Sony Pictures Digital Productions Mid-Range Plan September 15, 2011.
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Transcript of Sony Pictures Digital Productions Mid-Range Plan September 15, 2011.
Sony PicturesDigital Productions
Mid-Range PlanSeptember 15, 2011
FY12 Mid-Range Plan
Strategy
Overview
Sony Pictures Animation
Imageworks
Imageworks Interactive
MRP Financial Projections
StrategyOverview
Digital ProductionsStrategic Priorities
Strategic priorities for SPDP include: Serve as the hub for family films at SPE,
which require a unique sensibility and writing approach
Develop more consistent film output to reduce financial volatility
Produce two franchise-potential films a year (CG animated + live-action hybrid), with flexibility to add a third film if needed:
Success of Smurfs and Cloudy’s strong performance warrant development of those properties as theatrical sequels rather than DTVs
Theatrical sequels perform better than the originals for these films, particularly internationally. On average, international box for animated theatrical sequels has generated 2.2 times the revenue of domestic box since 2004
Expand revenues from merchandising, licensing and promotions to realize full franchise potential of these films
4
Live-action hybrid The Smurfs, released in 2D and 3D on July 29th, has become a worldwide phenomenon. After debuting at #1 in North America after its first five days of release, it has been the top grossing film internationally for four consecutive weekends, and is expected to reach $500MM in worldwide box office by the end of its theatrical run
Digital ProductionsStrategic Priorities (cont.)
Produce shorts opportunistically from theatrical properties to deepen brand awareness pre- or post-theatrical release plus create new revenue streams from the property
Franchise extension The Smurfs : A Christmas Carol will aid sell-through of the film and then broadcast on TV worldwide, generating revenue and sustaining the property awareness in on and off-film years. Consumer Products is also leveraging the short to help re-launch merchandise during the upcoming holiday season
Additional Smurfs, Hotel T and Pirates! shorts are under discussion
Aggressively expand Vancouver to continue to reduce overall costs for SPA and Columbia films in competitive marketplace
Discover additional sources of EBIT through exploring new lines of business that are closely related to the core businesses. Self-fund to significantly reduce these start-up costs
5
CG-animated Arthur Christmas, produced with Aardman Animation, is scheduled for release in 2D and 3D November 23, 2011
CG-animated Hotel Transylvania, starring Adam Sandler in the lead role of Dracula, is scheduled for release in 2D and 3D on September 21, 2012
7
Strategic Focus and ProgressStrategic Focus Progress To-Date
Build profitable franchises from strong brands that can be executed as either theatrical or DTV sequels: High-end CG animated films Mid-tier CG animated films Live-action/animation hybrids
Released live-action hybrid The Smurfs to strong success (#1 film in North America after first five days in release; #1 total international gross for 5 consecutive weekends. Already, Smurfs is the top live-action hybrid family film ever released internationally)
Hotel Transylvania in production Smurfs: A Christmas Carol is produced; 22 minute franchise
extension Released successful DTV Open Season 3 Actively developing Smurfs and Cloudy sequels Several promising projects currently in priority development
based on either well-known brands or concepts with strong franchise potential: Popeye, Familiars and Ninja vs. Samurai
Reduce production budget to compensate for eroding home video market
Reduce production CG animation budget by 10-15%, excluding 3D
Shepherd Aardman relationship CG animated Arthur Christmas in post- production Stop motion Pirates! in post-production Actively developing Pirates! sequel Actively developing Nick Park’s Cavemen United project
Realize fuller set of revenue opportunities
Increase merchandising, licensing and promotional opportunities by working closely with Consumer Products Group
Support Sony Electronics’ initiatives Cloudy, Open Season and Smurfs characters have been key elements in Sony Electronics’ marketing and promotional campaigns. Seek similar opportunities with Hotel T and all upcoming properties
8
Release Schedule
FY12FY12
Q2
Smurfs (Hybrid) (7/29/11)
Q3
Arthur Christmas (11/23/11)
Q4
Pirates (3/30/2012)
Q2
Smurfs (Hybrid) (7/29/11)
Q3
Arthur Christmas (11/23/11)
Q4
Pirates (3/30/2012)
FY13FY13
Q2 Hotel T (9/21/12)
Q2 Hotel T (9/21/12)
FY14FY14
Q2
Smurfs 2 (Hybrid) (8/2/13)
Cloudy 2 (September 2013)
Q2
Smurfs 2 (Hybrid) (8/2/13)
Cloudy 2 (September 2013)
FY15FY15
Q2 TBD Hybrid FY15 (August
2014)
TBD Animation FY15 (September 2014)
Q2 TBD Hybrid FY15 (August
2014)
TBD Animation FY15 (September 2014)
Serve SPA and Columbia as a dependable source of high-quality digital animation and VFX expertise
Further reduce costs by aggressively expanding Vancouver, where we enjoy a 58.4% tax rebate on labor
Maintain industry leadership in innovation and quality
Continue to use large 3rd party projects (e.g. OZ, Green Lantern, Alice in Wonderland ) as a means to reduce SPA and Columbia production cost (less gap cost, shared overhead, shared R&D, stronger talent pool)
Commercialize technology as appropriate to create new sources of revenue
10
Strategy
Imageworks is currently on production on Columbia’s The Amazing Spider-Man, scheduled for release in 2D, 3D and IMAX 3D on July 3, 2012
Imageworks is also currently on production on Men in Black III, Columbia’s other summer 2012 blockbuster, scheduled for release in 2D, 3D and IMAX 3D on May 25, 2012
Aggressively expand Vancouver to fully leverage its 58.4% tax rebate on labor:
Add additional artist groups (color and lighting) and expand size of existing departments
Projected to reach office capacity of 135 employees by February 2012
Plan and execute second-stage expansion to double capacity by the end of CY12
Reduce rates charged by India facility following the buy-out of our partners by the end of FY12
Given the instability of the New Mexico tax rebates and lack of talent, assess closing the Albuquerque facility and shift capacity to Vancouver at the end of FY12
Strategic Objectives – Expand cost-advantaged satellite facilities
11
Imageworks is in pre-production on Disney’s Spring 2013 tentpole, Oz The Great and Powerful. A significant portion of animation and lighting for the show will be produced in Vancouver
Working closely with Culver City, our new Vancouver facility produced a significant share of animation for The Smurfs
ImageworksStrategic Objectives – Large 3rd Party Projects
Continue to target large 3rd party projects (e.g., OZ, Alice in Wonderland, Green Lantern and G-Force) to improve profitability and reduce volatility
Leverage director relationships to generate future business (Sam Raimi, Tim Burton)
Continue to be recognized for industry-leading work, at a competitive price
Oscar nomination for Alice in 2010 (Imageworks’ first since Spider-Man 2 in 2005) was a critical factor in securing the VFX work from Disney for OZ
Imageworks’ accolades during the past year also included a BAFTA and ‘Annies’ nom and a Golden Satellite win for its work in Alice. Imageworks also won a Lumiere Award for its pioneering work in 3D
12
Imageworks is in post-production on SPA/Aardman Animation’s CG-animated Arthur Christmas, scheduled for release in 2D and 3D on November 23, 2012
Imageworks is in production on SPA’s CG-animated Hotel Transylvania scheduled for release in 2D and 3D on November 23, 2012
14
Maximize unique lower-cost synergies with Imageworks to deliver industry-leading support to internal clients at below-market rates
Lower-than-anticipated costs enabled Interactive to rebate $2MM back to SPE Marketing over the past two years
Opportunistically self-fund and explore closely-related, high-margin businesses:
Produce social game based on SPA property, relying heavily on unit’s pre-existing experience in social media as well as gap-time of artists to reduce overall start-up costs
Based on results of first game, expand business by launching a new title each year
Game infrastructure can be re-used by SPE Digital Marketing for other promotional games, dramatically reducing their per-game costs
Expand 3rd party business to continue to reduce overall cost for internal clients, mirroring successful Imageworks’ model
Imageworks Interactive Strategy
Imageworks Interactive designed and produced the web and social media-based campaign for Smurfs, a key element in the film’s worldwide success
MRP Financial Projections
16
SONY PICTURES DIGITAL PRODUCTIONSFY 2012 MID-RANGE PLANREVENUE & EBIT SUMMARY
($000's)
FY 2012 0 FY 2013 0 FY 2014 0 FY 2015
Q2 FORECAST 9/11 MRP 10/10 MRP Variance 9/11 MRP 10/10 MRP Variance 9/11 MRP
NET REVENUESPI $169,774 $155,000 $155,000 $0 $155,000 $155,000 $0 $155,000Interactive 750 1,000 1,000 0 1,250 1,200 50 1,500
Imageworks 170,524 156,000 156,000 0 156,250 156,200 50 156,500Animation 490,909 512,115 805,060 (292,945) 656,632 683,153 (26,521) 686,232TOTAL NET REVENUE $661,433 $668,115 $961,060 ($292,945) $812,882 $839,353 ($26,471) $842,732
EBITSPI $8,000 $0 $0 $0 $0 $0 $0 $0Interactive 400 300 300 0 300 300 0 400
Imageworks 8,400 300 300 0 300 300 0 400Animation (91,700) 73,000 73,000 0 51,200 91,200 (40,000) 88,800TOTAL EBIT ($83,300) * $73,300 $73,300 $0 $51,500 $91,500 ($40,000) $89,200
* FY12 EBIT is currently $10.5M better than ($83.3M) due to improved SMURFS performance.
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SONY PICTURES DIGITAL PRODUCTIONSFY 2012 MID-RANGE PLAN
EBIT RECONCILIATION($000's)
FY12 FY13 FY14
EBIT PER FY12 BUDGET & 10/10 MRP ($101,700) $73,300 $91,500
VariancesImageworks
• EBIT impact on increased work of $14.7M (Green Lantern and Oz) 6,600• Albuquerque rebate - decreased rebate driven by shift of headcount to Vancouver (2,894) (2,986)• Vancouver rebate - increase driven by Vancouver expansion 2,402 3,777• Net Depreciation / Maintenance spending for Hardware / Software - driven by Vancouver expansion 1,453 402 (1,769)• Other, net 147 90 978
Subtotal Imageworks 8,200 0 0
Animation• Removal of FY13 TBD Hybrid (Aug 2012) 7,138 (29,013)• Removal of two FY13 Direct to Video titles (Apr 2012, March 2013) (8,824) (3,571)
• SMURFS performance - $4.3M increased DBO to $140M; $16.3M increased IBO to $325M* 20,642
• SMURFS -lower ITV ultimate ($7.2M) compared to prior year MRP and timing of ITV and PTV flows 9,700 (11,529) (2,162)• PIRATES - ($7.2M) int'l release date shift from FY13 to 3/30/12 (Brazil, France, Italy, Spain, Mexico) and ($6.3M)
domestic release date shift from 4/6/11 to 3/30/11 (13,530) 20,734 (1,968)• ARTHUR CHRISTMAS - increased domestic marketing ultimate by ($7.3M); timing of PTV from FY13 to FY14 (5,922) (5,074) 11,196• HOTEL T - ultimate adjustment from $125M DBO to $120M DBO and timing of DHE flows (6,206) 3,795• CLOUDY 2 - delayed timing of pre-marketing spend to FY14; ultimate adjustment DBO/IBO to $100M/$175M per J.
Blake from $125M/$156M prior MRP 3,500 (5,631)• SMURFS 2 - primarily net of production cost increase from $90M to $122M and DBO/IBO to $125M/$325M per J.
Blake from $125M/$190M prior MRP 986 (2,958)• FY15 TBD HYBRID & TBD ANIMATION - pre-marketing spend (9,000)• Other, net (690) (725) (688)
Subtotal Animation 10,200 0 (40,000)
TOTAL VARIANCE $18,400 $0 ($40,000)
EBIT PER 9/11 MRP ($83,300) $73,300 $51,500
* FY12 EBIT is currently $10.5M better than ($83.3M) due to improved SMURFS performance.
18
SONY PICTURES DIGITAL PRODUCTIONSFY 2012 MID-RANGE PLAN
RECEIPTS & CASH FLOW SUMMARY($000's)
FY 2012 0 FY 2013 0 FY 2014 0 FY 2015
Q2 FORECAST 9/11 MRP 10/10 MRP Variance 9/11 MRP 10/10 MRP Variance 9/11 MRP
NET RECEIPTSSPI $169,774 $155,000 $155,000 $0 $155,000 $155,000 $0 $155,000Interactive 24,114 25,773 25,773 0 27,932 27,932 0 30,167
Imageworks 193,888 180,773 180,773 0 182,932 182,932 0 185,167Animation 0 0 0 0 0 0 0 0TOTAL NET RECEIPTS $193,888 $180,773 $180,773 $0 $182,932 $182,932 $0 $185,167
NET CASH FLOWSPI $2,600 $200 $2,700 ($2,500) ($1,200) ($1,600) $400 ($200)Interactive 400 600 635 (35) 900 877 23 1,000
Imageworks 3,000 800 3,335 (2,535) (300) (723) 423 800Animation (216,800) (244,100) (260,800) 16,700 (257,600) (258,000) 400 (247,000)TOTAL NET CASH FLOW ($213,800) ($243,300) ($257,465) $14,165 ($257,900) ($258,723) $823 ($246,200)
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SONY PICTURES DIGITAL PRODUCTIONSFY 2012 MID-RANGE PLAN
CASH FLOW RECONCILIATION($000's)
FY12 FY13 FY14
CASH FLOW PER FY12 BUDGET & 10/10 MRP ($245,600) ($257,465) ($258,723)
VariancesImageworks• Increased receipts due to increased work 14,700• Increased overhead disbursements to support increased work (10,000)• Timing of India buyout from FY11 to FY12 (1/3 of remaining interest) (1,800)• Decreased salary & fringe due to lower average artist salaries (Vancouver labor savings) 1,131 3,233• Albuquerque and Vancouver Rebate 3,357 (1,033)• Capital expenditures (3,800) (1,800)• Removal of prior year MRP challenge (3,188)
Subtotal Imageworks 2,900 (2,500) 400
Animation• Removal of FY13 TBD Hybrid 35,292• Smurfs - NY tax rebate delayed from prior MRP FY12 to FY13 12,300• Arthur Christmas and Pirates - UK rebate delayed from prior year MRP FY12 to FY13 11,766• Timing of participation/financing payments (6,925) (4,022)• Timing of pre-production spend (3,611)• Net, other 533 232 423
Subtotal Animation 28,900 16,665 423
TOTAL VARIANCE 31,800 14,165 823
CASH FLOW PER 9/11 MRP ($213,800) ($243,300) ($257,900)