1 / 47

Grouper Acquisition Opportunity July 2006

Grouper Acquisition Opportunity July 2006. Agenda. Acquisition Highlights Executive Summary Detailed Analysis Grouper Detail Trends in Digital Distribution Digital Video Service Categorization. ACQUISITION HIGHLIGHTS. Grouper Acquisition Highlights.

joshuaeddins
Download Presentation

Grouper Acquisition Opportunity July 2006

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Grouper Acquisition Opportunity July 2006 CONFIDENTIAL

  2. Agenda • Acquisition Highlights • Executive Summary • Detailed Analysis • Grouper Detail • Trends in Digital Distribution • Digital Video Service Categorization

  3. ACQUISITION HIGHLIGHTS CONFIDENTIAL

  4. Grouper Acquisition Highlights • Cornerstone to a full range of digital video services • Vehicle for marketing and distributing existing studio content online • Differentiated technology • Undervalued relative to competitors in the space • Addresses a core demographic • Broadens base of content to new forms • Opportunity to participate in growth of online advertising • Platform for further experimentation based on direct customer information

  5. Service Summary Differentiators Funding and Deal Status Demonstrated Traction Grouper Overview • Multi-platform Video Network dedicated to watching, sharing, and creating user generated video • #2 independent video community (Hitwise May report) • Launched beta version of site and attracted 7MM global UU’s (3.0 MM US) • Over 60,000 uploaded videos programmed across 18 channels • Enables video portability to multiple devices (iPod, PSP) • Attracts users from other sites through one-click posting (MySpace, Friendster, Everyone’s Connected, WordPress, Blogger) • Widely distributes easy-to-use video editing tools (Proprietary client, Instant upload from webcams and mobile phones) • Ad-filtering tools place ads based on a wide range of content tags • Leverages P2P software client; increases video quality; decreases delivery costs • Company is pre-revenue, received $5.1MM funding to date • Ownership is divided 40% management, 45% institutions (1), 12% employee options, 3% friends and families • Received a competitive acquisition bid of at least $50MM • Investors include Accela LLC, Applegreen Capital, DAG Ventures, and T-Online Venture Fund

  6. EXECUTIVE SUMMARY CONFIDENTIAL

  7. Executive Summary • SPE is faced with tremendous opportunity through digital distribution • Infrastructure for digital delivery is now in place • Consumer time and advertising revenues are shifting online, creating risks for our existing base of business • Direct-to-consumer digital service creates an opportunity to expand in new areas • Digital distribution service efforts to-date have been loosely coordinated and would benefit from an acquisition to accelerate deployment • Numerous efforts currently in-process • Studio competitors are investing heavily • Window may be limited for a reasonably priced acquisition • At $60-$70MM, a Grouper acquisition could accelerate time-to-market and be a cornerstone for a full bouquet of digital services • Grouper would provide experienced management, market-leading technology, content, and demonstrated traction with users • Potential price in-line with comps and at a discount to recent acquisitions

  8. Digital Video Distribution is Becoming Mainstream • Infrastructure is nearly in place • Roughly 50% broadband penetration of U.S. households • Compression technologies continue to improve • Content owners digitizing libraries • Consumers are engaging with more content, in ways that are unique to a two-way, interactive medium • Over half of Internet users have visited a social networking site • U.S. video downloads exceeded 18 billion in 2005 • Traction is being demonstrated by multiple players, large and small, new and old • Leading online destinations extending brands to video • Traditional networks establishing online presence • Start-up video and social networking sites building large audiences

  9. Changing Distribution Landscape and User Behavior Create Opportunities for Sony Pictures • IP-delivery is decreasing traditional distribution partners’ control and increasing the importance of two-way communications • Time spent watching cable and network TV forecast to remain flat while time spent with interactive media (online, games, mobile) will grow 10%-30% annually • Advertising is becoming increasingly important in the online space • Online advertising grew 30% in 2005 (compared with 6% for traditional media) • Online advertising expected to reach 25% of the $115 BN domestic advertising market • Unlimited shelf space is increasing the importance of niche content • Major studio content composes 95% of volume for brick-and-mortar retailers but only 80% for online retailers • SPE is creating digital video services to capitalize on these trends • Increase control of distribution and build direct, two-way relationships with consumers • Broaden base of content to include user generated and short-form • Increase ownership of ad-supported content • Build an additional avenue for distribution and marketing of TV and Film product

  10. Customer-facing Service SPE SPE-owned Service Broadband ISP PC or TV Evolving Infrastructure Represents an Opportunity to Build Direct Relationships with End-users and Increase Control of Distribution Broadcast Model Production Aggregation Distribution Customer SPE Broadcast Network Local Affiliate Broadcast TV Cable Model SPE Cable Network Cable MSO Cable TV Digital Distribution – Licensing/Syndication SPE Portal Broadband ISP PC or TV

  11. Current Previous Expansion of Sony’s Digital Distribution Strategy Sony Efforts to Date Expansion of Strategy • Early digital distribution efforts depended on home-grown technology and focused on sell-through and subscription services • Current efforts expand SPE’s digital distribution efforts to address: • Social networks and increased interactivity • Short-form and user generated content • Ad-supported revenue models • Current efforts increasingly leverage third-party technology • Nanofilms • Chat Cinema • Broadband Channels • Sony Connect • MovieLink • Bundling films on digital media • Memory Sticks • Flash Memory • Computer Hard Drives • Marketing new releases online • $36MM in FY06 spend, $64MMin FY07 • Screen Blast • SoapCity • iFilm (early investor)

  12. Social Networks are Growing Quickly and Attracting the Largest Audiences for Digital Video Content Monthly Unique Users (mm) • Provide interactivity between users • Increasingly dependent on user-generated video • Primarily advertising based revenues Social Network Store Channel Promotional • Aggregates video across content providers for purchase • Uses a range of models including sell-thru, rental, and subscription • On-demand videos in programmed micro-channels or on a show-by-show basis, • Business model primarily includes advertising, with some upsell to subscription • Predominantly short video clips that promote the site owner’s content, merchandise, and brand • May include some advertising, and minimal commerce capabilities, but is promotional in nature Source: Nielsen NetRatings. Figures as of 6/21/06. * Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded. Worldwide unique users total approximately 8 million.

  13. Acquired Intermix / MySpace for $580MM • Acquired IGN for $650 MM and Scout for $170MM • Acquired Lightningcast for online video ad insertion technology • Licensing content through BitTorrent and Guba (social network) • Acquired iVillage for $592MM • Promoting new series on YouTube • Acquired iFilm for $49 MM Competitors Are Investing in Social Networks and Consolidating the Space Social Networks Generate Value for Traditional Content Owners • Attracting large audiences and creating legitimate alternative distribution channels • Offering user-generated video and driving advertising revenue • Two-way medium with high degree of interactivity, customer engagement and feedback • Provide opportunities to create derivatives of existing properties • Harness users’ creativity to identify and develop new concepts

  14. SPE Should Acquire to Address Historical Challenges in Digital Distribution Historical Challenges and Implications Acquisition Benefits • Sony faces challenges in developing differentiated technologies in-house • Early services demonstrated the difficulty of attracting large audiences to new brands • Success requires a significant investment in marketing and infrastructure • Acquiring established brands and technology can be more cost efficient and faster • Accelerate time-to-market by providing: • Differentiated technology • Traction with customers • Management with domain expertise • Decrease cost of entry • Gain access to new content • Own a marketing platform to supplement SPE current online ad spend

  15. Strong Management Differentiated Technology Breadth of Complementary Content Demonstrated Customer Traction Acquisition Targets Must Meet the Following Criteria • Proven track record and domain expertise • Service operation and design • Tools / software development • Consumer data usage • Large and growing base of user-generated content • Sufficient traction with customers to validate interest and potential for growth • Pay for skill not scale

  16. SPE Target and Competitive Landscape (Monthly Unique Users in millions) Yahoo (105.5) Google (97.2) AOL (72.0) MySpace (51.4) iTunes (20.5) High (> 3mm) YouTube (20.1) MLB.com (9.3) FOX.com (8.5) ABC.com (8.0) Facebook (7.7) CBS.com (5.4) MTV Overdrive (4.4) iFilm (3.2) Grouper* (3.0) Existing Service Penetration Metacafe (1.9) AddictingClips (1.7) Connect (1.2) Guba (0.9) Friendster (0.8) vidiLife (0.7) Low (< 3mm) MovieLink (0.6) Roo Media (0.6) vSocial (0.5) Dailymotion (0.4) Brightcove (0.2) CinemaNow (0.3) vimeo (0.4) Veoh (0.1) Revver (0.1) Blinkx (0.01) VideoEgg (NA) Low High Technology Capabilities • Source: Nielsen NetRatings. Figures as of 6/21/06. • Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded. Worldwide unique users total approximately 8 million.

  17. Grouper Service Highlights Watch Share Create • Home page with “video wall” of user generated content; 80% click-through • Content can be discovered through: • Rotation in video wall • Search • Channels • Ability to download content to multiple devices (iPod, PSP) • Easy upload of user videos • One click publishing to other sites • Import address from MSN, Hotmail, and Yahoo to create email groups • P2P client enables download of original, high quality files • Add video comments • Real-time recording and upload from web cams and mobile phones • Proprietary client with easy-to-use editing tools • Select video • Select photos and tracking / panning effects • Select music Competes with YouTube Differentiated from YouTube and Other Competitors

  18. Grouper Management Team • Josh Felser, CEO & Co-founder • President & Co-founder Spinner (Sold to AOL for $320M); GM AOL’s music brands; Business development at News Corp • Dave Samuel, President & Co-founder • CEO and Co-founder Spinner; VP Technology AOL, MIT • Aviv Eyal, CTO & Co-founder • CTO and Co-founder Friskit; Lead engineer Microsoft Multimedia • Mike Sitrin, VP Revenue & Co-founder • Director Marketing and Commerce AOL, Director of Sales Spinner • Jonathan Shambroom, VP Product • VP Product Jumpstart, Director Product: Evite (Sold to IAC), When.com (Sold to AOL), PF.Magic (Sold to Learning Co)

  19. Grouper Performance Against Competitors Technology Content Management MonthlyUniqueUsers (mm) Quality of Content Community Connections P2P Client Ease of Use Features Strength of Leadership • Strong, experienced team 3.0 • Unknown 1.7 • Unknown 0.4 • Weak team 0.9 • Strong (but captive to Viacom) 3.2 • Unknown 1.6 • Unknown 0.1 • Average 0.1 • Unknown NA • Unknown 0.7 • Unknown 0.4 • Unknown 0.5 • Young, limited experience 20.1

  20. Cornerstone for Digital Strategy SPE Ad Sales Opportunities Complementary to Other Sony Services Cross-Sony Opportunities for Grouper • Grouper technology built to support ad-based and transactional business models; can expand to become a broadband channel • Management team has domain expertise required for user generated video and ad-based models • Brand has demonstrated traction and strong growth potential • Personal Solutions Business Group is considering Grouper as a strategic partner for its eyeVi content service in Japan • Platform could expand Connect’s service capabilities, by adding user-generated content and distributing across all device types • Grouper has positioned itself to meet the high demand for online video advertising (supports ad insertion in both streamed and downloaded content) • SPE ad sales team could sell ad space

  21. Grouper Management Projections Considerations • 2006 EBIT impact of $5MM appears realistic • $5MM full year EBIT investment compares to $3MM current run-rate • Doubling current burn rate due to increased staff • 2008 and 2009 expected to be profitable • Management forecast for profitability level may be aggressive

  22. Grouper Actual Monthly Performance Year-to-Date (1) • May to June unique user decrease due to change in Yahoo! search engine algorithm

  23. Risks and Mitigation Risks Mitigation • Customer retention / increased competition • Differentiated technology provides a better user experience than competitors • Leverage strategic partners for growth (less dependent on “fads” in user taste) • Lack of interest by advertisers • Grouper’s first deal is in place with MTV • AOL and Google report sold-out ad inventory • Lack of interest in commercial content by user base • Management projections not heavily dependent on commercial content • Ensure SPE tailors programming for the audience • Integration challenges • Structure incentives for acquired management • Allow new management to retain decision-making authority

  24. Comparable Company Analysis Supports a $70-$100MM Valuation

  25. 6/26 6/27 6/28 6/29 6/30 7/3 7/4 7/5 7/6 7/7 7/10 7/11 7/12 7/13 7/14 7/17 7/18 7/19 7/20 7/21 Process Timeline Activities/Worksteps Timeline • Internal Approval • Review drafts with Calkins and Carey • Present to Feingold • Present to Lynton and Hendler • Present to SCA (Wiesenthal and Kanagawa) • Tokyo Approval to Negotiate • SPE Due Diligence • Analyze due diligence materials • Meet with Company • Finalize acquisition valuation • Grouper Process • Submit non-binding term sheet to Grouper • Initial feedback on status of bids • Initiate negotiations of binding terms

  26. DETAILED ANALYSIS:Grouper Detail CONFIDENTIAL

  27. Grouper Features As Compared to Competitors

  28. Grouper Features As Compared to Competitors

  29. Grouper Traffic Statistics

  30. Grouper Source of User Traffic • There has been a recent dip in Grouper.com traffic, which is primarily the result of overloaded servers and a Yahoo! search engine algorithm change • The change by Yahoo!, though negative in the short term, will not have any lasting affect • It was never intended that Grouper would rely on any single third party for a significant portion of its traffic and the Company believes the reduction of Yahoo!’s significance was inevitable Note: Source of traffic reflects only Grouper.com traffic and excludes embedded uniques. When looking at total Grouper traffic Yahoo! sources 34% and 7% the weeks of 4/9 and 6/11, respectively.

  31. DETAILED ANALYSIS:Trends in Digital Distribution CONFIDENTIAL

  32. Broadband Access and Content Availability Are Driving Growth in Digital Video Broadband-enabled U.S. Households (MM) Video Downloads (BN) 18.0 69.6 65.1 58.9 51.0 42.6 33.2 0.28 Source: SG Cowen Research dated June 7, 2005, Morgan Stanley Broadband Update, April 2005

  33. Box Video Office /DVD 52% 41% Box Video Office /DVD 27% 7% TV TV 32% 41% Downloadable Video Should Drive Growth in Filmed Entertainment • Models with unique consumer benefits have been consistently adopted by Hollywood • Adoption has often been led by outside entrants and new industry players • Double digit annual growth has doubled the market approximately every 7 years $47Bn $37Bn Evolution of Content Distribution & Revenue Growth of Filmed Entertainment Industry in the US* 100%=$18Bn $9Bn 1995 100%=$4Bn $2Bn 1980 2004 2008e IP Delivery Pay TV/ Subscription VHS/ Rental DVD/ Sell thru New consumer benefits Movies without advertising Consumer controlled viewing Ownership, high quality, additional features Complete library, convenience & control Introduction drivers New cable network entrants Consumer electronics manufacturers Warner Home Video & CE industry Technology Companies * Includes revenue generated by films from major studios across content distribution windows – box office, video (rental, sell thru), television (ppv, pay, network, made for TV), and foreign revenues for each Source: Entertainment Industry Economics Vogel 4th ed., PricewaterhouseCoopers Global Entertainment & Media Outlook 2004-2008.

  34. Digital Video Delivery Represents an Opportunity to Reach a Younger Demographic Percent of Each Age Group Downloading Video (18-28) (29-40) (41-50) (51-59) (60-69) Source: Pew Internet & American Life Project, December 2005

  35. SPE Can Best Reach Younger Demographics with Models that Include Two-way Interactivity and Social Networking Percent of Each Age Group Participating in Online Activity Instant Message Read a Blog (18-28) (29-40) (41-50) (51-59) (60-69) Source: Pew Internet & American Life Project, December 2005

  36. Consumers are Shifting Time Away from Traditional Media Toward Online and Interactive Media • Cable and satellite TV hours rise slightly due to increase in channels, VOD and PPV services • Consumer time spent on broadcast TV may flatten with emerging technologies (a la TiVo) • But the real growth is in Interactive/wireless, home video, internet and games Note: Consumer Internet includes both dial-up and broadband Source: Veronis Suhler Stevenson, Val Morgan, Harris Interactive, L.E.K. Analysis, Jupiter analyst interview, Corporate Development Analysis

  37. New Distribution Models are Shifting Consumer Consumption toward “Long-Tail” Titles

  38. Studio Content May not Be as Dominant in Emerging Channels Methodology Product Mix of Units Books • Surveyed 6 B&N and Borders stores • Calculated number of SKU’s for a sample of fiction titles • Reviewed 8 to 12 stacks • Counted the number of separate SKU’s • Determined which titles were major (including sub-labels) • Amazon figures are units sold in 2005 (source Wired 2.0 and Bain consumer study) • Publishing analysts from First Research conclude that there is a strong correlation between SKU’s and units sold Niche (All Others) Major (RH, TW, Simon, HC, Pearson) Music • Surveyed 5 Borders and Best Buy stores • Calculated number of SKU’s for a sample of new release and catalog titles • Reviewed 6 to10 stacks • Counted the number of separate SKU’s • Determined which titles were major (including sub-labels) • Digital figures are units sold in 2005 (source Wired 2.0 and Bain consumer study) • Units sold figures for music via traditional stores is being researched through Nielsen Musicscan data Niche (All Others) Major (Uni, War, Sony/BMG, EMI) Home Video • Surveyed 7 WalMart, Best Buy and Target stores • Calculated number of SKU’s for a sample of new release/catalog titles • Reviewed 12 to15 racks • Counted the number of separate SKU’s • Backed-up SKU findings with units sold data from Nielsen VideoScan • Digital figures are units sold in 2005 via Amazon & other online retailers Niche (All Others) Major (7 Majors) Sources: Nielsen Videoscan data, Wired 2.0, Industry Interviews, select store visits across Los Angeles area

  39. Ad Market is Changing Significantly as Ad Dollars Follow Consumers and Two-way Infrastructure Becomes Available Media spending does not yet reflect consumption Advertising dollars are shifting online to address the current gap 1999 2005

  40. Online Advertising is Forecast to Reach 25% of $115BN Domestic Market Overall ’05 – ’09 Projected CAGR: 10.1% Broadcast ’05 – ’09 Projected CAGR: 4.9% Cable/Sat ’05 – ’09 Projected CAGR: 11.4% Online ’05 – ’09 Projected CAGR: 22.3% 114.9 106.0 95.1 87.6 78.3 71.7 63.2 US $ (Billions) 60.7 57.9 TV & Online Advertising Spend Online %: 12% 10% 12% 13% 16% 18% 21% 23% 25% Source: Veronis Suhler, 2005 Note: Cable/satellite growth expected to be driven by increasing audience share of prime time ratings, ability to target within specific demographic groups, improved sales system; broadcast growth expected to be driven by sustained ratings and ad rates, continued appeal as optimal means to reach large audiences

  41. DETAILED ANALYSIS:Digital Video Service Categorization CONFIDENTIAL

  42. Digital Video Offerings Can be Divided into Four Main Categories • Predominantly short video clips that promote the site owner’s content, merchandise, and brand • May include some advertising, and minimal commerce capabilities, but is promotional in nature Promotional Channel Store Social Network • Includes on-demand videos available in programmed micro-channels, on a show-by-show basis, or in a traditional channel lineup • Business model primarily includes advertising, with some upsell to subscription • Aggregates video across content providers for purchase • Uses a range of models including sell-thru, rental, and subscription • Generally consists of short video clips from users of the service • May also provide tools for creating video clips or interacting with video content • Primarily ad-based business models

  43. Key Attributes of Digital Video Services Low Medium High Content Accessibility Anytime, Anywhere Connected Portable 1 Content Value Produced Promotional User-Generated 2 Range of Content Providers Aggregated Company Owned 3 Content Breadth Single Genre Multi Genre 4 Degree of Interactivity Real-Time(e.g., chat, story navigation) On-Demand Ancillary(e.g., blogs and ratings) 5 Business Model(Cost to Consumer) Pay Free Ad-Based 6

  44. Promotional Video Websites Overview Attributes • Predominantly consist of short video clips to promote site owner’s content, merchandise, and brand • May include some advertising, and minimal commerce capabilities, but is promotional in nature Low Medium High Content Accessibility Anytime, Anywhere Connected Portable 1 Content Value Produced Promotional User-Generated 2 Range of Content Providers Company Owned Aggregated 3 Content Breadth Single Genre Multi Genre 4 Real-Time(e.g., chat, story navigation) Degree of Interactivity Ancillary(e.g., blogs and ratings) On-Demand 5 Business Model(Cost to Consumer) Free Ad-Based Pay 6

  45. Broadband Video Channels Overview Attributes • Includes on-demand videos available in programmed micro-channels, on a show-by-show basis, or in a traditional channel lineup • Business model primarily includes advertising, with upsell to subscription Low Medium High Content Accessibility Anytime, Anywhere Connected Portable 1 Content Value Produced Promotional User-Generated 2 Range of Content Providers Company Owned Aggregated 3 Content Breadth Single Genre Multi Genre 4 Real-Time(e.g., chat, story navigation) Degree of Interactivity Ancillary(e.g., blogs and ratings) On-Demand 5 Business Model(Cost to Consumer) Free Ad-Based Pay 6

  46. Video Store (Content Aggregation) Overview Attributes • Aggregates video across content providers for purchase • Uses a range of models including sell-thru, rental, and subscription Low Medium High Content Accessibility Anytime, Anywhere Connected Portable 1 Content Value Produced Promotional User-Generated 2 Range of Content Providers Company Owned Aggregated 3 Content Breadth Single Genre Multi Genre 4 Real-Time(e.g., chat, story navigation) Degree of Interactivity Ancillary(e.g., blogs and ratings) On-Demand 5 Business Model(Cost to Consumer) Free Ad-Based Pay 6

  47. Social Network (User-generated Video Sites) Overview Attributes Low Medium High • Consists of short video clips from users of the service • May also provide tools for creating video clips or interacting with video content • Primarily ad-based business models Content Accessibility Anytime, Anywhere Connected Portable 1 Content Value Produced Promotional User-Generated 2 Range of Content Providers Company Owned Aggregated 3 Content Breadth Single Genre Multi Genre 4 Real-Time(e.g., chat, story navigation) Degree of Interactivity Ancillary(e.g., blogs and ratings) On-Demand 5 Business Model(Cost to Consumer) Free Ad-Based Pay 6

More Related