Starz Subscription Pay Television License …. US Distribution...Privileged and Confidential 3 Executive Summary Secured an extension of the Starz output deal for five additional slate

Privileged and Confidential

Starz Subscription Pay Television License Agreement Deal Summary

April 2013


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Deal Overview


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Executive Summary

Secured an extension of the Starz output deal for five additional slate years (2017-21)

The five year term extension (2017-21) is estimated to generate an additional $1.3BN in license fees and bonus and presents the opportunity for significant additional compensation from Internet exploitation and the ability to carve-out certain titles

Starz also offers additional compensation in the near term (2014-16) (i.e., an increased bonus and Internet fees and the ability to carve-out titles ) that wouldn’t be offered by other buyers

The value of the new Starz deal from 2014-21 represents an improvement of $331M as compared to the license fees and bonus of the current Starz deal ($739M if an additional 25M Internet subscribers are assumed)

The Starz deal provides better flexibility for Sony content services than those offered by other providers in the market and the current Starz deal, including more favorable terms for EST/Home Theater, SVOD and carriage of Starz service


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Summary of Key Changes

Linear license fees for the 2017-21 slates are 35% ($56M/year) higher than the 2014-16 license fees

Increase the annual bonus from $40M to $46M (15%) beginning in Calendar 2014 irrespective of output volume

Eliminate the Internet subscriber caps in exchange for significant uncapped Internet fees – e.g., $54M assuming 20M additional payable Internet subs vs. $3M for current deal (assuming current $7.99 Netflix pricing and subs)

Option to remove SPA titles from the deal and license them to a different buyer instead of Starz

Reduce minimum annual movie volume from 14 to 12

Reduce maximum annual movie volume from 50 to 45 (starting with 2014 slate); extracting SPA titles to license elsewhere does not reduce the volume cap

Improve rights for Sony Services/offerings during the Starz term


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License Fees and Bonus

Current term (now – 2016)• Rate Card unchanged 2014 – 2016• Annual Bonus grew from $40M to $46M (15%) beginning in

CY14

• We believe bonuses are now rare in the Pay TV business

• Rate Card returns to above-market levels in the extension term

Extension term (2017 – 2021)• Rate Card increased 35% ($56M/year)• Annual Bonus increased 15% to $46M• Extension valued at $1.3B and represents an improvement of

$331M as compared to the license fees and bonus of the current Starz deal ($739M if +20M Internet subs are added)

• Post-pay 1 black period eliminated ($1.5M/year value)

Annual Qualifying Films

• All qualifying feature films theatrically released by an SPE label up to a maximum of 45 films per year

• Reduced maximum annual movie volume from 50 to 45 (starting with 2014 slate)

• We believe all studios have Pay TV title caps and that ours is the highest and offers greater flexibility within our slate

• Cap still exceeds historical and projected SPE slates• Removes “Sony Rent A System” slots which had been

unused

InternetSOD

• Eliminated the Internet subscriber caps in exchange for significant uncapped Internet fees

• Fees increased significantly – e.g., $54M assuming 20M additional payable Internet subs above 2012 subscriber levels vs. $3M for current deal (assuming current $7.99 Netflix pricing and subs)

• Structure is in the spirit of traditional Pay TV flat fee model; establishes that Starz on the Internet must primarily be bundled with other programming (feature films/TV series) or high speed Internet

• Potential additional upside for Sony

OtherBenefits

• Sony Internet-delivered Services may have access to certain films on an SVOD basis earlier than before (as early as 2 years from theatrical release vs. 10 years), between the two Starz windows

• Sony Services may offer EST 30 days earlier than standard date for up to 7 Pictures per year

• SPT may offer films on a Home Theater VOD basis during the Theatrical Window with greater pricing flexibility than before to develop this new market

• A Sony service may carry the Starz channels via the Internet on non-discriminatory terms compared to Starz’ other distribution partners (cable or Internet), subject to good faith agreement with Starz

• The Starz deal provides better flexibility for Sony content services than those offered by other providers in the market and the current Starz deal, including more favorable terms for EST, Home Theater, SVOD and carriage of Starz service

Terms Comments

Overall Deal Terms


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Title Caps / Qualifications


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Film QualificationsFilm qualifications remain the same vs. prior Starz deal, except that Starz’ right of first negotiation for excess films (those in excess of the caps, etc.) is now more favorable to SPE. Subject to the exceptions or exclusions described below, the new Starz agreement covers films that:

• Are Feature Length (75 mins., including credits)

• Are Theatrically Released by an SPE Group Member in the Territory (except for Third Party RAS Pictures), meaning that SPE Group member did ANY 3 of the following:

– Booked US theaters

– Selected US release date

– Controlled 100% of US theatrical Film Rentals*

– Controlled/had final approval over US theatrical marketing plans*

– Controlled/had primary responsibility for US theatrical ad buys*

* Note: SPE may engage third parties under SPE control

• Are Rated “R” or less restrictive.

• Have an Initial Theatrical Release during the Term.

– A narrow exception to Initial Theatrical Release exists for Home Theater exhibitions.

• Meet the “Minimum Requirements”: each film must have EITHER (a) P&A of at least $250k and theatrical release on at least 20 screens OR (b) at least $4.5M negative cost.

• No recorded live event programs (concerts, stage plays, musicals, dance performances and sports), but motion pictures that are not recordings but are documentaries or dramatizations are included. NOTE: SPE may require Starz to license up to 1 “Live Event” film (e.g., concert films) as part of the “A” Film category at 75% of the “A” License Fee. This is a new right that secures a Pay TV license fee revenue stream for Live Event films occasionally released by SPE.

• “Additional Elements” with respect to a Picture are:

– 50% or more of total P&A expenses incurred by SPE Group Member, either directly or via financiers/investors.

– Arises out of script/screenplay/property developed by SPE Group Member

– Produced under control/direction/supervision of an SPE Group Member

– SPE Group Member was responsible for at least 25% of negative costs

– Picture based on underlying property owned/controlled by SPE Group Member

– At time of Theatrical Release, all US Home Video and TV rights are owned/controlled by SPE Group Member.*

* Note: If a Picture only satisfies the final Additional Element and is produced by a Major Studio, Lionsgate or Weinstein, or any company with a home video distribution unit, it shall be classified as a Sony Rent-A-System Film.

• Right of First Negotiation: Starz has a right of first negotiation (other than Third Party Rent-A-System Films) that exceed the caps above, or fail to meet the Minimum Requirements.


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Title Caps/Qualifications for 2013 Theatrical Releases

A Total Cap of 50 Films Released Per Year

SPC Films

“A” Films (Sony Releases - e.g., Columbia or Screen

Gems)

“B” Films (e.g., Acquisitions)

15 25 10(lower Rate Card

than “A”/SPC titles)≤4 Third Party Rent-

A-System Films

(Excess “A” films may fill “B” slots if

available)

(SPC films can fill “A” slots if there are

open “A” slots in that Year)

(SPC films can also fill “B” slots if there are open “B”

slots in that Year)

≤6 Sony Rent-A-System Films

Acquired from up to 2 sources per Year (including MGM)

(Acquired from a single source)


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Title Caps/Qualifications for 2014 – 2021 Theatrical Releases

A Total Cap of 45 Films Released Per Year

SPC Films

“A” Films (Sony Releases - e.g., Columbia or Screen

Gems)

“B” Films (e.g., Acquisitions)

15 25 5(lower Rate Card

than “A”/SPC titles)≤2 Third Party Rent-

A-System Films

(Excess “A” films may fill “B” slots if

available)

(SPC films can fill “A” slots if there are

open “A” slots in that Year)

(SPC films can also fill “B” slots if there are open “B”

slots in that Year)


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Qualifications Chart for 2013 Theatrical Releases

(1) The 800 screen minimum does not apply to (A) SPC films designated as overflow “A” category films, or (B) up to 3 qualifying films per Year, provided those films have EITHER (i) P&A greater than $20M OR (ii) release on at least 550 screens at widest point of theatrical release in the Territory.

CAP(on # of films Starz must

license)Theatrically Released by

Meet at least 1 Additional Element

Meet at least 1 Minimum

RequirementLicense Fee

Provision

“A” Films 25 releases per Year (Excess “A” films may fill “B” slots if available)

Any SPE label on at least 800 screens[1]

Yes Yes Full Rate Card

“B” Films 10 releases per Year Any SPE label Yes Yes 65% of Rate Card

Sony Rent-A-System (categorized as “B” films)

No more than 6 “B” films can be Sony RAS acquired from up to 2 sources per Year (including MGM films)

Any SPE Group Member

Does not satisfy any of the “Additional Elements”

Yes 65% of Rate Card

Third Party Rent-A-System(categorized as “B” films)

No more than 4 “B” films can be acquired from a single source per Year.

Not Theatrically Released by an SPE Group Member


Yes 65% of Rate Card; $7M cap per Picture

SPC Films 15 releases per Year(overflow “A” category films or “B” category films if there are open “A” film or “B” film slots in that Year)

SPC or successor label



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Qualifications Chart for 2014 – 2021 Theatrical Releases

(1) The 800 screen minimum does not apply to (A) SPC films designated as overflow “A” category films, or (B) up to 3 qualifying films per Year, provided those films have EITHER (i) P&A greater than $20M OR (ii) release on at least 550 screens at widest point of theatrical release in the Territory.

CAP(on # of films Starz must

license)Theatrically Released by

Meet at least 1 Additional Element

Meet at least 1 Minimum

RequirementLicense Fee

Provision

“A” Films 25 releases per Year (Excess “A” films may fill “B” slots if available)

Any SPE label on at least 800 screens[1]


“B” Films 5 releases per Year Any SPE label Yes Yes 2014-16: 100% Rate card; 2017-21: 65% Rate Card (at higher Rate Card vs. 2014-16)

Third Party Rent-A-System(categorized as “B” films)

2 releases per Year Not Theatrically Released by an SPE Group Member


Yes 2014-16: 100% Rate Card, $6M cap; 2017-21: 65% Rate Card (at higher Rate Card vs. 2014-16), $7M cap

SPC Films 15 releases per Year(overflow “A” category films or “B” category films if there are open “A” film or “B” film slots in that Year)

SPC or successor label



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Option to Withdraw and Resell SPA Pictures

SPE may opt to withdraw SPA labeled (or joint SPA/other-labeled) animated titles from Starz to re-license to another service

Applies to all such titles with a 2014 – 2021 theatrical release on an all or nothing basis

SPE may elect to include earlier releases that are >60 days before their first Starz window

Exercising the SPA withdrawal option will not reduce the volume cap or the annual bonus, nor will it affect the low volume rate-card

Historic SPA Output

2008 2009 2010 2011 2012

SPA Output 0 1 0 2 2

Starz Fees $0 $17,655,427 $0 $29,145,667 $21,872,220


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Overall cap above anticipated output levels

Excess SPC films can spillover into A/B titles

Output Volumes Relative to Starz Volume Cap

Historic Output VolumesNew Contractual Volume

Caps

2008 2009 2010 2011 2012 Average 2013 2014-21

"A" Titles 19 20 18 23 18 19.6 25 25

"B" Titles 2 4 1 1 0 1.6 10 5

SPC 17 19 20 16 17 17.8 15 15

Total 38 43 39 40 35 39 50 45


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Rate Card and Bonus


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Rate Card and Bonus

Current term (2013 – 2016 slates)

● Rate Card unchanged from current contract (NOTE: 2014 – 2016 Rate Card reduction by 35% from 2013 Rate Card remains unchanged)

● Annual Bonus of $47.5M unchanged for January 2013 and 2014 bonus payments; increased to $46M from $40M for 2015 to 2017

Extension term (2017 – 2021 slates)

• Rate Card increased 35% (~$56M/year) from 2014 – 2016 levels

• Low volume Rate Card reduced threshold reduced from 14 to 12 in SPE’s favor

• Annual bonus of $46M each January through 2022


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For Pictures with General Theatrical Release (or, if no General Theatrical Release has occurred, Initial Theatrical Release) in Years 2014, 2015 and 2016:

3rd Party Rent-A-System Film fees capped at: 2 yr / $6M each

Low volume Rate Card:

Rate Card – 2014, 2015 and 2016

Film Rentals: IncrementalPercentage:

Cumulative Fee atHighest Point in Range:

<$1 million 65.00% $650,000

$1 ≤$2 million 55.25% $1.20 million


$15 ≤$30 million 19.50% $8.52 million

$30 ≤$50 million 14.76% $11.47 million

$50 ≤$175 million 0% $11.47 million

$175 ≤$207.34 million 9.76% $14.63 million

> $207.34 million 0% $14.63 million

# of Wide Release A/B Films (incl. up to 1 SPC Film): Percentage Reduction:

10 to 12 6.5%

8 to 9 13%

Less than 8 33%


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For Pictures with General Theatrical Release (or, if no General Theatrical Release has occurred, Initial Theatrical Release) in Years 2013, 2017 – 2021:

Starz will pay a license fee equal to 65% of the applicable License Fee in the above table for each “B” film, however, that in no event shall such license fee be greater than $7.0MM for any 3rd Party Rent-A-System Film

Low volume Rate Card:

Rate Card – 2013, 2017 – 2021

Film Rentals: IncrementalPercentage:

Cumulative Fee atHighest Point in Range:

<$1 million 87.5% $875,000



$15 ≤$30 million 26.25% $11.47 million

$30 ≤$50 million 19.86% $15.44 million

$50 ≤$175 million 0% $15.44 million

$175 ≤$207.34 million 13.13% $19.69 million

> $207.34 million 0% $19.69 million

# of Wide Release A/B Films (incl. up to 1 SPC Film): Percentage Reduction:

10 to 12 6.5%

8 to 9 13%

Less than 8 33%


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2013 – 2021

In addition to the license fees, Starz will pay the amounts set forth below on the dates set forth below for Years 2013 – 2021:

Payment Year

Old Deal New Deal

2014 $40.0 million $46.0 million




2018 --- $46.0 million

2019 --- $46.0 million

2020 --- $46.0 million

2021 --- $46.0 million

2022 --- $46.0 million

Bonus


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Terms for Starz Internet Service


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Overview of Internet Approach

Overall philosophy is to ensure that online Starz is offered on a premium basis, primarily by video-based services

The cap on total internet subscribers has been removed in exchange for higher incremental compensation to SPE

Starz allowed to exploit up to 25M subs (cable + Internet combined) under the existing film Rate Card. Incremental fees apply beyond that point for every Internet subscriber above 25M

Marketing and messaging further ensure premium positioning

Bundling restrictions ensure that online Starz can only be offered: (1) on a stand-alone a la carte basis; (2) in a majority-video, “entertainment media bundle”; (3) with high speed Internet; and (4) other bundling requires approval by SPE (Amazon Prime is pre-approved)

Additional restrictions include: (1) SOD for cable (or mobile) is only as an "add-on" to a linear service, no stand-alone SOD except on the Internet; and (2) titles cannot be more than 50% of the SOD titles on the service in any calendar quarter


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Internet Terms

Effective January 1, 2013, in addition to the Rate Card and Bonus Payments, Starz must pay SPT incremental per-subscriber license fees of US$0.225/subscriber/month for certain subscriber that receive Starz via the Internet. These per-subscriber fees represent a significant increase over the prior Internet fees.

The per-subscriber fees apply to any open Internet subscriber once Starz exceeds a combined subscriber count of 25M across all Starz services (cable plus Internet). So-called “TV Everywhere” Internet subscribers (those who get Starz via the Internet as an add-on to their Starz linear cable subscription) do no generate incremental fees.

The prior Starz deal limited the Internet fees payable to SPE by (1) capping the number of Internet subscribers; (2) further reducing this cap for “cheap” subscribers by applying a “multiplier”; and (3) capping total fees at $20M/year. The new Output agreement eliminates these limitations.

Internet Fees * Existing: 2014-16 Extension: 2017-21

2014 - 16

2017 - 21 TotalStarz Existing Terms Fees $3 $3 $3 $3 $3 $3 $3 $3 $9 $15 $24Starz Proposed Terms Fees $54 $54 $54 $54 $54 $54 $54 $54 $162 $270 $432Increase Total Fees $51 $51 $51 $51 $51 $51 $51 $51 $153 $255 $408* Assumes for illustration only a "Netflix" sized deal (20M additional subs) at current Netflix pricing ($7.99/mos).


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Sony Platform Considerations


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Sony Content Services

Improvements for Sony Services/Home Entertainment

SVOD for Sony Services: Sony Internet-delivered Services may have access to certain films on an SVOD basis earlier than before (as early as 2 years from theatrical release), between the two Starz windows

Early EST for Sony Services: Sony Services may offer EST 30 days earlier than standard date for up to 7 Pictures per year without restriction

Theatrical Window Pay-Per-View/Transactional VOD: SPT may offer Pictures during the Theatrical Window with greater pricing flexibility than before to develop this new market

Favorable Terms for Sony Services: A Sony service may carry the Starz channels via the Internet on non-discriminatory terms compared to Starz’ other distribution partners (cable or Internet), subject to good faith agreement with Starz

Free-On-Demand (FOD) Bundling: Sony can bundle a FOD viewing of two titles each year with the purchase of a BIVL, PlayStation or other Sony hardware or service so long as it is priced ≥$100 in a single transaction


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Windows


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SONY/STARZ Windows

Starz’ 1st Window begins 10 months from theatrical release

Starz’ 1st Window begins 4.5 months from DVD/EST

Starz’ 1st Window

begins 3.5 months from PPV/VOD

SONY Home Theater PPV/ VOD (potentially

exclusive)

Starz 1st Window:16 months

(2013 slate) 18 months

(2014-21 slates)

* Special rules apply to holiday themed pictures.

Starz’ 2nd Window begins as early as 1 Yr and as late as 6 Yrs. + 1 mos. from end of 1st

Pay Window

“Network Window”

SONY Exclusive SVOD

(1-2 pictures/month)

SONY Exclusive EST (≤ 7 pictures/year)

SONY Standard EST

SONY DVD/Ultraviolet

SONY Standard PPV/VOD

SONY Standard SVOD

STA

RZ

RIG

HT

SS

ON

Y R

IGH

TS

Theatrical Release

DVD / EST

PPV / VOD (Standard or Day & Date)

Starz 2nd Window:

13 months(2014-16 slates)

15 months (2017-21 slates)

SONY Potential to Carry Starz Channel

SONY Potential to Carry Starz Channel

Documents

Starz Subscription Pay Television License …. US Distribution...Privileged and Confidential 3 Executive Summary Secured an extension of the Starz output deal for five additional slate