summary of simon cowell partnership opportunities draft for internal comment only november 2007...
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Summary of Simon Cowell Partnership Opportunities
Draft for internal comment only
November 2007
Replace with SPE, Sony BMG and/or SCA
2CONFIDENTIAL
Agenda
• New SyCo Overview – 50/50 JV Sony BMG/Simon Cowell, plus related SPT production JV
– Overall Deal Structure, New SyCo
– Syco Today
– New SyCo Operating Assumptions
– Value exchange
• Sony Pictures Entertainment Contributions
– SPT
– GSN
– Crackle
– Film
3CONFIDENTIAL
Overall Deal Structure – New SyCo and SPT/NewSyCo TV JV
Sony BMG - Old SyCo, 2008-
2010 - $200 cash
All creative energies on exclusive basis 2008-2015
All fees and payments for services
New SyCo
Development staff
- All projects
- Funded internally
Old SyCo, 2008 – 2010
Music and film copyrights
Estimated value, by line of business
- Syco (’08-2010): 150
- Music (2010+) : 150
- TV: 20-50
- Film: 50-100
- GSN: 30- 35
- Crackle: 25
- SC other:30 - 80 (from SC)
Total: 455 - 590
SPE
- Film (production and distribution)
- TV (production and distribution)
- Scripted- Non scripted
- Crackle - GSN
Simon Cowell
Contributes all:
- Endorsements
- Fees for services
- Payments from Idol
- Est. 10-15/year?
- thru 2015
- Exclusive creative output through 2015
Receives:
Cash of 200mm
NewSyCo share value
- 10% - 25%
- 45 – 140mm
Overhead and production funding
Transaction occurs before 4/08 (for tax purposes)
Old SyCo
200 cash
200mm cash
25% equity (15% vesting) in NewSyCo
- 10% at signing
- 5% Fox renewal
- 5% 1st TV
- 5% 1st Film
Facilities
Recoup production
Facilities rent
Distribution and
production fees (Film)
SCA
- Film funding (potentially via 3rd party)
- Facilities
In $, mm, except as noted
Equity (75-90%)
Film production funding
Facilities
50% equity
Distribution fees
Production fees (TV)
Ready to air projects50% equity
Production and distribution svcs
SPT/New SyCo TV JV
All TV copyrights
Estimated value, 40 - 100
Production and distribution svcs
4CONFIDENTIAL
SyCo Today – [Note – Values to be confirmed/refined]
• Initially 50/50 venture between Sony BMG and Simon Cowell• 2 years ago 50% purchased for $90mm by Sony BMG• 2008-2010 value $150 mm (100%), rights include:
– Music, film and tv– American Idol artist recording contracts– X Factor, UK’s Got Talent, ___?
• XFactor US license from Fox is $10mm/year– Tracking slightly ahead of forecast done at time of acquisition of 50%– 3 year term remaining to 2010
• Excluded rights today include– Fox payments for Cowell services as judge (est. $10-15mm/year)– Endorsements– Other value of Cowell brand as personality– Production income from current shows (eg – XFactor produced by Freemantle)
• Extension for 2010 through 2015, could be $150mm (100%) for music output, before film, television and other revenue streams considered
• Cowell equity vesting based on performance
5CONFIDENTIAL
NewSyCo Operating Assumptions
• Staff - TBD– TV – 10 FTEs, growing to 20 over term,
• Split between NewSyCo and SPT/NewSyCo production JV– Film – 2 FTEs– Other
• Development budget– TV - $7mm/year, growing to $12mm/year– Film - TBD– Other (eg – Games, merchandising) - TBD
• Governance– Board of SCA, SPT, Sony BMG and Simon Cowell– Budget approval, etc
6CONFIDENTIAL
Value exchange
• At inception– Simon Cowell: contributes Idol fees (3 years valued at 30mm) plus 5 year SyCo deal
extension, gets 200mm plus 10% of newSyCo (valued at 35mm)• NewSyCo value is SyCo plus extension (300), plus Crackle (25), plus Idol fees
(30) = 355– Sony BMG: contributes SyCo (valued at 150mm) plus 200mm, gets 90% of
NewSyCo (valued at 320mm)– SPE: Nothing beyond any Crackle net value, unless some current TV production
shifts to SPT (eg – XFactor)
• Assuming full value realized over life of deal– Simon Cowell: contributes Idol fees (8 years valued at 80mm) plus 5 year SyCo deal
extension, gets 200mm plus 25% of NewSyCo (valued at 140mm)• NewSyCo value is SyCo plus extension (300), plus Crackle (25), plus Idol fees
(80), plus TV, Film and GSN (185) = 590– Sony BMG: contributes SyCo (valued at 150mm) plus 200mm, gets 75% of
NewSyCo (valued at 450mm)– SPE: Fees plus 50% of SPT/NewSyCo production JV (valued at 20-50mm)
7CONFIDENTIAL
Potential Value of Partnership Opportunities - SPT
Deal ComponentEntity Value
% to NewSyCo
Implied Value
Entity Value BasisSimon / SBMG
Equity Basis
Sony Pictures Television JV
$45MM -$100MM
50% $20MM -
$50MM
• 2 successful shows w/ network, sponsors, and syndication
• Funding for pilots required to yield 2 shows
• OH funding
• Based on % of development and OH funding provided
Crackle $62.5MM22.5% -
30% $15MM -
$20MM• Acquisition price
• 5% at close for cash• 15.5% based on EBIT
funding• 7.5% based on financial
milestones
GSN $600MM -
$700MM5%
$30MM -$35MM
• Negotiated value between Sony and Liberty Media
• Warrants• Based on financial
milestones
Partnership opportunities with SPT would provide $70-100MM in equity plus additional income to SPT/ NewSyCo
8CONFIDENTIAL
SPT is the top independent studio for network and cable television• Creator and distributor of top comedies, dramas, and game shows:
– #1 comedy of all-time (Seinfeld)– #1 primetime comedy last season (Rules of Engagement)– #1 daytime drama (Young and the Restless)– #1 and #2 game shows of all time (Wheel of Fortune and Jeopardy!)– #1 producer of TV movies, won 3 Emmys for Broken Trail this year
• Broad range of on-air shows, including 10 network shows, 8 cable shows, 5 syndicated shows, and 6 made-for-TV movies
• Industry leader in television distribution with records for shows like Seinfeld and King of Queens• Large ad sales organization with over $200MM in annual revenues
• Establish a JV with Simon and Sony Pictures Television
• Provide Simon access to SPT’s drama and comedy writers as well as our creative executives
• Cover multiple genres as well as scripted and non-scripted formats
• Provide Simon screen credits including Executive Producer, Logo Credit, and paid ads
Television Production
Sony Pictures Television Business Overview
Deal Overview
Simon will tap into Sony Picture Television’s resources, industry leadership, and expertise to expand the range of his television offerings
9CONFIDENTIAL
TV Production Company Overview
• Reality Shows (e.g., America’s Got Talent, Cupid)• Game Shows (e.g., Power of 10)
Organizational Structure
Business Model
Content Focus
• $7 MM annually required for development budget, 6 pilots (50% license fees covered by networks), and overhead in Year 1; growing to $12 MM by Year 5
• Only network shows assumed without need for deficit financing (i.e., no cable shows modeled)• Reality shows assumed to generate incremental revenue from sponsorship and format sales• Game shows assumed to generate incremental revenue from First Run Syndication,
Advertising (syndication barter), and international format sales
• JV headed by Simon Cowell with 10 professionals in the first year growing to 20 professionals by Year 5
• Wholly owned by SPT and NewSyCo (50/50 JV)
Key Success Factors
• Pilot pickup rate throughout the plan period in line with industry averages (33%)• Successful first run syndication of best game shows (e.g., Who Wants to be a Millionaire)• Reality formats attract significant sponsorship ($20 MM/Year by Year 3)• NewCo earns all EP fees at 10% of production budget (60-85% of PV)
PV of production company cash flows ranges from $40 MM to $100 MM driven by Simon’s ability to continue to create exciting television content
10CONFIDENTIAL
Slate Assumptions
– 6 pilots per year with a 33% pick-up rate for both reality and game shows
General Assumptions
– Mix of successful (3+ seasons, syndication and format sales) and under performing (average 1-2 seasons, limited sponsorship, no syndication) game show and reality programming
– Successful shows reach steady state economics in Year 3
– 100% network shows with license fees equal to production budgets
Case Specific Assumptions
Aggressive Case
Industry Average
Year 1 to 2 60% 27%30%
Year 2 to 3 50% 61%67%
Year 3 to 4 67% 67%50%
Base Case Aggressive Case
Reality Success 22
Reality Underperform 23
Game Show Success 32
Base Case
Success Rates Overall Programming Mix*
Game Show Underperform 3 3
Show Type
• *Numbers represent picked-up shows
11CONFIDENTIAL
Crackle is a premier destination for online video, focused on high-quality short-form video
• Crackle is elevating the quality of online video and attracting the best creators of short-form video
• Crackle has attracted a large and loyal audience, making it the ideal destination to extend Simon’s brand online
• Crackle’s model is an ideal fit for identifying talent, with a brand built on offering fame-based incentives to emerging talent
Crackle-based Online Partnership
Crackle Overview
Deal Specifics
With no cash investment, Simon would participate in creating the leading online destination for talent and extend his brand to a site that reflects his style of straight talk and celebrity
• Sony would grant equity in Crackle as part of the venture
• Crackle would provide technology, infrastructure, and management team
• Partnership would include marketing support and music video distribution
• Simon would receive cash compensation for his services, including contribution of his expertise in developing the Network concept
• Simon would contribute his name and likeness, public relations support, and on-going interaction with audience members
12CONFIDENTIAL
Collaborate with Simon to build a game-based business around his brand
• With the backing of Sony Pictures, Liberty Media, and new management, GSN is redefining its brand
• GSN is building on its position as a leader in TV game shows (reaching 66MM households) to expand into online and casual games
• GSN’s affiliation with Fun Technologies uniquely positions it to be the leader in games across platforms
GSN-based Game Partnership
GSN Overview
Deal Specifics
Leverage GSN and FUN Technologies to extend Simon Cowell’s brand into both television game shows and skill-based casual video games
• GSN would guarantee exclusive carriage for a defined number of Simon’s game shows each year
(number of shows / format would be negotiated)
• Partnership would provide equity to Simon
• Simon would have a dedicated programming block one night per week
• Simon, GSN, and FUN Technologies would collaborate in developing online skill-based games
• Deal would build on Sony’s partnership with IGT and history of introducing the most successful gaming
machines of all time to offer slot machines based on Simon’s game shows
13CONFIDENTIAL
Preliminary Proposal for an Overall Feature Film Deal
Sony Pictures Overview
Sony Pictures is Hollywood’s leading studio
• #1 in openings (2006 & 2007)
• #1 in market share (2006 & 2007)
• #1 in opening day receipts / weekend receipts (Spider-Man 3)
• 12 Best Picture Oscars
Deal Overview
• An exclusive producing deal with Sony Pictures for all theatrical projects through 2015• Overhead and fringe related to film operations covered out of NewSyCo operations• NewSyCo would produce pictures and retain copyright • SPE would distribute on a “rent-a-system” basis, and potentially provide production services for fee
Simon will leverage Sony Pictures’ resources and feature film production expertise, providing Simon a vehicle to bring his theatrical projects to the screen
14CONFIDENTIAL
Key SPE Assumptions – Film
• Development and Greenlight process– Ultimate greenlight decisions made by NewSyCo, with input from SPE– Overhead and development funding (amount TBD) covered by NewSyCo– NewSyCo bears production costs, via recoupable contribution from SCA– Copyright would remain with NewSyCo
• Production services provided by SPE for fee
• Distribution– SPE would be worldwide distributor in all markets in perpetuity on a rent-a-system basis– NewSyCo would provide theatrical marketing funds, via recoupable contribution from SCA– SPE would charge distribution fees and recoup other releasing costs
• Output Assumptions– 1 – 2 projects developed per year– 1 film produced every 2-3 years
• Alternative structure option could be to shift greenlight, copyright, production funding and marketing costs to SPE
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