confidential grouper acquisition opportunity presentation for gec august 16, 2006 draft v.14

CONFIDENTIAL

Grouper Acquisition OpportunityPresentation for GEC

August 16, 2006Draft v.14

Executive Summary

• SPE has tremendous opportunity through digital distribution and ad-supported online content

– Consumer time and advertising revenues are shifting online, threatening the ability for our core businesses to achieve growth and margin objectives

– Online infrastructure is nearly in place, with digital content at the outset of its growth curve

– SPE competitors are investing heavily, and filling a gap between studio content and user generated content

• At $65MM, a Grouper acquisition would accelerate entry into ad-supported content and could become a platform for other digital services online

– Grouper is the optimal acquisition target for SPE, due to its experienced management, market-leading technology and demonstrated traction with users

– Price in-line with comps and at a discount to recent competitor acquisitions

– Price does not require SPE to pay premium for users, which will be acquired via SPE marketing clout

– Service will be further enhanced by SPE content, marketing and ad sales capabilities

Digital Transition Will Increasingly Challenge SPE’s Businesses

• Sales increasingly cross-platform

• Budgets shifting away from traditional outlets

• “Grass roots” campaigns increasingly prevalent

– Character campaigns on social networks

– Viral distribution of ad messages

• Market less forgiving of average to poor titles

• New forms of content competing for consumers’ time and money

• Traditional distribution channels’ economics under attack, pressuring studio margins

Theatrical MarketingTheatrical Marketing

Content Distribution Economics

Content Distribution Economics

Advertising SalesAdvertising Sales

Achieving and exceeding SPE revenue growth and margin targets will increasingly require entry into adjacent businesses

Achieving and exceeding SPE revenue growth and margin targets will increasingly require entry into adjacent businesses

Competitors Are Investing in User Generated Video

User Generated Video Creates Value for Traditional Content Owners

User Generated Video Creates Value for Traditional Content Owners

Attracting large audiences and creating legitimate alternative distribution channels

Offering user-generated video and driving advertising revenue

Two-way medium with high degree of interactivity, customer engagement and feedback

Provide opportunities to create derivatives of existing properties

Harness users’ creativity to identify and develop new concepts

Attracting large audiences and creating legitimate alternative distribution channels

Offering user-generated video and driving advertising revenue

Two-way medium with high degree of interactivity, customer engagement and feedback

Provide opportunities to create derivatives of existing properties

Harness users’ creativity to identify and develop new concepts

• Acquired Intermix / MySpace for $580MM

• Acquired IGN for $650MM and Scout for $170MM

• $900MM search advertising deal with Google

7/18/2005

9/09/2005

8/07/2006

• Acquired Lightningcast for online video ad insertion technology

• Launched free video portal with content from A&E, MTV, Warner

5/18/2006

• Acquired iVillage for $592MM

• Promoting new series on YouTube

3/06/2006

6/27/2006

• Acquired iFilm for $49MM

• Agreed to distribute MTV content over Google’s AdSense network

• Announced pending acquisition of Atom Entertainment for $200MM (includes Addicting Clips)

10/13/2005

8/07/2006

8/09/2006

8/1/2006

Grouper Stands-out Among Acquisition Candidates

Viable acquisition candidates limited to at least 1MM unique users to demonstrate potential scalability of operations

2.4

30.5

TargetTarget U.S. Unique Users (MM)U.S. Unique Users (MM) Acquisition ConsiderationsAcquisition Considerations

• Prohibitive valuation (rumored to be seeking over $1BN)

• Technology weaker than Grouper

• Owned by Viacom

1.7• Viacom acquisition pending as part of

Atom Entertainment deal

2.6• Secured $15MM in funding July 1, 2006• Believed to be off the market

3.0

• Performs well against acquisition criteria– Strong management– Differentiated technology– Demonstrated traction

Grouper Overview

Service Summary

• SPE’s acquisition would include total consideration of $65MM

– $52.5MM at closing

– $12.5MM tied to performance metrics (revenue, streams, employee retention)

• Company is pre-revenue, received $5.1MM funding to date

• We were informed that Grouper received a competitive acquisition bid of at least $50MM

• Entered into exclusive negotiations with SPE through 8/18/2006

• Multi-platform Video Distribution Network focused on watching, sharing, and creating user generated video

• Experienced management team

• Syndicates video to other sites through one-click posting (MySpace, Friendster, Everyone’s Connected, WordPress, Blogger)

• Leverages P2P software client; increases video quality; decreases delivery costs

• Enables video portability to multiple devices (iPod, PSP)

• Widely distributes easy-to-use video editing tools (Proprietary client, Instant upload from cameras, camcorders, and webcams)

• Ad-filtering tools target ads based on content tags

Differentiators

Funding and Deal Status

Demonstrated Traction

• #2 independent video community (Hitwise May report), with 7MM global unique users/month (3MM US)

• Reaches a young demographic that is 58% male

• Over 112,000 uploaded videos programmed across multiple genre-based channels

(1) Investors include DAG Ventures and T-Online Venture Fund

Grouper Would Provide Opportunities for SPE and Sony

• Could help address needs for complementary services– Enable users of Sony cameras and camcorders increased interactivity with content– Provides initial base of unprotected content for PSP and Walkman

• Potentially complementary to existing service efforts– PSBG eyeVi initiative selected Grouper to develop its service prototype– Expands Connect’s service capabilities by adding user-generated content

• Grouper technology built to support ad-based and transactional business models

• Management team has required expertise

• Brand has demonstrated traction and strong growth potential

• Platform for SPE to market and distribute studio content online

• Enhance SPE’s existing advertising revenues

• Build software capabilities

• Address core business challenges in meeting growth objectives

Standalone Business Growth Opportunity

Standalone Business Growth Opportunity

Traditional SPEBusiness Opportunity

Traditional SPEBusiness Opportunity

Could Provide Value toSony Devices

Could Provide Value toSony Devices

Grouper Service Highlights

WatchWatch

• Home page with “video wall” of user generated content; 80% click-through

ShareShare CreateCreate

• Share with users• Post videos to personal

pages on other sites

• Easy-to-use downloadable tools for creating and editing videos

Differentiated from YouTube and Other CompetitorsDifferentiated from YouTube and Other CompetitorsCompetes with YouTubeCompetes with YouTube

Grouper Service Highlights: Watch Videos

•Home page with “video wall” of user generated content (80% click-through)

•Content can be discovered through:–Rotation in video wall–Search–Channels

•Ability to download content to multiple devices (iPod, PSP)

Grouper Service Highlights: Share Videos

•Easy upload of user videos

•One click publishing to other sites

•E-mail to friends in users’ MSN, Hotmail, and Yahoo accounts

•P2P client enables download of original, high quality files

•Add video comments

Grouper Service Highlights: Create Videos

•Real-time recording and upload from web cams

•Proprietary client with easy-to-use editing tools–Select video–Select photos and tracking / panning effects

–Select music

Comparable Company Analysis Supports a $80-$110MM Valuation

Recent FundingsRecent

Fundings

Recent Acquisitions

Recent Acquisitions

GrouperRound of Amount Unique EV / Unique Post Money Value Based On

($ mil) Date Funding Raised Users (mm) Users Valuation EV/UU Multiple*

Facebook 4/19/2006 2 $25.0 7.68 $11.16 $71.4 - $100.0 $33.5

Friendster** 11/6/2003 1 $13.0 1.70 $31.18 $53.0 $93.5

Metacafe 7/1/2005 2 $15.0 1.95 $26.40 $42.9 - $60.0 $79.2

Brightcove 11/22/2005 2 $16.2 0.20 $220.00 $44.0 NM

YouTube*** 3/31/2006 2 $8.0 6.00 $16.67 $100.0 $50.0

BitTorrent 9/27/2005 1 $8.8 0.38 $123.13 $35.0 - $58.3 NM

Veoh Networks 4/18/2006 1 $12.5 0.10 $250.00 $25.0 NM

Median $51.4 $64.6

Implied Acquisition Valuation (at 25% Premium) $64.3 $80.8

iVillage 3/3/2006 ACQ $600.0 14.0 $42.86 $600.0 $128.6

Intermix / MySpace 7/18/2005 ACQ $580.0 17.7 $32.77 $580.0 $98.3

thePlatform 6/1/2006 ACQ $80.0 -- -- $80.0 NM

Median $580.0 $113.4

Implied Acquisition Valuation NM $113.4

Source: Funding information provided by VentureSoruce.com. Unique user data from Nielsen NetRatings and ComScore MediaMetrix.* Grouper value based on EV/UU based on US unqiue users of 3.0 million.** Post money valuation for Friendster provided at $53.0 million.*** Pre money valuation for YouTube on latest round of funding from Sequoia Capital has been discussed at $100 mllion. Guidance has been provided by Montogomery & Co. and sources at Sequoia.

Comparable Company Statistics

Analysis excludes Viacom’s August 9 acquisition of Atom Films for $200MM

SPE Projections – Base Case (lower than Management Case)

(1) EBIT reflects operating profit less estimated amortization of technology/software assets totaling $20MM over 7 years. Initial estimate requires third party review for final figures. Assumes transaction close at 9/30/2006.

(2) 4 year discounted pre-tax cash flow analysis (2006-2009) performed with a discount rate of 16.5% (in-line with SPE’s normal rate); terminal EBIT multiple of 8.0x.(3) Total consideration includes $52.5m at closing; $12.5m contingent on performance and paid over the course of 2007 through 2009. (4) Deepwater mark represents cumulative cash position.

(millions) FY 2006 FY2007 FY2008 FY2009

User Activity

End of Period Uniques 20.9 37.2 53.9 76.3

Page Views 899.7 3,385.2 7,621.5 12,506.4

Total Searches 171.5 798.0 1,941.8 3,251.7

Total Streams 1,534.9 5,967.7 12,003.4 17,543.6

P&L Performance

In-Stream 1.42$ 10.06$ 28.25$ 43.02$ Banner / Ad-words 1.18 5.66 12.80 20.99 Sponsored Search 0.46 2.87 10.46 19.51

Total Revenue 3.07$ 18.60$ 51.50$ 83.51$

Sales Commission 0.21$ 1.30$ 3.60$ 5.85$ Video Streaming 1.39 5.39 10.84 15.84 Page View Bandwidth 0.08 0.31 0.69 1.13

Total COGS 1.68$ 6.99$ 15.13$ 22.81$

Gross Profit 1.39$ 11.60$ 36.37$ 60.70$

Total Operating Expenses 10.23$ 18.82$ 23.28$ 29.80$

Operating Profit (8.85)$ (7.22)$ 13.09$ 30.91$

Amortization (1) (1.43)$ (2.86)$ (2.86)$ (2.86)$

EBIT (10.28)$ (10.08)$ 10.23$ 28.05$

Impact on SPE

DCF Value (2) 149.62$

Total Consideration (3) (65.00)$

NPV 88.99$

IRR 47%

Deepwater Mark (4) Mar-08 (76.36)$

Risks and Mitigation

MitigationRisks

• Customer retention / increased competition • Differentiated technology provides a better user experience than competitors

• Syndicate content to other sites (less dependent on “fads” in user taste)

• Integration challenges • Structure incentives for acquired management• Allow new management to retain decision-

making authority

• Lack of interest by advertisers • Grouper’s first deal is in place with MTV• AOL and Google report sold-out ad inventory

• Potential for infringing or indecent content on site

• Grouper has procedures to remove inappropriate or infringing content

• Grouper has a policy of banning users and / or terminating accounts of users who post such content

• Separate branding from Sony

Ensuring a Managed Grouper Integration within Sony

Defined SPE Point Reporting and Cross-Sony

Liaison

• Designated SPE senior manager with full operating authority (hire/fire) and to act as liaison with Tim Schaaff between Grouper and other Sony divisions

– Manage Grouper’s 3 year development plan to defined performance targets

– Work jointly with Tim directly to identify software linkages where appropriate

– Coordinate implementation of cross-Sony opportunities

– Collaborate within SPE to prioritize new opportunities

– Help Grouper management to develop inter-Sony relationships as necessary

Coordination with Tim Schaaff and

within SPE Divisions

• Close working relationship between Tim Schaaff and Grouper engineering team/CEO to coordinate SEL development opportunities and overall agenda

• Tim to help manage interface to SEL and Tokyo to help ensure Grouper succeeds

• Monthly or as needed meetings with defined business unit team members (VP level) to identify and implement specific opportunities, eg - Theatrical Marketing, SPHE, SPT, SPD

• Senior SPE management meets quarterly to review progress and resolve issues

• Cross-Sony involvement carefully managed during initial start-up phase

Grouper Acquisition: Summary

• Provides entry into an adjacent media business at a compelling valuation

• Represents a compelling standalone business opportunity

• Provides SPE opportunity from the growth of online advertising

• Establishes direct, interactive relationships between SPE and consumers

• Provides upside opportunity as Grouper leverages SPE’s content and advertising sales, and SPE’s traditional businesses work with Grouper

• Offers potential support for other Sony businesses and additional digital services

CONFIDENTIAL

Appendix

Grouper Acquisition Highlights

• Moves SPE into growing area of ad-supported user generated content and enables SPE to participate in the growth of online advertising

– Online advertising growing 22% annually to reach $28BN in 2009

• Differentiated technology and more expansive management vision than competition

• Demonstrated traction with users in a core demographic

• Inexpensive relative to competitors’ acquisitions of video content websites

• Compelling as a standalone business

• Complements current SPE efforts to market and distribute content online

• Potential to become a platform for additional services and Sony hardware, including international expansion (e.g., eyeVi)

• Accomplished management team

– Previously developed Spinner, a Sony Music investment, which was sold to AOL for $320 MM in 1999

Grouper Management Team

• Josh Felser, CEO & Co-founder– President & Co-founder Spinner (Sold to AOL for $320M); GM AOL’s music brands;

Business development at News Corp

• Dave Samuel, President & Co-founder– CEO and Co-founder Spinner; VP Technology AOL, MIT

• Aviv Eyal, CTO & Co-founder– CTO and Co-founder Friskit; Lead engineer Microsoft Multimedia

• Mike Sitrin, VP Revenue & Co-founder– Director Marketing and Commerce AOL, Director of Sales Spinner

• Jonathan Shambroom, VP Product– VP Product Jumpstart, Director Product: Evite (Sold to IAC), When.com (Sold to AOL),

PF.Magic (Sold to Learning Co)

User-generated Content Risks

• There are risks associated with publishing user-posted content -- for example, it can violate another's copyright or trademark or be inappropriate or defamatory

• Damages associated with these risks can be reduced to a certain extent by quickly taking down infringing, trademarked, inappropriate or defamatory content after learning about them

• Damages associated with these risks can also be mitigated to a certain extent under the Digital Millennium Copyright Act of 1998 ("DMCA") if certain notice and "takedown" policies are implemented and under the Communications Decency Act ("CDA")

• Grouper has implemented policies and procedures designed to mitigate damages associated with these risks under the DMCA and the CDA

• Grouper bans users and/or terminates the accounts of users who post infringing or inappropriate content

Consumer Time is Shifting Online and Driving Growth in Internet Advertising

36.6 40.0 39.6 43.2 44.0 47.2 48.2 52.2 53.3

14.214.7 16.3

18.9 21.724.3 26.9

29.733.4

7.16.0 7.3

9.612.6

16.120.0

24.128.2

$0

$20

$40

$60

$80

$100

$120

$140

2001 2002 2003 2004 2005 2006 2007 2008 2009

Broadcast Netw orks Cable Netw orks Online

US

$ (

Bil

lio

ns

)

Overall ’05 – ’09 Projected CAGR: 10.1%

Broadcast ’05 – ’09 Projected CAGR: 4.9%

Cable/Sat ’05 – ’09 Projected CAGR: 11.4%

Online ’05 – ’09 Projected CAGR: 22.3%

TV

& O

nli

ne

Ad

ve

rtis

ing

Sp

en

d

Source: Veronis Suhler, 2005 Note: Cable/satellite growth expected to be driven by increasing audience share of prime time ratings, ability to target within specific demographic groups, improved sales system; broadcast growth expected to be driven by sustained ratings and ad rates, continued appeal as optimal means to reach large audiences

Online %: 12% 10% 12% 13% 16% 18% 21% 23% 25%

57.9 60.7 63.271.7

78.3

87.695.1

106.0114.9

Media spending does not yetreflect consumption

Advertising dollars are shifting online to address the current gap

2003-’05 US Advertising CAGR

Contribution to Growth

Television:

TV Stations 1.5% 2%

Cable Networks 15.6% 19%

Cable MSOs 8.1% 3%

CBS Net, FOX Net 5.8% 9%

Total Television 7.0% 34%

Magazines 8.9% 5%

Newspapers 3.4% 11%

Radio 0.2% 0%

Outdoor 7.1% 5%

Online 50.4% 45%

Total 8.4% 100%

SUMMARY

Traditional Media 5.1% 55%

Online 50.4% 45%

Total 8.4% 100%

Consumer Time is Shifting Online and Drove 50% Annual Growth in Online Ad Spending Over the Last Three Years

Network TV20%

Cable TV25%

Radio27%

Other11%

Magazines4%

Newspaper5%

Games2%

Internet6%

Network TV24%

Cable TV19%

Radio29%

Newspaper6%

Magazines4%

Other14%

Internet2%

Games2%

1999

2005

Early Market Results Support Grouper’s Revenue Model

• Grouper will derive advertising revenue through three distinct business models– In-stream video ads– Banners and ad-words on the Grouper.com website– Sponsored searches

• The market has demonstrated a willingness to pay premium CPMs for streaming video ads– Independent analysts and Sony experience support online video CPMs of $20 to $30 (1)

– Online video CPMs are now in-line with traditional TV CPMs and expected to benefit from the overall growth in online advertising

– Grouper model assumes video CPMs ranging from $12 to $16

• Recent deals validate the overall potential for advertising associated with user generated video and social networking sites

– Google / MySpace / Newscorp – Google will pay Fox Interactive Media $900M in advertising revenue from 2007 through 2010 in exchange for the right to provide search services to MySpace and other Fox Interactive sites

– Google / MTV – MTV struck a deal with Google to include music videos in Google’s “AdSense” network

– Studios / MySpace – Major studios are paying MySpace for the ability to create user profiles in support of upcoming theatrical releases

– Google has already closed initial deals with MTV

(1) Josh Bernoff, Forrester Research; Allie Savarino, SVP World of Worldwide Marketing, Unicast; Jeff Lanctot, VP of Media Buying, Avenue A Razorfish.

Evolving Infrastructure Represents an Opportunity to Build Direct Relationships with End-users and Increase Control of Distribution

Broadcast Model

Cable Model

Digital Distribution – Licensing/Syndication

Broadcast Network

Broadcast TVLocal Affiliate

Production CustomerDistributionAggregation

SPE

Cable Network

Cable TVCable MSOSPE

Portal PC, TV or

DeviceBroadband ISPSPE

Customer-facing Service

SPE-owned Service

PC, TV or Device

Broadband ISPSPE

54.1

30.5

8.53.0 2.6

22.0

9.315.2

10.5 8.6 8.34.7 2.4 1.1

4.6 4.2 4.1 3.21.1

User Generated Video Store Channel Promotional

User Generated Video is Growing Quickly and Attracting the Largest Audiences for Digital Video Content

• Offers access to a wide variety of user posted content

• Allows users to browse content or search in genre-based channels

• Provides interactivity between users• Primarily advertising based revenues

• Aggregates video across content providers for purchase

• Uses a range of models including sell-thru, rental, and subscription

• On-demand videos in programmed micro-channels or on a show-by-show basis,

• Business model primarily includes advertising, with some upsell to subscription

• Predominantly short video clips that promote the site owner’s content, merchandise, and brand

• May include some advertising, and minimal commerce capabilities, but is promotional in nature

Monthly Unique Users (mm)G

rouper

*

Source: Nielsen NetRatings. Figures as of 8/10/06.* Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded. Worldwide unique users total approximately 7 million.

Number of Videos in the CategoryMillionsThousands

Mill

ions

Doz

ens

Studios and User Generated Video Partnerships Fill a Gap in Current Content Offerings

Studios“Professional”

User Generated Video Sites“Consumer”

Nu

mb

er o

f P

eop

le V

iew

ing

Current Gap“Prosumer”

Studio / UGC Partnership

Studio / UGC Partnership

Increase distribution for near-professional quality user generated videos

Broaden base of Studio content and increase ability to target

Increase distribution for near-professional quality user generated videos

Broaden base of Studio content and increase ability to target

SPE Target and Competitive Landscape

Technology Capabilities

Low High

Lo

w (

< 3

mm

)H

igh

(>

3m

m)

Exi

stin

g S

ervi

ce P

enet

rati

on

Google (95.3)

Yahoo (106.6)

AOL (74.5)

YouTube (30.5)MySpace (54.1)

Grouper* (3.0)

Brightcove (0.2)

Veoh (1.0)

MLB.com (10.5)Facebook (8.5)

Connect (0.8)

iTunes (22.0)

(Monthly Unique Users in millions)

Source: Nielsen NetRatings. Figures as of 8/10/06.•Grouper unique user numbers as provided by company. Number of unique users represents US base of direct and embedded. Worldwide unique users total approximately 7 million.

Blinkx (0.01)

Metacafe (2.6)

Friendster (1.1)

AddictingClips (1.7)iFilm (2.4)

Revver (0.5)Dailymotion (0.5)

vidiLife (1.2)

VideoEgg (0.03)vimeo (0.3)

MovieLink (0.5)

CinemaNow (0.4) vSocial (0.5)

Guba (1.0)

Roo Media (0.5)

MSN (95.6)

ABC.com (8.3)

MTV Overdrive (4.7)

FOX.com (3.2)

NBC.com (4.6)CBS.com (4.2)

Upside Through Sony Pictures Ownership

• Existing content library and new releases

• Developed short form content, potentially for mash-ups

• Talent relationships and events

• Basis for building community and UGC experience

• SPE websites

• SPT promotional spots on-air

• Linkage to theatrical marketing campaigns

Content *Content *

* July 13, 2006 survey showed 33% of UGC users would be more interested in UGC sites with inclusion of studio content, only 15% were less interested. Survey commissioned by SPE and conducted by J. Rost Associates LLC.

Marketing ReachMarketing Reach

Advertising SalesAdvertising Sales

Corporate Infrastructure

Corporate Infrastructure

• SPT ad sales force and relationships

• Existing ad volume for leverage and cross-platform sales

• Corporate functions (e.g. – human resources, accounting)

• Business processes

• Business relationships and third-party service providers

Grouper Service Highlights

WatchWatch

• Home page with “video wall” of user generated content; 80% click-through

• Content can be discovered through:– Rotation in video wall– Search– Channels

• Ability to download content to multiple devices (iPod, PSP)

ShareShare CreateCreate

• Easy upload of user videos

• One click publishing to other sites

• Import address from MSN, Hotmail, and Yahoo to create email groups

• P2P client enables download of original, high quality files

• Add video comments

• Real-time recording and upload from web cams and mobile phones

• Proprietary client with easy-to-use editing tools

– Select video– Select photos and tracking /

panning effects– Select music

Differentiated from YouTube and Other CompetitorsDifferentiated from YouTube and Other CompetitorsCompetes with YouTubeCompetes with YouTube

•Executive Summary

• Industry Transition to Digital Distribution

•Grouper Overview

•Financials and Valuation

•Risks and Mitigation

•SPE Integration

Agenda

confidential grouper acquisition opportunity presentation for gec august 16, 2006 draft v.14

Documents

spe content

user generated content

digital content

studio content

mtv content

usergenerated video

digital distribution

online content consumer