CONFIDENTIAL

Corporate Development Update

Finance Off-site

June 10, 2011Updated as of

3 June 11, 7pm

Discussion Topics

• Corporate Development

– M&A Strategy

– Recent Activity

– Current Activity

• Margin Analysis

page 2

CONFIDENTIAL

You may have heard we sold some things…

page 4

and some others we will review shortly…

TRUE!

FY07 FY08 FY09 FY10

(Put)

/ FUN

FY11

CONFIDENTIAL

You may have heard we have some earnings pressure…

• The economics for filmed entertainment have changed in recent years . . .

• Consumption patterns in Home Entertainment have changed–Consumers are “trading down” from purchase to rental generally, and within rental

from high-margin “in store” rental to low margin subscription and kiosk–DVD new release sell-through is down 43% from its peak in 2006–Catalog revenues are down double digits–[HE represented 26% of Da Vinci Code’s Operating Contribution(1); 23% for Angels

and Demons]

• Studios are responding by decreasing film costs, but they remain high and the cost of capital is increasing

• SPE faces its own unique challenges (at least in the near-term)–Our current-year film slate is smaller than normal and lacks a traditional franchise–Our animated films are in “investment mode” this year–Our TV “annuities” generate significant profit, but face pressure as they age

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As a result, it has been difficult to achieve EBIT targets without transactions

TRUE!

(1) Operating contribution is defined as profit before P&A, production cost and participations and residuals.

But, it’s not all bad news…

• SPE has been taking action to improve margins–Better containment of capital costs for films

• High margin Home Entertainment models are growing and we’re encouraging that–Higher margin digital product (EST and VOD) is growing at 12% and has potential to

accelerate with early window offerings

• Our film slate looks strong in FY13, with several major tentpoles

• Television continues to experience growth–Networks are expected to add $100MM of EBIT between FY11 and FY13–International TV production is expected to add $30MM of EBIT in the same period

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Our profits are set to expand and we have the potential

$221 $121

$225

($62) ($33) ($20)

$500

($4)

$244

$513

$378

$605

$276 $265

$411

$275 $159

$88

$205

($100)

$100

$300

$500

$700

$900

FY01A FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12 Budget

FY13 MRP

Overall SPE Operating EBIT Restructuring Charges TBD

SPE Overall EBIT without Monetizations Identified

page 8

($Millions)

How the trends translate to performance

Recent history:EBIT is moving in the

wrong direction

Near-term pressure and a need for transactions, mid-term opportunity and growth

CONFIDENTIAL

Is that the only reason we sold?…

It makes sense to sell assets when . . .

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• We can sell an asset without damage to our core business– Passive economic interests– Minority interests with limited control

• The deal is right– Eager buyer– Attractive valuation; more than we can be certain to extract by holding the asset– In some cases, generate significant gain while selling very little future EBIT

• In some cases, we can solve a problem– Resolve a complex and/or contentious operating relationship with a partner

. . . and we’ve had several deals that met these criteria in the last few years

NO!

Examples of sales

page 11

THE BASICS WHY IT MADE SENSE FOR SPE

HBO Central Europe

Sale of a 33.3% stake in HBO Central Europe

Stake was non-controlling, not consolidated and partner was an eager buyer

Kirch MediaSPE had a large receivable from Kirch which was in bankruptcy and held an auction among banks to buy it

Able to monetize an asset which had no real value to SPE

HBO Latin America

Sold 21.2% of our 29.4% stake in HBO Latin America

Like HBO Central Europe, stake was non-controlling, not consolidated and partner was an eager buyer

GSN / FUN Moved from a 50% stake in GSN to a 35% stake (which was combined with FUN)

Deal created potential to eventually exit a business that had 50/50 governance, disagreements over management, and a partner willing to exit

HBO Latin America - Put

Exercise put to sell remaining 8.2% stake Completed the exit begun with the initial sale

GSN (FY11) Details following…

GSN: Getting a near term gain AND investing for the future

Increased SPE’s ownership of a U.S. cable network focused on game show content, with online games and an online ad network

(1) Based on unaudited actuals.

OVERVIEW

page 12

This was not a sale

Deal provided SPE with management control of GSN and a path to majority ownership; thus, SPE was able to consolidate GSN

CONSOLIDATION

Under IFRS, these circumstances allowed SPE to revalue and take a gain on the 35% of GSN that it owned pre-transaction

ONE TIME GAIN

GSN: Not the channel you thought you knew

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Target Demo

Online Presence

Programming

Growth• CY10 Revenue $233MM

• CY10 EBIT $71MM

PAST YE 2010

• CY07 Revenue $126MM

• CY07 EBIT $15MM

• Producing compelling originals/reformats

• Acquiring highly rated off-network series

• Licensing from SPT, 2waytraffic, Embassy Row

• Reliance on older library product

• Original programming less compelling or appealed to a non-core demo

• Skill-based cash competitions

• Casual and ad-supported games

• Advertising network

• Limited online game options on GSN.com

• Embracing older female demographic• Focus on young men

Why sell and then buy?

• Historically, SPE and Liberty each owned 50% of GSN and maintained 50/50 governance; this structure had inherent challenges

– Prohibits either party from consolidating

– Contributed to stalemates that delayed the agreement to hire new management in 2008

• Liberty needed GSN as a strategic asset; showed no willingness to sell its stake

• In April 2009 SPE sold 15% of GSN to Liberty and instituted a buy/sell mechanism while leaving 50/50 governance in place

• Later, Liberty spun out DIRECTV including its interest in GSN

• Recently, SPE has expanded its U.S. network presence to include interests in three channels, in addition to GSN

• GSN has continued to increase its profitability

• DIRECTV indicated willingness to sell all or part of its stake in GSN and cede management control

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GSN: Benefits for SPE

• Strengthens SPE’s presence in U.S. cable networks

• Enables SPE and GSN to further benefit from SPE’s light entertainment assets

• Timing right given DIRECTV was a willing seller

• Acquiring management control of GSN allows SPE to consolidate, and is expected to increase EBIT (by up to $38MM per year by FYE14) and cash in future years

• SPE was able to recognize a step-up gain at close of $334MM

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STRATEGIC

FINANCIAL

GSN: Deal highlights

• SPE increased its ownership interest in GSN from 35% to 40% and gained management control

– Purchased incremental 5% for $60MM, however net cash impact was only $9MM due to consolidating cash from GSN

• DIRECTV was issued a put for an additional 18% of GSN; if not exercised, SPE was granted a call for the additional 18% of GSN

– Put or call option will be valued based on prior year company performance

• A buy / sell mechanism is in place for SPE’s and DIRECTV’s remaining interests in GSN creating a path to exit

• By consolidating, we stepped-up our basis and recognized a one-time gain of $334MM

page 16

The deal structure would allow SPE to consolidate GSN in the near-term while delaying the majority of the cash payment to future years

($4)

$244

$513 $378

$605

$276 $265 $411

$275 $221 $121

$225 $285

$7

$516

$57

$50

$7 $52

$187

$70 $330

$375 $160

($62) ($33) ($20)

$281 $251

$1,029

$435

$655

$283 $317

$598

$345

$489 $463

$365

$500

($100)

$100

$300

$500

$700

$900

$1,100

FY01A FY02A FY03A FY04A FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12 Budget

FY13 MRP

Overall SPE Operating EBIT Monetizations Restructuring Charges TBD

Note: Monetizations incl one-time events/sales of int’l networks (SET India, E!, HBO, Cinenova, Viva, TMC), GSN, Telemundo, KirchMedia, Netflix, Bohbot, and Studio Asset FY09 and FY10 include restructuring charges

SPE Overall EBIT with Monetizations Identified

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($Millions)

Deals like those enabled SPE to hit challenging targets in recent years

Monetizations have become a meaningful portion of total EBIT

Deals made strategic sense and addressed earnings pressure

CONFIDENTIAL

What’s in process?

Spider-Man Merchandise: Why we’re exploring this

So why sell anything? This hits the key criteria

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However, it does require selling an ongoing, although admittedly volatile and risky, revenue stream

• We can sell an asset without damage to our core business– Passive economic interests

• The deal is right– Eager buyer– Fair valuation; paid at historic peak levels if we perform in-line with history

• Solve a problem– Resolve a complex and/or contentious operating relationship with a partner

Spider-Man: Existing relationship

25%

5%

Marvel pays SPE 25% of all Spider-Man merchandise revenue

SPE pays Marvel 5% of Gross Proceeds(1) from Spider-Man films

The above results in an average annual net positive participation to SPE

(1) Gross film revenue (incl. only 30% of video revenue) less MPAA dues, theatrical checking/collection costs, foreign withholding, taxes and residuals.

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Spider-Man: SPE historical net participations

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Source: SPCP, SPE Legal and SPE CorpDev analysis.Note: Excludes audit adjustments.

Net proceeds to SPE will fluctuate relative to the timing of a Spider-Man film release

($Millions)

S-M 1 S-M 2 S-M 3

Spider-Man: Benefits for SPE

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• SPE would recognize an estimated one-time gain of approximately $200MM (specific level subject to 3rd party valuation, which is in progress)

• Creates more certainty for SPE with respect to the value of Spider-Man merchandise

• Simplifies a complex relationship between SPE and Marvel

STRATEGIC

FINANCIAL

Spider-Man: Deal highlights

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• $175MM upfront payment to SPE

• Up to $35MM in contingent payments to SPE per film released

– Pro-rated from $0 at $0 of WWBO to $35MM at $1B of WWBO

– Cap of $130MM in cumulative per film payments per decade

• Elimination of Marvel’s participation in Spider-Man films

• Specifics of revised operating relationship TBD, but believe that both parties will seek resolution on:

– Decreasing Marvel’s oversight of SPE’s film production

– Decreasing SPE’s controls over Marvel’s merchandise efforts

FINANCIAL TERMS

REVISED OPERATING STRUCTURE

CONFIDENTIAL

Where do we go from here?

Let’s recap

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• We completed monetizations when:

– The right deal was on the table (right value, right counter-party, limited long-term EBIT impact, attractive near-term impact)

– Our business faced significant economic pressures

• We are likely to complete another transaction this year as the right deal is available and we face continued pressures

• But the cost of sales is rising and its harder to meet the criteria we discussed

FY07 FY08 FY09 FY10 FY11 FY12

KirchMedia Settlement 52 142

HBO Asia 30

E! Channel Latin America 9

HBO Central Europe - Spektrum Sale 25

HBO Latin America - "Do Nothing" Fee 45

GSN Transaction (FY10)(1)85

HBO Latin America / HBO Central Europe 200

GSN Transaction (FY11) 334

HBO Latin America 41

Shine 27

Spider-Man Merchandising 160

52 181 70 285 375 187 Recently:

(20 - 30)

"Sold" = (60 - 72)"Bought" = ~40

-

(8)

(22)

~40

(3 - 5)

(5)

NM

Lost FutureAnnual EBIT

-

(1)

(1)

One time monetizations are increasingly at a cost to future EBIT

Source: SPE Finance.(1) Recognized for ASPIRE in FY09.

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($Millions)

Deals also need to contribute to long-term growth

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• As our business begins to expand, the emphasis is shifting to acquisitions that:

– Expand in the highest margin, fastest growing segments of our business

– Diversify our revenue and profit streams

– “Buy EBIT,” using transactions to supplement steady-state earnings rather than create one-time gains

• Several acquisition categories and specific opportunities are being explored now– Careful prioritization is important given capital requirements, competing deals within

Sony, and increasing levels of goodwill associated with deals

Acquisition potential in key areas

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TELEVISION PRODUCTION

TELEVISION NETWORKS

FILM PRODUCTION

Higher Likelihood

• International network profits are growing quickly, in large part driven by acquisitions

• The UK, a key territory, remains a gap for SPE

• Acquisitions in key territories build on existing infrastructure; feed formats to and accept formats from the US

Higher Likelihood

• Proven track record of growth and a key driver going forward for all media companies

• We have a well-established infrastructure that we can leverage in adjacent (or regional) markets

Lower Likelihood

• While the business is core, we have a full-scale operation today; there are limited attractive opportunities to acquire

India ETV: A bouquet of six regional channels across multiple languages

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• Second largest TV network in Southern India and amongst the top five most viewed networks in the country

• All of ETV’s regional general entertainment channels rank among top 3 in their respective markets

• The flagship Telugu channel is ~15 years old; other channels have been operating for roughly 7-10 years

• Movie library of approximately 3,500 movies in 9 regional languages

MSMSPE/ETVETV

India ETV: Why buy

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GROWTH

DIVERSIFICATION

EFFICIENCIES

• Indian regional channels represent a rapidly growing market in terms of both viewership and ad spend

• The number of regional channels grew by 18.4% in 2009 (more than twice the growth rate of Hindi or English channels over the same period)

• Strengthens MSM’s OneAlliance distribution bouquet, making it more compelling throughout the country

• Regional channels create opportunities with local advertising

• Will further leverage existing infrastructure for ad sales, distribution and management services

India ETV: Deal highlights

SPE is exploring several different acquisition scenarios; the most likely includes the following terms:

•SPE would acquire 68% equity in ETV’s general entertainment channels

– SPE expects to consolidate ETV earnings based on proposed majority ownership and board representation, SPE budget approval rights, and control over hiring/firing of key executives

•Exit options available to Reliance for its remaining 32% shareholding

– An IPO initiated by SPE after the 3rd anniversary of closing and concluded by the 5th anniversary of closing

– If IPO does not occur by end of year 5, Reliance can put its shares to SPE

We are also exploring acquiring 100% of the company with a new partner

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CONFIDENTIAL

Margin Analysis

"Work with business units to drive profits and investments by product margin”

Examples of limitations on visibility into fully-loaded margins

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Limitations Resulting Challenges

• Corporate costs are not easily allocated • Limited visibility into bottom line contribution of Film and TV

• Greenlights are often reviewed without fully loaded costs

• Some costs reside with the product owner and are not always communicated to a revenue-generating organization

• If inventory risk on distribution deals is not properly communicated, SPHE may not structure the best deals

• Participations and residuals on thin margin product (catalog, WAG) could put product into a loss

• Some costs reside with a service organization, are driven by decisions of a distribution organization but are passed back to product owner

• SPHE’s incentive to drive up gross profit may not factor in WPF costs that are passed back to other product owners

FY13F ContributionFilm TV Film TV

MPG & SPT Operating EBIT $305 $485 39% 61%

WWAG + Digital Productions EBIT 167 0Move Starz to Film 50 (50)

$217 ($50)

Film and TV Before HE & Corp OH $522 $435

HE OH Allocation (1) (48) (2)Corporate OH (1) (267) (145)

($315) ($147)

EBIT After Corporate OH $207 $288 42% 58%

Are these the right allocation methods, and how much do they vary year-to-year?

SPE EBIT with all costs allocatedExcluding monetizations and restructuring charges

(1) Allocated based upon revenue.

WWAG and Digital are counted as film;

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Starz fees are allocated to film;

unallocated HE is allocated based on revenue;

and corporate is allocated based on revenue… 

The bottom line contribution is similar

IF:

Decisions impacted by full understanding of margins

• Allocation of investment capital between Film and TV

• Home Entertainment sales strategy and cost management

– Managing distribution titles to account for inventory risk where appropriate

– Rationalizing lower margin SKUs that may be profitable before participations, residuals, and WPF, but generate losses once fully loaded

– Better evaluate the profitability of scan-based trading

• Reviewing greenlights on a fully-loaded basis to ensure each slate will cover the associated overhead

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Action items

• Determine what items we want to look at on a fully loaded basis

• Catalog types of decisions that would be impacted

• For hard costs not owned by sales organizations, identify communications (formal, informal, systems-based) that better relay necessary cost information

• For allocated costs, determine appropriate methods of allocating costs

• Agree on these allocations with key stake holders

• Factor fully-burdened profits into key decisions

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CONFIDENTIAL

Q&A