Crackle Growth Acceleration Strategy · Based on Country Attractiveness and Ease of Entry, Sony...

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DRAFT

Crackle Growth Acceleration StrategyRecommendations for the International Expansion(Early Draft – Pre-financial Analysis)

IBSG SP Media & Entertainment Practice

June 2011


DRAFT

Contents

Executive Summary

Country Attractiveness and Prioritization

Offerings – By Waves and Countries

Operational Considerations

Financial Outcomes

Next Steps

Appendix


DRAFT

Executive Summary

Based on Country Attractiveness and Ease of Entry, Sony Crackle should consider international expansion in three “waves”

— Wave 1: Expand in these regions / countries near-term (~ 1 year) to take advantage of existing large markets, with relative ease of entry

— English-speaking (UK, Canada, Australia, New Zealand, Ireland, Sweden, Denmark, Norway, Netherlands)

— German-speaking (Germany / Austria)

— Spanish-speaking LatAm (Mexico, Argentina, Colombia, Chile, Venezuela)

— Brazil

— Wave 2: Expand in medium term (~ 2-3 years) to take advantage of existing large markets, which are more complex and requires greater focus

— Countries: Japan and South Korea

— Wave 3: Monitor these markets, further evaluating attractiveness over next 1-2 years

— Countries: Russia, India, Italy, France / Belgium, China

Country excluded: Spain – relatively small market, requiring local content


DRAFT

Contents

Executive Summary




Financial Outcomes

Next Steps

Appendix


DRAFT

0

2000

4000

6000

8000

10000

12000

Mobile

Display

Top Nine Countries/ Regions without the

US(61% of WW Market)

English speaking countries include UK, Canada, Scandinavia, Netherlands, Australia, NZ, Ireland

Spanish language countries include Spain, Argentina, Mexico, Venezuela, Chile

*Source: PWC, IBSG Analysis

Countries included for Strategic fit

Countries excluded for lack of Strategic fit

LINGUISTIC CONSIDERAT

ONS

English Speaking: UK, Canada, Australia, NZ, Ireland

Other English Speaking: Netherlands, Denmark, Finland, Iceland, Norway, Sweden

German Speaking: Germany, Austria, Switzerland

Spanish Speaking: Spain, all Spanish LatAm Portuguese Speaking: Brazil, Portugal French Speaking: France, Belgium China Japan South Korea India Italy Russia (New countries added)

Initial Ranking Fine Assessment Final Ranking

Working List

English-speaking: UK, Canada, Australia, New Zealand, Ireland, Sweden, Denmark, Norway, Netherlands

German-speaking: Germany, Austria

Spanish-speaking LatAm (Mexico, Argentina, Colombia, Chile, Venezuela)

Brazil Japan South Korea French-speaking: France,

Belgium Russia, India, Italy, China(Countries dropped: Spain, Finland, Iceland, Portugal, Switzerland)

Final Ranked List

Key Market Analysis (quant)

• BB adoption/quality/use

• Device adoption

• Online advertising (detail)

• Online paid content

Competitive Analysis (qual.)

• Consumer's behaviors

• Local Providers analysis

Entry Hypothesis

• Potential content offer

• Leverageable SPE's assets

• Partnerships/affiliations

• Specific considerations

Business Case

• Investments to enter each country

• EBIT impact to Crackle

Overal strategic fit

1

2 3

We further prioritized companies identified in Phase 3, through a set of qualitative and quantitative

assessments


DRAFT

Three natural country groupings were defined so that each group may be served by a common Crackle offering

Approach

French LanguageEnglish Language

UK, Canada, Australia, NZ, Nordic Countries

• Large percentage of 18-44 segment in Nordic countries is English-speaking

• High GDP (PPP) per capita

• No content licensing issues

• Some localization needed, but no dubbing or subtitling

France, Belgium

• Common language

• Shared political border


• Localization needed (dubbing or subtitling)

German Language

Germany, Austria

• Common language

• Shared political border


• Localization needed (dubbing or subtitling)

Natural Groupings

Countries with common language and shared culture were combined into groups – to be served by a

common product


DRAFT

Prioritization methodology

Ease of Deployment

Co

un

try

Att

rac

tiv

en

es

s

Ease of deployment is judged on three categories:

Regulatory Environment

1. MACRO ECONOMIC

Competition

Local SPE Operations

2. OPERATIONS

Localization Requirements

Local Content Requirements

3. CONTENT

Cost of Local Content

Country attractiveness is judged on two categories:

Overall Advertising Spend

2. ADVERTISING AFFINITY

Online Advertising Spend

Broadband Penetration

1. INTERNET PROPENSITY

Broadband Quality

Online Video Consumption

Country Prioritization Matrix


DRAFT

Regions / Country

Broadband Population

Broadband Quality

Online video consume/capita

Overall advertising

Online advertising*

Ranking

UK, Canada, Australia, NZ, Ire, Sweden, Denmark, Norway, NL

5 4 5 5 5 5 (4.8)

Japan 4 5 5 5 5 5 (4.8)

South Korea 3 5 5 2 3 4 (3.6)

Germany, Austria 4 4 4 4 4 4 (4.0)

France, Belgium 3 4 4 3 3 3 (3.4)

Italy 2 3 2 3 3 3 (2.6)

Spain 2 3 2 2 2 2 (2.2)

China 5 3 3 4 4 4 (3.8)

India 3 2 3 2 2 2 (2.4)

Russia 3 4 4 2 2 3 (3.0)Spanish-speaking LatAm 3 2 3 2 1 2 (2.2)

Brazil 3 2 3 2 1 2 (2.2)Source: IDC 2010, PWC 2011, Screen Digest 2011, IBSG analysis * Online advertising not including search

Country attractiveness is based on infrastructure availability, online video consumption and ad spend


DRAFT

Regions / Country

Limited localization

Local conent need*

Local content affordability

Low competition

Regulatory barriers*

SPE Operations

Ranking

UK, Canada, Australia, NZ, Ire, Sweden, Denmark, Norway, NL

5 5 5 1 5 5 4 (4.3)

Japan 1 1 3 3 3 5 2 (2.7)

South Korea 1 2 4 4 3 3 3 (2.8)

Germany, Austria 3 4 3 3 3 5 4 (3.5)

France, Belgium 3 2 3 3 2 2 2 (2.5)

Italy 3 3 3 4 3 3 3 (3.3)

Spain 3 3 4 4 3 5 4 (3.7)

China 1 4 4 4 1 1 2 (2.5)

India 3 2 4 3 3 5 3 (3.3)

Russia 3 4 4 4 2 3 3 (3.3)Spanish-speaking LatAm 3 3 4 4 2 5 3 (3.4)

Brazil 2 2 4 4 1 5 3 (3.0)

Source: PWC 2009, IBSG analysis * Rating: 5= No barriers, 1= High barriers

Ease of deployment depends on factors including local content, localization, affordability, competitive and

regulatory barriers


DRAFT There are three distinct approaches that could be followed to develop a phased international rollout

strategy

Objective: to enable Crackle to become the most recognizable, profitable ad-supported movie brand

Profitability driven by both revenues and costs

Potential launch priority criteria—Attractiveness

—Deployment ease

—Portfolio approach

Guiding principles and constraints—Need to rapidly grow revenue and achieve profitability in 2-3 years

—Leverage resources: content, operational, brand and TV networks for low cost / high impact marketing opportunities

—Opportunity to take advantage of underserved markets

—Finite scaling resources

Portfolio approach best addresses objectives and constraints


DRAFT

Source: IBSG analysis

English-speaking

Japan

South Korea

Germany /Austria

France /Belgium

Italy

Spain

China

India

Russia

Spanish-speaking

-Brazil

LatAm

Deployment Ease

Attractiveness

High

High

Low

Low

Wave 1

Wave 2

Wave 3

English-speaking, German-speaking, Spanish-speaking LatAm and Brazil are the Wave 1 deployment

candidates


DRAFT A phased rollout will help Crackle expand by prioritizing market entry, managing risks whilst

maximizing market opportunity

Wave Country / Region Rationale

1

English-speakingEase of deployment, very high market potential

Germany / Austria

Spanish-speaking LatAmEase of deployment

Brazil

2Japan High market potential, although needing focus

South Korea Significant requirement for local content and mobile focus

3

RussiaTake advantage of underserved market which is relatively easy to enter from product perspective

IndiaOpportunity to take advantage of underserved market and relatively easy deployment

ItalyRelatively easy deployment and underserved market, although smaller opportunity

France / BelgiumRelatively difficult deployment due to regulatory requirements including content

China Challenging deployment due to regulatory barriers and competition

NO Spain Relatively small market requiring local content


DRAFT As Crackle expands globally, its content strategy will need to evolve

Crackle's Production

Local

(co)Production

Content

Localization

Japan, South Korea

Spanish LatAm

Russia, Italy, Spain

Germany, Austria

China India

France, Belgium

Local

Content Syndication

Us Content

Nordics, Netherlands

Canada, Australia, New Zealand, United Kingdom, Ireland

United States

US Content

Sony Pictures Entertainment(Movies, selected TV classics)

External to SPE(Movies)

Source: IBSG analysis


DRAFT

Contents

Executive Summary




Financial Outcomes

Next Steps

Appendix


DRAFTHigh level offer descriptions for Wave 1, 2 and 3 regions / countries

Wave 1 Wave 2 Wave 3

Target segment M 18 – 44 M 18 – 44 M 18 – 44

Business Model Ad supported Ad supported Ad supported

Content Original Sony Crackle US original library ~ 25% of Sony Crackle US originals

~ 10% of Sony Crackle US originals

Movies Common content elements • Library / recent movies• 700+ titles, high % of AAA, AA • High refresh: 10%+ / monthConsiderations for countries• Germany/Austria: 20% local • Spanish-speaking LatAm &

Brazil: Significant local requirements

Common content elements • Library / recent movies• 500+ titles with some AAA and

AA and rest blend of A and lower

• Medium refresh: 5-7% /monthConsiderations for countries• Japan: 30%+ local• S. Korea: 30%+ local

Common content elements • Library / recent movies• 250+, some AA, most A &

lower • Medium refresh: 5 % / monthConsiderations for countries• Russia: High local• India: High local, Bollywood• China: Significant local,

blend of Korean, Japanese, Chinese

TV Most US classic SPE TV shows US classic SPE TV shows, dubbed

US classic SPE TV shows, dubbed

Other Movie reviews, news summary, not much sports as expensive

Movie reviews, news summary, not much sports as expensive

Movie reviews, news summary, not much sports as expensive

Localization

Common localization elements Minimal regulatory complianceSpecific considerations• Germany/Austria: Subtitling• LatAm: dubbing of all content

Common localization elements Regulatory compliance / dubbing

Common localization elements Full localization / dubbingSpecific considerations: • India: Only some content

dubbed

Devices PCs, connected TVs, Internet adapters, mobile phones, iPad, gaming consoles

PC, connected TVs, Internet adapters, mobile phones, iPad, gaming consoles

PC, connected TVs, Internet adapters, mobile phones, iPad, gaming consoles


DRAFT Wave 1 sample offer and rationaleEnglish-speaking countries including UK, Canada,

Australia, NZ, Ireland, Sweden, Denmark, Norway, NLOffer Rationale

Segments • M 18 – 44 • M 18 – 44: Currently, there are no major players focusing on this segment

• In several English-speaking countries e.g. Australia , New Zealand and Scandinavia, 18-44 M segment is very interested in action, sports, extreme adventure and international content

Business Model

• Ad supported • In UK, significant amount of OTT video available from existing players e.g. BBC iPlayer, Sky UK

• Competing with a paid OTT model would be expensive• Significant amount of catch-up OTT video content is

available (e.g. Scandinavia) – creating consumer expectations that OTT content is free.

Content • Original production: None specially developed for this region; offer US original content

• Movies: Movies 6+ months and older, library and current movies

• TV: None specific to local country; offer selective US TV series / episodes of international popularity

• Other content: None• Localization: Limited to regulatory

compliance

• Appetite for original content is mostly for local TV serials• Catch up TV window is ~1 month. Any online video

content (movies, TV shows) older than that is only offered via PPV/DTO

• While there is an opportunity to provide archived TV serials (due to 30 day expiry window of catch-up TV), the content is expensive to offer

• Research indicates that consumers prefer to use catch-up TV to see recent TV episodes, missed on regular TV. This content is expensive to acquire

• Paid TV incumbents (especially satellite) have significant advantage in sports; also live Sports content is expensive

Devices • PC, Internet-connected TVs, iPad, PS3, Xbox, Wii

• OTT longform video largely viewed on PCs and TVs Increasing viewing of movies on tablets, especially iPads


DRAFT Wave 1 sample offer and rationaleGermany / Austria

Offer Rationale

Segments • M 18 – 44 • 18-44 more interested in localized international content; however this content should be subtitled at least minimally through sub-titling

Business Model

• Ad supported • Significant amount of OTT content available through TV broadcasters (catch-up TV), as well as Paid TV providers offering OTT content to subscribers, as part of overall subscription

Content • Original production: None specially developed for this region; offer US original content

• Movies: movies 6+ months and older, library and current movies

• TV: none specific to Germany or Austria; offer selective US TV series episodes of international popularity

• Other content: movies reviews, news summaries, not much sports

• Localization• All content adapted to

German regulations and subtitled

• Wide range of genres (10+) to compete with extensive local online content

• Appetite for original content is mostly for local TV serials

• The catch up TV window is approximately 1 month. Any online video content (movies, TV shows) older than that window is either offered via PPV/DTO or not available

• OTT TV series / episodes demand is mostly to catch-up missed current TV episodes. This content is expensive and is available through catch-up TV services. Therefore not sufficiently worthwhile to offer Germany-specific TV series.

• Sports content too expensive to purchase; local public TV as well as Paid TV (e.g. Sky) has significant penetration

Devices • PC, internet-connected TVs, iPad, PS3, Xbox, Wii

• OTT longform video largely viewed on PCs and TVs


DRAFT

3

1 Competitors and rationale

5

2

4

Key Competitive Insights

Prevalent Business Models

Content Depth, Breadth, Availability

Main Offerings / price points

Consumer segment / other details

Deep pockets: Germany / Austria public TV, publishers and pay TV companies have in-depth local content of high quality

Public TV has limited windows to show ads during the day; usually no ads during movies

Publishers are providing more information-based content e.g. documentaries, news

Satellite providers are developing online competitive edge in Sports; while they also provide movies, but largely Sports driven

Maxdome has subscription plus PPV. Basic subscription is € 9.99/month; movies are 18-24 months old. Recent releases are by PPV

TV producers are mass market focused

Austria is a smaller market, concentrated with good Public TV. ORS.Ad is # 5 in popularity in Austria (after YouTube) – and produces 90% of scripted content in Austria

OED24.ad (Liberty Global) and Chello.ad are local brands of media companies

Key Learnings for Sony Crackle

• Good quality content on TV, & catch-up TV reduces propensity to pay for online contents

• International content usually through PPV / DTO @ € 0.50 - € 5.99/movie and up

• Part of large publishers• TV Broadcasters offering Catch Up TV • Part of TV networks e.g. N-TV, PGMEDIA • Some niche portals (GMX-UGC), Web.de etc.

• Ad supported, subscription, PPV/DTO • Non-ad (subscription / PPV) e.g. Maxdome• VOD / PPV services (e.g. DT’s Videoload)• Lovefilm has ad supported content

• Extensive short form content i.e. clips, trailers)• Some German local content desired; typically

~30% of overall content• Foreign content must be subtitled

• 18-44 more interested in localized international content; however should be sub-titled

• Consumers get local content from domestic TV providers; low appetite from any new sources

Germany / Austria Opportunity(1) Ad supported (2) international movies (3) little to no

local content (4) 18-44 segment


DRAFT

Regions / Countries

Special Considerations

English Speaking (UK, Canada, Australia, NZ, Ireland, Sweden, Denmark, Norway, NL)

Considerations for country grouping

Possibility of using the same programming as US, rights permitting Some commonality of culture could justify common marketing campaigns (except

for Nordic Countries)

Considerations for UK and Ireland

Mature OTT environment; established incumbents Sony Crackle offering should be differentiated with US movies not available on

other online, ad supported services Potential to take advantage of “Cash Cow” US TV classics Presence of Sony hubs and Sony Networks could be leveraged Sony should OEM Crackle with Sony Electronic connected devices like Sony

Bravias, Playstations, tablets and build stronger service awareness in this manner

Germany / Austria

Enough similarity in language and culture to deploy same service in both countries Crackle Germany could capitalize on the local appetite for international movies,

recent and classic US movies should fare well and give strong service identity The service could benefit from content partnership with Deutsche Telecom

Considerations for Australia and New Zealand

Crackle can capitalize on low barriers to entry created by English-speaking population that loves American films

Opportunity to strike an alliance with local SP incumbent Telstra for co-marketing of service and quota-unbundling of Crackle traffic

Considerations for Nordic Countries

Crackle should take advantage of Teliasonera’s interest in alliances with OTT players for bundling services

Possibility that US / English language content not dubbed or sub-titled may not be viable for full ad supported model; however some ads could be sold through ad networks, even at lower prices, to bring incremental revenues with marginal costs

Special considerations for Wave 1 regions / countries


DRAFT

3


5

2

4






Most Korean consumers have experienced paid-TV services; though price sensitive, they are also used to paying for online content through subscription services

Significant part of TV viewers (17%) regularly watch video using Internet

Consumers use diverse range of devices to watch video; while 99 % watch video on TV;

~ 43% also watch on the Smartphone

~ 25% also watch on Notebooks

~15% watch on navigation devices

~ 41% watch on PMP/MID/PDA

Depth and wide variety of Korean local / localized content, on different platforms is tablestakes; potential for ad supported services, for latest Western content dubbed in Korean

Difficult to compete with the three main broadcasters on Korean content only


• conTing’s subscription service @ $13-15 / month for unlimited content download

• GOMTV’s $9/month service for one broadcaster contents, $20 for all three

• No target segmentation; mass market appeal • High price sensitivity – lower price points

exacerbated by P2P services, that provide pirated content for cents

• conTing: An online video service jointly owned by 3 broadcasters KBS, MBC, SBS

• Each has its own site for online content as well• Portals – GOMTV, Africa TV, DaEum TV

• conTing, GOMTV provide subscription based services for unlimited download

• Many portals offer ad-supported Korean video content, sometimes pirated

• Extensive Korean content e.g. Korean / English subtitled movies, TV episodes, game shows.

• All content that is broadcasted is available on the OTT services; sufficient breadth / depth

Wave 2 Offer and rationaleSouth Korea - (1) Ad Supported (2) localized

international movies (3) on multiple devices (4) 18-44


DRAFT

Regions / Countries Special Considerations

South Korea Opportunity of launching a service that takes advantage of the high penetration of Internet-connected portable viewing devices (PMP, smart phones and tablets) – To differentiate, the Crackle service should be optimized for these devices

Wave 2 special considerations


DRAFT Wave 3 sample offer and rationaleFrance / Belgium

Offer Rationale

Segments • M 18 – 44 • 15-24 are most active online video consumers; ~ 33% view Catch Up online TV

• 18-44 M more interested in localized international content; however need content to be dubbed

Business Model

• Ad supported • Significant amount of free content, particularly locally produced, available from Public/ Paid TV Broadcasters to subscribers

• Short clips, UGC and growing international premium content available from popular portals e.g. Dailymotion.

• Consumer expectation that online video is free• Current pay models are limited to PPV/DTO. There is no

successful subscription model

Content • Original production: None• Movies: Movies 6+ months and

older, library and current movies• TV: None specific to France or

Belgium; offer selective US TV series

• Other content: movies reviews, news summaries, not much sports

• Localization: • Subtitling in French is

essential• Regulatory compliance

• Appetite for original content is mostly for local TV serials• High demand for international (especially American)

movies. Movies that are out of theatre release window have limited availability, through DVDs, and PPV/DTO

• OTT TV series / episodes demand is mostly to catch-up missed current TV episodes. This content is expensive and is available through catch-up TV services. Therefore not sufficiently worthwhile to offer Germany-specific TV series.

• Paid TV incumbents (especially satellite) have significant advantage in sports; also live Sports content is expensive

Devices • PC, internet-connected TVs, iPad, PS3, Xbox, Wii

• OTT longform video largely viewed on PCs and TVs. Increasing viewing of movies on tablets, especially iPads


DRAFT

3


5

2

4






French OTT market is crowded, dominated by incumbent TV providers (including French TV), deploying catch-up TV

No successful subscription model, for an in-depth, extensive international content library; Netflix has market entry plans

Viability of ad- supported model: French ad spend is largely captured by TV incumbents offering catch-up TV, may be hard to get sufficient ad volume to support a successful business model

A differentiation could be a breadth/depth of classic movies provided by Sony library

Consumers are accustomed to good quality /in-depth local OTT content – e.g. Orange

Hence less appetitive for Subscription

Increasing price sensitivity

Local quota regulations unclear for OTT


• Dailymotion: Free content, limited movies, focus on UGC videos

• PPV for movies is typically € 2-4 per view• Subscription trial pricing unclear

• 15-24 segment active online video consumers; ~ 33% view Catch Up TV on multiple devices

• DM: Targeted to 18-34, with mature content; 32nd most visited, 93M UVs over 6 months

• TV / IPTV players’ online sites: Orange, SFR• TV Broadcasters: (Free –TF1, France TV, A2,

Pay TV: Canal+)• Online OTT service provider: Dailymotion

• Mostly Ad supported, free content• Catch Up TV very popular, ad-supported • Limited subscription trials / PPV: Canal+, TF1

• Catch UP TV displays mostly local content; usually international rights are not included

• Dailymotion: Content by “channels” e.g. Sports , News; UGC, clips, trailers, some premium

France/Belgium Opportunity(1) Ad supported (2) international localized movies

(3) 18-44 segment


DRAFT

Regions / Countries Special Considerations

France and Belgium

In spite of crowded competitive environment, Crackle France could benefit from the relative current gap in US movies (current and classic) and build an identity around the provision of this type of programming; some original English versions subtitled in French would be acceptable

Possibility of segmenting offer to higher earning demographics and target ad avails accordingly Strong interest on the part of Orange France Telecom (France) and of Belgacom (Belgium) in striking

partnership arrangements with new OTTs should be explored, as well as a possible alliance with Dailymotion to effectively compete against the planned introduction of Netflix to the French Market

Russia Most of the video content is available free, and a high percentage is legal. While this is an issue for paid models, it poses least threat to Crackle’s ad supported model, with content past most of paid windows

Sony operations are relatively new, and not fully established and mature

India Capitalize on English speaking audience segment and appetite for American movies and TV shows presented in their original language

Also capitalize on the presence of a Sony hub and of the popularity of the Sony networks to source content from these

Possibility of sourcing inexpensive local content (Bollywood) for local distribution

China Need to secure license prior to operating creates additional burden and possible delay in deployment Possibility of aligning with the right local partner to get immediate market traction Censorship requires review and approval of each title; may increase timing for content publishing on the

portal, lower refresh rates and alter contents Difficult to “remove money”

Italy Crackle Italy could capitalize on the Italian public’s taste for international movies with a strong US movie identity (subtitled or dubbed offering)

Special considerations by region/country for Wave 3


DRAFT

Contents

Executive Summary




Financial Outcomes

Next Steps

Appendix


DRAFTProposed international operational changes from content acquisition to hosting

Local Content Deal

U.S. Content Deal

Ingest

Ingest

Content licensing is negotiated simultaneously for multiple countries

Each country may independently opt in/out of a content deal, depending on potential local interest

Editing / Post Prod. /

DRM

Editing / Post Prod./

DRM

Encoding / Transcoding

Encoding / Transcoding

Hosting

Hosting

X

• Dubbing• Sub-titles• Ratings

U.S. Video Process (Future State)

Country Video Process (Future State)

Outsourced

Outsourced

Outsourced

Outsourced

6 FTEs

1-3 FTEs

Video Programming

9 FTEs

1-2 FTEs

Video Programming


DRAFT

Operational considerations

Objectives Identify which operational processes and associated resources and systems need to be country-local, versus regionalized

Cost Drivers

Local Processesand

Resources

Cost Drivers

Rationale• Local content ingested locally• Flexibility to license some content locally• Rev. share with local partners, if applicable• Hosting will be performed locally• In the beginning, outsource ad-sales or use

ad networks to get running start • Marketing campaigns need local know-how• Legal, programming etc. needs local teams

Rationale• U.S. content licensed centrally in deals

covering multiple countries• US content ingested in US• Common product development and

engineering can be performed centrally (e.g. by U.S. team); only incremental localization required (e.g. skins, language)

• Maintain consistent product look & feel

Product Dev. Engineering

Sales & Marketing G&A

Video Operations Ad Server Fees

Partner Rev. Share Hosting & BW

Content Licensing Acquisition / Editing

Regional Processesand

Resources

Proposed Approach

Content Licensing


DRAFT

Contents

Executive Summary




Financial Outcomes

Next Steps

Appendix


DRAFT

Financial outcome for US

All figures in US $ Million

BUSINESS CASE SUMMARY

Grow to 66% of Hulu yearly visits by FY16 Grow to 705 titles by FY16 (235 SPE, 470 External); 10% price inflationAd load: 13 ads per hour. Viewing time per visit growing from 10 to 55 minutes Technical headcount doubles every 2 years (engineering, video production)CPM growing from $13 to $22 over 5 years Sales & Marketing doubles every 2 years

FY12 FY13 FY14 FY15 FY16Video ad revenues 8.0$ 27.0$ 64.4$ 139.8$ 303.4$ Other revenues 2.0$ 3.8$ 7.5$ 14.9$ 30.1$ Total Revenue 10.0$ 30.8$ 71.9$ 154.7$ 333.5$

Content costs (6.1)$ (9.7)$ (20.6)$ (49.8)$ (132.2)$ Other expenses (21.0)$ (31.9)$ (47.9)$ (77.6)$ (137.8)$ Total Costs (27.1)$ (41.6)$ (68.5)$ (127.4)$ (270.0)$

Free Cash Flow (17.1)$ (10.7)$ 3.4$ 27.3$ 63.4$

Project Breakeven (17.1)$ (27.8)$ (24.4)$ 2.9$ 66.3$ Internal Cost of Capital 12%NPV (5‐Year) $31.9 ROI 46%Breakeven 3 years

Scope (e.g.process) M Misc. Notes and Reference:Content costs M Hulu monthly visits on 2/11: 143MComplexity (e.g. technology) L Netflix viewing time per visit on 1/11: 94 minExternal Dependencies L

M

Dependencies None

Key Revenue Assumptions Key Cost Assumptions

Project IDProject Name Sony Crackle Acceleration Project ‐ USA

Financial AnalysisYEAR

Risk rating (Difficulty of implementation)

Average

$(40.0)

$(20.0)

$‐

$20.0

$40.0

$60.0

$80.0

FY12 FY13 FY14 FY15 FY16

Free Cash Flow Project Breakeven


DRAFT

Contents

Executive Summary

Country attractiveness and prioritization



Financial Outcomes

Next Steps

Appendix


DRAFT

Next steps

Finalize overall financial model based on CPMs to be provided by Sony Crackle Team

Validate the final recommendation based on NPV and EBIT impacts determined from financial model

Design Pilot — Agree on the elements of recommended strategy that need to be tested and the process

— Define approach to test

— Assist in defining implementation approach

— Assist in selecting partner(s)

— Help design tests

— Help in interpreting pilot outcome and adjust recommendations

Socialize final recommendations with SPE executives as needed


DRAFT

Contents

Executive Summary




Financial Outcomes

Next Steps

Appendix


DRAFT

3


5

2

4






Sweden has best BB penetration and quality in Nordics region; most providers offer unlimited Broadband, with no monthly caps; mature platform for OTT content providers

IPTV players e.g.Teliasonera , bundling OTT aggressively; rent~ 6000 movie titles / day

Consumers extensively use catch-up TV- mostly driven by Sports events

Home video rental market is fragmented. Teliasonera, Canal Digital etc. run small home video rental business, and OTT distribution competes with these

Potential opportunity to bundle local content from Teliasonera

Main competition will be existing TV companies bundling OTT as part of tripe/quad play offerings / catch-up TV

Voddler and other OTT player have small footprints

Growing Device use (SVTplay.se)


• PPV: Typical price for new movie $ 5-7 / view• Monthly online subscription: ~$ 15/ month• Most TV providers and national TV bundle

online content with Triple pay (~$30/month)

• Video/Cable providers - Teliasonera, Comhem• Swedish national TV: Catch Up TV for 1 month• Emerging OTT video providers: Voddler, Canal

Digital, Letswatch.com

• Cable providers offer OTT subscription, PPV• Viasat is an on-demand OTT service• Voddler is ads based (like Hulu)• Canal like Netflix, Letswatch (like MTV online)

• Local content (in local language) ~ 25%• Global content in English; usually with subtitles• Deep breadth / depth – with all genres, due to

large local production from Swedish TV

• Significant online video viewing, largely for younger population, both males and females

• 25-44 segment more interested in international content, vs. 44+ interested in local content

Scandinavia Opportunity(1) Ad supported (2) Recent international movies and TV serials

with CC relevant for each country (3) On multiple devices (4) 24-44 segment


DRAFT

3


5

2

4






Consumers are accustomed to deep, good quality content, as it is extension of the linear TV offerings of established players

Players like BBC and Sky TV have deep libraries; leverage for quality OTT content

Between iPlayer / Sky UK, most TV content is online – so bar is really high for entry

Most non-ad OTT models are largely limited to mobile VIDE – E.G. Sky mobile @ 8 p/month on iPhone or 35p/month on iPad

Sony connected TVs, PSN have high penetration; recently Sony tablet launched; need to align Crackle with overall Sony UK strategy to avoid consumers’ confusion

Consumers are accustomed of using on-line video content without ads; indirectly paying for online content through TV license fees

Most catch up TV is for 2-3 weeks, subscription based providers (e.g. Netflix) or Amazon not available. Hence there is a gap for TV shows more than a month older


• BBC iPlayer, Virgin media : Free for TV subscribers or ad suppported

• Sky UK: Free to Sky TV subscribers, $ 24+ for non-subscribers, PPV movie rental - $ 5.60

• Channels dedicated to different viewer’s needs e.g. Sky TV ‘s 3 movie / 4 for sports channels.

• Most players are for mass market; some satellite providers (SKY) are sports focused

• BBC iPlayer and Sky UK are market leaders in UK, Virgin Media is an aggressive new entrant

• Emergence of SkyGo – merging live sports with Sky Portal on variety of devices

• BBC iPlayer: Free for TV subscribers• Sky UK: Free for Sky UK TV subscribers,

subscription for Non-Sky consumers• Virgin Media free to its linear TV subscribers

• Extensive content as extension of Linear TV • E.g. iPlayer: 10 channels, programs from 12

other channels, 14 genres• Sky TV: 32 channels, including 3 for movies

UK Opportunity(1) Ad supported with Sony classic content of archived TV

episodes / movies (2) across all Sony devices (3) mass market segment


DRAFT

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French OTT market is crowded, dominated by incumbent TV providers (including French TV), deploying catch-up TV

No successful subscription model, for an in-depth, extensive international content library; Netflix has plans to enter shortly

Viability of Ads supported model: French ad spend is largely captured by TV incumbents offering Catch Up TV. IPTV and DM is also competing; may be hard to get sufficient ads to support a successful business model, if not sufficient differentiation

A differentiation could be a breadth/depth of classic movies, which Sony Library has

Consumers are accustomed to good quality /indepth local OTT content – e.g. Orange

Hence less appetitive for Subscription

Increasing price sensitivity

AV Terminal Regime : local content regulation for TV; unclear for OTT


• Dailymotion: Free content, limited movies, focus on UGC videos, to be quickly uploaded

• PPV for movies is typically € 2-4 per view• Subscription trial pricing unclear

• 15-24 segment active online video consumers; ~ 33% view Catch Up TV on multiple devices

• DM: Targeted to 18-34, with mature content; 32nd most visited, 93M UVs over 6 months

• TV / IPTV players’ online sites: Orange, SFR• TV Broadcasters: (Free – France TV, TF1 Paid

TV:, Canal+)• Online OTT provider: Dailymotion

• Mostly Ad supported, free content• Catch Up TV very poplular, ads-supported • Limited subscription trials / PPV: Canal+, TF1

• Catch UP TV has mostly local content; usually do not have online rights for international shows

• Dailymotion: Content by “channels” e.g. Sports , News; UGC, clips, trailers, some premium

France Opportunity(1) Hybrid – Ad supported with subscription for more premium content on devices (2) Premium, international localized movies

/TV episodes (3) 24-44 segment


DRAFT

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Italy does not have subscription or PPV OTT content providers; efforts to launch these services have not been successful

Italian customers’ buyer values (i.e. free content, long form, movies) plays well to Sony Crackle’s value proposition

Most of the OTT players are focused on mass market; 1-2 players do provide some focus on 30-40+ segment

None of the players are focused on young male, 18-34 segment; opportunity for Sony Crackle to establish a toe-hold in this segment

Key competition is from TV providers’ portal e.g. WIND, Alice, Terra – provide their linear TV content online; do not have a differentiated proposition like Sony Crackle


• Largely ads supported, free content• PPV / VOD launched by some entrants, but

largely failed

• No direct competitors with scale and focus• Some ISP portals getting traction (e.g. Chili)• TV broadcasters entering into OTT content

• ISP content providers have advertising supported business models

• Broadcasters provide OTT free to subscribers

• Limited libraries, content is mostly short-form, complemented by with limited movie titles

• A combination of clips, trailers, some UGC

Italy opportunity


DRAFT

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Most Korean consumers have experienced paid-TV services; though price sensitive, they are also used to paying for online content through subscription services

Significant part of TV viewers (17%) regularly watch video using Internet






Depth and wide variety of Korean content, on different platforms is tablestakes; potential for subscription based services, for latest Western content dubbed in Korean

Difficult to compete with the three main broadcasters on Korean content only






• conTing: An online video service jointly by 3 broadcasters KBS, MBC, SBS

• Each has its own site for online content as well• Portals – GOM TV, Africa TV, DaEum TV

• conTing, GOMTV and other portals provide subscription based services for unlimited download and owning of content

• Many offer Korean video content, often pirated



South Korea Opportunity(1) Subscription (2) Premium, international localized movies and

TV episodes (3) On multiple devices (4) 24-44 segment


DRAFT

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Content originally weighted to UGC. Now providers e.g. Youku have ~ 70% copyright content, ~ 20% UGC , ~10% original videos produced by the SP

3 Types of OTT providers – (1) Independent OTT Video SPs e.g. Youku, 56.com (2) Online Broadcasters usually state-owned e.g. China Network TV (3) niche integrated portals e.g. Sina.com, Tudou.com and (4) Download sites (Pirated/Legal content)

High regulations, particularly for foreign content; must be approved through Censor.

Extensive licensing: Separate licenses needed to TV, PC and Mobile distribution; foreign companies almost required to work with Chinese partners, mostly govt. owned

Price of local content very low; however due to monopoly, BW leasing cost are high

While emerging younger segment desires professional content; monetization uncertain


• Most content is free; ad supported• Youku price point for subscription not available

but expected to be < $ 3 / month• Emerging subscription sites, price unlcear

• Most consumers have low propensity to pay for OTT; as regular TV costs 2-3 $/month

• Emerging, untapped 15-30 years segment• Movies, dramas and long TV episodes favored

• Youku, Todou, 56• Drive large online video use. Youku is #1 video

portal (~20% OTT video market),Todou ~ 16%

• Other competitors: government owned entities

• Youku is largely ad supported• Youku is also developing subscription-based

model with premium contents (e.g. Avator), music and educational contents

• Youku has extensive Chinese, Japanese and Korean content, TV episodes, original production with ~50,000 hours content library

• Moving from UGC to premium content

China Opportunity(1) Ad supported (2) Blend of localized /local movies, TV episodes

and sports (3) Partnership with independent, OTT Portal (4) On PCs (5) 24-44 segment


DRAFT

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Low Broadband penetration and sub-standard speed / QOS likely to be reduced over 3 years; government’s policy to cover 70% of population at BB of 2 Mbps or above

Extensive 3.5/4G deployment plans between 2012-14; spectrum auction completed

None of the video entertainment players e.g. DtH (Tata Sky, Dish ), Cable (Hathway), IPTV (Airtel) or terrestrial broadcasters have established online video distribution

Low barriers to entry due to minimum regulation / enforcement , pirated video content abundantly available across different websites, and a heavily fragmented market

Sony networks have high visibility in India and SET in a well known, popular brand

Local content (Bollywood-created) sourcing costs are low for online distribution


• No established players in the video distribution value chain have formal, establish offerings

• Most of the online content is free; some real-time content (e.g. IPL) is ad-supported

• English speakers concentrated in ~ 20 Metros – savvy and require globally sourced content

• Majority of other consumers require heavy local content

• YouTube is the market leader for online video• Fragmented market with niche sites (Rajshree

HindiTVshows, Indiatimes, Aajtak.com etc.)• Bharti Airtel’s online TV

• Most OTT video sites are ad-supported• Indications of some subscription based offers

e.g. sports IPL (Cricket), NBA, BPL (British)

• Extensive content, usually not categories by Genres, but by movies, TV serials, sports

• Extensive local content - ~ 70%+. Localized content is less due to English speaking segment

India Opportunity(1) Ad supported (2) Blend of localized /local movies, TV episodes

and sports (3) Superior, safe and secure user experience (4) On PCs (5) 24-44 segment


DRAFT

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Broadband infrastructure quality / availability is inconsistent: High quality and penetration in Moscow and selected other large cities; sub-standard in regional cities with population of < 1 million people

Many regional cities have only ADSL low speed BB connections, and penetration could be < 25%

Mobile broadband access is inconsistent; high cost of access; mobile video content is not available at scale, or in depth

Any new entrant will face intense competition from local players with locally produced content

Market fragmentation; leakage of video content on different websites; pirated portals

Local business environment not always transparent


• No successful subscription services• BitTorrent, RuTube, NOW, Zoomby, TVZavr

etc. are all ad-supported, free video content providers

• 25-44 segment interested in global, action oriented, localized interesting content

• 45+ segment interested mostly in traditional local content, oriented towards drama/soaps

• BitTorrent largest player (~ 80% video market)• TV providers (e.g. BTTPK, NTV, One TV)• Content aggregators (e.g. Amedia, RWS)• Private channels (e.g. STS, Home Channel)

• Most OTT content is ad supported• P2P of video content sharing prevalent; most

content is first downloaded, than viewed later• PPV / Subscription models still not successful

• Extensive / in-depth local content; mostly Russian Soaps, Serials, Movies from government-entities and private companies

• Lack of localized content (translation issues)

Russia Opportunity(1) Ad supported (2) Localized movies, TV episodes and sports (3)

dubbed to Russian (4) On PCs (5) 24-44 segment


DRAFT

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TV stations do not offer catch-up TV in Australia - limited catch-up TV of ABC recent TV episodes through iView

Large local TV / movies local industry; more based on local TV episodes and some international movie production

Consumers’ preferences, content requirements similar to UK; opportunity to leverage classic TV / movies catalog being used in US / UK

Download rather then streaming video services for movies

Extensive TV content; but limited filmed entertainment content available online

Australia and New Zealand seen as extensible markets for the UK/USA

National Broadband Network (NBN) providing FTTH will increase access

Most internet plans have traffic caps which are throttled after limit exceeded


• Most transactional services are download to own on PC; 7 days viewing window expiry

• Bigpond /Foxtel are ad supported model• No subscription based service

• Bigpond and Foxtel have limited movies ~ 500, but deep TV episodes catalog

• Channel 10,9,7,ABC : Extensive online TV episodes, including archived sessions

• BigPond: PPV model $5.95 for new movies; $3.95 for classic (older) movies

• Foxtel is usually as part of TV subscription• Hulu may plan to enter, unclear which model

• 41% internet users stream or download videos • 48 % men, 34% women watched online video• 18-44 very interested in outdoors, sports,

adventure; no focused OTT player in segment

• Leading OTT content providers are sponsored by incumbent TV broadcasters (e.g. Bigpond by Telstra, Foxtel by TV provider)

• iView by ABC, some Catch Up TV content

Australia Opportunity(1) Ad supported, with possibility of subscription (2) Video library

of classics from US / UK (3) On PCs (4) 24-44 segment, deeply interested in action, adventure


DRAFT

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Leading OTT players in LatAm are backed by parent Telco companies with deep pockets. Also means that

High quality content, with high breadth / depth because of Telco ownership

Financial support: (Televista, Telefonica)

Consumers are very price sensitive , with low propensity to pay for Online content

Market leaders typically have one site, that spans across different countries in LatAm

Typical content includes Spanish movies, Spanish full seasons top-rated TV episodes, as well as archived past seasons

Industry leaders offer mobile products e.g. Es.Mas Mobile; Telenovalas Mobile

Low propensity to pay for subscription, PPV or DTO – hence ad supported model is attractive


• Ads supported, free e.g. Tvolucion, Terra• Subscription limited to catch-up Es.Mas TV:

($149 / month, or $1090 per year MEX)• No established standalone subscription offer

• ~ 26M users / month for all domains of Es.Mas• ~ 15M vistors / month for Terra TV• All LatAm players focus on mass market • Consumers have high price sensitivity

• Es.Mas, Terra, Fox.Mundo• Leading LATAM TV providers’ catch-up TV • Some ad supported portals offering a variety

of video content; none subscription based

• Es.Mas has subscription based, catch-up TV• Tvolucion has Ad-supported, free content• Terra TV also provides ad-supported content• PPV, DTO models are not common

• Extensive Spanish content in a range of genres• Extensive long-format episodes e.g. 600K hrs

of soap, films (~ 700 titles), game shows etc.• Access to TV content OF Televista & Telefonica

LatAm Opportunity(1) Ad supported (2) Localized / dubbed Sony classic movies and TV shows (3) On PCs only (4) mass market with some additional

focus on 24-44 segment


DRAFT

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Spanish consumers have great interest in local content, even going back last 40-50 years. A lot of popular soaps, movies and dramas (e.g. Agela Negra, a 1 hour TV show, with 24 yearly episodes)

Low devices penetration. e.g. Hybrid STBs are minimal, connected TVs only recently launched, no Roku like successful service. Smartphones are not typically used for video watching, except some YouTube clips

Due to low availability of devices, the current portable video market is small; time-shifted/ place shifted viewing of TV content is small

Sports is becoming dominant, along with reality shows; accounting for a significant amount of OTT video content

Heavy market influence from large, well established leaders e.g. Telefonica; who set consumer viewing trends / expectations


• Most OTT video is free, with some ad support (e.g. rtv.es was free , now ad support)

• Transactional services are DTO; e.g. Canal+• No established subscription based service

• Extensive local content: ~ 30% for movies, and ~ 50%+ for TV episodes, developed by a thriving local movie industry

• Extensive dubbed international content

• Price points not established for DTO/PPV; AS significant amount of content leaked through piracy, and commonly available on local sites

• Subscription services not available

• Propensity to pay for online content is very low• Pirated content: expectation of free OTT

video• <34 have more international/broader interests;

44+ more interested in older Spanish titles

• 3 TV Broadcasters – Tvespisona (etv.es), Telecino.es and Antenna3.com (Telefonica)

• Canal+ (with best digital player, available to its subscribers, for mobile devices)

Spain Opportunity(1) Ad supported (2) Localized Sonic classic movies and TV

shows (3) On PCs (4) 24-44 segment, more interested in international content with broader interests


DRAFT

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• Netflix, Hulu / Hulu Plus, Amazon Instant Video• These three sites drive signifiant US online

premium video usage





Subscription based premium content segment is heavily contested between Netflix, Amazon and Hulu Plus – with additional inroads by entrants like CinemaNow

High cost of content due to investments made by Netflix

Established players have a mass market approach – no specific focus on 18-34 segment

Sony Crackle should continue to strengthen existing brand positioning by

Increasing availability of movie titles from SPT catalog

Offering content for ethnic groups e.g. Hispanics, by leveraging its international content


• Netfix: Subscription • Hulu: Hybrid (Ad Supported / Subscription) • Amazon: Subscription / PPV/ DTO

• TV content breadth and depth is extensive; with 18 or more genres

• Extensive array of TV episodes e.g. full seasons, latest, archived sessions

• Subscription model @ $7.95/month Video• Rent for 48 hours @ $2.99 SD, 3.99-4.99 HD,

buy for $ 9.99 - 19.99• Amazon Prime @ $ 79, allows free streaming

Competitive summary : US


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Most of the Korean population uses paid-TV services; additionally the consumers are used to paying for online content through subscription services

Significant part of TV views (17%) regularly watch video using Internet






Adopting multiple platforms for Korean market is tablestakes; opportunity to differentiate in 18-44 male segment






• conTing: An online video service jointly by 3 broadcasters KBS, MBC, SBS

• Each has its own site for online content as well• Portals – GOM TV, Africa TV, DaEum TV

• conTing, GOMTV and other portals provide subscription based services for unlimited download and owning of content



Competitive summary: South Korea

Crackle Growth Acceleration Strategy · Based on Country Attractiveness and Ease of Entry, Sony...

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