U.S. DISTRIBUTION LANDSCAPE June 3, 2010. Overview Affiliate Sales Objectives Organizational Structure Consolidating Landscape Shifting Dynamics Economic.

U.S. DISTRIBUTION LANDSCAPEJune 3, 2010

Overview

Affiliate Sales Objectives

Organizational Structure

Consolidating Landscape

Shifting Dynamics

Economic Model

Foreign Language Feeds

New Platforms

Affiliate Marketing

Affiliate Sales Objectives

Secure carriage of networks on all distributor platforms Generate revenue by charging per subscriber license fees Maximize value of content on new media platforms Long-term relationships Expand our networks as technology evolves

SD HDTV 3-D

Non-linear content Long & Short Form

Organizational Structure

Distribution Organizational Structure

Distribution

National Accountsand

Field Sales

Digital Mediaand

Affiliate MarketingSales Operations

National Accounts and Field Operations

National Accounts Negotiate with corporate programming teams of large and

mid-size affiliates to secure long term contractso Execute deals for linear, HD, VOD and broadband services

o License fees, packaging, legal terms, etc.

Field Sales Work with cable affiliates to drive “bottom up” interest

o Secure local deals Negotiate distribution deals with small affiliates

Digital Media and Affiliate Marketing

Digital Media Identify and evaluate new business opportunities in the advanced

media space (e.g. VOD, broadband, iTV, mobile, etc) Provide deal input to National Accounts with traditional video

distribution partners for ADM Negotiate digital media and technology deals (e.g., Fox Mobile, Black

Arrow, Ensequence etc.)o License fees, packaging, legal terms, etc.

Affiliate Marketing Work with affiliates to drive strategic promotional opportunities for

our portfolio of networks Oversee contractual marketing commitments, multiplatform

promotions and local ad sales partnerships Develop and distribute all marketing communications and materials

Sales Operations

Sales Operations Oversee deal and MFN compliance Handle departmental budget, including re-forecasting

efforts Work with finance on payment issues Manage deal renewals for small affiliates

Consolidating Landscape

Consolidating Distributor Landscape

• 15 Years Ago Today Future• 15+ Significant companies 8 companies Further consolidation• Decentralized Centralized - 2-3 cable ops• Minimal consolidation Consolidation - Telco/Satellite• Cable – 85% Cable – 65% Centralization• Satellite – 15% Satellite – 30%

• Telco – 5%

• FUTURE?• 5 Big Programmers / 5 Big Distributors

Consolidating Distributor Landscape

• COMCAST - 24MM

• DIRECTV - 18MM

• Time Warner/Brighthouse - 13MM

• DISH - 12MM

65MM

75% of all Multichannel subscribers

Distributor Competition

CABLE SATELLITE TELCO

Programmer Consolidation• NBCU DISNEY (ABC) CBS FOX

• USA ESPN Showtime FOX• SYFY ESPN 2 Movie Channel FOX Movies• CNBC ESPN U CBS College Sports FOX News• MSNBC ESPNews FOX Business• OXYGEN ESPN Classic NAT GEO• Bravo ESPN Deportes NAT GEO Wild• CNBC II Disney Channel FOX Soccer• Disney XD FX• ----------------------------- ABC Family SPEED

• SOAPnet• AETN ABC News Now• A&E• History ----------------------------------• Lifetime• Lifetime Movie Network AETN• Bio• History International A&E• Crime & Investigation History• Military History Lifetime• Lifetime Real Women Lifetime Movie Network• History en Espanol Bio

History International• -------------------------------- Crime & Investigation

• Military HistoryCOMCAST Lifetime Real Women

History en Espanol• GOLF• Versus• Style• E!• Regional Sports Nets

AETN Portfolio

Merger with Lifetime provides increased opportunities in negotiations

Emerging nets portfolio is a primary focus

Integrated portfolio deals will take several years

A&E LIFETIME HISTORY LIFETIME MOVIE

NETWORKBIO LIFETIME REAL WOMENHISTORY INTERNATIONALCRIME & INVESTIGATIONMILITARY HISTORYHISTORY en ESPANOL

Now ONE Portfolio

Shifting Dynamics

Contract Negotiation

• Three Big Issues Rates – Extremely contentious Packaging - Subscriber guarantees ADM (Alternate Distribution Method)

Contracts usually long-term Approximately 5+ years

Retransmission Consent

Nets born out of retransmission consent

1990’S

o FOX – FX

o NBC – MSNBC

o Lifetime (Hearst) – LMN, LRW

o Disney/ABC – ESPN 2, SOAPnet

o Scripps – HGTV, FOOD

Cash for carriage – completely changing dynamics

Retrans For Cash

• As the value of retrans increases, it becomes an ever more powerful negotiating tool.

• On the flip side, it is becoming increasingly complicated to extract it from deals.

• Additional note – Broadcast signals delivered digitally effective June 2009

2007 2008 2009 2010Per sub fee

not generally paid$0.20 –

0.30Up to $0.50

Could it top$1.00?

Sports Rights

Sports programming is a key driver of distribution and license fees

ESPN Commands highest license fees of any network in the U.S. Monetizes content on all platforms

DirecTV NFL Sunday Ticket is a key acquisition and retention tool since it is

exclusive to DTV TBS

Recently acquired rights to the NCAA tournament with CBS Plans to use this as a driver for higher license fees

RSNs Trying to use exclusivity to gain competitive advantage

Non-linear Platforms

DIGITAL

Content providers are focused on growing revenue via new platforms

Traditional distributors are trying to limit what content providers can do in the new media space These distributors are pushing for expanded rights to put content on

any platform for no incremental license fees Authentication has been the most high profile initiative for these

distributors

Economic Model

Cable Network Model

Affiliate revenue creates insurance against bad economy because the $$$ are contracted for many years

Participate in upside of economy with Ad Sales growth

Promotion and awareness through BB – Limited incremental revenue (at this time)

Foreign Language Feeds

Foreign Language Feeds

Distributors are interested in importing foreign feeds of networks Dish and DirecTV have traditionally offered the most foreign

language feeds and, as such, have attracted many multicultural subscribers

Cable companies are now trying to compete

Languages vary in interest among cable providers Spanish is most pervasive Other languages of interest are Filipino, Portuguese, Russian,

Hindi and Chinese

Foreign Language Feeds: Packaging and Pricing

On average, distributors currently carry programming in approximately 18 languages

Each language has anywhere from one to 11 channels that are sold in bundles

Pricing varies by network/bundle and currently ranges from $6.99 - $25.99

There is increasing interest in offering these feeds or portions of these feeds via broadband

New Platforms

VOD

Introduced in 2002o All Ad supported nets feared participation due to potential

provision of Ad revenue

All nets bullish today

More real estate with Programming

Ad Sales revenue

o C3 measurement if full Ad loado Reduced Ad loado Dynamic Ad Insertion

Original programming and short form content

iTV

Value to AETN Increased Ratings and Sustained Brand Engagement Advertising T-Commerce

Opportunity Cable – 10M homes growing to 50M Satellite – 21M homes growing to 30M Telco – 5.5M homes

Applications This Day in History

DISH Network – L Frame DIRECTV Widget

Lifetime, A&E, History “Web to TV” History Store Widget

Broadband/Authentication

Programmer Perspective ADM Restrictions suppress value and stifle competition New Revenue and Distribution

Advertising Sales Promotion and Marketing Brand Extensions and Licensing

Distributor Perspective Cord Cutting is killing the video business Authentication protects the dual revenue stream model Distributors are the “Base of the Pyramid”

Mobile

Growth Opportunity for AETN Content Over 225M mobile phones in the US Smartphone penetration growing at double digit rates Wireless devices are transforming into all purpose media devices with a

focus on personalizing and managing content

Products OnDemand Video

30 hours per month (10 hours each from A&E, History and Lifetime) Top series aired within week of linear air

WAP, Personalization Products, Games Distribution Partners

Verizon VCAST Fox Mobile’s BitBop Ongoing discussions with several others

Affiliate Marketing

Return on Investment Contractual commitments with our distributors Media Value

Multiplatform Linear (HD, Local Ad Sales) VOD Broadband

Content to Market Content Tap Into Unused Inventory Power of Editorial

Balance Brand and Distribution Objectives