MSM India
OTT Joint Venture Investment OverviewSeptember 4, 2013
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Executive Summary MSM has an opportunity to invest in a new joint venture company (JVCo) being formed with Network18
Media & Investments Limited (Network18) to own and operate in.com, an over the top online video (OTT) platform
– One-stop entertainment portal that includes movies, TV series, original series and user generated videos
– Available on all digital platforms both within India and to Indian expats globally
– Balanced revenue model with SVOD, TVOD and advertising Network 18 is an Indian media and entertainment company with operations in TV, internet, film, e-
commerce, magazines and mobile content including:– Several news channels including CNBC-TV18, CNBC Awaaz, CNN-IBN
– A joint venture with Viacom which owns several entertainment channels including Colors, MTV, SONIC, Comedy Central, VH1, Nick, Nick Jr. and Nick Teen
– A joint venture with A+E Networks which owns HistoryTV18 MSM proposes to acquire a non-controlling 26% equity stake in JVCo with a capital commitment of $10.1M
based on the Proposed Business Plan – Capital commitment will be partially offset with license fees MSM will receive for its contributed content
– Under the Proposed Business Plan, the key financial metrics to JVCo and to MSM are as follows:
Key Financial MetricsDiscount Rate of 12%, Terminal Value Exit at 15x EBIT JVCo MSMDeepwater ($38.4) ($4.4)Post-Tax NPV $31.4 $18.9Post-Tax IRR 45% 93%
Notes:
1. FX rate of 55 INR/USD
2. Assumes transaction closes on October 1, 2013
3. MSM Perspective includes fees received for licensed content
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Summary of Proposed Deal Structure and Material Terms
MSM proposes to acquire a non-controlling 26% equity stake in JVCo with a capital commitment of $10.1M based on the Proposed Business Plan
– Deal assumes Network18 will own the remaining 74% of JVCo however A+E Television Networks could make a 15% - 20% investment in JVCo and reduce Network18’s stake
– Network18 has an option to sell an additional 15% stake in JVCo to another potential partner with MSM’s express written consent
JVCo has a proposed Initial Term of 5 years– JVCo shareholders may sell their stakes in JVCo after the Initial Term subject to a right of first refusal by the remaining
shareholders
JVCo will have a Board of 7 directors with 2 directors selected by MSM JVCo will acquire the domain name ‘in.com’ from Network18 for a value of $5.5M
Network 18
JVCo
26%76%
MSM
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Proposed JVCo Business Plan
Notes:
1. FX rate of 55 INR/USD
2. Assumes transaction closes on October 1, 2013
FY14 - FY18
USDm FY14 FY15 FY16 FY17 FY18 Total
REVENUES
Subscriber Revenue 0.3 1.9 5.4 12.4 20.6 40.6
Net Advertising Revenue 0.7 3.5 10.3 23.4 43.9 81.7
Other Revenue 0.4 2.3 5.7 11.3 19.3 39.0
TOTAL REVENUES 1.4 7.8 21.3 47.0 83.8 161.3
EXPENSES
Content Cost 2.0 7.1 15.2 28.6 48.1 100.9
Technical 1.0 3.0 7.8 12.2 14.9 38.9
Marketing 2.0 4.2 4.4 4.0 3.7 18.4
Payment Fees 0.1 0.5 1.1 1.7 2.5 5.8
Personnel 1.0 2.1 2.4 2.7 3.0 11.2
General & Administrative 0.3 0.9 1.5 2.3 3.7 8.7
TOTAL OPERATING EXPENSES 6.4 17.7 32.3 51.5 75.9 183.7
EBITDA (4.9) (9.9) (10.9) (4.5) 7.9 (22.4)
Depreciation & Amortization 1.0 2.0 2.0 2.0 1.0 8.0
EBIT (5.9) (11.9) (12.9) (6.5) 6.9 (30.4)
Taxes - - - - 1.3 1.3
NET INCOME (5.9) (11.9) (12.9) (6.5) 5.5 (31.7)
NET CASH FLOW (7.9) (12.9) (11.5) (6.0) 4.3 (34.0)
CUMULATIVE CASH FLOW (7.9) (20.8) (32.4) (38.4) (34.0)
Fiscal Year Ended March 31
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Financial Impact to MSM
MSM Perspective – EBIT Impact During Proposed Business Plan Period
MSM Perspective - Cash Flow Impact During Proposed Business Plan Period
Cumulative Cash Flow Breakeven Expected by FY17
To determine the impact to MSM’s investment earnings, license fees for content contributed by MSM was included
FY14 - FY18
USDm FY14 FY15 FY16 FY17 FY18 Total
MSM EBIT IMPACT
MSM Share of Net Income (1.5) (3.1) (3.4) (1.7) 1.4 (8.2)
MSM License Fees 0.1 1.0 2.9 6.4 11.8 22.2
INCREMENTAL ANNUAL EBIT TO MSM (1.4) (2.1) (0.4) 4.7 13.2 13.9
Fiscal Year Ended March 31
FY14 - FY18USDm FY14 FY15 FY16 FY17 FY18 TotalMSM CASH IMPACT
MSM Share of Net Cash Flow (2.1) (3.4) (3.0) (1.6) 1.1 (8.8)
MSM License Fees 0.1 1.0 2.9 6.4 11.8 22.2 INCREMENTAL ANNUAL CASH FLOW TO MSM (1.9) (2.4) (0.1) 4.8 12.9 13.3 CUMULATIVE CASH FLOW (1.9) (4.3) (4.4) 0.4 13.3
Fiscal Year Ended March 31
