Entertainment Industry Trends and Opportunities for Networked Entertainment Solutions
Corporate DevelopmentSeptember 30, 2010
agenda /
key entertainment industry MRP topics
• analyze the key trends impacting the profitability and growth of Sony’s entertainment businesses
– shift from ownership to rental business models and from bundled content to disaggregated content
– new business models emerging due to proliferation of new access methods and the availability of cloud storage
– continued vulnerability of content to piracy
Sony’s opportunity
• address Sony’s opportunity to provide consumers with a complete networked entertainment solution across a family of home and mobile connected products
• need to treat consumer base as network of users
2
2010 global media revenue mix and growth forecast /Global entertainment1 revenues by segmentsegment, percent of total
TV licensing fees2
Internet adv.
Video games
TV adv.
Out-of-home adv.
Filmed entertainment
Total entertainment
Music publishing
Radio
Book publishing
Newspaper publishing
Magazine publishing
Recorded music
Global entertainment 2010-2014 CAGR by segmentpercent
(1) Market definition does not include internet access, B2B, or TV subscriptions and public TV segments(2) TV licensing fees include mobile tv, ppv, and video on demandSource: PwC, Global entertainment and media outlook: 2010 – 2014, Enders Music Publishing Forecast
Total Revenueapprox. $800B
3
Key entertainment industry MRP topics /4
entertainment industry trends impacting Sony /
5
there are three key trends that are impacting the profitability and growth of Sony’s entertainment businesses
shift from ownership to rental and from bundled content to disaggregated content
new business models emerging due to proliferation of new access methods and the availability of cloud storage
continued vulnerability of content to piracy
evolution of filmed entertainment consumption /as digital consumption increasingly displaces physical…
6
content bundles are
being disaggregat
ed
ownership is
shifting to rental
evolution of music consumption /as digital consumption increasingly displaces physical…
7
albums have been
disaggregated to single
tracks
shift from ownership to access
evolution of the changing economics of entertainment /
CDs
MP3 downloadsof singles (iTunes)
local storage: load
from PC to player
subscriptionmusic
digital lockers
streaming music on demand (Spotify)
continuum of music
consumption
new physicalbusiness models: Red Box & Netflix
VOD and SVODVHS / DVD
PPVin limited
window and show times
continuum of filmed
entertainmentconsumption*
digital sell through
local storage: load
from PC to player
$19.95 / album
$0.99 / single
$9.95 / month
“freemium”mostly free content
with a charge for premium content
VHS & DVD: $19.95 / $4.75
purchase/rental
PPV: $7.95
Redbox: $1.00/night
Netflix: $8.99+/month
iTunes: $3.99 (TV), $9.99 - 14.99 (Film)
Amazon: $2.99 (TV), $4.99 - $14.99 (Film)
VOD: $3.95 / 24h
iTunes: $0.99 (TV)$3.99 / 24h (Film)
Netflix: $8.99+ / month
Hulu Plus: $9.99 / month
digital rental
8
*Note: this evolution relates primarily to the home entertainment portion of filmed entertainment
internet radio (Pandora)
in the U.S. Home Entertainment market, while there was an overall increase in transactional demand, consumers continued to “trade down” to lower-margin rentals
Source: Screen Digest Aug 2010, Morgan Stanley Research
growing demand for low cost views is being met by new, more convenient rental options (e.g. Netflix and Redbox), driving
consumer spending out of the categoryNote:Netflix does not include digital streaming as Netflix licenses that content from the pay window
consumers are shifting to lower-margin rentals /
9
783 717
2,364
126 138357 418
2,296
0
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
CY2009 CY2010E
% Growth
% Growth
0%0%
+3%+3%
-8%-8%
2009 – 2010E home video sell-through and rental transactions
$17.36
$11.64
$13.00
$0.95$1.15$1.68$2.71
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
Blu-ray
DVD EST
VOD
Bloc
kbus
ter
Netflix
Redb
ox
Rental
Sell through
average studio new release gross profit per transaction
8 Rentals Transactions = 1 Sell-Through
Transaction
Physical ST Physical Rental EST VOD
+17%+17%
+10%+10%+15%+15%
+2%+2%
digital music download growth trends /for the first time since their inception, the number of single-track digital downloads has decreased in the United States
US single-track digital downloads growth ratepercent
gro
wth
rate
Source: Nielsen Soundscan Report
10
the shift from ownership to access has continued to impact recorded music margins /
Sony Music
Sony/ATV
Sony Music revenues$B
Sony Music EBIT margins%
Sony/ATV revenues$M
Sony/ATV EBIT margins%
MRP
MRP
MRP
MRP 11
2010A2011B 2012 2013 20140.0%
4.0%
8.0%
12.0%
16.0%
10.2%1
14.1% 14.2% 14.4% 14.5%
2010A 2011B 2012 2013 2014 $-
$1.0
$2.0
$3.0
$4.0 $3.3
$2.8 $2.7 $2.6 $2.6
(1) Revenues and EBIT adjusted by removing revenue/contribution from settlements
impact of new access models on piracy /
12
digital lockersissues potentially exist with the uploading of
illegitimate content in exchange for legitimate copies in the digital locker
digital cinema distribution of digital copies of feature films to exhibitors creates new vulnerability
global music and video digital piracy are expected to continue to grow as broadband penetration improves and the value chain is increasingly digitized
• the market for content in developing countries is growing but is often made unattractive by the high level of piracy
• new access models may actually reduce piracy in some markets by providing increased legitimate alternatives
early window
prior to DVD release, consumers can create a camcorder recording of a feature film in their
own homes; forensic watermarking may mitigate this type of piracy
Sony’s opportunity /13
Sony’s opportunity /
for the first time, we now have the hardware functionality and service offerings to generate revenue from
our home electronics consumer beyond the point of purchase
14
Sony’s IPTV services are already in the living room /
15
must convince consumers, who already face box exhaustion, to
buy another box to bring internet-based entertainment
experiences to TV
rich IPTV services are already embedded in the Sony products that consumers use every day in
their homes
Competition Sony
Sony’s IPTV services are already in the living room /
16
must convince consumers, who already face box exhaustion, to
buy another box to bring internet-based entertainment
experiences to TV
rich IPTV services are already embedded in the Sony products that consumers use every day in
their homes
Competition Sony
Sony’s services are optimized for its products /
17
other service providers (e.g. Netflix, Amazon) face the challenge of
integrating with multiple third party electronics manufacturers
services are optimized for its products to create the best
consumer experience
Competition Sony
only Sony can utilize its own content to create unique viewing experiences for its consumers /
18
Competition Sonyother services must license
content that is freely available to all competitors
from the major film studios and music companies
can offer unique, high quality experiences on a consistent
basisthat are only available to Sony
customers2008
one-time special event
2011
Sony’s competitive advantages promote success versus key competitors /
19
already in consumers’ living
rooms
can offer unique viewing experiences
utilizing its own content
offer services optimized for its
products and ecosystem
the evolution of the TV viewing experience /
20
True IPTVConventional TVGoogle TV
(browser experience)
Evolution of Internet-Connected TV
2000 2010 FutureCable Bill:
$100 (video) +internet access
Cable Bill: $85 (video) +
internet access
Cable Bill: internet access +
$? (video)
• 100% of entertainment services provided by conventional distributors
• most entertainment provided by conventional distributors
• some incremental revenue from apps or content provided using IP
• even larger percentage of entertainment provided using IP, not by conventional distributors
• bulk of conventional distributor revenue from providing internet access
the future of TV is interactive and social /
21
• uses the internet to deliver video entertainment outside of conventional operators
sorting of content choices
based on popularity
among friends and
previous behavior
deep integration with social
networking (on-screen chat and recommendatio
ns, etc)
targeted marketing
a true IPTV experience is not simply an internet browsing experience on a television:
• over time consumers will migrate from cable / satellite to IPTV solutions because of greater choice, interactivity, and social networking
customer profitability enhanced by continuing transactional relationship after hardware purchase /
22
• potential incremental revenue-generating services
– access to films in variouswindows
– channel subscriptions
– games / PS2 emulation
– advertising / placement
– monetization of consumer data
– applications / e-retail / peripherals
– music related purchases(video purchasing, concerts)
– extended warranty• potential incremental
annual revenue from above services: $50
illustrative potential profit from services
note: assumes MSRP for TV is $1,000 and profit margin is 5%; for services, assumes annual revenue of $50 at a 20% margin
Today
Future
Year 0 1 2 3 4Life-time
Hardware Profit $50 $0 $0 $0 $0 $50Profit from Services 0 0 0 0 0 0Total $50 $0 $0 $0 $0 $50Lifetime Margin 5%
Year 0 1 2 3 4Life-time
Hardware Profit $50 $0 $0 $0 $0 $50Profit from Services 0 10 10 10 10 40Total $50 $10 $10 $10 $10 $90Lifetime Margin 9%
Sony’s opportunity / • Sony needs to treat its consumer base as a connected network of
addressable users
– across its consumers’ network of enabled devices, Sony maintains relationships with more than 57MM connected users worldwide
– as consumer electronic products become commoditized, Sony now has a significant revenue source in networked products even after sale of hardware
– if we are able to position our consumer base as a network, licensing AAA non-Sony entertainment content will become easier
23
Company
Number of Subscribers
(MM)Comcast 23.4DirecTV 18.7Dish Network 14.3Time Warner Cable 12.8BSkyB 9.9Beijing Gehua 5.0Oriental Cable Network 4.0Jupiter Communications 2.6Sky Deutschland 2.5
Selection of largest cable & satellite operators across the
world
capitalizing on Sony’s IPTV advantages /
• through aggressive marketing activities, Sony must educate consumers that its Blu-ray players, PS3s and connected TVs have IPTV capabilities (e.g. Qriocity)
– increase usage of Sony’s IPTV services within its network of connected households
– build Sony IPTV installed base
24
• leverage its content companies to provide unique experiences and preferential windows of content for its Sony consumers
appendix /25
new digital access options and business models /music
26
Shift from current access models to…
Digital downloads / “side-loading”
Radio station streaming
sites
Spotify – instant listening to specific tracks/albums
• One of the leading music providers in Europe with ~7mm users
• Premium subscription available in the UK and other European countries for ~$16; there are more than 500K premium subscribers
• Launched an iphone app in 2009
• North America full internet service launch planned for 2010
Apple/Google – cloud-based storage for instant access across multiple devices
• Apple bought Lala which provides users access to music from cloud servers
• With Lala, Apple could enable users to buy cheap music streamed from the cloud and listen to it on any of their internet enabled devices • Google is developing a subscription-based cloud-based locker
• Consumers charged $25/year to store songs in the locker with accessibility on any internet connected device by either streaming or downloading
new digital access options and business models /film and television
Film and television studios have been experimenting with emerging digital models, sometimes segmenting product by
window to limit cannibalization of higher-margin product
“Early Window” Instant streaming film/tv content
• DVD release dates moved forward
• Films streamed to internet connected TVs
• Hulu is the leading online ad-supported destination for TV content
• This summer, it announced a premium subscription service ($9.99) providing more content and access on more devices (phones, tablets, TVs, blu-ray players, consoles)
• Netflix , though with limited content, has enabled an instant streaming service to PC, Mac, or TV through a Netflix ready device
• Over 60% of the service’s 15mm users have streamed content
27
portability of media content using the cloud /
28
popular entertainment services are increasingly moving content to the cloud so that streaming content is available on mobile devices anywhere, anytime
AppleTV and Qriocity /
29
• cloud-based (no storage) rental of streaming movies and TV shows (from ABC and Fox)
• Netflix streaming, YouTube streaming, photo streaming from Flickr and MobileMe
• “AirPlay” feature launching in November links networked Apple devices; allows users to stream content from an iPad, iPhone, or iPod to an AppleTV
updates to AppleTV were announced on September 1
all of these features are available in Sony’s Qriocity
• hundreds of box office hits from major studios have been available for streaming to Sony’s 2010 network-enabled BRAVIA TVs and BD players in the U.S. since April 2010
• “Music Unlimited powered by Qriocity", a cloud-based digital music service will be available by year end on Sony's 2010 models of network-enabled BRAVIA TVs, BD players, PS3s , and VAIOs