Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Deals slides team 1 (1)


Published on

Published in: Business, Technology
  • Be the first to comment

Deals slides team 1 (1)

  1. 1. A Joint Venture Between RealNetworks & MTV Networks<br />Team 1<br />Kevin Barnett<br />Chelsea Childs<br />Charlotte Lange<br />Joe McVicker<br />OleksandrPankiv<br />
  2. 2. How Rhapsody Works<br />Catalog of over 8 million full-length songs<br />Choose from 2 plans:<br />Rhapsody Unlimited ($12.99/mo.)<br />Rhapsody To Go ($14.99/mo.)<br />MP3 Store<br />
  3. 3. Basics of the Deal<br />Joint venture announced in August 2007<br />Limited Liability Company (LLC)<br />Rhapsody America = 51% RealNetworks + 49% MTV<br />Managed by Michael Bloom, Vice President of Digital Music for MTV<br />Alliance with Verizon Wireless<br />
  4. 4. Cash<br />Current Rhapsody subscribers<br />Third-party contracts<br />Personnel<br /> domain<br />Rhapsody brand license<br />Music content<br />License of Rhapsody IP<br />Cash<br />URGE subscribers<br />Third-party contracts<br />Personnel<br />Brand licenses<br />Music content<br />$230 million five-year note for advertising <br />Contributions to the Joint Venture<br />
  5. 5. The Parties<br />
  6. 6. About RealNetworks, Inc.<br />Founded: 1994<br />Headquarters: Seattle, WA<br />Industry: Internet software & services<br />Products/services: Rhapsody, RealPlayer, SuperPass, GameHouse<br />Revenue: $604.8 million<br />Net Income/Loss: -$243.9 million<br />Employees: 1,993<br />
  7. 7. RealNetworks’s Role in the Deal<br />Venture partner with 51% ownership stake<br />Expertise in Internet and software technologies<br />Experience running a subscription-based service<br />
  8. 8. About Viacom International<br />Founded: Established in 1971 by CBS, spun-off in 1973<br />Headquarters: New York, NY<br />Industry: Cable TV, motion pictures<br />Businesses: MTV Networks, BET Networks, Paramount Pictures<br />Revenue: $14.6 billion (2008)<br />Net Income: $1.25 billion (2008)<br />Employees: 11,500 (3/09)<br />
  9. 9. About MTV Networks<br />Founded: 1981<br />Headquarters: New York, NY<br />Owner: Viacom International<br />Industry: Music, TV<br />Channels: Over150 worldwide, including MTV, VH1, CMT, Logo, Nickelodeon, Nick at Nite, Noggin, Comedy Central, TV Land & Spike TV<br />
  10. 10. MTV’s Role in the Deal<br />Venture partner with 49% ownership stake<br />Most recognized music brand<br />Rhapsody featured at MTV Video Music Awards<br />Access to TV networks and websites for marketing<br />MTV channels (e.g. VH1, CMT) will be Rhapsody playlists so consumers can download new music featured in the TV shows<br />Popular with key demographic of potential Rhapsody users<br />
  11. 11. About Verizon Wireless<br />Founded: 2000<br />Headquarters: Basking Ridge, NJ<br />Owner: Joint venture of Verizon Communications (55%) & Vodafone (45%)<br />Industry: Telecommunications<br />Products/services:<br />Revenue: $49.3 billion (2008)<br />Employees: 87,000<br />
  12. 12. Verizon’s Role in the Deal<br />Direct marketing through Verizon retail locations<br />Verizon’s V CAST Music service allows customers to:<br />Download music to phones<br />Upload music from PC to phone<br />Access ringtones, etc.<br />
  13. 13. The Online Music Services Industry<br />
  14. 14. Online Entertainment Industry<br />
  15. 15. Digital Music Revenues Increasing<br />
  16. 16. The Competition: Apple’s iTunes<br />$2.5 billion in net sales revenue from music-related products/services<br />Catalog of over 12 million songs (4 million more than Rhapsody)<br />Over 10 billion songs downloaded<br />
  17. 17. Other Industry Competitors<br />
  18. 18. Joint Ventures & Pre-Contractual Risks<br />
  19. 19. Pre-Contractual Risks and Costs Addressed by Joint Venture Form<br />Adverse Selection<br />Expensive, inefficient information gathering process<br />Protracted, difficult contracting process resulting in inflexible or overly-specific contract terms <br />
  20. 20. Adverse Selection<br />Adverse Selection risks exist where informational asymmetry permits opportunism<br />Parties may exploit informational asymmetry in contract or acquisition negotiations<br />
  21. 21. Information Gathering Process<br /><ul><li>Accurately valuing assets can be extremely difficult and expensive
  22. 22. Cost of pre-contractual information development affects value of the transaction</li></li></ul><li>Inflexible ContractTerms<br /><ul><li>Rigid contracts not effective in long-term dealing
  23. 23. Strategic alliances require sustained best efforts of the parties</li></li></ul><li>How the Joint Venture Form Limits Pre-Contractual Risks and Costs<br /><ul><li>Parties remain tied to the success of the venture
  24. 24. Joint venture form combats over-valuation of assets
  25. 25. Joint venture form combats information asymmetry</li></li></ul><li>The JV Form Allows for Necessary Flexibility<br /><ul><li>Because of JV structure, parties become co-fiduciaries
  26. 26. Not a discrete exchange: parties must “cooperate to an extent that cannot be specified by contract”
  27. 27. Reduces risk of inflexible, dysfunctional long-term contracting arrangement </li></li></ul><li>Joint Ventures & Post-Contractual Risks<br />
  28. 28. Transaction Cost Economics<br />Field of study that examines the comparative costs of planning, adapting, and monitoring task completion under alternative governance structures<br />Underlying assumption = opportunism<br />Transaction costs occur when parties to a transaction do not operate in unison<br />
  29. 29. Asset Specificity<br />Concept of transaction cost economics<br />Creates risk of opportunism at the expense of the party who developed the specialized asset<br />Leads to poor performance in a joint venture<br />Formal contracts can mitigate asset specificity<br />
  30. 30. Article IX:Management of the Company<br />Section deals with actions on behalf of Rhapsody that either MTV or Real need permission from the other to take: <br />Changing Rhapsody’s budget;<br />Incurring indebtedness;<br />Making loans;<br />Transferring Rhapsody’s brand name;<br />Committing Rhapsody to merger or sale of its assets;<br />Beginning any litigation; and<br />Neither party may amend the LLC Agreement<br />
  31. 31. Business Plan<br />Parties must follow the Plan for 5 years<br />Includes operating budget, target capital contribution schedule, strategic outlook, etc.<br />Provides for cases where parties cannot agree on operating budget<br />
  32. 32. Limited Exit Opportunities<br />
  33. 33. Four Exit Opportunities<br />MTV’s Put option<br />RealNetworks’sCall option<br />Drag-Along / Right of First Refusal<br />Tag- Along<br />
  34. 34. MTV’s Put Option<br />The put allows MTV to force RealNetworks to buy its 49% interest<br />Not at will; only exercisable in two ways:<br />If RealNetworks undergoes an “extraordinary transaction” without MTV’s written consent<br />If an “impasse” exists<br />
  35. 35. Types of Extraordinary Transactions<br />Special cash or non-cash distribution or dividend<br />Extraordinary repurchase, redemption or acquisition<br />Incurrence of debt<br />Direct or indirect sale or disposition<br />
  36. 36. RealNetworks’sCall Option<br />Allows RealNetworks to force MTV to sell its 49% interest to it according to specified valuation techniques<br />Not at will, only exercisable if an “impasse” exists<br />
  37. 37. Impasse<br />Both the put and the call vest if an impasse occurs<br />According to the definition, an impasse can only occur if, for two consecutive Fiscal Years, there has been a Budget Approval failure and any of the Impasse Financial tests have not be met<br />
  38. 38. Drag- Along / Right of First Refusal<br />RealNetworks may transfer its interest to another party and ‘drag-along’ MTV’s interest<br />Option requires MTV to sell its interests on same terms to a prospective purchaser of RealNetworks’sinterest<br />MTV reserves the right of first refusal<br />
  39. 39. Tag-Along<br />MTV may ‘tag-along’ its interest into sale to the potential bidder if RealNetworks decides to transfer its ownership <br />Tag-along sale is on the same terms<br />
  40. 40. Conclusion<br />
  41. 41. Rhapsody America’s Results<br />Spent roughly $119 million on advertising<br />Subscribers in 2010 are down from 2009 by 100,000 to 700,000<br />Apple’s iTunes is still the dominant player, even without a subscription-based offering<br />
  42. 42. The Spin-Off<br />Press release announced spin-off to independent entity<br />RealNetworks to contribute operating capital<br />MTV to contribute advertising<br />Both RealNetworks & MTV will retain slightly less than 50% interest<br />
  43. 43. Conclusion<br />Rhapsody America failed (so far) to compete with iTunes<br />Parties faced pre- and post- contractual risks when structuring the deal<br />Joint venture form meant to address these risks<br />Spin-off concedes failure, but demonstrates parties’ commitment to the venture’s potential<br />
  44. 44. Questions?<br />