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ATTORNEY / CLIENT PRIVILEGED Confidential Draft

Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY December 19, 2008. ATTORNEY / CLIENT PRIVILEGED Confidential Draft. Executive Summary. Since reviewing the proposed deal on December 5, we have further refined several deal points

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ATTORNEY / CLIENT PRIVILEGED Confidential Draft

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  1. Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY December 19, 2008 ATTORNEY / CLIENT PRIVILEGED Confidential Draft

  2. Executive Summary • Since reviewing the proposed deal on December 5, we have further refined several deal points • Internet SOD pricing was adjusted. Non-premium subscribers are subject to an “adjusted cap” • Open internet suggested retail price (SRP) for bundles will be $13.99 through 2012 then return to the $16.99 price previously discussed • A la carte SRP will be $5.99 through 2012 then return to the $7.99 price previously discussed • DSL bundle SRP remains at $33 with the exception of Verizon, which is at $29.99 (accommodating existing deal); however DSL bundle SRP will decrease (but never below $20) or increase with changes in prevailing DSL prices • Clarified that where Starz is delivered on a web site, it can be bundled with (a) video only services or (b) packages that include video and music / games; provided that video is the primary value • Netflix will be similar to “Open Internet” sites within six months • Bonus payment timing and value has been clarified • Starz previously offered the opportunity to receive $38.5MM cash in our FY (March payment) or $40MM out of our FY (June payments) • We’ve set the payment at $38.5MM to keep the payment in our FY

  3. Subscriber Cap Adjustment HH Cap Adjusted Cap Mechanism • Cap applies to all instances of Starz Play (TV+BB, DSL Only, and Open Internet) • Household cap for Starz Play is 35MM in 2009; growing to 50MM in 2013 • Post 2013, cap grows as a % of growth in high-speed internet households (but never less than 50MM) • Subscribers purchasing below suggested retail price are subject to a lower cap than other subscribers • Example:

  4. Revised Internet SOD Suggested Retail Prices

  5. Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY December 5, 2008 ATTORNEY / CLIENT PRIVILEGED Confidential Draft

  6. Executive Summary • We have identified terms for an extension of the output deal and a framework for the internet • All terms now subject to SPE and Liberty senior management approval • Terms of the output deal extension are largely the same as previously presented • Internet SOD terms revised to ensure premium access and premium messaging • Minimum bundle pricing • Also available on a la carte basis • Not a “barker” for data service • Rate card for “Open Internet” subscribers only • Cap on number of subscribing households

  7. Overall Deal Parameters Comments Terms

  8. Internet SOD: Guiding Principles • Ensure Premium Access Model for Starz Play • Only bundled with premium packages or available a la carte • Cap on the number of total households receiving Starz Play • Maintain Premium Messaging for Starz Play • Starz Play clearly identified as part of the value of upgrading to a premium package; contractual prohibition on marketing as “free” or equivalent of “gift with purchase” • A la carte price to establish value

  9. Internet SOD: Overview Open Internet TV + Broadband DSL Only (cable + broadband) Examples (DSL) Available as an a la carte “add-on”or part of a premium tier with minimum pricing Available as a la carte “add-on” or part of a premium tier with minimum pricing Starz Play only marketed as part of packages that include TV (e.g., double play / triple play) Premium Caps to Ensure Premium    Incremental Compensation 

  10. Rate Card HH Cap Internet SOD: Household Cap and Rate Card • Cap applies to all instances of Starz Play (TV+BB, DSL Only, and Open Internet) • Household cap for Starz Play is 35MM in 2009; growing to 50MM in 2013 • Post 2013, cap grows as a % of growth in high-speed internet households (but never less than 50MM) • Rate card applies to Open Internet subscribers only (i.e., excludes TV+BB and DSL Only and excluding Netflix) • Total annual fees to SPE capped at $20MM (expected value is less than $20MM as much of cap likely to be filled by TV+BB and DSL Only subs) • Separate Netflix settlement: $2MM per year for next 3 yrs (if Netflix terminates, SPE receives single $2MM payment)

  11. Basic Terms Rationale Examples SOD Scenario 1: TV (Cable/Sat/IPTV) + Broadband • May only be marketed as a bundle with offering that includes cable TV service • Can not be marketed as a bundle with data only by cable companies • A la carte pricing made available • No pricing restrictions for Starz Play as a result of it being bundled with TV • Must maintain Starz branding • Household cap applies • Rate card does not apply • Bundling with TV likely within Starz’ rights; nearly all cable broadband households have cable TV service • May offer Starz Play to these households without incremental fees to SPE • Marketing must still focus on access included with TV or premium packages • Cap on total households reinforces premium access • Acceptable Marketing Messages • “Sign up for Comcast ‘Double Play’ and get TV, Starz Play, and Broadband” • Unacceptable Marketing Messages • “Get Starz Play when you sign up for HSIP”

  12. Basic Terms Rationale Examples SOD Scenario 2: DSL Only • Can be bundled with any tier above basic as long as minimum price is $33/month • Today, only allows Starz Play to be bundled with highest of 3 tiers on Verizon and highest of 4 tiers on AT&T • Can be offered a la carte for $7.99 on top of any tier • Can not be positioned as “free” to consumer; value must be clearly identified • Must maintain Starz branding • Household cap applies • Rate card does not apply • DSL providers shifting to cable-like offerings of IPTV + broadband (e.g., FIOS) • Starz views cable-like treatment as critical; rate card does not apply • $33 minimum price ensures premium position even if DSL prices fall • Current Verizon DSL Plans • “Starter” plan: $19.99  Starz Play available a la carte at $7.99 • “Power” plan: $29.99  Starz Play available a la carte at $7.99 • “Turbo” plan: $42.99  Starz Play can be bundled at no extra charge • Potential Verizon DSL + Starz Bundled Plan • “Power Plus” plan: $33.00  Starz Play plus “Power” plan

  13. Basic Terms Rationale Examples SOD Scenario 3: Open Internet (excluding Netflix) • Limited to content provider websites • Can be offered a la carte for $7.99 in addition to basic video subscription of $4.99 • Minimum bundled price of $16.99 • If website has no subscription, Starz Play can be offered a la carte for $16.99 • Must maintain Starz branding • Household cap applies • Rate card applies • Applying rate card acknowledges that rights are incremental to output deal • Subscription requirement is analogous to cable • Ensures Starz continues to bundle with content (not software) • Today, $4.99 basic video, $7.99 a la carte fee, plus $20 for BB requires customers pay ~ $33 before Starz Play is bundled • As BB prices decline, $16.99 price ensures Starz Play remains premium • Hulu (no base subscription) • Starz Play costs $16.99 • Blockbuster • “1 at a time” minimum plan for $9.99  Starz Play available a la carte for $7.99 • “2 at a time” premium plan for $16.99  Starz Play can be bundled

  14. APPENDIX

  15. Pay 1 Triggers Timeline of Current and Proposed Windows Theatrical Release DVD / VOD Day & Date PPV / VOD Standard Pay 1 Window: No Black; 16 mos. current, 18 mos. in extension (was 15 plus black) Home Theater / Early Window No Pay 1 trigger 10 months from theatrical (was 12 months) 4.5 months from DVD (was 6 months) 3.5 months from VOD (was 8 months; not necessary with home theater carve-out) 3.5 months from PPV (was 6 months)

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