investment in [flixela] deal overviewv... · – features popular romantic comedies, dramas,...

INVESTMENT IN [FLIXELA]

Deal OverviewOctober [_], 2012

[DRAFT]

Executive Summary

SPT Digital Networks has the opportunity to launch Flixela, the premier multiplatform digital network for women in Latin America

• Features premium movies for women A18-44 and follows same business model as Crackle, free ad-supported video on demand (AVOD) anywhere, anytime

• Exploit significant advertiser demand to reach female demographic; alongside Crackle’s male-skewing audience, opportunity to broaden addressable market and provide all-encompassing solutions to advertisers

• Capitalize on window of opportunity to fill market gap and be an early mover for premium AVOD services in high growth Latin America market, forecasted to experience significant increase in broadband penetration and online advertising

• Drive synergies by leveraging Crackle’s ad sales capabilities and backend infrastructure, as well as cross-promotional opportunities across SPT Network’s pay TV channels in region (AXN, SET, SPIN)

• Launch Network in August FY2014 in Brazil and Mexico across web, OTT (BIVL), and mobile (iOS/Android); 2.2mm total uniques/month in Y1 growing to 7.1mm in Y5, and net $2.0mm of revenue in Y1 growing to $15.7mm in Y5

• Including licensing fees and ad sales commission to SPT, investment forecasted to generate a NPV of $8.6mm and IRR of 44% based on a $5.3mm DWM. On a stand-alone channel basis, investment forecasted to generate a NPV of $1.9mm and IRR of 23% based on a $8.0mm DWM

• No FY13 EBIT/Cash impact; total EBIT impact of ($4.0mm) and cash impact of ($4.0mm) in FY14

2

[TBU]

Overview of Flixela

3

• Latin America’s premier digital network featuring movies for women

– Same business model as Crackle:

– Targets female audiences A18-44

– Features popular romantic comedies, dramas, thriller films with strong female leads

• Provide an enhanced movie experience that satisfies advertisers’ demands for a female-focused network

– Capture highly attractive female demographic in Latin America

66% are between ages 15-34(1)

45% prefer web over TV(1)

23% access the internet via mobile/tablet(1)

58% are regular cinema goers(1)

– SPT receives approx. 50% of its online video RFPs targeting a female audience; Crackle’s audience is ~65% male(2)

– Significant interest from consumer product companies including Dove, Pampers, Rexona, Sedal, Bimbo, and Baileys

(1) Source: TGI Global, Crackle MRP Infographic

(2) Source: ComScore.com April

Free to consumer

Ad-supported

Long form content

On-demand

Multiplatform (OTT/mobile/web)

Strategic Benefits to SPT, SPE, and Sony

4

• Be first to market to establish the dominant female-branded digital network in Latin America

• Complements Crackle’s male-focused offering to fully exploit advertisers’ digital marketing demand across demos

• Build a bouquet of digital networks, creating synergies by leveraging:• Existing ad sales infrastructure to enhance upfront and scatter offerings• Crackle’s technology backend with minimal incremental investment• Crackle’s management team to oversee operations

• Leverage SPT’s pay TV Networks in region (SET, AXN, SPIN) to drive brand awareness and enhanced ad sales opportunities • Establish ad barter relationship to drive large scale on-air messaging and cross promotion• Create custom ad sales packages sold across SPT’s portfolio of digital and pay TV networks

• Use key findings from Flixela Latin America launch to rollout brand in other regions (e.g., U.S., Canada)

• Exploit SPT’s library of female-oriented film content to generate incremental returns for SPT’s licensing team

• Utilize ad inventory to market SPE television and film products, as well as Sony consumer electronics

Market Overview

5

● Broadband households are forecasted to grow at a 15.1% CAGR from 2012E to 2016E

● Total broadband penetration is expected to increase from 40% in 2012E to 67% in 2016E

● Watching online video and downloading media are in the top 5 most popular “bandwidth” activities

● [Insert connected device stats]

Source: PWC Media and Entertainment Outlook

● Digital video advertising is forecast to grow faster than total internet advertising (excluding Search) at CAGR of 36% from 2012E to 2016E

● Total internet advertising (excluding Search) is forecasted to grow at a 20% CAGR from 2012E to 2016E

● Opportunity to “expand” the market for digital video advertising and to gain a strong foothold in LatAm

• Advertisers seeking outlets to market on premium long-form content but limited by offerings in market

Video Internet Advertising '12-'16 CAGR: 36%

Internet Advertising (Exec. Search) '12-'16 CAGR: 20%

$216$306

$375$493

$617$751

$925

$1,124

$1,328

$1,547

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E

($ in millions)

Total Internet Advertising (Excluding Search)

Video Internet Advertising, LatAm

● Latin America will experience strong double digit growth in broadband households and internet advertising over the next couple years

Broadband Households '12-'16 CAGR: 15.1%Broadband Household Penetration '12-'16 CAGR: 13.4%

1522

2734

4048

5665

7584

13%19%

24%29%

34%40%

47%54%

60%67%

0%

20%

40%

60%

80%

100%

0

20

40

60

80

100

2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E

LatAm Broadband Households Penetration

LatAm Broadband Households(millions)

Competitive Landscape

6

[TBU]

Opportunity to capitalize on limited premium AVOD content in online market and fill void of a dedicated female-focused online network

• Historically limited female TV options due to the traditional 'machismo' roles men had in society

● Within the past 10 years, Argentina, Trinidad and Tobago, Brazil, Chile, and Costa Rica have all elected female presidents. According to the United Nations, women doubled their presence to over 20% in the region's legislatures between 1990 and 2009

• Strong competition in subscriptions (Netflix, NetMovies) and short form content providers (YouTube and Vevo)

• Terra is primary competitor for premium AVOD content● 12mm unique users on Terra TV, with an average of 1.5bn

videos / year

• Some traditional media portals (e.g. Globo, Televisa) and video leaders (e.g. YouTube, Vevo) retain users for an average of 3 to 9 minutes

• Crackle's average stream is 26 minutes

Source: comScore April

Key Operating Assumptions

7

Distribution

• Launch in Brazil and Mexico: August 2013, Argentina and Colombia: April 2014• Launch on Web & Bivl: August 2013, Android: September 2013, IOS: October 2013, UOL: November 2013• 2.4mm uniques / month in FY 2014E growing to 7.2mm uniques / month in FY 2018E• 2.1 streams / unique in FY 2014E growing to 3.0 streams / unique in FY 2018E (average)• $2.0mm of net revenue in FY 2014E growing to $15.7mm of revenue in FY 2018E

Ad Sales

• [90% sponsorship vs. 10% spot in FY 2014E shifting to 50% sponsorship vs. 50% spot in Y3 and beyond]• Revenue mix: 85% premium, 15% sponsorship revenue in Year 1, Years 2-5: 90% premium, 6% ad network, 4 %

sponsorship revenue• Premium CPMs: Year 1: $35/$30/$25 for OTT/Mobile/Web decreasing to $29/$24/$19 in Year 5• Streams monitized Year 1: 75%/60%/75% for OTT/Mobile/Web. Years 2-5: 85%/70%/85%• 2.9 ads / stream in FY 2014E growing to 3.5 ads / stream in FY 2018E (across all platforms)

Content / Programming

• Content mix: All movies (no TV content is planned)• 90 titles at launch growing at 10% per year to 109 in FY 2018

● Content mix at launch list AAA (6), AA (10), A (34), B/C (38), Drivers (2)• Approx. 40% of content licensed from 3rd parties across forecast period

Operations

• Leverage Crackle’s backend infrastructure• Development capex Year 1: $680k, Years 2-5: $400k/year• Leverage existing management. Hire 15 new employees starting in April 2013E (including 5 ad sales) scaling to 27 in FY

2018E (including 8 ad sales)

Marketing• $1.6mm of annual marketing support• $500k in-kind barter advertising on SPT LatAm cable channels (SET, AXN, SPIN)• $700k in-kind marketing from Sony Electronics and UOL

Summary of Financial Projections($ in thousands)

8 Note: FX rates used in the projections: 2.07 Brazilian reals / $1 US, 13.86 Mexican pesos / $1 US, $4.51 Argentine pesos / $1 US, 1,787 Colombian pesos / $1 US

Year 1 Year 2 Year 3 Year 4 Year 5 CAGRFY 2014E FY 2015E FY 2016E FY 2017E FY 2018E FY'14-FY'18

Revenue:Brazil $1,077 $2,901 $4,718 $5,921 $6,909Mexico 700 2,114 3,445 4,610 5,880Pan Regional 345 774 1,222 1,664 2,114Argentina 0 189 481 651 832Colombia 0 173 365 496 633Other Countries 20 106 209 286 365

Gross Revenue $2,142 $6,257 $10,440 $13,627 $16,733Brazil Sales Tax $153 $413 $672 $844 $985Net Revenue $1,989 $5,844 $9,768 $12,783 $15,748 68%

Growth % -- 193.9% 67.2% 30.9% 23.2%Programming Costs $1,087 $1,601 $2,063 $2,063 $2,664Hosting / Bandwith 87 269 493 703 946Ad Sales Commissions 660 1,756 1,473 1,937 2,393Agency Incentives 298 819 1,369 1,793 2,209Other Cost Of Sales 41 249 391 471 553Total Website / Tech Expense 935 563 566 674 681Total Sales & Marketing 2,039 1,968 2,081 2,203 2,480Total Expenses $5,147 $7,225 $8,437 $9,845 $11,925Gross Profit ($3,159) ($1,382) $1,331 $2,938 $3,823

% Revenue (158.8%) (23.6%) 13.6% 23.0% 24.3%Staff $750 $952 $1,180 $1,345 $1,405G&A 116 141 164 176 180EBIT ($4,025) ($2,475) ($13) $1,417 $2,237

% Revenue 127.4% 179.1% (0.9%) 48.2% 58.5%

Channel Cash Flow ($4,009) ($3,156) ($796) $812 $1,667Cumulative Channel Cash Flow ($4,009) ($7,165) ($7,961) ($7,149) ($5,482)

SPE Cash Flow ($3,470) ($1,832) $435 $2,290 $3,619Cumulative SPE Cash Flow ($3,470) ($5,301) ($4,867) ($2,577) $1,042

Preliminary Valuation Overview($ in millions)

9 Note: Appendix includes detailed background info

METHODOLOGY IMPLIED VALUATION COMMENTS

DCF Channel Perspective(Exit Multiple)

■■

WACC range: 17.2% - 19.2%Conservative 9.0x - 11.0x terminal multiple

DCF Channel Perspective(Perpetuity Growth)

■■

WACC range: 17.2% - 19.2%Perpetuity growth: 2.0% - 4.0%

DCF SPT Perspective(Exit Multiple)

■■

WACC range: 17.2% - 19.2%Conservative 9.0x - 11.0x terminal multiple

DCF SPT Perspective(Perpetuity Growth)

■■

WACC range: 17.2% - 19.2%Perpetuity growth: 2.0% - 4.0%

DCF Perpetuity Growth Method Summary

Cost of Equity 18.2%

Channel View SPE ViewNPV of Cash Flows ($1,918) $4,798NPV of TV $3,845 $3,845NPV Combined $1,926 $8,643IRR 23% 43%DWM ($7,961) ($5,301)

$7.5

$9.9

$1.0

$3.4

$10.1

$13.1

$3.1

$6.1

$0 $3 $6 $9 $12 $15

Enterprise Value

Risks & Mitigants

10

Risks Mitigants

Ad revenue does not materialize as forecasted

• Significant advertiser demand to reach female demographic• Advertising revenue forecast is diversified; no industry represents more than 25% of total revenue

and no client represents more than 7% of total revenue• Crackle LatAm outperformed advertising forecast in business plan (excluding FX adjustments),

demonstrating strength of ad sales capabilities and ability to enter emerging market• High organic market growth: LatAm internet advertising industry (excluding search) projected to

grow from $751mm in 2012E to $1.5bn in 2016E, a 20% CAGR• No significant upfront investment required; ability to manage costs should revenue be slower than

anticipated to materialize

Ability to attract and retain users is less than forecasted

• Marketing budget accounts for customer acquisition costs to support uniques forecast• Cross promotion on SPT owned pay TV channels to enhance reach• Shift mix of content from only movies to incorporate TV product as a retention tool

Unable to compete effectively due to increased

market competition or changes in consumer viewing habits

(e.g., TV Everywhere)

• Unique market positioning as first female-focused online multiplatform network• Void of free AVOD premium content in market; greater competition in subscription and short form

space• Launch on additional OTT platforms with minimal incremental investment to expand distribution

footprint and adjust to changes in consumer behavior

Next Steps

11

9/27 Update with Eric Berger and Drew Shearer

10/1 Update meeting with TC Schultz

Week of 10/1 Incorporate changes to business plan and presentation

End of week at 10/1 Update Andy Kaplan

Week 10/22 Finalize SPE approval process

Sun M on Tue Wed Thu Fri Sat Sun M on Tue Wed Thu Fr i Sat Sun M on Tue Wed Thu Fri Sat

1 1 2 3 4 5 6 1 2 3

2 3 4 5 6 7 8 7 8 9 10 11 12 13 4 5 6 7 8 9 10

9 10 11 12 13 14 15 14 15 16 17 18 19 20 11 12 13 14 15 16 17

16 17 18 19 20 21 22 21 22 23 24 25 26 27 18 19 20 21 22 23 24

23 24 25 26 27 28 29 28 29 30 31 25 26 27 28 29 30

30

September October November

Appendix

12

Detailed Revenue Build

13

% GrowthYear 1 Year 2 Year 3 Year 4 Year 5 Year 2 Year 3 Year 4 Year 5 CAGR

FY 2014E FY 2015E FY 2016E FY 2017E FY 2018E FY 2015E FY 2016E FY 2017E FY 2018E FY'14-FY'18Uniques (Monthly Average)

OTT 27,250 184,473 431,118 702,219 941,309 577% 134% 63% 34% 142%Mobile 159,735 224,373 349,285 603,827 971,487 40% 56% 73% 61% 57%Web 2,087,516 3,310,633 4,733,667 5,120,297 5,225,354 59% 43% 8% 2% 26%Total 2,274,500 3,719,479 5,514,070 6,426,343 7,138,149 64% 48% 17% 11% 33%

Streams / UniqueOTT 2.5x 2.8x 3.0x 3.3x 3.7x 10% 10% 10% 10%Mobile 1.5x 1.7x 1.8x 2.0x 2.2x 10% 10% 10% 10%Web 2.1x 2.3x 2.5x 2.8x 3.1x 10% 10% 10% 10%Total 2.1x 2.3x 2.5x 2.8x 3.0x 11% 11% 10% 9%

Ads / StreamOTT 3.0x 3.2x 3.3x 3.5x 3.6x 5% 5% 5% 5%Mobile 3.0x 3.2x 3.3x 3.5x 3.6x 5% 5% 5% 5%Web 2.9x 3.0x 3.2x 3.3x 3.5x 5% 5% 5% 5%Total 2.9x 3.0x 3.2x 3.4x 3.5x 5% 5% 6% 5%

Revenue (Annual)OTT $42,918 $520,363 $1,334,369 $2,384,834 $3,507,706 1,112% 156% 79% 47% 201%Mobile 84,098 267,918 457,633 868,070 1,532,445 219% 71% 90% 77% 107%Web 1,700,884 5,229,506 8,239,556 9,826,364 11,010,691 207% 58% 19% 12% 60%Display/Sponsorships 314,100 239,300 408,750 547,900 681,750 (24%) 71% 34% 24% 21%Total $2,142,000 $6,257,087 $10,440,307 $13,627,168 $16,732,592 192% 67% 31% 23% 67%

Revenue by CountryBrazil $1,077,000 $2,901,069 $4,718,163 $5,920,695 $6,908,784 169% 63% 25% 17% 59%Mexico 700,000 2,114,335 3,445,009 4,610,200 5,880,372 202% 63% 34% 28% 70%Pan Regional 345,000 773,881 1,222,142 1,663,799 2,114,108 124% 58% 36% 27% 57%Argentina 0 188,857 480,825 650,532 831,513 N/A 155% 35% 28% N/A Colombia 0 172,577 364,689 496,316 632,602 N/A 111% 36% 27% N/A Other Countries 20,000 106,368 209,479 285,626 365,213 432% 97% 36% 28% 107%Total $2,142,000 $6,257,087 $10,440,307 $13,627,168 $16,732,592 192% 67% 31% 23% 67%

Brazil Taxes (14.25%) $153,473 $413,402 $672,338 $843,699 $984,502

Net Revenue $1,988,528 $5,843,685 $9,767,969 $12,783,469 $15,748,090 194% 67% 31% 23% 68%

Note: FX rates used in the projections: 2.07 Brazilian reals / $1 US, 13.86 Mexican pesos / $1 US, $4.51 Argentine pesos / $1 US, 1,787 Colombian pesos / $1 US

Projection Comparison:Crackle US, Crackle LatAm, and [Flixela]

14

[In process]

Programming

15

• 21• A Few Good Men• A League of Their Own• Across the Universe• Almost Famous• Blind Date• Can't Hardly Wait• Charlie's Angels• Closer• Da Vinci Code• Exorcism of Emily Rose• Flatliners• Fun with Dick and Jane (2005)• Groundhog Day• Hitch• Hook• Jawbreaker• Julie & Julia• Kramer Vs Kramer• Made of Honor• Michael Jackson's This Is It• Nick & Norah' Infinite Playlist

• Only You• Panic Room• Resident Evil• RV• Sex, Lies & Videotape• Silent Hill• Single White Female• Sleepless in Seattle• Spanglish• Stomp the Yard• The Big Chill• The House Bunny• The Messengers• The Net• The Prince of Tides• The Quiet• The Sweetest Thing• The Ugly Truth• To Die For• Tootsie• Underworld• What Planet Are You From?

Flixela Sample Programming List

Year 1 Year 2 Year 3 Year 4 Year 5

Programming Titles FY'2014 FY'2015 FY'2016 FY'2017 FY'2018

Flixela

Movie Titles 90 90 99 99 109

Growth - 0% 10% 0% 10%

TV Episodes - - - - -

Growth - 10% 10% 10% 10%

Total 90 90 99 99 109

Crackle LatAm

Movie Titles 151 166 183 201 221

Growth - 10% 10% 10% 10%

TV Episodes 605 666 732 805 886

Growth - 10% 10% 10% 10%Total 756 832 915 1,006 1,107

Market Analysis

16

• Flixela is first to market, no current competition

• Flixela and Crackle LatAm will provide SPT significant shares of double digit growth video advertising markets in Brazil, Argentina, and Mexico

Note: Total Internet Advertising for each country excludes Search

Market Growth Analysis FY2012 FY 2013E FY 2014E FY 2015E FY 2016E FY2012 FY 2013E FY 2014E FY 2015E FY 2016EBrazil ArgentinaMarket - Video Advertising $17 $23 $31 $40 $49 Market - Video Advertising $2 $3 $4 $5 $6Growth % 35% 35% 29% 23% Growth % 50% 33% 25% 20%

Market - Total Internet Advertising $393 $460 $536 $618 $706 Market - Total Internet Advertising $48 $56 $65 $74 $86Growth % 17% 17% 15% 14% Growth % 17% 16% 14% 16%

Flixela - - $1.4 $3.6 $5.8 Flixela - - - $0.2 $0.5Growth % - - 156% 62% Growth % - - - 155%% of Video Advertising Market - 5% 9% 12% % of Video Advertising Market - - 4% 8%% of Total Market - 0.3% 0.6% 0.8% % of Total Market - - 0.3% 0.6%

Flixela & Crackle LatAm 1.8 6.8 13.4 18.6 Flixela & Crackle LatAm - - 0.7 1.6 % of Video Advertising Market 7.7% 21.8% 33.5% 38.0% % of Video Advertising Market - - 14.5% 26.5%

Mexico ColombiaMarket - Video Advertising $6 $9 $12 $15 $19 Market - Video Advertising $6 $10 $17 $24 $31Growth % 50% 33% 25% 27% Growth % 67% 70% 41% 29%

Market - Total Internet Advertising $137 $167 $197 $228 $262 Market - Total Internet Advertising $140 $202 $276 $350 $426Growth % 22% 18% 16% 15% Growth % 44% 37% 27% 22%

Flixela $0.0 - $0.7 $2.1 $3.4 Flixela - - - $0.2 $0.4Growth % - - 202% 63% Growth % - - - 111%% of Video Advertising Market - 6% 14% 18% % of Video Advertising Market - - 1% 1%% of Total Market - 0.4% 0.9% 1.3% % of Total Market - - 0.0% 0.1%

Flixela & Crackle LatAm $1.6 $3.3 $7.0 $9.8 Flixela & Crackle LatAm - - $0.7 $1.2% of Video Advertising Market 17.4% 27.8% 46.9% 51.5% % of Video Advertising Market - - 2.8% 3.9%

Financial Impact to SPE($ in thousands)

17

• Cash flow break even in Year 3

• Cumulative cash flow break even in Year 5


FY 2014E FY 2015E FY 2016E FY 2017E FY 2018E

Aggregate Benefit to SPE

Cash Flow After Taxes ($4,009) ($3,156) ($796) $812 $1,667

Commission to Ad Sales 414 1,140 1,025 1,300 1,612

Ad Sales Expenses (223) (359) (443) (483) (497)

Aggregate Cash Flow to SPT Networks ($3,818) ($2,376) ($214) $1,629 $2,782

Licensing Revenue to SPT $348 $544 $648 $660 $837

% Licensing Revenue to SPT 60.0% 60.0% 55.0% 55.0% 55.0%

Finance Staff Expense

Total SPE Impact ($3,470) ($1,832) $435 $2,290 $3,619

Cumulative Cash Flow ($3,470) ($5,301) ($4,867) ($2,577) $1,042

Discounted Cash Flow Analysis: Channel View($ in thousands)

18

Valuation Summary

WACC 18.2%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10FY'2014E FY'2015E FY'2016E FY'2017E FY'2018E FY2019E FY2020E FY2021E FY 2022E FY 2023E

Unlevered Free Cash Flow ($4,009) ($3,156) ($796) $812 $1,667 $2,199 $1,752 $2,190 $2,628 $3,023PV of Free Cash Flow ($3,392) ($2,259) ($482) $416 $722 $806 $543 $575 $583 $568

Terminal Value Method

NPV of Cash Flows ($4,994) NPVTerminal Year EBIT (FY 2018E) $2,237 Exit MultipleTerminal Multiple 10.0x $4,700 8.0x 9.0x 10.0x 11.0x 12.0x

Terminal Value $22,370 16.2% $3,384 $4,439 $5,495 $6,551 $7,606Present Value of Terminal Value $9,694 17.2% 3,063 4,075 5,086 6,098 7,109% of Enterprise Value 206.3% 18.2% 2,761 3,731 4,700 5,669 6,639

NPV Combined $4,700 19.2% 2,476 3,405 4,335 5,264 6,193IRR 39.3% 20.2% 2,207 3,098 3,989 4,881 5,772NPV Combined as a Multiple of 2014E Revenue 2.4xNPV Combined as a Multiple of 2015E Revenue 0.8xImplied Perpetuity Growth Rate 10.0%

Perpetuity Growth Method

NPV of Cash Flows ($1,918) NPVTerminal Year FCF (FY 2023E) $3,023 Perpetuity Growth RatePerpetuity Growth Rate 3.0% $1,926 1.0% 2.0% 3.0% 4.0% 5.0%

Terminal Value $20,476 16.2% $2,927 $3,289 $3,707 $4,192 $4,764 Present Value of Terminal Value $3,845 17.2% 2,111 2,405 2,740 3,126 3,576 % of Enterprise Value 199.6% 18.2% 1,413 1,654 1,926 2,237 2,595

NPV Combined $1,926 19.2% 814 1,012 1,236 1,488 1,776IRR 23.0% 20.2% 296 461 645 852 1,086NPV Combined as a Multiple of 2014E Revenue 1.0xNPV Combined as a Multiple of 2015E Revenue 0.3xImplied Terminal EBIT Multiple 4.0x

WA

CC

WA

CC

Discounted Cash Flow Analysis: SPT View($ in thousands)

19

Valuation Summary

WACC 18.2%

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10FY'2014E FY'2015E FY'2016E FY'2017E FY'2018E FY2019E FY2020E FY2021E FY 2022E FY 2023E

Unlevered Free Cash Flow ($3,470) ($1,832) $435 $2,290 $3,619 $4,701 $5,000 $6,157 $2,628 $3,023PV of Free Cash Flow ($2,935) ($1,311) $263 $1,173 $1,568 $1,723 $1,551 $1,615 $583 $568

Terminal Value Method

NPV of Cash Flows ($1,242) NPVTerminal Year EBIT (FY 2018E) $2,237 Exit MultipleTerminal Multiple 10.0x $11,416 8.0x 9.0x 10.0x 11.0x 12.0x

Terminal Value $22,370 16.2% $10,687 $11,743 $12,799 $13,855 $14,910Present Value of Terminal Value $9,694 17.2% 10,065 11,076 12,088 13,099 14,111% of Enterprise Value 84.9% 18.2% 9,478 10,447 11,416 12,386 13,355

PV of SPE Cash Flows (2019E-2021E) 2,965 19.2% 8,923 9,853 10,782 11,712 12,641NPV Combined $11,416 20.2% 8,400 9,292 10,183 11,074 11,966IRR 65.8%NPV Combined as a Multiple of 2014E Revenue 5.7xNPV Combined as a Multiple of 2015E Revenue 2.0xImplied Perpetuity Growth Rate 1.7%

Perpetuity Growth Method

NPV of Cash Flows $4,798 NPVTerminal Year FCF (FY 2023E) $3,023 Perpetuity Growth RatePerpetuity Growth Rate 3.0% $8,643 1.0% 2.0% 3.0% 4.0% 5.0%

Terminal Value $20,476 16.2% $10,231 $10,593 $11,011 $11,496 $12,068 Present Value of Terminal Value $3,845 17.2% 9,113 9,406 9,742 10,128 10,577 % of Enterprise Value 44.5% 18.2% 8,130 8,371 8,643 8,953 9,311

NPV Combined $8,643 19.2% 7,261 7,460 7,683 7,935 8,223IRR 43.4% 20.2% 6,490 6,655 6,839 7,046 7,280NPV Combined as a Multiple of 2014E Revenue 4.3xNPV Combined as a Multiple of 2015E Revenue 1.5xImplied Terminal EBIT Multiple 4.0x

WA

CC

WA

CC

Discounted Cash Flow Analysis: Cost of Equity($ in millions)

20

Company HQLevered

Beta Market CapTotal Debt

Debt to Total

Capital

Debt to

Equity

Marginal Tax Rate

Unlevered Beta

Blanco y Negro S.A. Chile 0.28 $63 $0 0% 0% 17% 0.28Blinkx USA 0.49 356 0 0% 0% 40% 0.49Coinstar USA 0.90 1,429 373 21% 26% 40% 0.78Grupo Clarín S.A. Argentina 1.01 432 745 63% 173% 35% 0.48Grupo Radio Centro, S.A.B. de C.V. Mexico 1.18 147 5 3% 4% 28% 1.15Netflix USA 0.70 3,209 400 11% 12% 40% 0.65

Average 0.76 0.64Median 0.80 0.57

AssumptionsUnlevered Beta 0.57 Peer group median. (CapIQ)Calculated Levered Beta 0.57 Levered Beta = Unlevered Beta * (1+[(1-Tax Rate) * Target Debt / Equity Value])Risk-free rate 1.8% Yield of 10 year US Treasury Bond (WSJ, 9/21/12)Market Premium 6.6% Long-horizon expected equity risk premium (Ibbotson's)Company Size Premium 9.8% Decile 10b for companies with market caps between $1 million - $128 million (Ibbotson's)Country Risk Premium 2.9% Weighted average risk premium based on revenue for key markets (Damodaran)Tax EBIT at tax rate of 31.5% Weighted average risk premium based on revenue for key markets (Damodaran)Equity as a Percentage of Total Capital 100.0%Debt as a Percentage of Total Capital 0.0%Cost of Equity 18.2%

Precedent Media Transactions Analysis($ in millions)

21

PRECEDENT MEDIA TRANSACTIONS ANALYSISEnterprise Value /

Announced Target BuyerTarget

HeadquartersTarget Business Description

Enterpise Value

Revenue EBIT

06/04/12 Grupo Clarín S.A. GS Unidos, L.L.C. Argentina

Operates a cable TV network that offers basic pay TV, premium video, pay per view, HD, as well as broadband Internet services. Additional segments include Digital Content segment produces content for the Internet and mobile digital platforms, Broadcasting and Programming $75.0 0.7x 4.2x

04/19/12 New Video Group Vistachiara Productions, Inc. USAOperates as a distributor of independent films, documentaries, and television sports and kids programming through DVD, Blu-ray, downloads, streaming platforms 20 1.6x -

01/31/11 LOVEFiLM Amazon.com UK Online Retail, Online Video 115 - -01/25/11 Dailymotion SA France Telecom France Media technologies / Content delivery / Streaming media 80 6.7x -01/07/11 Qik Skype USA Online Video, VoIP 150 - -12/23/10 Sonic Solutions Rovi Corporation USA Online Video, Production Tools - Media 763 7.0x -10/12/10 Ngmoco DeNa USA Mobility / Mobile content / Entertainment 400 13.3x -09/28/10 5min Inc. AOL, Inc. USA Internet content & commerce / Video 65 - -

09/19/10 Locaweb Serviços de Internet S.A. Silver Lake Partners BrazilOffers Internet solutions that include infrastructure for audio and video streaming, Web hosting, domain registration 68 4.5x -

01/22/10 Dori Media Central Studios S.A. - ArgentinaOperates as a television production company which offers production services and owns production facilities and TV studios 19 0.4x 12.0x

12/04/09 La La Media Apple USA Media technologies / Content delivery / Streaming media 65 - -10/30/09 The Orchard Enterprises, Inc. Dimensional Associates LLC USA Distributes digital music and video products 15 0.25 -

High $763 4.5x 12.0x75th Percentile $124 1.6x 10.0xMedian $72 0.7x 8.1xMean $153 1.5x 8.1x25th Percentile $54 0.4x 6.1xLow $15 0.3x 4.2x

Latin America Public Media Comparables Analysis($ in millions)

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PUBLIC MEDIA COMPARABLES ANALYSIS

Enterprise Value as a Multiple of:

Market Enterprise Revenue EBITDA EBIT

Company Name Headquarters Description Value Value LTM LTM LTM

Blanco y Negro S.A. ChileEngages in the organization, production, participation, and marketing of shows, and professional activities of entertainment and leisure sporting activities $63 $68 2.4x 9.7x NA

Blinkx USA Provides video search and advertising services on the Internet worldwide 356 317 2.8x 24.7x 49.5xCoinstar USA Provides automated retail solutions. Owns and operates Redbox Kiosks - expanding into OTT 1,429 1,480 0.7x 3.4x 5.5x

Grupo Clarín S.A. Argentina

Operates a cable TV network that offers basic pay TV, premium video, pay per view, HD, as well as broadband Internet services. Additional segments include Digital Content segment produces content for the Internet and mobile digital platforms, Broadcasting and Programming 432 1,203 0.5x 2.1x 3.2x

Grupo Radio Centro, S.A.B. de C.V. Mexico Engages in the production and broadcasting of music, entertainment, news, and special event programs 147 147 1.9x 8.4x 9.4xNetflix USA Operates an Internet subscription services for TV shows and movies 3,209 2,796 0.8x 12.3x 15.4x

High $3,209 $2,796 2.8x 24.7x 49.5x

75th Percentile $1,179 $1,411 2.2x 11.6x 15.4x

Median $394 $760 1.3x 9.1x 9.4x

Mean $939 $1,002 1.5x 10.1x 16.6x

25th Percentile $199 $189 0.7x 4.7x 5.5x

Low $63 $68 0.5x 2.1x 3.2x

Headcount Overview

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Headcount Summary


FY'2014 FY'2015 FY'2016 FY'2017 FY'2018

Brazil 1 2 2 2 2

Los Angeles 3 3 3 3 3

Mexico 0 2 2 2 2

Miami 4 6 8 8 8

Women's Channel Headcount 8 13 15 15 15


Mexico 2 2 2 3 3

New York 2 3 4 4 4

Ad Sales Headcount 5 6 7 8 8


Shared Services Headcount 1 1 1 2 2

Miami 1 1 1 2 2

Finance Headcount 1 1 1 2 2

Total Headcount 15 21 24 27 27

Headcount Summary by Position FY'14 (YEAR 1)

Count Title Location Start Date

1 Community Manager Miami 04/01/13

2 Marketing Manager Miami 04/01/13

3 Video Ops Specialist Los Angeles 04/01/13

4 Graphic Designer Los Angeles 04/01/13

5 Web Producer Los Angeles 04/01/13

6 Editor-In-Chief Miami 04/01/13

7 Editorial Specialist Brazil 04/01/13

8 Programming Specialist Miami 04/01/13

9 Community Specialist Brazil 04/01/14

10 Community Specialist Mexico 04/01/14

11 Editorial Specialist Mexico 04/01/14

12 Programming Specialist Miami 04/01/15

13 Marketing Manager Miami 04/01/15

14 Community Specialist Miami 04/01/16

15 Editorial Specialist Miami 04/01/16

16 Digital Sales Planner Mexico 07/01/13

17 Account Executive Mexico 05/01/13

18 Tech Ops Specialist Los Angeles 07/01/13

19 Ad Ops Specialist New York 07/01/13




23 Digital Sales Planner Mexico 04/01/16

24 Account Analyst Miami 06/01/13

25 Account Analyst Miami 04/01/16

Note: Difference in headcount total are the two finance heads which are allocations

User Profile: LatAm Female Demographic

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investment in [flixela] deal overviewv... · – features popular romantic comedies, dramas,...

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