Film/VOD/DVD Market Research

1. Film/VOD/DVD Market Research Tom Adams, President, Adams Media Research GLG Institute Wednesday, November 8, 2006 Penn Club, New York

2. Presenter Bio • Tom Adams is president of Adams Media Research. Mr. Adams has more than 20 years experience researching and analyzing new media technologies and markets, first as editor and research director of Video Store Magazine (1984-1987), secondly as senior video and new media analyst at Paul Kagan Associates (1987-1993) and subsequently as head of AMR. Adams Media Research is the media industry's key source of market data and financial analysis on the filmed entertainment and digital media markets. Adams Media Research conducts financial and market research and provides strategic and financial consulting in the fields of motion pictures, video and digital media and entertainment. Adams Media Research covers home video, the Internet, cable TV, DBS, digital television and video games to help clients create comprehensive strategies to compete for the entertainment time and money of consumers worldwide.

3. Table of Contents • 2005: What Just Hit Me? • 2006: The Turnaround Begins • The Whole Film Entertainment Market & Its Parts • The DVD Consumption Revolution • Network Opportunities: The Video-on-Demand Disappointment • Network Opportunities: The Electronic Sell-Through Upside • High-Definition Disc: The Key Film Growth Opportunity, Eventually

4. Forward-Looking Statements Important Disclaimer This report contains forward-looking statements and projections. Adams Media Research (AMR) has made every attempt to verify the accuracy and completeness of the information on which we base our conclusions in this report. It is understood, however, that our estimates, projections and opinions represent the judgment of our analysts, based on the best information available at the time of publication. Adams Media Research makes no warranty or representation, either expressed or implied, with respect to the information in this report. In no event will Adams Media Research be liable for direct, indirect or consequential damages resulting from any defect or inaccuracy in this report, even if advised of the possibility of such damages. AMR retains all rights in the Presentation not specifically granted to Gerson Lehrman Group. Copying of the Presentation without written permission is strictly prohibited. By making contact with this Council Member, you specifically acknowledge, understand and agree that you must not seek out material non-public or confidential information from Council Members. You must respect any agreements they may have and understand the Council Members may be constrained by obligations or agreements in their ability to consult on certain topics and answer certain questions. Please note that Council Members do not provide investment research, nor do they provide professional opinions. Access to Gerson Lehrman Group events and services are governed by Gerson Lehrman Group’s Usage Policies. Please consult our Usage Policies for more information (http:www.glgroup.com/usage_policies.htm). Adams Media Research's principals and employees do not own stock in any of the companies mentioned herein. © 2006 Adams Media Research

5. Adams Media Research Tom Adams is president of Adams Media Research (AMR), which was founded in 1993. AMR publishes the monthly Hollywood Aftermarket newsletter and periodic single-topic reports containing trend and statistical analysis of the post-theatrical movie markets. Recent titles include: Selling Video: A Strategic Analysis, The Future of Video Rental: A Strategic Analysis, and Video-On-Demand: The Future of Media Networks. AMR also provides consulting services to companies and investors in the media industry. Prior to founding AMR, from 1987 to1993 Adams was a senior analyst at Paul Kagan Associates, with coverage of the home video and new media technology industries. Prior to joining PKA Adams was the editor of Video Store Magazine, the leading trade magazine for video retailers, from 1984 to 1987. He graduated from the University of California, Santa Cruz with Bachelor of Arts degrees in philosophy and classical studies in 1980. Clients of AMR include the senior managements of: the home entertainment and strategic planning divisions of the major film studios, independent film production companies, the major retailers of home video products, and numerous investment companies and other financial institutions. More information on AMR and its products and services can be found at http://www.adamsmediaresearch.com © 2006 Adams Media Research

6. 2005: Anomaly or Trend? • The 2005 drop in studio revenue was a media-wide phenomena; revenue was down for the year in all U.S. pipelines from theatrical to free TV. © 2006 Adams Media Research

7. 2006: On Track for Recovery © 2006 Adams Media Research

8. The Revenue Shift from Theatrical To Video Sell-Through 1981 2006 © 2006 Adams Media Research

9. Studio Revenue vs. Consumer Spending2006 Projected Total U.S. Consumer Spending With Expected Studio Take in 2006 79% 47% 28% 28% 60% 48% Percentages reflect studio revenue as percentage of consumer spending. © 2006 Adams Media Research

10. Why DVD Sell-Through Is (Still) Key • In contrast, cable VOD homes rent just 5 on-demand movies per year © 2006 Adams Media Research

11. Same Store Rental Comps 2006 • Dropping late fees has paid off for Blockbuster (online rental revenue is included in BBI’s same store comps). © 2006 Adams Media Research

12. Traditional vs. Subscription Rental Projections Growth in online subscription rentals will help video rental revenue level out ‘07-’10. © 2006 Adams Media Research

13. The Decade Ahead:Why HD Matters to Studios Household Penetration of DVD vs. Digital Cable/Telco 1997-2010 © 2006 Adams Media Research

14. HDV Hardware Delays PushSell-Through Gains into the Future © 2006 Adams Media Research

15. Proprietary Network A La Carte Spending • Cable/Telco VOD saw healthy growth but total ALC spending dropped in ’05 as consumers abandoned PPV & NVOD for true VOD movies and free on-demand content from their cable providers. Source: Video-On-Demand: The Future of Media Networks, 2nd Ed. © 2006 Adams Media Research

16. The Target Market for Broadband ServicesWill Be Bigger than Digital Cable • In addition to better margins, electronic sell-through has the advantage of ultimately reaching more households. Source: Video-On-Demand: The Future of Media Networks © 2006 Adams Media Research

17. Growth in High-Speed Households Source: Video-On-Demand: The Future of Media Networks, 2nd Ed. © 2006 Adams Media Research

18. The Sell-Through Margin: In Store & Online *Pay TV—Studio fee revenue per average movie viewed © 2006 Adams Media Research

19. Internet Audio and Video Spending $32.2 $1,030 • Licensing films for EST, like providing legal downloads in the music industry, makes all the difference. © 2006 Adams Media Research

20. Internet Video Represents Less Than 1% of Studio Revenue in 2006 Sell-Through Cable/Telco VOD Pay TV Free TV IVOD PPV/ NVOD Theatrical Rental A La Carte = 2.9% of Total © 2006 Adams Media Research

21. Internet Video Consumption Consumer Spending on Internet Video 2005-2010 © 2006 Adams Media Research

22. Major Studios’ Feature Film Revenue Worldwide by Pipeline – History & Projections Source: “Film Entertainment Worldwide: The Impact of New Technologies” AMR publication date 11/06 © 2006 Adams Media Research

23. The New Era in Film Finance Source: “Film Investment in the Private Equity Era” AMR publication date 12/06 © 2006 Adams Media Research

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