bpa international investment, s.à r.l. · classifications. in the past, market trends indicated...

BPA International Investment, S.à r.l.

BPA International – Media Fund

Opportunities in Media – A Global US$ 2 Trillion Industry

www.redcarpetfund.com

SAFE HARBOR Caution Concerning Forward Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these so-called “forward-looking statements” by words such as “may,” “will,” “should”, “expects“ “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these and other comparable words. We wish to take advantage of the “safe harbor” provided for by this Act, and we caution you that actual events or results may differ materially from the expectations we express in our forward-looking statements as a result of various risks and uncertainties, many of which are beyond our control. Factors that could cause our actual results to differ materially from these forward-looking statements include: (1) changes in the competitive environment; (2) changes in business and economic conditions; (3) changes in our programming costs; (4) changes in laws and regulations; (5) changes in technology; (6) adverse decisions in litigation matters; (7) risks associated with acquisitions and other strategic transactions; (8) changes in assumptions underlying our critical accounting judgments and estimates; and (9) other risks described from time to time in reports and other documents we file with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements. The amount and timing of share repurchases and dividends is subject to business, economic and other relevant factors.


STEPHEN JOHNSON CHAIRMAN BPA INTERNATIONAL GROUP

An experienced international banker, offering more than 30 years financial and commercial experience, primarily gained in the European, CIS, Central Asian, Middle Eastern, African and North American markets. His activities have included privatisations and financial advisory, private wealth and fund management, corporate restructuring, structuring of senior, junior and equity-linked capital market transactions, tax structuring, project finance, leveraged and management buyouts and workouts.

Before founding and establishing the BPA International brand, he was a Managing Director at Bank of America NA, responsible for investment banking activities in the developing and emerging market countries of the EMEA region and was a member of the bank’s EMEA Management Board.

Prior to joining Bank of America, he held positions at The Fuji Bank Limited, London Branch (Mizuho Corporate Bank, Limited 1986-1991) and Midland Bank Plc, London (HSBC plc 1979-1986).


ALTERNATE INVESTMENT FUND FOCUS On 5th August 2013 BPA International received approval for a SICAV-SIF fund management platform in Luxembourg which is regulated by the CSSF. This “alternative beta” fund platform focusses on alternative investment strategies where the fund managers and advisors are able to exploit “active alpha” to generate superior yields. The core strategy of the BPA International Fund Management Platform is to ensure capital preservation through investment in opportunistic or unusual situations where market disconnects are perceived to be driving potential IRR beyond market norms, and where the investment will benefit from an active hands-on approach. The present focus areas of the compartments have been identified by the team as: Media, Entertainment & Internet – BPA International – Media Fund - “Red Carpet” Real Estate Development, Improvement & Investment Infrastructure Natural Resources Two new fund offerings are currently in preparation by the fund team and will target the global real estate sector: St Petersburg Residential Real Estate Development – US$ 100 million – commitment received for full amount Iconic UK Hotel Properties - £ 200 million – offer made to counterparties awaiting confirmations

Bespoke compartments can also be tailor designed by BPA International for well informed investors that want to create their own unique alternate investment sub-fund and intend to commit a minimum of US$ 30 million in capital.


RED CARPET FUND OFFERING

Fund Size: US$ 100 million Regulator: CSSF Luxembourg Fund Type: 7-year closed-end LP/GP structure Subscription Amount: US$ 500,000 (minimum) Target IRR: Above 10% Key Features diversified fund structure targeting film and internet exploits identified opportunities in the media sector designed to deliver high IRR on low risk strategies structured to generate income and capital gains lifestyle features

Red Carpet brings together seasoned industry and finance professionals in a project which will integrate three distinct but convergent media platforms and build a new independent film studio in Hollywood and a global digital TV platform in New York. The project is designed to attract media attention and to build opportunities for steady revenue generation as well as significant capital gains on exit. The project is expected to return the principal invested by the end of year 3 and then generate income until the exit point will be reached, which is expected between year 5 and year 7. Key Feature: no success fees are paid to the advisors or fund managers until the investors have received back (in cash) the principal amount of capital they invest in this fund in order to align stakeholder interests in this project


MEDIA & ENTERTAINMENT INDUSTRY

Global Entertainment & Media Outlook 2013-2017


MEDIA - DEFINITION

Industry Supersector Sector / Subsector

The Industry Classification Benchmark (“ICB”)

(www.nyse.com/about/listed/lc_all_industry.html)

This is a clipped down version of the ICB. The ICB -- which comprises 10 industries, 18 super-sectors, 40 sectors and 114 subsectors -- provides accurate and globally accepted industry and sector classifications. In the past, market trends indicated that stocks within the same geographical area performed similarly. For that reason, investors found it useful to compare stock performance by region or country. Investors still find geographic comparisons useful, but frequently find it more useful to compare stock performance by industry. The ICB is proprietary to FTSE International Limited and Dow Jones & Company, Inc.

Basic Materials Basic Resources Forestry & Paper, Industrial Metals, Mining Chemicals Consumer Goods Automobiles & Parts Food & Beverage Personal & Household Goods

Consumer Services Media Broadcasting & Entertainment Publishing Media Agencies Retail Travel & Leisure Financials Banks Financial Services & Real Estate Insurance Health Care Industrials Construction & Materials Industrial Goods & Services Oil & Gas Technology Telecommunications Utilities

Broadcasting & Entertainment - producers, operators and broadcasters of radio, television, music and filmed entertainment

(excludes movie theatres, which are classified under the Travel & Leisure subset Recreational Services)

Publishing - publishers of information via printed or electronic media

Media Agencies - companies providing advertising, public relations and marketing services (includes billboard providers and telemarketers)


COMMON DEFINING FEATURES OF THE MEDIA INDUSTRY A means of communication that reaches large numbers of people Characterised by distribution of the same information (or “content”) to a mass audience

Note: radio broadcasting and fixed-line telephony are both concerned with transmission of audio information, but fixed-line telephony is a one-to-one or one-to-several exchange, while radio stations make the same information available to a mass audience

Generally involves complex supply chains with multiple stages of production Most segments are presently experiencing a period of rapid change and convergence Globalisation - change in terms of size of the market, identity and preferences of the market participants

Technological change and innovation – digitisation and the introduction of new products and services

COMMON ECONOMIC FEATURES OF THE MEDIA INDUSTRY Content production is described as “non-rivalrous”

consumers do not compete for the same unit of a good - consumption by an individual of a certain piece of information does not prevent another from doing so as well

Economies of scale usually exist in terms of content production

Volume efficiencies - once created the information good itself — rather than its distribution — can always be provided to an additional person at zero marginal cost of production - as more consumers experience content the average cost of the content production decreases


MEDIA INDUSTRY PRODUCT CYCLE – content creation and distribution

A key attribute is that most parts of the industry, especially Film & TV segments, is that it is considered "generally recession-proof" as

people tend to continue to spend on low-cost forms of entertainment, particularly films, whatever the state of the global economy


MARKET SIZE – US$ 1.6 trillion (2012) rising to US$ 2.2 trillion (2017)

Global Entertainment & Media Outlook (June 2013)

Figs US$ billion 2012 2017 CAGR Pay TV Subscriptions & License Fees 172 212 4% TV Advertising 162 209 5% Internet Access 393 665 11% Radio 44 51 3% Out-of-Home Advertising 34 43 5% Video Games 63 87 7% Filmed Entertainment 89 106 4% Newspaper Publishing 164 164 0% Consumer Magazine Publishing 82 83 1% Business-to-Business 187 214 3% Internet Advertising 100 185 13% Consumer and Educational Publishing 102 104 1% Music 50 54 2%

USA E&M Revenues 499 632 5% USA % of total E&M 31% 29%

PwC forecast that USA remains No1 E&M market through 2017, followed by Japan, China, Germany, UK and France


WEST ACCOUNTS FOR >70% OF E&M – but growth rates are much higher in developing countries

PwC forecast 2/3 of the world population will be Middle Class by the year 2030


DIGITAL & SMART DEVICES - disruptive devices

“…growth is… concentrated on digital media platforms and associated consumption….we are…seeing a shift in control from the media companies to the consumers…consumers have more choices, but we are seeing that they also are more confused by all of this choice…"

Joe Atkinson, Principal, PwC Entertainment & Media

Traditional Film & TV groups are struggling to maintain profit margins as Internet distribution splinters the audience - and threatens to unravel the whole industry's principal business model - selling bundles of TV channels to paid subscribers. Internet will deliver content to anyone who has the most basic device – and smartphones, tablets, laptops and personal computers are available at increasingly low price points – which gives consumers of almost any economic range the ability to consume whatever the Internet can offer.


DIGITAL MARKET - growth is being fuelled by increased access


DIGITAL MARKET - growth is being rewarded by increased advertising spend

“...increased access to the internet - largely now mobile - increased penetration of smart devices, is all at the centre of the overall growth of the entertainment and media industry...” “...the industry is going through a profound change…TV advertising is holding its own…newspapers are losing share to digital…”

Marcel Fenez, Global Leader, Entertainment & Media, PwC


KEY INDUSTRY SEGMENTS


TARGET SUB-SEGMENTS – opportunities for Low Risk / High IRR

Production

Distribution

IPTV

+ +Drivers: change in the output of the studios and growth in international markets has created more demand, while a “sweet spot” in mid-budget film making has emerged which supports “break-out” hit generation.

Drivers: growth in volume of independent content from less experienced players, global demand growing for content, especially digital content rights for IPTV. Note: a high degree of synergy exists with other target segments (this group “greases the wheels”).

Drivers: transition from traditional broadcast mediums to internet, changing advertising spend patterns, also creates follow-on opportunities for interactive and social media applications, product placement, mechandising, etc.


THE OPERATIONAL HEADS

Steve Barnett, Production

Stephen Break, Distribution Garik Goldsheyd, Digital

Based in LA, Steve has been a media executive involved in film development, production, financing, distribution, marketing and business affairs for some 20 years. Steve has produced or managed films that have generated over US$ 1 billion in box office revenues, including: “300”, “The Spiderwick Chronicles”, George A. Romero’s “Land of the Dead”, “The Mist” and “Piranha 3D”. In January 2013, Steve established Barnyard Media which currently has 3 films and TV projects under development.

Based in LA, Stephen started his entertainment career with DVD rental group Blockbuster and went on to head DEJ Productions. DEJ grew to become one of the biggest buyers at film festivals like Sundance, and was directly involved in Academy Award winners and critically acclaimed hits including Monster, Crash and The Matador. After selling the DEJ 300-title catalogue, Stephen held senior management positions in Bauer Martinez, Weinstein and Millennium Media. In 2010 Stephen formed the LA-based distribution company Naedomi Media LLC.

Based in Chicago, Garik has spent the last 9 years immersed in the growing field of digital advertising and content distribution. After gaining experience at ControlTV, Tangible Media and Starcom Mediavest, Garik joined NY based DBG and managed digital-based media campaigns for Fortune 500 brand advertisers. He was a member of the production team behind “The Confession” the first “A”-list feature film to be developed directly for the Internet and which was syndicated across Hulu. Since January 2013 Garik has been VP Operations at the Chicago-based Philo Broadcasting.


PRODUCTION - Hollywood has been the driving force in the Film & TV industry for the last 80 years

Hollywood and the conglomerates that operate in it represent the epicenter of the global film and TV industry. Historically, the dominance of Hollywood films has increased with the advent of each new media, from home video and DVD to cable and satellite. Hollywood films represent more than 50% of the global box office receipts in 24 of the top 31 countries by cinema admissions. The principal exceptions - China (Hollywood = 38%), Turkey (36%), Egypt (20%) and India (6%) – maintain domestic production and significant barriers to entry. The EU is the only region with any significant global presence, but lost its market presence to Hollywood during the 1930’s. Hollywood accounted for 63% of the US$ 8.5 billion EU box office receipts in 2012, with Sony’s “Skyfall” listed as an EU production (because it was filmed in the UK). Budgets average than US$ 5 million, and France is the lead player because of State subsidies and support. The single most dominant force in European cinema has been Canal+, which is the biggest single investor and biggest buyer of film rights in Europe. The remaining production is mainly concentrated in Germany, Spain, Italy and the UK. The EU film market remains heavily fragmented, with no real “studio” equivalents, and relatively few EU films ever travel outside their country of origin. India (including Bollywood) is the leading volume producer of films (>1,000 films annually) and double the US cinema audience. The industry is restricted by: number of screens (13,000 cinemas vs 40,000 in the USA and a market reach of only 45 million people); only 4% of population go to cinemas regularly; and low ticket prices. The market is growing at c10% annually and recorded US$ 3 billion revenues in 2011, and is forecast to grow 50% by 2016. Films are mainly low budget (average US$ 1.5 million) and the highest budget to date has been US$ 27 million. Only 10 films have recorded more than US$ 30 million in gross receipts and the highest recorded gross was US$ 61 million (“3 Idiots” released in 2009).

All elements needed for modern film production exist in and around a very concentrated center (Los Angeles) from content acquisition through distribution. Development of digital delivery mechanisms (as part of the explosion of the internet) means that the expertise traditionally found in Hollywood is now being reinforced by established media skill sets found in New York, historically a US centre for the TV industry, advertising and art theatres.


US FILM INDUSTRY – MAJOR STUDIOS – are all owned by large cap groups


US FILM INDUSTRY – MINI-MAJORS – most are private companies

Studio DreamWorks Studios DreamWorks Animation FilmDistrict Lions Gate Established 1994 2004 2010 1977 Listed NO YES NO YES (Canada) Market Cap (US$ bn) na 2.3 na 5.0

Lead Players Steven Spielberg Jeffrey Katzenberg Peter Schlessel Jon Feltheimer

Comment Distribution agreements with Disney (Touchstone) & Mr Smith

Entertainment

Distribution agreements with 20th Century Fox

Distribution agreements with Sony

Studio MGM holdings Open Road Relativity Weinstein Established 1924 2011 2004 2005 Listed NO NO NO NO Market Cap (US$ bn) na na na na

Lead Players Gary Barber

Tom Ortenberg Ryan Kavanaugh Bob & Harvey Weinstein

Comment Owned by creditors Owned by cinemas chains AMC and Regal.

Hedge fund Elliott Management was recently bought out by US

billionaire Ron Burkle


FILMS DISTRIBUTED BY THESE TWO GROUPS TOOK 99% OF THE US BOX OFFICE IN 2012


US FILM INDUSTRY – INDEPENDENT STUDIOS – very few are listed companies


FILM INDUSTRY – going through revolutionary technological and social changes OLD – North America & Western Europe - use of chemical film – theatrical (cinema) film & TV distribution – DVD NEW – Global - digital (>2/3 of cinema screens are already digital) - handheld devices – internet (instant access & gratification) During the economic downturn the film industry continued to grow – 2012 theatrical receipts grew 6% to US$ 34.7 billion. Globalisation and technology (digital media and the internet) are key factors contributing to new and massive opportunities appearing in this industry sector. Reduced costs of production - supports growth of the independent players - improved content - use of digital manipulation / special effects New distribution channels emerging - ability to distribute via new media - especially via the internet - low budget independent films can reach mass audiences Note: the statistics shown in the chart are based solely on the theatrical (ie traditional cinema or “box-office”) release of a film - the “ancillary” non-theatrical revenues may often exceed the theatrical revenues streams, and include income earned from home-video (DVD/Blu-ray), satellite, cable and TV, in-film product placement advertising, internet and merchandising.


INTERNATIONAL MARKETS – twice the size of North America - highest growth segment

Asia Pacific, Latin America and the CIS are key growth markets China is experiencing by far the highest growth rates - up 35% in 2011 and 36% in 2012 – when it took the No2 market position from Japan During 2012 China expanded concessions and allowed 14 premium format films to be exempt from its quota restrictions

China is poised for a massive growth as the level of censorship recedes and foreign films are allowed freely into the country - an Ernst & Young report predicts that the US domestic market will be eclipsed by China in 2020

Note: the statistics shown in the charts are based solely on the theatrical (ie traditional cinema or “box-office”) release of a film - the “ancillary” non-theatrical revenues may often exceed the theatrical revenues streams, and include income earned from home-video (DVD/Blu-ray), satellite, cable and TV, in-film product placement advertising, internet and merchandising.

"…China's building about 10 screens a day. There's a voracious appetite for product. Our films have done consistently well there…"

- Chris Dodd, Chairman & CEO, MPAA


NEW CHALLENGES - profound changes are being driven by new markets and digital piracy

New Technology has: created a new delivery system which is instant and dynamic – the internet created a new generation able to access digital content through applications like BitTorrent - as soon as release - for no cost provided a myriad of new media for viewing: home cinema, DVD, cable, computers, iPads and other tablets, cell phones developed a global taste for instant gratification Social & Political change is: steadily opening up new channels of access to vast new emerging market audiences broadening the areas of global interest beyond the mainstream Hollywood blockbusters and network TV programming led to the emergence of new demands including localised content, fringe and special interest films and media reduced price points that the majority of people are able or are willing to pay before they choose to access content illegally

The industry changes are perceived as a threat by the studios who are struggling to react beyond courthouses. “....the continued theft of movies online will have a sustained adverse impact on movie attendance in the coming years......it's impossible to compete with free..."

Bob Pisano, President, Motion Picture Association of America


INTERNET – a massively disruptive force on this industry Internet has started its development as an entirely different distribution medium with new methods of revenue generation.

Piracy of digitised content is prevalent - especially amongst the internet savvy younger generation in low income per head markets outside the USA. These represent the new audiences that will be very unlikely to change established habits as they get wealthier or older. In its E&M report 2013 – 2017 PwC identifies “a blizzard of consumption choices” that confuses consumers. In Singapore, for example, “some consumers were paying for pirated TV content when the same content was available legally at no cost." Relatively few players – and few industry majors – still comprehend these market dynamics fully – the challenge the executives are struggling with is will be how to generate income from something people now take for free and which is easily and readily accessible.

Given the nature of digital piracy internationally - internet distribution - especially distribution that involves generating the core revenues from advertising - may translate into the primary means of driving growth and revenues.


PIRACY - USA online survey (PwC) – 09/2010 Pirating behaviour will continue despite consumers’ concerns about their actions 81% of consumers that admit to pirating TV, movie, and video content say they will likely continue to do so, even though 2/3 also noted concerns about: computer viruses; getting into trouble for doing something that may be illegal; and Inferior quality/fidelity of the content. Not paying has become mainstream More than 50% agreed that “everyone does it” and family and/or friends—presumably trusted sources — were frequently how consumers learned about websites that offer pirated content. The growing number of ad-supported websites is contributing to increased piracy Free sites may be causing confusion as to what is pirated content and what is legitimate, free content. 70% of those who pirate also acquire free content legally from ad-supported websites. Most pirates are not concerned about the economic impact of their actions Only 1/3 consumers who pirate worry that piracy may drive up costs. Mobile piracy is here and will likely increase As the number of consumers who access content via mobile devices increases, mobile pirating may also increase. 40% of those who report “pirating” content via traditional methods said they will probably also pirate on mobile devices within the next six months.

“…content providers should explore advertising-supported as a way to distribute content for free to curb pirating behaviour...”

willingness to watch advertising in exchange for free content


STUDIOS ARE FOCUSED ON BIG BUDGET FILMS – creates demand for independent films

MPPA (the Motion Picture Association of America) is an American trade association that represents the six major Hollywood studios: The Walt Disney Studios; Sony Pictures Entertainment; Paramount Pictures; 20th Century Fox; Universal Studios; and Warner Bros.

When the major studios started to earn a lower take from films, they reduced the number of films in production and concentrated the budgets into fewer films – film budgets between US$ 100 and US$ 300 million are now common. This move has concentrated global audiences:

110 films represented 90% of the North American box office in 2011 135 films represented 95% of the North American box office in 2012


THE BILLION DOLLAR CLUB


FILM FLOPS – when studios get it wrong

Headline numbers on big movies can be impressive but the Studios face a big challenge to generate high absolute ROIs because of simple mathematics – revenues will always be constrained by the absolute number of global audience – so higher ROI is found in lower budget films that achieve mass appeal


“HOLLYWOOD ACCOUNTING” – only 5% of Hollywood films officially make a profit Research published by DeVany and Walls (1999) suggested film making is amongst the highest risk form of project (film finance is a sub-set of project financing) as the probability distribution of the theatrical earnings or box-office has infinite variance – they proposed that the film business cannot be viewed as “normal” business because outcomes do not follow any normal probability distribution – QED - any cash flow projection will be highly uncertain.

This perception of risk is reflected in the way banks or lenders typically structure film projects with higher levels of equity – while developed market toll-road projects may carry debt/equity ratios as low as 95% most independent films carry debt ratios of around 20% against 80% equity. However, one of the reasons why the film industry is generally considered “high risk” can probably be laid at the door of the Studios themselves because of the widespread use of “Hollywood Accounting”. It has been estimated that only 5% of movies officially show a net profit, and this is as a result of the opaque accounting methods used in the film, video and television industry to budget and record profits for film projects, and expenses may be heavily inflated to reduce cost of taxes, royalties and other profit-sharing agreements. The film "Losers" include well known blockbuster films like “Rain Man”, “Forrest Gump”, “Who Framed Roger Rabbit” and “Batman” which all achieved massive takes in box office and video receipts – and a very brief list of other examples of this “Hollywood Accounting” include:

Buchwald v. Paramount a US court found it impossible to believe that “Coming to America” which had grossed a combined US$ 350 million on a

budget tenth of that failed to make a profit - Paramount settled for an undisclosed sum rather than have its accounting methods closely scrutinized;

Although it earned US$ 475 million at the box-office (vs a budget of $32.5 million) according to Lucasfilm “Return of the Jedi” "has never gone into profit"; and

Despite nearly US$ 1 billion box office and numerous other revenues streams (vs a US$ 150 million budget) a WB receipt was leaked online showing that “Harry Potter and the Order of the Phoenix” ended up with a US$ 167 million loss on paper.

Note: Big-name actors now insist on "gross points" (a percentage of gross revenue) rather than “net points” (a percentage of profits) in their contracts – “net points” are commonly referred to as "monkey points" after Eddie Murphy stated that only a fool would accept net points in his or her contract.


LOW BUDGET FILM LEGENDS – low budget films can generate massive ROI in very short periods

Low budget film makes the 100X ROIs of the record breaking tech stocks look lame (ie Facebook or Twitter) - however low budget films are usually a risky gamble - losses occur frequently in this category - more than 95% of independent films never get shown in cinemas - more than 50% fail to return all the equity capital - this is mainly because all the inexperienced film makers are concentrated into this segment as a result of simple funding constraints. However, there are winning formulas - and many of these were pioneered by The “King of the B-Movie” Roger Corman – responsible for nearly 400 low budget films at a profit over a 50 year career. His film The Little Shop of Horrors (1960) was reputedly shot in two days and one night.


MID BUDGET FILMS – US$ 10 million to US$ 50 million

A “Sweet Spot” occurs in this mid-budget film segment – and this is where the “Breakout” hits occur


WINNING FILM FORMULAS - the more elements in place the greater the risk mitigation

PRODUCTIONCYCLE

Director - experienced multiple award-winning director or substantial successful track record.

PRODUCTION experienced team with a successful track record

Talent - an internationally “bankable” cast - attachable through the top talent agencies (CAA, WME, etc).

Cinematographer – leading player with track record (Note: this person brings in the production and lighting crew)

Music - strong soundtrack by a recognized artist or composer/arranger experienced in writing music for film.

Completion Bond

Budgets & Cashflow Projections.

Product Placement

Foreign Pre-sales

Soft Credits

Team – the production team and the director should be passionate (almost to an obsessive level) about the film project. Screenplay – a good story focused on winning formulas: action / thriller / suspense / horror / SciFi - with a subject matter that transcends borders and languages ensuring an international appeal. Cast – A-level talent with foreign appeal should be supplemented by up-and-coming B-level talent &/or stars recognised in key international markets (outside Hollywood). Slate - single films are high risk – a slate (multiple film line up) mitigates the risk of a unforeseen events beyond anyone’s control and spreads the risk.

Domestic Pre-Sales & Distribution Strategy - should achieve a 2500+ screen platform release or equivalent and home sales.

Merchandising (games, toys, etc).

Senior Finance

Equity

Extras

Post-Production

Sets & Costumes

Packaging Advertising Distribution

Franchise Opportunities

Screenplay – strong storyline written by a scenarist ranking in the top 5% in the industry.

MOU

Product Placement

STAR

T

Filming Contracts


FILM FINANCE AND MARKET PRACTICES

Bank Debt

Studio Co-Finance*

Product Placement (Up-Front Fees)

Mezzanine Debt

Gap Funding

Equity

Pre-Sales International

TV / Cable / Satellite Distributor

Studio (Negative-Pick-Up)

Production Incentives (tax credits, rebates, etc)

Risk Share

Unsold Territories

Completion Bonding

Finance Sources available to cover

Production Budget Prints & Advertising

(includes digital transfers)

Collateral Package made available to

Providers of Finance

Product Placement (Paid on Delivery)


RISK MITIGATION TECHNIQUES - <including but not limited to> SPV - each film is isolated in a project SPV to ring-fence the liabilities, avoid contagion to other projects and enable normal tax structuring. Risk Share – the stake-holders in the project (from the writers, producers and directors through talent and suppliers) often take risk shares (or participations) in the net proceeds reducing up-front costs. Distribution - production is only the front end part of the film making story, and the distribution strategy should be in place before the film is financed and shot. Talent – agents usually require “Pay-or-Play” contracts (ie pay whether the film happens or not) for recognised actors so the “package” (the elements that make up a film project) is usually structured before financing is secured on the basis of simple indications of interest, which are firmed when the financing is secured – this practice relies on maintaining good relationships with talent agencies (or else the indications are worthless).

Foreign pre-sales and soft money typically

covers 85% (or more) of the film budget Slate – Citibank’s research showed that a hit movie makes more money than a poorly performing movie will lose, and that across a slate of 20 films two or three hits will ensure a positive return for film investors (research was based on over 30 years of historical performance data). Funding Support – the following elements should be considered when structuring a project:

Product Placement

Production Incentives

Pre-Sales

Increasingly an important source of finance in any budget, this was first successfully tested in Spielberg’s film “ET” (1982).

The recent James Bond movie Skyfall is thought to have covered its entire budget from product placement, including a notable US$ 45 million deal with Heineken (which only appeared briefly in two scenes). Cars, jewellery and clothes are typically provided by brand names.

Tax credits (or “soft money”) are provided by countries including the USA to encourage film making and can meet up to 70% of the budget:

Canada – between 20% to 50% Malaysia – tax incentive of 30% USA (examples):

- Louisiana – 35% - Georgia – 30% - Michigan - 40%

Film rights are normally divided between domestic (North America) and international (everything else). They are then sub-divided on a country-by-country basis, and by delivery method (theatrical, pay-TV, TV broadcast, Cable, home entertainment and digital).

It is common practice to pre-sell the foreign film distribution rights in order to generate finance for the budget. This also leaves the most lucrative territory of all, North America, which can also be pre-sold or sold on a fee based distribution deal.


RETURNS Industry average IRRs for film production is strong (c20% - 30%) - a “sweet spot” lies in the mid-budget segment The mid-budget segment is where the bulk of the “breakout” hits occur – these yield 3X or 4X the budget (or more) This level budget can deliver a high quality film – but cost constraint makes it easier to deliver high absolute ROIs The standard industry approach is to expect one “breakout” hit for every four to six mid-budget films produced A typical deal for equity in an independent film is “130% plus 50% of net” (ie principal plus 30% plus 50% of the profit) Film company IRRs can be massively enhanced through good use of debt, pre-sales, soft credits and product placement

A film with budget of US$ 15 million can yield very high ROIs (or infinite ROI) based on simple techniques Note: use of soft credits is very common – Warner received an estimated £150 million rebate from the UK tax payers for the third Harry Potter film


PRODUCTION STRATEGY

1. Focus on Winning Formulas

Slate Approach Target the Mid-Budget Sweet Spot – US$ 5 Million to US$ 50 Million Winning Genres – Action, Adventure, SciFi

2. Operating Structure

Focus on International Markets Manage the Structural Challenges and Tax Implications

3. De-Risk

Receivables - Pre-Sales / Soft Credits / Product Placement Secure Distribution Deals Innovate on Finance

4. Work Smart

Leverage Insider Contacts Build on the Synergies with the other Red Carpet teams Collaborate with other Groups and Independents

Production Generates Revenues

De-Risk and Deliver IRR

Leverage and Mechanise

“..…number one tip is to keep budgets reasonable, number two is to have a great concept and number three is to make a movie that is actually good…..as for number four, have the star serve the movie. Not the other way around…..”

Paul Dergarabedia, President, Hollywood.com Box Office Division


SLATE APPROACH

THE ZONE

GHOST SOCIETY WHISPER PHANTOM BAND OF MISFITS

Action thriller Action / Supernatural Thriller Horror / Supernatural

Psychological / Supernatural Thriller

Action Adventure

Ukraine, Kazakhstan, Russia Throughout Europe South East Asia TBD

US / Central Europe

Terrorists steal equipment which can generate toxic radioactive materials from nuclear waste. A multi-national special-forces team is sent in undercover to retrieve the equipment and waste to ensure the public don’t panic. The deadly trail converges at the planned source of the nuclear waste – Chernobyl.

Franchise plot line based on the paranormal investigation and research organization that was founded by Charles Dickens and Sir Arthur Conan Doyle, a secret society made up of international scientists, politicians, clergymen and academics for whom psychic phenomena was an established fact.

In a WWII Japanese POW camp a group of American and British soldiers are caught up in an impossible situation – how to survive when a violent spirit has only one intent in mind – revenge against the guards it holds responsible for its death.

A TV series set to the theme of the classic Phantom of the Opera. Set in the present-day, this is a deadly love triangle between the menacing Phantom, the talented and beautiful diva that the Phantom becomes obsessed with and a rich businessman that the girl is in love with.

When one of their team is taken as a hostage by a Serbian warlord and is abandoned by the US government, a rag-tag group sets out on a dangerous and violent mission to rescue their friend, and at the same time redirect their lives.


BULLETS PAYDAY ECHOES

THE SURGE

DRIFTER

Action adventure Thriller Thriller Action / Grounded Sci-Fi (time travel)

Psychological / Supernatural Thriller

US City New York, Paris, London, Berlin, Frankfurt

Macao, Venice Ocean Depths, China US City

After his family is brutally murdered in a home invasion robbery, Dodd, a white collar executive, becomes a finely-honed instrument of vengeance against those responsible, only to find himself being unwittingly manipulated by a mysterious vigilante ‘court’ that uses him to carry out death sentences on criminals that have slipped through the cracks of the conventional justice system.

A team of notorious bank robbers are brought together to pull off the biggest heist of all-time – stealing US$ 200 million in gold being transferred to the Bundesbank from gold vaults beneath New York, Paris and London. The film follows the themes of some all times classics, including “The Thomas Crown Affair”, “Robbery” and “The Italian Job (1969)”.

Film within a film concept set at the red carpet after-party for a first night screening of a new action blockbuster movie which tells the story of the theft of a priceless diamond. A real team of misfits is intent on pulling off the real heist – with well-known celebrities caught up in the action.

After a catastrophic nuclear disaster deep below the ocean surface, a badly injured scientist finds himself uncontrollably jumping through time in an attempt to change his past, present and future.

After enduring tragedy, a young couple on the brink of divorce invite a desperate man into their home in a random act of kindness. What starts as something fun and innocent quickly becomes dangerous as the Drifter seduces the couple across legal, moral, and sexual boundaries. The couple find themselves in a harrowing fight for their lives that brings them both to the very edge of death’s door.


INTERNATIONAL MARKETS The Zone


Echoes


INSIDER CONTACTS Steve Barnett is an established Hollywood insider, and has been involved in delivering a slate of over US$ 1 billion. He is based in Los Angeles, and maintains very strong personal relationships with well-known names, notably Bernie Goldmann. Steve Barnett is currently working on the following productions with Bernie: Valiant One (Declassified) – US$ 5 million film - fully funded - domestic offtake from

CBS Films and which should be filming in 2014. Written and directed by Daniel Myrick (Writer and Director of The Blair Witch Project). Found footage action film about a multinational team of soldiers stationed in South Korea whose helicopter crash lands behind enemy lines in North Korean. Seeking cover, the team retreats to a home in a nearby village, and find themselves engaged in a battle for survival that would make the most seasoned warrior cringe -- and it is all caught on their high-def head cams titles (Steve is producing this film with Bernie Goldmann).

Five Fingers of Death – remake of one of the Shaw Brothers classic martial arts

titles (Steve is producing this film with Gianni Nunnari (300, SE7EN) and Bernie Goldmann).

Sun Valley – one hour TV pilot episode commissioned by Amazon Studios. Written

by “Bates Motel” creator Anthony Cipriano, the project is set in the underside of the San Fernando Valley and follows Sean Moore, a brilliant but unconscionably violent street thug, on his journey to the top of a criminal conglomerate. Sean is guided by his over-protective and power-hungry mother, Maggie, and the pair develop an empire built from the vast cultural fabric, a corrupt police department and the seedy underbelly of Los Angeles. Bernie Goldmann and Steve Barnett are executive producing the project with Cipriano.

Bernie Goldmann has been responsible for more than US$ 2 billion dollars of box office movies.

Bernie Goldmann has worked in the film industry as both an executive and producer. He is a veteran of both Disney (SVP Production) and Village Roadshow Pictures (President Production) Goldmann has a long list of credits including: Training Day; Ocean’s Eleven; Three Kings; The Matrix; Space Cowboys; Practical Magic; Analyze This; Miss Congeniality; Deep Blue Sea; Saving Silverman; Cats and Dogs; Looney Tunes Back in Action; Taking Lives (Angelina Jolie); Mirror, Mirror (Julia Roberts); 300 and 300: Rise of an Empire. He worked alongside Zach Snyder and Steve Barnett in Land of the Dead, as well as 300 which broke box office records and was embraced by audiences and critics worldwide.


Steve Barnett maintains good working relationships in the industry, including: Producers Directors

Wyck Godfrey and Marty Bowen (Twilight); Roy Lee (The Departed, The Ring, The Grudge); Lionel Wigram (Sherlock Holmes, Harry Potter); Mark Varhadian (Transformers); Dan Lin (Sherlock Holmes, Gangster Squad); and Mark Canton.

Zach Snyder (300, 300: Rise of an Empire, Man of Steel) Doug Liman (The Bourne Identity, Mr and Mrs Smith and Tom

Cruise's new film); Louis Letterier (Now You See Me, Clash if the Titans); Noam Murro (300:Rise of an Empire); Seth Gordon (Horrible Bosses).

Studio Heads Agencies & Distributors

Greg Silverman at WB; Brigham Taylor (formerly Disney now developing an exclusive

production deal with the studio); Erig Feig & Geoff Shaevitz at Lionsgate; Jon Jashni at Legendary; Tucker Tooley at Relativity; Holly Bario at Dreamworks; Peter Cramer at Universal; Jon Glickman at MGM; and Steve Bersch & Eric Paquette at Sony.

Todd Hoffman (until recently with ICM Partners one of the leading talent and literary agencies and now running his own company. Amongst other things Hoffman was responsible for creating the TV series “Friends”.

Campbell McInnis/Bill Johnson, Lotus Films - heavily focussed on foreign sales.

Josh Kesselman, Manager-Producer, Thruline Entertainment - a leading Hollywood management and production company

While he was working for Michael Ovitz he also worked with Scorsese on a number of projects, with DiCaprio on another project, and took all the Tom Clancy books to film.


GLOBAL TV INDUSTRY – five times the size of the global film industry

By 2017 the number of TV households worldwide will reach 1.6 trillion, with more than 87.6% connected digitally through cable, satellite or the internet. 8.5% of households – more than 100 billion - will be watching IPTV. Terrestrial TV will continue its decline and drop down to the number three spot, with a 24.4% share of the market. – source: iDate


“….I hate television, I hate it as much as peanuts, but I just can’t stop eating peanuts….” - Orson Wells

Source: iDate (2012) “World TV & New Video Services Markets Status Report”


TRANSITION – the impact of technological and social changes Television - like the mobile phone - is getting more sophisticated - becoming the “computer in the living room” and lines are increased blurring between flat screen TVs, smart phones, tablets, computers, etc - this change is occurring because Internet is making it easier for people to consume media and purchase items with instant gratification. Internet Protocol TV (“IPTV”) delivery methods have already developed - known as “anytime-anywhere” – these originated in the USA –content is offered in 3 Video-On-Demand formats: pay-per-view; subscription and advertising supported.

USA demonstrates a decline in physical or “hard” home entertainment sales (DVD/Blu-ray) and growth in digital revenue. During 2012 soft copy rentals had almost reached the same revenue level as hard copy rentals (US$ 4.3 billion vs US$ 4.4 billion). Broadcasters acknowledge an Internet-driven future – most offer free “catch-up” TV on web sites – allowing access to content up to 30 days after broadcast. Satellite, cable & telecoms groups see IPTV as an alternate route to market - often sold as a tack-on to existing packages – enabling them to monetise archived content. Producers see IPTV as a new way to monetise their back catalogues and get recognition. Online video is generating paydays for a host of new IPTV delivery platforms: Netflix (traditionally a DVD rental group); You Tube (owned by Google); iTunes (owned by Apple); Zune (owned by Microsoft); LOVEFiLM (owned by Amazon); Blockbuster (owned by Dish Network); hulu (owned by: Comcast / Fox / Viacom / Disney / Providence); and Vudu (owned by Wallmart). Hulu claim IPTV it is 2X more effective for advertisers than the traditional TV channels.


TRANSITION – natural evolution of the content delivery process

Global TV (source: PwC)

Figs US$ billion 2012 2017

Broadcast 172 212 Advertising 162 209

334 421

Cable remains the dominant platform globally for delivering pay TV

services, although the market share declines

Global Film (source: PwC)


Theatrical (cinema) 36 45 Home - DvD/BluRay 41 32 Home - on-line (Digital) 12 28

89 105

Revenues from theatrical exceed hard home revenues in 2014.

As the transition of revenue to Digital platforms occurs the demarcation lines will continue to blur.


CAGR

IPTV broadcast 3 13 30% IPTV advertising 3 10 35% Digital Film sales 12 28 18% Totals 18 51 24% % TV & Film Segment 4% 10%

Source: PwC / eMarketer Online video is the fastest growth areas in the industry. Informa go beyond PwC and forecast advertising revenues may reach US$ 37 billion by 2017.


FINANCIAL TIMES – 12 SEP 2013 - MAKER STUDIOS SECURES US$ 26 MILLION IN LATEST FUNDING ROUND

Maker Studios, one of the biggest online video networks, has brought in new investors to join a shareholder roster that includes Elisabeth Murdoch and the film star Robert Downey Jr.

Canal Plus, Asian investment group Astro, and Lakestar, which also has stakes in Spotify and Airbnb, are among the new companies to invest in the Los Angeles-based venture.

Maker has raised US$ 26m in the funding round, having raised US$ 36m earlier this year from several investors, including Mr Downey, Ms Murdoch, Time Warner Investments and Jon Landau, the Academy Award-winning film producer.

Ynon Kreiz, executive chairman of Maker, said the money would help the company’s international expansion plans. “Our objective was to expand our investor base to include major players in key international markets,” he said.

The company has more than 60,000 online channels, featuring web stars such as KassemG, the Shaytards and rapper Snoop Dogg’s WestFestTV. “We had more than 4bn views in July and we’re the largest multi-channel network in the world,” said Mr Kreiz.

The company was different from online video groups such as Netflix and Hulu, he added. “We’re not aiming at premium content like Netflix and Hulu – and we’re not focused on user generated content. We’re focused on the mid-market, where the viewers are.”

The nascent online video sector is ripe for consolidation, with established media companies keen to follow the younger viewers that are shunning traditional television. DreamWorks Animation, the studio behind the Shrek and Kung Fu Panda films, recently acquired Awesomeness TV, a YouTube network for children, in a deal that could be worth $117m if certain earnings targets are met.

Maker’s latest fundraising round comes amid increasing investor interest in West Coast-based online video groups. Tastemade, which has built an international network of cooking shows, recently raised US$ 10m in its second round of funding: like Maker and Awesomeness TV, it is also based in Los Angeles.

Meanwhile, Google has invested tens of millions of dollars in YouTube Space LA, a 41,000 sq ft production space not far from Maker’s studio, where content creators can shoot and edit videos free of charge.

Advertising rates for online video are much lower than in traditional television but Mr Kreiz said “the gap is closing”.

“The holy grail for advertisers is to have targeted reach, engagement and measurement, which is highly effective in online video. We can offer all of that through our platform.”


REALITY CHECK – production and ownership of content is the key defining factor Content’s central role in attracting, engaging and retaining consumers has been strengthened by the fragmentation of choice. Digital has bitten off only a small slice of the E&M sector so far – streaming content is steadily displacing the physical delivery medium - DVDs / Blu-ray / DVR. The really big changes haven’t even started yet and the incumbents are already adapting to the changing viewing habits with lots of innovation going on - hulu appears to be a “proving ground” – owned by the Studios. The traditional TV broadcasters will only move completely to IPTV when they perceive there is a tangible necessity to do this – and this process will inevitably happen in progressive stages. Nielsen Cross Platform Report (06/2013) average consumer watches

>157 hours traditional television per month 2 hours OTT TV per month (3.8 min/ day)

A key problem facing the transition from traditional broadcast to IPTV is that the new internet groups lack the scale and/or experience to deliver their own Class A TV original content programming. The broadcasters are also not being challenged by IPTV in 3 key live TV categories: News, Sports and Reality TV. Netflix / Amazon have only just started to produce exclusive/original content (Netflix committed to 6 new series and Amazon 5). 100% of the new content from Netflix & Amazon could fill only 44 hours per month – leaving 113 hours to be filled


EFFECTS OF THE TRANSITION PROCESS - opportunities In the mid-term most consumers will keep watching traditional TV as it is still an effective route for advertisers to target audiences – and big brands still rely on the TV networks to get 360° messages in front of people – there are also huge amounts of inertia in advertising. However, change is already occurring and will continue, especially in terms of: New Global Digital Broadcast Brands – a window which is still wide open for new groups to emerge


Content Matter and Commissioning – opportunities to develop new programming which can go global Viewers are migrating from traditional TV to digital feeds for film content so Broadcasters are reducing their film purchases, devoting more slots to original content that generates more eyeballs and value (ie reality TV, news, documentaries and current issues, drama series, “cultural” programming and arts). This impacts content matter as well as the film distribution business. Broadcasters historically used pilot programs to test audience reaction. The practice may be starting to evolve, as it has become costly and inefficient, especially in the USA. Chase Carey, COO Fox, recently stated that broadcast TV remains stuck with “historical practices” such as creating hundreds of pilots for series which never air, and that broadcasters need to target investments to fewer shows. During 2012, out of some 113 USA pilot programs, only 35 went to air and 13 were taken up. During 2013, 146 pilots were shot and 56 went on air at an estimated cost of US$ 300 – US$ 400 million. Under this traditional system, independent producers are being forced to take very big financial risks, and this recently led to the producers of the serial “House of Cards” to sell a two season deal to Netflix. Websites like YouTube provide a seemingly endless menu of video content that can be viewed anytime on any device. Much of the programming is unique to the site and is often considered more timely and entertaining. It is considered likely in the industry that digital portals will become a new proving ground for audience reaction to develop new big budget programming. Consumption Patterns – ability to deliver archive will be an advantage Younger consumers perceive digital devices to be the emotional, cultural, and social links that connect them to the rest of the world. Because this demographic is a key target for advertisers, content will evolve to become far more personal, social and interactive. TV traditionally has daily or weekly scheduling of series or programming. However, digital consumers tend to “binge-fest” on content, consuming multiple episodes of comedies, series, etc, at one time. Also, where the content is consumed is becoming relevant as more and more programming will be viewed on hand-held devices, and this affects production style.


“Glocalisation” – a window to develop in new markets before the majors catch up The global media industry is dominated by a small number of English-language global players and a second tier of regional players that have built platforms based on local influence, language and cultures. This is inefficient because it doesn’t satisfy vast numbers of people, especially global diasporas.

4 key languages – Russian - Arabic – Mandarin Chinese – Spanish – are spoken by twice the number of people as the English language. CIS, Gulf, Latin America, China and India are all key long term growth markets and are already attractive to global brand advertisers looking to reach consumers. Location is not a critical factor - the internet is virtual – and it is likely that the largest media groups will seamlessly extend their reach globally and will become early adopters of “localisation” features and future technologies that will enable delivery across language barriers. A second regional tier will develop and players in nthis group will focus on specific languages and culture. Content Rights – ownership of in demand will be “King” The media business has always been about “bums on seats”, “eyeballs” and advertising. It will be in the future as well. This means players will have to supply what the consumers want, in a way they want, globally. The traditional system of global content rights ownership and management is hugely inefficient, doesn’t work within the new digital environment and will have to evolve. As the system evolves, there will be a global hunt for content rights to enable distribution of archive materials. In addition to industry acquisitions, there have already been a series of targeted acquisitions of libraries of content assets.

These factors are blurring lines between content produced for TV and film, and this impacts advertising spends


DIGITAL STRATEGY

1. Secure Content

Local production and Pre-Sold Content held in target regions Amass Library – First Mover Advantage Offer Revenue Share Formulas

2. Operating Structure

Focus on Advertising Driven Revenues Build out Platform as the Revenues Grow Manage the Structural Challenges and Tax Implications

3. Focus Areas

CIS – Russian Speaking – 276 million – start with Russia Gulf – Arabic Speaking – 422 million China – 1.4 billion vs USA 314 million / UK 63 million

4. Work Smart

Develop 2-way relationships with distributors Build on the Synergies with the other Red Carpet teams

Digital Generates Capital Gain

Acquire Content & Generate Eyeballs

Roll Out Platform and Develop for Sale

“....the continued theft of movies online will have a sustained adverse impact on movie attendance in the coming years......it's impossible to compete with free..."

Bob Pisano, President, Motion Picture Association of America


CONTENT DISTRIBUTION – where the elements are packaged and delivered

Critical throughout the lifecycle of content, in practice distribution planning should start as soon as a screenplay is secured. Distributors act as facilitators for content producers, identifying marketable content, packaging it, and finally scheduling and delivering it to operations that broadcast to the end consumers. This is contracted on the basis of an outright purchase or under revenue sharing models, and if the content is not yet complete, usually subject to some form of advance payment or minimum guarantee mechanism (a “Pre-Sale”). Distributors presently feed content into the Film operations (theatrical and home) and areas of the TV business. In practice, distributors are the ones who “grease the wheels” and are essential in the process of ensuring a product will be broadcast, and in making the product and revenues flow. The distribution market is split between Domestic (North America) and International (rest of the World) and then to sub-groupings based on medium and region, country by country geography.

This methodology comes from historical practices going back around 100 years to the start of the film industry and these rights practices are inappropriate in a digital world, especially as the media industry is moving from physical to digital media. As this transition occurs, the influence of the distributors on the development of the global E&M industry is likely to increase.


MARKET DISCONNECTS – can leave independent content on the shelf Studios have cut costs and source most requirements under production deals with the leading stars, producers, agents and production companies. Accordingly, Studios generally offer bad terms to independent film makers, even if they can find a way to make a pitch. This leaves the doors open to independent distributors to spot the opportunities and build value. Independent producers normally set up shop and pitch their projects to the agents and distributors at the global film fairs and exhibitions. The top events where these distribution deals are negotiated are: Cannes, Toronto, Sundance and Berlin. Other key venues include: (USA) Slamdance; Seattle; San Francisco; Chicago; Tribeca; South by SouthWest (SXSW); LASS; FilMart; AFM; Telluride / (International) Hot Docs; Full Frame; London; Paris; Guadalajara; Hong Kong; Venice; etc.

These independent distributors usually focus on genres they understand or specialise in, but regardless, all focus on whether the films have the right elements and winning formulas: whether the genre is suitable; whether there are any legal or political issues; whether the story-line is complementary to what is happening in the box office or TV; whether the right stars are in the film; and what would be the size and timing of the launch and possible theatrical release. With all the changes in the market place, most independent distributors are now looking to acquire content which can also be successfully exploited in global markets and through new media – especially the internet. The larger groups have also been building their own IPTV portals to ensure immediate delivery to the market and are actively developing content libraries.


KEY PLAYERS The global distribution market, like the content rights system, is highly fragmented, but in common with the rest of the industry, is dominated by the Major Studios and four Mini-Majors who maintain in-house distribution capacity. They are reinforced by a large number of USA and foreign independents, most of which are privately owned or owned by larger groups - see:

www.filmforum.org/more/distributors - lists over 100 en.wikipedia.org/wiki/List_of_Motion_Picture_Distributors - lists hundreds of names

A typical selection:


DISTRIBUTION SCHEDULING The distributor is responsible for planning the film distribution strategy - a process which is critical to the financial success of a film. Less than 1% of the world’s movies make it to the US theatres, but a North American theatrical success will help to sell a film internationally and in the home media markets. Most films generate 40% of box office receipts in the first week, the majority in the first weekend, and revenues fall to about 5% of the total by the 6th week of release (if the film has lasted that long). Oscar winning films tend to generate bigger revenues on International and home sales because the release patterns mean this success can be used in the relevant marketing campaigns. Issues considered by the distributors include: Where the film or content should be targeted (globally, regionally, locally, straight to home or IPTV) What sort of advertising is required (on larger budget films this can be up to 60% of budget) Whether the film will be translated, dubbed or edited for censorship issues (ie China presently has no classification systems so one-shoe fits all) Competitors' release schedules (information is shared) and seasonal factors (holiday periods, relevant awards ceremonies, other local factors) Availability of the talent for promotional purposes and any promotional tie-ins (where and when can partners spend money) Release “Windows” are staggered to optimise revenues - Theatrical – Pay-Per-View - VOD – DVD & BluRay – Broadcast The Theatrical “window” has reduced from a historic 6 months to 4 months or less – same day (or day and date) scheduling is now starting to occur. Normally, after Theatrical release, the other “windows” kick in:

Hard copy - retail / mail order sales model – DVD/Blu-ray – retailers / Red Box / Amazon

Soft copy - pay-per-view / purchase model - cable TV / Hulu Plus / Amazon / iTunes

Hard & Soft copy - subscription model – premium cable TV / Netflix / Blockbuster

Soft copy - advertising supported model – national broadcast TV / Hulu / YouTube


RETURNS ON DISTRIBUTION Distributors generally make money through: Acquisition of new content for distribution either for cash or on a revenue share basis Acquisition of archived content with established revenue streams, or to enable sale of title to produce remakes Acquisition of future content subject to advances and minimum guarantees (to secure strong titles (payments guaranteed to the producer whatever the

performance of the film) which but can also offer) Acquisition of future content subject to advances and revenue share deals (ie defines percentages of all receipts after expenses) Whilst there is no defined industry “standard” and deals are negotiated ad-hoc unless they are concluded under output or similar arrangements, distributors tend to keep around 20% of net receipts earned by content after the repayment of advances (and the interest on the advance) and any associated costs including other aggregators (distributors often have sub-distribution arrangements with specialists in retail or digital distribution). As distributors normally pay the exploitation costs on a film (ie art work, DVD authoring, subtitles, trailer editing, manufacturing, freight, processing fees, digital formats, marketing, advertising) they also deduct this cost as a first cost under these revenue sharing arrangements. USA cinema operators will generally retain around 50% of the gross theatrical receipts, and this can be up to 70% in foreign markets. Distributors usually negotiate 40% of the consumer spend from home sales (c50% of DVD and Blu-ray revenues usually arrive during the first month of release) but revenues fall to around 30% from the home rental market. Digital and Pay-Per-View broadcasters tend to agree to revenue share on their portals around the 50/50 mark, while Cable, Satellite and Broadcast TV operators tend to agree fixed price deals based on the box-office performance of the film, although there can be some success element built in based on numbers of viewers, and 11% of the box office take is a usual target for this segment. Merchandising can generate a further 10% of the box office take (licensing for toys, games, posters and other items) but this depends on genre, etc. Risk on cash purchases or minimum guarantees is mitigated through laying off the risk into an output deal (a deal on the sales side with a broadcaster or group like NetFlix) or by securing multiple film packages and cross collateralising these minimum guarantees. Traditionally, distribution was a low yield activity, achieving IRRs in the 10% range. However, the fragmentation of the industry, combined with the move by the Studios into a fewer number of larger films (and the increase in the number of naïve independent film makers) has increased opportunities to drive IRRs to the 30% to 50% levels, and there is an opportunity to amass an archive which will gain value as the industry consolidates. Film rights are usually granted for periods between 7 and 25 years, copyright extends to 70 years after the death of the last to die of the writer, director, producer or composer.


HOW TO INVEST IN THE MEDIA INDUSTRY

Equities Relatively few are listed and key activities are distorted by other business Most of the best targets in the industry are privately owned

Indexes

lacks any real focus

Funds Most invest into the mezzanine or gap funding requirements of films Many are focussing on realising tax-plays (which are uncertain in current conditions) Most of these funds are based in lightly regulated centres (ie reputational issues)

Film Projects Difficult to get to the right position in the project (ie risks “Hollywood accounting” issues) Difficult to find the right projects / teams to invest in There is no “slate” (unless the investor spends time to invest in multiple projects) Historically a very good way to lose money


LSE MEDIA COMPANIES – largest UK media companies (> US$ 100 million market capitalisation)

Note: there are 54 UK media stocks below £ 100 million but only 12 are in the target segments - all 12 have M.Cap from £ 1 to £ 9 million


USA MEDIA COMPANIES – listed and constituents of the S&P 500 or S&P TMT


NON-UK & USA MEDIA COMPANIES – listed

– private


CHARTS – media stocks tend to outperform the industry averages

Best performer is Lions Gate, while Viacom, Fox, Disney, Comcast, Time Warner, Discovery, IMAX, Scripps and CBS outperform the S&P500. While Microsoft and Yahoo! sit on the bar, Google, Amazon and Apple are also outperforming. Netflix rebounded from 2011 lows (when it announced plans to split its activities) but Dreamworks, Sony, Mediaset and Vivendi continue to lag the index.


FILM PRODUCTION VS HI-TECH “…you can’t make a film in a garage, you need a great story and that’s where it all starts…”

Michael Burns, Vice Chairman, Lionsgate

“…a good tech investment firm returns 3X the fund it uses for investments…..in most venture capital firms, 1/3 of the investments in start-ups don’t work out, 1/3 are flat and 1/3 are the winners…Twitter and Facebook returns come along once every 10 years…”

Bijan Sabet, General Partner, Spark Capital (one of the first companies to invest in Tumblr) Hi-Tech: Statement implies: ROI (on spread of 3 investments) = 1.3X (over an extended period) A hi-tech start-up that doesn’t work out is a complete wipe out - burns the investment Fact: Use of established risk mitigation techniques means film investing should never result

in a complete write-off, and ROIs can be leveraged through debt / soft credits Citibank: A hit movie makes more money than a poorly performing movie loses - across a slate

of 20 films - two or three hits will ensure a positive return for investors (research based on over 30 years of historical performance data)


ONES TO WATCH


INDEPENDENT ADVISORS

Dr Anthony Vinci, NY

Simon Fawcett, London & LA

Bernie Morris, London & LA

CEO of Frontier Data Corp, a due diligence and data firm and CFO of Ardden Entertainment (comic book publishing and film development firm, best known for publishing “Flash Gordon”). Anthony has developed software and Internet companies, including Linkshare.com, Inari Ventures Inc (IVI) and Transitions Online.

Anthony is also a published author and screenwriter, with a keen interest in film production and film financing.

He started his career with Ernst and Young.

CEO of Atlantic Screen Music which focusses on music in media and which controls three EIS funds dedicated to the creation and commissioning of film scores (over 40 works financed to-date). He is also a film financier and producer of films.

Simon was previously CEO of Aramid Capital Partners – a media fund with AUM of US$ 250 and before that CFO of Pathé Entertainment and Landmark Communications Inc’s UK and French Travel Channels.

He started his career with KPMG.

He brings Over 20 years’ experience in the media sector, with roles spanning advertising, finance and production of both film and theatre.

He is currently a Partner at the London/LA-based media group Protean Partners and founder/CEO of a leading London-based UK real estate advisory firm, The Great Estates Group.

He was a producer on the Tony nominated Broadway hit “The Iceman Cometh” as well as a films including “The Big Kahuna” and “The United States of Leyland”. He is an advisor to the Royal Institute of International Affairs.


PRINCIPAL PARTIES Fund Platform BPA International S.C.A., SICAV-FIS, Luxembourg

Société d’investissement en capital variable — fonds d’investissement spécialisé

Incorporated under Luxembourg Law on 22 August 2013 and is a legal person qualifying as an internally managed alternative investment fund. The Company is registered with the Registre du Commerce et des Sociétés Luxembourg under B180131. The Articles were published on 20 September 2013.

General Partner BPA International Investment S.à r.l., Luxembourg

Société à responsabilité limité (private limited liability company)

Incorporated under Luxembourg Law on 22 August 2013 amd is registered with Registre du Commerce et des Sociétés Luxembourg under B180157. The Articles were published on 25 September 2013.

Parent BPA International Limited, Cayman Islands

www.bpa-intl.com Investment Bank incorporated in the Cayman Islands on 3 February 2003 with incorporation number 123132 with registered office maintained by Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

Regulator Commission de Surveillance du Secteur Financier

(CSSF), Luxembourg www.cssf.lu

The CSSF is responsible for the prudential supervision of credit institutions, professionals of the financial sector (investment firms, specialised PFS, support PFS), undertakings for collective investment, pension funds, SICARs, securitisation undertakings issuing securities to the public on a continuous basis, regulated markets and their operators, multilateral trading facilities, payment institutions and electronic money institutions. It also supervises the securities markets, including their operators.

Appraisal Salter Group LLC (part of FTI Consulting)

www.fti.com

Formed in 2003, Salter Group is a leading US-based advisory firm with over 1,350 completed projects representing over US$ 145 billion in asset values across a broad range of industries, companies and geographies. Since 2012, Salter Group has been part of FTI Consulting, a global group with worldwide network of 3,915 employees in 24 countries on six continents.


Administrator European Fund Administration S.A., Luxembourg www.efa.eu

For the last 13 years EFA has consistently held the No1 position in terms of the number of sub-funds administered in Luxembourg regulated by the CSSF, and is the only independent fund administration specialist in Europe. Established in 1996, EFA offers back and middle office fund administration services including fund valuation and NAV-calculation, transfer agency, reporting and compliance. EFA administers more than 2,727 funds for 226 clients, with € 86.8 billion net assets under administration and benefits from a very broad coverage of alternate investment funds, with specialist real estate and private equity teams and coverage of more than 98 fund structures including real estate funds, mezzanine funds, LBO funds amongst others.

Auditor and tax advisor KPMG Luxembourg

www.kpmg.com KPMG is a global network of professional firms providing Audit, Tax and Advisory services, with some 138,000 outstanding professionals working together to deliver value in 150 countries worldwide.

Legal advisor Dechert Luxembourg

www.dechert.com Dechert is a leading international law firm with 26 offices in the United States, Europe, Asia and the Middle East. Founded in 1875, the firm has more than 800 lawyers. Dechert is consistently ranked among the leading law firms in each of its core practice areas of corporate and securities, financial services and investment management, intellectual property, litigation and government enforcement, real estate and structured finance.

Custodian UBI Banca International S.A., Luxembourg

www.ubibanca.it / www.ubibanca.lu Luxembourg private banking subsidiary of UBI Banca Group, which ranks in the top four Italian banking groups by customer loans and deposits and amongst the top 30 Euro-zone groups. It is rated BBB, baa2 and BBB+ (long term) by S&P, Moody’s, and Fitch respectively and has more than € 129 billion of assets. The group is predominantly focused on retail banking and has developed a strong private banking activity ranking amongst the leading players in the Italian and Luxembourg markets.


FUND MANAGEMENT TEAM

Malcolm Tott BPA International CEO, Telecommunications & Technology BPA - Overviews Telecommunications & IT Media Fund Portfolio Manager

Stephen Hubble

Co-owner & Director, J-M Capital Ltd, UK Structured Tax Specialist Real Estate Portfolio Manager Structuring & Portfolio Management Back-Up

Malcolm (62) is based in London, UK and is a highly skilled communications practitioner, with over 45 years’ experience in telecommunications in both fixed, data and cellular mobile systems holding management positions to Board level and as an international consultant. Malcolm began his career with British Telecommunications where he held the position of Senior Executive managing key technology projects (1967 to 1990) and Commercial Interconnect Manager at BT Cellnet (now O2) (1990-1994). He joined London based telecom research group Ovum as a Principal Consultant (1994-1995) and went on to found Netcom Consultants UK where he provided global consulting and management services (1995-2000). He later joined Analysys Mason as Head of Technology Consulting for the London Office (2000-2002). He formed Klarus Communications in 2002, and joined BPA International in 2003. Since then, Malcolm has been providing strategic input and technical support for our communications and IT projects, whilst working closely with leading global management and technical consultants and fixed, mobile and ISP operators on a wide variety of activities, including asset valuation, due diligence, regulation and interconnection.

A specialist in corporate finance and structured finance, Mr Hubble (53) is an experienced banker offering nearly 30 years of financial and commercial experience in investment banking and corporate and structured finance, including project financing, tax-efficient debt, leasing, private equity and debt placement. He is presently the co-owner and a director of the UK investment banking firm J-M Capital Ltd (www.j-mcapital.co.uk). Headquartered in Lombard Street, London, J-M Capital is principally focused on the Baltic region, and is active in capital raising (including structured debt and private equity) and M&A advice (principally sell-side). J-M Capital is authorised and regulated by The Financial Services Authority. Prior to J-M Capital, Stephen was at: Trilogy Financial Products (Founder & Director); Bank of America (Head of Structured Capital Markets, EMEA); Bank Paribas Capital Markets (Head of Structured Finance - Europe); Citibank (UK/Ireland Head, Equity Structuring/ Specialised Leasing) and Goldman Sachs (Vice President, Global Finance). Mr Hubble has held various directorships, principally in financial services, transportation/logistics and real estate fields. He is currently an alternate director of a Finnish printing company and director of a privately-owned financial services holding company.


FUND MANAGEMENT TEAM

Ivan Lovisek BPA International, CFO

BPA – CFO, Overviews Central European Region CFO of Fund

Sergey Kovalyov BPA International, Director & Company Secretary

BPA - Overviews CIS Region Compliance & Legal functions in Fund

Ivan (42) is based in Bratislava, Slovakia and offers more than 17 years direct hands-on experience in providing financial advice and services. During his career, he has advised on numerous projects, especially in the power, telecommunications and engineering sectors. Ivan trained as an accountant, specialising in cost and systems management disciplines, and started with Ace Accounting & Tax Consulting (1995 – 1996) before joining Framlington Investment Managers Ltd (formed by Framlington/CET and the EBRD with funding from PHARE to manage the Slovak Post Privatization Fund) where he was responsible for selecting and presenting potential industrial sector investment opportunities (1996 – 1998). He later joined Company Management Systems, the Slovak branch of Management Systems Helsinki, which specialise in management processes and productivity improvement (1998 – 2000) before joining the Slovak-based financial services affiliate of Bank of America, Millenium Financial Services (2000 – 2003). Ivan went on to be a key player in the successful restructuring of a major industrial corporation in the Central European region, when he was recruited by the Slovak Government to join the trouble shooting management team as the Executive Director for Finance charged with the pre-privatisation restructuring of the State-owned power generator Slovenske elektrárne (2003 to 2006). After leaving Slovenske elektrárne in 2006, Ivan assumed his present position with BPA International.

Sergey (32) is based in Kiev, Ukraine and offers more than 10 years financial and commercial experience. He trained as an International Lawyer, and studied in Kiev International University where he successfully represented Ukraine in the Telders International Law Moot Court Competition in 2001 at the Peace Palace in the Hague. Sergey has worked alongside the Chairman of BPA International since 2001, and joined BPA International as an Investment Banking Analyst on the establishment of the Group in 2003. He assumed active leadership of the Group’s activities in the CIS and the internal legal functions during 2010.


LUXEMBOURG-BASED EXTERNAL INDEPENDENT DIRECTORS IN THE FUND MANAGEMENT TEAM

Fred Matyn

Senior Advisor to the Board of UBI Banca International

S.A., Luxembourg Operations Manager for Fund

Tom (Dylan) Davies

Senior Vice President, MaplesFS (Luxembourg)

S.A. Appointed as the Risk Manager for the Fund by

Males & Calder

Fred (65) is an experienced international banker with more than 40 years of experience and is currently the Senior Advisor to the Board of UBI Banka International as well as a director on two other Luxembourg based fund platforms. Before his official retirement from UBI in March 2012 he was General Manager, responsible for Corporate Banking, Financial Markets and Credits, and a member of the Executive Committee (2002 – 2012). Before UBI Banca acquired Artesia, he was General Manager responsible for Private and Personal Banking in Artesia Bank Luxembourg S.A. (1992 – 2002) and a member of their Executive Committee. His previous roles were: Director/Manager Commercial Banking, Union Bank of Finland (international) S.A. Luxembourg (1990 – 1991); Member of the Executive Committee, AMRO Bank, Antwerp/Generale de Banque Brussels (1987 – 1990); Director Corporate Banking and Business development for Europe, Allied Irish Bank, Brussels (1983 – 1987); Relationship Manager and Member of the Credit Committee, Bank Brussels Lambert (1970 – 1983),

Tom (46) is a Senior Vice President at MaplesFS (Luxembourg) S.A., a subsidiary of the international law firm Maples and Calder (www.maplesand calder.com) with more than 25 years relevant experience. Tom is a member of the MaplesFS board, and manages the relationship with the financial regulator CSSF. He is responsible for the incorporation, administration and management of Luxembourg companies and funds on behalf of investment and commercial banks, as well as international corporations (2008 – date). Prior roles include: Head of Banking & Corporate Trust Operations, BNP Paribas Securities Services, Luxembourg (2002 – 2008) where he was a member of the Executive Committee and Global Management Team responsible for over € 300 billion of investor assets and a team of 160 staff; Director, Product Management, JPMorgan, Euroclear, Brussels (2000 – 2002); VP, Head of Operations, Chase Manhattan Bank, Luxembourg (1998 – 2000); VP, Head of Operations / Country Head, Morgan Stanley & Co, Luxembourg (1991 – 1998); operational roles, Henderson Administration, London & Luxembourg (1987 – 1991). .

bpa international investment, s.à r.l. · classifications. in the past, market trends indicated...

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