sony pictures entertainment and sony network entertainment: project update: crackle plus february...
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Sony Pictures Entertainment and Sony Network Entertainment:Project Update: Crackle Plus
February 13, 2012
Crackle Plus Goals and Business Model
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plus
The Sony ExperienceHardware
Services
Purpose / Considerations
Purpose / Considerations
EconomicsEconomics
• Acquire customers
• Free; low barrier to trial/adoption
• Programmed experience focused on men 18-34
• Primarily an investment
• Limited ad revenue
• Not profitable on standalone basis
• Retain customers
• Monetize customers
• Increases in service and hardware revenue ultimately offset Crackle Plus investment, albeit likely not in 1st year
Crackle Today
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Today
The “Plus” in Crackle Plus can be one of several types of content
plus
Films
• ~200 library titles
• 2-3 year-old driver titles in the network window refreshed monthly
Television
• ~1,800 full-length and short-form television episodes
• >40 original series featuring notable talent
Reach
• 10MM+ monthly unique users across all platforms
• 10MM+ Crackle app downloads in 6 months
TV Originals
Off-Net TV Series
Recent Films
Crackle is a fully programmed and widely available service today
Crackle Plus Cost Considerations
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Original ContentOriginal Content
FilmsFilms
Off-Network
TV
Off-Network
TV
Behind the scenes, concerts, value-
added content etc.
Scripted, half-hour
(i.e., web series)
Scripted, one hour drama (i.e, TV quality)
Library titles; non-exclusive
Network window titles (i.e., 2-3 years old);
non-exclusive
Network window titles
(i.e., 2-3 years old); exclusive
Partial rights (e.g. AVOD);
non-exclusive
Partial rights (e.g., AVOD);
exclusive
Full off-network rights (except vis-à-vis commissioning
network); exclusive
$ $$ $$$
As Discussed Previously
Additional Identified
Opportunities
Crackle Plus Recommended Programming Mix
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Behind the scenes, concerts, value-
added content etc.
1 half-hour scripted dramedy, 13 eps
2 one hour drama series, 13 eps each
~100 non-exclusive library titles
15 exclusive network window titles
2 exclusive series on AVOD
(perhaps SVOD as well)
Note: Above is incremental to existing Crackle service.
Original ContentOriginal Content
FilmsFilms
Off-Network
TV
Off-Network
TV
As Discussed Previously
Additional Identified
Opportunities
$ $$ $$$
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Original Series Assumptions
Series
Timing Budget Comparables(1)
FYE13 (Partial Year) 19 episodes (1.5 seasons)
FYE14 (Full Year) 39 episodes (3 full seasons)
Episode Cost per Episodes Cost per Genre Run-time Episode per Season Season Timing
Series A Drama 1 hour $2.5MM 13 episodes $32.5MMLaunched Fall 2012
(All 13 Eps in FYE13)
Series B Drama 1 hour $2.5MM 13 episodes $32.5MMLaunched Winter 2012
(6 Eps in FYE13, 7 in FYE14)
Series C Dramedy Half-hour $700K 13 episodes $9MMLaunched Spring 2013 (All 13 eps in FYE14)
(1) Budget comparables represent season 1 production costs, net of any incentives, for all included titles. Source: product ultimates.
1 Hour Dramas Cost per EpisodeUnforgettable $2.9MM
Breaking Bad $2.2MM
Justified $2.1MM
Damages $2.1MM
Half-hour Comedies Cost per EpisodeCommunity $1.8MM
Happy Endings $1.9MM
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Examples of “Driver” and Library Titles
“Driver Titles”High Profile Library Titles
Note: Representative titles only and subject to availability once licensing discussions commence.
$ $$$
• 100 lower cost non-exclusive library titles will bolster current Crackle offering
• 15 higher cost exclusive network-window titles will drive traffic for the enhanced service
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Off-Net TV Opportunities
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Windows for Television Content
Early Years Later Years
Linear Rights
AVOD
SVOD
Licensed to a second network (e.g., TBS) and/or for broadcast syndication
Linear Rights
Sometimes split, with some eps to second network and some held back
AVOD
May or may not be licensed to a digital player (e.g., Netflix)
SVOD
Licensing all or a subset of these rights represents an opportunity for SEN
On commissioning network (e.g. NBC)
Limited number of episodes on commissioning network’s site (e.g. NBC, Hulu)
Generally not made available
Current Seasons
Past Seasons Off-Net
SPT Off-Net Avails, Costs and Considerations
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$ $$ $$$
• Crackle already leverages partial, non-exclusive rights (e.g., Seinfeld) and could supplement with additional, recognizable titles (e.g., Rescue Me) at a relatively low cost
• Partial, exclusive rights (e.g., Boondocks, The Shield) are also available and can likely be accommodated in budget as previously presented
• Opportunity to buy full series, off-network rights (e.g., Justified) requires increased investment and is a decision for future years
TitleTitle
# of Eps at Avail Date(1)
# of Eps at Avail Date(1)
Avail DateAvail Date
RightsRights Partial rights; non-exclusive
Partial rights (e.g. exclusive AVOD or narrow windows);
exclusive
Full off-net rights, including Linear, SVOD, AVOD;
exclusive
Justified Happy Endings
65 75+
Q1CY2014 Q3CY2014
Boondocks(2) The Shield(3)
43 80+
Immediate Immediate
(1) Note: Episode counts at date of availability represents estimate for early season titles.(2) Exclusive digital / on-demand rights subject to Turner approval; Turner would still retain linear rights.(3) Creates de facto exclusive against all rights if Spike does not air on linear network.
10 on Crackle
today
180 93 93
Immediate
Seinfeld Community Rescue Me
5 on Crackle
starting 2015
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Additional Opportunities
• SPE can also explore opportunities around content under license, including:
− TV shows that are in early seasons (e.g., Justified) and/or shows that have recently been licensed off-net (e.g., Breaking Bad)
− Films before or as they enter the Pay TV window
• These opportunities require engaging with current licensees (e.g., Netflix for Breaking Bad, FX for Justified and Starz for films in the Pay window)
• If current licensees are interested, securing rights for SEN would require an investment in buying-back rights
FilmsTV Shows
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Budget Considerations
Budget Considerations
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• The investment levels presented here are based on the initial recommendation for Crackle Plus, inclusive of original series
• The initial investment can be decreased if the investment in originals is decreased or deferred
• The budget can also be adjusted up or down to pursue the other content opportunities recently presented
• In addition to discussing the investment level, we should discuss the resulting benefit to SNEI, SCEI, and CPSG
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($MM) FYE13
Revenue
SPE Incremental Revenue$6
Gross Investment
Content($55)
Headcount/Tech(7)
Sub-total($62)
Net Investment in SNEI and SPE Budgets($56)
Marketing(15)
Total Sony Investment($71)
($MM) FYE14
Revenue
SPE International Sales$18
SPE Ad Revenue4
Sub-total$22
Gross Investment
Content($88)
Headcount/Tech(13)
Sub-total($101)
Net Investment in SNEI and SPE Budgets($79)
Marketing(30)
Total Sony Investment($109)
• $56MM investment to be incorporated in SNEI and SPE budgets as described on the next page
• SNEI and SPE anticipated budget impact excludes $15MM of marketing
• Need to discuss alternatives for addressing marketing, either as a dedicated Corporate effort, shared across Hardware and Service divisions, or housed in a single division
To be mitigated by benefits not yet quantified including:
‒ New customer acquisition
‒ Service revenue per user uplift
‒ Hardware sales growth
FYE13: Partial Year FYE14: Full Year
Crackle Plus Economics
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• Economics would be incorporated in SPE and SNEI FYE13 budget submissions; specifics being resolved but preliminary proposal is:
SNEISNEI
• Pays SPE a flat fee equal to estimated content costs less estimated ancillary revenues (e.g., international, video etc.) and also bears bandwidth, data center and cloud costs
• Retains uplift in service revenues
• FYE13 SNEI budget impact of this approach being finalized; currently estimated to be ($50MM)
SPESPE
• Responsible for its own investment in headcount and infrastructure
• Retains ad revenue
• Bears actual content cost and execution risk on ancillary revenue opportunities
• FYE13 SPE budget impact of this approach being finalized; currently estimated to be ($6MM)
Note: Above are SNEI and SPE specific budget impacts and are before the recommended $15MM of marketing. Need to discuss approach to marketing.
Crackle Plus Budget Impact
Note: Consolidated Sony impact assumes elimination of license fee revenue for SPE and license fee expense for SNE
Assumptions: (1) FY13 includes production costs for 19 episodes (1 entire series and half a season of second series and 70% of international revenue only of first series)(2) FY14 represents “steady-state” 39 episodes and captures production costs and associated revenue for all 3 series (2 one hour dramas and 1 half hour
dramedy - each 13 episodes)
Consolidated Sony View
($MM) SNEI Impact SPE Impact Sony Consolidated ImpactFYE13 FYE14 FYE13 FYE14 FYE13 FYE14
RevenueAdvertising - - $0.0 $4.1 $0.0 $4.1International sales - - 5.9 17.9 5.9 17.9Home Entertainment - - 0.0 0.0 0.0 0.0
Total Revenue $0.0 $0.0 $5.9 $22.0 $5.9 $22.0
CostsOriginals - Gross Production Cost - - ($48.8) ($74.1) ($48.8) ($74.1)SPE Licensed Content - - (1.9) (4.3) (1.9) (4.3)3rd Party Licensed Content - - (4.5) (10.0) (4.5) (10.0)
Content Cost Sub-Total $0.0 $0.0 ($55.2) ($88.4) ($55.2) ($88.4)
Product Development - - ($2.0) ($2.2) ($2.0) ($2.2)Data Center / Cloud costs (0.8) (4.0) - - (0.8) (4.0)Bandwidth 0.0 (0.7) - - 0.0 (0.7)G&A - - (4.1) (6.2) (4.1) (6.2)
Other Cost Sub-Total ($0.8) ($4.7) ($6.1) ($8.4) ($6.9) ($13.1)
Total Cost ($0.8) ($4.7) ($61.3) ($96.7) ($62.1) ($101.5)
Net Profit / (Shortfall) Before Inter Co. License Fee ($0.8) ($4.7) ($55.4) ($74.8) ($56.2) ($79.5)
Inter Company License Fee (Content less Int'l) (49.3) (70.5) 49.3 70.5 - -
SNEI / SPE / Sony P&L Impact ($50.1) ($75.2) ($6.1) ($4.3) ($56.2) ($79.5)
Marketing (Recommended) - - - - ($15.0) ($30.0)
Sony P&L Impact Before Hware / Svc Uplift ($50.1) ($75.2) ($6.1) ($4.3) ($71.2) ($109.5)
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