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Digital Services and Distribution FY2008 Budget February 12, 2007

Digital Services and Distribution FY2008 Budget February 12, 2007. Agenda. Executive Summary Digital Distribution Mobile Entertainment Digital Services / Grouper. Broadening Distribution, Strengthening Owned Services and Investing in New Forms of Content. Schematic.

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Digital Services and Distribution FY2008 Budget February 12, 2007

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  1. Digital Services and Distribution FY2008 BudgetFebruary 12, 2007 PRIVILEGED AND CONFIDENTIAL

  2. Agenda • Executive Summary • Digital Distribution • Mobile Entertainment • Digital Services / Grouper PRIVILEGED AND CONFIDENTIAL

  3. Broadening Distribution, Strengthening Owned Services and Investing in New Forms of Content • Schematic PRIVILEGED AND CONFIDENTIAL

  4. Competitors Aggressively Investing in New Business Models Company Recent Activities • AOL partnered with Brightcove, an Internet video company, in November 2006 to enable publishers to syndicate video content on AOL properties in a self-service manner • Partnered with BigPond, an Australian movie download site, in October 2006 to offer its catalog on a download-to-own basis in the Australian market • Partnered with Amazon.com in September 2006 to offer its catalog of films through Unbox, Amazon.com’s digital video download service • Offering the Warner Brothers catalog through the CinemaNow secure download/burn service • Partnered with BitTorrent, a file-sharing protocol, in July 2006 to distribute and sell over 200 Warner Bros. movies and TV programs through its file-sharing program • Partnered with AOL in October 2006 to make its movies available for download through AOL’s Video Portal • Partnered with Amazon.com in September 2006 to offer its catalog of films through Unbox, Amazon.com’s digital video download service • Movie Link partnered with Sonic, a digital media software company, in July 2006, to license Sonic’s DVD-on-Demand technology, enabling secure Internet-delivered Movie Link downloads to DVD • Partnered with Apple in September 2006 to offer its movies and TV programs from Walt Disney, Touchstone Pictures and Miramax Films available for download through its iTunes Store • Offering the Disney catalog through the CinemaNow secure download/burn service • Preparing for a potential Early Window High Definition VOD launch in late February • Partnered with Amazon.com in September 2006 to offer its catalog of films through Unbox, Amazon.com’s digital video download service • Fox Interactive and 20th Century Fox partnered in August 2006 to make 20th Century Fox’s movies and TV shows available for download across FIM’s digital properties • Offering the Disney catalog through the CinemaNow secure download/burn service PRIVILEGED AND CONFIDENTIAL Source: Company press releases; Secondary research

  5. Digital Services is Adding Value Across Sony Make this Slide Visual • Memory Stick and PSP – Movies for Memory Stick Entertainment Pack • First secure digital content program for the PSP • Solidified content bundling relationships with VAIO, Motorola, Nokia and Sony Ericsson • Grouper on PSP • Grouper on IP Bravia PRIVILEGED AND CONFIDENTIAL

  6. Digital Services and Distribution -- Revenue Overview PRIVILEGED AND CONFIDENTIAL

  7. Digital Services and Distribution – Summary P&L PRIVILEGED AND CONFIDENTIAL

  8. Agenda • Executive Summary • Digital Distribution • Mobile Entertainment • Digital Services / Grouper PRIVILEGED AND CONFIDENTIAL

  9. Key FY07 Successes • Launched download to own business • Launched new digital rental and digital subscription partners • Launched ad-supported broadband channel business • Launched mobile channel business • Launched mobile pay-per view business in US • Launched additional movies on memory card programs throughout the world • Launched first secure digital content program for the PSP • Solidified content bundling relationships with VAIO, Motorola, Nokia and Sony Ericsson • Executed most successful mobile game launch in SPE’s history PRIVILEGED AND CONFIDENTIAL

  10. Digital Distribution Leadership • We successfully launched a wide range of business models and partnerships to take advantage of the emerging digital marketplace • Continue to grow these accounts and launch new ones to generate incremental value for SPE • WE believe that there is significant incremental revenue from these opportunities if we make more product available • Broad Launch of DST Business • Expanded Digital Rental Business • Expanded Digital Subscription Business • Launched Ad Supported Channels Business FY07 Revenue: $2.5M FY08 Revenue: $10.0M FY07 Revenue: $0.75M FY08 Revenue: $1.0M FY07 Revenue: $1.5M FY08 Revenue: $3.0M FY07 Revenue: $0.1M FY08 Revenue: $4.0M PRIVILEGED AND CONFIDENTIAL

  11. Successful launch of Digital Sell-Through • Closed deals with Amazon, Wal-Mart, Movielink, CinemaNOW, AOL, Clickstar, GUBA • Established end-to-end operational processes with SPHE, SPT, WPF and DigiPol • Made 305 feature film titles available in the marketplace to date • Top 10:DST tittles • The Da Vinci Code • Click • Talladega Nights • Underworld Evolution • Ultraviolet • RV • Silent Hill • The Covenant • Monster House • Memoirs of a Geisha • Business to date is largely new release driven, but “long tail” is proving true • All titles in the program have been purchased by end consumers • FY08 Plans • Expand partners to include: Starz, Apple, Microsoft, Best Buy, Transworld, Target • Plan to launch DST of TV product by the end of the year • Opportunity for revenue upside: • Make more television product available in the marketplace • Enter into film distribution deal with Apple PRIVILEGED AND CONFIDENTIAL

  12. FY08 Digital Sell-Through/IP-VOD Strategy • Continue to aggressively build the distribution network • Strike partnerships across the complete spectrum of traditional and on-line players • Significant opportunity for incremental revenue in an Apple deal • Continue to expand the overall content offering • Broaden selection of film and TV product • Introduce the most compelling short-form/original content into the offering • Continue to lead the market in innovating the digital product offering and usage models • Continue to operate an industry leading digital organization • End to end asset delivery and digital operations • Create innovative marketing and promotional programs • Grow the business from $5.0M in FY07 to $15.5M in FY08 Graphics removed PRIVILEGED AND CONFIDENTIAL

  13. FY08 Digital Channel Strategy • Continue to expand SPE’s digital channel offering, including • Comedy (Funnybone) - Who’s The Boss, Newsradio • Action (AXN) - SWAT, Charlie’s Angels • Kids (Bounce) - Jackie Chan, Animated MIB, • International Programming (World Channel) • Anime (Animax) - Samurai X • Movies on Demand (Now Playing/Hollywood Hits) • Introduce additional film and television properties into the channels as well as a blend of original programming and interactive features • Establish relationships with 3rd party content holders to improve channel offerings • Nelvana for Bounce (e.g., Rescue Heroes, Rolie Polie Olie, Babar) • Ban Dai for Animax (e.g., Gundam) • Aggressively expand channel distribution to high-traffic destinations across platforms • Grow revenues from $0.1M in FY08 to $4.0M in FY08 World Channel PRIVILEGED AND CONFIDENTIAL

  14. Cross-Platform Digital Channel Strategy Content Channels Distribution IP Mobile World Channel PRIVILEGED AND CONFIDENTIAL

  15. Digital Distribution -- Revenue Overview PRIVILEGED AND CONFIDENTIAL

  16. Digital Distribution – Summary P&L PRIVILEGED AND CONFIDENTIAL

  17. Agenda • Executive Summary • Digital Distribution • Mobile Entertainment • Digital Services / Grouper PRIVILEGED AND CONFIDENTIAL

  18. Sony Pictures Mobile Entertainment - Overview Full Suite of Mobile Content Products Comprehensive Marketing and Distribution Footprint + Personalization Carriers Mobile Video Mobile Games Direct to Consumer Handsets SMSInteractivity MobileApplications Aggregators PRIVILEGED AND CONFIDENTIAL

  19. FY 07 not only was profitable, but also provided a critical foundation for future growth Based on the accomplishments of FY07, the Mobile Entertainment Group is well-positioned for FY08 WHY… Games Video Distribution Implemented new approach to market yielding successful launches, and establishing new product flow for ‘08 Launched mobile video services successfully, and developed new offerings that will roll out in early ‘08 Secured carrier relationships, converted handset relationships to large-scale deals, and opening expanded D2C channel • Casino Royale a model for new game launches • Won series of global embed programs with Motorola • Securing game development pipeline beyond SPD titles • Launched Sprint PPV service • Launched Sneak Peek promo channel and growing viewership through programming • Rolling out Hollywood Hits as first movie service • Developing “basic tier” general ent channel • Secured premium deck placement and promotion • Achieved priority partner status with Cingular, Verizon • Launched T-mobile and Boost • Admitted to Motorola partner program • Secured PC distribution for mobile content commerce Management: Put a new team in place to run daily operations PRIVILEGED AND CONFIDENTIAL

  20. Games in FY07: new approach proving successful • Despite having ½ as many games in the market in FY 07, MEG managed to grow the business in terms of total monthly unit sales • Significantly higher unit-sales-per-game were extracted by: • Tighter carrier relationships • Strategic handset porting and ops management • Targeted marketing and product rollout • Smarter product selection Ratchet and Clank • Case I: Re-Launch • Effort made to drive new sales of popular PlayStation title • Porting, placement and marketing drove re-launch • Sales now exceeding original title launch – not typical in the games industry Re-launch Wheel of Fortune – ‘07 • Case II: Re-Fresh • Top-selling mobile brand grew 12% after distribution of a new version of the game (note: not launched on Sprint to date) • More strategic handset porting, mixed with securing better deck placement Re-fresh James Bond: Casino Royale • Case III: New Game Launch • First new title release in nearly 12 months • Strategically planned around movie release • Strategic handset porting, secured deck placement and marketing • Sales exceeding Jeopardy, previous number 2 title for MEG Launch PRIVILEGED AND CONFIDENTIAL

  21. 1. Fish’n Tunes Casino Royale FEB Wheel of Fortune 2007 2. JEOPARDY! 2007 MAR Ghostbusters 3. Snoop Dogg Cruisin’ MAR Ratchet & Clank Q*Bert 4. Spider-Man 3 Action APR Balloon Breaker 5. God Of War MAY Elevator Action 6. Spider-Man 3 Puzzle JUNE Snoop Dogg Boxing 7. Jump That Car JULY Mobile Games in FY 08: more games, more distribution Launch New Games (current slate) Grow Distribution for Catalog(carriers, handset, online) • Launch 1 new game per month; strategically manage the portfolio/roadmap • Aggressively optimize carrier deck placement • Expand existing Motorola and Sony Ericsson embed programs, and land new OEM deals • Utilize consumer product marketing approach • Strike relationship with leading publisher (e.g., Glu) to secure game pipeline • Grow revenue from $7.1M to 1$12.5M in FY 08 ’08 Strategy PRIVILEGED AND CONFIDENTIAL

  22. Launch of mobile video services in FY 07 are foundation for ‘08 Sony “Sneak Peeks” PPV Movies Movie Channel (launching in March) • Sony Pictures is now distributing full-length movies over the air on mobile carriers’ video services • Sprint Movies offers pay-per-view service with DVD features: pause, skip forward and back and resume • Offer 7 movies at a time • Negotiating with other carriers for distribution • Promotional channel featuring clips from theatrical, television, PlayStation, FearNet and mobile games • Currently at 350k streams / month on Sprint and Verizon – increased programming leading to 20% growth month over month • Sony Pictures • Exclusives • In Theatres • Coming to Theatres • On DVD • Coming to DVD • Game Previews • FearNet • PlayStation • The only linear looping movie channel within Sprint’s Basic + tier of video • Two looping channels with four classic movies on each channel - movies include comedy, action and drama • One movie on each channel refreshed weekly • Optimizes library value by utilizing unused inventory on a spot basis PRIVILEGED AND CONFIDENTIAL

  23. VIDEO Premium video services will be launched in FY 08 into carriers’ “basic tiers” Launch cross-platform brands… Kids Action MEG Channels World Channel Comedy General entertainment with originals targeted to a millennial audience Television hits from around the world …using a range of business models …and consumer experiences Fee-per-sub Linear streaming Ad Supported On-demand Transactional Sell-through • Concentrate on biggest video distributors (in order)- Sprint, Verizon, Cingular • Launch quality video services in a range of genres, with a breadth of business models, addressing a variety of consumer experiences • Aggressively optimize deck placement and marketing tactics • Draft off marketing for IP-video and other mobile products where possible ’08 Strategy PRIVILEGED AND CONFIDENTIAL

  24. DISTRIBUTION A comprehensive distribution footprint was secured in FY 07; an increased footprint in 08 will grow sales ’07: Grew relationships, marketing and tech ops capabilities with partners Carriers Handsets Aggregators D – to - C TXT 4SONY ’08 Strategy Carriers: Continue to focus aggressively on top 3 players in the market, push T-Mobile and Alltel for growth, and add additional strategic players (e.g., Virgin) Handsets: Continue to push on embed deals with Motorola; secure deals with Nokia and Sony Ericsson Online Aggregators: Increase reach by licensing to a select group of top online retailers Direct-to-Consumer: Establish direct-do-consumer distribution leveraging applications and web PRIVILEGED AND CONFIDENTIAL

  25. Mobile -- Revenue Overview PRIVILEGED AND CONFIDENTIAL

  26. Mobile – Summary P&L PRIVILEGED AND CONFIDENTIAL

  27. Agenda • Executive Summary • Digital Distribution • Mobile Entertainment • Digital Services / Grouper PRIVILEGED AND CONFIDENTIAL

  28. Grouper High-Level Strategy • Develop original, short-form content • Attract and acquire UGV and prosumer content with an established audience Content • Program content in well-defined verticals (channels) • Establish a trusted editorial voice Programming Goals Differentiate service Build audience Generate revenue Product & Service • Tools to support custom branded experiences • Enhance on-site and embedded player • Build robust distribution network • Online marketing of Grouper site and shows • Integrate with promotion of SPE properties • Leverage Sony BMG marketing support Distribution & Marketing Monetization • Increase emphasis on sponsorships • Monetize content via advertising, sponsored placement, and ad-supported search PRIVILEGED AND CONFIDENTIAL

  29. PRIVILEGED AND CONFIDENTIAL

  30. FY07: Integrated Grouper and Strengthened User Base for Additional Growth in 2008 • SPE content offerings through ScreenBites • DVD promotion for Seinfeld Season 7 • Contests for SPE theatrical releases Integrated with SPE Integrated Across Sony • Grouper branding integrated into PSP • Integration with IP-enabled Bravia 9.0 7.8 Expanded User Base • Grew users 40% to 9MM • Grew daily video streams 1.6MM 6.4 PRIVILEGED AND CONFIDENTIAL

  31. Grouper 3.0 Strategy • Become the premiere destination for semi-professional and viral videos • Distribute through a broad, multi-platform syndication network including the web, cell phones, and portable devices • Offer best-of-breed programmed, editorialized, channel-based viewing • Create a “pathway to fame” to attract the best content creators • Make it simple for content creators to publish to any site • Supplement user-uploaded videos with Grouper-produced content and acquired content • Provide a superior online video experience including the best content guide and high-quality video playback Vision Execution PRIVILEGED AND CONFIDENTIAL

  32. Content Strategy • Attract leading content creators • Provide incentives for content creators to share their content: • Offer a path to fame: each channel will have a uniquely defined “path to fame” which will include both online and offline rewards • Ability to easily publish to any site, including the content creator’s own site • Grouper will seed channels by investing in acquiring and producing content • All channels will be hosted and promoted inside of a programmed and editorialized channel • Channels to be defined based on narrowly defined genres (e.g., Stand-Up Comedy) • Grouper plans to launch with 5-10 channels and evolve over time User-uploaded Content Path to Fame & Programming G-Studios Acquired Content PRIVILEGED AND CONFIDENTIAL

  33. Investing in Differentiated Content Acquired Produced Small Collections Low-End UGV OriginalProduction Prosumer • Opportunistic acquisition of content with low production value but proven audience appeal • Quality UGV content with an established online audience • Grouper will acquire or license for a fixed fee or revenue share on an exclusive basis • Content not tied to a specific channel • Fixed fee paid for exclusive distribution rights • Short-form (2-10 minute), higher quality production content • Shows developed for specific channels • Mix of in-house (60%) and commissioned 3rd party shows (40%) $500k $360k $1M $3.3MM PRIVILEGED AND CONFIDENTIAL

  34. Channel-based Content Programming ContentValue • Quick Laugh • Election 2008 • Instant Karma • All Access • Project X High • Holiday / Events • Don’t Try at Home • Trends / Lifestyle • Action Sports • Sexy • Travel • Citizen Journalist • How-To Med Low • Pets & Animals • Car Culture • Video Games • Family Friendly • Blog! • Colleges • Spirituality • Digital Ghetto Launch Grouper 3.0 with 5-6 Channels in June 10 Channels Live by End of Fiscal Year PRIVILEGED AND CONFIDENTIAL

  35. STREAMLINE Product Roadmap PRIVILEGED AND CONFIDENTIAL

  36. Extending Audience Reach Through Marketing and Distribution Attract New Users through Marketing Online Marketing Project X Prizes Leverage SPE Cross-Sony Support Extend Reach through 3rd Party Distribution Partners Social networks Online portals Verticals Hardware / Embed deals PRIVILEGED AND CONFIDENTIAL

  37. Subject to Revised Revenue Assumptions Revenue Strategy • Advertising and sponsorships forecast to deliver $9.7M in FY08 revenue Advertising Revenue Channel-Based Sponsorship Revenue Non-Channel-Based Sponsorship Revenue • Video Interstitials • Run-of-Site video advertising inventory (max ad ratio 1:3 videos) • Banners • 1 banner per page; 2 impressions per stream • Sponsored Search / UIV • Ad placement against sponsored terms – paid on a per click basis • Remnant • Domestic and Int’l banner and domestic video interstitial inventory sold at a discount • Project X • Competitions within the 9 Project X sub-channels • Talent-based sponsorships • Branded Channels • Custom Channels dedicated to a single brand (i.e. ‘Mini Cooper’ channel) • 12 total in FY08 at average price of $27k each • Video Interstitials • Sponsor receives dedicated portion of video interstitial inventory w/ companion rich media ad at a premium CPM • Other • Advertiser pays fees for persistent branding, enticements, and sponsored downloads from a channel $4 MM $2 MM $3.7 MM PRIVILEGED AND CONFIDENTIAL

  38. Growth in Audience & Traffic 26MM Summer Lull in Project X Launch of G 3.0 9MM PRIVILEGED AND CONFIDENTIAL

  39. Changes in Traffic Patterns 60% Ending Domestic = 7.8MM On-Site UU 26MM 9.6MM Inactive Inactive Off-Site 50% Active Off-Site 66% Active Inactive Inactive Active On-Site 50% Active On-Site 34% PRIVILEGED AND CONFIDENTIAL

  40. Audience Benchmarks Ending FY08 Domestic On-Site UUs are Reasonable vis-à-vis Competitors MySpace 55 YouTube 30 Break 9.8 Heavy 7.8 Grouper FY08 Budget 7.8 American Idol 4-5 (1) Addicting Clips / Atom Films 3.0 (2) iFilm 2.3 eBaums’ World 3.2 Grouper Dec ‘06 Actuals 1.4 • At peak months of April and May • Combined 1.8MM Addicting Clips & 2.2MM Atom Films PRIVILEGED AND CONFIDENTIAL

  41. Grouper – Revenue Overview PRIVILEGED AND CONFIDENTIAL

  42. Grouper – Summary P&L PRIVILEGED AND CONFIDENTIAL

  43. ADJUST TO 70 AT GROUPER Headcount / Org Chart End of FY08 Grouper 70 Project X 10 Sales / Collections 5 Total 85 MRP 67 Requesting 18 Incremental Headcount vs. MRP Grouper [Content] [8] Project X 10 Total 18 PRIVILEGED AND CONFIDENTIAL

  44. BACKUP PRIVILEGED AND CONFIDENTIAL

  45. Grouper Marketing Strategy • Purchase online ad inventory (banners, adwords, etc.) to attract new users • Marketing message split between general support for Grouper brand and support for specific shows Grouper Site &Shows: $3.1MM Project X Prizes: $3.4MM • Offer cash prizes to generate interest and participation in talent competitions • Leverage SPE theatrical releases via UGV promotions, contests, and splash pages • Publicize content offerings that utilize Sony assets (e.g., Screenbites) SPE Support • Branding and publicity rights associated with Simon Cowell • Sony BMG marketing support through street teams, web sites, and CD inserts Sony BMG Support PRIVILEGED AND CONFIDENTIAL

  46. Conclusion: Foundation in place for FY 08 • Strategic approach to product development and sales • The success of the games business provides a platform for launching video services • Market and operational expertise allowing for strategic development of new offerings (e.g., D2C applications) • Operations and process management serving as basis for driving increased unit sales / product • Consumer product approach to marketing proves to be a better fit with the market • Comprehensive and growing distribution • Yielding benefits of partnerships that take time to build • Carriers and OEMs shrinking their list of preferred partners, and MEG has proven its standing • Securing lucrative OEM deals by proving that we can manage technical operations on new platforms (e.g., TTP-com) • Concentration on quality video and cross-platform digital services landing carrier placement PRIVILEGED AND CONFIDENTIAL

  47. Content Distribution Grouper will distribute it’s content across a broad network comprised of Grouper, partner and Sony assets • Syndicate content broadly via embedded player and 1-click publishing • Capture broad distribution through prioritized partnerships with select websites • High-traffic: Online portals • Demographic-relevant: Social networks • Popular verticals: Sports, Music • Other: TV-affiliates, Radio stations, News • Mobile: Third-party D2C websites, Carrier websites • Create and syndicate Grouper Branded Channel (‘off the hook’) across Internet and mobile platforms • Leverage Sony hardware brands and reach through embed deals • Sony Electronics (e.g., cameras, VAIO) • PlayStation • Centralize distribution of original SPE-produced video from all divisions PRIVILEGED AND CONFIDENTIAL

  48. Broad Digital Video Network Social networks Online portals Verticals Hardware / Embed deals Other PRIVILEGED AND CONFIDENTIAL

  49. Channel Strategy ContentValue High Med Low (a) Launch of Grouper 3.0 in June ‘07 PRIVILEGED AND CONFIDENTIAL

  50. Proposed Channels Tier 2 Tier 1 Tier 3 PRIVILEGED AND CONFIDENTIAL

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