CONFIDENTIAL -- Sony Pictures Entertainment Work Product Sony Pictures Digital Productions Fiscal...

CONFIDENTIAL -- Sony Pictures Entertainment Work Product

Sony Pictures Digital ProductionsFiscal Year 2014 Budget Overview

February _, 2013


Agenda

Page Number

FY13 Q4 Forecast Update 4 - 5

FY14 Budget Overview 7 - 12

Film Ultimates 14 - 17


FY13 Q4 Forecast Update


• Full-year EBIT $37.7MM favorable to budget, excluding Aardman titles:

– Hotel Transylvania enjoyed enormous worldwide success and is now SPA’s best performing animated feature (#1 domestic September opening of all time, #5 domestic family film this year, #7 family film in worldwide box before its release in France)

– Hotel Transylvania’s current projected worldwide performance of $335MM (excluding China) resulted in GP of $78.7MM, $31.1MM higher than greenlight

– Imageworks generated $23.0MM in EBIT ($16.0MM favorable to budget), due to stronger than anticipated margins from 3rd party business as well as ongoing cost savings from continued expansion in Vancouver and efficiencies in Culver City

• Imageworks maintained its reputation for excellence in the industry, providing high-end VFX and animation work at competitive prices:

– Imageworks won this year’s Sci-Tech Academy Award for its work developing Katana (lighting software), which has been monetized subsequently via commercial release with a developer partner

– Finishing production on Disney’s March 2013 tentpole Oz: The Great and Powerful, directed by Sam Raimi

– In production on Cloudy 2; in pre-production on Amazing Spider-Man 2 and All You Need is Kill (Warner Bros)

FY13 Highlights

page 4


• The Smurfs: A Christmas Carol, a 22 minute CG/2D animation hybrid short produced originally for the Smurfs 1 home video release, debuted at #1 in its time slot on Cartoon Network and aired internationally in major territories this holiday season, providing an early pre-theatrical marketing boost for Smurfs 2

– Christmas Carol was also sold separately this year

– SPA is producing 22 minute The Smurfs: Legend of Smurfy Hollow for October 2013 for TV and separate sale, to help promote home video release of Smurfs 2 worldwide later in the year

– Both Smurfs shorts will be bundled for sale with a 3 rd title to be produced in conjunction with Smurfs 3, also intended primarily to assist home video

• Hotel Transylvania received Golden Globes and Annies nominations for best animated feature

– Goodnight Mr. Foot, a 4 minute 2D-animated short produced for home video and attached theatrically to the film Halloween week, was also nominated for an Annie

• The Hotel Transylvania Social Game generated over 1MM installs, assisting theatrical and home video marketing while providing a significant user base that can be leveraged for future films

FY13 Highlights

page 5


FY13 Q4 Financial Summary ($ in Thousands)

page 6

Q4 FORECAST Q3 FORECASTVAR TO

FORECASTBUDGET

VAR TOBUDGET

NET REVENUEAnimation $471,000 $456,000 $15,000 $449,778 $21,222Imageworks 159,000 159,000 - 140,000 19,000 Interactive - - - 300 (300) TOTAL NET REVENUE $630,000 $615,000 $15,000 $590,078 $39,922

$0 $0EBIT

Animation 1,000 (5,000) 6,000 3,500 (2,500)Imageworks 23,000 22,000 1,000 7,200 15,800 Interactive - - - 300 (300) TOTAL EBIT $24,000 $17,000 $7,000 $11,000 $13,000

$0CORPORATE EBIT CHALLENGE - - - 4,000 (4,000)

TOTAL EBIT WITH CHALLENGE $24,000 $17,000 $7,000 $15,000 $9,000

$0

NET CASHFLOWAnimation (260,800) (272,800) 12,000 (244,100) (16,700)Imageworks (including Interactive) 16,900 11,400 5,500 8,200 5,500TOTAL NET CASH FLOW ($243,900) ($261,400) $17,500 ($235,900) ($11,200)


FY14 Budget Overview


FY14 Strategic Objectives

page 8

• Develop high-margin family-friendly films with franchise potential• Deliver 2 family films per year – either CG-animated or live-action hybrid

features• Execute sequels with no more than a 3 year lapse to maximize brand

awareness• Have films greenlit and in production 2 years ahead of theatrical release to

solicit high quality promotional and licensing partners• Continue to lower average cost of production in response to new economics• Collaborate closely with other SPE divisions to maximize overall revenue

opportunity in the theatrical window and beyond

• Maintain ongoing relevance of the brand by opportunistically producing additional content at low cost– Smurfy Hollow, a 22 minute CG/2D animation hybrid, will be broadcast

separately on TV prior to home video release, successfully expanding on a pre-sale strategy tested with Smurfs: A Christmas Carol

– A series of Cloudy 2 shorts, produced inexpensively in predominantly 2D animation, will help online theatrical marketing while still providing important value in the home video window

• Opportunistically publish mobile and social apps based on SPA properties that serve as powerful marketing engines while also generating revenue

Create additional content to promote films

Identify and execute future high-margin franchises


FY14 Strategic Objectives

page 9

• Sound out opportunities with potential partners – Cartoon Network, Nick and the Hub – to license our properties for a TV series, emulating the model for the DWA’s Penguins of Madagascar series on Nick– Significant EBIT potential from new consumer products licensing opportunities– Potential for incremental profits from rights fees and a share of TV revenue at low

investment risk– Maintains high awareness in off-film years, supporting the overall franchise (Madagascar

3 significantly outperformed the prior film with the support of the Penguins show)– Provides theatrical spin-off opportunities (like Penguins)

• Proactively resize the business from $150MM/yr to $115-$120MM/yr to adapt to strong price competition and continued volatility in VFX while maintaining quality

• Expand Vancouver into all remaining production departments to take even greater advantage of the 58.4% tax rebate on labor. – The number of projected artists in Vancouver are now on par with the number in Culver

City

• Continue to assist Digital Marketing in developing strategy while executing industry-leading campaigns across all platforms at below market rates

• Significantly resize group to meet current cost initiatives requirements without sacrificing major capabilities or quality

• Develop 3rd party business to provide incremental EBIT and lower overall costs, mirroring successful Imageworks model

Sony Pictures Interactive: Execute industry- leading digital campaigns at below market rates

Explore potential for TV series based on SPA properties

Resize Imageworks and maximize use of Vancouver facility


FY14 Budget Financial Summary ($ in Thousands)

page 10

BUDGET 9/11 MRP VAR TO MRP

NET REVENUEImageworks (including Interactive) $140,300 $156,000 ($15,700)Animation 448,478 512,115 (63,637)TOTAL NET REVENUE $588,778 $668,115 ($79,337)

- EBIT

Imageworks (including Interactive) 7,500 7,500 0Animation (4,970) 76,590 (81,560)SUBTOTAL EBIT $2,530 $84,090 ($81,560)

CORPORATE EBIT CHALLENGE 10,000 0 10,000

$12,530 $84,090 ($71,560)

(10,790)

NET CASH FLOWImageworks (including Interactive) 8,200 800 7,400Animation (244,100) (244,100) 0TOTAL NET CASH FLOW ($235,900) ($243,300) $7,400

TO REPLACE


MRP EBIT Reconciliation to FY14 Budget ($ in Thousands)

page 11

EBIT PER 9/11 MRP $84,090

Imageworks• Lower fringe for Vancouver artists 1,300• Increased rent, relocation, and operating expenses due to artists shift to Vancouver facility (900)• Increased HW/SW maintenance contracts due to timing of contract renewals (500)• Other, net 100

Subtotal Imageworks 0 0

AnimationPerformance:

• ARTHUR CHRISTMAS - lower WHE due to theatrical performance: current box office estimate: 47/100 vs. Q2/MRP target 125/167 (33,626)• PIRATES - lower DHE and PayTV flows due to DBO target reduction of ($10M) to $55M (1,934)

(35,560) (35,560)Timing:

• PIRATES - timing of domestic release date shift from 3/30/12 to 4/27/12 (29,891)• HOTEL T - primarily timing of DHE flows from MRP (8,681)• HOTEL T - timing of pre-marketing spend (2,800)• PIRATES - timing of ITH territories releasing in FY12 (UK, France, Switzerland, Sweden) (3,200)• SMURFS - primarily DVOD timing from MRP to FY12 (1,117)• Other, net (311)

(46,000) (46,000)

CORPORATE EBIT CHALLENGE 10,000

TOTAL VARIANCE (71,560)

EBIT PER BUDGET $12,530

TO REPLACE


MRP Net Cash Reconciliation to FY14 Budget ($ in Thousands)

page 12

NET CASH PER 9/11 MRP ($243,300)

Variances

Imageworks• Decreased overhead disbursements related to elimination of Corp rent allocation 6,500• Decreased expense disbursements related to 3rd party work for Interactive 800• Other, net 100

Subtotal Imageworks 7,400 7,400

Animation 0 0

TOTAL VARIANCE 7,400

NET CASH PER BUDGET ($235,900)

TO REPLACE


FY14 Budget Risks & Opportunities ($ in Thousands)

page 13

EBIT CASH

Imageworks

• Potential TBD work (approx $20M) $0 $8,000 $8,000 $0 $8,000 $8,000• Margin execution 0 1,000 1,000 0 1,000 1,000• Timing of capital spend 0 300 300 0 1,000 1,000• Vancouver rebate 0 500 500 0 500 500• India facility 0 500 500 0 500 500

Subtotal Imageworks 0 10,300 10,300 0 11,000 11,000

Animation

• PIRATES - Performance TBD 0 TBD 0 0 0• HOTEL TRANSYLVANIA - Performance TBD 0 TBD 0 0 0• Pre-marketing spend - SMURFS 2 & CLOUDY 2 (5,000) 0 (5,000) 0 0 0• Timing of production spending 0 0 0 0 10,000 10,000• Timing of development spending 0 0 0 0 3,000 3,000

Subtotal Animation (5,000) 0 (5,000) 0 13,000 13,000

Corporate EBIT Challenge (10,000) 0 (10,000) 0 0 0

TOTAL ($15,000) $10,300 ($4,700) $0 $24,000 $24,000

Net R&ORisks Opportunities Net R&O Risks Opportunities

TO REPLACE


Imageworks FY14 Budget Revenue ($ in Thousands)

page 14

Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget TOTALProject Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 FY13

Live Action VFX:

The Amazing Spiderman 9,175 4,845 2,124 - - - - - - - - - 16,144 MIB3 1,629 1,154 125 - - - - - - - - - 2,908 Oz 4,445 4,924 6,530 6,175 7,577 6,339 6,118 7,072 5,261 5,602 385 205 60,633 Subtotal 15,249 10,923 8,779 6,175 7,577 6,339 6,118 7,072 5,261 5,602 385 205 79,685

SPA:SPA - Hotel T 4,457 5,235 5,373 2,229 634 - - - - - - - 17,928 SPA - Hotel T 3D 466 407 396 576 427 117 - - - - - - 2,389 SPA - Cloudy 2 602 1,161 1,165 1,323 1,959 1,767 2,638 2,268 2,299 2,848 2,247 2,221 22,498 SPA - Smurfs 2 230 553 770 1,192 1,183 1,480 2,111 1,985 2,029 2,320 1,796 1,851 17,500

Subtotal 5,755 7,356 7,704 5,320 4,203 3,364 4,749 4,253 4,328 5,168 4,043 4,072 60,315

Total Revenue 21,004 $18,279 $16,483 $11,495 $11,780 $9,703 $10,867 $11,325 $9,589 $10,770 $4,428 $4,277 140,000$

• 100% of FY13 work already awarded/identified

TO REPLACE


Film Ultimates

SMURFS( PG Rating, Winchester Financing, 7/29/11 Release Date)

3Q FCST CURRENT FY12 BUD GP BREAK

RETENTION RATE 52% 52% 53% 53%

DOMESTIC BOX OFFICE $136,398 $142,600 $125,000 $99,900

INTERNATIONAL BOX OFFICE 414,000 421,000 189,000 155,000

WORLDWIDE BOX OFFICE 550,398 563,600 314,000 254,900

INTERNATIONAL PRINTS 9,808 9,718 8,400 8,040

DVD UNITS 7,560 7,560 6,670 5,080

DOMESTIC RENTALS 70,605 70,605 66,250 52,950

TOTAL DOMESTIC ADVERTISING (54,500) (52,770) (54,500) (54,500)

DOMESTIC PRINTS (6,140) (5,935) (8,180) (6,280)

OTHER COSTS (6,780) (7,770) (6,630) (4,840)

DOMESTIC THEATRICAL NET 3,185 4,130 (3,060) (12,670)

INT'L RENTALS 162,100 155,000 79,620 64,970

INT'L ADVERTISING (43,200) (41,000) (41,200) (37,870)

INT'L PRINTS (16,640) (16,844) (16,000) (14,880)

OTHER COSTS (10,000) (9,996) (7,610) (5,580)

INT'L THEATRICAL NET 92,260 87,160 14,810 6,640

DOM. HOME VIDEO REVENUE 92,160 92,160 85,860 65,630

DOMESTIC PAY-PER-VIEW / VOD 5,410 5,410 3,300 4,930

DOM. HOME VIDEO COSTS (33,250) (33,250) (28,110) (23,400)

DOMESTIC HOME VIDEO NET 64,320 64,320 61,050 47,160

INT'L HOME VIDEO REVENUE 55,900 55,900 51,750 42,970

INTERNATIONAL PAY-PER-VIEW/VOD 3,200 3,200 2,400

INT'L HOME VIDEO COSTS (21,000) (21,000) (18,950) (15,990)

INT'L HOME VIDEO NET 38,100 38,100 32,800 29,380

DOMESTIC PAY TELEVISION 19,000 19,000 17,650 17,120

DOMESTIC FREE TELEVISION 6,660 6,660 6,590 6,030

INTERNATIONAL TELEVISION 62,300 68,000 60,410 47,860

TV COSTS (500) (500) (500) (500)

TOTAL TELEVISION NET 87,460 93,160 84,150 70,510

AIRLINE / NON-THEATRICAL 2,180 1,928 2,330 2,020

MERCH, MUSIC & OTHER REVENUE 5,250 6,525 4,500 3,500

NON THEATRICAL COSTS (1,720) (783) (178) (178)

CONSUMER PRODUCTS COSTS (1,040) (1,110) (1,842) (1,842)

PRODUCTION COST (123,860) (123,860) (123,860) (123,860)

CO-FINANCING PROCEEDS 30,970 30,970 30,970 30,970

ALLOCATED OVERHEAD 0 0 0 0

CAPITALIZED OH (9,790) (9,790) (9,790) (9,790)

RESIDUALS (11,990) (12,480) (10,980) (9,430)

CREATIVE SHARES (44,650) (44,690) (11,410) (7,960)

CO-FINANCIER OVERAGES (46,900) (47,490) (33,730) (24,450)

TOTAL REVENUES 484,765 484,388 378,260 310,380

RELEASING COSTS (194,770) (190,958) (183,700) (165,860)

PROD, O/H, PART, RESIDUALS (206,220) (207,340) (158,800) (144,520)

GROSS PROFIT (LOSS) $83,775 $86,090 $35,760 $0

GROSS PROFIT MARGIN 17.3% 17.8% 9.5% 0.0%

FY 2012 GROSS PROFIT (LOSS) 38,920 37,348 (15,927) (37,825)

TO REPLACE

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