1. Preform an analysis of the stand-alone fair market value of HBO
2. Compare and contrast two types of buyers for HBO (strategic vs. financial)
3. Present a methodology for calculating damages related to piracy of Game of Thrones
Will the Second Wave of Online Video Distribution Services Drown Out U.S. Pay...Cognizant
With the advent of numerous online video delivery (OVD) services by content providers, the pay TV industry is primed for a challenging time. We offer a detailed list of what to start doing, keep doing and stop doing for such pay TV providers.
Time Warner Cable Industry/Competitive AnalysisDavid Green
The document provides a PEST analysis, ETOP analysis, and market share analysis for the broadcasting and cable television industry. The PEST analysis examines political, economic, social and technological factors impacting the industry. The ETOP analysis evaluates factors related to the industry environment including market size/growth, number of rivals, differentiation, supply/demand conditions, and pace of technological change. The market share analysis shows Comcast and Time Warner Cable have the largest shares in the US market at 28% and 15% respectively, while DirecTV and Dish Network also have sizable shares. Programming costs are a major expense for industry players, accounting for over 50% of costs for some companies. The industry outlook predicts continued growth in the US,
This document discusses the cable industry's response to internet streaming services like Netflix and Hulu through its TV Everywhere initiative. It provides background on how services like Netflix, Hulu, and connected devices threatened the cable TV model by allowing cord cutting. TV Everywhere aims to allow cable subscribers to access live streams of TV channels on internet-connected devices, helping cablecos maintain the bundled payTV model that generates substantial revenue through subscription and carriage fees. However, the wide availability of broadcast TV content online through Hulu still poses risks to the TV industry's advertising and carriage fee revenues if cord cutting accelerates.
The document provides an overview of Time Warner Cable including its mission statement, vision statement, SWOT analysis, competitive analysis, strategic objectives, and potential strategic initiatives. Key points include increasing market share through innovation and enhancing the customer experience to strengthen its market position against competitors like Comcast, DirecTV, Dish Network, and others. Potential strategies discussed are developing a mobile app for live sports streaming, implementing a customer loyalty program, partnering with Amazon on cloud computing services, and improving customer service through expanded call centers.
The telecommunications and television markets in the UK have consolidated in recent years and are now dominated by four main providers: BT, Virgin Media, TalkTalk, and Sky. These providers have seen success by offering bundled "triple-play" services of broadband, telephone, and television. New entrants like YouView are aiming to reduce customer churn by offering similar bundled services integrated with broadband. Overall, increased bundling and convergence between telecoms and television is reducing churn across the sector and shifting competition to focus more on quality and value-added services rather than price alone.
Time Warner Cable Strategy written reportDavid Green
Time Warner Cable aims to become the premier provider of internet, phone, and television services through innovation and enhancing the customer experience. Its strategic plan over the next 5 years includes increasing market share by 10-15% and customer satisfaction through new programming content and service packages. Financially, it aims to increase revenue 20-25% and profit margins 1-3% over the next 3-5 years. Time Warner will pursue this vision through an offensive generic strategy of adopting competitors' services like mobile pay-per-view and sports streaming apps to gain new customers and market share.
Chris Woolard, Ofcom, Preparing for change – what will drive future growth?dcmsdigital
Chris Woolard of Ofcom: presentation on "Preparing for change – what will drive future growth?" given at the TV content seminar, Driving investment and growth in the UK’s TV content industries, 16 July 2012. More information at http://dcmscommsreview.readandcomment.com/tv/
Will the Second Wave of Online Video Distribution Services Drown Out U.S. Pay...Cognizant
With the advent of numerous online video delivery (OVD) services by content providers, the pay TV industry is primed for a challenging time. We offer a detailed list of what to start doing, keep doing and stop doing for such pay TV providers.
Time Warner Cable Industry/Competitive AnalysisDavid Green
The document provides a PEST analysis, ETOP analysis, and market share analysis for the broadcasting and cable television industry. The PEST analysis examines political, economic, social and technological factors impacting the industry. The ETOP analysis evaluates factors related to the industry environment including market size/growth, number of rivals, differentiation, supply/demand conditions, and pace of technological change. The market share analysis shows Comcast and Time Warner Cable have the largest shares in the US market at 28% and 15% respectively, while DirecTV and Dish Network also have sizable shares. Programming costs are a major expense for industry players, accounting for over 50% of costs for some companies. The industry outlook predicts continued growth in the US,
This document discusses the cable industry's response to internet streaming services like Netflix and Hulu through its TV Everywhere initiative. It provides background on how services like Netflix, Hulu, and connected devices threatened the cable TV model by allowing cord cutting. TV Everywhere aims to allow cable subscribers to access live streams of TV channels on internet-connected devices, helping cablecos maintain the bundled payTV model that generates substantial revenue through subscription and carriage fees. However, the wide availability of broadcast TV content online through Hulu still poses risks to the TV industry's advertising and carriage fee revenues if cord cutting accelerates.
The document provides an overview of Time Warner Cable including its mission statement, vision statement, SWOT analysis, competitive analysis, strategic objectives, and potential strategic initiatives. Key points include increasing market share through innovation and enhancing the customer experience to strengthen its market position against competitors like Comcast, DirecTV, Dish Network, and others. Potential strategies discussed are developing a mobile app for live sports streaming, implementing a customer loyalty program, partnering with Amazon on cloud computing services, and improving customer service through expanded call centers.
The telecommunications and television markets in the UK have consolidated in recent years and are now dominated by four main providers: BT, Virgin Media, TalkTalk, and Sky. These providers have seen success by offering bundled "triple-play" services of broadband, telephone, and television. New entrants like YouView are aiming to reduce customer churn by offering similar bundled services integrated with broadband. Overall, increased bundling and convergence between telecoms and television is reducing churn across the sector and shifting competition to focus more on quality and value-added services rather than price alone.
Time Warner Cable Strategy written reportDavid Green
Time Warner Cable aims to become the premier provider of internet, phone, and television services through innovation and enhancing the customer experience. Its strategic plan over the next 5 years includes increasing market share by 10-15% and customer satisfaction through new programming content and service packages. Financially, it aims to increase revenue 20-25% and profit margins 1-3% over the next 3-5 years. Time Warner will pursue this vision through an offensive generic strategy of adopting competitors' services like mobile pay-per-view and sports streaming apps to gain new customers and market share.
Chris Woolard, Ofcom, Preparing for change – what will drive future growth?dcmsdigital
Chris Woolard of Ofcom: presentation on "Preparing for change – what will drive future growth?" given at the TV content seminar, Driving investment and growth in the UK’s TV content industries, 16 July 2012. More information at http://dcmscommsreview.readandcomment.com/tv/
The video content industry faces challenges from audience fragmentation, increased competition, and piracy. New drivers include personal TV, online video usage growing, and competition for advertising. Internet video usage is increasing and could migrate existing video services or enable new services. Cooperation between content providers, internet aggregators, and telecom companies provides an optimum where content providers control premium content distribution and aggregators focus on niche content.
The document provides a strategic analysis of the broadcasting industry and makes recommendations for News Corporation's strategy. It finds that the industry is growing but also facing disruption from new technologies and changing consumer behaviors. It recommends that News Corporation continue its aggressive strategy with emphasis on consumers, content, and convergence. It also provides specific recommendations for News Corporation and its business units, including centralizing content, acquiring more properties, and improving original programming hours.
This document provides an analysis of British Sky group Plc for the year 2013. It discusses the company's acquisition of O2, a share buyback, and positive financial results. Revenue is projected to grow by 10.81% in 2014 before slowing in subsequent years. The balance sheet, income statement, and cash flow statement are also analyzed. The document concludes with a current valuation of the company and recommendations.
'United Kingdom Commercial Radio Consolidation' by Grant GoddardGrant Goddard
Analysis of the potential for further consolidation through mergers and acquisitions of the United Kingdom commercial radio broadcasting industry and the lack of evidential data that previous consolidation produced the promised benefits for owners, listeners or advertisers, written by Grant Goddard for Enders Analysis in September 2007.
This document discusses debates around public service broadcasting (PSB) in the UK and Europe. It examines Ofcom's recommendation for institutional competition to deliver PSB content through a proposed Public Service Publisher. While some scholars favor competition to provide plurality, others are skeptical that this would weaken the BBC and create unnecessary administration. The document also discusses the proposal of "top-slicing" the BBC license fee to fund PSB from other broadcasters, which critics argue could undermine the BBC.
The document summarizes the goals of New England Public Radio for the fiscal year 2013, which include conducting leadership searches, continuing capital campaign work, expanding radio signals, reaching annual fundraising goals, and engaging the board on strategic issues around fundraising, diversity, budgets and facilities. Major initiatives include launching an all-news station, putting a new translator on air in Worcester, and beginning construction at a new facility.
The document summarizes a report on public service broadcasting funding models and performance internationally. It finds that the UK has one of the highest levels of public funding per capita for public broadcasters. UK public broadcasters also perform well in terms of audience share relative to funding. While broadcasters with multi-year funding agreements tend to receive more public money, this does not necessarily lead to better audience outcomes. The document benchmarks UK public broadcasters' investments in online and multi-platform services.
Please check out this exclusive presentation from Cisco's Pankaj Gupta, Director of Video Solutions for SP Marketing, on "Achieving Video Nirvana!" presented at OTTcon.
Consumer behavior, content consumption and business models are changing across the video ecosystem, and online video appears to be the primary source of disruption. In fact, Cisco's annual market research report discloses that, by 2013, ninety percent of all consumer IP traffic will be video. In this presentation, the Cisco speaker will address the real-world dilemmas for service provider company executives as they confront the transformations taking place in the video market. The speaker will cite real-world examples of how service providers and their ecosystem partners are developing strategies to address and profit from the coming dominance of online video.
Direct TV was acquired by News Corp in 2004 to consolidate in the satellite TV market. However, News Corp faced several challenges inhibiting its full potential. Technological limitations included high switching costs from cable and an inability to bundle services. Within the market, Direct TV had to spend heavily on advertising, upgrades, and retaining customers in the saturated US market, limiting its expansion into Latin America. Regulatory issues also emerged regarding the proposed acquisition of EchoStar in 2001 that was blocked over monopoly concerns.
Network TV's (Not So Big) Threat From Online Video A Deep DiveDavid Bank
This document analyzes the potential threat that online video advertising poses to traditional network television advertising. It finds that:
1) Only about 16% of total online video minutes can be considered "premium" content suitable for major advertisers, and over 50% of this comes from publishers that are extensions of traditional media companies.
2) The total available premium online video inventory is estimated to be equal to only around 10% of major broadcast network advertising minutes among 18-49 year olds, and less than 1% of total cable network inventory.
3) Pricing of online video advertising is currently not low enough compared to television to attract significant advertising dollars away from traditional sources.
The document summarizes key points about the broadcasting industry. It finds that retransmission consent fees paid by cable companies to broadcasters, currently around $1 per subscriber per month, are expected to steadily increase to around $2 per subscriber in the next 4-5 years. This will provide the broadcasting industry with an additional $4 billion in revenue over this period. Consolidation in the industry is being driven by the desire for scale to gain negotiating leverage with cable companies over fees. Local broadcasters may also be able to monetize their spectrum if the FCC commences an incentive auction in 2015 as anticipated.
The document provides details on the costs and assumptions related to Canvas, a proposed IPTV platform. It outlines:
1) The key cost categories including platform technology, marketing/operations, and content distribution via IP networks.
2) Factors that influence distribution costs, including unit pricing per gigabyte which has fallen but infrastructure costs have risen.
3) Scenarios for how Canvas might impact the market, including its potential effect on take-up of other IPTV platforms.
4) Assumptions used to estimate traffic and costs, such as viewing behavior trends, impact of HD and PVRs, and the number of connected Canvas users over time.
Moneyball The Current State Of The Sports Media LandscapeDavid Bank
This document provides an analysis of the sports media landscape and key issues facing media companies. It finds that while sports rights fees are increasing rapidly, headlines can be misleading as actual cost growth after escalators is more moderate. It also discusses the proliferation of new sports channels and increasing revenues from retransmission fees and affiliate fees that help offset rising rights costs. The document analyzes various media companies and their ability to expand margins despite rising sports rights expenses.
The document provides an analysis and recommendation for Sirius XM Radio (SIRI). The analyst initiates coverage with a Buy rating and 12-month price target of $2.075. Key points include SIRI's strengthened financial position from debt repayment, growing subscriber base, and improved competitive landscape through new programming. Risks include high debt levels, dependence on automaker partnerships, and technology obsolescence.
1) Online video content and IPTV markets in Europe are growing rapidly, with the online video market expected to nearly match the size of the IPTV market by 2011.
2) Broadcasters and studios are distributing film and TV content online through various business models like transactional, subscription, and ad-supported services.
3) While physical DVD sales still dominate, digital distribution of content online and through IPTV is increasing quickly and new business models are shaping the industry.
This document discusses several opportunities and challenges in the media industry. It notes that online video distributors like Netflix are proving to be an effective way to monetize under-exploited content. There is also potential to monetize serialized drama and non-fiction content that has historically not been monetized well in syndication. Media companies can also benefit from exploiting previously "spent" libraries through deals with online distributors. However, the consumer benefits most from the large amount of content supported by the current TV ecosystem and may be reluctant to pay much less for significantly less content from alternative providers.
The document discusses the evolving landscape of television and the battle for dominance in the living room. It notes that while content remains important, consumers now control what, when, and how they watch television across various devices. Key players discussed include Google/YouTube which has positioned itself as a major online video platform, Facebook which is pursuing video aggressively and could become the next largest online video property, and Amazon which has integrated video streaming and purchases through its Fire TV platform. The future of television will likely involve various business models co-existing and companies competing to provide content and services that best meet consumer preferences around viewing, searching, sharing, and buying behaviors.
Public service broadcasting is funded by television license fees and government grants. It aims to benefit the public without commercial concerns. Commercial broadcasting is funded through television and radio advertisements. It is owned by private corporations rather than the state. Subscription channels require paid television subscriptions and provide encrypted content through cable, satellite, or internet services. They began as additional multi-channel options and now include providers like Sky, Virgin Media, and BT Vision in the UK.
The document summarizes key points from a presentation given by Damian Radcliffe at Birmingham City University on November 26, 2009. The presentation covered Ofcom's role as the UK communications regulator, the state of the communications market, issues around public service broadcasting, local media, and the Digital Economy Bill. It provided an overview of Ofcom's duties and focus areas, trends in digital technologies, challenges facing public service broadcasters, and the goals and main elements of the Digital Economy Bill.
OTT video is growing rapidly and threatening traditional pay TV business models. Usage of services like Netflix is exploding, with 2/3rds of Netflix subscribers shifting primarily to streaming. This is driving changes in user behavior like longer viewing sessions. While some research finds little impact on TV viewing, pay TV providers could still be disrupted by online services that provide content directly without the provider. Pay TV providers face challenges managing or monetizing growing OTT traffic on their networks. Some providers are starting to offer their own multi-platform video services to try to become video distributors themselves.
Current Media is an independent media company that operates a television network and website. It provides original programming as well as viewer-created content to over 50 million households worldwide. Current Media's business model incorporates viewer participation through profiles, posting videos, and commenting. It generates revenue primarily from television and web advertising and affiliate fees paid by cable/satellite providers. While encouraging participation, Current Media faces challenges in effectively monetizing user-generated content and translating its platform to increased revenue and profitability.
The video content industry faces challenges from audience fragmentation, increased competition, and piracy. New drivers include personal TV, online video usage growing, and competition for advertising. Internet video usage is increasing and could migrate existing video services or enable new services. Cooperation between content providers, internet aggregators, and telecom companies provides an optimum where content providers control premium content distribution and aggregators focus on niche content.
The document provides a strategic analysis of the broadcasting industry and makes recommendations for News Corporation's strategy. It finds that the industry is growing but also facing disruption from new technologies and changing consumer behaviors. It recommends that News Corporation continue its aggressive strategy with emphasis on consumers, content, and convergence. It also provides specific recommendations for News Corporation and its business units, including centralizing content, acquiring more properties, and improving original programming hours.
This document provides an analysis of British Sky group Plc for the year 2013. It discusses the company's acquisition of O2, a share buyback, and positive financial results. Revenue is projected to grow by 10.81% in 2014 before slowing in subsequent years. The balance sheet, income statement, and cash flow statement are also analyzed. The document concludes with a current valuation of the company and recommendations.
'United Kingdom Commercial Radio Consolidation' by Grant GoddardGrant Goddard
Analysis of the potential for further consolidation through mergers and acquisitions of the United Kingdom commercial radio broadcasting industry and the lack of evidential data that previous consolidation produced the promised benefits for owners, listeners or advertisers, written by Grant Goddard for Enders Analysis in September 2007.
This document discusses debates around public service broadcasting (PSB) in the UK and Europe. It examines Ofcom's recommendation for institutional competition to deliver PSB content through a proposed Public Service Publisher. While some scholars favor competition to provide plurality, others are skeptical that this would weaken the BBC and create unnecessary administration. The document also discusses the proposal of "top-slicing" the BBC license fee to fund PSB from other broadcasters, which critics argue could undermine the BBC.
The document summarizes the goals of New England Public Radio for the fiscal year 2013, which include conducting leadership searches, continuing capital campaign work, expanding radio signals, reaching annual fundraising goals, and engaging the board on strategic issues around fundraising, diversity, budgets and facilities. Major initiatives include launching an all-news station, putting a new translator on air in Worcester, and beginning construction at a new facility.
The document summarizes a report on public service broadcasting funding models and performance internationally. It finds that the UK has one of the highest levels of public funding per capita for public broadcasters. UK public broadcasters also perform well in terms of audience share relative to funding. While broadcasters with multi-year funding agreements tend to receive more public money, this does not necessarily lead to better audience outcomes. The document benchmarks UK public broadcasters' investments in online and multi-platform services.
Please check out this exclusive presentation from Cisco's Pankaj Gupta, Director of Video Solutions for SP Marketing, on "Achieving Video Nirvana!" presented at OTTcon.
Consumer behavior, content consumption and business models are changing across the video ecosystem, and online video appears to be the primary source of disruption. In fact, Cisco's annual market research report discloses that, by 2013, ninety percent of all consumer IP traffic will be video. In this presentation, the Cisco speaker will address the real-world dilemmas for service provider company executives as they confront the transformations taking place in the video market. The speaker will cite real-world examples of how service providers and their ecosystem partners are developing strategies to address and profit from the coming dominance of online video.
Direct TV was acquired by News Corp in 2004 to consolidate in the satellite TV market. However, News Corp faced several challenges inhibiting its full potential. Technological limitations included high switching costs from cable and an inability to bundle services. Within the market, Direct TV had to spend heavily on advertising, upgrades, and retaining customers in the saturated US market, limiting its expansion into Latin America. Regulatory issues also emerged regarding the proposed acquisition of EchoStar in 2001 that was blocked over monopoly concerns.
Network TV's (Not So Big) Threat From Online Video A Deep DiveDavid Bank
This document analyzes the potential threat that online video advertising poses to traditional network television advertising. It finds that:
1) Only about 16% of total online video minutes can be considered "premium" content suitable for major advertisers, and over 50% of this comes from publishers that are extensions of traditional media companies.
2) The total available premium online video inventory is estimated to be equal to only around 10% of major broadcast network advertising minutes among 18-49 year olds, and less than 1% of total cable network inventory.
3) Pricing of online video advertising is currently not low enough compared to television to attract significant advertising dollars away from traditional sources.
The document summarizes key points about the broadcasting industry. It finds that retransmission consent fees paid by cable companies to broadcasters, currently around $1 per subscriber per month, are expected to steadily increase to around $2 per subscriber in the next 4-5 years. This will provide the broadcasting industry with an additional $4 billion in revenue over this period. Consolidation in the industry is being driven by the desire for scale to gain negotiating leverage with cable companies over fees. Local broadcasters may also be able to monetize their spectrum if the FCC commences an incentive auction in 2015 as anticipated.
The document provides details on the costs and assumptions related to Canvas, a proposed IPTV platform. It outlines:
1) The key cost categories including platform technology, marketing/operations, and content distribution via IP networks.
2) Factors that influence distribution costs, including unit pricing per gigabyte which has fallen but infrastructure costs have risen.
3) Scenarios for how Canvas might impact the market, including its potential effect on take-up of other IPTV platforms.
4) Assumptions used to estimate traffic and costs, such as viewing behavior trends, impact of HD and PVRs, and the number of connected Canvas users over time.
Moneyball The Current State Of The Sports Media LandscapeDavid Bank
This document provides an analysis of the sports media landscape and key issues facing media companies. It finds that while sports rights fees are increasing rapidly, headlines can be misleading as actual cost growth after escalators is more moderate. It also discusses the proliferation of new sports channels and increasing revenues from retransmission fees and affiliate fees that help offset rising rights costs. The document analyzes various media companies and their ability to expand margins despite rising sports rights expenses.
The document provides an analysis and recommendation for Sirius XM Radio (SIRI). The analyst initiates coverage with a Buy rating and 12-month price target of $2.075. Key points include SIRI's strengthened financial position from debt repayment, growing subscriber base, and improved competitive landscape through new programming. Risks include high debt levels, dependence on automaker partnerships, and technology obsolescence.
1) Online video content and IPTV markets in Europe are growing rapidly, with the online video market expected to nearly match the size of the IPTV market by 2011.
2) Broadcasters and studios are distributing film and TV content online through various business models like transactional, subscription, and ad-supported services.
3) While physical DVD sales still dominate, digital distribution of content online and through IPTV is increasing quickly and new business models are shaping the industry.
This document discusses several opportunities and challenges in the media industry. It notes that online video distributors like Netflix are proving to be an effective way to monetize under-exploited content. There is also potential to monetize serialized drama and non-fiction content that has historically not been monetized well in syndication. Media companies can also benefit from exploiting previously "spent" libraries through deals with online distributors. However, the consumer benefits most from the large amount of content supported by the current TV ecosystem and may be reluctant to pay much less for significantly less content from alternative providers.
The document discusses the evolving landscape of television and the battle for dominance in the living room. It notes that while content remains important, consumers now control what, when, and how they watch television across various devices. Key players discussed include Google/YouTube which has positioned itself as a major online video platform, Facebook which is pursuing video aggressively and could become the next largest online video property, and Amazon which has integrated video streaming and purchases through its Fire TV platform. The future of television will likely involve various business models co-existing and companies competing to provide content and services that best meet consumer preferences around viewing, searching, sharing, and buying behaviors.
Public service broadcasting is funded by television license fees and government grants. It aims to benefit the public without commercial concerns. Commercial broadcasting is funded through television and radio advertisements. It is owned by private corporations rather than the state. Subscription channels require paid television subscriptions and provide encrypted content through cable, satellite, or internet services. They began as additional multi-channel options and now include providers like Sky, Virgin Media, and BT Vision in the UK.
The document summarizes key points from a presentation given by Damian Radcliffe at Birmingham City University on November 26, 2009. The presentation covered Ofcom's role as the UK communications regulator, the state of the communications market, issues around public service broadcasting, local media, and the Digital Economy Bill. It provided an overview of Ofcom's duties and focus areas, trends in digital technologies, challenges facing public service broadcasters, and the goals and main elements of the Digital Economy Bill.
OTT video is growing rapidly and threatening traditional pay TV business models. Usage of services like Netflix is exploding, with 2/3rds of Netflix subscribers shifting primarily to streaming. This is driving changes in user behavior like longer viewing sessions. While some research finds little impact on TV viewing, pay TV providers could still be disrupted by online services that provide content directly without the provider. Pay TV providers face challenges managing or monetizing growing OTT traffic on their networks. Some providers are starting to offer their own multi-platform video services to try to become video distributors themselves.
Current Media is an independent media company that operates a television network and website. It provides original programming as well as viewer-created content to over 50 million households worldwide. Current Media's business model incorporates viewer participation through profiles, posting videos, and commenting. It generates revenue primarily from television and web advertising and affiliate fees paid by cable/satellite providers. While encouraging participation, Current Media faces challenges in effectively monetizing user-generated content and translating its platform to increased revenue and profitability.
The team performed valuation analyses on HBO to estimate its stand-alone enterprise value and equity value. Using discounted cash flow analysis, comparable companies analysis, and precedent transactions analysis, the team estimated HBO's enterprise value to be between $32,189.0 million and $38,630.5 million, and its equity value to be between $22,797.8 million and $29,239.3 million. The team based their final valuation conclusion solely on the discounted cash flow analysis results due to limitations in comparable the comparable companies and precedent transactions analyses for valuing the private company.
How the Digital Revolution is Disrupting the TV Industry Suman Mishra
This is a BCG report on the TV industry in US and it talks about how the TV industry has seen “shifts” from inception, but this time the pace with which its changing is so different. It has done ample surveys and has lot of verified facts which makes this report so rich and conclusive.
The core trends fueling disruption this time are
a. Online and mobile will exceed Facilities based viewing
b. On demand viewing will exceed live, linear viewing
c. New companies and business models in online viewing
d. Networks are experiencing the collapse of the middle and rise of “long tail”
e. Content creators and right holders are capturing a greater value share than ever
The 4 disruptive scenarios in making which will “accelerate” the change are
a. The universal remote: Global, all-inclusive navigation solving the discovery problem
b. The walled garden: exclusive entertainment becomes the critical strategic asset
c. Direct to Consumer takes on traditional TV bundles
d. Live TV online
L JANS & Associates has been hired by Netflix to perform an audit and evaluation of potential acquisitions. The presentation analyzes Netflix's financials and compares them to Comcast and potential acquisition targets Redbox and Blockbuster. It finds that Netflix has strong liquidity and profitability. It recommends against acquiring Redbox due to its business model mismatch, and suggests Netflix pursue acquiring Blockbuster to gain its distribution network.
This document provides an overview and analysis of streaming media. It begins with biographical information about the author, Paul Young. The document then covers various topics related to streaming, including the top streaming services, trends in TV subscriptions shifting to streaming, a SWOT analysis of streaming, different streaming applications and services, issues around Android boxes and streaming content illegally, and new technologies in the streaming space like MoviePass and set top boxes. It analyzes these topics drawing from a variety of sources and provides insights into both the growth of streaming and challenges facing the industry.
This document provides an overview of Paramount Global's business segments and competitive landscape. It discusses Paramount's financial struggles, especially in its direct-to-consumer segment. The document indicates that Paramount Global's controlling shareholder is open to a potential merger or sale. Recent discussions have involved Skydance Media and Redbird Capital acquiring Paramount Global's parent company National Amusements.
Video Services: Customer Experience in the Fast-Evolving Digital SpaceCognizant
Drawn from our recent primary research study, we present four ways that communications service providers can improve their competitive stance - today and tomorrow.
Netflix was a company that thrived during the 2008 recession due to its business model and strategy. It operated 3 business segments - domestic streaming, international streaming, and domestic DVD. In 2009, Netflix's revenue increased 26.6% to $1.16 billion from increased subscribers attracted by its compelling value proposition of streaming and DVD rentals for one low monthly fee. Key factors in Netflix's success included offering combo streaming and DVD plans, being an early entrant in internet video delivery, and expanding its available streaming devices.
This document provides an overview and analysis of streaming media services. It begins with biographical information about the author Paul Young. The document then covers various topics related to streaming such as the top streaming services, the TV subscription market, a SWOT analysis of streaming, and issues around Android boxes and piracy. It also discusses the growing streaming market and major companies in the space like Netflix, Disney, and Amazon. In several slides, the document analyzes the competition between services and emerging trends in online video consumption.
Netflix's business model has evolved over time from DVD rentals by mail to streaming. It now makes most of its revenue from monthly subscription plans that allow unlimited streaming. Netflix acquires and licenses content from partners and produces original shows and movies. It has over 200 million subscribers globally and is highly profitable. However, it operates with negative cash flow due to upfront costs of content licensing and production. Netflix continues to adapt its model by expanding globally and investing heavily in new content.
In 2019, subscription video services, on a global scale are predicted to overtake theaters for the first time in terms of revenue. This is based on the latest report from Ampere Analysis which looked to compare the changes in subscription-based revenue over the last few years in comparison to revenue associated with cinema attendance. Ampere Analysis notes that although cinema revenue has remained consistent over the last few years (with the data actually showing an increase compared to a decade ago), revenues from subscriptions has increased massively and at a rate where 2019 will see the figure surpass cinema for the first time.
Source - https://www.ampereanalysis.com/blog/aaee9a6c-e7eb-496c-bedc-e9e36f78ce1f or https://www.androidheadlines.com/2018/12/subscription-video-vs-cinema-revenue-2019.html
Netflix belongs to the over-the-top (OTT) media industry and was founded in 1997 to offer online movie rentals before launching a subscription streaming service. It has since expanded globally and produced many original TV shows and movies. The OTT industry in India is growing rapidly but highly competitive, with Hotstar being the largest platform as of 2018. Netflix aims to differentiate itself through an extensive library and original content while addressing challenges like high data usage and regional sensitivity.
Netflix belongs to the over-the-top (OTT) media industry and was founded in 1997 to offer online movie rentals before launching a subscription streaming service. It has since expanded globally and produced many original TV shows and movies. Netflix uses a functional organizational structure and faces competition from services like Hotstar, Amazon Prime Video, and Hulu. To continue its growth, Netflix's strategies include increasing original content, partnerships, expanding into new markets, and optimizing its pricing and marketing.
Understand what are the causes and effects of the increased use of “Video on Demand”:
- Internet Access and Audience
- USA Crisis and Cable TV Fee
- Netflix VOD Operation and Content Negotiation
- Cable TV own VOD products and Market competition
This document provides an overview and analysis of the streaming media landscape. It begins with biographical information about the author Paul Young and then outlines an agenda covering topics like streaming architecture, popular streaming services, the TV subscription market, a SWOT analysis of streaming, subscriptions services, cybersecurity issues with Android boxes, and the legal issues around Android boxes. It also includes several charts and statistics on trends in streaming viewership, revenues and market share.
Structure of Television & Video Industry Carla Appleby
The document discusses several topics related to television ownership, regulation, and technology:
1) It describes public ownership of television services like the BBC, which is funded by mandatory license fees.
2) It also discusses commercial ownership, where television companies are privately held rather than publicly owned.
3) New technologies like on-demand streaming services allow viewers to watch programs anytime rather than being restricted to live broadcasts.
This document provides an equity research report on Netflix from the QUMMIF Investment Club. It summarizes Netflix's business operations, financial performance, strengths, weaknesses, opportunities, threats, and industry outlook. The report finds that Netflix has positioned itself as the leading online video streaming service and sees future growth prospects as favorable due to expanding internationally and increasing original content production. However, it also faces threats from growing competition in the online streaming market and potential loss of subscribers to free content downloading.
Similar to Duff & Phelps Youniversity Deal Challenge (20)
Building Your Employer Brand with Social MediaLuanWise
Presented at The Global HR Summit, 6th June 2024
In this keynote, Luan Wise will provide invaluable insights to elevate your employer brand on social media platforms including LinkedIn, Facebook, Instagram, X (formerly Twitter) and TikTok. You'll learn how compelling content can authentically showcase your company culture, values, and employee experiences to support your talent acquisition and retention objectives. Additionally, you'll understand the power of employee advocacy to amplify reach and engagement – helping to position your organization as an employer of choice in today's competitive talent landscape.
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• Present the Onion Diagram, a tool for contextualizing task-level goals
• Illustrate how customer journey maps capture activity-level and task-level goals
• Demonstrate the best approach to selection and prioritization of user-goals to address
• Highlight the crucial benchmarks, observable changes, in ensuring fulfillment of customer needs
2. Time Warner Engagement Team
Duff & Phelps 2
Zachary Spencer
Junior
• Auburn University
• Finance
• Spring 2018
Bailey Sullivan
Sophomore
• Auburn University
• Industrial Engineering
• Spring 2019
Jordan Carr
Junior
• Auburn University
• Mechanical Engineering
• Spring 2018
3. Time Warner Engagement Team Cont.
Duff & Phelps 3
David Alderman
Senior
• Auburn University
• Mechanical Engineering
• Spring 2017
Jason McKinley
Senior
• Auburn University
• Information Systems
• Spring 2017
Daniel Robinson
1st Year MBA
• Auburn University
• Finance
• Spring 2017
4. 4
Section Topic Page
I. Industry Overview 4
II. Executive Summary 12
III. Deliverable 1: Fair Market Value Analysis 14
IV. Deliverable 2: Buyer Types & Recommendations 20
V. Deliverable 3: Damages Methodology and Valuation 29
Appendix A Financial Information 37
Appendix B Financial Forecasts 39
Appendix C Damages Calculation and Select Data 43
Table of Contents
Duff & Phelps
6. • Entertainment businesses are characterized by one of two activities:
– Content Creation
– Distribution
• Content creation requires substantial upfront investment and often utilizes a deficit financing model
• Distributors generate revenues from various kinds of distribution arrangements:
– Sale or rental of their content to consumers
– Advertising sales
– Subscription service sales.
• The recent convergence of media platforms is providing both challenges and opportunities to market
participants.
– For example, content creation control has begun from businesses to the hands of consumers. (User
generated content is making up an increasing portion of the content provided on the Internet)
– New forms of distribution, (e.g. mobile, digital download, etc.) have resulted in opportunities (i.e.
Netflix, YouTube, Facebook) and threats (Cord Cutters, publishing industry, music labels, etc.) for
the industry players.
Entertainment & Media Platforms
Duff & Phelps 6
7. Television Industry Overview
Duff & Phelps 7
• The television industry is comprised of companies (both fee-based
and free) that produce and distribute entertainment content.
• Traditionally, Broadcasters have relied on local TV stations that
transmit TV signals over the air through their FCC licenses.
• Cable Networks, on the other hand, rely on the multiple-system
operators (“MSOs”) and telco companies (e.g., AT&T) for
distribution to American households.
• Pay-TV is a subset of the Cable Networks segment of the
Television Industry, where consumers can access content by
paying MSOs a fee for a specific channel (HBO).
• Subscription Video on Demand (SVOD) services use a
subscription business model, where subscribers are charged a
monthly fee to access unlimited instant streaming to a program
library. HBO NOW began in 2015 and is provided to subscribers
via SVOD.
Content
Distribution
Consumers
8. Global Entertainment & Media Industry Structure
Global Entertainment & Media
Industry
Television
Content
Major Studios
Independent
Production
Companies
Distribution
Broadcasters
Terrestrial
Television
Owned &
Ooperated
CBS, Fox
NBC, ABC
Independent
Sinclair
Hearst
Media General
Gannett
Over-the-Top
Cable Networks
Over-the-Top
Netflix
Hulu
WWE Network
UFC Fight Pass
HBO NOW
Sling TV
PlayStation Vue
Multiple-System
Operators
(MSOs)
Wired Cable
Comcast
Time Warner
Cox
Verizon
AT&T
Alternate
Delivery
Systems
DirecTV
Dish Network
Duff & Phelps 8
9. Movie Studio
The following illustrates the landscape of the television industry using 21st Century Fox (Fox) as an example:
• Cable Networks ➦ Fox produces and licenses programming for distribution primarily through cable television
systems, direct broadcast satellite operators, telecommunications companies and online video distributors.
• Broadcast Television ➦ Fox operates two main segments:
Fox Broadcasting Company – Fox has 207 FOX affiliates, including
17 stations owned and operated by the Company, which reach
approximately 99% of all U.S. television households.
Fox Television Stations – owns and operates 28 full power
stations. 17 stations are FOX affiliates.10 stations
are MyNetworkTV stations. 1 station is independent.
• Over-the-Top (OTT) ➦ The Company has an
approximate 33% equity interest in Hulu which
operates an online video service that offers video
content from Fox, the other one-third partners in
Hulu, NBCUniversal and The Walt Disney Company,
as well as over 400 other third party content licensors.
• Pay-TV (Premium Cable) ➦ Currently, Century Fox
does note operate a Premium Cable Channel.
Pay-TV (Premium Cable)
Cable
Networks
Over-the-Top (OTT)
Broadcast
Television
Television Landscape: 21st Century Fox Example
Duff & Phelps 9
10. • Subscriber-based business; No advertising
– Direct selling to customers
– Partnership with cable operators
• Premium Content
• Pay-per-view sports content
• Video on Demand
• General strategy: Releasing theatrical titles on TV and
producing and airing original content (films, TV series)
• Reliance on film studios and producers for quality products
• Providing a specific program that appeals to each segment of the population
– Creating original content (e.g. The Sopranos, Sex and the City, Game of Thrones)
Pay-TV Industry Overview
Duff & Phelps 10
11. Pay-TV Providers
Duff & Phelps 11
• Netflix has been targeting the premium network window
for several years and has secured Relativity Media film
rights, renewed its deal with DreamWorks Animation in
2016, and secured Walt Disney Co. film rights beginning
with those released in 2016.
• Netflix paid $30.0 million in 2008 to gain the rights to
stream Starz films. The deal expired in 2012.
• HBO / Cinemax extended its deal with Universal Studios
and Fox until 2021 and 2022, respectively.
• Epix, a joint venture of Viacom (Paramount Pictures),
Metro-Goldwyn-Myer and Lions Gate Entertainment, was
launched in 2009 as a premium cable network and a
subscription video on demand service.
• Original programming may receive much of the press,
but theatrical films remain a significant content source for
premium networks.
• On June 30, 2016, Lions Gate Entertainment Corp.
(NYSE:LGF) agreed to acquire Starz Inc.
(NASDAQ:STRZA) for $4.4 billion in cash and stock.
13. Executive Summary
Duff & Phelps 13
• The Entertainment and media industry continues to change as consumer demand
increases for smart–connected–device and internet media distribution platforms.
• These changes have led to increased M&A activity across the industry as larger firms
adapt to industry restructuring.
• Home Box Office (HBO) has significant concerns over online piracy of their most–
watched show, Game of Thrones, via the software titled Bit Torrent.
• Increase in subscribers due to new distribution platform HBO NOW. The addition of
HBO NOW has led to increase in growth and potential of future increase in subscriber
revenue.
• The FMV of HBO is determined to be $29.95 billion based on a weighted average of
discounted cash flows, trading comparables, and precedent transactions valuations.
• Amazon is willing to pay the highest premium for HBO as they will be able to extract the
greatest value through Amazon Video and are financially capable.
• Lawsuit against Bit Torrent for piracy of Game of Thrones should not be pursued
because increase in demand is greater than cost incurred from the illegal download of
2 million copies.
Situation Overview
Valuation and
Potential Buyers
Recommendations
• HBO content and platforms has steered HBO as a high potential target for strategic
buyers looking for new content and to enter Over–the–Top (OTT) distribution platform.
• Amazon and Apple are able to integrate HBO content and platforms into Amazon’s
OTT platform Amazon Video to boost OTT market share.
14. Deliverable 1:
Fair Market Value Analysis1
Section 3
Duff & Phelps 14
1. Financial Data sourced from Bloomberg Terminal (licensed) on 11/06/2016.
15. Discounted Cash Flow
Duff & Phelps 15
$mm, except per share figures
* See Financial Projections for Net Working Capital (#11); * See Appendix A for WACC
Enterprise Value
Perpetuity Growth Rate
$36,764 1.5% 2.0% 2.5% 3.0% 3.5%
10.0% $28,813 $30,230 $31,836 $33,672 $35,790
9.5% $30,632 $32,262 $34,124 $36,273 $38,780
9.0% $32,695 $34,584 $36,764 $39,307 $42,313
8.5% $35,053 $37,265 $39,845 $42,894 $46,554
8.0% $37,775 $40,393 $43,486 $47,200 $51,738
WACC
Enterprise Value (Perpetuity)
Normalized FCF in last forecast period (t) 2,595.3
Normalized FCFt+1
2,660.2
Long term growth rate (g) 2.50%
Terminal value 40,945.8
Present value of terminal value 28,685.8
Present value of stage 1 cash flows 8,078.3
Enterprise value 36,764.1
Implied TV exit EBITDA multiple 14.00x
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Income Statement
Total Revenues 4,686.0 4,890.0 5,398.0 5,615.0 6,015.5 6,413.9 6,782.7 7,112.9 7,397.4
% growth 4.35% 10.39% 4.02% 7.13% 6.62% 5.75% 4.87% 4.00%
Total Cost of Revenues 2,400.0 2,368.0 2,708.0 2,811.0 3,007.7 3,207.0 3,391.3 3,556.5 3,698.7
Gross Profit 2,286.0 2,522.0 2,690.0 2,804.0 3,007.7 3,207.0 3,391.3 3,556.5 3,698.7
% margin 48.78% 51.57% 49.83% 49.94% 50.00% 50.00% 50.00% 50.00% 50.00%
Total Operating Expenses 647.0 631.0 813.0 831.0 872.2 930.0 983.5 1,031.4 1,072.6
EBITDA 1,639.0 1,891.0 1,877.0 1,973.0 2,135.5 2,276.9 2,407.8 2,525.1 2,626.1
% margin 34.98% 38.67% 34.77% 35.14% 35.50% 35.50% 35.50% 35.50% 35.50%
Depreciation & Amortization 92.0 100.0 91.0 95.0 102.3 105.2 107.2 103.8 103.6
EBIT 1,547.0 1,791.0 1,786.0 1,878.0 2,033.2 2,171.8 2,300.7 2,421.2 2,522.5
% margin 33.01% 36.63% 33.09% 33.45% 33.80% 33.86% 33.92% 34.04% 34.10%
Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
EBIAT (NOPAT) 1,546.7 1,790.7 1,785.7 1,877.7 2,032.9 2,171.5 2,300.4 2,420.9 2,522.2
Depreciation and amortization 92.0 100.0 91.0 95.0 102.3 105.2 107.2 103.8 103.6
Change in Net Working Captial 82.1 81.7 75.6 67.7 58.3
Capital Expenditures (72.2) (77.0) (81.4) (85.4) (88.8)
Unlevered FCF 1,638.7 1,890.7 1,876.7 1,972.7 2,145.1 2,281.3 2,401.7 2,507.1 2,595.3
Discount factor 13.1% 113.1% 213.1% 313.1% 413.1%
Present value of FCF 276.9 2,069.6 1,999.0 1,914.5 1,818.2
16. Trading Comps
Duff & Phelps 16
• Trading comparables is a valuation model that incorporates the trading value of
publicly traded companies that are similar to the company in question.
• Each company listed is included because these companies are the best publicly
traded companies to represent the value of HBO as a standalone company.
• Median of LTM EV/EBITDA is determined as best multiple to represent HBO value
as mean was skewed by Netflix.
Comments
$mm, except per share figures
Current Share Equity Enterprise LTM LTM LTM EBITDA Enterprise Value /
Company Ticker Price Value Value Sales EBITDA Margin LTM Sales LTM EBITDA
Time Warner Inc. TWX 86.42$ 69,063.3 91,226.3 28,506.0 7,256.0 25.45% 3.20x 12.57x
Twenty -First Century Fox FOXA 26.94$ 50,135.3 66,743.3 27,755.0 6,749.0 24.32% 2.40x 9.89x
Viacom VIAB 36.56$ 14,496.0 26,932.0 13,050.0 3,528.0 27.03% 2.06x 7.63x
Discovery Communications DISCA 25.64$ 15,812.1 23,831.1 6,471.0 2,131.0 32.93% 3.68x 11.18x
Walt Disney DIS 92.45$ 150,217.6 169,384.6 56,002.0 17,868.0 31.91% 3.02x 9.48x
CBS Coporation CBS 57.01$ 25,357.2 34,135.2 14,442.0 2,954.0 20.45% 2.36x 11.56x
Netfilx NFLX 115.02$ 51,067.0 52,097.7 8,176.5 391.8 4.79% 6.37x 132.97x
Mean 53,735.5 66,335.7 22,057.5 5,839.7 23.84% 3.3 27.9
Median 50,135.3 52,097.7 14,442.0 3,528.0 25.45% 3.0 11.2
HBO Implied Enterprise Value
LTM
Sales
LTM
EBITDA
LTM
Sales
LTM
EBITDA
5,752.0 1,964.0 17,397.6 19,709.3
Implied Valuation of Home Box Office
As of 6/30/16 Multiple Range Implied EV
EBITDA 1,964 8.89x - 11.89x 17,458.7 - 23,350.7
17. Precedent Transactions
Duff & Phelps 17
• Precedent Transaction approach is a valuation model that incorporates the
transaction value of deals where the target is a comparable company. Precedent
Transaction is an included model as it incorporates an acquisition premium to the
value of the company in question.
• Each transaction listed is included because these transaction have targets very
comparable to HBO as a standalone company which will best represent HBO’s value.
• Median of LTM EV/EBITDA determined as best multiple to represent HBO value
Comments
$mm, except per share figures
Announcement Transaction LTM LTM EBITDA TV/LTM TV/LTM
TWC Inc Acquirer date Form of consideration value Sales EBITDA % Margin Sales EBITDA
Direct TV AT&T 5/18/2014 Partial Cash/Stock 66,668.8 31,479.0 8,287.0 26.3% 2.12x 8.04x
TWC Inc Charter Communications 5/26/2015 Partial Cash/Stock 79,249.8 22,617.0 8,244.0 36.5% 3.50x 9.61x
Marvel Walt Disney 8/31/2009 Partial Cash/Stock 3,834.3 632.4 322.9 51.1% 6.06x 11.87x
Starz Lions Gate Entertainment 6/30/2016 Partial Cash/Stock 4,137.0 1,734.0 395.6 22.8% 2.39x 10.46x
Mean 3.52x 10.00x
Median 2.94x 10.04x
HBO Implied Enterprise Value
LTM
Sales
LTM
EBITDA
TV/LTM
Sales
LTM
EBITDA
5,752.0 1,964.0 16,939.1 19,709.3
Implied Valuation of Home Box Office
LTM as of
6/30/16
Multiple
Range Implied EV
EBITDA 1,964 9.04x - 12.04x 17,745.3 - 23,637.3
18. Financial Statement Analysis
Duff & Phelps 18
$mm, except per share figures
Working Capital Forecast
Net Working Capital 1151.0 1233.1 1314.8 1390.4 1458.1 1516.4
WC/Revenue 20.50% 20.50% 20.50% 20.50% 20.50% 20.50%
Change in Net Working Capital 82.1 81.7 75.6 67.7 58.3
Subscription Forecast Assumptions
HBO NOW Launch date 4/7/2015
Latest Fisical Year End Date 12/31/2015
Year Fraction from Lauch to FY 2015 73.33%
Launch to FY 2015 New Subscribers 2.70
Launch to FY 2015 growth rate 5.83%
Annualized growth rate 7.95%
Assumptions
OTT Impact
• Number of subscribers in 2015 and subscriber growth from
launch of HBO NOW to fiscal year end of 2015 is 49 million and
2.7 million, respectively. (Found in TWX 2015 10K)
• Subscriber growth annualized from fraction of year from launch
to fiscal year end
• Subscription revenue grown by subscribers times revenue per
subscriber held at $97/subscriber
Other
• Net working capital is held at Industry Average and grown as a
percent of revenue.
Comments
2012A 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Revenue Forecast
Revenues
Subscription 4,010.0 4,231.0 4,578.0 4,748.0 5,109.5 5,467.1 5,795.2 6,084.9 6,328.3
Content and Other 676.0 659.0 820.0 867.0 906.0 946.8 987.5 1,028.0 1,069.1
Total Revenues 4,686.0 4,890.0 5,398.0 5,615.0 6,015.5 6,413.9 6,782.7 7,112.9 7,397.4
Rev/Sub 100.9 96.9 97.0 97.0 97.0 97.0 97.0
Subscribers 45.4 49.0 52.7 56.4 59.7 62.7 65.2
Growth % 7.95% 7.50% 7.00% 6.00% 5.00% 4.00%
Content and other 676.0 659.0 820.0 867.0 906.0 946.8 987.5 1,028.0 1,069.1
Growth % (2.51%) 24.43% 5.73% 4.50% 4.50% 4.30% 4.10% 4.00%
19. Fair Market Value Calculation
Duff & Phelps 19December 20, 2016
Valuation Model Weight
Discounted Cash Flow 60.0%
Trading Comparables 20.0%
Precedent Transaction 20.0%
Fair Market Value
Implied Exit EBITDA Multiple 11.4x
Enterprise Value
36,764.1
19,736.8
19,709.3
29,947.7
Weighted Enterprise Value
22,058.4
3,947.4
3,941.9
• HBO’s FMV was determined to be 29.95 billion with an implied exit EBITDA multiple of 11.4x
• FMV was determined using a weighted average of each valuation model’s base case.
• The DCF was weighted at a higher percentage because of the ability to incorporate the impact of
their OTT business, HBO NOW.
• Implied Exit EBITDA multiple is for year 2020 and seems reasonable for a very successful
company looking to expand into OTT market.
Comments
$mm, except per share figures
21. Buyer Types
Duff & Phelps 21
• Value Criteria: Vertical/horizontal expansion to enhance existing
operations
• Typically a company in a parallel or equivalent industry. Pursues targets that
add value to existing segments and provide competitive advantages
• Willing to pay higher premiums due to future synergies and assumed added
value
• Vertical and/or horizontal expansion and/or strengthening weaker areas of
existing operations
• Value Criteria: Expected Future Earnings
• Typically a Private Equity Firm, Venture Capital Firm or Hedge Fund
• Pursues targets with robust earnings growth capacity, strong cash flow levels
and profitable exit opportunities
• Evaluates targets as stand-alone entities instead of integrating into existing
business operations
• Uses higher leverage ratios to finance acquisition; this increases IRR by
reducing equity exposure
Strategic
Financial
22. Buyer Type Comparison
Duff & Phelps 22December 20, 2016
Type of
Buyer
Synergies Leverage Premium
Time
Horizon
Exit
Opportunities
Strategic
• Integrate HBO into
existing content
productions
• High value brand
with very popular
content– increase
value of existing
content operations
• Combination
of equity and
debt financing
• Larger funding
resources
(access to
equity, etc.)
• Value enhancement
of existing
operations
• Elimination of
competitor/leverage
over current
competitor
• High Market Share
• Long
term(10+
years)
• Keep HBO as
subsidiary while
growing
profitability
• Sell for higher
premium
Financial
• Excellent and
innovative
management team
• Existing contracts
with leading media
providers (Amazon,
Apple, etc.)
• High use of
leverage to
increase ROE
• Utilize normal
cash flows to
pay off debt
and build
equity
• Valued brand with
popular content
• 4-7 years
before
selling
• Sell HBO for
premium by
continuing to
develop content
offerings
23. Strategic Buyer
Duff & Phelps 23
Pros
• Complements and enhances existing
media offerings
• Higher premium due to estimated
synergies
• Advantage over industry competitors
• Large existing customer base to
increase HBO subscriptions
Cons
• Consolidation of management team
• Loss of talent due to merger /
acquisition fears from employees
• Potential loss in brand value
Why Strategic?
• Technological and financial resources for the expansion of HBO offerings
• Existing content infrastructure that HBO will enhance to formulate competitive industry
presence
• Higher premium paid for value of HBO brand and operations
• Understanding of industry operations and growth structure
• Increased HBO subscription levels through existing customer database of acquirer
• Innovative environment for sustainable development
25. Buyer Analysis – Overview
Duff & Phelps 25December 20, 2016
In comparison to other companies in the buyer universe, Apple and Amazon are the leading choices.
Amazon.com, Inc. (NASDAQ: AMZN)
Headquartered: Seattle, WA
Founded: 1994
Employees: 230,800
Business: Online retailer with an extensive product
network and service capabilities including online
shopping and direct shipping.
Financial Data
Market Cap $349,675
P/E 168.19
EV/EBITDA 30.13x
Apple, Inc. (NASDAQ: AAPL)
Headquartered: Cupertino, CA
Founded: 1976
Employees: 116,000
Business: Designs and manufactures personal
computing and mobile communication devices in
addition to software and online content.
Financial Data
Market Cap $577,062
P/E 13.17
EV/EBITDA: 6.05x
• Diverse network of products and services, including
Amazon Prime
• Expanding content offerings through Amazon Studios
• Stable and extensive customer network
• No previous acquisition of cable network
• Seeking to expand into content space based on
guidance from executives
• Large cash position – ability to finance acquisition
• Looking for catalyst to offset declining iPhone sales
• No previous acquisition of cable network
26. Amazon
• Both service a diverse range
of customers
• Expand on existing HBO
contract that offers limited
programing
• Improve Amazon’s content
service, Amazon Studios,
through HBO offerings
Duff & Phelps 26December 20, 2016
• Strong projected free cash
flow
• Low leverage and high
coverage
• High cash balance
• Increased online consumer
traffic and Prime
subscriptions driven by
HBO’s content
• Acquire innovative HBO
management team
• Prime members enjoy
HBO’s popular content
library without a fee increase
“…we want things that customers will love, can grow to be large, will have strong financial returns and durable and can last for
decades…We have pillars of the business right now with Marketplace, AWS and Prime and we're actively looking for a fourth and
fifth pillar.” (Brian Olsavsky, Amazon CFO, Q3 Earnings Call)
Strategic Alignment Financing Ability Value Enhancement
• HBO could be bundled into the existing $99/year Prime
membership plan. Non-Prime members and/or current HBO
subscribers would have the option of an HBO only subscription
for the current monthly price of $14.99.
• The “Prime + HBO” bundle improves the experience of Prime
members while also recruiting new members from the HBO
viewer base.
Conclusion
27. Apple
• Expands current partnership
created through HBO Now
• Innovative company
structure to foster HBO’s
growth
• Provides HBO with
exposure to massive
customer network
Duff & Phelps 27December 20, 2016
• Strong cash balance
• Low cost of debt
• High level of free cash flow
• Reverse mediocre
performance of past content
servicing
• Jumpstart company sales
after period of declining
iPhone sales
• Enhance the experience of
Apple TV users through
fresh content offerings
“I would confirm that television has intense interest with me and many other people here. In terms of owning content and creating content, we have started
with focusing on some original content, as you point out… We've got a few things going there that we've talked about. And I think it's a great opportunity
for us both from a creation point of view and an ownership point of view. and so it's is an area that we're focused on…we’re always looking in the market
about things that could complement things that we do today, become features in something we do, or allow us to accelerate entry into a category that
we’re excited about…” (Tim Cook, Apple CEO, Q3 Earnings Call)
Strategic Alignment Financing Ability Value Enhancement
Conclusion
• Apple needs a growth catalyst to jumpstart company sales
following several periods of mediocre growth. HBO is an
innovative content provider that fits within Apple’s business model
and grants ownership rights to valuable media content.
• HBO would strengthen Apple’s competitive position as a content
provider through its reputable brand and popular media offerings.
28. Final Recommendation
• Amazon is the strongest candidate within the strategic buyer universe for the
following reasons:
– High level of value enhancement through integration within the Prime membership
package
– HBO drives news customers to Amazon’s platforms.
– Strategic alignment and financing capabilities to complete the acquisition
Duff & Phelps 28December 20, 2016
30. Piracy Industry Overview
Duff & Phelps 30
• Estimates suggest that piracy costs the film industry
approximately $20 billion per year.
• Bit Torrent is a popular peer-to-peer file sharing
website that is utilized by over 200 million users per
year.
• While cases against torrent websites are common,
the structure of the software makes it difficult to hold
the owner of the site accountable for piracy that
occurs through their platform.
• Piracy can increase viewership and publicity for TV
series but it will prove problematic unless additional
revenue can be realized as a result of the increased
publicity.
• Game of Thrones has become the most pirated
show in the world with a trend that has consistently
increased during it’s existence.
"We've been dealing with this for 20, 30 years—people sharing subs, running wires down the backs of
apartment buildings. Our experience is that it leads to more paying subs. I think you're right that Game of
Thrones is the most pirated show in the world. That's better than an Emmy.”
- Jeff Bewkes (CEO, Time Warner)
31. Drivers of Piracy and HBO’s “Solution”
Duff & Phelps 31
• The legal viewing price of a TV Series is the key driver that affects piracy
numbers.
• Cost to purchase a full season of Game of Thronesis comparable to
other major TV series
• HBO Now is priced approximately 50% higher than other subscriptions.
• Given that consumers heavily favor subscription over season purchases, this
increases piracy for HBO.
Price Level
Availability
• Piracy is a last resort for viewers who have no other way to access
content.
• 90% of GOT piracy occurs outside the US
• Release dates that differ by region incentivize piracy in that viewers want
to be current on the plot.
• In many areas across the globe, viewers are forced to pay for an entire
cable package to gain access to HBO if they are to watch legally.
HBO has taken steps to reduce the impact that these two drivers have on the level of piracy that occurs with GOT
• HBO Now ➦ Released in 2015, this standalone streaming service is subscription based and allows users to watch HBO content
for a monthly rate of $15. While this will help with piracy, subscription numbers are low – in part because customers can only use
HBO Now on Apple devices and also because it is only offered in the US.
• IP-Echelon ➦ HBO has recently enlisted the help of an anti-piracy firm, IP-Echelon to try to curtail piracy further.
32. • Damages can be simplified into two major
components:
– The number of viewers who would have
contributed to revenue (season purchase or
subscription) if piracy was not an option
– The average revenue contribution per customer
» This is calculated by using a weighted average
of the two consumption methods (monthly
subscriptions and full season purchase)1
Damages Calculation & Methodology
Duff & Phelps 32
Total
Damages
Number of
Piracy-Based
Viewers
willing to pay
Average
Revenue per
Customer
1. Analysis of comparable data, current revenue streams and online information allows for relevant assumptions to be made
33. Damages Calculation & Methodology
Duff & Phelps 33
Total Damages =(Wview* Nview )[Wseas Pseas+ Wsub Psub]
Unmonetized Demand (Wview * Nview)
Method of Consumption Weights (Wseas , Wsub)
Revenue per Consumption Method (Pseas , Psub)
• Wview is the percent of piracy-based viewers who would pay to watch Game of Thrones if it were not
available through piracy.
• Nview is the estimated number of viewers who pirated Game of Thrones in 2016.
− Unmonetized Demand - the number of viewers that would contribute to revenue if piracy was not an option.
• Wseas is the percent of customers who would purchase the full season of Game of Thrones.
• Wsub is the percent of customers who would subscribe to HBO Now in order to gain access to GOT.
− These values can be roughly estimated using the common size income statement and looking at the percent of
revenue associated with “Subscriptions” vs. “Content.”
• Pseas is the price to purchase full season of GOT ($29 per season).
• Psub is the price to subscribe to HBO Now for the required time to watch entire season ($45 for three
months).
34. Damages Calculation & Methodology
Duff & Phelps 34
Total Damages = 95% ∗ 2,000∗
10% ∗ $29 + 90% ∗ $45
• Given the high demand and interest for GOT, it is assumed
for that 95% of piracy-based viewers would choose to
purchase the series if piracy was not an option.
− When applied to the estimated two million piracy-based
viewers, this implies that 1.9 million viewers would transition to
purchasing GOT.
− Referring to the common size income statement, 85% of
revenues are generated through “Subscription Services” and
15% are generated through “Content & Other” services.
• Taking into account the content purchases by other media
platforms, weights for season purchases (Wseas) and
subscription purchases (Wsub) were determined to be 10%
and 90%, respectively.
− The price to purchase the full season (Pseas) is $29 and the
price for a three-month subscription (Psub) is $45.
Total Damages
$82, 4601
1Using this method, damages for the piracy associated with Game of Thrones were calculated to be $82.46
million – slightly less than ~1.5% of 2015 Revenues for HBO.
35. Precedent Piracy Litigation
Duff & Phelps 35
• One of the most notorious Torrent sites
and based in Sweden
• Prosecution called for over $3 million in
damages and prison time
• Court decided on community service
and $148,000 in damages awarded to a
film producer
In most cases targeting Torrent Websites, the owners or operators of the website are held
accountable in court. Two recent lawsuits are detailed below:
• Currently the most visited bit torrent
website in the world1
• Case filed by Universal Music, Sony
Music, Warner Music and the Swedish
and Nordisk film companies
• The ruling states that Pirate Bay’s
operations cannot be deemed as
infringement of copyright when these are
utilized by it’s users to pirate media.
1. www.techtimes.com
36. Litigation Recommendation
Duff & Phelps 36
Partial
Damages
Reparation
a possibility
Precedent Rulings
Subscribers held accountable
Few Trials on
Record
Although significant damages have been incurred as a result of Bit Torrent, precedent rulings on
torrent websites suggest that plaintiffs are typically awarded fractions of actual damages, if any
reparations are paid at all. For that reason, it is recommended that HBO consider the costs
associated with pursuing further legal action against Bit Torrent before filing a lawsuit.
38. Weighted Average Cost of Capital
Duff & Phelps 38
Comparable Companies Unlevered Beta
Predicted Net Value of Debt/ Marginal Unlevered
Company Levered Beta Debt Equity Equity Tax Rate Beta
Time Warner Inc. 0.817 22,163.00 69,063.26 32.1% 38.0% 68.1%
Twenty-First Century 1.110 14,807.00 50,135.34 29.5% 38.0% 93.8%
Viacom 1.307 12,173.00 14,496.04 84.0% 38.0% 86.0%
Discovery 1.124 7,772.00 15,812.06 49.2% 38.0% 86.1%
Walt Disney 1.012 15,214.00 150,217.61 10.1% 38.0% 95.2%
CBS Corp 1.076 8,778.00 25,357.17 34.6% 38.0% 88.6%
Netflix 1.540 6,649.70 51,066.96 13.0% 38.0% 142.5%
Mean 1.07 39.9% 94.3%
Median 1.09 33.4% 88.6%
HBO Relevered Beta
Mean Target Target
Unlevered Debt/ Marginal Relevered
Beta Equity Tax Rate Beta
Relevered Beta 0.94 39.9% 38.0% 1.18
Company Name Net Debt Value of Equity Weighted Cost of Capital
Time Warner Inc 22,163.0 69,063.3 Capital Structure
Twent-First Century 14,807.0 50,135.3 Value of Debt 18.9%
Viacom 12,173.0 14,496.0 Value of Equity 81.1%
Discovery 7,772.0 15,812.1
Walt Disney 15,214.0 150,217.6 Cost of Debt
CBS Corp 8,778.0 25,357.2 Cost of Debt 2.21%
Netflix 6,649.7 51,067.0 Tax Rate 30.0%
Debt Adjustment Factor 1.43
Mean 12,508.1 53,735.5 After-tax Cost of Debt 2.21%
Median 12,173.0 50,135.3
Cost of Equity
Amount % of Total Risk-free Rate 1.82%
Net Debt 12,508.1 18.88% Market Risk Premium 7.55%
Value of Equity 53,735.5 81.12% Expected Market Return 9.37%
Levered Beta 1.18
Cost of Equity 10.70%
WACC 9.1%
• Cost of Debt: Bloomberg (TWX)
• Capital Structure: Industry Median
• Tax Rate: 30%
• Predicted Beta: Bloomberg
Assumptions
42. Growth Rates & Margins (Continued)
Duff & Phelps 42December 20, 2016
2012A 2013A 2014A 2015A 2016A 2016A 2016A 2012A 2012A
Margins (Other)
Capex (% of Revenue) 1.4% 0.9% 1.1% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
Depreciation (% of Capex) 130.8% 202.2% 132.8% 119.1% 125.0% 120.0% 115.0% 105.0% 100.0%
Allocated Corp Capex (% of Corporate Capex) 17.9% 18.0% 19.1% 19.2% 19.2% 19.2% 19.2% 19.2% 19.2%
Corporate Depreciation (% of Corporate Capex) 62.2% 36.4% 73.0% 27.6% 30.0% 35.0% 35.0% 35.0% 35.0%
Acquired Films (% of Total Costs) 36.9% 37.8% 37.2% 35.7% 35.7% 35.7% 35.7% 35.7% 35.7%
Originals and Sports (% of Total Costs) 35.7% 36.1% 35.5% 36.7% 36.7% 36.7% 36.7% 36.7% 36.7%
Other Direct Operating costs (% of Total Costs) 27.5% 26.1% 27.4% 27.6% 27.6% 27.6% 27.6% 27.6% 27.6%
• Capex is driven as a percentage of revenue.
• Depreciation is driven as a percentage of Capex.
• Allocated Corporate Capex and Corporate Capex are driven as a percentage of Corporate Capex
• Acquired Films costs, Originals & Sports costs, and Other operating costs are driven as a percentage of the total
costs.
• Total costs is driven by gross margin shown in the previous slide (41).
Comments
44. Piracy Overview and Drivers – Supporting Documentation
Duff & Phelps 44
• The Motion Picture Association of America performed a study that suggests costs of piracy to be $20.5
billion for the film industry on a yearly basis.1
• Torrent websites are set up such that the data is not stored at any particular location or central location.
Rather, each user contributes bandwidth to allow for direct peer-to-peer sharing. For this reason, pinning
responsibility to the torrent website has proved difficult for media originators.
• Two of HBO Now’s competitors, Netflix and Hulu, are priced at $8.99 per month and $7.99 per month,
respectively. This is a considerable discount when compared with HBO Now’s price of $14.99 per month.
• With nearly 90% of piracy for Game of Thrones coming from outside the US, Australia leads the group
with over 30% of GOT viewership due to piracy.2
1. http://moviepilot.com/posts/2889420
2. http://www.ew.com/article/2015/04/21/game-thrones-piracy-record
45. Damages Methodology – Supporting Documentation
Duff & Phelps 45
• Many viewers who watch pirated films and TV series indicate that they are willing to pay for content, but
often times the content is not available or is grossly overpriced compared to other forms of media. Given
this willingness to pay for content and the obsession that many viewers have for Game of Thrones, the
percent of piracy-based viewers that would have paid for GOT was estimated at 95%.
• The value of two million viewers who watched Game of Thrones illegally is an estimate that can be
revised based on additional data.
• Weighting the costs based on consumption methods yields a weighted average cost for the consumer of
$43.40 to watch the full season of GOT.
46. Litigation – Supporting Documentation
Duff & Phelps 46
• Comparing the amount sued for and the amount paid in reparation for the SwePiracy case, only 5.8% of
the original amount was paid out by the Torrent website. This percentage was applied to the $82,460,000
damage calculation to yield a more appropriate value for HBO to expect.
• Both the SwePiracy case and The Pirate Bay cases could be revisited in the coming future. Given the
relative youth of piracy, many precedents have yet to be set. For that reason, it is possible that a lawsuit
becomes more practical in the future for HBO to pursue.
• Many precedent rulings are either ongoing or have ruled on the side of the Torrent websites. Additionally,
trials are limited in number as they pertain to large torrent websites.