SPTI’s Unscripted Format Strategy

Business Plan and Investment Requirements

November 15, 2004

2

Executive Summary

• Unscripted / Reality TV dominates the TV landscape and will be remain an important genre in the future

• To benefit from the opportunities in this space, SPTI plans to leverage its worldwide production infrastructure, build on the successful Starling acquisition in France and expand its Reality TV efforts in Germany

• Such an initiate will significantly close the gap to market leaders Endemol and Fremantle and keep SPTI ahead of the studio competition

• Under conservative assumptions, this initiative will require investment capital of $11MM and new SPTI headcount of 7 in FY 06 (10 eventually).Pre-tax returns are very attractive: NPV of $6MM, IRR 38%

We request approval of the strategy and permission to start implementation asap

3

Agenda

• Unscripted/Reality TV Overview

• Proposed SPTI Strategy

• Financial and Organizational Analysis

• Next Steps

4

Unscripted TV Is Here To Stay

• Reality TV covers 22% of U.S. network primetime schedules in 04/05,

vs. 10% in 03/04

• 7 of Top 20 shows in 03/04 were Reality:

– 1. Idol, 4. Survivor All Stars, 6. The Apprentice, 19. Fear Factor

• 63 Reality shows in 04/05 across all U.S. cable & broadcast networks

• Launch of Reality-themed channels

– Fox Reality Channel (2005)

– Reality 24-7 (previously Reality Central)

– ‘Reality TV’ channel (35MM subscribers, 125 countries)

• Formats are being exported and exploited globally

– Worldwide sales of The Apprentice, Queer Eye for the Straight Guy, The

Bachelorette, Joe Millionaire, The Restaurant, The Simple Life, The Swan,

Next Action Star, etc.

Trista, Donald and Richard have established a bona-fide genre

While the recent rush to Reality TV will abate, the unscripted genre will remain a key component of

network schedules in the future

5

Economics Of Reality TV Highly attractive returns provide a strong incentive for networks to keep commissioning Reality TV shows

0%

10%

20%

30%

40%

50%

60%

70%

Gro

ss

Pro

fit

Ma

rgin

(2

00

1/0

2)

ABC CBS FOX NBC Big 4

Gross Profit - Reality TV Gross Profit - All Other Genres

Source: Primetime Programming Cost Analysis, Morgan Stanley, March 2003

• Higher profit margins for the networks due to lower production/commission expenses

• Reality TV show cost $500K-1MM per hour, compared to average scripted shows of $2-3MM

0

50

100

150

200

250

300

350

400

450

Av

g A

dv

ert

isin

g R

ev

en

ue

pe

r 3

0"

Sp

ot

Survivor AllStars

TheApprentice

Idol Bachelor Bachelorette Friends Raymond CSI Law & Order The OC 8 SimpleRules

• Successful Reality TV hits generate the same or higher advertising rates as scripted shows • Advertiser capitalize on new promotional opportunities, upside for producers and networks

(e.g. GM/Viacom deal to make Saturn Ion the car of Survivor: The Amazon)

Source: Variety, 4/25/2004

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Unscripted TV Hits

Season Series 18-49 Rating

Networks Gross

Profit ($MM)

Profit Margin

99/00

00/01

01/02

Millionaire

(ABC)

7.9

4.4

2.5

$511.4

$648.4

$50.3

85%

81%

54%

00/01

01/03

02/03

The Mole

(ABC)

5.0

2.7

5.4

$22.9

$16.0

$12.8

83%

69%

58%

01/02

02/03

The Bachelor

(ABC)

4.6

7.9

$5.2

$80.0

55%

88%

99/00

00/01

01/02

02/03

Survivor

(CBS)

2.5

12.2

8.4

8.5

($1.3)

$118.0

$161.9

$224.8

-7%

80%

78%

82%

00/01

01/02

Temptation Island

(Fox)

7.8

3.8

$10.9

$0.5

76%

4%

00/01

01/02

02/03

Fear Factor

(NBC)

7.1

6.8

6.9

$4.2

$49.6

$37.9

29%

74%

53%

00/01

01/02

Weakest Link

(NBC)

n/a

6.0

$26.4

$21.8

48%

47%

The big performers have proven to be highly profitable endeavors for the networks

Source: Primetime Programming Cost Analysis, Morgan Stanley, March 2003

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Origin Of Unscripted FormatsInternational markets are a proven ground for developing successful formats with worldwide appeal

Country of Origin

Year Original Producer

U.S. Debut

U.S.

Network

Big Brother Netherlands 1999 Endemol 2000 CBS

Survivor Sweden (‘Expedition Robinson’)

1997 Strix / Planet 24

2000 CBS

Idol/Popstars U.K. 2001 19 Televisions & Fremantle

2002 FOX

Who Wants To Be A Millionaire

U.K. 1998 Celador 1999 ABC

Weakest Link U.K. 2000 BBC 2001 NBC

The Mole Belgium 1998 T.T.T.I. 2001 ABC

Wife Swap U.K. 2003 RDF Media 2004 ABC

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SPTI Is Currently Not A PlayerSPTI’s unscripted format library (primarily game shows) has been exhausted and can no longer provide momentum for the format business

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004

Acquisition

Library/Fremantle

• Sales growth increasingly comes from titles acquired from 3rd parties• Limited funds for acquisitions provide access to B and C product only• Biggest revenue drivers in the past were Dating Game and Russian

Roulette, both of which have passed revenue peaks

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Agenda

• Unscripted/Reality TV Overview

• Proposed SPTI Strategy

• Financial and Organizational Analysis

• Next Steps

10

Crossroads For SPTI’s Format BusinessIn order to take advantage of the global TV format opportunities, SPTI needs a new strategic direction

MaintainStatus

Quo

Increase Acquisition

Efforts

Strategic Alliances with

Producers

Original Format

Development

• Continue to exploit declining library

• Pursue low-cost acquisitions without significant investments

• Acquire formats and filmed episodes with guarantees

• Co-finance development efforts

• Form close associations to guarantee early access to fresh formats

• Establish capabilities to develop formats with global appeal

• Rapid worldwide implementation

–Limited or no growth–SPTI marginalized as

format player

New Unscripted / Reality TV Initiative

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Strategic Goals

Become a relevant global creator and producer of Unscripted / Reality TV

SPTI has set specific strategic goals for the Unscripted TV Format space

Close the gap to market leaders Endemol & Fremantle

Stay ahead of the studio competition & other emerging players

Contribute high profit margins to SPE after initial short period of investment

Strategic Goals

12

Format Development Focus

Pure Game Shows

Pure RealityShows

SPTI Format Focus

To meet broadcaster’s shifting demands, SPTI will pursue the full range of unscripted programming

Reality-based Competitions

• Distinctions between categories are increasingly blurred• Demand from broadcasters is shifting across categories• Diversification protects against risk of betting on single niche genre

13

SPTI’s Leveragable InfrastructureSPTI’s worldwide production presence is a key competitive advantage for a new direction in Unscripted Formats

Russia

Latin America

SpainItaly

U.K.

Germany

France

Worldwide Reach• Ability to leverage staff and

relationships with broadcasters in all key markets

‘Project 2004’ in Germany• Enhance successful Reality TV

project–9 months (thru 12/04)–6-person team

• 20 formats created so far, 3 considered marketable

–1 being pitched to RTL, 1 to ZDF• Low-budget experiment; total

expenses of <$250K

‘Starling’ in France• Capitalize on acquisition of 2nd

largest light entertainment production company in France

• Starling is actively developing and pitching new formats

• FY 05 revenue of Starling of $31MM, EBITDA $5.5MM

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Operational Strategy

• Key territories

• Develop original unscripted concepts

• Adapt 3rd party formats from around the world

• Localize SPTI formats

• Align with proven production companies to develop formats

• Leverage expertise & relationships of local players

• Overcome barriers to entry

Tactic 1:Establish Worldwide Development Teams

Tactic 2:Enter into Strategic

Alliances

SPTI plans to enhance its existing infrastructure in key markets and establish partnerships with proven players everywhere else

Dual StrategyGoal: Balance between solid presence in key

markets and rapid global establishment

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Tactic 1: Development Teams

Senior Format Executive

(Los Angeles)

Local Format Executive (one per territory)

Head of InternationalProduction

Development team1 Senior Producer

4 Freelance Jr. Producers(per territory)

• Key executive in charge of unscripted/reality strategy• Strategic guidance of local reality teams• Management of Reality network

• Manage development and acquisition effort in territory• Coordinate creative process with other territories• Collaborate closely with local head of production to sell

formats to local broadcasters

• Develop and test formats• Tap into local trends at early stage• Assess third party formats

Roles & Responsibilities

Dedicated development teams would be established in the key markets U.K., Germany and France (existing Starling operation)

16

Tactic 2: Strategic Alliances

Forge close association with established local players– first-look deals, co-development efforts, etc.

Partners provide access to fresh formats and relationship to broadcasters SPTI provides production infrastructure, library and international distribution Potential equity investments in attractive local players Relationship managed by local/regional SPTI production executive

• U.K. • Germany• France

Major MarketsAlliances will suplement SPTI’s dedicated development teams

Non-Major MarketsStrategic Alliances are SPTI’s main

effort to establish presence

• Spain & Italy - core E.U. markets for SPTI production

• Benelux & Scandinavia - proven talent pool for successful formats

• Latin America - strong overall growth potential

Alliances will expand SPTI’s reach into new territories and solidify the presence in the major markets

17

Possible Alliance Targets

United States United Kindgom Spain10 By 10 Entertainment 12 Yard ZZJ ( first look alliance partner)

Banyan Productions Celador Productions Boomerang

Hallock & Healy Chatterbox Partnership

Lighthearted Entertainment Monkey AustraliaLMNO Productions Princess Crackerjack

Mark Burnett Productions RDF Media Jigsaw

Nash Entertainment So TV Zig Zag

Next Entertainment Talkback/Thames (Fremantle)

Pilgrim Films & Television TVC ScandinaviaRocket Science Laboratories Wall to Wall MTV Mastiff

Scout Productions Strix

Stone Stanley Latin AmericaTermite Art Productions Telefe ItalyVin Di Bona Productions JJ Harding EinsteinNely Galan Productions Promofilm Magnolia

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Targeted Format InfrastructureSPTI’s Unscripted Format network will have critical mass and be able to compete with format players on a global level

Large and culturally diverse creative pool

Immediate assessment of worldwide appeal for new formats

Tap into local trends early

Rapid and coordinated implementation of formats across many markets

Synergies during production efforts in different markets

Dedicated Development Teams and potentially strategic alliances

Strategic Alliances only

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Agenda

• Unscripted/Reality TV Overview

• Proposed SPTI Strategy

• Financial and Organizational Analysis

• Next Steps

20

Business VolumeSPTI will focus on fewer, but higher quality and higher margin formats than in the past

MEGA A B C• Format revenues of

$20-30MM over 5 years

• Produced in 6 of top 10 world markets

• Steady sales of $2MM per year over 10 years

• $7 - $10MM in format revenues over 3 years

• Sales in 4 of top 10 markets, or to over 20 markets worldwide

• $1.5 - 3MM in revenue over 3 years, or

• Sales to more than 10 markets, including 2 of the top 10

• Less than $500K revenues per year, or

• Sales in less than 10 markets

Idol

Millionaire

Wheel of Fortune

Big Brother

The Apprentice

Survivor

Jeopardy

Popstars

Fear Factor

Fort Boyard

The Mole

Wife Swap

The Farm

The Vault

Airline

Faking It

FY 02 FY 03 FY 04 FY 05

MEGA 0 0 0 0

A 0 0 0 0

B 1 0 0 0

C 1 5 3 7

TOTAL 2 5 3 7

FY 06 FY 07 FY 08 FY 09 FY 10

MEGA 0 0 0 1 0

A 0 0 1 0 1

B 1 2 1 3 3

C 1 0 0 0 0

TOTAL 2 2 2 4 4

Historic Product Volume/Mix(Number of Acquisitions)

Planned Product Volume/Mix(Number of Acquisitions & Original Productions)

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Estimated Production Slate

FY 06 FY 07 FY 08 FY 09 FY 10 TOTAL

Developed Product Mega A 1 1

A 1 1 2

B 1 1 1 3

C 1 1

1 1 1 2 2 7

Acquired Product Mega A 0

A 1

B 1 1 1 2 2 7

C 0

1 1 1 2 2 8

TOTAL 2 2 2 4 4 15

Number of New Formats Brought To Market(Conservative Base Case)

Long-term focus on original development and higher-quality acquisitions

• Move towards higher quality acquisitions will require increased investment in upfront guarantees• Business plan assumes $2MM upfront budget per year• Acquisitions assume revenue split of 40% to original creator

22

Focus On Original DevelopmentOriginally developed shows will be the main long-term driver for revenues and profitability

0

5

10

15

20

FY 06 FY 07 FY 08 FY 09 FY 10

Gross Revenue - Original Development

Gross Revenue - Acquisitions

Re

ven

ue

in U

S$

MM

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Proposed Organization

• New headcount of 10 required (5 per chart + 5 support admin staff)• 8 Jr Producers in development teams are freelance and not part of SPTI overhead• Personnel & freelance expenses starting at $2.2MM per year ($4.3MM in FY 10)• Local Format Execs closely cooperate with Head of Production in their respective territory

Head of International Production

Sr. Format ExecLos Angeles

(existing headcount)

U.K.Format

Exec(existing)

Sr. Producer(new, FY 06)

GermanyFormat

Exec(existing)

Sr. Producer(new, FY 06)

France

(Starling)

SpainFormat

Exec(new, FY 07)

ItalyFormat Exec

(new, FY 07)

Lat AmFormat

Exec(new, FY 07)

Strategic Alliance

Strategic Alliance

Strategic Alliance

PotentialStrategic Alliance

PotentialStrategic Alliance

PotentialStrategic Alliance

4 Jr Producers(freelance)

4 Jr Producers(freelance)

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Financial Summary

• Significant upside opportunities if production slate performs better than assumed in conservative financial base case model

The financial base case applies very conservative revenue assumptions and provides attractive financial returns

(US$ 000s) FY 06 FY 07 FY 08 FY 09 FY 10 TOTAL

FORMAT REVENUE 1,208 2,941 6,353 11,710 15,630 37,842

Format Development / Acquisition 2,400 2,700 2,920 3,320 3,620 14,960 Personnel ($) 2,198 3,565 3,983 4,142 4,308 18,195 G&A 549 891 996 1,036 1,077 4,549 TOTAL EXPENSES 5,147 7,156 7,899 8,498 9,005 37,704

EBIT (3,939) (4,215) (1,546) 3,212 6,625 138

NET CASH FLOW (4,039) (4,617) (2,369) 1,924 5,683 (3,418)

Required Investment: (11,026) NPV (4x exit multiple): 5,966 IRR (4x exit multiple): 38%

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Additional Upside Opportunities

TV Distribution / Syndication

Home Entertainment

Product Merchandising

• Self-contained shows have

high syndication potential

• FX paid $30 million over 4

years for Fear Factor.

• AXN networks worldwide

have paid $4.8MM for U.S.

Versions of Amazing Race,

Survivor and Fear Factor

• Survivor: Higher volume of

sales in English speaking

markets than format sales

• Launch of multiple reality

cable channels provides

another outlet for prints

derived from int’l formats

• Celebrity reality formats

have significant Home

Entertainment potential

• Sequential shows have more

upside

• Simple Life sold 40K units

on DVD

• Survivor and The Apprentice

also released on DVD

American Idol:

• Sold over $50M at retail (May

2004)

• Merchandising includes

music, fashion, beauty,

lifestyle and fan products;

reaches a wide-spread

audience loyal to the TV

show and Idol brand

26

Next Steps

• Approve strategy

• Hire Sr. Format Exec

• Set up development teams in key territories – U.K., Germany, France

27

Appendix

28

Detailed Financials

(US$ 000s) FY 06 FY 07 FY 08 FY 09 FY 10 TOTAL

Format Revenue Mega A - - - 6,500 5,500 12,000 A - - 4,000 2,000 5,000 11,000 B 1,000 2,750 3,050 4,850 5,800 17,450 C 500 450 400 - - 1,350

Total 1,500 3,200 7,450 13,350 16,300 41,800

Revenue from Exisiting Library 300 300 300 300 300 1,500

TOTAL REVENUE 1,800 3,500 7,750 13,650 16,600 43,300 Timing Lag To Market 120 (592) (559) (1,397) (1,940) (970) (5,458) NET REVENUE 1,208 2,941 6,353 11,710 15,630 37,842

Format Development / AcquisitionDevelopment / Piloting / Guarantuees 2,000 2,000 2,000 2,000 2,000 10,000 Revenue Split (Acquisitions) 40% 400 700 920 1,320 1,620 4,960

Total Content Expenses 2,400 2,700 2,920 3,320 3,620 14,960

Personnel ($) 2,198 3,565 3,983 4,142 4,308 18,195 SPTI Headcount (#) 7 10 10 10 10 G&A 25% 549 891 996 1,036 1,077 4,549

TOTAL EXPENSES 5,147 7,156 7,899 8,498 9,005 37,704

EBIT (3,939) (4,215) (1,546) 3,212 6,625 138

Working Capital A/R 90 (298) (427) (841) (1,321) (967) (3,854) A/P 30 197 25 18 33 25 298

NET CASH FLOW (4,039) (4,617) (2,369) 1,924 5,683 (3,418) Cumulative Cash Flow (4,039) (8,657) (11,026) (9,102) (3,418)

Required Investment: (11,026) NPV (4x exit multiple): 5,966 IRR (4x exist multiple): 38%