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Investment in Maa TV

Investment in Maa TV. Presentation to the Investment Committee July 24 th , 2012 DRAFT July 5 th , 2012. DRAFT FOR DISCUSSION ONLY. DRAFT. Executive Summary.

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Investment in Maa TV

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  1. Investment in Maa TV Presentation to the Investment Committee July 24th, 2012 DRAFT July 5th, 2012 DRAFT FOR DISCUSSION ONLY

  2. DRAFT Executive Summary • SPE has an opportunity to expand beyond its current focus on Hindi-speaking markets and acquire a controlling stake in Maa TV, a bouquet of Telugu language channels in the Regional market • Maa TV has grown rapidly and has recently overtaken ETV to become the #2 channel in Andhra Pradesh, a fast-growing region of Southern India • Acquisition of Maa TV will provide strategic benefits to both SPE and to Sony • Improves competitive positioning and brings SPE one step closer to a national India footprint • Capitalize on the growth in ad revenues for regional language channels in Southern India, which is faster than the growth of Hindi language channels and diversify ad revenue to regions that aren’t affected by the same factors that affect the Hindi market • Andhra Pradesh is the 2nd largest regional C&S market in India and is expecting to grow at a 14%-16% CAGR for ad revenue and a 23%-25% CAGR for subscription revenue through 2015 • Provide greater exposure for the Sony brand to almost 10% of the Indian population • SPE is seeking approval to acquire a majority stake in Maa TV for INR 6.1BN ($111MM) with INR 5.9BN ($107MM) payable in FYE13 and INR 200MM ($3.6MM) payable in FYE15 • Acquisition will be funded out of SPE/SPT cash flow • NPV of $23MM, IRR of 17% and payback period of 11 Years 2

  3. DRAFT SPT Networks Growth Strategy • The Indian TV market is critical to the continued success of SPT Networks • India is expected to be one of the top 3 world economies by 2050, is currently the 3rd largest TV audience in the world and is adding ~9MM households annually • The media industry in India is forecast to grow at a 15% CAGR through 2016; television is expected to be a primary driver of this growth, with an expected 18% CAGR through 2015 • Regional channels are key factors to ongoing success in India • Higher forecast growth in ad revenues and per capita incomes than the Hindi market and greater combined viewership than the Hindi-speaking regions • Zee and Star (News Corp) currently own 6 and 12 regional channels, respectively, versus SPE’s 1 • Adding regional channels to TheOneAlliance1 partnership would strengthen our distribution bouquet, making it a more compelling offering in all parts of the country • Re-branding Maa TV channels with the Sony name would allow Sony to better connect with approximately 10% of the Indian population, many of whom are striving to own higher-end brands • SPE’s existing India operations will drive strong growth in Maa TV • MSM will manage Maa’s operations, narrow the pricing gap with its main regional competitor and realize efficiencies through economies of scale (i.e. decreased programming costs(2) and higher ad rate growth) • Maa’s ad rates are lower than its #2 market position would suggest (INR 2,300 effective rate versus INR 8,200 for the #1 regional channel) • Investment in Maa TV would be consistent with SPT’s growth strategy and would be highly strategic to future growth and profitability • 1 TheOneAlliance is a channel distribution joint venture with Discovery Communications • (2)MSM will be able to provide Maa with access to its large content catalog to be dubbed into regional languages. Maa already purchases programming from MSM (in FYE12 Maa purchased CID for INR 18MM)

  4. DRAFT Opportunity for SPE in Andhra Pradesh • Andhra Pradesh is a rapidly growing Indian state with substantial potential • Andhra Pradesh, a Telugu-speaking region, is the 3rd fastest growing Indian state • State GDP is over $120 billion; government is targeting 10% growth for 2012 • Regional population is becoming more affluent; per capita GDP in Andhra Pradesh has more than doubled since 2005 and is expected to grow 14% in 2012(1) • SPT/MSM management has the experience necessary to capture this growth potential • AXN Latin America – Since FYE02, management has grown revenue at a 15% CAGR and took EBIT from a loss to over $25MM in FYE13 budget • Mystery Channel – Management has increased revenue and EBIT at CAGRs of a 6% and 20%, respectively, since acquisition • MSM – Management has turned around MSM from a loss, more than doubled revenue since FYE09 and is now contributing ~$100MM in annual EBIT • SAB acquisition – Since FYE06 management has grown revenue from $6MM to almost $80MM and took SAB from an operating loss to more than $20MM in EBIT forecast for FYE13 (1) Press Information Bureau; Government of India and The India Brand Equity Foundation

  5. DRAFT Overview of Maa TV Revenue EBITDA ($MMs) ($MMs) • Maa TV operates 4 channels in Andhra Pradesh, the second largest regional ad market in India • Maa TV (GEC), Maa Music, Maa Movies and Maa Gold (formerly Maa Junior) • Maa TV, the flagship channel, is currently the #2 channel in Andhra Pradesh, after recently passing ETV in ratings • From FYE09 to FYE11 Maa TV’s revenue increased by over 60% due primarily to increased sellout and higher advertising rates; EBITDA more than doubled over the same period • Pre-transaction shareholders are N. Prasad (67.2%), other promoters and local celebrities (30.7%) and key employees participating in ESOP plan (2.1%) Note: Historical period is shown with unadjusted EBITDA and has been restated using a constant FX rate of 55 INR:USD

  6. DRAFT Maa TV Deal Status • Drafts of the Shareholder SHA and SPA exchanged • SPE to acquire 52.3% of Maa TV for a total purchase price of INR 6.1BN ($111M) with a fully-diluted 51% to be acquired at close and an additional 1.3% to be acquired in FYE15 • SPE will acquire 51% of fully-diluted equity at close for INR 5.9BN (~$107MM) by purchasing shares from existing shareholders • Includes assumption of ~$9MM in debt, which is considered cash outflow at close due to consolidation. The debt will be paid off post-close but could alternatively be refinanced at a lower rate • Additional 1.3% to be purchased in FYE15 from employee stock option holders for INR 200MM (~$3.6MM)(1) • Purchase price derived as 22x reported FYE12 EBITDA of INR 482MM ($8.8MM). EBITDA figures presented reflect adjustments due to FYE12 interest and other income items being non-operating • Maa TV performance year-to-date is on budget Q1 EBITDA is INR 138MM ($2.5MM) • In terms of FYE13, multiple of acquisition is 21x EBITDA vs. 24x trailing multiple • SPE will have a call option on the 47.7% minority position beginning on the 5th anniversary of closing • Call option will be for fair market value, determined by mutual agreement, or by independent valuation if agreement cannot be reached • If SPE does not exercise its call by the 7th anniversary of closing, minority shareholders can force a sale of 100% of the company to a third party (1) Purchase price calculation based on multiple of FYE14 EBITDA

  7. DRAFT Third Party Valuation • Deloitte Touche Tohmatsu (D&T) was engaged to value Maa TV • SPE’s proposed purchase price is at the low end of the value that SPE or another strategic buyer is expected to derive from this acquisition of Maa TV Independent Fair Market Value Range – 100% Value Weighted Overall Value Comps Public/Trans DCF ($MMs converted from INR at 55 INR:USD) 29.2x $257 26.7x $235 Proposed SPE Price ($212MM) for 100% $208 $195 23.6x 22.2x 19.1x $168 $144 16.4x • Source: Deloitte Valuation • At SPE’s proposed price of $111MM (including $9MM debt assumption) for 52.3%, SPE’s estimated post-tax IRR is 17% and payback is 11 years Notes: These comparables do not include ETV that would be considerably higher. Transaction comp includes Asianet-Star acquisition, adjusted for time since close. Public comps include Sun TV and Zee TV, both of which have operations in Andhra Pradesh

  8. DRAFT Financial Impact to SPE • EBIT Impact • Acquiring a controlling interest will allow SPE to consolidate Maa TV and is expected to increase SPE’s EBIT by over $20MM per year by FYE17 • Cash Impact Cumulative cash flow break even estimated at 11 years (a) Assumes December 31, 2012 close (b) it is our intent to not pay dividends until $10MM in working capital is achieved on the balance sheet, after which dividends will be paid on 100% of cash available

  9. Maa TV Financial Summary DRAFT Forecasts are Preliminary All years for fiscal years ending March 31st in Indian GAAP and exclude expected MSM inter-company transaction, management service and representation fees Excludes impact of proposed TRAI changes to television advertising guidelines (a) Assumes December 31, 2012 close and excludes $5MM in estimated transaction costs (b) Purchase Price of $212MM based on FYE12 reported EBITDA of $8.8MM plus assumption of debt; EBITDA adjusted here for changes to amortization policy in FYE12; Company changed its amortization policy in FYE12 and adjustment upwards was largely effect of moving a portion of show amortization to previous year. (c) Fair value analysis in progress. Purchase price amortization is estimated and may vary by >10% 9

  10. DRAFT Cash Flow (a) Assumes December 31, 2012 close (b) PPA analysis conducted by E&Y; intangibles include movie library, trade name, customer relationships, carriage agreements and supply agreements with useful lives of 3-10 years Based on 100% cash flow before dividends.

  11. DRAFT Regulatory Approvals • This transaction is subject to regulatory approval by three different bodies • Foreign Investment Promotion Board (FIPB) • Reserve Bank of India (RBI) • Ministry of Information and Broadcasting (MIB) • Timing on regulatory approval is uncertain, but could be as little as 2 to 3 months after signing, and although unlikely, as late as 1 year after signature • We will need an additional FIPB approval for 1.3% stake in FYE15 • SPE purchase of 1.3% stake will be conditioned on receiving FIPB approval

  12. DRAFT Risk and Mitigation 12

  13. DRAFT Next Steps • Seek approval from the Group Executive Committee • Complete and execute long form documents • Submit filings and obtain regulatory approvals • Close


  15. DRAFT Maa TV Detailed Shareholding – Pre-and Post-Transaction Notes: Confirming ESOP share accounting treatment with technical accounting and PwC $3.6MM ESOP share price based on multiple of FYE14 EBITDA

  16. DRAFT FYE15 ESOP Plan Details • FYE15 cash outlay for ESOP shares • In the event the Maa ESOP participants do not sell to SPE, SPE’s share will not be diluted below 51%

  17. DRAFT Income Statement FYE11 – FYE17F Excludes impact of proposed TRAI changes to television advertising guidelines (a) Assumes December 31, 2012 close and excludes $5MM in estimated transaction costs (b) EBITDA adjusted for changes to amort policy in FYE12 – Mgmt changed from 75/25 in Y1 / Y2 to 100% in Y1. Adjustment resulted in 25% amortization movement from FYE12 to FYE11 (c) Fair value analysis in progress. Purchase price amortization is estimated and may vary by >10% 17

  18. DRAFT Advertising Revenue • Represents ~80% of gross revenue • Forecast is calculated as effective rate multiplied by expected utilization of 86%-90%. Utilization in FYE12 was 86% • Maa receives a weekday effective rate of ~INR 2,300, 28% of Gemini’s INR 8,200 • Maa’s effective rate in FYE17 is expected to be 5,800, representing a 21% CAGR • If Maa achieves its forecast and Gemini grows at the market rate of 15%, Maa’s rate will still be just 35% of Gemini’s in FYE17, as shown below (INR)

  19. DRAFT Subscription Revenue • Represents ~15-20% of gross revenue • Forecast is calculated as rate (by MSO) multiplied at a forecast year-over-year rate of growth • Maa receives an effective rate per reported subscriber of INR 6 versus INR 15 for Gemini and INR 11 for Zee and ETV • Maa’s management has a conservative view on the effects of digitization and has experienced resistance from MSOs regarding price increases. As a result, Maa is forecasting subscription revenue to grow at a 15% CAGR, versus the market forecast rate of 23-25% • This represents potential upside if MSM is able to negotiate higher rates than Maa management is expecting to achieve independently

  20. DRAFT Programming Expenses • Programming expenses are expected to remain high in the forecast period • Movies represent by far the largest programming expenditure – 40%-48% during the forecast period

  21. DRAFT Maa TV Balance Sheet at March 31, 2012 Values in INR MMs Note: this will have to be updated for close 21

  22. DRAFT Maa TV Valuation Summary US$ values slightly different than Deloitte presentation on June 25th due to FX rate (DT assumed 52 INR/USD, we have assumed 55 INR/USD throughout the deck) Current FX rate is ~56 INR/USD 22

  23. DRAFT DCF Summary (INR) for 100% Valuation

  24. DRAFT DCF Summary (US$) for 100% Valuation

  25. DRAFT Comparable Companies and Transaction Analysis 25

  26. DRAFT IRR / Payback Calculations • IRR Calculation • Payback Calculation (a) Assumes December 31, 2012 close and excludes $5MM in estimated transaction costs (b) Calculated as cash flow not paid out to minority shareholders as dividends

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