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Project Sunrise Discussion Document

September 2010

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Goals and Working Hypothesis

• The over-arching goal is to merge as much of our Home Entertainment businesses as possible into a Newco in order to extract as much cost as possible and create greater efficiencies

• Working hypothesis is that, at minimum, the following can be merged into the Newco– Back office– Sales and Marketing for all forms of physical distribution (both New Release and Catalog)

• Working hypothesis is that digital is handled independently by the partners outside of Newco– As many customers now handle both physical and digital, distinction is by business model not

by customer– Partners handle VOD, EST, and Digital Streaming independently even when distributing

digitally through customers that also handle physical (e.g., Partners will separately handle Netflix streaming relationship, Amazon VOD relationship)

• For management of key decisions (Wholesale Price, Street Dates, Marketing), partners will separately set general guidelines for their respective titles and Newco will make decisions on how to execute within those guidelines

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Complexities to be Discussed

• If digital is out

– How can / should Newco approach sales relationships with partners that have both physical and digital distribution

– Is Newco to be a short-term business only for the remaining life of physical media

• Is Newco structured as a JV? Does it retain profit or run at break-even– How do the partners allocate non-direct costs under any structure

• 50/50 if a JV and so long as volume of titles does not differ greatly by partner?

• Or activity based (# of titles released, units shipped, country-level activity, etc.)?

– If feasible, how would the partners bring in additional partners later if structured as a 50/50 JV

• Go-to-market strategy

– Comparison of current strategies for each partner

– Potential complexities for Newco, including market confusion if Newco is managing varied windowing guidelines for each partner [(e.g., 28 day delay with Netflix)]

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Management of Key Decisions: Physical Retail (e.g., Wal-mart)

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New Release Catalog

Partners Independently

Determine

Newco Partners Independently

Determine

Newco

Street Date Determine window [(e.g., street no

earlier than theatrical + 90 days)]

Set specific street date within the

window

N/A N/A

Wholesale Price

Set deemed minimum

Set specific wholesale price

Set deemed quarterly margin

goals by format and age

Set specific wholesale price

Marketing Determine marketing budget by title;

deliver marketing materials; production

creation

Execute marketing within budget and using assets from respective partner

Set marketing budget across all

titles

Execute marketing plan

Management of Key Decisions: In-Store Physical Rentailers (e.g., Blockbuster)

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New Release Catalog

Partners Independently

Determine

Newco Partners Independently

Determine

Newco

Street Date *Determine window [(e.g., street date

same day as retail)]

*N/A [(tied to retail)] N/A N/A

Wholesale Price

*TBD *TBD Set deemed quarterly margin

goals by format and age

Set specific wholesale price

Marketing Determine marketing budget by title;

deliver marketing materials; production

creation

Execute marketing within budget and using assets from respective partner

Set marketing budget across all

titles

Execute marketing plan

*Varies from prior page

Management of Key Decisions: Online Physical Rentailers (e.g., Netflix Physical)

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New Release Catalog

Partners Independently

Determine

Newco Partners Independently

Determine

Newco

Street Date * Determine window [(e.g., 28

day delay )]

N/A (tied to retail) N/A N/A

Wholesale Price

TBD TBD *Contractual N/A

Marketing Determine marketing budget by title;

deliver marketing materials; production

creation

Execute marketing within budget and using assets from respective partner

Set marketing budget across all

titles

Execute marketing plan

*Varies from prior page

Management of Key Decisions: Physical Kiosk (e.g., Redbox)

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New Release Catalog

Partners Independently

Determine

Newco Partners Independently

Determine

Newco

Street Date Determine window [(e.g., 28 day delay )]

N/A (tied to retail) N/A N/A

Wholesale Price

* Enter Contracts with Customers

(copy depth / price or revenue share)

N/A Contractual N/A

Marketing Determine marketing budget by title;

deliver marketing materials; production

creation

Execute marketing within budget and using assets from respective partner

Set marketing budget across all

titles

Execute marketing plan

*Varies from prior page

Next Steps and Process Issues

• Next steps

– NDA

– Diligence requests sent

– High-level structuring / concepts meeting (in parallel with gathering responses to due diligence)

• Who to involve; when to involve them

– Detail experts that don’t reside in Home Entertainment - Booz?

– Junior resources (Corporate Development, Legal, Finance)

– Senior finance resources

• Work streams

– Scope of Newco

• Is digital / VOD in or out

• Decisions left with partners independently vs. within Newco

– Legal implications / considerations

– Newco business model (profit or break-even, cost allocations)

– Organization structure

– Comparison of each partners’ relevant high-level business models

• Areas of relative experience

• Potential cost savings opportunities through synergies

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