us media who bears the burden of higher sports rights costs

EQUITY RESEARCH 27 January 2012

U.S. MEDIA Who Bears the Burden of Higher Sports Rights Costs?

Recent headlines about increasing NFL rights fees have raised questions about which parties in the cable ecosystem—programmers, distributors, or consumers—will bear the costs. With unparalleled ratings, we believe NFL programming is by far the most valuable on air, maintaining “essential” status for many cable subscribers. As a result, we believe sports programmers have the most leverage in discussions with the Multiple Systems Operators (MSOs) about securing higher subscription fees to offset their rising content costs, although we expect temporary margin compression at ESPN in FY 2015. If the MSOs agree to higher affiliate fees for the sports programmers, we believe the non-sports programmers could be at a disadvantage in competing for affiliate fee increases in what is increasingly a zero-sum game. Three key points:

NFL rights fees reach new highs – In the last several months, ESPN and broadcast networks CBS, Fox, and NBC all re-signed their respective rights deals with the NFL, locking in significant, total price hikes of ~50-70% through 2022 (and 2021 for ESPN). We believe the value of NFL content has increased substantially in recent years, as a more engaged fan base, captivated by fantasy football interests, has helped NFL programming consistently achieve the highest ratings on television. Given the unmatched value of the NFL, we believe the networks had little choice but to renew their deals, since outsized NFL ratings are crucial for promoting other network programming and justifying higher retrans/affiliate fees from the MSOs.

MSOs and consumers will likely shoulder higher sports rights costs – To offset the rights cost increases, we believe the sports programmers will actively seek subscription and retransmission consent fee price hikes at least commensurate with their added cost burden. Since NFL content is considered “essential” viewing for many subscribers, we believe the MSOs will ultimately acquiesce to the demands of the programmers and will attempt to pass on the costs to the consumer. But if a subsequent consumer backlash leads to subscriber declines, we believe the MSOs may end up absorbing some of the programming cost increases themselves.

Non-sports programmers may be struggle to secure desired affiliate rates – Given the more difficult revenue environment for the MSO’s—flattish subscriber growth and consumer discontent over rising cable bills—we believe non-sports programmers (DISCA, SNI, and VIAB) may have a more difficult time securing affiliate fee increases if sports programmers are already pressuring the MSOs for substantial rate hikes. Should a consumer backlash over video subscription costs gains traction, we believe that non-sports programmers would be the group most adversely affected, a risk we believe is not fully appreciated by the market, and certainly not priced into the stocks.

Barclays Capital does and seeks to do business with companies covered in its research reports. As aresult, investors should be aware that the firm may have a conflict of interest that could affect theobjectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 11.

INDUSTRY UPDATE U.S. Media 2-NEUTRAL Unchanged

U.S. Media Anthony J. DiClemente, CFA 1.212.526.1341 [email protected] BCI, New York Chris Merwin 1.212.526.7778 [email protected] BCI, New York

Barclays Capital | U.S. Media

27 January 2012 2

NFL Rights Fees Skyrocket to New Highs

ESPN pays up for Monday Night Football rights through 2021 In September 2011, ESPN extended its Monday Night Football rights deal with the NFL through 2021 at a total cost of $15.2 billion. Starting in 2014, ESPN will pay the League roughly $1.9 billion per season, an increase of ~70% from the $1.1 billion average annual cost under the previous agreement. Included in the deal, ESPN will have the rights to air 500 new hours of NFL-branded programs—content that could help drive total day ratings beyond the predictable lift from the flagship broadcast on Monday night. Also, ESPN will retain authentication rights on non-linear platforms, allowing ESPN subscribers to view NFL-licensed programming through both linear and over-the-top formats—potentially expanding the network’s addressable audience and allowing for incremental ad sales on streaming video platforms. Lastly, ESPN secured an enhanced package for international territories, including rights to air games in 144 counties.1

Figure 1: Selected NFL Rights Deal Increases

$8.8

$5.8$5.0 $4.8

$15.2

$8.8$8.0 $7.6

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ESPN Fox CBS NBC

Old Deal New Deal

Source: Sports Business Daily.

Broadcasters follow suit, re-up with NFL at increases of ~60% Not long after the ESPN deal, the broadcasters followed suit, each signing contract extensions through 2022 at average price increases of just below 60%. According to CBS CEO Les Moonves, “No other franchise delivers ratings the way an NFL game does,” offering some insight into the media companies’ appetite for what appear to be excessive price increases.2 To be sure, the NFL provides broadcasters with unparalleled ratings, elevated ad revenues, and the ability to promote other programming in front of the largest possible audience. Also, by maintaining rights to NFL content, the broadcasters have a much stronger case to make with the MSOs about securing higher retransmission content fees, revenue streams that are crucial in moving toward the cable network model of higher-quality subscription revenues, augmented by cyclically-driven advertising revenues.

1 ESPN, “ESPN, NFL agree to eight-year deal,” 9/8/11 2 Los Angeles Times, “NFL signs TV rights deals with Fox, NBC, and CBS,” 12/15/11


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Figure 2: NFL Rights Deals by Network

Avg. Annual % Increase Contract Total Amount Amount per vs. Previous

Networks Years Term ($B) Year ($B) ContractESPN 2014-2021 8 years $15.20 $1.90 73%Fox 2014-2022 9 years $8.80 $0.98 53%CBS 2014-2022 9 years $8.00 $0.89 61%NBC 2014-2022 9 years $7.60 $0.84 58%

Source: Sports Business Daily.

While there are certainly many benefits to these deals, enough that the networks agreed to lofty 53-73% increase in rights fees, there are plenty of questions about how good these deals really are—in particular, how they will be paid for, given a backdrop of flat-to-down video subscribers.

Video Subscriber Growth Has Fallen in Recent Quarters

According to our industry database, video subscribers posted a net decline of 79k in the 3Q11, the second consecutive quarter of sub losses. We believe recent sub declines are evidence of a mature multichannel market and also easing consumer demand, as rising cable bills and the proliferation of online content aggregators like NFLX and Hulu may have steered some consumers away from Pay TV. While the multichannel industry could eventually benefit from a turnaround in the housing market—we’re not holding our breath—all signs point to flattish subscriber growth for the foreseeable future. Without more subs to drive top line growth, we believe the MSOs instead will attempt to force price increases on their customers, only adding to a growing sense of discontent.

Figure 3: Multichannel Subscribers Net Adds (1Q10A-3Q11A)

Source: Company Reports, Barclays Capital estimates.

Facing a potential consumer backlash, we expect the MSOs will be in a difficult revenue environment going forward, and therefore will be looking to save on programming costs, rather than increase them—directly at odds with what the content owners are trying to accomplish. While some are concerned about the emergence of non-sports tiers, a disaggregation of the bundle that would reduce the earnings power of the sports

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programmers, we believe the networks have enough leverage in their relationship with the MSOs to prevent more limited tiers from being offered to the consumer.

Ultimately, someone in the value chain will have to shoulder higher rights costs—the programmers, the distributors, or the consumers. And if the MSOs have to absorb a portion of those costs, as we believe they will, we expect the non-sports programmers will have a more difficult time securing affiliate fee increases.

Affiliate Fee Increases Must Be Awarded to Sports Programmers

NFL games made up 9 of the top 10 highest rated programs on TV in 2011 In 2011, 9 of the top 10 highest-rated telecasts were NFL games, the only exception being the Academy Awards, which finished with the 9th highest rating of the year. In primetime, NBC’s Sunday Night Football was the perennial #1 rated program in the 18-49 demo, single-handedly helping to lift the network to a 3rd place position in the season-to-date rating race among the broadcasters.

Figure 4: Top 10 TV Programs in 2011 – Single Telecast

Rank Program Network Date AiredPersons 2+

RatingTotal Viewers

(000)1 FOX Super Bowl XLV FOX 2/6/2011 37.7 111,0412 FOX Super Bowl XLV Kickoff FOX 2/6/2011 23.6 69,6663 FOX Super Bowl Post Game FOX 2/6/2011 22.4 66,0304 AFC Championship on CBS CBS 1/23/2011 18.6 54,8505 FOX NFC Championship FOX 1/23/2011 17.6 51,8846 AFC Divisional Playoff-SU CBS 1/16/2011 14.8 43,4637 AFC Championship Pre-Kick on CBS CBS 1/23/2011 13.4 39,4738 FOX NFC Wild Card Game FOX 1/9/2011 13.3 39,2749 Academy Awards ABC 2/27/2011 12.9 37,92210 FOX Super Bowl Preview FOX 2/6/2011 11.9 35,136

Source: Nielsen Media Research. Note: Data from 1/1/11 – 11/27/11. Persons 2+ estimates include Live and Same Day time-shifted viewing.

While Monday Night Football ratings were actually down 10% this past season according to Horizon Media, mainly due to unfavourable match ups which were set before the season began, the program was still consistently one of the top 5 most watched programs on TV. But we don’t think advertising revenues will be main offsetting factor for higher rights costs; affiliate fee increases should serve that purpose.

A past study done by ESPN and Nielsen revealed that people who were medium to heavy sports viewers (which account for 90% of ESPN viewing) showed zero evidence of cord cutting, giving credence to the theory that sports networks can serve as a primary justification for many consumers choosing to maintain a pay TV subscription.3 We therefore believe that sports programming, and NFL broadcasts in particular, is clearly the most valuable content on air.

3 ESPN Media Zone, “Latest ESPN Study of Multichannel Households Shows Net Zero Loss to Cord Cutters,” 3/14/11


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Figure 5: Top 30 Cable Networks by Affiliate Fees and CPMs

Rank NetworkAffiliate Fee Per Sub Per Month Rank Network CPM

1 ESPN/ESPN HD 5.06 1 ESPN/ESPN HD 15.632 ESPN 3D 2.71 2 Golf Channel 11.563 3net 1.29 3 MTV 11.384 TNT 1.21 4 Bravo 10.825 Disney Channel 0.97 5 WE tv 9.666 NFL Network 0.84 6 Discovery Channel 9.337 FOX News 0.82 7 ESPN2 8.868 ESPN2 0.67 8 MLB Network 8.859 USA 0.62 9 CNBC 8.6110 TBS 0.59 10 FX Network 8.5311 MGM HD 0.58 11 ESPNews 8.3412 CNN en Español 0.58 12 TBS 8.3313 CNN/HLN 0.57 13 SPEED 8.3214 Nickelodeon/Nick At Nite 0.52 14 GolTV 7.9515 HDNet 0.47 15 Comedy Central 7.8516 FX Network 0.46 16 NBA TV 7.7717 HDNet Movies 0.38 17 NFL Network 7.7218 FOX College Sports 0.39 18 BBC America 7.3219 MTV 0.39 19 G4 7.2520 BTN 0.37 20 Food Network 7.2421 Discovery Channel 0.37 21 MTV2 7.0422 Sony Movie Channel 0.32 22 VH1 7.0323 CNBC 0.32 23 Lifetime Television 6.9624 Antena 3 0.31 24 NBC Sports Network 6.9125 Lifetime Television 0.31 25 LOGO 6.87

Source: SNL Kagan and Barclays Capital estimates. Note: Only includes networks with 40M+ subscribers. Sports networks are shaded. Does not include Regional Sports Networks.

“Essential” sports programming could warrant affiliate fee increases Since live sports are considered to be “essential” viewing for many subscribers, we believe the MSOs will have little choice but to acquiesce to the demands of the sports networks and grant affiliate fee increases, though not necessarily to an extent that will fully offset additional rights costs right away.

For Disney, we expect the impact of the new rights costs will first hit the P&L in the 4Q of FY 2014, after which point the full impact of higher run rate will be realized in FY 2015. While we expect ESPN will be successful in securing offsetting rate increases from the affiliates, as they have already begun to do, we believe there could be a timing miss-match that will adversely affect margins in 2015. Once all the affiliate fee deals have been repriced and the

Figure 6: DIS Affiliate Fee Increases (2012E-2021E)

Figure 7: Monday Night Football Rights Costs (2012E-2021E)

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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021$0

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Source: Barclays Capital estimates. Source: Barclays Capital estimates.


27 January 2012 6

higher run rate for affiliate fee growth—we’re modelling 7% annually in 2016 and beyond—begins to fully offset rights cost escalators of 4%, we believe margin expansion will resume.

Figure 8: DIS EBITDA Margin Expansion

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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

DIS EBITDA Margin Expansion

Source: Barclays Capital estimates

More concerning than temporary margin compression, we believe subscription revenues for non-sports programmers may come under pressure. In what is increasingly a zero-sum game for affiliate fees, we believe the ESPNs of the world will cannibalize a large portion of the available pie for incremental fees paid out by the MSOs, potentially leaving the non-sports programmers at a disadvantage. Affiliate fees, unlike advertising revenues, are particularly important to the media companies as a recurring source of revenues, with built in annual escalators that can drive top line growth in any macro environment. And if carriage negotiations with the MSO’s result in lower rate cards or moderated annual escalators, we believe the programmers’ business model could come under some stress.

MSOs maintain healthy, but likely decreasing gross margins for video As of 3Q11, most of the major MSOs maintained gross video margins between 55-60%—fairly robust when compared to other industries. We therefore believe that the MSOs have ample cushion to sustain the higher programming costs necessary to appease the demands by sports programmers for substantial affiliate fee step-ups.


27 January 2012 7

Figure 9: MSO Gross Margins for the Video Segment at 3Q11

60% 60%58%

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Comcast Time WarnerCable

Cablevision DIRECTV DISH Network

Video Gross Margins %

Source: Company Documents.

At least initially, we expect the distributors will attempt to pass increasing sports rights costs onto the consumer, a successful strategy in the past but one that may be met with more stringent resistance this time around, to the point where consumers cut their cable entirely or seek cheaper alternatives through tiered video offerings. However, investors and analysts have long predicted that the rising cost of video subscriptions would soon reach the elusive inflection point that ultimately leads to a mass exodus from Pay TV—and each time they’ve been wrong.

Will this forthcoming increase finally be the one to push consumers over the edge? Time will tell, but this much we know for certain: the cable and broadcast networks fully believe they can secure their desired affiliate fees/retrans increases, or it is unlikely they would have agreed to the NFL’s price hikes in the first place. We believe the residual impact from these subscription fee increases will include some combination of higher cable bills for the consumer, lower video margins for the MSOs, and lower-than-expected subscription fees for the non-sports programmers. In the best case scenario, consumers shoulder the entire burden, the programmers—sports and non-sports alike—get their desired rate increases, and the MSOs maintain their video margins. But the downside case, where scripted programmers are left by the wayside, is an outcome that we believe is not fully understood by the market, and certainly not priced into the stocks. Along those lines, we are taking a closer look at potential implications for stocks in our coverage universe.

Sports Programmers are Relative Winners in the “New” Ecosystem

Non-sports programmers Given the risks outlined above, we are incrementally more cautious on DISCA stock near-term. In addition to our concerns about its premium valuation multiple, relatively high exposure to the Euro, and lowest return of capital yield in the group, we believe its core networks may have difficulty securing its sought after rate hikes, especially if the MSOs end up shouldering a significant portion of incremental sports rights costs.

We have similar concerns for SNI, which is set to renew the majority of its carriage agreements for the Travel Channel at the end of 2012 and 2013. While we believe Travel Channel has high-quality programming with a strong appeal to its target demo of affluent


27 January 2012 8

females, we now believe there is more risk to the significant rate increases that Travel will no doubt seek from the affiliates.

Lastly, we believe VIAB may also struggle to secure pricing step-ups, given its lack of any sports programming and lagging ratings at key networks like Nickelodeon. However, with its best-in-class return of capital policy, and a relatively low exposure to advertising cyclical revenues, we find VIAB shares attractive at current levels.

Sports programmers As previously discussed, we believe ESPN may sustain temporary margin compression in FY 2015; however, we believe the network will be largely successful in negotiating affiliate fee increases from the distributors, given sports programming’s status of “essential” viewing for many cable subscribers, particularly males in the 18-49 demographic. For more detail, please see our DIS note “Downgrading to 2-Equal Weight,” published on January 10th.

For the broadcast networks, we are less concerned about the impact of higher rights fees, given the offsetting impact of retransmission consent fees. For example, we believe CBS could earn in excess of $1B annually from retrans by the time its new rights deal with the NFL expires in 2022—more than the estimated annual cost of ~$890M. Combine retrans with the influx of high-margin digital distribution revenues and we think CBS is well positioned to mitigate the impact of rising sports rights fees. While the other broadcasters, ABC (owned by DIS) and Fox (owned by NWSA) are a little behind CBS in securing retransmission consent fees, we believe they too will be able to largely offset higher rights fees—making the impact of these costs a neutral event for the broadcasters, in our view.


27 January 2012 9

Figure 10: Media Valuation Comps

($ in millions, except per share metrics)Scripps Regal National Clear DreamWorks Media

Walt Discovery Networks Time Viacom Entertainment Cinemark Cinemedia Channel Lamar Interpublic Animation SKG AMC Weighted S&PCompany CBS Corp. Disney Co. Communications News Corp. Interactive Warner Inc. Inc. Group Holdings, Inc. Inc. Outdoor Advertising Group Omnicom Inc. Networks Average 500Ticker CBS DIS DISCA NWSA SNI TWX VIA.B RGC CNK NCMI CCO LAMR IPG OMC DWA AMCX Average

Price $28.72 $39.35 $44.34 $18.82 $45.27 $37.97 $48.01 $12.78 $20.06 $13.60 $12.81 $30.43 $10.25 $46.74 $18.62 $41.82 $1,318.43Diluted Shares (CY'12E) 657.7 1,797.2 382.2 2,439.2 156.2 1,014.2 528.3 154.5 112.9 110.8 356.4 93.1 506.8 270.9 81.2 72.3

Market Capitalization (CY'12E) $18,921 $70,722 $16,242 $46,448 $7,070 $38,507 $25,718 $1,975 $2,265 $1,507 $4,566 $2,832 $5,195 $12,664 $1,511 $3,022

Net Debt (CY'12E) $5,875 $10,957 $2,822 $5,069 $520 $18,060 $7,411 $1,823 $1,304 $762 $1,427 $1,856 ($368) $1,055 ($188) $1,829

Total Other (8) 4,287 (716) (11,476) 1,654 (548) (146) (283) (226) 81 --- --- 514 660 --- ---

Firm Value (CY'12E) $24,788 $85,965 $18,349 $40,042 $9,243 $56,019 $32,983 $3,514 $3,343 $2,351 $5,992 $4,688 $5,341 $14,379 $1,323 $4,851

EBITDA2012E 3,463 11,188 1,989 7,154 1,105 7,213 4,456 444 550 233 767 494 956 2,039 111 4902013E 3,737 12,364 2,152 7,584 1,233 7,524 4,747 461 585 252 809 513 1,123 2,154 128 529

2012E Growth 10.5% 11.4% 7.1% 8.8% 11.6% 6.9% 6.4% 1.0% 12.7% 10.3% 5.3% 5.7% 7.9% 5.1% (7.3%) 9.7% 9.1%2013E Growth 7.9% 10.5% 8.2% 6.0% 11.5% 4.3% 6.5% 3.9% 6.5% 7.9% 5.5% 3.8% 17.4% 5.7% 14.6% 8.1% 7.7%3-year CAGR ('11A - '14E) 8.6% 10.7% 7.4% 6.9% 9.7% 5.4% 6.3% 2.9% 8.5% 9.0% 5.4% 4.6% 12.6% 5.4% 10.4% 5.9% 8.0%

EV / EBITDA2012E 7.2x 7.7x 9.2x 5.6x 8.4x 7.8x 7.4x 7.9x 6.1x 10.1x 7.8x 9.5x 5.6x 7.1x 11.9x 9.9x 7.3x2013E 5.9x 6.7x 8.0x 5.3x 7.0x 7.3x 6.5x 7.5x 5.6x 9.3x 7.1x 8.8x 4.5x 6.1x 9.6x 8.8x 6.5x

Adjusted Fully-Taxed FCF2012E 2,075 4,088 1,049 2,776 616 3,076 2,606 179 165 131 340 242 518 1,274 71 2302013E 1,744 4,871 1,159 2,942 716 3,386 2,805 199 179 141 332 233 623 1,347 99 196

2012E Growth 30.4% 12.4% (1.1%) (6.7%) (2.3%) 27.9% 10.3% 10.3% 2.6% 2.5% (9.1%) 24.2% 3.6% 13.5% 2.8% (14.8%) 10.9%2013E Growth (15.9%) 19.1% 10.4% 6.0% 16.3% 10.1% 7.6% 11.2% 8.9% 7.6% (2.2%) (3.9%) 20.2% 5.8% 38.9% (14.7%) 9.9%3-year CAGR ('11A - '14E) 4.7% 11.7% 5.9% 1.6% 4.5% 13.9% 8.0% 9.3% 8.0% 6.7% (2.4%) 8.3% 12.8% 8.4% 25.0% (4.7%) 8.3%

Fully-Taxed P/FCF2012E 9.1x 17.3x 15.5x 16.5x 11.5x 12.5x 9.7x 11.0x 13.7x 11.5x 13.4x 11.7x 10.0x 9.9x 21.2x 13.1x 14.4x2013E 10.2x 14.0x 13.8x 15.6x 9.9x 11.1x 8.2x 9.9x 12.6x 10.7x 13.7x 12.2x 7.9x 8.9x 15.1x 15.5x 12.8x

Adj. Fully-Taxed FCF Yield2012E 11.0% 5.8% 6.4% 6.0% 8.7% 8.0% 10.3% 9.1% 7.3% 8.7% 7.4% 8.5% 10.0% 10.1% 4.7% 7.6% 7.3%2013E 9.8% 7.1% 7.3% 6.4% 10.1% 9.0% 12.1% 10.1% 7.9% 9.4% 7.3% 8.2% 12.7% 11.2% 6.6% 6.4% 8.2%

Earnings Per Share2012E $2.26 $3.02 $2.81 $1.51 $3.25 $3.16 $4.48 $0.46 $1.45 $0.55 $0.18 $0.25 $0.75 $3.63 $1.03 $2.35 $102.552013E $2.63 $3.53 $3.29 $1.69 $3.78 $3.39 $5.29 $0.57 $1.78 $0.69 $0.19 $0.44 $0.95 $4.13 $1.15 $3.00 $107.00

2012E Growth 18.0% 15.6% 17.1% 15.8% 13.9% 11.5% 14.5% 15.5% 32.8% (4.5%) 29.4% NM 19.7% 9.2% (4.2%) 20.9% 15.1% 6.5%2013E Growth 16.3% 16.7% 17.3% 12.0% 16.5% 7.4% 18.2% 23.5% 22.9% 26.0% 5.4% NM 27.3% 13.9% 10.9% 27.6% 14.2% 4.3%3-year CAGR ('11A - '14E) 15.0% 16.3% 16.5% 12.6% 12.5% 8.6% 14.5% 16.5% 23.1% 16.4% 24.7% NM 23.0% 12.3% 10.8% 22.9% 13.8% 8.1%

P/E2012E 12.7x 13.0x 15.8x 12.5x 13.9x 12.0x 10.7x 27.7x 13.8x 24.7x NM NM 13.8x 12.9x 18.0x 17.8x 12.7x 12.9x2013E 10.9x 11.2x 13.5x 11.1x 12.0x 11.2x 9.1x 22.4x 11.2x 19.6x NM NM 10.8x 11.3x 16.2x 13.9x 11.1x 12.3x

PEG Ratio2012E 0.85x 0.80x 0.96x 0.99x 1.12x 1.39x 0.74x 1.68x 0.60x 1.51x NM NM 0.60x 1.05x 1.66x 0.78x 0.92x 1.59x2013E 0.73x 0.68x 0.82x 0.88x 0.96x 1.30x 0.62x 1.36x 0.49x 1.19x NM NM 0.47x 0.92x 1.50x 0.61x 0.80x 1.52x

DIVIDEND YIELDDividends per share $0.40 $0.60 NA $0.19 $0.40 $0.94 $1.00 $0.84 $0.84 $0.88 NA NA $0.24 $1.00 NA NA $0.54 $28.01Dividend Yield 1.4% 1.5% NA 1.0% 0.9% 2.5% 2.1% 6.6% 4.2% 6.5% NA NA 2.3% 2.1% NA NA 1.6% 2.1%

LEVERAGENet Debt/ EBITDA

2012E 1.7x 1.0x 1.4x 0.7x 0.5x 2.5x 1.7x 4.1x 2.4x 3.3x 1.9x 3.8x (0.4x) 0.5x (1.7x) 3.7x 1.3x2013E 1.2x 0.8x 1.2x 0.7x (0.1x) 2.3x 1.6x 3.8x 2.1x 2.9x 1.5x 3.2x (0.4x) 0.3x (2.1x) 3.1x 1.2x

Source: Source: FactSet, Company documents, Barclays Capital estimates. Note: All years are calendarized for the purposes of comparable valuation. Figures are in millions except for share values. Prices as of 1/26/12.


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27 January 2012 11

ANALYST(S) CERTIFICATION(S)

I, Anthony J. DiClemente, CFA, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about anyor all of the subject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

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2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

3-Negative - sector coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "sector coverage universe":

U.S. Media

AMC Networks (AMCX) CBS Corp. (CBS) CBS Corp. (CBSA)

Cinemark Holdings Inc. (CNK) Clear Channel Outdoor Holdings (CCO) Discovery Communications Inc. (DISCA)

DreamWorks Animation SKG Inc. (DWA) Interpublic Group of Companies Inc. (IPG) Lamar Advertising Co. (LAMR)

National Cinemedia Inc. (NCMI) News Corporation (NWSA) News Corporation (NWS)

Omnicom Group Inc. (OMC) Regal Entertainment Group (RGC) Scripps Networks Interactive, Inc. (SNI)

Time Warner Inc. (TWX) Viacom Inc. (VIAB) Viacom Inc. (VIA)

Walt Disney Co. (DIS)

Distribution of Ratings:

Barclays Capital Inc. Equity Research has 2195 companies under coverage.


27 January 2012 12

IMPORTANT DISCLOSURES CONTINUED

43% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 53% of companies with this rating are investment banking clients of the Firm.

42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% ofcompanies with this rating are investment banking clients of the Firm.

13% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 39% ofcompanies with this rating are investment banking clients of the Firm.

Guide to the Barclays Capital Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period.

Barclays Capital offices involved in the production of equity research:

London

Barclays Capital, the investment banking division of Barclays Bank PLC (Barclays Capital, London)

New York

Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Capital Japan Limited (BCJL, Tokyo)

São Paulo

Banco Barclays S.A. (BBSA, São Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCC, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

Barclays Bank Mexico, S.A. (BBMX, Mexico City)

Taiwan

Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)

Seoul

Barclays Capital Securities Limited (BCSL, Seoul)

Mumbai

Barclays Securities (India) Private Limited (BSIPL, Mumbai)

Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

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