DRAFT Starz Netflix Considerations FOR SONY INTERNAL USE

[DRAFT] Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY December 1, 2008 ATTORNEY / CLIENT PRIVILEGED Confidential Draft

Executive Summary • We have made progress toward an extension and a framework for Starz’ approach to internet SOD • By delaying the XBOX launch to December 15, we delayed our need to file a TRO until December 12. Our goal is to close a deal beforehand • The terms currently being discussed would: – Extend the output deal through 2016 (currently expires in 2013) – Adjust rate card while retaining bonus payments; generating $160 -$225 MM in annual revenue during the extension – Introduce title caps; but maintain flexibility with regard to slate / title mix – Provide additional benefits (extend VOD to 72 hours, decrease EST price floor) – Address internet SOD, requiring premium pricing and branding with some financial upside opportunity for SPE 1

Overall Deal Parameters Mention moving the home theater window and reducing the price for it? Comments Terms Extension • 3 year extension • Extends beyond current deal, which expires 2013 • Provides Sony security of Pay TV deal through 2016 Value • Annual value in 2014 -2016 of $160 MM - $225 MM • Above market • Specific annual fees depend on slate • $40 MM bonus + 35% rate reduction translates to a roughly 30% decrease in all-in fees Above Market Deal Terms • 50 title cap • $40 MM bonus • Overall rate card • All studios have title caps; ours would be the highest and is distinct from a cap on absolute dollar fees • Although $7. 5 MM below our current bonus, ours would still be the only bonus in the industry • Rate card would be above market, even after reductions Other Benefits • 72 hour PPV/VOD viewing Internet SOD • Premium pricing / access Concessions • Increases value in pre-Pay. TV windows • Reduce Pay 2 EST Floor to $3. 50 • Premium branding • Structure is in the spirit of traditional Pay TV flat fee model; but provides clear definition for “Pay TV on the internet” • Modest incremental fees • Potential additional upside for Sony • 50 title cap • Cap on titles and near-term reduction are non-negotiable for Starz • 12. 5% reduction in rate card 2012 -- 2013 • Pay 1 window is important to Starz but may be negotiable • Expand Pay 1 window (market is 18 months) 2

Revenues for Extension – Fees Per Year (2014 -2016) (1)(2) Annual Revenues in Extension $224 $160 Comments • Total dollar value depends on slate • Low slate compares to a trailing 3 years average of $230 MM – $182. 6 MM fees – $47. 5 MM bonus Footnotes: 1) Does not include potential library deal or incremental digital profits. 2) Low slate assumes volumes in-line with last 3 years experience, high slate assumes volumes in-line with slate used in MRP 3

Starz will Remain a Premium Branded Service [Confirm whether Fios requires 40% premium for Starz] • Starz is bundled with premium services from Cable MSO, Satellite and Telco providers – Packages with Starz are priced roughly 40% above entry-level prices – Starz brand is generally called-out as one of the main value drivers of the upgraded package – Premium marketing approach has led to Starz reaching 17 MM cable / satellite / fiber households • The method for making Starz available digitally will be subject to a similar approach – Packages that include Starz would be above entry-level broadband or subject to an a la carte charge – Starz brand would be specifically called-out as one of the main value drivers of the upgraded package – To ensure Starz Play remains a premium offering, Starz would accept a limit of 30 MM subscribers securing access through non-Cable/Satellite/Telco partners (i. e. , no more than 30 MM subs from services like Netflix, Amazon, Blockbuster) Should we further clarify; this could mean 70 MM subs get access through broadband Providers; 30 MM through sites like Netflix; for an absolute total of 100 MM broadband subs 4

Pricing Starz as a Premium Service Basic Package Est. Current Basic Price Least Expensive Package with Starz Cable (Comcast) “Enhanced Cable” $38. 98 “On Demand Silver” $55. 95 $16. 97 44% Satellite (Direc. TV) “Family Package” $29. 99 “Choice Extra” $34. 99 -$57. 99 (3) $5 -$28 17%-93% DSL (Verizon) (1) “Starter Plan” 1 Mbps $19. 99 “Power Plan” 3 Mbps $29. 99 $10 50% Cable broadband(1) Confirming $33 Confirming $40 -$45 $7 -$12 21%-36% $19. 99 DSL Plus $7. 99 ALC or bundle with $13. 99 website subscription $27. 98 -$33. 98 $7. 99 -$13. 99 40%-70% Area Websites (on top of broadband) Lowest Cost 1 Mbps Broadband Footnotes: 1) Structured as 1 tier above the 1 MB. 2) Average price paid by someone with access to Starz 3) Note, $34. 99 is for first 12 months only Est. Lowest Price with Starz Est. Minimum Add-on Cost for Bundles w/Starz Premium 5

Subscribers included in Caps and Rate Card Total Digital Subscriber Cap d d In IPTV (Fios) Cable Satellite IPTV (Fios) DSL Open internet on a service that feels like cable ed ud Satellite l c Ex cl ed ud Cable All other digital delivery subscribers (including DSL bundle) are subject to 30 MM Cap e ud In cl cl Ex e d u Subscribers Subject to Rate Card All other digital delivery (Amazon, Blockbuster, Hulu) subscribers are subject to a per-sub rate card Confim – is Satellite in this cap? 6

Digital Rate Card Proposal • Starz Proposal: Sample Potential Economics – $2. 0 MM per year over the next 3 years for the Netflix deal – Per sub fee on all “included” subs – Incremental fees are structured as follows: – Cap of $14. 6 MM per year [Confirm Subs] Footnotes: 1) Netflix subs do not count towards rate card until after 3 year settlement. 7

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Potential Response Item Approach Importance “Shadow Economics” Revenue share model which is an approximation Low of the per sub fee rate card proposed by Starz Grow rate card/caps Expands cap limits Low Include DSL subs Expand the sub definition to include DSL subs in the rate card calculation so that fees can be collected Low Increase Netflix value Rationale is to move likely digital fees closer to 5 -10% of traditional license fee deal Medium 9

Timeline of Current and Proposed Windows Pay 1 Triggers Theatrical Release Early Window/ VOD DVD / VOD Day & Date PPV / VOD Standard Pay 1 Window: 15 Mos. + 30 d Black Period (18 months) Home Theater 4 weeks 12 months from theaters (10 months) 8 months from VOD – lets us do early window (3½ months) 6 months from DVD (4½ months) Key: Existing (Requested) 6 months from PPV (3½ months) 10

Discussion Summary • Progress: After solid work Sat, Sunday and Monday, we have made a lot of progress towards closing an extension and resolving how Starz will distribute SOD on the Internet • Extension: Our new deal would go 3 more years -- through 2016 releases. This is a big win, given Paramount doesn't have a deal and HBO is unwilling to take us in (and, they think, legally unable to include us, for antitrust reasons, unless they get rid of another studio) • Bonus/Fees: Our deal is now above market. We maintained our current bonus ($47. 5 m) through the existing term and a obtained a new bonus ($40 m) for each year of the extension period. No other studio has a bonus. Although the pay market is declining and our ratecard will take a reduction, our compensation in the extension continues to be above market • SOD - Internet: – The key elements we needed and got were: Ø (a) Premium Pricing and (b) Distinctive Starz Branding. This maintains the perception of "premium pay", protecting the network window (and also, to a lesser extent, DVD and digital) – Nice-to-haves we got were: Ø (a) a cap on the number Internet users (to maintain premium positioning) and Ø (b) financial participation in the Netflix deal and potential upside from Internet subscriber growth outside of Netflix • Digital Wins: – 72 hour VOD window – Pricing flexibility for EST during Pay 2 (old floor was $6. 95, new floor is $3. 50) – Requested (not agreed yet) carve outs for digital SOD during network window • Volume: Ours is the last studio deal that was uncapped. Starz agreed to the cap we proposed (50 total, including 25 Columbia titles, 15 SPC and 10 other "Acquisitions/rent-a-system"). Our volume has never approached these caps • TRO/Litigation Position Preserved: We persuaded Starz to delay the XBox roll out until 12/15. This means we keep the leverage of seeking a TRO until 12/12, when we'd have to file 11

Internet Service Provider Monthly Rates 12

Consumer Cost Comparison 13