© and ® July 2007

Q. Q. How do you reach 42M homes and 3M How do you reach 42M homes and 3M cars with 5.1 surround sound?cars with 5.1 surround sound?

The Answer Is:The Answer Is:

Source: CEA, Automotive Emerging Technologies Study

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What is ?What is ?

• 2-sided CD/DVD targeting 45M+ owners of 5.1 surround sound 2-sided CD/DVD targeting 45M+ owners of 5.1 surround sound systemssystems

+ One side a traditional audio CD and Dolby Digital plus DVD-A or One side a traditional audio CD and Dolby Digital plus DVD-A or DTS quality 5.1 surround audio of the same album DTS quality 5.1 surround audio of the same album plusplus related video related video on the other sideon the other side

+ Capable of internet links with the option of dfs updateable disc, Capable of internet links with the option of dfs updateable disc, creating an upstream revenue potentialcreating an upstream revenue potential

• 100% compatible with CD, DVD, PC/MAC,100% compatible with CD, DVD, PC/MAC, video game units, video game units, & car systems -- same defective/return rate as traditional CD& car systems -- same defective/return rate as traditional CD

AND extremely difficult to “rip”AND extremely difficult to “rip”

• Costs ≈ 50¢ per unit to manufacture with meaningful volumeCosts ≈ 50¢ per unit to manufacture with meaningful volume+ Actual selling price to be determined by content owner or retailer Actual selling price to be determined by content owner or retailer 

• DVDDVDplusplus has sold millions of discs worldwide & released more has sold millions of discs worldwide & released more than 70 titles in various genres (Rock, Pop, R&B, Jazz)than 70 titles in various genres (Rock, Pop, R&B, Jazz)

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Offers Creative OptionsOffers Creative Options

• DVD movies with soundtrack on CD sideDVD movies with soundtrack on CD side+ New releases and reissuesNew releases and reissues

• CD compilations with video clips on DVD sideCD compilations with video clips on DVD side+ seriesseries

• Studio version on CD side with live performances on Studio version on CD side with live performances on DVD sideDVD side

+ Iron Maiden LiveIron Maiden Live

• With access to internet options, ability to offer future With access to internet options, ability to offer future content after initial releasecontent after initial release

+ Bonus tracks, lyrics, remixesBonus tracks, lyrics, remixes

• Sets a new digital resolution standard -- offers most Sets a new digital resolution standard -- offers most complete & satisfying entertainment experiencecomplete & satisfying entertainment experience

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Current Music Industry ChallengesCurrent Music Industry Challenges

• Extend the life expectancy of and preserve the full-Extend the life expectancy of and preserve the full-length CDlength CD

+ Continue the CD business model for labels and retailers Continue the CD business model for labels and retailers

+ Protect integrity of artist’s total creative work and offer Protect integrity of artist’s total creative work and offer an alternative to current prevalent “singles” mindsetan alternative to current prevalent “singles” mindset

• Create additional revenue streamsCreate additional revenue streams+ Add entertainment and information elements to new Add entertainment and information elements to new

releasesreleases

+ Add value & exclusive features to existing product linesAdd value & exclusive features to existing product lines

• Illegal music downloads increased 47% in 2006Illegal music downloads increased 47% in 2006+ 500M paid downloads versus 15B illegal “free” 500M paid downloads versus 15B illegal “free”

downloadsdownloadsSource: :NPD Group Data

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Retail ChallengesRetail Challenges

• Places to stock and sell catalog and new music are Places to stock and sell catalog and new music are decreasingdecreasing

+ Less than 2K brick and mortar music stores todayLess than 2K brick and mortar music stores today

• Mega Retailers (Best Buy, Target, Wal-Mart) Mega Retailers (Best Buy, Target, Wal-Mart) represent 65% of music sales, which is less than 2% of represent 65% of music sales, which is less than 2% of their entire businesstheir entire business

+ ““Big box” stores have limited shelf spaceBig box” stores have limited shelf space

+ Large market share by a few retailers can potentially Large market share by a few retailers can potentially accelerate the decline of physical salesaccelerate the decline of physical sales• Especially if music floor space is further reducedEspecially if music floor space is further reduced

Source: :NPD Group Data

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Downloaded Singles Outsell Downloaded Downloaded Singles Outsell Downloaded Albums By A 19 to 1 MarginAlbums By A 19 to 1 Margin

Nearly 90% of major record company revenues, CD unit Nearly 90% of major record company revenues, CD unit sales are rapidly declining and not being replaced by sales are rapidly declining and not being replaced by digital albums (5% of unit sales).digital albums (5% of unit sales).

Source: Nielsen SoundScan (note: 2004 had 53 weeks versus the normal 52 weeks)

0.0

141.0

352.7

0.0 0.0

681.0656.3

681.4 619.0588.2

19.2

582.0

5.532.616.2

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2002 2003 2004 2005 2006

Album Units

Digital Tracks

Digital CD

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Digital Sales Won’t Replace Lost CD SalesDigital Sales Won’t Replace Lost CD Sales

• US CD sales are US CD sales are down 36%down 36% since 2000, declining from $13.4B to since 2000, declining from $13.4B to $8.5B in 2006$8.5B in 2006

+ CD sales CD sales declined 7.6%declined 7.6% in 2006 from $9.2B to $8.5B while digital in 2006 from $9.2B to $8.5B while digital downloads grew 76% from $500M to $900M in 2006downloads grew 76% from $500M to $900M in 2006

Source: RIAA, Forrester, IFPI, JupiterResearch, Nielsen SoundScan

$9.2$8.5

$7.5$6.8

$6.1$5.5 $4.9

$0.5$0.9

$1.4$1.9

$2.2$2.4

$2.5

$0.0

$1.5

$3.0

$4.5

$6.0

$7.5

$9.0

2005 2006 2007 2008 2009 2010 2011

Digital

Physical Album

• 2007 foresees CD 2007 foresees CD sales dropping 12% to $7.5Bsales dropping 12% to $7.5B losing $1B in losing $1B in revenue; digital downloads growing 50% to $1.4B, revenue; digital downloads growing 50% to $1.4B, gaining only gaining only half the loss of CD saleshalf the loss of CD sales

+ Within 5 years, CD sales will drop a further 40% to $5BWithin 5 years, CD sales will drop a further 40% to $5B+ Digital downloads will account for 33% of music revenue, $2.5BDigital downloads will account for 33% of music revenue, $2.5B

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Surround Sound Plays A Role In Consumer Surround Sound Plays A Role In Consumer Purchase DecisionsPurchase Decisions

• By 2009 over 60M U.S. households (54%) are expected By 2009 over 60M U.S. households (54%) are expected to have home theater systemsto have home theater systems+ High definition 5.1 surround sound is the technology High definition 5.1 surround sound is the technology

standard for the music, film, & television industriesstandard for the music, film, & television industries+ TVs sold today include surround sound system capabilityTVs sold today include surround sound system capability+ HDTV audiences, movie goers, & gamers have elevated HDTV audiences, movie goers, & gamers have elevated

product performance expectations and quality thresholdproduct performance expectations and quality threshold+ Video games add surround sound for an extra dimension to Video games add surround sound for an extra dimension to

games delivering an absorbing and exciting experiencegames delivering an absorbing and exciting experience• Surround Sound owners purchase over 30%Surround Sound owners purchase over 30% more more

DVDs versus general DVD consumerDVDs versus general DVD consumer• First-ever 2006 Grammy Award for “Best Sound First-ever 2006 Grammy Award for “Best Sound

Production in Surround Sound” Production in Surround Sound” + Chuck Ainley/Mark Knopler Dire Straits’ Brothers in Arms Chuck Ainley/Mark Knopler Dire Straits’ Brothers in Arms

2020thth Anniversary AnniversarySource: Nielsen Entertainment Research, Neilsen Media Research, CEA, Automotive Emerging Technologies Study

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Terrestrial & Satellite Broadcasters Use Surround Terrestrial & Satellite Broadcasters Use Surround Sound To Reinvigorate Listeners And AirwavesSound To Reinvigorate Listeners And Airwaves

• 70 commercial & NPR stations are converting to 70 commercial & NPR stations are converting to broadcast in 5.1 surround sound to 10M in weekly broadcast in 5.1 surround sound to 10M in weekly audienceaudience

• With the growth of HD radio broadcasting, surround With the growth of HD radio broadcasting, surround sound is an attractive featuresound is an attractive feature

+ Will assist terrestrial radio in maintaining and growing its Will assist terrestrial radio in maintaining and growing its listeners against the onslaught of alternativeslisteners against the onslaught of alternatives

+ More than 1,274 FM stations broadcast HD digital signalsMore than 1,274 FM stations broadcast HD digital signals

• TV networks have added Dolby Digital 5.1 surround TV networks have added Dolby Digital 5.1 surround sound to their programming significantly enhancing the sound to their programming significantly enhancing the viewers’ listening experienceviewers’ listening experience

+ Primetime averages 13M to 31M viewers per showPrimetime averages 13M to 31M viewers per show+ Early morning news shows average 14M viewers a dayEarly morning news shows average 14M viewers a day

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Car Manufacturers Champion Car Manufacturers Champion The Surround Sound Experience The Surround Sound Experience

• Over 3M cars outfitted with surround soundOver 3M cars outfitted with surround sound+ Lexus, Infiniti, Acura, Chrysler, Cadillac, Mercedes, Lexus, Infiniti, Acura, Chrysler, Cadillac, Mercedes,

BMW, Volvo, Porsche, Lincoln, Range Rover, JaguarBMW, Volvo, Porsche, Lincoln, Range Rover, Jaguar

+ Developed and manufactured surround sound systems Developed and manufactured surround sound systems without software to support their effortswithout software to support their efforts

• Premium surround sound is ranked second in Premium surround sound is ranked second in consumer interest in emerging automotive consumer interest in emerging automotive technologiestechnologies

• Busy music lovers look at their daily drive time as Busy music lovers look at their daily drive time as an excellent opportunity for serious listeningan excellent opportunity for serious listening

Source: Automotive Emerging Technologies Study

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Consumers Embrace Surround SoundConsumers Embrace Surround Sound

““Hearing 5.1 will make it hard to go back to basic 2 channel stereo”Hearing 5.1 will make it hard to go back to basic 2 channel stereo”

““Anyone who listens to 5.1 surround versions already knows how much better it Anyone who listens to 5.1 surround versions already knows how much better it makes the music sound”makes the music sound”

““Sound quality is miraculous” Sound quality is miraculous”

““Recordings have been screaming for high resolution for years” “Until you listen Recordings have been screaming for high resolution for years” “Until you listen to the High Resolution 5.1 mix, you have not heard albums at their best” to the High Resolution 5.1 mix, you have not heard albums at their best”

““True experience that makes hearing the songs feel like it is the first time” True experience that makes hearing the songs feel like it is the first time”

““You will not be disappointed” You will not be disappointed”

““Songs we all heard for decades and hundreds of times over sound new again” Songs we all heard for decades and hundreds of times over sound new again”

““Songs leap out of the speakers with a new clarity that makes for a new listening Songs leap out of the speakers with a new clarity that makes for a new listening experience” experience”

““5.1 mix just blows me away in terms of clarity and separation of vocals and 5.1 mix just blows me away in terms of clarity and separation of vocals and instruments” “One hopes they will release complete Beatles catalogs in 5.1” instruments” “One hopes they will release complete Beatles catalogs in 5.1”

““Real meat on the disc is the surround sound 5.1 DVD side Real meat on the disc is the surround sound 5.1 DVD side which is simply stunning” which is simply stunning”

Source: Amazon.com reviews of Bon Jovi, Beatles, Dire Straits

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Focus Is On Releasing Focus Is On Releasing Classic, Multi-millionClassic, Multi-million Selling Titles To Targeted AudiencesSelling Titles To Targeted Audiences

• Favorite titles (5M+ sales) from various genres re-Favorite titles (5M+ sales) from various genres re-released in feature-rich DVDplus formatreleased in feature-rich DVDplus format

• 393 titles have sold more than 5M copies (total of 393 titles have sold more than 5M copies (total of 3.3B units sold)3.3B units sold)

+ Ability for these titles, in the DVDplus format, to generate Ability for these titles, in the DVDplus format, to generate millions in U.S. salesmillions in U.S. sales

+ Capture substantial incremental volume in the near-termCapture substantial incremental volume in the near-term

Pct of CD Sales (3.3B units)

Potential DVDplus Units (in millions)

19.95 SRP generates (in millions)

14.95 shelf price generates (in millions)

1% 33 $658.4 $493.4

5% 165 $3,291.8 $2,466.8

10% 330 $6,583.5 $4,933.5

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Over 200 Titles Already Formatted Over 200 Titles Already Formatted Or Mixed In Surround Sound Or Mixed In Surround Sound

”

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Only The Consumer Electronics Industry And Its Only The Consumer Electronics Industry And Its Retailers Can Establish A New FormatRetailers Can Establish A New Format

• Music labels and film studios do not have the margin Music labels and film studios do not have the margin in their products to expose potential consumers to in their products to expose potential consumers to new technologiesnew technologies

• Manufacturers develop superior systems that include Manufacturers develop superior systems that include surround sound capability in response to the surround sound capability in response to the consumer’s desire for performance productsconsumer’s desire for performance products

• Hardware industry is targeting older consumersHardware industry is targeting older consumers+ Electronic manufacturers predict the 40+ crowd will be Electronic manufacturers predict the 40+ crowd will be

their main retail drivertheir main retail driver

+ 98M consumers are between the ages of 40 and 65 (36% of 98M consumers are between the ages of 40 and 65 (36% of the population)the population)

Source: CES

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Mega Retailers Have A Stake In Promoting Mega Retailers Have A Stake In Promoting & Supporting Physical Product& Supporting Physical Product

• Need to drive customers to their storesNeed to drive customers to their stores+ Physical product is a reason for consumers to return Physical product is a reason for consumers to return

• To date, have been unable to penetrate digital To date, have been unable to penetrate digital download marketdownload market

+ Digital downloads do not drive shoppers to storesDigital downloads do not drive shoppers to stores

+ Forfeiting hardware and software sales to digital devisesForfeiting hardware and software sales to digital devises

+ Future losses will escalate when films are easily Future losses will escalate when films are easily downloadeddownloaded

• Music sells electronics and creates awareness for both Music sells electronics and creates awareness for both hardware players and various music formatshardware players and various music formats

+ Surround sound car audio systems, players, PCs….Surround sound car audio systems, players, PCs….

Source: Nielsen SoundScan

Our Short Term Goal Our Short Term Goal

Is To Create A Multi-industry Is To Create A Multi-industry

PPROMOTIONROMOTION G GROUPROUP

To CoordinateTo Coordinate

The The IntroductionIntroduction and and LaunchLaunch

Of This Noteworthy Format Of This Noteworthy Format

Tied To A Significant Awareness Campaign Tied To A Significant Awareness Campaign

Page 18

Initial Marketing PlanInitial Marketing Plan

• Due to vested interest in extending the physical Due to vested interest in extending the physical medium life, we anticipate support from:medium life, we anticipate support from:

+ Artists and the artistic community, music labels, consumer Artists and the artistic community, music labels, consumer electronics manufacturers, and retailers of entertainment electronics manufacturers, and retailers of entertainment productproduct

• Aggressive information/press campaign & focused Aggressive information/press campaign & focused consumer advertisingconsumer advertising

+ Educate interested parties about the value of the format Educate interested parties about the value of the format and potential revenuesand potential revenues

+ Clear up confusion about competitive formatsClear up confusion about competitive formats

• Partner & support retailer industry groups (NARM Partner & support retailer industry groups (NARM & CEA) to drive consumer awareness and demand& CEA) to drive consumer awareness and demand

+ Enable consumers to rediscover their favorite music in the Enable consumers to rediscover their favorite music in the best possible entertainment environmentbest possible entertainment environment

This is the highest value option to optimizeThis is the highest value option to optimizesales of physical product by providingsales of physical product by providing

consumers with the ultimateconsumers with the ultimatepersonal entertainment experience!personal entertainment experience!

We are providingWe are providingthe state-of-the-artthe state-of-the-art delivery system delivery system

enabling consumers to revisit enabling consumers to revisit memorable performances in the most memorable performances in the most

personal, comfortable, exciting, and satisfying way.personal, comfortable, exciting, and satisfying way.

The The AnswerAnswer…The Solution!…The Solution!