth
Standalone
SVOD
Struggled to reach 1MM subscribers(3) in first year
Concerns about slowing subscriber growth and defection with recent
“de-bundling” of physical and digital subscription tiers
• Standalone, free-to-consumer services can more easily reach a larger installed
base of regular users
7MM+ PC-based users and 10MM+ monthly unique users across all platforms
AVOD
5MM+ Crackle app downloads in 6 months
#1 free app on iTunes for 4 weeks
161MM monthly unique users(4)
29MM monthly unique users(4)
(1)
(2)
(3)
(4)
Includes “streaming only” customers and customers that subscribe to both streaming and physical rental per Q3 investor letter, released 10/11.
Source: Piper Jaffray research, 2011.
Source: Hulu Management Blog as of 10/5/11.
Source: Comscore Videometrix, 10/11.
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And Competition for SVOD Services is Increasing…
…but similar lessons are playing out again
• Gaining traction, but offering is bundled with a full linear channel that
customers have already paid for; no incremental charge
– 4MM+ app downloads(1) with participating distribution partners including
Fios, Uverse, Google TV, Cox, Comcast, DirecTV, Dish, Suddenlink and
Charter
TV Everywhere
• Apps getting traction and buzz, but like HBO GO, they are bundled as an
add-on to a full fledged service after authentication
• Despite content from 3 studios, has had limited success securing distribution
and customers for a ~$10 per month service
• Poor customer acquisition on cable has limited its ability to drive growth of
the digital offering
– Linear pay TV network is available to 30MM+ subscribers through its current
distribution relationships but has only managed to accumulate ~9MM(2)
actual subscribers to date
(1)
(2)
Source: Time Warner Q2 earnings call as of 8/3/11.
Source: Industry reports as of 8/12/11.
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SVOD and AVOD: Content Investment
• While the ability to attract customers to standalone SVOD services at $10 per month is still
being tested, the required content investment in these services remains high:
• Invested $1.2B in content in calendar 2010(1) with increases expected going
forward
• Estimated that Amazon paid $200-300MM for Lovefilm(2)
– Lovefilm investing heavily in rights acquisitions
SVOD
• Deals with studios have cost Amazon an estimated $350MM(3) this year. Note,
at this level, WSJ says "Amazon appeared to be keeping the size of the
catalog low”
– Continues to announce high profile content deals with major content
providers (e.g., ABC, CBS, Fox, NBC, PBS)
• Value of network content contributed by owners not disclosed but assumed to
be a multiple of Hulu Classic
– Media owners include NBCU, News Corp. and Disney
• By contrast, AVOD services initially drove significant viewership with little to no content
cost. Investment is increasing, but still well below investment in SVOD
• Historically licensed under rev-share only
AVOD
• Currently investing up to $100MM to producers as an enticement to launch
original content channels, but still less than the SVOD services
• Currently expects to pay content providers $300MM(4) in CY2011
(1)
(2)
(3)
(4)
Source: company filings dated 2/18/11.
Source: company filings and press releases. Note: Specific valuation for Lovefilm not publicly disclosed.
Source: Piper Jaffray, 2011.
Source: Hulu Management Blog as of 4/4/11.
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