Sony Pictures Digital Productions MidRange Plan October 6
Sony Pictures Digital Productions Mid-Range Plan October 6, 2009
FY 10 Mid-Range Plan ü Strategy ü Overview ü Sony Pictures Animation ü Imageworks Interactive ü MRP Financial Projections ü Financial Appendix
Strategy Overview
Digital Productions Strategic Objectives n SPDP’s strategic objectives are: n Produce financially successful CG animated films at a significantly lower cost than either Pixar/Disney or Dreamworks n Remain a VFX leader and serve as a ‘net cost’ resource for Columbia
Digital Productions Strategic Benefits to the Studio n Digital Productions benefits the studio’s: n n n Overall release strategy n SPA’s family-oriented animated and hybrid films are critical to SPE in a challenging industry environment (family constitutes 5 of the top 10 films to date in 2009) n Cloudy’s box office success indicates the potential for these films Profitability n Imageworks’ 3 rd party VFX business lowers production cost and increases quality for SPA and Columbia Marketing n Imageworks Interactive continues to deliver industry-leading sites and digital campaigns to internal clients at below market costs
Digital Productions Overview n Challenges for SPDP include: Achieving consistent level of SPA output, while managing pre-greenlight costs n Continued price pressure on Imageworks as studios seek to contain costs n Continue to shift Imageworks’ workforce to lower cost satellite facilities n
Sony Pictures Animation Why Family and Why Animation? n Family is one of the most popular global genres in theatrical and DVD markets n In success, CG animated films retain the upside n CG animated family films lend themselves to theatrical or DVD sequels, which tend to have high margins n Live-action hybrids can also have significant, high-margin revenue upside (e. g. , Alvin & the Chipmunks)
Sony Pictures Animation Strategy & Progress Strategic Focus Create diverse production slate featuring: n High-end CG films n Mid-tier CG films n Live-action hybrids n Direct-to-Video (DTV) Progress To-Date n n n Season 3 n Considering ideas for Cloudy sequel Identifying other films from several promising projects currently in priority development Completed significant development deals n Arthur Christmas and Pirates! have been greenlit n n Shepard Aardman relationship Released high-end CG Cloudy to early box office success; Hotel Transylvania in pre-production Live-action hybrid Smurfs in pre-production Released DTV financially successful Open Season 2; fast-tracked Open n n Mitigate risk of titles in production by seeking 3 rd party financing n Develop ancillary revenue opportunities n Aardman has been collaborating closely with SPA and Imageworks in pre-production on Arthur Christmas Developing future projects to be brought to the U. S. with Nick Park, creator of Wallace & Gromit Continuing to explore financing opportunities Working closely with Marketing to identify significant consumer products licensing opportunities
Strategy – Franchises n n n Even modestly successful theatrical CG animated films can become profitable franchises: Open Season 2 has a 39% profit margin ($23. 8 MM Gross Profit) Direct to Videos (DTVs) can be opportunistically released theatrically overseas, which also enhances their home entertainment performance Open Season 2 & 3 lifts the overall profitability of the franchise to 10. 9% ($48 MM Gross Profit) DTV also provides an excellent training ground for emerging creative talent Cloudy is the next property to be considered for DTV or theatrical release
Sony Pictures Animation Diversified Slate n SPA is focused on these following films in production and pre-production: n Open Season 3: 3 DTV n n n Smurfs: Live-action hybrid (under discussion for 3 D) n n In pre-production Director: Jill Culton; Producer: Michelle Murdocca Arthur Christmas: Aardman, CG animated (3 D) n n n In pre-production Director: Raja Gosnell; Producer: Jordan Kerner (Charlotte’s Web); Script: J. David Stern, David N. Weiss (Shrek 2, Jimmy Neutron); Polish: Audrey Wells (George of the Jungle) Hotel Transylvania: High-end, CG animated (3 D) n n In production Voice Talent: Mike Epps returning as voice for “Boog” (Tentative) In pre-production Directors: Sarah Smith, Barry Cook; Script: Peter Baynham (Academy Award nominee for Borat) Pirates!: Aardman, Stop-Motion (3 D)
Sony Pictures Animation Diverse Slate Development n Changelings: CG animated Director: Brian Pimental; Producers: Kevin Lima & Chris Chase Dark Samurai: CG animated n Director: Jerome Chen; Producer: Michelle Murdocca, Executive Producer: Avi Arad; Writer: Mark Frost Familiars: CG animated n Executive Producers: Sam Raimi, Josh Donen Hip Hop: Live-action hybrid n Producers: Peter Abrams & Andrew Panay (Wedding n n n Crashers) Going South: CG animated n Adam Sandler project Cloudy 2: CG animated DTV n
Sony Pictures Animation Development Relationships n Development relationships focus on identifying future films from which other franchises can emerge: n First look deal with Gotham Group n First look deal with Fred Seibert n Development deal with Avi Arad (1 project, 2 pending) n In discussions with Henry Selick n In discussions with Peter Baynham on an exclusive animation writing deal
Sony Pictures Animation Release Schedule Q 2 Q 4 Q 2 § FY 12 FY 11 FY 10 Cloudy with a Chance of Meatballs (09/18/09) § Open Season 3 DTV (Jan 2011) § Smurfs (Hybrid) (7/29/11) § Hotel T (9/20/11) Q 3 § Arthur Christmas (11/11/11) Q 4 § Q 2 § Q 1 TBD Animation FY 13 (9/28/12) Q 3 § TBD Hybrid FY 14 (Hybrid) (5/15/13) Q 2 Pirates (Fall 2012) § TBD DTV FY 13 (Jan 2013) § Q 1 Q 2 § TBD Aardman FY 15 (5/16/14) § Q 2 § TBD Animation FY 15 (9/19/14) TBD Animation FY 14 (9/20/13) Q 4 § § FY 16 FY 15 FY 14 FY 13 Q 3 § TBD Hybrid FY 15 (Fall 2014) Q 4 TBD DTV FY 14 (Jan 2014) TBD DTV FY 12 (Jan 2012) § TBD DTV FY 15 (Jan 2015) TBD Animation FY 16 (9/18/15) Q 3 § TBD Hybrid FY 16 (Fall 2015) Q 4 § TBD DTV FY 16 (Jan 2016)
Development Spending FY 10 -FY 13 n Holding development spend within historic levels while supporting an expanded and diversified slate FY 10 -FY 13 Development Spending Budget ($000) 30, 000 20, 000 FY 11* FY 12* *FY 10 -13 are estimates FY 13* 18, 000 10, 000 FY 10*
Imageworks Strategy n n n Serve SPA and Columbia as a dependable source of digital animation and VFX expertise Maintain industry leadership in quality Become even more price competitive: n n n Bring down overall labor costs further through minimizing artist gap time and recruiting lower cost talent Simplify production technology and standardize software tools to increase efficiency Reduce real estate cost through more efficient use of Imageworks’ space Continue to shift work to satellites in tax and cost advantaged areas (New Mexico and India) while exploring Vancouver in depth as an additional satellite location Continue to use 3 rd party work as a means to reduce SPA and Columbia production cost (less gap cost, shared overhead, shared R&D, stronger talent pool)
Imageworks Strategic Objectives – Columbia Resource n Continue to focus on renewed relationship with Columbia as a critical resource for VFX expertise n n n n All services provided internally are at ‘net cost’ Providing early support for Spiderman 4, including access to character models, pre-visualization and 3 D tests Providing last-minute post-production services for This Is It Produced test for Battle LA Provided resources for Columbia to more effectively evaluate external VFX bids for Green Hornet Serving the studio – and company – as the “go to” resource on 3 D through availability of key staff, technology and facilities Key collaborator on the studio’s digital backbone project
Imageworks Strategic Objectives – Clients and Technology n n Strengthen relationship with large studio clients – Disney and Warner Bros. – increasing the amount of business from these sources as well as improving overall facility utilization Use innovative technology and partnerships to increase efficiency, reduce development costs, and position Imageworks’ technology as the industry standard n n Imageworks’ Open Source initiative, the first of its kind for a major VFX house, has already seen significant adoption Prospective partnership with the Foundry, an industry-leading VFX software developer, creates immediate savings from free or significantly reduced access to their suite of software as well as shared development
Imageworks Strategic Objectives – Satellite Production n Aggressively utilize satellite production to further reduce overall cost and become more price competitive on internal and third party bids n India is well-positioned to do increasing amount of 3 D work n Revenues have increased 32% in FY 10 while costs have been held flat from prior year Note: Prior management negotiated what is expected to be a $2. 5 -$4. 5 MM total payout to minority partners occurring in FY 11 & FY 12 n New Mexico has been fully integrated into bids, taking full advantage of the state tax credit n Substantial share of recent 3 rd party bids for Zookeeper and Green Lantern were based in New Mexico n n SPA productions are also relying on the facility more heavily Explore creation of a satellite facility in Vancouver to take advantage of 50% effective tax credit on labor and deep local talent pool
Imageworks Cost Savings FY 08 -FY 13 n n Imageworks has dramatically reduced non-billable costs by increasing production efficiency and also trimmed non-essential overhead $3 MM ahead of plan in FY 10 FY 08 -FY 13 Non Billable Costs Budget vs. Actuals, ($000) 50, 000 CAGR, FY 08 -FY 13: -38. 6% 46, 152 40, 000 32, 664 30, 000 22, 755 20, 000 12, 007 10, 000 6, 311 4, 000 0 FY 08 Actual FY 09 Actual FY 10 Forecast FY 11 MRP FY 12 MRP FY 13 MRP
Imageworks Revenue Mix FY 10 -FY 13 n Over MRP period, Imageworks becomes less dependent on VFX work relative to prior years FY 0 -FY 13 Imageworks Composition of Revenues, $(000) 150, 000 134, 856 100, 000 90, 000 75, 000 90, 000 80, 000 65, 000 50, 000 65, 000 39, 569 FY 10 FY 11 SPA VFX FY 12 FY 13
Imageworks Interactive Strategy n Deliver industry-leading support to internal clients at below market rates: n n n Continue close collaboration with SPE’s Digital Marketing to assist in development of digital strategy and execute on best of breed sites and campaigns Investigate shifting an appropriate share of workforce to Canada in tandem with Imageworks’ evaluation of building an additional satellite facility Further develop 3 rd party business to reduce overall cost for internal clients while serving as a source of innovation, mirroring Imageworks model
MRP Financial Projections & Headcount Summary
Financial Appendix
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