Sony Pictures Digital Productions MidRange Plan September 8
Sony Pictures Digital Productions Mid-Range Plan September 8, 2011
FY 12 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 Significant progress towards meeting strategic goals over the past three years n SPA is executing on its objective of producing financially successful films with franchise potential Gross Profit, SPA Releases FY 10 - Present ($000) 90, 000 WWBO, SPA Releases CY 06 - Present ($MM) Smurfs Margin: 18%** 600 80, 000 70, 000 60, 000 50, 000 40, 000 500 400 Open Season Franchise: DTVs increased original Open Season film margin from 2% to 9% 200 100 7, 640 Open Season 3 (DTV) 1/25/11 26, 305 Open Season 2 (DTV) 1/27/09 76, 700 30, 000 20, 000 0 112. 2 118. 1 90. 2 85. 1 58. 9 Open Season (9/29/06) Surf's Up (6/8/2007) DBO 10, 000 - 360. 0 300 Cloudy Margin: 15%* 7, 440 140. 0 Cloudy (9/18/09) Smurfs (7/29/11)*** IBO 45, 555 Open Season 9/29/06 Open Season Franchise 124. 9 Cloudy (9/18/09) Smurfs (7/29/11) * Note: Cloudy gross profit calculation excludes $47 MM in legacy costs ** Note: Smurfs at current target -- $140 MM DBO, $360 MM IBO; excludes negative co-financier impact on GP (~$8. 0 MM) ***Note: Smurfs target of $500 MM WWBO
Digital Productions Significant progress towards meeting strategic goals over the past three years n Imageworks has dramatically improved its performance by re-sizing the business, increasing efficiency, growing its satellites, improving support for SPA & Columbia and focusing on fewer, larger projects FY 08 -FY 12 Imageworks Revenues vs. EBIT ($000) 60, 000 200, 000 183, 400 50, 000 180, 000 169, 774** 40, 000 30, 000 160, 000 137, 491 146, 324 140, 000 128, 747* 20, 000 9, 020 10, 000 120, 000 5, 826* 8, 000** (10, 000) 80, 000 FY 08 FY 09 FY 10 FY 11 FY 12 (20, 000) 60, 000 40, 000 (30, 000) (40, 000) 100, 000 20, 000 (30, 548) (35, 227) Consolidated EBIT Gross Revenue *Note: Due to lower cost structure to execute on $155 MM revenue business, Imageworks was able to generate a $5. 8 MM GP in a down revenue year **Note: Q 2 Forecast
Digital Productions Strategic Priorities n Strategic priorities for SPDP include: n Serve as the hub for family films at SPE, which require a unique sensibility and writing approach n Develop more consistent film output to reduce financial volatility n Produce two franchise-potential films a year (CG animated + live-action hybrid), with flexibility to add a third film if needed: n n n 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 Work closely with Home Entertainment to realize upside potential for titles like Smurfs that over-perform: n During its first 8 weeks in the U. S. , Despicable Me sold 6. 4 MM units; Alvin & The Chipmunks: The Squeakquel sold 3. 7 MM units. Smurfs has a conservative target of 2. 25 MM units for the first 8 weeks in the U. S.
Digital Productions Strategic Priorities (cont. ) n Expand revenues from merchandising, licensing and promotions to realize full franchise potential of these films n Produce shorts opportunistically from theatrical properties to deepen brand awareness pre- or post-theatrical release plus create new revenue streams from the property n n 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 n Aggressively expand Vancouver to continue to reduce overall costs for SPA and Columbia films in competitive marketplace n 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
Sony Pictures Animation Strategic Focus and Progress Strategic Focus Build profitable franchises from strong brands that can be executed as either theatrical or DTV sequels: n High-end CG animated films n Mid-tier CG animated films n Live-action/animation hybrids Progress To-Date n n n Reduce production budget to compensate for eroding home video market n Shepherd Aardman relationship n n Realize fuller set of revenue opportunities n Support Sony Electronics’ initiatives n 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 4 consecutive weekends. Already, Smurfs is the top liveaction 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 CG animation budget by 10 -15%, excluding 3 D 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 Increase merchandising, licensing and promotional opportunities by working closely with Consumer Products Group 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
Sony Pictures Animation Franchise Development n SPA is focused on these following films in production: n Arthur Christmas: Aardman, CG animated (3 D) n n n Pirates!: Aardman, Stop-Motion (3 D) n n n In post-production Director: Peter Lord Hotel Transylvania: High-end, CG animated (3 D) starring Adam Sandler n n n In post-production Directors: Sarah Smith; Script: Peter Baynham (Academy Award nominee for Borat) In production Directors: Genndy Tartakovsky; Producer: Michelle Murdocca The Smurfs: A Christmas Carol: High-end CG + 2 D (hand-drawn) animation / 22 minute original content value-add piece for Smurfs DVD release and TV n n Recently completed Director: Troy Quane; Producer: Kurt Albrecht
Sony Pictures Animation Franchise Development (cont. ) n Smurfs 2: Live-action hybrid n n Cloudy 2: CG animated n n n Collins) n Director: Doug Sweetland; Co-Director: Fergal Reilly Executive Producers: Sam Raimi, Josh Donen; Writers: Adam Epstein, Andrew Jacobsen Popeye: CG animated (based on the iconic property) n n Directors: Cody Cameron, Kris Pearn; Producer: Kirk Bodyfelt Executive Producers: Phil Lord, Chris Miller; Writers: John Francis Daley, Jonathan Goldstein Familiars: CG animated (based on the book published by Harper n n Producer: Jordan Kerner; Writer: Karey Kirkpatrick Executive producer: Avi Arad Ninja vs. Samurai: CG animated n n Director: Jerome Chen; Producer: Michelle Murdocca Executive Producers: Avi Arad, Ari Arad; Writers: Adam Goldberg, Chris Bishop
Sony Pictures Animation Franchise Development (cont. ) n Muncle Trogg: CG animated n n Planet Pete: CG animated n n n Executive Producers: Sam Raimi, Josh Donen; Writer: Lloyd Taylor Instant Karma: Live-action hybrid n n Executive Producers: Gil Netter, Bridget Mc. Meel, John Glynn; Writer: Kelly Asbury (Gnomeo & Juliet) Kazorn and the Unicorn: CG animated n n Directors: Butch Hartman Executive Producer: Fred Seibert; Writers: Kathyrn Price, Nicole Millard Pooch Café: CG animated n n Executive Producer: Jane Startz Producer Terry Rossio; Writer: Paul Hernandez Raised by Ghosts: Live-action hybrid n Producer: Chuck Gordon; Writer: Mark Perez
Sony Pictures Animation Release Schedule FY 13 FY 12 Q 2 § § Smurfs (Hybrid) (7/29/11) FY 14 Q 2 Hotel T (9/21/12) FY 15 Q 2 § Smurfs 2 (Hybrid) (8/2/13) § Cloudy 2 (September 2013) § TBD Hybrid FY 15 (August 2014) § TBD Animation FY 15 (September 2014) Q 3 § Arthur Christmas (11/23/11) Q 4 § Pirates (3/30/2012)
Imageworks Strategy n Serve SPA and Columbia as a dependable source of highquality digital animation and VFX expertise n Further reduce costs by aggressively expanding Vancouver, where we enjoy a 58. 4% tax rebate on labor n Maintain industry leadership in innovation and quality n n Continue to use large 3 rd 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
Imageworks Strategic Objectives – Expand Vancouver n Aggressively expand Vancouver to fully leverage its 58. 4% tax rebate on labor: n Add additional artist groups (color and lighting) and expand size of existing departments n Projected to reach office capacity of 135 employees by February 2012 n Plan and execute second-stage expansion to double capacity by the end of CY 12 n Reduce rates charged by India facility following the buy-out of our partners by the end of FY 12 n 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 FY 12
Imageworks Strategic Objectives – Expand Vancouver n The growing number of artists in Vancouver will complete an increasingly larger share of work relative to Culver City: Vancouver: Percentage Share of Overall Project Man-Hours, Animation/Color & Light, FY 12 – FY 15 40% 30% CAGR : 44% 30% 25% 20% 15% 10% 7% 0% FY 12 n FY 13 FY 14 FY 15 At the same time, Imageworks has reduced its expensive Culver City real estate footprint (in sq ft) by 44% since FY 08, a net cost reduction of ~$4 MM/year, while increasing density in TCSOB
Imageworks Strategic Objectives – Large 3 rd Party Projects n n n Continue to target large 3 rd 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 n n 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 3 D
Imageworks Strategic Objectives – Make Imageworks technology the industry standard and monetize where appropriate n Use innovative technology and partnerships to increase efficiency, reduce development costs, and position Imageworks’ technology as the industry standard n n Imageworks extends its leadership in Open Source, driving the Alembic partnership with ILM New image-based lighting pipeline lowered costs while improving quality for both Smurfs and Green Lantern Pending adoption of G-Mail will dramatically lower costs while adding significant collaboration tools Exploit opportunities to monetize our technology – e. g. , royalties from Foundry for commercialization of our Katana technology
Imageworks Strategic Objectives – Sony Corp & Columbia Resource n n n Continue to focus on renewed relationship with Columbia as a critical resource for VFX expertise Serving the studio – and company – as the “go to” resource on 3 D through availability of key staff, technology and facilities Services provided included: n n n Senior leadership and resources to support Sony Corp. initiatives in both Culver City and Tokyo Assistance for Columbia 3 D logo, Zookeeper and Here Comes the Boom Custom animation for Smurfs TV marketing campaign (e. g. , characters appearing on America’s Got Talent, Mc. Donalds commercials)
Imageworks Interactive Strategy n n 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 $2 MM back to SPE Marketing over the past two years Lowered costs by relocating business unit to TCSOB Opportunistically self-fund and explore closely-related, high-margin businesses: n 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 n n 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 Produce interactive book based on SPA property, providing higherlevel interactivity in an arrangement with one (or more) publishers as a prelude to opportunistically publishing in-house Expand 3 rd party business to continue to reduce overall cost for internal clients, mirroring successful Imageworks’ model
MRP Financial Projections
Financial Appendix
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