8/9/2019 Sony Music MRP Phase II Review (2014)
1/84
MRP Phase II Review
October 8, 2014
8/9/2019 Sony Music MRP Phase II Review (2014)
2/84
Agenda
2
Executive SummaryFull Year FYE15 Forecast
Brief Overview/Phase I Recap
Market OverviewCompetitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the Business
MRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
Mid-Range Plan
8/9/2019 Sony Music MRP Phase II Review (2014)
3/84
Agenda
3
Mid-Range Plan
Executive SummaryFull Year FYE15 Forecast
Brief Overview/Phase I Recap
Market OverviewCompetitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the Business
MRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
8/9/2019 Sony Music MRP Phase II Review (2014)
4/84
4
Corporate Strategy
44
VisionA Global Market Share Leader PoweredBy The Industry's Best Creative TeamsAnd Delivering Maximum Profits
8/9/2019 Sony Music MRP Phase II Review (2014)
5/84
5
Key Strategic Priorities
Grow MarketShare
Expand andGrow DigitalRevenueModels
MaximizeResultsAcross AllOur
InternationalOperations
Reduce andControlCosts/Maximize
Efficiencies
MaximizeOpportunitiesWith BroaderRights and
New Business
2 3 4 5 6
AggressivelyPursueOne SonyInitiatives
Roadmap to Winning During Mid-Range Planning Period
8/9/2019 Sony Music MRP Phase II Review (2014)
6/84
6
FYE15 Financial Results ($ In Millions)
New and Developing Artist Success
September YTD Full Year
FYE14ACT FYE15ACT Vs. PY FYE15FC
Revenues $1,286 $1,261 $2,780
OperatingIncome $95 $107 $240
Net Cash FlowBefore Financing $42 $66 $138
+$12M
-$25M
+$24M
Full YearForecastedOperating
Income andCash Flow
Expected tobe On orAbove
Business Plan
Strong Start to Fiscal Year, WellPositioned Going In to Second Half
8/9/2019 Sony Music MRP Phase II Review (2014)
7/847
Recent New and Developing Artist Success
MAGIC! Meghan Trainor Ella Henderson Pharrell Williams Calvin Harris A Great Big World
Kid Ink Sia Rita Ora Hozier MKTO Pentatonix
Fifth Harmony Kongos Bobby Shmurda Future Tyler Farr George Ezra
Collabro Juicy J Becky G Tinashe Bleachers G-Eazy
8/9/2019 Sony Music MRP Phase II Review (2014)
8/848
Strong Slate of Key Releases In Balance of Year
Barbra Streisand (Sep 14) Kenny Chesney (Sep 14) Jason Aldean (Oct 14) Pentatonix (Nov 14)
Pink Floyd (Nov 14) Pitbull (Nov 14) One Direction (Nov 14) Foo Fighters (Nov 14)
Calvin Harris (Nov 14) Olly Murs (Nov 14) Garth Brooks (Nov 14) Usher (Dec 14)
Meghan Trainor (Dec 14) AC/DC (Dec 14) Miguel (Dec 14) Carrie Underwood (Dec 14)
J. Cole (Feb 15) Adele (Mar 15) Kelly Clarkson (Mar 15) Alicia Keys (Mar 15)
8/9/2019 Sony Music MRP Phase II Review (2014)
9/849
SME Revenues
SME Operating Income
MRP Financial Highlights ($ In Millions)
$2,820 $2,780 $2,735 $2,763 $2,896
FYE12 FYE15 FYE16 FYE17 FYE18
CAGR+0.4%
Mid-Range Planning PeriodForecast
MRP Period WillContinue to DeliverImproved Profitsand Profit Margins
Operating Incomeand Cash FlowTargets Favorableto Prior MRP
Actual
$133
$240$250 $260
$275
FYE12 FYE15 FYE16 FYE17 FYE18
CAGR+12.9%
Mid-Range Planning PeriodForecastActual
% OperatingIncome Margin 4.7% 8.6% 9.1% 9.4% 9.5%
8/9/2019 Sony Music MRP Phase II Review (2014)
10/84
Agenda
10
Mid-Range Plan
Executive SummaryFull Year FYE15 Forecast
Brief Overview/Phase I Recap
Market OverviewCompetitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the Business
MRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
8/9/2019 Sony Music MRP Phase II Review (2014)
11/8411
$1,286$1,183 $1,261
$95
$30
$107
FYE14ACT FYE15BP FYE15ACT FYE14ACT FYE15BP FYE15ACTRevenues Operating Income
September YTD ($ In Millions)
FYE14ACT FYE15BP FYE15ACT Vs PY Vs BP Highlights
Revenues $1,286 $1,183 $1,261Favorable Sales Due to:
Success of Michael Jackson and Pharrell Williams
Unbudgeted John Legend Carryover, Jack White and Future
Favorable Sales and Success of MAGIC!
Earlier Than budgeted Release of Sia and Kenny Chesney
Favorable Digital Track Sales of Meghan Trainor, DJ Snake and Calvin Harris
Favorable SoundExchange Recognition of Digital Unearned Advances/Guarantees (SNEI and XBOX)
Partially Offset by: Slippage of Usher, Rita Ora, Maxwell and Miguel
Favorable Operating Income Due to:
Favorable Flow Through From Sales
Recognition of Beats Gain On Sale and Sale of Nashville Building
Favorable Syco International TV Format Revenues
Favorable Timing of Talent
Favorable Cash Flow Due to:
Higher Operating Results
Proceeds From Sale of Nashville Building and Proceeds From Sale of BeatsInvestment
Partly Offset by Syco Dividend Payment to Simon Cowell and Timing ofPayments
Operating Income $95 $30 $107
Net Income $101 $18 $57
Net Cash Flow
Before Financing $42 $38 $66
+$77M
+$39M
+$78M
11
+$12M
+$28M+$24M
-$25M
-$44M
+$77M
Vs BP
+$12M
Vs PY
*Net Income Significantly Unfavorable to Prior Year As Prior Year Included Favorable Tax Audit Settlement In Holland
*
-$25MVs PY
+$78MVs BP
8/9/2019 Sony Music MRP Phase II Review (2014)
12/8412
September YTDMajor Sellers (Revenues)
*Michael Jackson Includes 10M In Additional Revenues Due to Sony Mobile Deal; Pharrell Williams Includes Sales of Both Album G I R L and Single Happy
Michael Jackson* $29M Pharrell Williams* $13M($31M RTD) John Legend$10M($22M RTD)
Now 88 $9M
Chris Brown $7M($11M RTD)
Miranda Lambert $7M Barbra Streisand $6M MAGIC! $6M
Sia $6M Beyonc $5M($47M RTD) Calvin Harris (singles) $5M($7M RTD) Now 87 $5M($10M RTD)
8/9/2019 Sony Music MRP Phase II Review (2014)
13/8413
Full Year FYE15 ($ In Millions)
FYE13ACT FYE14ACT FYE15FC
Revenues $2,790 $2,869 $2,780
Operating
Income $218 $238 $240
Net Income $192 $194 $138
Net Cash
Flow BeforeFinancing $162 $150 $138
FYE15 Forecast
Expected to BeOn or Ahead ofBusiness Plan
1) FYE13 Net Income Includes Reversal of Brazils Valuation Allowance
2) FYE14 Net Income Includes Reversal of Tax Provisions As A Result of Favorable Tax Audit Settlements In Holland
3) Includes $30M Benefit From Deferring NOW! Investment Into FYE14
(2)(1)
(3)
8/9/2019 Sony Music MRP Phase II Review (2014)
14/84
8/9/2019 Sony Music MRP Phase II Review (2014)
15/84
Agenda
15
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I Recap
Market OverviewCompetitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
8/9/2019 Sony Music MRP Phase II Review (2014)
16/8416
U.S. Industry RevenuesRIAA Figures ($ In Millions)
1H 2013 1H 2014 B/(W)
Total Physical $571 $482
Downloads $1,076 $956
Subscriptions (Paid) 151 204
Streaming (Ad-Supported) 105 165
Digital Radio 267 323
Other 26 17
Total Digital $1,625 $1,665
Sync 99 88
Total U.S. Industry $2,295 $2,235
+35.1%
+57.1%
-15.6%
-11.2%
+21.0%
-34.6%
-11.1%
-2.6%
+2.5%
Strong Growth In RevenuesFrom Streaming Services
(Growth of 33% Y-O-Y) Helpedto Offset Continued DeclinesIn Physical and Downloads
Streaming Services Combined Contributed to 31% ofthe Industry Revenues, Up From 23% In Prior Year
8/9/2019 Sony Music MRP Phase II Review (2014)
17/8417
Worldwide iTunes Year-on-Year Growth (Industry Level)
1%
7%
4%3%
1%
-5%-7%
-6%
-13%-11%
-14%
-17%
-14%-16%
-17%-15%
-14%-15%
-4%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Fiscal 15Budget
Assumption2013 2014
8/9/2019 Sony Music MRP Phase II Review (2014)
18/8418
Spotify & Pandora Active Monthly Users (In Millions)
10.021.0
36.1
54.5
71.176.4
QE Jun 2009 QE Jun 2010 QE Jun 2011 QE Jun 2012 QE Jun 2013 QE Jun 2014
6.0 9.0 11.015.0 16.8
22.1 23.8
36.7
1.0
3.04.0
5.08.2
8.9 9.1
11.5
7.012.0
15.020.0
25.031.0 32.9
48.2
May 2011 Jan 2012 Jun 2012 Dec 2012 Nov 2013 Dec 2013 Jan 2014 Aug 2014
Paid SubscriptionsActive Users
+47%Aug From Jan(48.2M TotalActive Users)
+26%Aug From Jan(11.5M Paid
Subscriptions)
Launch of Mobile Free Brings InMore Than 5M Users In the Month
of December, With 700K Paying
5.04 Billion Quarterly Listener Hours
M k t T d R d d M i O l
8/9/2019 Sony Music MRP Phase II Review (2014)
19/8419
Market TrendsRecorded Music Only(Trade Value, Excluding Japan, $ In Billions)
$5.3 $4.6 $3.9 $3.0 $2.4
$5.7$5.9
$6.4 $7.1 $8.2
$11.0 $10.5 $10.3 $10.1 $10.6
FYE14 FYE15 FYE16 FYE17 FYE18Digital +8% +4% +8% +12% +15%
Physical -10% -13% -16% -21% -23%
Total -1% -4% -3% -1% +4%
-2.7%-4.4%
Mid-Range Planning PeriodForecast
-1.3%
Actual
Excludes New Business Revenues; Digital Figures Include Digital Radio
+3.6%
FYE15BP+9%
FYE15BP-16%
Prior MRP+12%
Prior MRP-18%
Prior MRP+12%
Prior MRP-20%
-0.8%
W ld id Di it l M k t G th P j ti ( J )
8/9/2019 Sony Music MRP Phase II Review (2014)
20/8420
Mid-Range Planning PeriodForecast
Worldwide Digital Market Growth Projections (ex-Japan)U.S. Vs. International ($ In Billions)
$2.9 $3.0 $3.2$3.5
$3.0 $3.4 $3.9
$4.7$5.9
$6.4$7.1
$8.2
FYE15 FYE16 FYE17 FYE18
Total
CAGR+11%
IntlCAGR
+16%
U.S.CAGR
+6%
8/9/2019 Sony Music MRP Phase II Review (2014)
21/8421
Worldwide Digital Market Growth Projections ($ In Millions)
52% 41%30%
21%
27%37%
48%59%
11% 13% 15% 14%
7% 7% 7% 7%2% 1%
0%
20%
40%
60%
80%
100%
FYE15FC FYE16MRP FYE17MRP FYE18MRP
Other
Digital Radio
Video
Audio Subs/Streaming
Downloads
CAGR
Downloads $3,091 $2,606 $2,132 $1,705 -18%
Audio Subs/Streaming 1,614 2,372 3,416 4,782 +44%
Video 661 860 1,033 1,140 +20%
Digital Radio 412 468 513 538 +9%
Other 137 68 17 4 -69%
Total $5,915 $6,374 $7,111 $8,169 +11%
FYE15FC FYE16MRP FYE17MRP FYE18MRP
8/9/2019 Sony Music MRP Phase II Review (2014)
22/84
Agenda
22
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I Recap
Market OverviewCompetitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
8/9/2019 Sony Music MRP Phase II Review (2014)
23/84
8/9/2019 Sony Music MRP Phase II Review (2014)
24/84
24
35.0%25.1%
14.6%
Based On Internal Best Estimates
RankGrowth
From 2012
U.S. 39.2% 28.5% 2 +0.5% 17.6%
UK 32.2% 23.9% 2 +2.7% 15.1%
Germany 33.1% 22.2% 2 +0.9% 9.9%
France 32.5% 22.0% 2 +4.3% 14.5%
Australia/NZ 44.0% 25.9% 2 +0.2% 14.5%
Canada 42.0% 21.6% 2 +0.3% 14.5%
ROW (incl. SA) 32.8% 22.8% 2 +2.1% 14.5%
Asia(excl. Japan) 16.2% 12.2% 2 +0.6% 7.6%
Latin America 33.2% 32.5% 2 +0.5% 12.2%
WW(excl. Japan) 35.0% 25.1% 2 +1.2% 14.6%
Universals Acquisition of EMI Has Increased Their Leadership Position In Most Key Markets
UNI +9.9% pts WMG -10.5% pts
Calendar 2013 Market Share Breakdown by Territory
Competitor Comparison Recorded Music
8/9/2019 Sony Music MRP Phase II Review (2014)
25/84
25
Competitor ComparisonRecorded MusicMost Recent 12 Months Available (Including Japan, $ In Millions)
Revenues & EBITDA Amounts Shown for Comparative Purposes; Adjusted for One-Time and Other ItemsUNI, SME & WMG 12 Months Ended June 30, 2014UNI Includes EMI Acquisition From September 28, 2012; WMG Includes Parlophone Acquisition From July 1, 2013
Includes SMEJ
ROS 12%11% incl. SMEJ12% excl. SMEJ 11%
$5,467
$644$3,625
$414
$2,526
$275
Revenues EBITDA EBITDARevenues Revenues EBITDA
Digital
$2,251
Digital
$1,090
Digital$1,273
(SME Only)
SMEJ $774
SMEJ $80
8/9/2019 Sony Music MRP Phase II Review (2014)
26/84
Agenda
26
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I Recap
Market OverviewCompetitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
8/9/2019 Sony Music MRP Phase II Review (2014)
27/84
27
Key Strategic Priorities
Grow MarketShare
Expand andGrow DigitalRevenueModels
MaximizeResultsAcross AllOur
InternationalOperations
Reduce andControlCosts/Maximize
Efficiencies
MaximizeOpportunitiesWith BroaderRights and
New Business
2 3 4 5 6
AggressivelyPursueOne SonyInitiatives
Roadmap to Winning During Mid-Range Planning Period
8/9/2019 Sony Music MRP Phase II Review (2014)
28/84
28
25.10%
25.35%
25.60%
25.85%
FYE15 FYE16 FYE17 FYE18
Key Strategic Priorities
Maximize New Talent Development Success Across
All Our Creative Repertoire Sources Aggressively Invest In New Talent
Expand Our Relationships With Independent LabelSector
Look For Opportunities to Sign Established Talentand Acquire Catalog
Mid-Range Planning PeriodForecast
+0.25%pts
+0.25%pts
+0.25%pts
Flat Growth
Grow MarketShare
Maximize New Talent Development Success Across All Our
8/9/2019 Sony Music MRP Phase II Review (2014)
29/84
29
Maximize New Talent Development Success Across All OurCreative Repertoire Centers
Core Labels
Exclusive Producer
Creative Partnerships
Indie Services
Catalog Artists
Classical
CMG
SalaamRemi
DrLukeAsia
Latin Am.Europe
GermanyFrance
Japan
Local Talent Development
U.K.
Labels
ASTRONAUTSWANTED
Nashville
WolfgangBoss
A i l I I N T l
8/9/2019 Sony Music MRP Phase II Review (2014)
30/84
30
Alex &
Sierra Hozier
Rita
Ora
London
Grammar MKTO sgeir Zhu
KidInk MAGIC! Bleachers Sia Tinashe Pentatonix G-Eazy
A GreatBig World
FifthHarmony
KatDahlia
MeghanTrainor Kongos
BobbyShmurda Future
TylerFarr
CaseyJames
Steven LeeOlsen
TheHenningsens
JerrodNeimann
SwonBrothers
JoshDorr
UKGeorge
EzraLaura
DoggettNothing
But ThievesLonely
The BraveRag N
Bone Man MadeonJamie
Joseph
EllaHenderson Collabro
JackPack
EttaBond
MarlonRoudette
AdySuleiman
KidArkade
Targetingto Achieve
35% orGreaterShare of
New ArtistBreakouts
During
MRP Period
Aggressively Invest In New Talent
Strengthen Our Focus On Country and EDM Genre. Recent Achievements Include Signing of
Garth Brooks, New JV Deal With Disruptor Records and Continued Alignment With Ultra.
Look For Opportunities to Sign Established Talent and
http://www.sonymusicnashville.com/artist/josh-dorrhttp://www.sonymusicnashville.com/artist/steven-lee-olsenhttp://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&docid=7_R21YIjZG9-bM&tbnid=iuLJHdiVD46V5M:&ved=0CAUQjRw&url=http://prettymuchamazing.com/music/check-out-tinashe-vulnerable&ei=MsgAU63YH8jKsAT44oDoDQ&psig=AFQjCNHAJ6YxcV1Jc1p_g-cS8N79YB8FvQ&ust=1392646531140902http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&docid=oemmxyzrQHFqtM&tbnid=0VbZyVblVc0KtM:&ved=0CAUQjRw&url=http://www.peoples.ru/art/music/pop/rita_ora/&ei=Ur8AU9znB7SssQTVjYGoCw&bvm=bv.61535280,d.aWc&psig=AFQjCNH_A5DJwsztGDkm-qLJFqboF_5kqg&ust=13926442799204178/9/2019 Sony Music MRP Phase II Review (2014)
31/84
31
Look For Opportunities to Sign Established Talent andAcquire Catalog
Catalog37%
New
Music63%
Catalog41%New
Music59%
FYE08 FYE14
Maximize Digital Revenue Opportunities Through Targeted Partner Driven
Initiatives Aggressively Pursue Strategic Catalog Investments
Importance of Catalog Assets Continues As We Migrate More Towards Digital
K St t i P i iti
8/9/2019 Sony Music MRP Phase II Review (2014)
32/84
32
$686 $701 $706 $752$830
$577 $636$728
$868
$1,060$1.3 B$1.3 B
$1.4 B
$1.6 B
$1.9 B
Key Strategic Priorities
TotalCAGR+13%
SME Digital Revenues
IntlCAGR+19%
U.S.CAGR+7%
Considers Market &Market Share Growth
Estimated $0.6B Growth In Digital Revenues Over the MRP Period Driven bySignificant Growth In Paid Streaming
An Overall 44%Growth From FYE15
2
Expand andGrow DigitalRevenueModels
FYE14A FYE15FC FYE16MRP FYE17MRP FYE18MRP CAGR
Downloads $817 $704 $600 $496 $401 -17%
Streaming (Paid & Ad-Supported) 250 375 558 812 1,148 45%Video 85 120 158 194 217 22%
Digital Radio 69 90 104 116 123 11%
Other 42 26 13 3 1 -68%
Total $1,263 $1,315 $1,433 $1,621 $1,890 13%
Global Revenues Continue Decline While Consumption
8/9/2019 Sony Music MRP Phase II Review (2014)
33/84
33
588m
581m1,070m844m
428m382m 326m 331m
316m 289m501m
1,172m 1,271m 1,271m 1,336m1,259m
98b
62b
31b
20b24b
PAID STREAMING
WITHIN SUBSCRIBTION SERVICES
AD-SUPPORTED
26M Paid Monthly Subscribers
520M music hours / month
45M monthly listeners 450M music hours / month
1BN monthly users
2.4BN music hours / month
76M monthly listeners
1.6BN music hours / month
DIGITAL VIDEO
DIGITAL RADIO
26M monthly listeners
1.6BN music hours / month
400M monthly listeners
OTHER CONSUMPTION
$11.0 $10.5 $10.3 $10.1 $10.6
2013A 2014FC 2015MRP 2016MRP 2017MRP
GLOBAL REVENUES EXPECTED TOCONTRACT FURTHER
MUSIC CONSUMPTION HOWEVERCONTINUES TO GROW
2006 2007 2008 2009 2010 2011 2012 2013
GLOBAL CONSUMPTION NUMBERSACROSS CHANNELS AT ALL TIME HIGH
OWNERSHIP + SUBSCIPTION (US)
Global Revenues Continue Decline While ConsumptionReaches Record Highs
C i i t P id S b i ti I Ulti t G l
8/9/2019 Sony Music MRP Phase II Review (2014)
34/84
34
Strategies to support growth and healthytransition from ownership to access are critical
Continue to adjust ad-supported streamingtiers to drive conversion to paid
Remove on-demand listening capability
in ad-supported tiers Further limit ad-supported experience
through changes in functionality andcontent availability
Developing policies to restrict/limit promotion
on free and ad-supported channels Limit digital radio where possible to ensure
partners have incentive to drive paid tier
Develop higher-price premium tier to includea higher price point for high-definition audio,
lyrics, audiovisual and family plans
Conversion into Paid Subscription Is Ultimate Goal
PAID SUBSCRIPTION
PHYSICAL
AD-SUPPORTED
$70
$48
$19
$4
DOWNLOADS
AVERAGE REVENUE PER USER
Subscription Will Be Leading Revenue Channel by 2016
C i i t P id S b i ti I Ulti t G l ( td)
8/9/2019 Sony Music MRP Phase II Review (2014)
35/84
35
Service to device ubiquity willaccelerate consumer adoption of paidsubscription
Need paid subscription to win thebattle for the car, against current
low/zero monetization options suchas terrestrial/ digital/ satellite radio
Consistency of experience onmobile, car and home is key yet
currently missing for consumer andwill incentivize conversion
SME to provide necessary incentivesto high-revenue partners so thatthey are able to compete against
current alternatives
Conversion into Paid Subscription Is Ultimate Goal (contd)
Promote Device Ubiquity and Focus on Car Access
Continue Developing Other Revenue Streams
http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=M_J1lnAA3iDpRM&tbnid=uT7X6giFFSRydM:&ved=0CAUQjRw&url=http://marketplayground.com/2011/10/15/sirius-xm-nasdaqsiri-releases-first-satellite-radio-2-0-product-for-sale/&ei=4SeVUZzqL8e70AGPvYG4Bw&bvm=bv.46471029,d.dmg&psig=AFQjCNEILz0_bZSP6gOjaYzID6hxi4phTA&ust=13688159169712818/9/2019 Sony Music MRP Phase II Review (2014)
36/84
36
YouTube subscription has potential to be significantcontributor to growth
SME to re-evaluate/limit licensing terms for ad-supportedduring MRP periodcurrently only ad-supported platform
offering on-demand features on both mobile and desktop
Continue to invest and create significant value in VEVO
- Develop VEVO.commigrate traffic from YouTube
- Expand original programming and contentdevelopment
- Expand internationally in priority territories
- Develop subscription offering for service without adsand for premium content
Continue Developing Other Revenue Streams
Maximize monetization of video content
Continue Developing Other Revenue Streams (contd)
8/9/2019 Sony Music MRP Phase II Review (2014)
37/84
37
Download business still significantly material andsome customers will not make the switch
Casual buyer will not transition to higher ARPU ofsubscription
Ownership still preferred within somedemographics
Enhance products including more visual element andhigh definition audio
Download product continues to simply be an audiofile
Sound quality and audiovisual have been outlinedas key developments of interest by listeners
Continue Developing Other Revenue Streams (cont d)
Dont abandon download customer
Key Strategic Priorities
8/9/2019 Sony Music MRP Phase II Review (2014)
38/84
38
Key Strategic Priorities
Artist Secure Global ArtistBreakthrough
MarketContinue to AggressivelyPursue Opportunities toIncrease Repertoire Base(Organically and by Acquisition)
ExpansionAggressively PursueOpportunities to Exploit Newand Emerging Markets toSecure No. 1 Position
Common International Initiatives
Across All Territories
3
MaximizeResults AcrossAll OurInternationalOperations
Expanding Repertoire Base Grow Market Share
8/9/2019 Sony Music MRP Phase II Review (2014)
39/84
39
Expanding Repertoire Base Grow Market Share
Negotiation withLUIS MIGUEL
Negotiation withCOLDPLAY
Negotiation withmajor artist
KHALIL
A&R Joint Venture withBLACK BUTTER
Possible Acquisition
with SME Classics:HARMONIA MUNDI Exploring
Acquisitionwith GDB:
BELIEVE
Exploring Acquisitionof TRADEMARK:
BRAVONegotiation with
STROMAE
Negotiation with
ENRIQUE IGLESIAS
Possible LabelAcquisition:
NAIVE
Acquisition targets:YMC /
CHROME/YEDANG
Acquisition target:RED FOO
Label Acquisition:PHONAG/TBA
MRP InitiativeAggressively Pursue Opportunities to increase
Repertoire base (Organically and by Acquisition)
Expanding Regionally Secure No 1 Position
8/9/2019 Sony Music MRP Phase II Review (2014)
40/84
40
Expanding Regionally Secure No. 1 Position
CHINA:ExpandDigital Businessthrough
China Mobile Video deal and directonline license deal with eitherTencent, Alibaba or CMC.IncreaseRepertoirethroughsigning of major artists KHALIL fromGold Typhoon (recent WarnerAcquisition) and MO MO WU fromIndie Dream China.
INDIA:Grow Digital Business with new DSPlaunches, e.g. Spotify, GoogleHungama, Eros, Rdio, Boinc (SriLanka), Rockville (Pakistan).Targeting Catalogueacquisitions:Crescendo & Magnasound.
VIETNAM:Explore market opportunities,possibly open office
KENYA/NIGERIA:Grow and exploit West- and East
African digital markets throughnewly opened office in Lagos andNairobi.
REPERTOIRE:Target acquisition of local musiccatalogue, e.g. Premier Music, IvoryMusic (African) or Melody, Rotana
(Arabic).Target JV opportunities withestablished players (Chocalate City,DB Records)
DIGITAL EXPANSION:Currently in Discussions with mostAfrican Mobile Network Operatorse.g. MTN Nigeria, Etisalat, Airtel,Huawei, Safaricom, Tigo, Vodafone,IMI mobile.Partnership with Digital ServiceProvider NMusic in expansion toAfrica
PERU:Grow and exploit growing Peruvian
market through newly opened officein Lima
CUBA:Explore market entry.Potential Acquisition of Catalogs, e.g.EGREM for worldwide exploitation.
BRAZIL:Further Explore Digital OpportunitiesExplore opportunities aroundOlympic Games 2016
TICKETINGExplore and build Ticketing Businessin Latin America
Overall Goal for RegionTo Grow Profits by 40% to $50m
LATIN AMERICA AFRICA ASIA
MRP InitiativeAggressively pursue opportunities to exploit new
and emerging markets to secure No.1 position
Key Strategic Priorities
8/9/2019 Sony Music MRP Phase II Review (2014)
41/84
41
Key Strategic Priorities
Capture and Exploit Broader Rights From New Artist Signings
Continue to Maximize Exploitation of X Factor and Got Talent TV Formats
Develop New Formats and Visual Content From Syco and Astronauts Wanted
(Judy McGrath) JV Seek to Extend Long Term Successful Relationship With Simon Cowell
SME Global FYE15FC
New Business Revenues($ In Millions)
MRP Assumes $261M Revenues
$84
$74
$37
$6
$11
$26
$23
TV/Film
Live
ArtistManagement
Merchandising
Total$261
Brands/Sponsorship
Other
PassiveArtist Rights
Participation
Artist Services
$70M Op. EBIT($33M Profit
From Syco TV JV)4
MaximizeOpportunitiesWith BroaderRights and NewBusiness
Key Strategic Priorities
8/9/2019 Sony Music MRP Phase II Review (2014)
42/84
42
8.3%8.6%
9.1% 9.4%9.5%
FYE14 FYE15 FYE16 FYE17 FYE18
Key Strategic Priorities
% Operating Income Margins
Mid-Range Planning Period
Targeting to Continue to Improve Operating IncomeMargins Over MRP Period Through Initiatives In
Overhead, Marketing and Supply Chain
ForecastActual
5
Reduce andControl Costs/MaximizeEfficiencies
Overhead Marketing Costs and Supply Chain
8/9/2019 Sony Music MRP Phase II Review (2014)
43/84
43
Overhead, Marketing Costs and Supply Chain
Overhead/Headcount
MarketingCosts
Supply Chain(Physical + Digital)
$1,556M
$954M
2005 FYE15FC FYE16 FYE17 FYE18
HC 8,000
HC 4,182
Mid-Range Planning Period
Overhead and Headcount Excludes Increases From Investment In Growth Areas and Emerging Markets
15.3%15.3%
$560M
19.7%
12.4%% OFNET SALES
$660M
2005 FYE15FC FYE16 FYE17 FYE18Mid-Range Planning Period
2005 FYE15FC FYE16 FYE17 FYE18Mid-Range Planning Period
Targeting to Maintain Efficient Spending RateWhile Focusing On New Artist Development
Targeting $45M Gross Savings During MRP
Period to Partially Offset Inflation
Targeting to Partly Offset Effects of DecliningPhysical Pricing With Supply Chain Savings
(% of Net Sales Going From 12.4% to 8.4% Over MRP Period)
$350M
$280M
Key Strategic Priorities
8/9/2019 Sony Music MRP Phase II Review (2014)
44/84
44
Key Strategic Priorities
6
AggressivelyPursueOne SonyInitiatives
Japan
ELE TRONI S
50%
25%
Michael Jackson Xscape FYE15 SuccessfulOne Sony Global Collaboration
Sony Music Partnered With Sony Mobile, Sony Electronics
and Sony Network Entertainment On A Global Co-Marketingand Promotion Campaign
To Continue to Seek One Sony Opportunities
http://www.emimusicpub.com/index.php8/9/2019 Sony Music MRP Phase II Review (2014)
45/84
45
To Continue to Seek One Sony Opportunities
Pursue Joint Signing Opportunities When Feasible
Maximize Sync Opportunities With Sony Music Owned Masters and SATV Controlled Copyrights
Maximize Collaboration Around Industry Related Issues
Continued Shift of Warehousing and Distribution Service Requirements to DADC:
- Comprehensive Reintegration of Manufacturing and Distribution, In Australia, Hong Kong, UK, Iberia,Mexico
- New Long Term Exclusive Manufacturing Deal In Europe
- Under Negotiation - to Appoint DADC In Brazil As Our New Partner For Manufacturing and Distribution
- Licensing Out to DADC In Hong Kong Under Review
Explore Potential Synergies Between The Orchard JV and DADC Digital Ops Group
James Bond 2015 One Sony Collaboration Collaboration With Sony Music, Sony Pictures and Sony Mobile On Running With Music: Ghostbusters
Edition, A Ghostbusters Branded Mobile Game
Exploring Sales & Distribution Cooperation Opportunities With Sony Pictures (Mexico, Benelux, Nordics,Turkey, India, Africa, Brazil and France)
Continue to Explore Cost Efficiencies Across All Support Areas
Collaboration With Syco JV On Film/TV Opportunities, Including Potential Investment
SME Is Currently Exploring Numerous Hi-Res Audio, 4K, and SOMC collaborations:- Creating A Global Hi-Res Album Bundle For Xperia, and Potential Hi-Res Offering On Xperia Through
Sprint In the U.S. In Q1 2015
- Working With the U.S. Hi-Res Audio Team On An October Hi-Res Walkman Listening Event
- Shooting Yahoo Live! Music Events In 4K to Build Up SELs 4K Library
- A 12-18 Month Partnership Between Sony and the Foo Fighters Which Would Integrate Hi-Res Audio,4K and Potentially Other Divisions Around the Artists 2015 U.S. and Global Tour Schedule
- Working With SOMC to Provide On An Emerging Artist Platform and A Recurring Offer/StreamingSolution For Xperia Users, Allowing the Customer to Stream A Selection of Music Every Month
- Successful Sony Jive Music App to Be Launched In Indonesia and Other Territories
ELE TRONI S
did l
8/9/2019 Sony Music MRP Phase II Review (2014)
46/84
Agenda
46
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I RecapMarket Overview
Competitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
Repertoire Center Profit Summary
8/9/2019 Sony Music MRP Phase II Review (2014)
47/84
47
Columbia
RCAEpic
Nashville
UKUK Syco
(ex. Syco)
25%
75%
LocalInternational
Repertoire
MajorRepertoire
Centers
Talent From Major Repertoire Centers (Primarily English Language) Account For 75% of GlobalProfitsTherefore Critical to Success
Talent From Local Repertoire Centers Account for 25% of Global ProfitsTherefore Also An
Important Part of Our Business and Potential Growth Area, Particularly In Emerging Markets
Repertoire Center Profit Summary
Impact of Talent Investment
8/9/2019 Sony Music MRP Phase II Review (2014)
48/84
48
FYE15 FYE16 FYE17 FYE18 FYE19
New CatalogNew CatalogNew Catalog
New CatalogNew Catalog
New Catalog
Impact of Talent Investment
Catalog Highly Profitable Due to Upfront Investment In New Music (Talent and Marketing)
Reduction In Talent Spending Will Have A Positive Short-Term Impact On Profit, But A Negative Mediumand Long-Term Impact On Profit and Valuation
Reduced Talent Spend Would Negatively Impact SME Market Share
TalentInvestment
$173M
TalentInvestment
TalentInvestment
TalentInvestment
NewMusic
NewMusic
NewMusic
NewMusic
NewMusic
60%of
Revenues
40%of
Revenues Existing
Catalog
Existing
Catalog
Existing
Catalog
Existing
Catalog
Existing
Catalog
New Releases Become Part of Catalog 18 Months After Release
Market Share Importance
8/9/2019 Sony Music MRP Phase II Review (2014)
49/84
49
SME Global
Owned &DistributedMarket Share
Market Share Enables Leveraging of Fixed Cost Structure GainsHas Been Oneof the Contributing Factors to Profit Increases and Margin Improvements
22.0%
24.0%
25.1%
CY11 CY12 CY13Source: IFPI
Market Share Importance
+3.1% ptsOver 2Years
Market Share Influences Negotiations of
Rates/Terms/Advances/MinimumGuarantees/Equity In DSPs
Market Share Is An Important Factor In Determining
Income From Digital Services and PublicPerformance and Broadcast (Radio Play)
Industry International Public Performance and Broadcasting Income
$630M
$751M
2010 2013
5.2 PPB%of Industry
6.2 PPB%of Industry
SME PP&BRevenues ForFYE14 $166M
PP&B Industry Revenues Have Grown 19% Overthe Last 3 Years
Is A Significant Revenue Source
Global Industry BreakdownRecorded Music Only
8/9/2019 Sony Music MRP Phase II Review (2014)
50/84
50
Streams Per $1 SME Revenue(Global CY14 Jun YTD)
109
408633
727 769
y y(FYE15FC, Trade Value, Excluding Japan, $ In Billions)
Excludes New Business Revenues; Digital Figures Include Digital Radio
Downloads$3.152%
Subscriptions$1.627%
Video$0.7
11%Digital Radio
$0.47%
Ringtones/Other$0.13%
Total Global Industry Digital Breakdown
DigitalBreakdown
Physical$4.644%
Digital$5.956%
$10.5B $5.9B
PaidSubscription
Stream
Ad-Supported
Stream
Ad-Supported
Stream
Ad-Supported
Stream
DigitalRadio
Top Physical and Digital Partners
8/9/2019 Sony Music MRP Phase II Review (2014)
51/84
51
PhysicalPhysical Projection of-20% CAGR of 3 Yr MRP
DigitalDigital Projection of+11% CAGR of 3 Yr MRP
Top Physical and Digital Partners
Anconnect/Anderson
30%
Target13%
Alliance14%
Amazon14%
TransWorld4%
Other25%
U.S.
Top 5 = 75%
On Average, >70% of Physical Revenues Come
From Only Top 5 Customers In Key Markets Concentration of Top Accounts Means Exit of
One Retailer Can Have Significant Impact OnRevenues
Downloads,Streaming (Beats),
Radio53% Downloads,Streaming 4%
Streaming 11% Downloads 3%
Radio 5% Streaming 2%
Video 4% Streaming 2%
Video 4% Streaming 1%
Top 10 = 89%
Top 10 Global Digital Partners Top 10 Global Digital Partners
Account For 89% of Total
Mix of Top Partners Will ChangeAs We Move Towards More ofA Streaming Model
Risk of Cricket Exit Concentration of Major
Accounts to Be Spread Across AGreater Number of Partners IsDependent On Partners Abilityto Achieve Financially ProfitableBusiness Models (See Spotifyand Pandora Example On NextPage)
Spotify and PandoraFinancial Data and FutureP fit bilit $
http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=-10CkyW5Zm-7GM&tbnid=gngrx8Zs-FqWiM:&ved=0CAUQjRw&url=http://logos.wikia.com/wiki/Cricket_Wireless&ei=xie_U4vnJYSkyASFRA&bvm=bv.70810081,d.aWw&psig=AFQjCNFKWOYmnL2dLo4KxKTksEbAZU2leg&ust=14051228759587038/9/2019 Sony Music MRP Phase II Review (2014)
52/84
52
p yProfitability ($ In Millions)
52
Spotify First LaunchedIn Oct 2008 In Swedenand EBITDA For 2013Was A Loss of $109M
Pandora FirstLaunched In Jan 2000
Forecast Years Per Morgan Stanley
Album to Track Market
8/9/2019 Sony Music MRP Phase II Review (2014)
53/84
53
Album to Track Market
51%46%
39%
30% 23%
49%54%
61%70%
77%
FYE14A FYE15FC FYE16MRP FYE17MRP FYE18MRP
Albums Tracks The Migration of the Music Market From
Physical and Downloads to StreamingReduces the Relevance of the Album
SME to Continue to Migrate ArtistContracts and Operating Practices toSupport the Business Evolution Away FromAlbums and Towards Track Consumption
Changes Could Include:
- Artist Contract Migration Towards TrackFocus
- Track Based Marketing As Opposed toTraditional Album Based Marketing
- More EP Releases and Less Full LPs
- Ensuring Cost Efficiencies Around LowerVolume of Recordings As Focus Is NotOn Releasing Albums With 10+ Number
of Songs- Reverse Order of Release Planning -
Tracks to EPs to LPs
- Maximize Our Physical Business WherePossible (Such As Consignment BasedSales For Physical, Exclusive ProductOfferings, Digital/Physical Offerings)
A dMid R Pl
8/9/2019 Sony Music MRP Phase II Review (2014)
54/84
Agenda
54
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I RecapMarket Overview
Competitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
Key Assumptions
8/9/2019 Sony Music MRP Phase II Review (2014)
55/84
55
y p
Forecast Mid-Range Planning PeriodFYE15 FYE16 FYE17 FYE18 Comments
Physical Market -13% Accelerated decline in Physical Market
Digital Market +4% More aggressive growth expected duringlater MRP years
Market Share 25.10% Increase of 0.75% pt during MRP period
Talent Costs $173MInvestments to drive A&R/market sharegrowth & investments in emergingmarkets
Overhead Vs. PY:(Net After Inflation)
Inflation -$20MOffset inflation through targetedsavings initiatives
Savings$20M
Real Estate FlatReflects increased rent related torelocation into new corp. headquarters
Investment In EmergingMarkets & Other GrowthAreas
$0MTargeting emerging markets and growthareas
Restructuring -$23M 23
-16% -21% -23%
+8% +12% +15%
To25.35%
To25.60%
To25.85%
$15M $15M $15M
$180M $210M
$20M $20M $20M
$6M $20M$0M
Flat $12M
$20M $20M
Flat
Flat
$20M
A dMid R Pl
8/9/2019 Sony Music MRP Phase II Review (2014)
56/84
Agenda
56
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I RecapMarket Overview
Competitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
Comparison Vs. Prior MRP ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
57/84
57
p ($ )
MRP Op. Income Favorable From Prior Year MRP Despite Declining Revenues
Forecast Mid-Range Planning Period
FYE15 FYE16 FYE17 FYE18
Prior MRP $2,766 $2,831 $2,904
Forecast/MRP $2,780 $2,735 $2,763 $2,896
Inc/(Dec) $14 ($96) ($141)
Prior MRP $230 $240 $250
Forecast/MRP $240 $250 $260 $275
Improvement $10 $10 $10
Prior MRP $130 $130 $135
Forecast/MRP $138 $140 $150 $160Improvement $8 $10 $15
Revenues
Operating Income
Net Cash Flow
Before Financing*
*Assumes No Capital Payment Associated With NY Headquarters Relocation
Projected Improvement In All Profit Measures ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
58/84
58
FYE15 Mid-Range Planning PeriodBus. Plan Forecast FYE16 FYE17 FYE18
Revenues $2,768 $2,780 $2,735 $2,763 $2,896
Operating Income $240 $240 $250 $260 $275
Margin % 8.7% 8.6% 9.1% 9.4% 9.5%
Net Income $138 $138 $150 $158 $168
Operating Cash Flow $285 $292 $320 $330 $344
Net Cash Flow Before Financing $138 $138 $140 $150 $160
Return On Equity 11.5% 11.3% 11.3% 11.2% 11.5%
EBITDA $348 $341 $350 $367 $389
EBITDA Margins 12.6% 12.3% 12.8% 13.3% 13.4%
j p ( )
MRP ReflectsContinued
Improvement InOperating Income
Margins
ReconciliationFYE14 Actual to FYE15 Forecast ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
59/84
59
Revenues
Operating Income
$238 $240+$24
-$35
-$74
+$76
+$20 +$18
-$9 -$20-$20
+$10 +$12
FYE15 FYE16FYE14
Actual
One Time ItemsPhysical MktDecline -13%
Downloads-14%
Audio Subs/Streaming
+50%
Digital Video+40%
Digital Radio+32%
Other-39%
Syco VEVOEquity
Income
Costs/Other/New
Business
FYE15
Forecast
FYE14 Actual to FYE15 Forecast ($ In Millions)
$2,869
$2,780
+$21
-$143
-$112
+$125 +$34 +$22-$16 -$33
+$12
FYE14Actual
4Q ActualFYE14
Actual
One Time ItemsPhysical MktDecline -13%
Downloads-14%
Audio Subs/Streaming
+50%
Digital Video+40%
Digital Radio+32%
Other-39% Syco
Other(New Business)
FYE15
Forecast
Breakage +21
OH Inflation -20OH Savings +20Talent FlatNew Business +12
Breakage +14Beats Gain +7Other Gains +3
Orchard +6NOW! +4
Total Digital $53+3.8%
Total Digital $31
ReconciliationFYE15 Forecast to FYE16 Target ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
60/84
60
FYE15 Forecast to FYE16 Target ($ In Millions)
Revenues
Operating Income
$2,780 $2,759
$2,735-$21
-$151
-$111
+$176 +$37 +$13-$13
+$25
FYE14Actual
4Q Actual
Breakage -21
Total Digital $102+7.8%
$240
$216
$250
-$24
-$44
-$64
+$105+$20 +$11
-$8
+$12 +$2
FYE14Actual
4QActual
Total Digital $64
Breakage -14Beats Gain -7Other Gains -3
OH Inflation -20OH Savings +15Other Cost Savings +6
FYE15
Forecast
One Time ItemsAdj. FYE15
Forecast
Physical MktDecline -16%
Downloads-16%
Audio Subs/Streaming
+47%
Digital Video+31%
Digital Radio+14%
Other-50%
Market ShareGain +0.25% pt
FYE16
Target
FYE15
Forecast
One Time ItemsAdj. FYE15
Forecast
Physical MktDecline -16%
Downloads-16%
Audio Subs/Streaming
+47%
Digital Video+31%
Digital Radio+14%
Other-50%
Market ShareGain +0.25% pt
CostsFYE16
Target
Biggest Risk Is Streaming Growth47% Assumed IncrementalGrowth Contributes $105M to
ProfitIf Only 30% Growth, ProfitImpacted Negatively by ~$39M
ReconciliationFYE16 Target to FYE17 Target ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
61/84
61
$250$260
-$54
-$70
+$136 +$14+$9
-$7
+$12
-$12 -$6 -$7 -$5
FYE15 FYE16
Revenues
Operating Income
FYE16
Target
Physical MktDecline -21%
Downloads-18%
Audio Subs/Streaming
+44%
Digital Video+21%
Digital Radio+10%
Other-75%
MarketShare Gain
+0.25% pt
Real EstateEmergingMarket
Investment
TalentInvestment Costs
FYE17
Target
FYE16 Target to FYE17 Target ($ In Millions)
$2,735 $2,763
-$167
-$110
+$245+$33 +$10
-$10
+$27
FYE14 Actual 4Q Actual
Total Digital $168+11.5%
Total Digital $82
FYE16
Target
Physical MktDecline -21%
Downloads-18%
Audio Subs/Streaming
+44%
Digital Video+21%
Digital Radio+10%
Other-75%
Market Share Gain+0.25% pt
FYE17
Target
Inflation -20Savings +15
Biggest Risk Is Streaming Growth44% Assumed IncrementalGrowth Contributes $136M to
ProfitIf Only 30% Growth, ProfitImpacted Negatively by ~$46M
ReconciliationFYE17 Target to FYE18 Target ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
62/84
62
Revenues
Operating Income
$260$275
-$48
-$63
+$162 +$7 +$4
-$1
+$13
-$20 -$30 -$9
FYE15 FYE16FYE17
Target
Physical MktDecline -23%
Downloads-20%
Audio Subs/Streaming
+40%
Digital Video+11%
Digital Radio+5%
Other-75%
MarketShare Gain
+0.25% pt
EmergingMarket
Investment
TalentInvestment Costs/Other
FYE18
Target
FYE17 Target to FYE18 Target ($ In Millions)
$2,763
$2,896
-$142-$99
+$325 +$21 +$6
-$2
+$24
FYE14 Actual 4Q Actual
Total Digital $251+14.9%
Total Digital $109
FYE17
Target
Physical MktDecline -23%
Downloads-20%
Audio Subs/Streaming
+40%
Digital Video+11%
Digital Radio+5%
Other-75%
Market Share Gain+0.25% pt
FYE18
Target
Inflation -20Savings +15Other -4
Biggest Risk Is Streaming Growth40% Assumed IncrementalGrowth Contributes $162M to
ProfitIf Only 30% Growth, ProfitImpacted Negatively by ~$46M
Cash Flow ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
63/84
63
Actual Forecast Mid-Range Planning Period
FYE14 FYE15 FYE16 FYE17 FYE18
Earnings Before Interest & Taxes $215 $215 $225 $235 $250
Depreciation/Amortization 83 78 80 87 94
Working Capital (2) (1) 15 8 -
Cash Flow From Operations $296 $292 $320 $330 $344
Capital Expenditures (22) (25) (29) (26) (25)
Strategic Investments (67) (60) (60) (60) (60)
Proceeds From Disposal of Assets 1 29 - - -
EBIT Cash Flow $208 $236 $231 $244 $259
Interest & Taxes (34) (70) (75) (77) (81)Minority Interest Payments (24) (28) (16) (17) (18)
Net Cash Flow Before Financing $150 $138 $140 $150 $160
1) Includes Proceeds From Sale of Beats ($17M) and Sale of Nashville Building ($12M)
2) Includes Receipt From SCA On Prior Year Taxes3) FYE14 and FYE15 Reflects Dividends Paid to Simon Cowell and Benefit of X Factor U.S.
(1)
(2)
(3)
AgendaMid Range Plan
8/9/2019 Sony Music MRP Phase II Review (2014)
64/84
Agenda
64
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I RecapMarket Overview
Competitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
Risks During the MRP Period
8/9/2019 Sony Music MRP Phase II Review (2014)
65/84
65
Aggressive Market Assumptions MRP Assumes 44% CAGR for Streaming and 20% CAGR for Video Physical Decline Could Accelerate and Cause Accounts to Exiting MusicCliff Event
Unsustainable Profit From Syco TVand Syco Music
MRP Assumes Extension of SC deal At Existing Terms
MRP Assumes Success With New Formats ($46M Profit From New Formats Over 3 Year MRP)Higher Artist Royalty Cost Pressure On Artist Royalty Rate For DigitalParticularly Streaming
MRP Assumes Some Slow Rate Creep Could Be Faster and Higher
Talent Exposure On Superstar ArtistDeals and JVs
Key Superstar Talent Assumed to Perform Consistent With Historical Sales and No AdditionalAdvance Exposure
JVs Expected to PerformDevelop New Talent and Turn Profitable
Unable to Generate OverheadSavings to Offset Inflation
MRP Assumes $15M Savings Initiatives Per Year ($45M Total)All Currently Unidentified Mitigated by Restructuring Provisions
Higher VEVO Funding Needed toDrive Strategy
MRP Assumes $20M Per Year For Funding of VEVO Operations Which Is Only the Current Run Rate
Universals Aggressive PracticesFurther Negatively Impacts BusinessEconomics
Drives Up Costs For Key Artist Renegotiations and New Artist Signings Pricing Decisions Will Force Us to Follow Suit to Maintain Sales and Positioning
Potential Unfavorable Result FromOnline Rate Hearing
Negative Impacts For Recorded Music From By-Product of DOJ Review of Publisher Issues
Negative Impact of the Orchard ExitProvision
If Forced to SellLower Operating Income and Market Share/Influence Mitigated by One Time Gain On Sale
Further Overhead Reductions Reduction In New Talent Investment Reduction In New Releases and Rosters Potential Wholesale Changes In the Way We Do Business
- Exclusives/Windowing
- 3rdParty Artist Financing
Contingency Plansto Mitigate RisksWould Include:
Opportunities During the MRP Period
8/9/2019 Sony Music MRP Phase II Review (2014)
66/84
66
Purchase of Controlling Interest Inthe Orchard
Consolidation of Earnings (51% to 100%)
Recognition of Gain From Revaluing Existing 51%Interest
Sale of Spotify Equity Potential Sale of Warrants and EquityTotaling ~7%Interest
Approximately $4B Valuation
Liquidation of Other EquityInvestments
Deezer (5%)
VEVO (37.7%)
Higher Growth In Emerging Markets Digital Business Provides Opportunity to GrowLegitimate Music In Emerging Markets
Potential For Favorable Result From
Online Rate Hearing
U.S. Copyright Review Hearing On Online Radio
Rates to Take Place Calendar Year 2015
Recognition of Breakage Unearned Advances
Minimum Guarantees
Flats From Digital Service Providers
Physical Market SensitivityOperating Income ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
67/84
67
Base Case
Lower Case
Higher Case
CAGR-20%
CAGR
-16%
CAGR-24%
$240
$250
$260
$275
$241
$248
$263
$240
$259
$273
$289
FYE15 FYE16 FYE17 FYE18
Forecast Mid-Range Planning Period
1% pt Growth/Decline In Physical ImpactsProfitability by Approximately $3M
High Case and Low Case Exclude thePotential Offsetting Effect of Digital MarketMovements
Digital Market SensitivityOperating Income ($ In Millions)
8/9/2019 Sony Music MRP Phase II Review (2014)
68/84
68
$240 $250$260
$275
$216
$190
$164
$240
$284
$333
$395
Base Case
Higher Case
Lower Case
CAGR
+7%
CAGR+11%
CAGR+15%
FYE15 FYE16 FYE17 FYE18
Forecast Mid-Range Planning Period
1% pt Growth/Decline In Digital ImpactsProfitability by Approximately $8M (FYE16)
High Case and Low Case Exclude thePotential Offsetting Effect of PhysicalMarket Movements
AgendaMid Range Plan
8/9/2019 Sony Music MRP Phase II Review (2014)
69/84
Agenda
69
Mid-Range PlanExecutive Summary
Full Year FYE15 Forecast
Brief Overview/Phase I RecapMarket Overview
Competitor Analysis
Key Strategic Initiatives and Goals
Financials (Main Focus)
Financial Anatomy of the BusinessMRP Assumptions
Financial Projections
Risk/Opportunities & Sensitivity Impact of Key Drivers
Potential Strategic Investments
8/9/2019 Sony Music MRP Phase II Review (2014)
70/84
8/9/2019 Sony Music MRP Phase II Review (2014)
71/84
Bravo StrategicPriority MEDIUM
8/9/2019 Sony Music MRP Phase II Review (2014)
72/84
72
Germany acquisition of BRAVO Hits compilation series
Overview/Long TermStrategic Value
The BRAVO Hits compilation series is by far the biggest selling compilations product seriesin GSA
Until 2013, SME GSA was part of a JV with UMG licensing the brand from Bauer Verlag
Given their market power after EMI acquisition, UMG pushed SME out of the JV contract
and licensed directly from Bauer, resulting in profit loss of $4.6M for SME
Acquiring the trademark gives SME chance to get back into this important compilation brand
Bravo represents in total 2% of market share
In acquiring brand and then forming a JV with UMG would increase SMEs Market share by
roughly 1% (and reduce UMGs respectively)
Estimated cost ~$30M
Timing F2015
Expected IRR ~11-12%
IncrementalProfit
EBIT of $37M over 10 years
Big Machine/Taylor Swift StrategicPriority HIGH
8/9/2019 Sony Music MRP Phase II Review (2014)
73/84
73
Acquisition of indie label Big Machine
Overview/Long TermStrategic Value
Addition of Big Machine label to our Country division and Taylor Swift, the top femalecountry artist, to our roster
Big Machine founder/owner, Scott Borchettapotential Sony executive
Synergy opportunities in integrating Big Machine with Sony Music Nashville
Position Sony Music as leader in Country music genre
Estimated cost $100M+
Timing F2015 - F2016
Expected IRR TBD
Syco StrategicPriority HIGH
8/9/2019 Sony Music MRP Phase II Review (2014)
74/84
74
Syco JV (Primarily TV Format Income) Syco Artists
$95.8M
$48.7M
$102.3M
$62.2M
$99.0M
$61.7M$67.8M
$42.8M
Revenues Profit Revenues Profit Revenues Profit Revenues Profit
FYE12ACT FYE13ACT FYE14ACT FYE15FC
Simon Cowell Is:- One of the Most Prominent and Successful TV Personalities
- The Most Successful A&R Executive In the Industry Over the Last 15 Years- Proven Developer of Highly Successful TV Formats Simon Cowell and Sony Music: A 24 Year Relationship Potential New Deal Framework
- Purchase of All or Part of SCs Interest In the Syco JV, Excluding Music(Est. $60M - $100M)
- Enhance Music RelationshipPossible Converting Override Arrangement to JVArrangement (Estimated Profit Advance TBD)
- Extend SCs Services On TV and Music For An Additional 5 Years (Annual Salary TBD)- Discussions Underway With SPE TV- Timing Expected During FYE15 or FYE16
- IRR Range 10%-20%
Total Syco JV Post-Tax Dividends FYE11-FYE14 $146M- Sonys Share $105M; SCs Share $41M- Sony Allocated $64M Higher Than SC Due to Contract Terms Which
Protect/Recovered Sonys Initial Investment MRP Assumes Flat From FYE15FC
Key Initiative Extension of Simon Cowell ServicesCurrent Deal Expires 12/31/15
The Orchard StrategicPriority HIGH
http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=N5qnV7C9Cqwr3M&tbnid=lAqSih9E44n7TM:&ved=0CAUQjRw&url=http://www.mobo.com/news-blogs/x-factor-simon-cowell-return-2014&ei=6cPPU-nBNJe0yAT024GwBA&bvm=bv.71667212,d.aWw&psig=AFQjCNHpmi6Qx9snzAs-ZwDbuL_RxyYYxA&ust=14062114028477438/9/2019 Sony Music MRP Phase II Review (2014)
75/84
75
Current equity investment with 51% non-controlling ownership stake. Negotiating withDimensional about potential purchase of remaining 49% interest.
Overview/
Long TermStrategic Value
SMEs investment in the Orchard has created significant value since Mar12. Our $25M cash
investment has generated $14M of equity income to date for a net investment value of$38M. Orchards CY14EBITDA is forecasted to be $25M.
Purchase of remaining 49% of the Orchard gives SME full control and allows us to consolidateOrchard financials. Based upon Orchards 3 year MRP, EBITDA is projected to growfrom$25M to $47M by CY17.
Given current net investment value on our books, purchase of the remainder of company at avaluation of $350M-$660M could result in significant one time P&L gain due ($144M+)
Preserve Market Share: Based on our agreement we have the last right to match any bindingthird party offer to buy Orchard. If we elect not to buy the remaining 49% at the third partyvaluation we would be forced to sell our 51% interest. This would result in a loss of over 3.5%pts in global digital market share.
Estimated cost $175M - $330M (based on overall valuation of $350M - $660M) Based on offer received from3rdparty
Any deal could include significant earn out component
Timing 3 - 12 months
Current Status Given current gap between Dimensional and SMEs valuation, Dimensional will explorepotential third party interest to acquire its 49% share.
SME will make a decision on exercising its right to match at the appropriate time
Expected IRR 10%-20%
Coldplay StrategicPriority MEDIUM
8/9/2019 Sony Music MRP Phase II Review (2014)
76/84
76
Signing iconic band Coldplay (currently have one album remaining with WMG) in adistribution deal & license agreement
Overview/Long TermStrategic Value
Coldplays recent albums sold over 6M units each worldwide
Will increase our artist roster with an iconic band, long-term deal with 3 firm albums,creation of catalog product
Estimated cost Maximum commitment $40M
Timing Signing in F2015, effective F2016
Payments spread over contract term (per album)
Expected IRR ~20%
Profit Impact Profit contribution of $18M over 3 albums
8/9/2019 Sony Music MRP Phase II Review (2014)
77/84
8/9/2019 Sony Music MRP Phase II Review (2014)
78/84
Believe Digital StrategicPriority MEDIUM
8/9/2019 Sony Music MRP Phase II Review (2014)
79/84
79
Potential acquisition of Believe Digital, a competitor to the Orchard with a significantpresence in Continental Europe
Overview/Long TermStrategic Value
While The Orchards organic growth prospects continue to be strong, opportunity exists to
achieve synergistic value through this acquisition (as evidenced by the integration of TheOrchard & IODA)
International strength presents a much more attractive acquisition target as it completes theOrchards global market share profile
Believes distribution fees are in line with the Orchard which should enable a high label
retention rate
Estimated cost $75M - $150M (based on 100% acquisition)
Timing 1-3 years
Expected IRR 10%-20%
Razor & Tie StrategicPriority MEDIUM
8/9/2019 Sony Music MRP Phase II Review (2014)
80/84
80
Potential acquisition/investment in Razor & Tie record label
Overview/Long TermStrategic Value
Longstanding distribution relationship with proven track record. Creator of popular Kidz Bopfranchise, as well as a diverse artist roster specializing in metal, rock. R&T had 0.5% U.S.market share CY13
Depending on deal structure, potentially allows us to consolidate Razor & Tie financials (FY14recorded music revenue through SME of $20M + additional ancillary revenue streams)
R&Ts specialty compliments SMEs catalogue and distribution business
Estimated cost TBD
Timing 1-3 years
Expected IRR TBD
8/9/2019 Sony Music MRP Phase II Review (2014)
81/84
Ultra Records/Patrick Moxey StrategicPriority MEDIUM
8/9/2019 Sony Music MRP Phase II Review (2014)
82/84
82
$28.8M
$7.0M
$23.0M
$4.5M
Revenues Profit Revenues Profit
2012 (Pre-JV) JV Year 1
Ultras Yr 1 Profits Declined From Historical Level Due to Fewer Big Hits Than Prior Years- Deals Expired and Not Renewed On A Few Established Acts- Universal Aggressively Overpaid For Several EM Acts After Losing Bid to Acquire Ultra
15 Months Ending March 31, 2014
Sony Acquired 50% Interest In An Established Label, Ultra, In December 2012Increasing SonysFootprint In EM (Dance)
- An Established and Profitable LabelTherefore No Startup PeriodImmediate Profit Patrick Moxey Also Serves As Head of EM For Sony Music International
- Providing Support to All International Affiliates In EM A&R and Marketing Activities
- Several International EM Acts Have Been Signed, Including Mr. Probz, With Patricks Oversight and Format Credibility Potential Buyout
- Contractual Option to Buy Patrick Moxeys Interest In JV At End of Term (December 2017)- Potential TimingF17 or F18- Potential Purchase Price and IRRTBD
Annual Profit Allocation Protects Sonys InvestmentFrom Declining Profits
- 1st- Sony receives $3.5M profit each year,- 2nd - PM receives next $3.5M profit,- 3rd - Sony receives shortfall on $3.5M/year, if any- 4th - 50%/50
Mr. Probz Steve Aoki Benny Benassi Kaskade Carnage Project 46
Sonys Share $3.5M
P. Moxey Share $1.0M
VEVO StrategicPriority HIGH
http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=0weWGglvNX94DM&tbnid=cp_UEb8EtoWuDM:&ved=0CAUQjRw&url=http://knackfortracks.com/2014/06/20/project-46-sky-bar-buffalo/&ei=VmC8U9q-JMyZyAS-toDoBA&bvm=bv.70138588,d.aWw&psig=AFQjCNEUlLtwUEMnp7OaoIbAGw01NAkrmw&ust=1404940749804280http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=w9gZXu8TU9NnRM&tbnid=jzdl8oKuOYRQ7M:&ved=0CAUQjRw&url=http://whiteraverrafting.com/watch-this-dj-carnage-edc-aftermovie/2013/07/30/&ei=9YetU5ewDc-_sQTy8YCIAw&bvm=bv.69837884,d.cWc&psig=AFQjCNH4DfM3aOZ4grVELFAACKSHE8qoEQ&ust=1403967817382546http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=kWqwq3gb5da9DM&tbnid=IeW_rMpgNFdhfM:&ved=0CAUQjRw&url=http://www.rollingstone.com/music/news/kaskade-brings-edm-to-grammy-museum-20130116&ei=gzu8U_6FBo6pyATn0YDIAQ&bvm=bv.70138588,d.aWw&psig=AFQjCNFP5whKxD4OzKbw24fSRUKfvXCJ2g&ust=1404931313921677http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=607PPPXlAjHSpM&tbnid=rzCUveX8ok19PM:&ved=0CAUQjRw&url=http://en.wikipedia.org/wiki/Mr_Probz&ei=QZDOU-XIJcyfyASq8oKQDw&bvm=bv.71198958,d.aWw&psig=AFQjCNGEoE7FiENxm9LC9toHJz8eF8-dLA&ust=1406132493517662http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=829qXMzgpLTwZM&tbnid=voPiPY6eHWnOSM:&ved=0CAUQjRw&url=http://www.billboard.com/biz/articles/news/legal-and-management/6143195/edm-power-players-the-executives&ei=_Y7OU-P5N86nyASDhoLYBg&bvm=bv.71198958,d.aWw&psig=AFQjCNFun4dLZGGzpMUs4coL8_hejo1GqA&ust=1406132340551458http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&docid=vLK0hjbPtFOLqM&tbnid=Kum7G0rzm8xBzM:&ved=0CAUQjRw&url=http://de.wikipedia.org/wiki/Datei:Ultra_Music_Logo.png&ei=M4rOU5-_O8KQyATSmIHYDA&bvm=bv.71198958,d.aWw&psig=AFQjCNEpj-FsGH8BwmjVEwZ-xEKrWxXPlA&ust=14061311184706408/9/2019 Sony Music MRP Phase II Review (2014)
83/84
83
Continued funding of VEVO JV
Overview/Long TermStrategic Value
VEVOsbusiness performing better than forecasted with revenue growing 57% yoy in 1sthalfof year. SMEs license revenue from VEVO is forecasted at $85M for FYE15. Overall, netincome to SME from VEVO is positive as net profits from content fees after artist royalties isforecasted to exceed SMEs equity losses by $31M for FYE15.
While VEVO is expected to continue to experience positive revenue growth, VEVO willrequire additional capital funding to continue to expand their business, cover working capitaland other operational cash expenses over the MRP period. Growth in VEVO can be achievedthrough investment in original content, launch of a subscription service and International
expansion.
Majority Shareholders (Universal / SME) believe significant value growth can be achieved andwill therefore continue to invest in building of the business. As a result, no outsideinvestment from 3rdparties is likely during Mid Range Plan.
Exception could be made for investment by Warner Music if antitrust requirements can bemet
Estimated cost $60M of funding
Timing Throughout MRP Period
Expected IRR N/A
8/9/2019 Sony Music MRP Phase II Review (2014)
84/84
Top Related