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Citi Investment Banking

Brazil Free-to-Air (FTA) TV Overview

July, 2013

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Table of Contents

1. Brazilian Media Sector Overview 1

2. Brazilian Advertising Environment 5

3. Brazilian Recent M&A Transactions 12

1. Brazilian Media Sector Overview

Description ▲Market dominated by FTA TV

▲Controlled by large, diversified local

▲Mature market with ~3,000 circulating newspapers

▲ Largest online market in LatAm with ~80 million users

▲With only a 27% penetrationrate amongst households, the Pay-TV market remains underdeveloped

Brazilian Media Sector SnapshotThe Brazilian media market is mainly dominated by a small number of large, privately-controlled local media conglomerates such as Globo and Grupo Abril.

Broadcasting Print Internet Pay-TV

Brazil Media Industry

▲Controlled by large, diversified local media groups ▲Controlled by large, diversified local

media groups ▲One of the world’s largest and

fastest-growing e-commerce markets

TV market remains underdeveloped in the country

Key Trends ▲Remains the most relevant medium for advertising, accounting 60% of total expenditures in 2011

▲ Transfer from analogue to digital expected to be fully completed by 2016

▼Mature market with penetration of higher than 90%

▲Driving migration to online newspaper/magazine platforms amongst readership

▼Revenue from subscriptions and single copy sales has been steadily declining for the past years

▼ Losing advertising revenue to new media such as Internet and Pay TV

▲ Accounts more than doubled between 2002–2010 with increasing penetration among low income users

▲Revenues from internetadvertising have risen along with segment growth

▲ Expansion of the mobile marketalso contributing to broaderinternet usage

▲ Strong growth in recent years (CAGR: ~25%)

▲ Advertising revenue gaining relevance (4% of total spend)

• Sector witnessed major consolidation driven by greater cost pressure & need for network

• Roughly 63% of subscribers live in the Southeast region

Main Industry PlayersPlayers

Progressive Migration to New Media Segments

(Telmex) (Telefónica)

1

Media Penetration in BrazilTraditional media channels remain strong in Brazil, even as new outlets like the Internet and Pay-TV have taken share. As the market shifts, the explosion in mobile penetration has emerged as the sector’s key trend.

Media Distribution(2012 % of total advertising spend)

While traditional

• Traditional media channels, such as print and broadcast TV, continue to command a large percentage of Brazil’s national audience

– However, recent trends in have deemphasized the country’s mature, traditional sources in favor of new, faster growing digital media formats

• The rapid expansion of Brazil’s middle class has drawn considerable ad

Highlights

Magazines6.4%

Internet5.0%

Radio3.9%

Other4.4%

Mobile & Mobile Data Penetration

148.0%155.1% 160.1% 164.3% 167.5%

Mobile data traffic is expected to double each

year through 2015 as

Brazil Entertainment & Media Market Growth(US$ billions)

10.6% CAGR

$15.3bn

While traditional channels accounted for the vast majority of ad

sales in 2012, newspapers, magazines

and radio have each steadily lost share to new media in recent

years

• The rapid expansion of Brazil’s middle class has drawn considerable ad spend, which grew 10% annually from 2007–2011 to $14.6 billion

• Rising per capita income has helped drive the migration to digital with the proliferation of PCs, mobile phones and access to broadband

– Mobile penetration, which was below 50% as recently as 2005, is projected to reach 104% by the end of 2012

• In the near-to-mid-term, new media formats like Pay-TV and the Internet, are expected to take an increasingly large share of a growing pie

FTA TV64.7%

Pay TV4.4%

News Paper11.2%

6.4%

$25.1

$43.3

$64.8

2007A 2012E 2016E

Source: IAB Brasil, IBGE, CETIC, Falke, eMarketer and Wall Street research.

79.5%90.8%

104.8%

123.6%138.1%

148.0%155.1%

45.7%57.4%

74.2%

90.9%104.1%

113.8%121.6%

128.7% 134.7% 140.1%

2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E 2017E

Mobile Penetration Mobile Data Penetration

media consumption shifts decisively into new

channels11.6% CAGR

2

Brazilian Media Key Themes

GrowingEntertainment &

MediaExpenditure

• From 2007-2012, the Entertainment and Media market grew at a CAGR of approximately 11.6%, driven by expansion of internet access and the Internet advertising markets

– This growth is expected to continue in the near term, driven primarily by further expansion of the internet segment and landmark sporting events in the country

• TV remains the most relevant medium for advertising in Brazil given its extensive geographical coverage throughout the country

– However, Internet and Pay-TV are becoming increasingly relevant media in the country despite their small current share of advertising sales.

ProgressiveMigration

into New Media Segments

• Internet users grew to 80mm in 2012, representing 42% of the population and a 5 year compound growth rate approximately 10% per year.

• Penetration among lower income customers is increasing

• Broadband has gained traction as well, growing almost 22% per year since 2007, principally due to the growth of mobile broadband

– The government has set an ambitious goal to double fixed-line broadband penetration between 2011–2014 ahead of the World Cup

– The growth of e-commerce is a key trend in the sector, as consumers are drawn online by cheaper online prices, sales, and discounts

ChangingRegulatory Landscape

• In September 2011, recently elected President Dilma Roussef signed into law a new bill that regulates the entry of telcos into the Pay-TV market

– Eliminated foreign ownership restrictions on Pay TV operators, currently limited to 49%

– Established minimum requirements on locally produced content for cable TV channels

• Goal is to expand cable TV to all of Brazil targeting to reach 1,200 cities up from 262 cities currently

3

Brazil Key Media Regulatory ConsiderationsTopic Comments

Federal Regulators • Brazil’s telecommunications and TV industries are regulated by ANATEL

– ANATEL was created by LGT in 1997 (“General Law of Telecommunications), reporting to the ministry of communications, to oversee and regulate the communications market

– ANATEL has a broad mandate, including:

• Regulation the privatization of telecom services

• Allocation and management of concession contracts

• Regulation of fees

• Publishing of regulations regarding service quality • Publishing of regulations regarding service quality

• Interpretation of the LGT and resolve conflicts

Concessions • According to LGT, each telecom service is subject to a licensing process, granted through a public bidding process according to Lei das Licitações Públicas

– Telecom services includes cable services

• A change in control or shareholding structure is subject to approval by ANATEL

Foreign Ownership Limits • Television broadcasting: up to 30% of the voting capital stock

• Newspapers: up to 30% of the voting capital stock

• Radio: up to 30% of the voting capital stock

• Cable Television: Up to 49% limit of the voting capital stock

“Plano Plurianual 2012-15” • The main objective of the “PAF” (elaborated by the Communications Ministry) is to ensure the achievement of Plano “Plano Plurianual 2012-15”

Annual Supervision Plan

2013 (“PAF”)

• The main objective of the “PAF” (elaborated by the Communications Ministry) is to ensure the achievement of Plano Plurianual’s goals regarding full supervision of all stations (radio and TV) in Brazil

• “PAF” establishes total ANATEL’s working hours in the project dedicated to the supervision, about 50%

• Communications Ministry is responsible for regulating corporate issues and, together with ANATEL, content and accessibility resources

• ANATEL is also responsible for technical issues and other aspects related to the usage of radiofrequency

• The “Plano Plurianual 2012-2015” has the responsibility to assess and supervise all Brazilian stations during the period

Source: ANATEL.4

2. Brazilian Advertising Environment

$13.8 $14.6 $15.5$16.5

$20.3$19.0

$22.5

Brazilian Advertising Market TrendsIn recent years, newspapers, magazines and other traditional media have lost significant share in Brazilian advertising as the Internet and Pay-TV have emerged as increasingly important drivers of media consumption.

• Total advertising in 2011 rose 6% year-over-year to US$14.6 billion, and is expected to increase another 6% to US$15.5 billion in 2012

• TV remains the most relevant medium for advertising, with Open TV and Pay-TV together accounting for 64% of total advertising revenue in 2011

Evolution of Advertising Sales in Brazil(US$ billions)

Highlights

$2.0

$9.9$11.3 $11.7

$13.8 $14.6

2007A 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E

• As the importance of traditional media outlets like print and radio has diminished, the rapid expansion of new media has created key new channels to reach Brazil’s class C

– The Internet and Pay-TV have dramatically increased their share of ad revenue, growing 39% and 18%, respectively, between 2010–2011

• The Brazilian market is primed for the two most important sporting events in the world – the FIFA World Cup (2014) and the Olympic Games (2016)

– These events are expected to drive ad expenditure in the mid-term

Advertising Revenue Growth by Media Source (1)

(2011A)Evolution of Monthly Investment in Advertising (2)

(US$ billions)

11% 4%11%60%4% 7%

2.0% 3.4%% of Global Total

Soccer World Cup had strong Impact on 2010 advertising investment

$0.5

$1.0

$1.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 2011 2012

39.1%

17.8%

9.2%

3.8% 3.5% 3.3%

Internet Pay-TV Open TV Newspapers Magazines RadioNew Media Traditional Media Share of Advertising Sales

Source: IAB Brasil, Grupo de Mídia São Paulo, eMarketer, Projeto Inter-Meios, PwC and Wall Street research.(1) Includes both search and display advertising.(2) Includes display advertising only.

Sporting events to driveadvertising during

next five years

advertising investment

5

• Total advertising expenditure reached R$30.1 bn (US$ 15.3 bn) in 2012, a CAGR of 9.7% in the period 2007-2012

• TV remains the most relevant vehicle for advertising, R$19.5 bn (64.7% of total advertising expenditure) were destinated to FTA TV and R$1.3 bn (4.4%), to Pay TV

Magazines6.4%

Internet5.0%

Radio3.9%

Other4.4%

Brazil – TV Advertising Market The TV segment (FTA and Pay) is the main advertising vehicle in Brazil, representing almost 70% of total advertising expenditures in 2012, about R$20.8 bn (US$10.6 bn).

Highlights Advertising Expenditure by Vehicle(As of 2012)

TV and R$1.3 bn (4.4%), to Pay TV

– Strong growth in the TV segment considering 2007-2012 period: CAGR of 11.9%

– Share is expected to slightly increase over the next few years

• Internet has witnessed the most significant growth over the last 5 years

1,930 1,451 1,508

1,101

1,138

1,176

1,180

1,252

1,327

Other

Radio

FTA TV64.7%

Pay TV4.4%

News Paper11.2%

6.4%

Advertising Expenditure(US$ in Millions)

Advertising Expenditure CAGR(2007-2012)

16,490

18,011

19,511

9.7%

1.9%

Total Expenditure

TV Segment

11,195 12,631 13,564

16,490 18,011

19,511

703 793

824

1,022 1,195

1,327

3,022

3,410 3,140

3,251

3,358

3,377

1,616

1,823 1,715

1,966

2,049 1,930

665

751 958

1,206

1,451

798

901 980

1,101

1,007

1,137 1,091

2007 2008 2009 2010 2011 2012

Radio

Internet

Magazines

News Paper

Pay TV

FTA TV

19,511

12,63113,564

2.2%

3.6%

5.7%

8.1%

11.8%

13.5%

17.8%

News Paper

Magazines

Other

Radio

FTA TV

Pay TV

Internet

Source: Mídia Dados Brasil 2012/13, News run.6

Top Advertising Agencies in Brazil

Young & Rubicam is the largest advertising agency in Brazil, in terms of investment in advertising by clients.

Investment in Advertising by Clients – by Agency(R$ millions, Jan-Aug 2012)

Market Share by Agency(% Share of Total Client Investment in Advertisement, Jan-Aug 2012)

4,378Y R

23%

11%8%

7%

7%

7%

6%

2,114

2,001

1,984

1,647

1,435

ALMAP BBDO

OGILVY E MATHER

WMCCANN

LOWE

JWT

11%

11%

9%

1,298

1,261

1,241

1,228

DM9DDB

GIOVANNI DRAFTFCB

F NAZCA S&S

AFRICA

Source: IPOBE, Company filings.7

16%

2%

5%

38%

Brazilian Television MarketControlled by large, diversified media groups, TV remains the most relevant medium for advertising in Brazil given its extensive geographical coverage and high penetration rates throughout the country.

• TV remains by far Brazil’s most widely-consumed source of media, with 95% of households owning at least one TV

– According to a recent study, 97% of Brazilians watch TV at least once a week, and 84% watch daily

• Open TV is most common, but Pay-TV subscription has grown 30% in

Key Players in Brazilian TV(Share of Brazilian audience by channel, 2011)

Highlights

(122 Stations)(36 Stations)

Others

5%

19%

20%

23,85825,357

• Open TV is most common, but Pay-TV subscription has grown 30% in each of the past two years and is expected to double again by 2016

– Subscribers in class C will drive most of this growth, making Pay-TV an increasingly attractive vehicle to access Brazil’s largest consumer class

• Together, Pay-TV and Open TV accounted for over 60% of all advertising expenditures in 2011 (4% & 60%, respectively)

– Advertising expenditures in Pay-TV rose 18% from 2010–2011

(56 Stations)

(97 Stations)

(39 Stations)

TV Ownership & Pay-TV Subscription by Region(2011–2012)

RegionTV

Owner. (1)Pay-TV Sub. (2)

Evolution of Pay-TV Subscribers & Penetration (2)

(Subscribers in ’000, Penetration in %)

5,3486,321

7,4749,769

12,744

16,053

19,159

21,71023,858

9.6% 11.0%13.0%

17.0%21.6%

26.8%31.4%

35.1%38.1% 39.9%

2007A 2008A 2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E

Region Owner. Sub.

North 88.3% 15.4%

NE 91.6% 9.8%

SE 97.7% 36.6%

South 96.8% 23.7%

Mid-West

95.4% 21.9%

Source: IAB Brasil, Grupo de Mídia São Paulo and Wall Street research.(1) Percentage of total households with at least one TV.(2) Percentage of households with Pay-TV subscription.8

Brazilian FTA Television Network Structure

Brazil has a total of 514 content generators, and more than 10,500 redistributors throughout the country.

Content Generators Content

Generators are the main party of the whole network since

Direct TransmissionIndirect Indirect

AffiliatesTotal

Redistributors

5 117

Main Generators

Located in large cities which don’t have content generators and also in certain medium cities. Responsible for

Affiliates

Redistributors

network since they produce content and manage affiliates. In some cases, generators can also manage redistributors.

Main Content Distributors

Examples of Affiliates

14 52

10 98 10,506

Final Consumers of Content

Responsible for the transmission of content to areas where the distributors cannot reach themselves. They also produce some local content.

Similar to Affiliates’ role, redistributors are located in small cities, but don’t produce content.

Examples of Affiliates15 34

5 40

9

Key Networks in Brazil

Player Description Key Financials 2012 (1) Ownership

• Dominant media company in Brazil with operations in broadcasting, content production, pay-TV and others

• Produces ~4,000 hours of programming per year

• 45% share of audience (7AM to 12PM)

• Accounts for approximately 80% of Brazilian content exports

• Covers 98.4% of the country and 98.4% of Brazilian population

• Revenues: R$12.6 bn

– 16% growth 2011/12

– Advertising: ~R$9.0 bn (71%)

• EBITDA / Margin: R$3.1 bn / 25%

– 10% growth 2011/12

• Marinho Family

Rede Globo

• 122 broadcasters (117 affiliates)

• Rating: BBB+

• Net Income: R$2.9 bn

Rede Record

• Established in 1953

• Second-ranked national network in terms of audience share

• Owned by evangelical founder of the Universal Church

• Revenues: R$1.7 bn

• EBITDA / Margin: NA

• Net Income: NA

• Edir Macedo

SBT

• Third ranked national network in terms of audience share

• 107 broadcasters (8 owned and 99 affiliates)

• Covers 94% of the country

• Revenues: R$870 mm

– 7% growth 2011/2012

• EBITDA / Margin: R$84.5 mm / 10%

• Net Income: R$52.5 mm

• Grupo Silvio Santos

• Established in 1967, by João Saad • Revenues: ~R$850 mm

Band

• Established in 1967, by João Saad

• Fourth-ranked national network in terms of audience share

• Broadcasts 2 television networks and 5 pay-TV channels

• Revenues: ~R$850 mm

– 31% growth 2011/12

• EBITDA / Margin: NA

• Net Income: NA

• Saad Family

RedeTV

• RedeTV was established in 1999 by a group of media entrepreneurs

• Operates through 43 broadcasters that offer programming focusing on the “new” Brazilian middle class

• Revenues: NA

• EBITDA / Margin: NA

• Net Income: NA

• Amilcare DallevoJunior

• Marcelo de CarvalhoFragali

10

Brazilian Print MarketControlled by large, diversified media groups, TV remains the most relevant vehicle for advertising in Brazil given its extensive geographical coverage and high penetration rates throughout the country.

Competitive Landscape(% of Total Avg. Daily Circulation – Newspapers)

Highlights

• Traditional print in Brazil, as in most countries, has been losing popularity to other media segments such as internet and broadband

• While magazines have shown some resistance, newspapers have declined more in recent years, as a fraction of the total advertising market

13%

8%

Printed Media Advertising Sales Evolution(% of Total Advertising Sales)

Printed Media Steadily Losing Share of Advertising Sales

Market Evolution(Avg. Daily Circulation – Newspapers in Million)

market

• In absolute terms, however, circulation of newspapers continues to grow

• Globo remains the is the largest player with c. 13% of market share, followed by Zero Hora (8%) and Folha (7%)

7%

7%

6%

59%Sempre EditoraOthers

4.35

Source: IAB Brasil, Grupo de Mídia São Paulo and Wall Street research.

Printed Media Steadily Losing Share of Advertising Sales

20.5

18.116.7 16.3

14.716.4 15.9

14.112.3

10.0 9.48.3 8.8 8.6 8.5 8.5 7.7 7.5

2002 2003 2004 2005 2006 2007 2008 2009 2010

Newspaper Magazines

3.55 3.32 3.34 3.48 3.714.14 4.35 4.22 4.31

2002 2003 2004 2005 2006 2007 2008 2009 2010

11

3. Brazilian Recent M&A Transactions

: Recent M&A Transactions in Brazil

Citi has a strong track-record of working as a strategic advisor to top-tier Brazilian and global companies.

Brazil M&A2012

Advisor to Banco Citibank on the sale of Banco

Citicard and Citifinancial to

US$1.4 bnMay 2013

Advisor to Vale in the sale of its oil & gas E&P assets

in Brazil

Ongoing

Advisor to GLP on the acquisition of 40 industrial

assets in Brazil from

US$1.4 bn November 2012

Advisor to Mubadala on the acquisition of a 5.6% stake in

Advisor to Abertis on the acquisition of a 60% stake

in

Advisor to the Inframerica Aeroportos Consortium on the privatization of Brasília

International Airport

Advisor to Grupo Amorim on the primary sale of a

30% stake in Galp Brasil to

Advisor to BR Properties on the acquisition of

Advisor to Redecard on the sale of the remaining 49.9%

stake to

US$6.8 bn October 2012

May 2013Ongoing

Advisor to Sage Group on the acquisition of a 75%

stake in

Advisor to Cosan on the acquisition of

US$100 mm June 2012

Advisor to InterCement on the acquisition of a 40%

stake in

€2,4 bn June 2012

November 2012

Advisor to Participações Morro Vermelho on the sale of Shopping Jardim Sul and

its adjacent landbanks to

US$272 mm November 2011

US$2.0 bn March 2012

US$1.8 bn April 2012

US$2.6 bn February 2012

US$4.8 bn November 2011

US$2.3 bn January 2012

Advisor to a Consortium including GIC, CIC, Ontario

Teachers’, ADIC, JC Flowers, RIT Capital, and the Agnelli, Motta, Rothschild and Santo

Domingo families on the acquisition of a 19% minority

stake in BTG Pactual

US$1.8 bnDecember 2010

Advisor to Kirin on the acquisition of a 50.5%

stake in

US$2.6 bn August 2011

Advisor to Webjeton its sale to

GOL

US$327 mmAugust 2011

Advisor to Dow on the sale of its polypropylene

business to

US$340 mmJuly 2011

Advisor to buyer consortium on acquisition of a collection of power and gas assets in

LatAm from

US$4.5bnJanuary 2011

US$295 mm June 2012

Source: Bloomberg as of May 8, 2013.12

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