sony pictures entertainment: “the interview” roy ju - michael jennings - nina liu
TRANSCRIPT
Sony Pictures Entertainment: “The Interview”
Roy Ju - Michael Jennings - Nina Liu
Recommendation
December 31, 2013: positive profitability prospects
December 16, 2014: decreased profitability prospects Consider creation of SPV to cover expected lawsuit
settlements
December 20, 2014: negative profitability prospects
Cash Flow Projection
Dec 31, 2013
Revenue Streams and Profit Retention Theater Box Office: 30% DVD and Blu-ray sales: 50% Pay-Per-View: 100% Premium Services: 100% TV Broadcasts: 100%
Budget: $44 million
Peer Group
7 movies with similar characteristics Genre and Target Audience Budget Same Entertainment Company Christmas Day Release Box Office Sales
Projected Box Office Sales: $273.5 million
Capital Budgeting Analysis
Results: Beta = 1.33 WACC = 9.06% NPV = $38.82 million ROIC = 88.2%
Sensitivity Analysis
% Change in Sales
NPV (in millions)
Baseline $38.83
-25% $18.11
-50% ($2.59)
Profitability after Terrorist Threat
Dec 16, 2014
88% retention of box office sale forecast
Increased operational risk (expected lawsuit settlements) = $.26 million
Peer group expanded
Increased Beta, increased WACC
NPV = $21.54
SPV Diagram
SPV
Investors
Credit Rating Agency
Sony
SPV and Catastrophe Bonds
NPV after SPV = $16.58 million
Offload risk Operational Liquidity
$102 M in principal, 7.5% Current low-interest environment Vs. reinsurance
WACC adjustment immaterial
Sensitivity Analysis
12/16/2014
Before SPV (in mill) After SPV (in mill)
% Change in Sales
NPV VaR NPV VaR
Baseline $21.54 ($44.59) $16.58 $21.71
-25% $4.37 ($61.77) ($0.59) $4.53
-50% ($12.81) ($78.94) ($17.77) ($12.64)
Profitability after Normal Release Cancellation
Dec 20, 2014
Decrease in quantity of sales, 50% increase in price
Decreased expected lawsuit settlement amount
Cap bond issuance at $42.5M
Expected Loss on Project
Sensitivity Analysis
12/20/2014
Before SPV (in mill) After SPV (in mill)
% Change in Sales
NPV VaR NPV VaR
Baseline ($3.63) ($31.19) ($5.70) ($3.56)
-25% ($14.49) ($42.05) ($16.56) ($14.42)
-50% ($25.35) ($52.91) ($27.42) ($25.28)
Conclusion
Mitigate Risk SPV and Catastrophe Bonds
Minimize Loss Marketing Strategy
