Sony Pictures
Digital Productions
Mid-Range Plan
September 15, 2011
FY12 Mid-Range Plan
 Strategy
 Overview
 Sony Pictures Animation
 Imageworks
 Imageworks Interactive
 MRP Financial Projections
Strategy
Overview
Digital Productions
Strategic Priorities

Strategic priorities for SPDP include:
 Serve as the hub for family films at SPE, which
require a unique sensibility and writing approach
 Develop more consistent film output to reduce
financial volatility
 Produce two franchise-potential films a year (CG
animated + live-action hybrid), with flexibility to
add a third film if needed:


Live-action hybrid The Smurfs, released in 2D
and 3D on July 29th, has become a worldwide
phenomenon. After debuting at #1 in North
America after its first five days of release, it has
been the top grossing film internationally for
four consecutive weekends, and is expected to
reach $500MM in worldwide box office by the
end of its theatrical run

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
Expand revenues from merchandising, licensing
and promotions to realize full franchise potential
of these films
4
Digital Productions
Strategic Priorities (cont.)

Produce shorts opportunistically from theatrical
properties to deepen brand awareness pre- or
post-theatrical release plus create new revenue
streams from the property

CG-animated Arthur Christmas, produced with
Aardman Animation, is scheduled for release in
2D and 3D November 23, 2011



CG-animated Hotel Transylvania, starring Adam
Sandler in the lead role of Dracula, is scheduled
for release in 2D and 3D on September 21,
2012
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
Aggressively expand Vancouver to continue to
reduce overall costs for SPA and Columbia films
in competitive marketplace
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
5
Strategic Focus and Progress
Strategic Focus
Build profitable franchises from strong
brands that can be executed as either
theatrical or DTV sequels:
 High-end CG animated films
 Mid-tier CG animated films
 Live-action/animation hybrids
Progress To-Date






Reduce production budget to compensate
for eroding home video market
Shepherd Aardman relationship





Realize fuller set of revenue opportunities

Support Sony Electronics’ initiatives

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 5 consecutive weekends. Already, Smurfs is the top live-action
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 3D
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
7
Release Schedule
FY13
FY12
Q2
Q2


Smurfs (Hybrid) (7/29/11)
FY14
Q2
Hotel T (9/21/12)

Smurfs 2 (Hybrid) (8/2/13)

Cloudy 2 (September 2013)
FY15
Q2

TBD Hybrid FY15 (August
2014)
Q3

Arthur Christmas (11/23/11)

TBD Animation FY15
(September 2014)
Q4

Pirates (3/30/2012)
8
Strategy


Imageworks is currently on production on
Columbia’s The Amazing Spider-Man, scheduled
for release in 2D, 3D and IMAX 3D on July 3,
2012


Imageworks is also currently on production on
Men in Black III, Columbia’s other summer
2012 blockbuster, scheduled for release in 2D,
3D and IMAX 3D on May 25, 2012

Serve SPA and Columbia as a dependable source
of high-quality digital animation and VFX
expertise
Further reduce costs by aggressively expanding
Vancouver, where we enjoy a 58.4% tax rebate
on labor
Maintain industry leadership in innovation and
quality
Continue to use large 3rd 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
10
Strategic Objectives – Expand cost-advantaged satellite facilities

Aggressively expand Vancouver to fully leverage its
58.4% tax rebate on labor:



Working closely with Culver City, our new
Vancouver facility produced a significant share
of animation for The Smurfs


Imageworks is in pre-production on Disney’s
Spring 2013 tentpole, Oz The Great and
Powerful. A significant portion of animation and
lighting for the show will be produced in
Vancouver
Add additional artist groups (color and lighting) and
expand size of existing departments
Projected to reach office capacity of 135 employees
by February 2012
Plan and execute second-stage expansion to double
capacity by the end of CY12
Reduce rates charged by India facility following the
buy-out of our partners by the end of FY12
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 FY12
11
Imageworks
Strategic Objectives – Large 3rd Party Projects


Imageworks is in post-production on
SPA/Aardman Animation’s CG-animated Arthur
Christmas, scheduled for release in 2D and 3D
on November 23, 2012

Continue to target large 3rd party projects (e.g.,
OZ, Alice in Wonderland, Green Lantern and GForce) 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


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 3D
Imageworks is in production on SPA’s CGanimated Hotel Transylvania scheduled for
release in 2D and 3D on November 23, 2012
12
Imageworks Interactive
Strategy



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 $2MM back to SPE Marketing over the past
two years
Opportunistically self-fund and explore closelyrelated, high-margin businesses:

Imageworks Interactive designed and produced
the web and social media-based campaign for
Smurfs, a key element in the film’s worldwide
success

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

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
Expand 3rd party business to continue to reduce
overall cost for internal clients, mirroring successful
Imageworks’ model
14
MRP Financial Projections
SONY PICTURES DIGITAL PRODUCTIONS
FY 2012 MID-RANGE PLAN
REVENUE & EBIT SUMMARY
($000's)
FY 2012
0
Q2 FORECAST
NET REVENUE
SPI
Interactive
Imageworks
Animation
TOTAL NET REVENUE
FY 2013
9/11 MRP
10/10 MRP
0
Variance
FY 2014
9/11 MRP
10/10 MRP
0
Variance
FY 2015
9/11 MRP
$169,774
750
170,524
490,909
$661,433
$155,000
1,000
156,000
512,115
$668,115
$155,000
1,000
156,000
805,060
$961,060
$0
0
0
(292,945)
($292,945)
$155,000
1,250
156,250
656,632
$812,882
$155,000
1,200
156,200
683,153
$839,353
$0
50
50
(26,521)
($26,471)
$155,000
1,500
156,500
686,232
$842,732
$8,000
400
8,400
(91,700)
($83,300)
$0
300
300
73,000
$73,300
$0
300
300
73,000
$73,300
$0
0
0
0
$0
$0
300
300
51,200
$51,500
$0
300
300
91,200
$91,500
$0
0
0
(40,000)
($40,000)
$0
400
400
88,800
$89,200
EBIT
SPI
Interactive
Imageworks
Animation
TOTAL EBIT
*
* FY12 EBIT is currently $10.5M better than ($83.3M) due to improved SMURFS performance.
16
SONY PICTURES DIGITAL PRODUCTIONS
FY 2012 MID-RANGE PLAN
EBIT RECONCILIATION
($000's)
FY12
EBIT PER FY12 BUDGET & 10/10 MRP
($101,700)
FY13
FY14
$73,300
$91,500
(2,894)
2,402
402
90
0
(2,986)
3,777
(1,769)
978
0
7,138
(8,824)
(29,013)
(3,571)
(11,529)
(2,162)
20,734
(5,074)
(6,206)
(1,968)
11,196
3,795
3,500
(5,631)
986
(725)
0
(2,958)
(9,000)
(688)
(40,000)
$0
($40,000)
Variances
Imageworks
•
•
•
•
•
EBIT impact on increased work of $14.7M (Green Lantern and Oz)
Albuquerque rebate - decreased rebate driven by shift of headcount to Vancouver
Vancouver rebate - increase driven by Vancouver expansion
Net Depreciation / Maintenance spending for Hardware / Software - driven by Vancouver expansion
Other, net
Subtotal Imageworks
6,600
1,453
147
8,200
Animation
• Removal of FY13 TBD Hybrid (Aug 2012)
• Removal of two FY13 Direct to Video titles (Apr 2012, March 2013)
• SMURFS performance - $4.3M increased DBO to $140M; $16.3M increased IBO to $325M *
• SMURFS -lower ITV ultimate ($7.2M) compared to prior year MRP and timing of ITV and PTV flows
• PIRATES - ($7.2M) int'l release date shift from FY13 to 3/30/12 (Brazil, France, Italy, Spain, Mexico) and ($6.3M)
domestic release date shift from 4/6/11 to 3/30/11
• ARTHUR CHRISTMAS - increased domestic marketing ultimate by ($7.3M); timing of PTV from FY13 to FY14
• HOTEL T - ultimate adjustment from $125M DBO to $120M DBO and timing of DHE flows
• CLOUDY 2 - delayed timing of pre-marketing spend to FY14; ultimate adjustment DBO/IBO to $100M/$175M per J.
Blake from $125M/$156M prior MRP
• SMURFS 2 - primarily net of production cost increase from $90M to $122M and DBO/IBO to $125M/$325M per J.
Blake from $125M/$190M prior MRP
• FY15 TBD HYBRID & TBD ANIMATION - pre-marketing spend
• Other, net
Subtotal Animation
20,642
9,700
(13,530)
(5,922)
(690)
10,200
TOTAL VARIANCE
$18,400
EBIT PER 9/11 MRP
($83,300)
$73,300
$51,500
* FY12 EBIT is currently $10.5M better than ($83.3M) due to improved SMURFS performance.
17
SONY PICTURES DIGITAL PRODUCTIONS
FY 2012 MID-RANGE PLAN
RECEIPTS & CASH FLOW SUMMARY
($000's)
FY 2012
Q2 FORECAST
NET RECEIPTS
SPI
Interactive
Imageworks
Animation
TOTAL NET RECEIPTS
NET CASH FLOW
SPI
Interactive
Imageworks
Animation
TOTAL NET CASH FLOW
0
FY 2013
9/11 MRP
10/10 MRP
0
Variance
FY 2014
9/11 MRP
10/10 MRP
0
Variance
FY 2015
9/11 MRP
$169,774
24,114
193,888
0
$193,888
$155,000
25,773
180,773
0
$180,773
$155,000
25,773
180,773
0
$180,773
$0
0
0
0
$0
$155,000
27,932
182,932
0
$182,932
$155,000
27,932
182,932
0
$182,932
$0
0
0
0
$0
$155,000
30,167
185,167
0
$185,167
$2,600
400
3,000
(216,800)
($213,800)
$200
600
800
(244,100)
($243,300)
$2,700
635
3,335
(260,800)
($257,465)
($2,500)
(35)
(2,535)
16,700
$14,165
($1,200)
900
(300)
(257,600)
($257,900)
($1,600)
877
(723)
(258,000)
($258,723)
$400
23
423
400
$823
($200)
1,000
800
(247,000)
($246,200)
18
SONY PICTURES DIGITAL PRODUCTIONS
FY 2012 MID-RANGE PLAN
CASH FLOW RECONCILIATION
($000's)
CASH FLOW PER FY12 BUDGET & 10/10 MRP
Variances
Imageworks
• Increased receipts due to increased work
• Increased overhead disbursements to support increased work
• Timing of India buyout from FY11 to FY12 (1/3 of remaining interest)
• Decreased salary & fringe due to lower average artist salaries (Vancouver labor savings)
• Albuquerque and Vancouver Rebate
• Capital expenditures
• Removal of prior year MRP challenge
Subtotal Imageworks
Animation
• Removal of FY13 TBD Hybrid
• Smurfs - NY tax rebate delayed from prior MRP FY12 to FY13
• Arthur Christmas and Pirates - UK rebate delayed from prior year MRP FY12 to FY13
• Timing of participation/financing payments
• Timing of pre-production spend
• Net, other
Subtotal Animation
TOTAL VARIANCE
CASH FLOW PER 9/11 MRP
FY12
FY13
FY14
($245,600)
($257,465)
($258,723)
1,131
3,357
(3,800)
(3,188)
(2,500)
3,233
(1,033)
(1,800)
14,700
(10,000)
(1,800)
2,900
400
35,292
533
28,900
12,300
11,766
(4,022)
(3,611)
232
16,665
423
423
31,800
14,165
823
(6,925)
($213,800)
($243,300)
($257,900)
19