Sky italia

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  • 1. Pro-Forma Ownership Structure News Corp. and Telecom Italia to Merge Stream and Telepiu to Create a Single Pay-TV Platform in Italy
    • Sole pay-TV platform in Continental Europe’s 3 rd largest economy
    • Rapid subscriber growth through elimination of piracy, compelling product and simplified offering
    • Leverages News Corp’s expertise in running pay-TV platforms
    • High value creation with limited upfront investment
    Italia 80% 20% News Corporation Creates THE Pay-TV Platform in Italy Italia Creates THE Pay-TV Platform in Italy Italia
  • 2. Summary of Proposed Transaction Effective Purchase Price Per Sub €300
    • Pays all outstanding accounts payable at closing
    • Leaves all receivables ( €300- €325M)
    • Telepiu has already paid soccer teams through 2003-2004 season
    Italia
    • Assumes outstanding debt of €423M
    • Cash payment of €470M
    • Acquisition includes digital terrestrial licenses
  • 3. Transaction Rationale Lucrative Market for Pay-TV Compelling and Secure Programming Benefits from Single Platform Experienced Pay-TV Operator
  • 4. Italy Offers Significant Potential for a Single DTH Platform Source: Zenithmedia (July 2001); Italmedia Consulting/La Repubblica 4 July 2002, Kagan (1) Counts cable TV as one platform
    • Largest untapped pay-TV market in Europe
    • No cable industry to compete with
    • Very low pay-TV penetration
    • TV-centric culture focused on soccer
    Italy UK 21.6M 24.5M 52% 30% 8 5 1 2 9% 38% Television Households % of advertising spent on TV Free-to-air channels Pay-TV platforms (1) Pay-TV penetration (2001)
  • 5. All Key Movies and Sports On A Single Platform Basic Channels Major Studios Soccer Serie A 19 0% 9 teams 25 100% 9 teams 40+ 100% 18 teams Merger Creates Single Premium Content Platform Italia
  • 6. Unified Platform Will Eradicate Piracy
    • Today:
    • Estimated 2-3 million pirated signals in Italy which is approximately 50% of the market
    • Telepiu easily hacked and smart cards were easily obtained
    • Satellite dishes and decoder boxes are commonly sold without subscriptions
    NDS Technology Will Combat Piracy (1) Source Makro (Milan-based media institute), company reports
  • 7. News Corporation – Experienced Pay-TV Operator BSkyB DTH Sub. Growth BSkyB Annual ARPU Over 6 million DTH subscribers at June 30, 2002 – on target to hit 7 million by end of 2003 (In Millions) £269 £287 £313 £347 4.5 5.5 6.1 3.5
  • 8. News Corporation – Experienced Pay-TV Operator BSkyB Annual Churn % BSkyB Sub Acquisition Cost £250 £234 £210 2002 2003 2001 1998 1999 2000 2001 2002 Est. Italian Market BSkyB
  • 9. (in € millions except subs) 2003 2004 2005 2006 Average Subs. (in 000’s) 2,187 2,769 3,225 3,535 Revenues 1,172 1,627 1,987 2,260 Programming Costs 876 995 1,007 959 Operating Income (342) - 342 675 Operating Cash Flow (378) 83 325 672 Lease Repayments 39 24 4 - Net Cash Flow (471) 16 263 602 Summary Calendar Year Financial Projections Peak Funding Complete After Year One
  • 10. Impact of the Transaction on News Corporation
    • News Corp’s cash investments into Stream/Sky Italy will approximate $550 million in fiscal 2003
    • Gross debt at June 30, 2003 will increase by approximately $400 million from current levels
    • Operating income effect will be approximately a reduction of $150-200 million in fiscal 2003
    • No effect on News Corp.’s credit rating
    Note: Assumes one Euro equal one US Dollar
  • 11.
    • Tom Mockridge
    • Chief Executive Officer
    • Stream S.p.A.
    Italia
  • 12. (in € millions except subs) 2003 2004 2005 2006 Average Subs. (in 000’s) 2,187 2,769 3,225 3,535 Revenues 1,172 1,627 1,987 2,260 Programming Costs 876 995 1,007 959 Operating Income (342) - 342 675 Operating Cash Flow (378) 83 325 672 Lease Repayments 39 24 4 - Net Cash Flow (471) 16 263 602 Summary Calendar Year Financial Projections Peak Funding Complete After Year One
  • 13. Key Assumptions 2002E ( 1) 2003E 2004E 2005E 2006E Average Subs (in 000s) 2,177 2,187 2,769 3,225 3,535 Churn Rate 20.5% 19.5% 17.0% 15.0% 14.0% ARPU € 35 € 38 €42 €45 €47 Subs driven by compelling consumer offering and piracy elimination Churn reduced through improved customer service (1) Estimated combined Stream and Telepiu at 12/31/02. Italia
  • 14. A Stronger Consumer Offering Basic Channels: 19 25 40+ Hollywood Studios: None 20 th Century Fox, Dreamworks,MGM, Disney, Warner, Columbia, Paramount 20 th Century Fox, Dreamworks,MGM, Disney, Warner, Columbia, Paramount Soccer Serie A: 9 (includes Lazio and Roma) 9 (includes Juventus, AC Milan and Inter Milan) Full Serie A Merger Benefit To Subscriber
    • 19 additional basic channels for €4 extra per month
    • Hollywood movies
    • All football
    • More sports
    • 13 additional basic channels at no additional cost
    • Better Italian movies
    • All football
    • Wimbledon
    • World class basic offering for €26 per month
    • Italian and Hollywood movies
    • Complete sports
    Italia
  • 15. Programming Imperatives Single Platform Fosters Programming Efficiencies Scale Purchasing Program Rationalization Contract Renewals
    • Current agreements fixed by nature
    • Larger scale creates purchasing power
    • Drop redundant/non-essential channels
    • Unified and simplified consumer offer
    • Explore programming contract renegotiations upon expiration
    • No reductions to existing contracts built into business plan – all upside
  • 16. Elimination of Piracy (1) Source Makro (Milan-based media institute), company reports (2) Source: Telepiu – introduced new programming package in August
    • Estimated 2-3 million pirated signals (1)
    • June 2002 Telepiu card swap resulted in:
      • New sub additions at record levels
      • Substantial upgrades to higher tiers
    Telepiu New Sub Activations (’000s) (2) Week Prior to Announced Termination of Old Telepiu Cards June July August 2002 2001
  • 17. Elimination of Piracy
    • Sky Italia will convert all Telepiu subscribers to secure NDS conditional access system
    • Pirate conversions will only require a smart card swap out – not a full set-top box replacement
  • 18. Reduce Churn to 14.0% per year by 2006
    • Increase in-house call centers
    • Utilize best practices from BSkyB
    • Common technologies of NDS
    • Data mining
    BSkyB Annual Churn % Sky Italia Annual Churn %
  • 19. Increase ARPU to € 47 by 2006
    • Effective up-selling
    • Elimination of irrational discounting
    • Standardized service and technology
    • Deployment of easy to use new features
    • Exclusive content that customers desire
    • Video on Demand
    • Focused advertising towards customer preferences
  • 20. Timeline
    • Transaction subject to:
      • Approval of News Corp. and Vivendi boards
      • Regulatory approval
    • Closing conditions include:
      • “ Bring-down” due diligence at Telepiu
      • Minimum Audited Telepiu subscriber count
      • Standard representations and warranties
    Dec. ‘02 July ‘03 October ‘02 Regulatory Approval Begin Approval Process SMS Integration Begin Conversion to NDS Conditional Access Close Transaction June ‘03 Full Relaunch Sept. ‘03 BSkyB Type Box Available April ‘03
  • 21. Sky Italy: The Pay-TV Platform Lucrative Market for Pay-TV
    • Over 20 million television households
    • Limited competition with no cable industry
    • Large percentage of advertising spent on TV
    Experienced Pay-TV Operator
    • Global DTH operating experience
    • Replicate BSkyB
    • In-house call centers
    Compelling and Secure Programming
    • Exclusive Hollywood and local movies
    • Exclusive soccer and worldwide sports
    • NDS technology eradicates piracy
    Benefits From Single Platform
    • Economies of scale in production, marketing and operations
    • Develop direct relationship with consumer
    Italia