For Internal Use Only - Confidential SONY PICTURES ENTERTAINMENT CFO All-Hands Meeting Dave Hendler...

For Internal Use Only - Confidential

SONY PICTURES ENTERTAINMENTCFO All-Hands Meeting

Dave Hendler

October 18, 2011


Last Year We Discussed…

2

• Accomplishments

• Overall goals

• The perfect storm

• Values

• Industry trends

• Forecast and strategy

For Internal Use Only - Confidential 3

• Organization

• Survey Results and New Programs

• Performance Management and Goal Setting Process

• Sustainability Update

• Key Projects

• Budget and Forecast

• Three Year Strategy

• Conclusion

• Trailers

Today We Will Discuss…


WHY I USED TO BE AFRAID TO SHOW TRAILERS AT OUR ALL-

HANDS…


Trailers From the 2005 All-Hands Meeting

5

At our 2005 All-Hands meeting we showed these trailers and had the worst year theatrically in the history of the company


WHY I AM STILL AFRAID TO SHOW TRAILERS AT OUR ALL-

HANDS…


Trailers From the 2010 All-Hands Meeting

7

Not as bad as 2005, but still not something to write home about


BUT WE HAVE PERFORMED WELL, I JUST PICKED THE

WRONG TRAILERS…


Recent Successes

9

I did show these I should have shown these


ORGANIZATION


• Studio Finance• Shared services center in

Poland

• Records and Information Management• Anti-Fraud• Sony United (FIFA/Hawaii Open/Information

Security)

CFO Organization Structure

11

FacilitiesDavid Mannix

Corp FinanceRon McNair

Mktg./Dist FinanceKathleen Shane

Dave HendlerSEVP and CFO

MP FinanceStefan Litt

TV FinanceDrew Shearer

HE FinanceBill Stellman

Corp DevJim Underwood

IT

Steve Andujar

SEHSStevan Bernard

• New lead for worldwide real estate and facilities

• Also assumed responsibility for:o Administrative serviceso Mail serviceso Back lot operations

• Worldwide Theatrical Marketing and Distribution Operations and Administration

• Lead on negotiating media contracts


SPE SURVEY RESULTS AND NEW PROGRAMS


Employee Engagement Survey Methods and Process

13

• Originated out of SPE’s ongoing efforts to retain and invest in our employees

• Focused on Engagement vs. Satisfaction

• SPE as a whole had very high participation rates– Globally – 78%– Finance Overall – 85%– U.S. – 67%

• We saw all of the responses; however, they were only identified by group when there were at least 10 responses

• Currently planning to resurvey in June 2012, 18 months after our last survey, to allow employees to see the impact of the organization’s action planning


-5

-4

-2

-1

-1

-1

0

0

2

-15 -10 -5 0 5 10 15

Direct Manager

My Job and Career

Customer Alignment

Leadership

Innovation/Collaboration

Employee Engagement

Work Environment

Strategy

Rewards

Finance vs. Total SPE 2010

14

Percentage Point Difference in Favorable Scores

UPDATE WITH SPE VS. GLOBAL NORM


• Overall very high engagement 76%

• Ratings higher than global norms in most areas

• High marks for work environment

• Work life balance as top employment differentiator from SPE’s competition

• Overall confidence in top leadership

• Pride ranks extremely high

High Marks in Several Key Areas

15


Employee Survey Advisory Board (ESAB)

16

Global representation among

36 employees worldwide

16 locations

represented

Majority represents “pipeline talent” in org level

and tenure

ESAB met twice a

month for approx 5 months

Sponsored by 2

division presidents: Bishop (HE) and Osher

(SPDP)

Finance Division participants:• Dawn Taylor, SPT Finance• Jon Corcoran, SEHS• Adriaan Van Hee, GSB-

Poland• Alexander Glass, IT-

Singapore


• I understand SPE’s Goals and Objectives• Clear link between work and SPE’s strategy• New products and services match what customers

want

SPE Strategy

• Link pay with performance• Understand how pay decisions are determinedRewards

Collaboration

Open and honest communication

Focus on Pipeline Talent

SPE-Wide Areas of Opportunityand Agenda Items for Employee Survey Advisory Board

• Leaders encourage collaboration across divisions• There is effective sharing of information and ideas between locations• There is good cooperation between the Sony Corporation family of

companies


SPE Action to Date

18

SPE Goals

• Amy and Michael release company-wide goals for FY12• Emphasis among senior execs regarding division goals and linkage to SPE goals• Launch of myCareer with individual goal linkage capability

Rewards

• Introduction of global Pay for Performance program for FY12

Innovation/Collaboration• Review of idea sharing/collaboration tools in place such as IdeaMax in IT and “i2i” at

Sony Corp/Sony Electronics for potential company-wide rollout• Increase of networking/information-sharing related events and opportunities, such as

“Meet and Eat” with senior execs (akin to Michael’s “Table for Ten”)


FINANCE SURVEY RESULTS


Employee Survey Categories

20

Category Definition

Work Environment Safe and efficient work environment

Employee Engagement Willingness to expend discretionary effort and commitment to SPE

Strategy The goals and objectives of the business

Leadership Employee confidence in the organization’s top leadership

Direct Manager Line manager’s ability to develop employees

Rewards Satisfaction with compensation and benefits

Innovation Collaboration and idea sharing

Customer Alignment Anticipating and meeting customer’s demands


48

51

60

63

64

69

74

75

81

34

29

23

22

24

22

18

16

12

18

20

17

15

12

9

8

9

7

0% 20% 40% 60% 80% 100%

Innovation

Rewards

Direct Manager

My Job and Career

Leadership

Customer Alignment

Strategy

Employee Engagement

Work Environment

Favorable Neutral Unfavorable

Finance Survey Results

21

Percentage of Finance Respondents


-5

-4

-2

-1

-1

-1

0

0

2

-15 -10 -5 0 5 10 15

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

Finance vs. Total SPE 2010

22

Percentage Point Difference in Favorable Scores


-2

8

8

11

2

15

6

16

8

-20 -10 0 10 20

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

-6

-2

-12

1

4

1

6

4

13

-20 -10 0 10 20

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

-2

0

0

-3

-3

3

-2

2

7

-20 -10 0 10 20

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

Finance by Tenure vs. Total SPE 2010

23

Less than 1 Year

-4

-4

-1

3

3

-5

2

3

-4

-20 -10 0 10 20

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

-5

-5

-1

-2

-1

-2

0

-1

-1

-20 -10 0 10 20

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

1 – 5 Years

-6

-5

-5

-3

-5

-2

1

-2

3

-20 -10 0 10 20

Direct Manager

My Job and Career

Customer Alignment

Leadership


Employee Engagement

Work Environment

Strategy

Rewards

6 – 10 Years

11 – 15 Years 16 – 20 Years Over 20 Years


Summary of Finance Comments

24

Consistent Themes Reveal a Desire for…

• Telecommuting and flexible work arrangements

• More communication about business goals & strategy

• More acknowledgement & recognition about achievements

• More feedback from supervisor (praise) and the opportunity to give upward feedback

• More empowerment at the lower management levels

• More collaboration/communication between departments (especially between territories and home office)

• More visible leadership

• Poor performers moved out or held accountable

• A link of pay to performance

• Reasonable workload/ work-life balance

• An opportunity to contribute to process improvement

• Professional development & mentoring


Finance Division Action Steps

25

Finance Division Onboarding Program“My.WorkLife”

Project launched: Design underway

“A Taste of Finance”Job Shadowing Program

Pilot complete. Expansion pending.

Addresses:

• Pipeline Talent

• My Job and Career

Addresses:

• Collaboration


Expand IT Mentoring ProgramAcross Finance Division

Addresses:


Global FinanceUpdates via Live Video

Addresses:

• Collaboration

IdeaMax or i2iAddresses:

• Collaboration


PERFORMANCE MANAGEMENT AND GOAL SETTING PROCESS


Key Findings from Engagement Survey that Impacted Our Goal Setting Process

27

• Low scores in understanding:

– Link between pay and performance

– How compensation can be affected

– How pay is determined

• Jobs and career have strongest influence on engagement

• Rewards have lowest influence on engagement


How Are We Addressing These Issues?

28

1. Goal Setting

– Company Goals → Business Unit Goals → Department Goals → Individual Goals

2. New Performance Review Measures

– Combining Business and People Measures to evaluate what was achieved and how it was achieved

3. Comprehensive Suite of Tools and Resources

– Goal setting and evaluation; learning and development; performance reviews; and support for SPE career development in one central location


Goals for Finance Division

29

1. Identify opportunities to sell non-strategic assets that will result in significant gains for SPE

2. Reduce overall cost structure

3. Achieve sustainability targets

4. Continue efforts to protect our content, intellectual property and information assets

5. Improve cash flow management

6. Provide strategic insight to business divisions

7. Develop and upgrade organizational capability

8. Reduce the potential for fraud across the Company

9. Work with Motion Picture Group to increase slate profitability and effective use of cash

10.Work with business units to drive profits and investments by product margin


Cascading Goals – The Concept

30

Goal

Finance

Goal

Goal

Goal

Goal

Goal

Goal

Goal

Goal

Goal

Goal

Goal

Goal

CFO Direct Reports Staff


Dave Hendler’s Goals1.Identify opportunities to sell non-strategic assets that

will result in significant gains for SPE

2.Reduce overall cost structure

3.Achieve sustainability targets

4.Continue efforts to protect our content, intellectual property and information assets

5.Improve cash flow management

6.Provide strategic insight to business divisions

7.Develop and upgrade organizational capability

8.Reduce the potential for fraud across the Company

9.Work with Motion Picture Group to increase slate profitability and effective use of cash

10.Work with business units to drive profits and investments by product margin

Cascading Goals – In Practice

31

Stephan Litt’s Goals

Steve Andujar’s

Goals

Dave Mannix’s

Goals

Kathy Shane’s Goals

Drew Shearer’s

Goals

Steven Bernard’s

Goals

Jim Underwood’

s Goals

Bill Stellman’s

Goals

Ron McNair’s

Goals


Cascading Goals – In Practice

Dave HendlerJim Underwood

Kathy Shane


Finance Goal Setting Progress Update

33

• Our deadline was September 30th for everyone to have goals in the myCareer system, Finance goal setting efforts have been extremely solid

– ~71% of the Finance Organization has goals in the myCareer system

– Over 95% of SVP level and above have goals in the myCareer system

– Kudos to Home Entertainment Finance, Corporate Finance, and WW TV Finance for high levels of compliance

– If you haven’t completed your goals, it isn’t too late


SUSTAINABILITY UPDATE


Sustainability @ SPE

35

Sustainability drives cost savings, transparency through the supply chain, ideas for business improvement, and positive employee engagement to build a stronger, more responsible

companyFour overarching 2012 goals

First focus on operational impact, then move toward influence & leadership

EngagementMotivate the sharing

ideas and get employees involved at

work & at home

Green FilmmakingReduce production

impact first; then utilize reach to engage viewers

about key issues

Zero WasteDivert >90% Culver City

waste away from the landfill by EOY 2012

Carbon Emissions20% reduction from 2007 by EOY 2012


2012 Divisional Goals

36

Driving Change Through Accountability!Each Division President reports annually on results, and 12-month goals

• Home Entertainment Supply Chain– Packaging: Develop & implement a global sustainable packaging review &

approval process

• Motion Picture Group– Digital screening/conference rooms in worldwide locations– Elevate sustainability processes in distribution; create a process for global

recycling of prints– Increase percentage of rejuvenated films

• Television– Utilize our program inventory to create an environmental-themed program

package to offer to sponsors and networks for “Earth Day(s)”

• Sony Pictures Digital– Data center efficiency, which includes consolidation and co-location

• Legal, Compliance, Government Affairs– Default all Xerox copiers to double-sided printing


KEY PROJECTS


Projects Supporting Our World Class Finance Vision

38

Global Shared Services:

• Developed our European Shared Services center in Gdansk, Poland supporting all accounting functions

• Implementing tools to improve processes and controls

• Standardized European Payroll with ADP

• Transforming Tax and Statutory processing, filing and reporting with Deloitte

• Beginning assessment of opportunities to extend shared services capabilities across other regions

• Working with other Sony Companies to evaluate opportunities for them to leverage our Poland center

http://www.adp.com/



39

Transforming Participations and Residuals Processes:

• Defining processes, data structures and data flows to transform the way we support talent payments

• Selecting a system to replace our 46 year old Residual and 27 year old Participation system!

• Evaluating business reporting and cash forecasting tools to drive enhanced analytic capabilities

Mick Jagger19655

Extending SAP and Ariba:

• Implementing SAP in 18 TV entities

• Rolling out Ariba to support temporary staffing requisition, time tracking and payment processes

No time cards



40

Enhancing Forecasting & Reporting Capabilities:

• Implementing SAP’s Treasury and Cash Management Module

• Implementing SAP’s Budgeting, Planning and Consolidation module, including Liquidity management

• Rolling out significant cash forecasting process improvement recommendations


Projects Supporting Tokyo/External Regulations

41

Converting accounting practices from US GAAP to International Financial Reporting Standards:

• Sony’s IFRS adoption has been delayed, with revised timelines during next fiscal year

• Major effort will continue, especially given:– Statutory Adoptions– US GAAP

Rolling out Sony’s Anti-Bribery Policy


Projects Supporting SPE

42

Developing a Master Plan for the Lot:

• Our 96 year old studio with antiquated and failing infrastructure requires a vision for the future

Web Governance Initiative:

• Developing strategy to secure and streamline Global Web Operations


BUDGET AND FORECAST


Financial Summary – Current Forecast FYE12Consolidated Revenues & EBIT

SPE Revenues ($MMs) SPE EBIT ($MMs)

$0

$100

$200

$300

$400

Budget Forecast

$7,987$8,489

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

Budget Forecast

$365 $365

• We are on pace to meet budget

• However, this is a challenging year and we need to remain vigilant

• Channel and U.S. TV performance appear to be offsetting some theatrical and HE risk


THREE YEAR STRATEGY


Executive Summary

46

• The market trends SPE identified in prior MRPs will continue to unfold over the next three years

– Transitions in home entertainment to lower-margin rental models – Only partially offset by growth in digital – Films remain a key component of the studio business– TV production and networks, both high-growth / high-margin

businesses

• SPE has positioned itself to succeed in this market environment with a balanced approach to both film and television

– Focusing on franchise and family films– Continuing to generate television series with global appeal – Investing for growth in networks– Emphasizing higher-margin distribution models in home entertainment– Carefully managing costs and cash flow


$8,515

$9,487 $9,980

$10,943

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

FYE12 FYE13 FYE14 FYE15

$365

$500

$600

$700

0

100

200

300

400

500

600

700

800

FYE12 FYE13 FYE14 FYE15

SPE Revenues ($MMs) SPE EBIT ($MMs)

9% CAGR

Financial Summary – MRPConsolidated Revenues & EBIT

EBIT Margin: 4.3% 5.3% 6.0% 6.4%

24% CAGR

The result of our strategy is strong profit and cash flow growth over the MRP period

No monetizations or EBIT challenges in FYE13 through FYE15

48For Internal Use Only - Confidential

SPE’s EBIT mix is shifting toward television

Film, 22.1%

Television, 77.9%

FYE15 EBIT

Film, 69.7%

Television, 30.3%

FYE05 EBIT

Film, 39.5%

Television, 60.5%

FYE10 EBIT

Note: EBIT is pre-allocation of corporate overhead and shared services. Excludes monetizations.


International territories will account for more than half of SPE’s revenue going forward

Revenue by Territory

North America

Rest of World

30.6%43.7% 50.7% 53.3%

69.4%56.3% 49.3% 46.7%

FY05A FY08A FY11A FY15E


• Increased access to content through new devices drives incremental viewership

– The average consumer now views content on 3.5 devices– Total TV viewership per average consumer per week has grown– Netflix is a new buyer for television content and streaming rights– Other services from Amazon, Google and Sony will further grow the

market

• The link between devices and content has been strengthened– Content providers marketing their device-specific applications– Hardware providers marketing their content relationships

Market Trends: Increased Consumption


1 Billion

2 Billion

2006 2014

Market Trends: Proliferation of Devices

North America and Western Europe: Total TV Sets and Connectable Devices Installed

• TV Sets• PCs• Smartphones• Connectable Games Consoles

• TV Sets (Excl. Connectable TV Sets)

• PCs• Smartphones• Connectable Game Consoles• Hybrid Set-Tops• Connectable TV Sets• Tablets• Connectable Blu-Rays

Source: Screen Digest.Note: Excludes IP streamers.

2x


Market Trends: Shift in Economics

• Home entertainment revenues are under pressure as physical sell-through gives way to physical rental options (Netflix, Redbox) perceived to have greater value and convenience

• As a result of these market shifts, film economics have changed– International appeal is increasingly important to ensure a profitable slate– Franchise films and family content are less susceptible to the decline in home

entertainment and offer greater international revenue potential

• The television market, including networks and production, continues strong growth


SPE is Uniquely Positioned to Address these Market Trends

Success Factors SPE’s Positioning

Ability to capitalize on relationship between hardware and content

Union of film and television businesses within the studio

SPE is the only studio owned by a leading consumer electronics company

SPE has a balanced portfolio of assets across film and television

Independence in television production

Unlike production arms of broadcast networks which have one primary customer, SPE is producing for every U.S. broadcast network and multiple cable networks


SPE is a Critical Part of Sony’s Portfolio

Consumer Products &

Devices

Networked Products &

Services

Financial Services

Sony Music Entertainment

All Other

Note: Sony Corporation also has a 50% stake in Sony Ericsson Mobile Communications AB, 50-50 joint venture with LM Ericsson(1) Source: SEC filings.

FYE11 Revenue (1)

FYE11 Revenue (1)

$41.7 bil

$18.4 bil

$7.1 bil

$5.5 bil

$5.2 bil

$9.4 bil

% of Total% of Total

48%

21%

8%

6%

6%

11%

Total $87.3 bil

On our way to

$10.9 bil


Divisional Details

Motion Pictures


Motion PicturesExecutive Summary

• Giving film slate more international appeal and greater sell-through potential Growing family business Increasing focus on franchises Pursuing low cost faith-based acquisitions

• Improving economics of existing businesses Reducing production and marketing costs Pursuing film co-financing and tax-based incentives Focusing on genre and production cost mix

Columbia - Tentpoles with global appeal and low budget films with upside

Screen Gems - Genres films (e.g., thriller, comedy, action) at low cost Fostering key relationships to ensure product flow (talent, Aardman,

distribution deals) Benefiting from at-cost production support from Imageworks

SPE will benefit from the careful structuring of its film slate which focuses on more profitable genres while simultaneously managing

costs


Motion PicturesFranchise Films

Reinvigorating Franchises

Reinvigorating Franchises

New Branded Franchises

New Branded Franchises

Upcoming Sequels

Upcoming Sequels

Spiderman 4

Total Recall

Untitled Bond Film (w/ MGM)

Men in Black 3

21 Jump StreetGirl With the Dragon Tattoo /

Stieg Larsson Novels

Karate Kid 2 The Lost Symbol (in development) / Dan Brown Novels


Divisional Details

Digital Productions


Digital ProductionsInvesting in family-friendly animated films and leveraging Imageworks’ capabilities

Cloudy 2The Smurfs Arthur Christmas

The Pirates! Band of Misfits• Refocus SPE’s slate to incorporate family product; had previously been limited

• Develop high-margin, family-friendly franchises through SPA Diverse slate featuring high-end CG-animated films (e.g., Arthur Christmas, Hotel

Transylvania) and live-action hybrids (e.g., The Smurfs) Create compelling content that effectively showcases the 3D experience

• Benefit from Imageworks’ leadership in quality while controlling production costs

Continue to use 3rd party visual effects work as a means to lower SPE production cost Alice in Wonderland’s Oscar nomination highlights the quality achievable in a

significantly restructured business, and has created opportunities for large 3rd party visual effects work


Divisional Details

Home Entertainment


Home EntertainmentExecutive Summary

• Driving consumer spending on more profitable models (Blu-ray, VOD, EST)

• Creating compelling consumer offerings through Sony United initiatives

• Getting economies of scale through the creation of joint ventures in key territories

The new distribution models SPE is currently exploring will be critical to success in the changing home entertainment market


Home EntertainmentMarket Summary

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

06 07 08 09 10 11F 12F 13F 14F

0

5

10

15

20

25

06 07 08 09 10 11F 12F 13F 14F

US Home Entertainment Market(Transactions1)

US Home Entertainment Market(Consumer Revenues1,2)

Trx(Billions)

Dollars(Billions)

Rental

Sell-Through

Rental

Sell-Through

Source: Screen DigestNotes: 1. Does not include Netflix streaming

2. Beyond decline in consumer sell-through revenues, studio economics are being further pressured on underlying wholesale margins

% Rental 71% 71% 72% 74% 76% 78% 80% 80% 81% 37% 37% 38% 41% 42% 45% 48% 50% 52%

Total transactions are slightly increasing but revenue is declining significantly


$15.50

$12.75

$3.29

$1.30 $1.05 $0.88

$0.00

$5.00

$10.00

$15.00

$20.00

EST PhysicalST

VOD B&MRental

KioskRental

Sub.Rental

63

Home Entertainment – Market UpdateOpportunity for Some Recovery via Rise of Emerging Models

SPHE New Release $ Margin per Transaction

RENTALSELL-THROUGH


Divisional Details

Television


TelevisionExecutive Summary

• Strengthening economics of existing businesses by keeping SPT’s slate of original TV series on the air and generating substantial syndication profits

• Pursuing growth opportunities Capitalizing on opportunities with emerging digital players (e.g., Netflix,

Amazon) Expanding in key markets with our branded networks, local and international

TV series development and production ventures, and distribution sales operations

SPE’S investments in television production and networks leave it well positioned to benefit from the global growth in those

businesses


TelevisionU.S. Production – Current Series

• Significant growth in returning series: 75% of 2011/2012 U.S. TV slate is returning series

• Highest volume of primetime series in a decade; #1 producer of returning scripted cable series

69

12

8

14

18

11

10

8 5

9

8

6

11

1617 17 17

22

24

2005 -2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

New Series Returning Series


TelevisionSPT’s Shows

Returning Series New Series

Unforgettable

Franklin and BashHawthorne

Rules of EngagementNate Berkus Necessary

RoughnessBreaking In Drop Dead Diva

Pan AmHappy EndingsShark Tank

JustifiedRescue Me

Re-Modeled

CommunityThe Sing-OffDr. Oz

Damages Substitute

Breaking Bad The Boondocks

The Big C Newlywed Game

Long-Running SeriesDays of Our LivesYoung and the RestlessJeopardy!Wheel of Fortune


TelevisionInternational Production Labels

SPT International Production initially focused on the “Big 5” markets: (UK, France, Germany, Spain, Italy), and has since expanded into 15 countries with 19 companies

Culver City

Miami (Latin America/USH)

Bogota

Buenos Aires

MadridRome

ParisLondon

Hilversum

CologneMoscow

Beijing

Hong Kong

New York

Sao Paolo

Dubai

Beirut

Cairo


TelevisionSPE has 120 Channels Across the Globe

120 Feeds

159 Countries543+ Million HH

22 Languages

Highly successful network brands benefiting from a global infrastructure


CONCLUSION


Conclusion

• We are on track to make our numbers this year

• Expect strong growth over the next three years without monetizations or challenges

• You provided your honest feedback and changes are already being made

• New and exciting programs are being implemented to improve engagement

• We all have a solid understanding of the goals and objectives going forward

• There are some big initiatives under way

• We are the best team around

• Our forthcoming product looks fantastic…


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