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ATTORNEY / CLIENT PRIVILEGED Confidential Draft

Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY December 1, 2008. ATTORNEY / CLIENT PRIVILEGED Confidential Draft. Executive Summary. We have made progress towards an extension and a framework for Starz’ approach to internet SOD

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ATTORNEY / CLIENT PRIVILEGED Confidential Draft

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  1. Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY December 1, 2008 ATTORNEY / CLIENT PRIVILEGED Confidential Draft

  2. Executive Summary • We have made progress towards an extension and a framework for Starz’ approach to internet SOD • By delaying the XBOX launch to December 15, we delayed our need to file a TRO until December 12. Our goal is to close a deal beforehand • The terms currently being discussed would: • Extend the output deal through 2016 (currently expires in 2013) • Adjust rate card while retaining an annual bonus; generating $160MM-$225MM in annual revenue during the extension • Introduce title caps; but maintain flexibility with regard to slate / title mix • Provide additional benefits (extend PPV/VOD to 72 hours, decrease EST price floor in Pay 2) • Address internet SOD, requiring premium pricing and branding with some financial upside opportunity for SPE

  3. Overall Deal Parameters Comments Terms

  4. Projected Annual Revenues for Extension (2014 – 2016) $224 $160 • Comments • Compares to last 3 years average under current deal of $230MM (1) • $182.6MM fees • $47.5MM bonus • Footnotes: • Fees from output deal only.

  5. Starz will Remain a Premium Branded Service • Today, Starz is bundled with premium TV services from Cable, Satellite and IPTV providers • Packages with Starz are priced approximately 40% above entry-level prices • Starz brand is generally called-out as one of the main value drivers of the upgraded package • Premium marketing approach has led to Starz reaching 17MM cable / satellite / fiber households • The method for making Starz available digitally will be subject to a similar approach • Packages that include Starz would be above entry-level broadband or subject to a $7.99 a la carte charge • For broadband providers, “above entry level” means one tier above the lowest broadband offer • For websites, “above entry level” means bundled with a $13.99 monthly subscription • Starz brand would be specifically called-out as one of the main value drivers of the upgraded package • To ensure Starz Play remains a premium offering, Starz would accept a limit of 30MM subscribers tethered to broadband access / web services (e.g., subs tethered to Verizon DSL service and web services like Netflix, Amazon, Hulu, Facebook, and ESPN.com) • There is no cap on Starz Play subscribers tethered to a TV service (e.g., basic cable/cable broadband, satellite/DSL bundled with satellite, IPTV/broadband from IPTV providers) or websites that transition to offer services comparable to traditional TV

  6. Pricing Starz as a Premium Service • Footnotes: • Structured as 1 tier above the 1MB package. • Note, $34.99 is for first 12 months only.

  7. Subscribers Subject to Rate Card Total Digital Subscriber Cap Subscribers included in Caps and Rate Card Excluded Included Excluded Included All other digital delivery (Amazon, Facebook, Hulu) subscribers are subject to a per-sub rate card Cable Satellite IPTV (Fios) DSL Open internet on a service that feels like cable All other digital delivery subscribers (including DSL bundle) are subject to 30MM Cap Cable Satellite IPTV (Fios)

  8. Digital Rate Card Proposal Sample Potential Economics • Starz Proposal: • $2.0MM per year over the next 3 years for the Netflix deal • Per sub fee on all “included” subs • Incremental fees are structured as follows: • Cap of $14.6MM per year • Footnotes: • Deals completed or near completion. Netflix subs do not count towards rate card until after 3 year settlement. • Currently in discussions with Starz. • Not yet in discussions with Starz. • Estimated internet enabled TiVo (2nd and 3rd generation) boxes.

  9. APPENDIX

  10. Pay 1Triggers Key: Existing (Under Discussion) Timeline of Current and Proposed Windows Theatrical Release Early Window/VOD DVD / VOD Day & Date PPV / VOD Standard Pay 1 Window: 15 Mos. + 30d Black Period (18 months) Home Theater 4 weeks 4 weeks 12 months from theaters (10 months) 8 months from VOD – facilitates early window (3½ months; only with home theater modification) 6 months from DVD (4½ months) 6 months from PPV (3½ months)

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