DRAFT GSN Investment Committee Presentation March 4, 2011
DRAFT Executive Summary • GSN operates a multiplatform U.S. cable network focusing on game show content and a digital business that includes skill-based games, casual games and an online ad network • SPE owns 35% of GSN and shares management control 50/50 with DIRECTV (65% owner) • SPE seeks approval for the following transaction; long-form documentation still under negotiation with DIRECTV – Acquire an additional 5% of GSN for $60MM (net cash impact of $(9)MM) – Acquire management control of GSN – Grant DIRECTV a put on an additional 20% of GSN • Acquiring management control of GSN would create strategic and financial value for SPE – Strengthens SPE’s presence in U.S. cable networks, a key profit driver for media companies – Enables SPE and GSN to further exploit and mutually benefit from SPE’s light entertainment assets – Updated programming strategy and build-up of social gaming assets positions GSN for strong future growth – Acquiring management control of GSN allows SPE to consolidate, and is expected to increase EBIT (by up to $38MM per year by FYE14) and cash in future years – SPE would recognize a step-up gain at close of approximately $265-300MM • SPE believes now is the right time to capitalize on DIRECTV’s willingness to cede management control and expand on SPE’s growing base of U.S. cable assets – SPE’s strategy to build scale in U.S. cable networks is gaining momentum (3net, Sony Movie Channel, FEARnet) – SPE could eventually manage these channels under a common infrastructure – DIRECTV has demonstrated it is open to ceding management control of GSN to SPE; this would resolve the challenges of the 50/50 governance structure which SPE was unable to resolve with its prior partner, Liberty Media page 2
DRAFT GSN Overview Television Digital Skill-based games • U.S. cable network with a primary • Online casual skill-based cash competitions programming focus on game show content • 30MM players worldwide (3) • Distributed to approximately 66 million • Over 35 games including popular titles such homes (1) as JEOPARDY! and Wheel of Fortune • Demographics: target audience aged 25-54, female-skewing Casual games • Ad-supported games on GSN.com • Revenues driven by a mix of affiliate fees and • 50+ casual games on Facebook television/online advertising – Utilizes virtual goods currency model • Programming strategy focused on – 2MM+ active members (3) − Producing flagship originals ( The Newlywed Game, Baggage, 1 vs. 100 ) Advertising network − Acquiring highly rated off-network series • Ad sales network for online games offering premium ad solutions and a performance − Licensing content from SPT library, based inventory system 2waytraffic, and Embassy Row CY2010 (2) , Values in $MM TV Digital Total Revenue $166 $66 $233 % of Total 71% 29% (1) Per GSN estimate of CY10 subscribers (2) Unaudited page 3 (3) Per GSN management estimates
DRAFT GSN Past vs. Present PAST PRESENT • CY07 Revenue $126MM • CY10 Revenue $233MM Revenues / Profits (1) • CY07 EBIT $15MM • CY10 EBIT $71MM • • DIRECTV 65% owner Liberty Media 50% owner Partner – – Willing seller Not a willing seller – Believes 50/50 governance is not ideal – Comfortable with 50/50 governance • New management team with strong track • Concerns with management team record Management • Difficulty reaching consensus with Liberty on • Financial growth and implementation of installing new management team strategic initiatives • Producing compelling originals/reformats • Heavy reliance on licensing older game ( Baggage , 1 vs. 100 ) show library product Programming • Acquiring highly rated off-network series • Original programming less compelling or • Licensing content from SPT library, appealed to a demographic not core to GSN 2waytraffic, and Embassy Row • Robust strategy featuring: – Skill-based cash competitions Online Presence • Limited online game options on GSN.com – Casual games on Facebook and ad- supported games on GSN.com – Advertising network • • Management attempting to shift core Embracing older female demographic Target demographic to young men, rather than – Attracts advertisers Demographic focusing on older females – Aligns with heavy online gaming users page 4 (1) Based on unaudited actuals
DRAFT GSN Financial History and Forecast Since 2007 the business has grown significantly and is now highly profitable Figures represent 100% of GSN’s Revenue and EBIT Values in $MM Values in $MM 18% CAGR 44% CAGR Calendar Year Calendar Year 2005A 2006A 2007A 2008A 2009A 2010A 2011B 2012F 2013F EBIT Margin % 6% 13% 12% 34% 27% 30% 30% 35% 38% NOTES: •2005 – 2007 and 2010 figures are unaudited actuals; 2008 – 2009 figures are audited actuals; 2011 figures are GSN budget; 2012 – 2013 figures are management forecasts •The figures include the contribution from FUN Technologies acquired by GSN in April 2009, as well as Shizmoo and Mesmo acquired in April 2010 page 5
DRAFT Key GSN Growth Drivers • Strong performance in television advertising, partly due to increase in viewership Advertising − Ad revenues held fairly stable through economic recession − Management forecasting significant further growth through CY13 • Modest growth in affiliate revenue with CPI increases year-to-year and stable carriage commitments Affiliate Revenues − Potential to increase penetration with existing affiliates, which could result in up to 10MM additional homes • Refocused programming strategy on core female 25-54 demographic with Focus Demographic increased investment in original programming and top tier licensed content • Acquisition of casual games business positions GSN to capture significant Diversification into growth in virtual goods social gaming Online Games and • Purchase of CPM Star enables GSN to offer the full suite of digital Ad Sales monetization opportunities from cash games to performance-based ad sales page 6
DRAFT Strategic Benefits to SPE • Management control of GSN would give SPE – The majority of Board seats – Controls over the budget – The ability to hire/fire key management • Gaining management control of GSN increases SPE’s presence in U.S. cable networks – Adds increased scale to SPE’s portfolio of U.S. cable networks, which now includes minority stakes in GSN, FEARnet and 3net, and 100% of the Sony Movie Channel – GSN would become the cornerstone in a bouquet of channels that could eventually be managed under a common infrastructure • In addition to traditional network assets, GSN brings strength in skill-based online games that utilize GSN’s game show brands and SPE’s brands such as Wheel of Fortune and Jeopardy! – Attracts new demos to SPE’s television game shows • Builds on GSN’s and SPE’s current operating relationship to further benefit from SPE’s light entertainment assets – GSN could be a launching pad for new SPE game show formats – GSN would continue to license completed game show episodes from SPE’s library ( Wheel of Fortune , Jeopardy! ) and commission new versions of library formats ( The Newlywed Game ) page 7
DRAFT Historical Context and Rationale for Buying-up • Historically, SPE and Liberty each owned 50% of GSN and maintained 50/50 governance • While GSN has remained an attractive asset, the 50/50 governance structure has inherent challenges that SPE has been attempting to resolve for several years – Prohibits either party from consolidating – Contributed to stalemates that delayed the agreement to hire new management in 2008 • Liberty needed GSN as a strategic asset and showed no willingness to sell its stake • In April 2009 SPE sold 15% of GSN to Liberty and instituted a buy/sell mechanism while leaving 50/50 governance in place • Liberty eventually spun out DIRECTV including Liberty’s interest in GSN (which is now held by DIRECTV) • Recently, SPE has expanded its U.S. network presence to include interests in three channels, in addition to GSN • GSN has continued to increase its profitability • Today, DIRECTV has indicated that it is willing to sell all or a portion of its stake in GSN to SPE, as well as cede management control page 8
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