Media Deep Dive: The Current State of The Film Studio Business

RBC Capital Markets, LLC
EQUITY RESEARCH
David Bank (Analyst) Kristina Warmus (Associate)
(212) 858-7333 (212) 428-6622
david.bank@rbccm.com kristina.warmus@rbccm.com
Nicholas Caplan (Associate)
(212) 428-6412
nicholas.caplan@rbccm.com
September 13, 2013
Media Deep Dive: The Current State

of the Film Studio Business
An overview of the current landscape and a primer on
studio economics
We have prepared an exhaustive analysis of the competitive
environment and the economics of the film studio business. Some key
conclusions:
Secular Forces Favorable – While margins for the studio business tend
to trail those of other businesses in the Media Conglomerate mix
(e.g. Network Channel business), with the secular outlook for content
monetization (we hate to be cliché…but its true), content continues to be
king and we really like the outlook for the business.
The line between indies and slate financing providers has become
blurred as a new breed of studio is born, as demonstrated by Legendary
Pictures or Skydance – Financial players are playing a greater role in
creative development.
Studios with TV operations tend to have more consistent (and higher)

margins – TWX's Warner Brothers and FOXA's 20th Century Fox Studios
(and to a lesser extent Lionsgate) will likely continue to have steadier,
more predictable studio results than other "major" peers such as Disney
or Universal.
Front-loading of box office has intensified as films often make it or break

it in week one – The bulk of tent-pole releases are clustered around
summer and Christmas. With competition fierce, on average, more than
40% (and for some films more than 60%) of total box office is generated
in the first week.
First-run output is key to library monetization – Being able to bundle

hit first-run content will enable studios to sell content into the evolving
international pay-TV market. Mini-majors with strong library content, such
as Lionsgate, should benefit from blockbuster content production.
With Home Entertainment Contribution Now Trending Flat To Up,

Studios Are Positioned To Reap Benefit Of Favorable Digital Margins
And Opportunity For Continued International Growth Through Multiple
Distribution Windows – Digital momentum is finally starting to offset
negative trends in packaged goods Home Entertainment. Additionally,
studios will likely continue to benefit from big bets on culturally "neutral"
franchise action-adventure films to take advantage of increasing screens,
wealth and growing middle class in the developing markets and increasing
basic digital TV/SVOD penetration internationally, which should provide
further tailwinds to growth in both theatrical and TV/SVOD windows.
Priced as of prior trading day's market close, EST (unless otherwise noted).
All values in USD unless otherwise noted.
For Required Conflicts Disclosures, see Page 102.
Media Deep Dive: The Current State of the Film Studio Business
Table of Contents
Development and production .......................................... 41
Table of Contents ............................................................ 2
More about credits — real-life examples ......................... 45
Executive Summary ......................................................... 3 The cost of development and production ......................... 46
What makes a hit and a bomb? ........................................ 48
Studio Essentials .............................................................. 6
Financing........................................................................... 50
Majors, mini-majors, and independent studios .................. 6
Studio/balance sheet financing ........................................ 51
Mini-majors ......................................................................... 7
Bank financing .................................................................. 52
Independent ........................................................................ 7
Pre-sale financing (theatrical and other rights) ................ 52
Windows are the life cycle of a film .................................... 8
Tax credits and subsidy financing ..................................... 53
Seasonality .......................................................................... 9
Types of movies people watch.......................................... 10 Product placement financing and promotional tie-ins ..... 54
Film ratings ....................................................................... 10 Alternative investment & slate financing ......................... 54
The importance of tentpoles ............................................ 13 Co-financing (traditional domestic/international split
Major franchises ............................................................... 15 and other) ......................................................................... 56
Profitability ....................................................................... 17 Completion bonds ............................................................. 56
Box office trends in 2013 ................................................... 17 Distribution costs and monetization ................................ 57
What made money in 2012? ............................................. 18 Revenue classification — Who’s entitled to a piece of
what? ................................................................................ 58
Types of profitable films .................................................... 20
The basics of distribution .................................................. 59
Profit records..................................................................... 21
Theatrical .......................................................................... 61
Profitability profile of individual studios ........................... 24
Home entertainment (packaged media, electronic sell-
Strategies of studios & major franchises ........................ 25 through and “traditional” VOD) ....................................... 72
Walt Disney Studios .......................................................... 26 Sale of film to TV and subscription VOD ........................... 81
Twentieth Century Fox ...................................................... 27 Ancillary ............................................................................ 86
Warner Bros. ..................................................................... 28 Putting it all together in one statement ........................... 87
Paramount ........................................................................ 29 Library – How much value is in the library?...................... 90
Sony .................................................................................. 30
Summary of accounting ................................................. 92
Universal Studios .............................................................. 30
Lionsgate ........................................................................... 31 Recognition of revenue ..................................................... 92
MGM ................................................................................. 32 Recognition of expenses ................................................... 92
Impairment of capitalized film investment ....................... 93
A brief history of film ..................................................... 36
Film libraries and TV shows .............................................. 93
How a movie gets made ................................................ 39
Appendix I: Additional data ........................................... 95
September 13, 2013 2

Executive Summary
The line between indies and slate financing providers has blurred as a new breed of studio
is born. Not long ago, independent film producers were thought of as makers of quirky, art-
house pictures that were not commercially viable for wide release. They typically had
minimal financial resources, and usually did not need more, given the smaller scale of their
productions. Not long ago, the providers of film financing were thought of as bean-counting
money men: the silent, passive, financial partners of the major studios. Rarely were they
involved in the acquisition and development of intellectual property and almost never were
they involved in any creative decisions. We believe that is changing. While the six major
studios still dominate film production, the players once thought of as simply their financial
partners have morphed into true studios: the tail is wagging the dog. One-time purely
financial players such as Legendary Pictures, Skydance and Relativity are becoming major
stakeholders in intellectual property. In some cases, they are using their major studio
partners to co-finance and distribute their own content, rather than the other way around.
Studios with TV operations tend to have more consistent (and higher) margins. While the
rise of bankable branded franchises has contributed to the growth in global box office, and in
many cases, overall profitability, it is still impossible to take the risky nature of the hit-driven
movie business out of the operating paradigm. Movie studios’ results are volatile and even
the most disciplined management teams suffer big losses. On the other hand, television
production has lower risk and favorable reward characteristics. It tends to contribute to a
more consistent overall operation, stabilizing, and often enhancing studio profitability. The
first-run model often does have some profitability assured thanks to the international
market. Further, significant upside is generally possible given the off-network syndication
and digital distribution SVOD channel. Not surprisingly, major studios with strong TV
operations, such as Twentieth Century Fox and Warner Brothers, tend to have industry-
leading margins and consistency. While the parent companies of Disney and Universal also
have major television operations, they are not part of the “studio” divisions, but rather are
operated out of the network TV divisions (ABC and NBC). Lionsgate’s scaling television
business (through a combination of 10/90 properties as well as more traditionally produced
shows such as Mad Men or Weeds) should also help drive more consistent operating results
over time, in our opinion. In a "10/90" structure, a network commits to air an initial 10
episodes of a show while the producer agrees to provide those first 10 shows at virtually no
cost. If the show hits a minimum rating threshold, the network is then contractually
committed to ordering another 90 episodes of the show. Typically, a network will order only
~12–20 episodes per year, so the 10/90 structure offers a level of visibility in production
commitment rarely seen in TV.
International market continues to drive box office higher and drive profitability. A decade
ago, most industry sources would have expected a fairly even split between domestic and
international box office revenues, with the index of international to domestic performance at
1x. A few things have happened to alter the index (and the Hollywood production
landscape). First, the international marketplace has grown as a rising middle class in regions
such as China, Brazil, Russia and Eastern Europe experience substantial growth. Second, the
studios have adapted to more culturally neutral tastes, with an emphasis on action-
adventure movies as opposed to comedies, which tend to be more culturally biased. Finally,
even within the action-adventure genre, blockbuster films are now based more on globally
recognized franchises (as opposed to being more US-centric). The result is an average
international/domestic index of approximately 1.5x, with some films reaching 2x-3x and
higher (action-adventure genres typically index higher). This has been accompanied by
overall growth in box office for blockbusters, implying growth in the overall market

opportunity (and thus profitability) rather than just a re-cutting of the pie by geographic
boundaries.
Front-loading of box office has intensified. Hollywood clusters its blockbuster releases
around the December holidays and the summer season (which we assume begins in mid-May
and ends by early August). Because of this heavy clustering and the large amount of
marketing dollars surrounding these releases, each release receives intense focus during its
opening weekend, but gets very little time alone in the consumer spotlight thereafter.
Typically, roughly 30% of the total domestic box office run comes in during the first weekend
and more than 60% during the first two weeks. A good rule of thumb is a 50% drop-off in box
office in the first week after the initial release. As a result, films have a shorter window to
“make or break” their profitability. While much of the ultimate profitability of any film is
driven by non-theatrical windows (home video, pay-TV, free-TV, etc.), for the most part,
revenues in these windows tend to correlate with the theatrical window, so it’s hard to
recover after stumbling in the initial window, especially in TV output deals where revenues
tend to be tied directly to box office.
Global marketing budgets reflect the increasing risk/reward and compressing windows in
studio production. While direct production costs (referred to as negative costs) for
Hollywood blockbusters regularly exceed $100MM and can sometimes approach $200MM,
marketing costs (referred to as prints and advertising or P&A) can cost similar amounts.
Marketing costs are driven by the intense competition in the marketplace, the globalization
of that marketplace and, we believe, the compression of windowing between theatrical
releases, VOD, and home video. Money spent on the theatrical window also supports
consumer spend in other windows. In fact, some studios have even streamlined their
marketing departments to combined home video and theatrical, a trend we expect to
continue (potentially driving increased profitability).
First-run output is key to library monetization. One of the biggest assets a studio can have is
a quality library. Cash flow margins on these assets can exceed 70% as there is little marginal
cost to bear once a piece of content has been created. While we would argue that library
content in the domestic distribution chain has reached a level of maturity (albeit still
generating favorable margins), we see much greater growth on the international side,
particularly as basic pay-TV distribution increases. While TV channels need quality content to
drive demand and viewership, not all library content is equally monetizable (given its age,
etc.). Studios with premium original blockbuster content can package that new output with
legacy library content. Studios can bundle content so they are able to maximize both volume
and price across their content assets. Additionally, if library content is not continually
expanding to include new titles as older ones age, the library itself will decline in value. While
production of new blockbuster output might seem like a risky proposition versus simply
exploiting an existing library, the return on such a strategy can be highly favorable. We
believe that this strategy could be a high-value driver for studios like Lionsgate or MGM,
which have very large libraries and the ability, assuming the financing is in place, to produce
blockbuster content.
We think we have come up with a fairly accurate “quick and dirty” way for investors to
gauge the basic profitability (or loss) of a movie. With so much at stake given upfront
negative costs and marketing dollars, investors often focus on the profitability of any given
movie. As illustrated by our more detailed analysis later in this report, we think a good rule
of thumb for calculating the break-even point on any theatrical release is 50% total global
box office equal to 100% of negative costs (this assumes a typical P&A budget spend and
home video performance). Generally, box office performance below this level will result in

some losses (and potentially a write-off depending on the magnitude of losses and
recognition of revenues and expenses around quarterly reporting).
While the studio business model tends to underperform other businesses in the media
conglomerate portfolio, its secular outlook is among the best. Studio margins trail those of
most other businesses at the parent companies of the majors. Even with robust TV
operations smoothing the profitability of the theatrical business, the strongest studio
operations of the majors rarely have EBITDA margins exceeding the 10% range (compared to
the cable channel business’s typical margin in the 40% range). Additionally, in our opinion,
investors usually do not give much credit for individual wins, while they tend to punish
individual losses. That said, from a secular perspective, the outlook for the studio business
probably has the greatest visibility and least downside risk in the long term versus other
businesses in the conglomerate mix. We believe the old adage that “Content is King” will
remain true for our investable future.

Studio Essentials
Majors, mini-majors, and independent studios
There are three main types of film studios: majors, mini-majors, and independents. Major
studios have a long history of producing and distributing films, and consistently release a
substantial number of films each year. They have significant library assets, and usually have
property on which to produce films. There are six major film studios: Walt Disney Pictures,
Columbia, Paramount, Twentieth Century Fox, Warner Bros., and Universal. These majors
1
account for about 90% of gross domestic film rentals .
The majors have multiple sub-labels, or banners. For example, Walt Disney Pictures also puts
out films under the Pixar, Marvel, and (soon) Lucasfilm banners. We outline the Big Six and
their major banners below.
Exhibit 1: Major film distributors
Parent Company 6 Majors Major Banners
Pixar
Marvel
The Walt Disney Company (DIS) Walt Disney Pictures
Lucasfilm
Focus Features
Comcast (CMCSA) Universal Pictures Illumination
Fox 2000
Fox Searchlight Pictures
Twenty-First Century Fox (FOXA) Twentieth Century Fox
Twentieth Century Fox Animation
Fox International Productions
TriStar Pictures
Sony (SNE) Columbia Pictures Screen Gems
Sony Pictures Classics
Time Warner Inc. (TWX) Warner Bros. New Line Cinema
Paramount Vantage
Paramount Classics
Viacom (VIAB) Paramount Pictures Insurge Pictures
MTV Films
Nickelodeon Movies
The six major studios account

for an estimated 90% of gross
domestic film rentals
Source: Company reports, RBC Capital Markets; Entertainment Industry Economics, Vogel, Harold L..; industry sources
1
Vogel, page 73

Mini-majors
2
Mini-majors are smaller studios that generally have either :
I. Production capabilities only: No financing or distribution exists at the studio, so it must

be found elsewhere; or
II. Production capability with some limited financing and distribution capability.
While mini-majors often have some domestic distribution capability, they almost always
outsource international distribution to major studio partners. They may also share in the
ownership of an underlying production and enter into co-financing arrangements with major
studios. The two primary mini-majors are Lionsgate and MGM. Many of our industry contacts
believe that Lionsgate is on the cusp of being considered a major studio, particularly after the
purchase of Summit Entertainment.
Independent
Independent (“indie”) studios lack in-house production, distribution or financing capabilities
(they may have one or two, but not all three). Traditionally, these labels produced more
niche/art house-type films where the majors or mini-majors didn’t see commercial
opportunity. These films would not command a wide release across the globe, but were
more suitable for limited release on fewer screens and in more limited geographies. As a
result, these films would tend not to optimize the distribution scale of the majors.
Films produced by the independents can be “picked up” by a studio (often after having been
shown at independent film festivals such as Sundance) with an established distribution
platform. The major studios have “independent” labels that they use to distribute these films
as well as to create smaller, niche movies of their own. Indie studios owned by Hollywood
conglomerates include Sony Pictures Classics, Paramount Vantage, Focus Features, and
Warner Independent Pictures. Some of the indies do have small distribution platforms of
their own. In some cases, the independent studio will finance and produce a film and then
3
“rent” the major’s distribution pipeline.
The “independent” landscape is dominated increasingly by studios that have access to

financing and own a major stake in the underlying intellectual property or film they are
producing, but rely on a major studio for distribution. These labels include The Weinstein
Company, Miramax, or Relativity Studios.
However, the most significant impact is being caused by the “independents” that in the past
acted more as banks in co-financings but are now becoming more active on the production
side. They tend to have pacts with one or two major studios; examples include Legendary
Pictures (historically aligned with Warner Bros. soon to be Universal), DreamWorks SKG (with
Disney), New Regency Pictures (with Fox), and Skydance Productions (with Paramount). We
will discuss these deals in further detail later in this report, but as an example, Warner Bros.
signed a deal with Legendary Pictures in 2005 to produce and co-finance some of its movies
until the end of 2013. This has been one of the industry’s most successful co-financing
arrangements: WB has distributed more than two dozen films, including some of the biggest
blockbusters like the Batman and Superman franchises, 300, Clash Of The Titans, and The
Hangover series, for Legendary Pictures. In July, after months of unsuccessful negotiations
with WB, Legendary signed a new multi-year deal with Universal Pictures, which will
2
http://www.law.usc.edu/centers/cleo/working-papers/cleo/documents/C12_9_paper.pdf
3
Vogel

distribute its movies, including big-budget releases like Warcraft, Godzilla, and 300: Rise of
an Empire.
We outline some of the recent deals between studios in the following exhibit. We note that
these are ever-evolving agreements that can change frequently.
Exhibit 2: Summary of recent film pacts
Major Studio Partner Studios Major Studio Partner Studios
Avi Arad Prods. Mosaic Bad Hat Harry Prods. PC Film

Broken Road Prods. Original Film Davis Entertainment R&G Media
COTA Films Our Stories DreamWorks Animation Red Hour Films
Michael De Luca Overbrook Entertainment Feigco Entertainment Carlos Saldanha
Escape Artists Red Wagon Entertainment Film Rites Scott Free
Frederator Scott Rudin Prods. Genre Films 21 Laps
Fox/Fox 2000/Fox
Sony Gotham Group Smoke House Giant Pictures Walden Media
Searchlight
Will Gluck Taylor Swift Prods. Wyck Godfrey and Marty Bowen Sunswept Entertainment2
Happy Madison Syco Invention Films Ad Hominem3
Hey Eddie TDJ Enterprises Lightstorm Borderline Films 3
Maguire Entertainment Matt Tolmach Marc Entertainment Decibel Films3
Francine Maisler & Associates Trigger Street New Regency1
Laurence Mark Prods. Hutch Parker Entertainment
Bad Robot Indian Paintbrush Boxing Cat Films Mandeville Films

Di Bonaventura Michaels-Goldwyn Jerry Bruckheimer Films Mayhem Pictures
Ian Bryce Prods. Plan B Mark Gordon Co. Gil Netter Prods.
Paramount Disruption Platinum Dunes Disney Gunn Films Panay Films
Robert Evans Co. Protozoa Mario Iscovich POW! Entertainment
Fake Empire Sikelia Prods. Junction Entertainment Secret Machine
Four By Two Films Skydance Lucamar Prods. Whitaker Entertainment
Alcon4 Life’s Too Short Aggregate Laguna Ridge

Appian Way Lin Pictures Angle Films 4 Lava Bear
Berlanti Prods. Malpaso Apatow Prods. Mandalay
Branded Films Ninjas Runnin’ Wild Barnstorm Media Rights Capital 4
Carousel Prods. Pearl Street Bluegrass Chris Morgan Prods.
Cruel and Unusual Polymorphic Blumhouse Prods. Morgan Creek Prods.4
De Line Pictures Revelations Captivate Entertainment One Race Films
Di Novi Guy Ritchie Universal/Focus Cross Creek Pictures 4 Marc Platt Prods.
Warner Bros. Executive Options RL Films 2 Features/Universal de Passe Jones Entertainment Silver Pictures Entertainment4
Gerber Roserock Films Pictures Intl. Global Produce The Tomante Co.4
Green Hat Films Team Downey Gold Circle4 Wild West Picture Show Prods.
Gulfstream 22nd & Indiana Hurwitz & Schlossberg Prods. Working Title Films
Heyday Village Roadshow Illumination Entertainment Completion5
KatzSmith Weed Road ImageMovers Random House5,6
J.W. Prods. Wigram Prods. Imagine Entertainment Cattleya 7
Langley Park Wychwood Josephson Entertainment
Legendary8 K/O Paper Products
1) Equity partner with all Fox divisions; 2) Pact with Fox 2000; 3) Pact with Fox Searchlight; 4) Distribution only; 5) Pact with Focus Features; 6) Co-financing and co-production pact;
7) Production and distribution pact with Universal Pictures Intl; 8) Legendary's deal with Warner Bros. runs until 2013. Legendary has signed a new five-year deal with Universal starting from Jan 2014.
Source: Variety, RBC Capital Markets
Windows are the life cycle of a film

With the initial release of a film, the biggest focus is on box office results, particularly
domestic results. And while a substantial portion of film revenue is generated at the box
office, monetization continues through multiple subsequent windows, including home
entertainment (DVDs, Blu-rays), rentals (Blockbuster, Redbox, Netflix), pay-per-view (PPV)
and video-on-demand (VOD), as well as television windows (premium and free). We provide
more detail on individual studios in their respective sections below.

Exhibit 3: Sample of film monetization flow chart
Home Pay TV Free TV Pay TV2/Free

Box Office Release Rentals PPV/VOD
Entertainment TV2/Int'l TV
Source: Walt Disney Company Reports, RBC Capital Markets
Seasonality
The film industry is highly seasonal. Box office releases revolve largely around holidays and
vacations: Easter, Thanksgiving, and Christmas are all popular times for moviegoers as
students and adults have more free time, although leading into Christmas vacation many
people are busy shopping for gifts, which may be why we see a slump in film revenues during
December.
We can see an inverse relationship emerging between the number of films playing during the
period (both new and holdover) and the total dollars grossed, as few films are released at the
same time as so-called tentpoles. A few tent-pole films are released during a few specific
weeks of the year, while many smaller films are released outside this period.
Exhibit 4: Seasonality of film releases and revenues ($MM)

Film Business is highly seasonal collections are
the highest during summers and holidays
300 $1,500
4th of July
280
$1,300
260
Memorial Day
240 Easter Thanksgiving
$1,100
220
200 $900
180
$700
160
gross&chart=byyear&yr=2012&sort=month&order=ASC&p=.htm
140
$500
120
100 $300
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
# of Movies (LHS) Total Domestic Gross Revenue (RHS)
With the major tentpoles releasing in the summers and Thanksgiving, a large
number of small movies release during rest of the year.
Source: Boxofficemojo.com, RBC Capital Markets

Types of movies people watch

There are several movie production formats, but the most widely employed are live action
(83%), animation/live action (8%), and digital animation (7%). More than 8,000 live-action
films were produced from 1995 to 2012, with an average gross of $20 million. For the 105
animation/live-action films made during the same period, average gross revenues were $137
million. For the 145 digital-animation films produced, the average gross was $89 million.
While live-action films are by far the most popular format, they tend, on average, to gross far
less than those films employing animation.
The large disparity between the average gross for live action, animation/live action, and
digital animation is interesting. While the animation genre accounts for far fewer of the films
released, they gross far more dollars at the box office. This is likely due to less competition
given the lower volume of animation films released, as well as a higher number of attendees
(most children do not go to see an animated film alone, but go with a parent or two, as well
as possibly a sibling or friend).
Exhibit 5: Top grossing movie production methods 1995-2012 ($MM)

2% 0%
7%
Movies Total Gross Average Gross Market Share Live Action
8%
Live Action 8,036 158,174 20 83% Animation/Live Action
Animation/Live Action 105 14,434 137 8%
Digital Animation
Digital Animation 145 12,838 89 7%
Hand Animation 112 4,196 37 2%
Hand Animation
Stop-Motion Animation 20 482 24 0%
Rotoscoping 3 11 4 0% Stop-Motion Animation
Multiple Production Methods 13 6 0 0% 83%
Source: the-numbers.com , RBC Capital Markets
Film ratings
4
Upon a voluntary submission from filmmakers , the Classification and Rating Administration
(CARA) assigns G, PG, PG-13, R, NC-17 ratings to movies. G-rated films are open to all
audience ages. While no parental guidance is required for films rated PG and PG-13, parents
are “strongly suggested” (PG) and “strongly cautioned” for PG-13.
R-rated films are specifically restricted, and persons under age 17 require adult
accompaniment. No one aged 17 or under is permitted to attend a film with an NC-17 rating.
4
According to the MPAA

Exhibit 6: Film ratings
Rating
G PG PG-13 R NC-17
General Parental Parents Restricted. No one age

Audiences. Guidance Strongly 17 or under
Strongly Cautioned. Children <17 is permitted.
All ages. Suggested. require
Some parent or
Some material adult
material not inappropriate guardian to
suitable for for children accompany
children. under 13. them.
Source: MPAA, RBC Capital Markets
These ratings are designed to help parents make decisions about what movies their children
can attend. They are not intended to indicate whether a movie is good or bad; however, the
rating can have an impact on how much a film can earn.
While there are typically more R-rated films released per year, these tend to bring in a lower
gross than PG-13 or G-rated films. For example, in 2012 there were more R-rated releases
(187) than PG-13 (123). There were more unrated films than any other (286) and fewer NC-
17 films than any other rating (2).
Exhibit 7: Number of films released per MPAA rating (2012)
350
300 286
Number of Movies Released
250
200 187
150 123
100
65
50
2
0
NC-17 G/PG PG-13 R Unrated
Source: boxofficemojo.com , RBC Capital Markets,
However, PG-13-rated movies grossed almost twice as much as R-rated movies. At an

average of $46 million per movie, PG-13 was the highest grossing film rating. Next is G-rated
at $35 million.

Exhibit 8: Top grossing movie rating (2012)
$6,000 5,625 $50

$46 $45
$5,000
Avg gross per movie ($ mm)

$40
$35 $35
$4,000
Total Gross ($ mm)
$30
2,970
$3,000 $25
2,305 $16 $20
$17
$2,000
$15
$10
$1,000
$5
2 56
$0 $1 $0.2 $0
NC-17 G/PG PG-13 R Unrated
Gross (LHS) Avg per movie (mm) Total avg per movie (mm)
Source: RBC Capital Markets, boxofficemojo.com

The importance of tentpoles

Tentpoles are wide-release, big-budget films that are expected to be very profitable. For the
studios, the earnings of these films often compensate for the losses from less successful
5
films. The term “tentpole” was first used in 1987 for the summer release Beverly Hills Cop 2.
As there is no official benchmark to term a movie a “tentpole”, we define it as a film that has
made (or is expected to make) at least $85 million at the domestic box office during its run.
In this note, we use estimates for films not yet released or still running in the theaters.
Looking at the biggest tentpoles shown in the following exhibit, we see that Gone with the
Wind had the highest domestic box office gross (adjusted for ticket price inflation) in history
at $1.65 billion.
Exhibit 9: All-time highest domestic gross (adjusted for ticket price inflation)
Gone with the Wind

Star Wars
The Sound of Music
E.T.: The Extra-Terrestrial
Titanic
The Ten Commandments
Jaws
Doctor Zhivago
The Exorcist
Snow White and the Seven Dwarfs
101 Dalmatians
The Empire Strikes Back
Ben-Hur
Avatar
Return of the Jedi
Jurassic Park
Star Wars: Episode I - The Phantom Menace
The Lion King
The Sting
Raiders of the Lost Ark
The Graduate
Fantasia
The Godfather
Forrest Gump
Mary Poppins
Grease
Marvel's The Avengers
Thunderball
The Dark Knight
The Jungle Book
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800
Millions of Box Office Gross $s
Source: Boxofficemojo.com , RBC Capital Markets
5
http://www.thecredits.org/2013/05/looking-back-at-iconic-tentpole-movies-and-imagining-their-2013-versions/

On an unadjusted-for-inflation basis, Avatar had the highest grossing worldwide box office
with $2.78 billion.
Exhibit 10: All-time highest worldwide gross (unadjusted for inflation)
Avatar
Titanic
Marvel's The Avengers
Harry Potter and the Deathly Hallows Part 2
Iron Man 3
Transformers: Dark of the Moon
The Lord of the Rings: The Return of the King
Skyfall
The Dark Knight Rises
Pirates of the Caribbean: Dead Man's Chest
Toy Story 3
Pirates of the Caribbean: On Stranger Tides
Star Wars: Episode I - The Phantom Menace
Alice in Wonderland (2010)
Jurassic Park
The Hobbit: An Unexpected Journey
The Dark Knight
Harry Potter and the Sorcerer's Stone
Pirates of the Caribbean: At World's End
Harry Potter and the Deathly Hallows Part 1
The Lion King
Harry Potter and the Order of the Phoenix
Harry Potter and the Half-Blood Prince
The Lord of the Rings: The Two Towers
Finding Nemo
Shrek 2
Harry Potter and the Goblet of Fire
Spider-Man 3
Ice Age: Dawn of the Dinosaurs
Harry Potter and the Chamber of Secrets
$0 $250 $500 $750 $1,000 $1,250 $1,500 $1,750 $2,000 $2,250 $2,500 $2,750 $3,000
Millions of Box Office Gross $s
Source: Boxofficemojo.com , RBC Capital Markets
Tentpoles that bring in more than $85 million at the domestic box office are expected to
6
have earnings that are substantial enough to offset a studio’s less profitable films . These
7
films support the finances of the studio, similar to a pole helping to hold up a tent .
Often, the hope in creating tentpoles is that they will become franchises for the studio.
6
Merriam-Webster
7
Macmillan Dictionary

Major franchises
A franchise is a film series related either by a common story/theme, or by a common
character. It may include prequels, sequels, remakes, or reboots. The success of an initial
original concept helps in selling the subsequent films in the series. Examples include Harry
Potter, Star Wars, Pirates of the Caribbean, and The Avengers.
The Harry Potter franchise has the highest gross to date of any franchise on record at $2.4
billion over eight films.
Exhibit 11: Major franchises with total domestic gross >$1 billion ($MM)
Franchise Studio # Movies Domestic Gross WW Gross
Harry Potter Warner Bros. 8 $2,390 $7,709
Star Wars Disney 7 $2,261 $4,486
Avengers Disney 7 $2,156 $5,014
James Bond Sony 24 $1,913 $6,198
Batman Warner Bros. 8 $1,898 $3,714
Shrek DWA 5 $1,420 $3,547
Spider-Man Sony 4 $1,376 $3,254
Twilight Summit 5 $1,366 $3,352
The Lord of the Rings Warner Bros. 4 $1,339 $3,953
Pirates of the Caribbean Disney 4 $1,279 $3,700
Star Trek Paramount 12 $1,243 $1,926
Transformers Paramount 3 $1,074 $2,339
X-Men Fox 6 $1,062 $2,255
Note: *Certain Star Wars films were not distributed by 20th Century Fox
Source: Company reports, Boxofficemojo.com, the-numbers.com, RBC Capital Markets Research
We compiled a list of the top 50 highest grossing movie franchises of all time. While the eight
Harry Potter films have the highest grossing worldwide box office of all time, the franchise’s
profitability (estimated by taking worldwide gross/production budget) is roughly 6.7x , well
above the 2.0x-2.5x required to break even. Despite having the highest gross, the franchise is
not the most profitable (given the high expenses associated with making the films).
Of the top 50 revenue-grossing franchises, we estimate Saw is the most profitable at 12.9x
worldwide gross/production budget. And, while it did not make the top 50, we cannot help
but note that Paranormal Activity’s five films rank in the top 65 highest grossing films, and
have a profitability ratio of 54.7x.

Worldwide Franchise Gross Box (millions of $s)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Harry Potter
September 13, 2013

James Bond
The Avengers
Star Wars
Lord of the Rings
Batman
Pirates of the Caribbean
Shrek
Twilight
Spider-Man
Source:the-numbers.com, imdb, HSX.com, RBC Capital Markets Estimates

Ice Age
Transformers
Iron Man
Fast and the Furious
Exhibit 12: All-time box office top grossing film franchises
X-Men
Jurassic Park
Mission: Impossible
Indiana Jones
Toy Story
Star Trek
Madagascar
Men in Black
Total Worldwide Box Office
Matrix
Chronicles of Narnia
Superman
Die Hard
Alien
Hangover
Terminator
Despicable Me
Kung Fu Panda
Monsters, Inc.
Da Vinci Code
Mummy
Alvin and the Chipmunks
Meet the Parents
Rocky
WW Box/Budget
Ocean's Eleven
Sherlock Holmes
Cars
Night at the Museum
Back to the Future
Lethal Weapon
Bourne Identity
Planet of the Apes
Hannibal Lecter
Resident Evil
American Pie
Home Alone
Saw
2.0x
4.0x
0.0x
6.0x
8.0x
14.0x
10.0x
12.0x
16.0x
Worldwide Box/Production Budget

16
We assume a film breaks

Profitability
even on costs when it When starting production on a film, many studios “back into” the budget: by taking into
makes 2.0x-2.5x its account estimated demographic appeal and expected revenues (including box office,
production budget at the television, and ancillary) among other factors, management can arrive at an appropriate
global box office budget.
It is difficult to measure the ultimate profitability of a film accurately based on box office
figures and production costs (factors such as pre-sold international distribution rights and
P&A spending complicate matters). As a rule of thumb, we think a film generally breaks even
if it makes 2.0x-2.5x its production budget at the global box office. Of course, this is more art
than science, and every film is different depending on financing arrangements, etc. (We note
it can be difficult to find consistent information between data sources, e.g.
boxofficemojo.com, IMDB, and the-numbers.com.)
This means that a movie will be profitable if it has collected at least double its production
budget in worldwide box office. After assuming a 50% theater owners’ cut and foreign box
office equal to domestic, this implies that the gross domestic collection should at least be
equal to the negative costs (essentially the production budget) to make the movie profitable.
This also assumes that the net profit from the ancillary revenues (DVD, pay TV, and free TV)
would be sufficient to cover the movie’s marketing costs.
Box office trends in 2013

This far in Q2/13, the big-budget Iron Man 3 (Disney) has enjoyed a 6.1x production revenue
in box office receipts. This is the result of more than $1.2 billion in global box office receipts
against a $200-million production budget.
The low-budget The Conjuring (Warner Bros.) has enjoyed the highest profitability ratio at
13x worldwide box to production budget.
The Lone Ranger (Disney) is still generating theatrical revenues; however, at just 1.1x today,
it appears unlikely to hit the 2.0x minimum threshold of worldwide box/production budget
to break even.

Exhibit 13: Global box office to production cost ratio and production cost for films released in 2013 (released by July 26, 2013)
14.0x $250
13.0x
Estimated "hurdle"
12.0x for profitability
11.0x
$200
10.0x
$150
8.0x
Potential write-down
6.1x
6.0x
5.0x 4.9x 5.1x $100
4.3x 4.2x
4.0x 3.7x 3.6x
3.3x 3.4x
2.9x 3.0x 2.9x 2.8x 3.0x
2.4x 2.6x 2.7x
2.3x 2.3x 2.4x $50
2.1x
2.0x
1.1x
0.0x $0
Global B.O./Prod'n Production Cost
Includes films that generated or are expected to generate $85 million+ at the domestic box office
Source: Boxofficemojo.com, Hsx.com, RBC Capital Markets research
What made money in 2012?

Magic Mike (Warner Bros.), with 23.9x production revenue in box office receipts, was the
most profitable movie of 2012. This was the result of a $7-million budget being more than
offset by $167 million in global box office receipts. Also notable was Silver Linings Playbook
(The Weinstein Company) at 11.3x and Ted (Universal) at 11.0x production revenue in box
office receipts.
Ice Age: Continental Drift (Fox) had 9.2x production revenue in box office receipts on the
back of strong international box office receipts of about $877 million. This is a good example
of a film that may have had more dampened results domestically ($161 million domestic
gross) going on to perform well internationally ($716 million international gross).

Exhibit 14: Global box office to production cost ratio and production cost for films released in 2012
25.0x $300
23.9x
22.5x
$250
20.0x
17.5x
$200
Estimated "hurdle"
15.0x for profitability
12.5x 11.0x 11.3x $150
10.0x 8.9x 9.2x

8.0x 8.4x
6.9x 6.9x 7.2x $100
7.5x 6.5x
5.0x 4.8x 5.1x 5.2x 5.2x 5.5x 5.1x
5.0x 4.2x 4.3x 4.1x 4.2x 4.1x 4.2x
2.8x 2.3x 3.1x 2.9x 3.3x 3.0x 2.9x $50
2.4x 2.7x
2.2x 2.1x
2.5x
0.0x $0
Global B.O./Prod'n Production Cost
Includes films that generated or are expected to generate $85 million+ at the domestic box office
Source: Boxofficemojo.com, Hsx.com, RBC Capital Markets research
In the following exhibit, we list the biggest box office bombs in history. If a film needs at least
2.0x-2.5x worldwide box office gross/production budget to break even, these films didn’t
even come close. John Carter, for example, came in at 0.8x, and is considered by many to be
the biggest box office bomb in recent memory. We believe Disney wrote down $117 million
on the $250-million film.

Exhibit 15: Biggest box office bombs
$200 2.0x
$180 1.8x
$160 1.6x
Worldwide Box/Budget
$140 1.4x
$120 1.2x
Loss (millions of $s)
$100 1.0x
$80 0.8x
$60 0.6x
$40 0.4x
$20 0.2x
$0 0.0x
Loss (mm) WW Box/Budget Est. "hurdle" of Profitability (RHS)
Note: The profit and loss figures are rough estimates assuming 50% share of box office receipts to the studio and does not include any ancillary (video, TV, etc.) earnings. If we include ancillary revenues, the loss
(and, thus, writedown related to the losses) would have been smaller.
Does not include The Lone Ranger as it is still running in theaters globally.
Source: RBC Capital Markets, the-numbers.com, Boxofficemojo.com
We note that profitability and losses can be measured in both absolute dollar and ROI terms.
A film with a smaller budget in relative terms – such as Shrek 2 at $70 million – can have a
higher relative ROI (in this case, roughly 13x worldwide box/budget). While the absolute
profit dollars were smaller ($390 million) than a larger film’s would have been, the relative
ROI is still substantial.
Profitability can be Types of profitable films

measured in terms of: There are two types of movies that generally become profitable: big-budget tentpoles and
1) absolute dollars, and low-budget films.
2) ROI
1. A big-budget tent-pole film (such as the Harry Potter franchise) have mass appeal. While
these behemoths have giant budgets (often tipping the $200-million mark), they can
generate substantial revenues. In the following exhibit, we show the gross box office
revenues and budgets for each of the films in the Harry Potter franchise.
Total worldwide box office for the franchise topped $7.7 billion. On a cumulative budget
of $1.15 billion, this means the total franchise has earned 6.7x total worldwide box/total
production budget, well above the 2.0-2.5x estimate needed to break even.

Exhibit 16: Harry Potter film franchise ($MM)

Total Gross Profitability
Harry Potter Franchise Budget
Domestic Overseas Worldwide Ratio
2011 Harry Potter and the Deathly Hallows Part 2 381 961 1,342 125 10.7x
2001 Harry Potter and the Sorcerer's Stone 318 657 975 125 7.8x
2010 Harry Potter and the Deathly Hallows Part 1 296 664 960 125 7.7x
2007 Harry Potter and the Order of the Phoenix 292 648 940 150 6.3x
2009 Harry Potter and the Half-Blood Prince 302 632 934 250 3.7x
2005 Harry Potter and the Goblet of Fire 290 607 897 150 6.0x
2002 Harry Potter and the Chamber of Secrets 262 617 879 100 8.8x
2004 Harry Potter and the Prisoner of Azkaban 250 547 797 130 6.1x
Total 2,390 5,333 7,724 1,155 6.7x
Source: Boxofficemojo.com, RBC Capital Markets estimates
2. The other type of film that can be very profitable is low-budget movies with mass
appeal. While a low-budget film is unlikely to bring in $1 billion at the box office, solid
revenues paired with a low budget can result in substantial profitability.
Per the following exhibit, the budgets for the films in the Paranormal Activity franchise
are very low, ranging from $15,000 to $5 million. Solid box office revenues resulted in
the ratio of total worldwide box to budget of 28.2x-1,289.3x.
Exhibit 17: Paranormal Activity film franchise

Total Gross Profitability
Paranormal Activity Franchise Budget
Domestic Overseas Worldwide Ratio
2009 Paranormal Activity 108 85 193 0.2 1,289.3x
2010 Paranormal Activity 2 85 93 178 3.0 59.2x
Total 351 368 719 13.2 54.7x
Source: Boxofficemojo.com, RBC Capital Markets estimates
Profit records
On an absolute dollar basis, Avatar is considered to be the most profitable film in recent
8
years, bringing in just shy of $1.2 billion in profit (on $2.8 billion in worldwide box).
On an ROI basis, however, ET: The Extra-Terrestrial had the highest return at 75.5x
worldwide box/budget (on $793 million worldwide box and an $11 million budget).
8
The-numbers.com

Exhibit 18: Most profitable movies

$1,400 80x
$1,200 70x
60x
$1,000
50x
Profit ($ mm)
$800
40x
$600
30x
$400
20x
$200 10x
$0 0x
Profit Worldwide Box/Budget (RHS) Est. "hurdle" of Profitability (RHS)
Note: The profit and loss figures are very rough estimates based on the assumption that 50% of box office receipts were returned to the studio. They don't include ancillary (video, TV etc.) earnings, and serve only
as a guide. Source: RBC Capital Markets, the-numbers.com
While box office bombs like John Carter can cause substantial “sticker shock” for investors, a
studio can often absorb these losses. As we show in the following exhibit, Disney was able to
absorb the John Carter losses on the strength of The Avengers. Disney’s total cumulative
worldwide box office/cumulative budget was still 3.3x, despite the significant bomb.
Exhibit 19: Disney’s box office profitability on major releases in 2012

$600 8x
$536
$500 7x
Profit/(Loss) (millions of $s)
$400 6x Worldwide Box/Budget
$300 5x
$200 4x
$84 3.3x
$100 $71 $73 3x
$36
$2
$0 2x
($10) ($24)
($100) 1x
($109)
($200) 0x
Profit/(Loss) (mm) WW Box/Budget (RHS) Overall WW Box/Budget (RHS)
Note: The profit and loss figures are rough estimates assuming 50% share of box office receipts to the studio and does not include any ancillary (video, TV etc.) earnings. Excludes movies where production budget
is not available. Also excludes Marvel's productions that were distributed by Paramount.
Source: RBC Capital Markets, Boxofficemojo.com

The same was true at Disney in 2011, when Pirates of the Caribbean: On Stranger Tides made
up for the Mars Needs Moms bomb. Profitability for the year came in at 2.9x worldwide box
office/budget.
Exhibit 20: Disney’s box office profitability in 2011
$300 $272 9x
$250 8x
Profit/(Loss) (millions of $s)
$200 7x
$150 6x
$100 $81 $80 5x

$61
$50 $38 $34 4x
$23 $12
$0 3x
($10) ($13)
($50) 2x
($100) 1x
($150) ($131) 0x
Profit/(Loss) (mm) WW Box/Budget (RHS) Overall WW Box/Budget (RHS)
Note: The profit and loss figures are rough estimates assuming 50% share of box office receipts to the studio and does not include any ancillary (video, TV etc.) earnings. Excludes movies where production budget
is not available. Also excludes Marvel's productions that were distributed by Paramount.
Source: RBC Capital Markets, Boxofficemojo.com

Profitability profile of individual studios

Operating income before depreciation & amortization (OIBDA) margins for total filmed
entertainment vary across studios. Some include both feature film and television product
(Twentieth Century Fox, Warner Bros., Lionsgate, and Sony) while others do not include
television (Disney, Paramount, Universal).
Exhibit 21: Total film OIBDA
Houses Film & TV at Filmed Entertainment Does Not House TV at Filmed Entertainment
20th Century Fox Disney

Warner Bros. Paramount
Lions Gate Universal
Sony
Source: Company reports, RBC Capital Markets
Studios that house In the following exhibit, we show the profitability profile of each of the big six studios.
television production Twentieth Century Fox consistently has the highest OIBDA margin of the group (17% in 2012)
within the filmed and Warner Bros. (13.5% in 2012) comes in second. Each studio houses television production
entertainment segment and distribution at this segment, which we believe helps lift margins and reduce variability.
th
(including 20 Century Fox
Walt Disney Pictures (10.3% in 2012) also enjoyed double-digit margins. This is well above
and Warner Bros.) show
higher profitability and Universal Studios, which has the lowest margin (1.5% in 2012). Sony (5.2% operating income
lower variability. margin) and Paramount (6.9%) also had lower margins.
Exhibit 22: Total Filmed Entertainment OIBDA margins
20%
20th CF
15%
WB
OIBDA* Margins
10% Disney
Paramount
5% Sony
Universal
0%
2009 2010 2011 2012
Paramount Warner Bros. Disney
20th Century FOX Universal Sony
*OIBDA margins, except for Sony, which show operating income margins

Strategies of studios & major franchises

Each studio employs its own strategy; for example, Viacom’s Paramount management has
said that it tries to focus on its “great brands” while shrinking the total number of films it
produces. Fox makes relatively smaller-budget films with wide release. As we can see from
the exhibit below, Paramount has a larger percentage of films that fall in the “as expected”
category than the average studio. While we believe de-risking is a goal across the major
studios we cover (particularly through a focus on existing brands), Paramount appears to be
doing best at following this strategy. Twentieth Century Fox also appears to be following a
similar strategy.
Exhibit 23: “Surprise tentpoles”, “failed tentpoles”, and “as expected tentpoles” by studio
11
10
7
Number of films
0
Surprise Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
Failed Tentpoles…
As Expected Tentpoles…
BV BV/DW Disney FD Fox LG/S LGF P/DW Par. Sony Sum. Uni. WB Weinstein
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
“Tentpoles” include films that made (or are expected to make) at least $85 million at the domestic box office. Estimates are used in actual domestic box office column for films that were released less than a month
ago. Predicted “tentpole” box-office receipts are as of the first day of the quarter. Surprise tentpoles: Films that grossed more than $85 million in domestic box-office receipts although they were expected to do
less. Failed tentpoles: Films that grossed less than $85 million in domestic box-office receipts although they were expected to do more. As expected tentpoles: Films that grossed more than $85 million in domestic
receipts and were expected to do so.
Source: Boxofficemojo.com, hsx.com, RBC Capital Markets estimates

Walt Disney Studios

Disney produces and distributes films under the Walt Disney Pictures, Pixar, Marvel,
Lucasfilm, and UTV banners. Following the acquisition of Pixar, Marvel, and more recently
Lucasfilm, Disney has focused on creating large tentpole films. The Avengers, Pirates of the
Walt Disney Studios is Caribbean, and Iron Man are its top grossing box office franchises. With an average budget
known for big-risk, big- for these three franchises of about $200 million/film, Disney is no stranger to taking big bets.
budget films. These big bets can have significant payoffs, but sometimes writedowns can result from box
office bombs (think John Carter, which we discussed in Exhibits 15 and 19).
The misses can be painful,
but the payoffs can be Disney’s goal is to leverage its studio content across its other business (parks, television,
astronomical. consumer products, interactive, etc.). Thus, its studio brands and content are consistent with
Disney global branding generally (for example, Buena Vista had no “identity” outside of the
Disney Studio, so the label was rolled into Disney Films, while brands like Pixar and Marvel
optimize Disney’s global brand in consumer marketing, parks, etc.).
Exhibit 24: Key Disney film franchises
Studio Key Franchises # Movies Domestic Gross (mm)

The Avengers (including Iron Man,
7 $2,156
Thor, Captain America, Hulk)
Pirates of the Caribbean 4 $1,279
Toy Story 3 $852
Cars 2 $436
National Treasure 2 $393
Disney The Santa Clause 3 $369
The Muppets 7 $289
Monsters, Inc. 2 $554
Step Up 4 $201
Herbie the Love Bug 5 $200
Star Wars* 7 $1,918
Indiana Jones* 4 $906
Total 50 $9,553
*Upon the acquisition of Lucasfilm, these properties now lie with Disney
Source: Company reports, RBC Capital Markets, Boxofficemojo.com, the-numbers.com
We outline the timing of Disney’s windows in the exhibit below. Films are released on
DVD/Blu-ray three-six months after the box office release. For up to 28 days after that,
rentals (Blockbuster, Redbox, or Netflix) begin. For up to one month after the rentals begin,
the VOD/PPV window begins. After 16 months of PPV/VOD, a film is released into the pay-TV
window. After that, films are released into other pay-TV and free-TV windows.
Exhibit 25: Disney film monetization windows

US vs. Int'l Box Office
Parent Home Entertainment Rentals PPV/VOD Pay TV Free TV Pay TV 2 Free TV 2
Release
Simultaneous, or up to 4 3-6 months after box Up to 28 days after home With home entertainment, 16 months after up to 84 months 14 months after Follows Pay TV 2
Disney
months later in the U.S. office release entertainment release or up to 1 month later PPV/VOD after Pay TV 1 Free TV window
The free TV 2 window

includes film syndication to
both basic cable networks
and 3rd party TV stations
Source: Company reports, RBC Capital Markets estimates

Twentieth Century Fox

Twentieth Century Fox produces and distributes 25-30 films per year under the Fox 2000
Pictures, Fox Searchlight Pictures, Fox International Productions, and Blue Sky Studios
banners. Key franchises include X-Men, Ice Age, Alvin and the Chipmunks, Alien, and Planet of
the Apes.
We view Twentieth Exhibit 26: Key Twentieth Century Fox film franchises
Century Fox as a more
investor-friendly studio, as Studio Key Franchises # Movies Domestic Gross (mm)
it tends to take fewer big- X-Men 6 $1,062
budget risks. Ice Age 4 $730
Alvin and the Chipmunks 4 $577
Alien 7 $516
Die Hard 5 $502
Home Alone 3 $490
Twentieth Century Planet of the Apes 7 $439
Fox Night at the Museum 2 $428
Fantastic Four 2 $285
Predator 5 $265
Big Momma 3 $226
Diary of a Wimpy Kid 3 $166
The Omen 4 $163
Porky's 3 $160
Total 58 $6,007
Note: We are excluding Star Wars following the purchase of Lucasfilm by Disney
Twentieth Century Fox has the highest OIBDA margins of any of the big six studios, as
previously discussed in Exhibit 22. Indeed, the studio enjoyed the highest OIBDA among its
9
peers during three of the past four years and it has been profitable for the past 10 years. To
investors, this is very reassuring.
These results are driven by several things, including the fact that television production and
licensing is included as part of filmed entertainment, which helps to lift margins. Also, the
studio tends to take fewer risks on big-budget tentpoles (there are few budgets >$200
million). It also seeks slate financing, and practices cost control. Additionally, the studio is
globally driven and seeks distribution scale. Current distribution capabilities range across
more than 100 countries, and the studio ranked No. 1 in international box office during three
of the past four years.
As Twentieth Century Fox prefers to take fewer big risks and emphasizes disciplined
production and marketing costs, it has less variability in profitability than the other studios
and is more “investable”, in our opinion, given the lack of big bombs. Pair this with a strong
international distribution platform, and you’ve got the highest-margin studio of the majors.
9
21st Century FOX Investor Day

Warner Bros.
Warner Bros. produces films on its own as well as with co-financing partners. It also
distributes some films produced by other studios. The studio produces films under the
Warner Bros. is known for
Warner Bros. Pictures and New Line Cinema banners and has major co-financing
taking big bets on big-
arrangements with both Village Roadshow Picture (through 2017) and Legendary Pictures
budget films, and for
(through 2013). The most famous deal is for the Batman franchise with Legendary, which we
allowing co-financing
think demonstrates Warner Bros.’ willingness to take partners on big tentpole films, a unique
partners to be involved
feature about the studio.
with these larger films
Warner Bros. total filmed entertainment OIBDA margins rank second among the Big Six (see
Exhibit 22), due, in part, to its successful television production segment being included in
these results. As we’ve mentioned, television tends to have a lower risk profile and can help
lift profitability for a studio.
Key Warner Bros. franchises include Harry Potter, Batman, The Hangover, The Lord of the
Rings, Sherlock Holmes, and Superman. The studio is known for taking big bets on big-budget
films and for trying to balance the risk-reward of these bets.
Exhibit 27: Key Warner Bros. film franchises

Harry Potter 8 $2,390
Batman 8 $1,898
The Lord of the Rings/Hobbit* 5 $1,364
Superman 6 $809
The Hangover 3 $644
The Matrix 3 $592
Terminator 4 $519
Rush Hour 3 $508
Lethal Weapon 4 $488
Austin Powers 3 $473
Ocean's 11 3 $426
Warner Bros.
Sherlock Holmes 2 $396
Friday the 13th 12 $381
Nightmare on Elm Street 9 $371
The Exorcist 5 $292
Final Destination 5 $264
Police Academy 7 $240
Dirty Harry 5 $228
Vacation 4 $219
Blade 3 $205
Texas Chainsaw Massacre 7 $199
Ace Ventura 2 $181
Total 111 $13,083
*Partners with MGM on certain films
Source: Company reports, RBC Capital Markets, Boxofficemojo.com
Our sense is that Warner Bros. operates as part of a bigger whole (Time Warner Inc.) and
that it has a closer tie to this parent (more so than other studios, including Paramount and
Universal, who have been bought and sold several times and don’t always identify with the
parent company).

Warner Bros. follows a slightly different schedule from Disney. According to company filings,
Warner Bros. has historically released films into home entertainment (DVD, Blu-ray) and
VOD/electronic sell-through (EST) simultaneously. In 2012, however, the company began
releasing titles on EST two weeks earlier than on DVD/Blu-ray or VOD.
Exhibit 28: Warner Bros. film monetization windows
Parent Home Entertainment VOD/EST Rentals Television/SVOD

Historically simultaneous to DVD/Blu-Ray
4-6 months after box office release. In 2012 began releasing EST 2 weeks 28 days after home Following the release into home
Warner Bros.
release earlier than DVD/Blu-Ray, VOD on select entertainment release entertainment window
titles
Paramount
Paramount produces and distributes films under Paramount Pictures (a major), Paramount
Vantage, Paramount Classics, Insurge Pictures, MTV Films, and Nickelodeon films. The studio
typically puts out about 15 films per year (down from 25-30) and its library consists of more
If Paramount begins than 3,300 motion pictures.
producing TV shows as
management has said it There is no scaled television production in the filmed entertainment segment, as Viacom
would, it could result in produces its television-related content in the media networks division. This, in part, explains
margin upside for the its lower margins versus some peers, as Paramount is subject to more variability of
studio profitability as a result of relying specifically on film releases, which aren’t mitigated by
lower-risk, higher-margin television content. However, management said recently it would
like to begin producing television shows in this segment, which could point to margin upside.
Key franchises include Transformers, Star Trek, Mission: Impossible, and The Godfather
Home
Box Office
(among others, per the exhibit Release
below). Rentals PPV/VOD
Entertainment
Exhibit 29: Key Paramount franchises
Star Trek 12 $1,242

Transformers 4 $1,080
Mission: Impossible 4 $740
Jack Ryan 4 $447
Beverly Hills Cop 3 $431
Paranormal Activity 4 $351
Paramount Crocodile Dundee 3 $310
G.I. Joe 2 $272
Jackass 3 $254
The Godfather 3 $248
The Naked Gun 3 $217
Rugrats 3 $216
Alex Cross 3 $161
Total 51 $5,967
Note: We are excluding Indiana Jones, given the acquisition of Lucasfilm by Disney

One of Paramount’s key deals is for Transformers with Skydance. Our sense is that the studio
tends to partner with another studio in order to mitigate risk, particularly if it is a new
franchise.
Sony
Sony produces, acquires and distributes motion pictures and television content under
Columbia Pictures (one of the Big Six), TriStar Pictures, Screen Gems, and Sony Pictures
Classics. Sony also houses its television production in its pictures segment.
Key franchises include James Bond, Spider-Man, Men in Black, The Karate Kid, Resident Evil,
and The Smurfs.
Exhibit 30: Key Sony franchises

James Bond (with MGM) 24 $1,913
Spider-Man 4 $1,376
Men in Black 3 $620
The Karate Kid 5 $430
Rambo 4 $294
Sony
The Pink Panther (with MGM) 10 $283
Resident Evil 5 $244
Underworld 4 $222
Look Who's Talking 3 $198
The Smurfs 2 $222
Total 64 $5,803
Universal Studios
Universal Pictures is one of the Big Six studios. It releases films under the Focus Features and
Illumination banners. Universal produces, acquires and distributes films both on its own and
Universal has fewer with partners in both live-action and animated formats. Universal’s filmed entertainment
franchises, but it does have division consists primarily of film production; more specifically, Universal Pictures.
a very large library of
Universal’s library consists of theatrical films, direct-to-video content, as well as a film library
assets it can package with
that is comprised of 4,500-5,000 titles across mixed genres. Universal has no scaled television
current releases
production included in its filmed entertainment segment.
While Universal has fewer key franchises than most of the other Big Six, its most well known
are The Fast and the Furious, Jurassic Park, and the Bourne movies.

Exhibit 31: Key Universal film franchises

The Fast and the Furious 6 $938
Jurassic Park 3 $767
Bourne 4 $639
Despicable Me 2 $609
Fockers 3 $594
Universal
The Mummy 4 $551
Back to the Future 3 $417
American Pie 4 $409
Jaws 4 $404
Smokey and the Bandit 3 $199
Total 36 $5,526
Source: RBC Capital Markets, Boxofficemojo.com, the-numbers.com, Company Filings
Universal puts out 25-30 films per year, and has a library consisting of more than 4,500 titles
that span a mix of genres. Continuing to produce current films can help monetize the library,
as Universal is able to package library content with newer content in negotiations.
Our sense is that Universal works in the opposite way from Warner Bros., as Universal has
been bought and sold more than once, it has a more limited corporate and cultural tie to the
parent company (i.e. Comcast today).
Universal co-finances films with both studio and non-studio entities.
Lionsgate
Lionsgate has said it intends to release 12-14 films per year in the future. The budgets tend
to be more modest (up to $120 million), and the demographic targets are often teens and
African Americans. While the studio is still considered a mini-major, many believe it is on its
way to becoming a major.
Exhibit 32: Key Lionsgate film franchises
Studio Key Franchises # Movies Total Gross (mm)

Twilight 5 $1,364
The Hunger Games 1 $408
Lionsgate/Summit The Expendables 2 $188
Madea 5 $323
Saw 7 $416
Total 20 $2,699
Lionsgate releases films into the premium VOD window two-three months after the initial
film release. Three-six months later, the film is released into the home entertainment
window, which includes DVD/EST, VOD, and pay-per-view. Pay-TV and SVOD follows nine-15
months after the initial film release, and network TV comes 27-30 months after initial
release.

Exhibit 33: Lionsgate film monetization windows
Parent Premium VOD Home Entertainment (DVD/EST), VOD, PPV Pay TV/SVOD Network TV (Free & Basic)
9-15 months after initial 27-30 months after initial

Lionsgate 2-3 months after initial release 3-6 months after initial release
release release
MGM
MGM is a mini-major that releases film and television content under the Metro-Goldwyn-
Mayer, or MGM banner. The studio generally releases a handful of movies each year
spanning a mix of genres and seeks to have a broad commercial appeal.
The studio aims to co-produce new film and television content in order to mitigate risk.
MGM aims to retain digital
MGM does not own production facilities, and has co-production arrangements in place with
distribution rights and Home
Sony, New Line/Warner Bros., and
Box Office Paramount. It aims
Release to retain digital distribution rights
Rentals and
PPV/VOD
international television Entertainment
international television distribution in co-financing agreements.
distribution in co-financing
agreements. MGM has a library of more than 4,000 films. A key to its success is packaging new film
releases with older library content. Key franchises include James Bond (with Sony), The
Hobbit, Robocop, and Rocky.
Exhibit 34: Key MGM film franchises
James Bond (with Sony) 24 $1,913

The Lord of the Rings/Hobbit* 5 $1,364
Robocop 3 $110
Rocky 6 $566
MGM
Hannibal Lecter 5 $425
Pink Panther (with Sony) 10 $283
Barbershop 3 $177
Amityville 3 $164
Total 59 $5,001
*Partners with Warner Bros. on certain films

Exhibit 35: Major film studio details

Portion Produced vs. Select Pay-TV Output SVOD/EST
Major Studios Major Banners Films per year Total Film Library Select Franchises Typical Budget
Distributed 2012 Partners Participation
Walt Disney Pictures Avengers and Characters
Pixar Pirates of the Caribbean
Starz (till late 2016); Both small and big budget movies - up to
Disney Marvel 9-14 (domestic) 64% 1,070 Toy Story iTunes, Netflix, Hulu
then Netflix $200 mm plus marketing costs
Lucasfilm The Muppets
UTV Star Wars
The Fast and the Furious
Universal Pictures Jurassic Park
iTunes, Netflix, Hulu, Both small and big budget movies - up to
NBCUniversal Focus Features ~25 67% >4,500 Bourne HBO
others $200 mm plus marketing costs
Illumination Fockers
Despicable Me
Columbia Pictures James Bond (with MGM)
TriStar Pictures Spider-Man Both small and big budget movies - up to
Sony ~30-50 40% >3,500 Starz No Specific deal
Screen Gems Men in Black $200 mm plus marketing costs
Sony Pictures Classics The Karate Kid
Harry Potter
Warner Bros. Batman/Superman iTunes, Stream Pix,
Both small and big budget movies - up to
Time Warner New Line Cinema 17-23 (domestic) 65% >6,000 The Lord of the Rings HBO Amazon, Hulu, Netflix,
$200 mm plus marketing costs
The Hangover others
Sherlock Homes
Twentieth Century Fox X-Men
Fox 2000 Ice Age
Twenty-First Century Both small and big budget movies. Tends to
Fox Searchlight Pictures ~25 (domestic) 57% Several thousand Alvin and the Chipmunks HBO Netflix, Amazon
Fox be smaller budget films.
Twentieth Century Fox Animation Planet of the Apes
Fox International Productions Die Hard
Paramount Pictures Star Trek
Paramount Vantage Transformers
Paramount Classics Mission: Impossible iTunes, Amazon, Both small and big budget movies - up to
Viacom ~15 (domestic) 62% >3,300 EPIX
Insurge Pictures Jack Ryan Netflix, Hulu $200 mm plus marketing costs
MTV Films Paranormal Activity
Nickelodeon Movies G.I. Joe (with MGM)
Note: we define portion produced vs. distributed 2012 films as the total number of films (that we have access to data for) that were produced versus those that were distributed
Source: Company reports, RBC Capital Markets estimates, media reports

Exhibit 36: Mini-major film studio details

Portion Produced vs.
Minimajor Banners Specialty Films per year Total Film Library Important Partners Key Franchises Typical Budget
Distributed in 2012
Shrek
Dreamworks DreamWorks Animation Madagascar
Family 2-4 - 25 Fox Big budget movies - up to $200 mm plus marketing costs
Animation DreamWorks Classics Kung Fu Panda
How to Train Your Dragon
Lionsgate Twilight
Summit Allison Shearmur The Hunger Games
Teen & African Both small and big budget movies - upto $100-120 mm plus
Lions Gate Mandate Pictures 12-14 50% ~10,000 34th Street Films The Expendables
American marketing costs
Artisan Entertainment Madea
Saw
Metro-Goldwyn-Mayer Sony James Bond (with Sony)
United Artists Paramount Hobbit (with WB) Co-produce mid and big budget movies - up to $200 mm plus
MGM Fanboy 5-6 - ~4,000
Orion Pictures Warner Bros. RoboCop marketing costs
Rocky
Note: we define portion produced vs. distributed 2012 films as the total number of films (that we have access to data for) that were produced versus those that were distributed

Exhibit 37: Independent film studio details
Independent Banners Specialty Films per year Total Film Library Important Partners Key Franchise Participations Typical Budget
Meet the Parents Co-produce small, mid and big budget movies - up to $200 mm
Dreamworks Studios Dreamworks Studios Drama 2-5 ~75 Disney; multiple historical partners
plus marketing costs
Batman/Superman
Hangover
Legendary Legendary Pictures Fanboy 2-6 Small Was Warner Bros; Universal in 2014 Big budget movies - up to $200 mm plus marketing costs
Clash of the Titans
300
Bridget Jones’s Diary Small to mid budget movies -with around $50 mm plus
Miramax Miramax Films Arthouse 2-3 >700 Multiple historical partners
advertising and marketing costs
Both small and big budget movies - upto $100-120 mm plus

New Regency Pictures New Regency Pictures All types 2-4 >100 Fox Alvin and the Chipmunks
marketing costs
Relativity Media Relativity Drama ~5 <100 Partners - Co-produce small and mid budget movies
Mission: Impossible
G.I. Joe Total production spending is expected to range $200-$250
Skydance Skydance Drama 1-4 ~10 Paramount
Stark Trek million annually
Scream
The Weinstein Company Spy Kids Both small and big budget movies - upto $100-120 mm plus
The Weinstein Company Arthouse ~15 <100 Multiple historical partners
Dimension Films Scary Movies marketing costs

A brief history of film

th
The origins of the motion picture date back to the late 19 century when Thomas Edison
perfected his Kinetoscope. In the following exhibits, we outline some of the larger milestones
in film history.
Exhibit 38: Key events in film history – 19th century

Muybridge patent for photographing objects in motion
Edison perfects motion pictures (via Kinetoscope)
Edison forms Edison Studios
Lumière competes with Edison
William Morris (WME) Agency Formed
1870 1880 1890 1899
Source: Vogel page 70, Encyclopedia Britannica, industry sources, press reports, RBC Capital Markets
th
The early half of the 20 century included several significant milestones, including the
formation of Paramount, United Artists, the MPAA, Warner Bros., and Twentieth Century
Fox. Disney also began production during this time.

Motion Picture "Trust" formed
Paramount formed
W.W. Hodkinson sets distribution fees at 35%
Motion Picture Patents Co. loses antitrust suit
United Artists formed
MPAA formed
Warner Bros. formed
Disney begins production
Columbia pictures formed
MCA founded
MGM formed
Jazz Singer is first "talkie"
20th Century Fox formed
Snow White is first animated feature film
Justice Dept. Says studios violate Antitrust Act
Regular TV program service begins
Gone With The Wind is top-grossing film
"Studio system" era ends
Paramount Consent Decree
1900 1910 1920 1930 1940 1949

th
During the latter half of the 20 century, major milestone film releases included Jaws, Star
Wars, and E.T. The Extra Terrestrial. Viacom bought Paramount for $10 billion, Sony bought
Columbia and Tri-Star for $3.4 billion, News Corp. bought Twentieth Century Fox, and Time
Inc. bought Warner Communications for $14 billion. Netflix and Amazon began their
subscription video-on-demand content libraries.

1999 1990 1980 1970 1960 1950
Jimmy Stewart gets % of

profits in Winchester 73
MCA buys Universal
Multiplex theaters appear
Fin-syn rules imposed by FCC
First IMAX theaters
Jaws released
HBO begins satellite program distribution
Creative Artists Agency formed
Star Wars released
First VCRs appear (in U.S.)
Orion formed by former UA/Transamerica team
MGM and UA merged
E.T. becomes all-time box office champion
First Sale Doctrine approved by Supreme Court
News Corp. buys 20th Century Fox
Blockbuster Chain formed
Sony buys Columbia and Tri-Star for $3.4 bn
Time Inc. buys Warner Communications for $14 bn
Masushita buys MCA for $6.6 bn
Terminator II legitimizes digital effects revolution
Jurassic Park sets box office record
Viacom buys Paramount for $10 bn
Fin-syn rules ended
Toy Story is first computer-animated feature
Amazon.com went online
Kerkorian group buys MGM for $1.3 bn
MGM buys Orion library
Netflix launches
Titanic worldwide gross tops $1.7 bn
Digital Video Discs (DVD) popularized
MGM buys 1,300 PolyGram films for $250 mm
First internet-distributed film, Pi
First digital screenings in theatres (Phantom Menace )
Netflix starts subscription based plans

st
The 21 century has been busy thus far. Notable deals include Paramount purchasing
DreamWorks for $1.6 billion (they subsequently separated); Disney buying Pixar for $7.5
billion; Disney buying Lucasfilm for $4 billion; and Comcast purchasing NBCU.
BitTorrent began widespread DVD piracy during this period, and Amazon, Netflix, and Hulu
all launched streaming SVOD services.
st
Exhibit 41: Key events in film history – 21 century
Time Warner and AOL merge
Vivendi buys Seagram/Universal for $35 bn
GE/NBC buys Universal

Sony group buys MGM for $5 bn
YouTube launched
iTunes adds TV shows and music videos
Paramount buys DreamWorks

(ex-DreamWorks Animation) for $1.6 bn
Disney buys Pixar in ~$7.5 bn deal

Amazon launches Amazon Unbox (now Amazon Instant Video),
the Internet video on demand service
2000 2001 2002 2003 2004 2005 2006
2013 2012 2011 2010 2009 2008 2007
First HD DVD pirated film (Serenity) downloaded

from BitTorrent; widespread HD-DVD pirating begins
Netflix introduces online streaming services
Hulu launched as an internet based video distribution network
Paramount puts first film (Jackass 2.5 )
online before DVD release with Blockbuster
DreamWorks and Paramount separate
Disney purchases Marvel for roughly $4.0 bn
Time Warner completes spins-off of AOL
Comcast buys stake in NBCU
Avatar (Released in Dec 09) becomes highest grossing film
MGM files Chapter 11
DWA ended HBO relationship to sell to Netflix; the first studio to choose web over pay TV
Disney purchases LucasFilms for $4.0 bn
News Corp. announced plans to split publishing business
Time Warner Inc. announced plans to split from Time Inc.
Comcast buys remaining stake in NBCU

How a movie gets made

Before diving into the company-level financials of a studio, we think it makes sense to start
with a basic understanding of how films are made and monetized. We will focus on the major
and mini-major studios, which are responsible for production, financing, and distribution (to
varying degrees depending on the film or studio).
Note that there are numerous ways that a movie can come to be, and we will make some
simplifications and omissions (for example, we won’t begin to address the important role
agents play as matchmakers) in order to make it easier to discuss the topic while still
providing a sufficiently comprehensive outline to help understand the high-level financials.
Additionally, we want to point out that many industry terms are not clearly defined, and may
be used by different people in different ways. We do our best to describe our interpretation
of industry lingo as we go, but keep in mind discrepancies are possible.
Independent producer
The process of making a movie can be dividend into: (1) development & production, (2)
 “Individual producers or financing, and (3) distribution.
film production
companies that do not Development & Production: A film begins with an idea that someone thinks would make a
work for the major good movie: a script, an idea for a script (e.g., a historical event), a book, a TV show, etc. This
studios/distributors” idea can then be acquired by an independent producer who “acquires a property believing
 “Many producers who they can then add value to it and sell it to a third party [e.g. a studio] who will distribute and
10
qualify as independent finance the production.” Alternatively, the concept could be acquired by a studio while still
producers using [this] in its early stages of development (the studio would then hire or assign a producer to
criteria have contractual manage the production at a high level). Once a studio has acquired an idea, it has to finance
relationships with the the production of the film (it could be funded internally and/or externally, through a variety
studios that provide for at of methods); primary production financing typically occurs once the story line, director,
11
least some partial studio producer, location, cast, and estimated budget have been determined.
financing of these
independent producers’ Financing: Financing of development & production costs can come from a variety of sources
feature film projects and ranging from a major studio’s existing capital to private equity or a collateralized bank loan.
provide substantial The available and preferred method of financing will vary depending on who is producing a
authority for the studio to film (for example, a large-cap studio would be expected to have a greater capacity to self-
approve certain finance a film than an independent studio). We will address financing of distribution costs in
significant elements of the Distribution section because (1) these costs are typically borne by the studio/distributor
the film” (rather than the film entity, although in effect this may mean the studio either way—as a
major studio tends to, at least partially, self-finance and distribute); (2) the costs are incurred
Source: Excerpts from John W. Cones. over a period of time (rather than entirely upfront); and (3) they are often just financed off
Dictionary of Film Finance and Distribution :
A Guide for Independent Filmmakers the balance sheet. Once production has been completed, the studio (or its distributor) will
distribute the film.
Distribution: Distribution is the method through which a film is delivered to consumers and
monetized. A film can be distributed through cinemas, TV, on DVD, and through other
outlets. Distribution may be done by a studio’s distribution arm or by a third-party
distributor.
10
The Business Of Media Distribution: Monetizing Film, TV and Video Content in an Online World, Ulin, Jeffrey C.
11
Vogel

Exhibit 42: High-level summary

 Wide variety of possible
sources of financing
 This is typically a
Financing reference to financing of
the production
budget/negative costs
 Distribution costs are paid
An Idea Distribution
by the distributor
(P&A)
Financing (typically out of “cash” vs.
outside financing), and
reimbursed before equity
Finished Consumer
Development Production Movie Distribution
 Producer may acquire  Includes pre-production  Distribution is the process

rights and approach a and post-production of monetizing a film
studio with a project, or a  Director hired, budget  Sold to consumers
studio could acquire rights approved, principal through theaters, DVDs,
directly and develop photography (actual OTT, etc.
 Script may be written shooting the film), editing  Costs would include
 Some talent may be and scoring marketing and production
committed (attached) to of DVDs or theatrical
the feature prints; costs are typically
born by the distributor
Important Vocabulary (but may be reimbursed)
 Production Budget (aka Negative Costs): The cost of creating a movie. Includes costs such as acquiring underlying rights,
paying screenwriter, casting, talent, soundstage rental, editing, overhead fees, producer fees, financing and legal costs.
 Prints and Advertising (P&A): The cost of printing film (onto reels) or creating the digital equivalent and getting these copies to
exhibitors, as well as the cost of marketing the theatrical release of a film (advertising, release parties).
 Participations: Contingent payments made to talent or other parties, determined as a percentage of a defined revenue or
profit calculation (often out of “gross receipts” or “net profits”).
Source: RBC Capital Markets, Ulin
Films are produced under a wide variety of structures, depending in large part on how the
film is financed, and may have a multitude of different distribution arrangements; for
example, a studio could (1) own all rights to a feature and merely outsource production to a
Exhibit 43: Role of a studio production company, or (2) it could not own the underlying rights, or produce the feature,
can vary but agree to distribute the feature for a certain fee.
Distribution
Self 3rd Party
In the former case, the studio could own completely the legal entity under which the film is
Self Production
(internal, or produced (with contracts created to pay off other investors) or it could own only a partial
Production/Financing
external "for hire")
Acquire distribution
stake in the legal entity, with its partner owning a corresponding share based on its
rights to
uncompleted film
investment. In the case of a slate investment, we believe the standard is for a hedge fund to
own a special-purpose entity that holds a participation in the film (but not the actual film).
Acquire completed
film Given the fact that we typically do not have this level of detail for each individual feature
(when we analyze studios owned by publicly traded companies), we will approach the
process more generally, as it should be sufficient for financial modeling purposes.
Source: RBC Capital Markets

Development and production

Before a film can be distributed it must be made (in other words there needs to be a finished
product). This process begins when a producer acquires the rights to a story or a script (the
producer could be a studio, or it could be an independent entity), and ends when the final
Different perspectives on cut of the film is delivered to the distributor. In between, it is necessary to get financing, sign
the term producer actors and other talent, hire production staff, shoot the film, edit it, add special effects, and
score the film (among many other necessary tasks).
There is an extraordinarily
large number of entities Exhibit 44: Summary of the development and production process
that can be considered
“producers” but we think it
is important to differentiate
between two perspectives
at the outset.
Post-Production/
 Film finance perspective: Marketing
A person on the film • Editing and effects
Production
finance side the of • Scoring
• Principal
business will often use photograph (film • Development of marketing
actually shot) plans potentially
the term “producer” to
Pre-Production
refer to the entity that
• Hire a director
put up the money for a • Scout locations
production. While this • Approve budget
entity will be listed in the
Development
credits, it may not be
• Acquisition of
explicitly referred to as a story rights
producer. On a feature • Write script
film, this could be a studio • Some talent may
be attached
(e.g. Warner Bros.) and
potentially a financial Source: Strategic Finance, RBC Capital Markets
partner (e.g. Legendary).

 Film credits perspective: Many individuals work on any given production, but the first question that many ask is “what
There are many different is a producer and a director?” The title producer alone can have a variety of meanings. Here
types of producers. we will focus on the term as applied in the film credits; however, as described in the sidebar,
Generically (but not from the film finance perspective, it may simply refer to the company that supplies the
necessarily) these
money.
individuals or companies
played some role in From the credits perspective, the producer fills the role of the “chief of staff” or “the money
making the film a reality. guy” and has ultimate responsibility for the film, typically including authority over budget
and hiring decisions; there may be many producers on a single film. On the other hand, the
director acts much like a “senior line manager” filling the role of the “major creative force
12
behind the project” and managing the actual creative production of the film.
A producer may be an outside entity hired by a studio to undertake many of the tasks listed
above on a fee basis. However, its also possible that a producer could have acquired rights
for a certain production itself, completed some portion of the development (and possibly
pre-production) process, and then partnered with a studio for financing and distribution.
12
The Business Of Making Movies. Young, Mark S., Gong, James J. & Van der Stede, Wim A., Strategic Finance.
February 2008.

Individual(s) who acquired the rights to the core content or arranged financing may be
referred to as executive producers.
In some cases, a producer (or an actor or director, who may be considered producers but
may not have the same responsibilities during a film’s development and production) could
have a first-look deal. In such a deal, a “first-look” producer will bring ideas to a studio
before approaching any other studios. The studio then has the option to pick up the film,
Kevin De La Noy on a under a contract for which many of the terms have been prearranged as part of a longer-
producer’s role term agreement. If the studio passes on the project, the producer has the right to take the
project elsewhere.
“It’s my job to keep the film
on schedule and budget. In return for bringing concepts to a studio under a first-look deal, a producer will likely
That involves everything receive prestige, as well as assurances that it can actually get a project done (making it easier
from ensuring we can to attach talent and receive financing), in addition to receiving money to cover overhead
achieve the director’s costs (office, salaries of employees) and development costs. The actual production role, as
creative vision to ensuring well as economic terms, will vary depending on who the “first-look” producer is (clout) and
we have catering facilities the primary role they play (producer, director, actor, etc.).
and toilets for the crew in
the right place at the right A director typically is hired either when (1) a studio is interested in financing a production
time.” but “more development of the screenplay is required” or (2) financing has been committed,
“a start date for principal photography has been set, and no further writing is
13
coventry.ac.uk contemplated.”
The director will be responsible for “all creative phases of the film-making process…. *as well
as contributing] to all of the creative elements of a film and [participating] in molding and
14
integrating them into one cohesive dramatic and aesthetic whole”. This is the individual
15
that “implements the actual production (shooting) and post-production budgets.”
However, a director’s responsibilities may vary somewhat between projects. For example,
when hired early in the process the director could play a role in casting, developing the
16
script, and setting the budget or production schedule. The degree of creative control can
vary by project, with the most sought-after directors often being granted the most control
over a film (while in other cases the producer may have more influence). Often, a director
will also be a producer.
The director will also do at least one “cut” of the film (sometimes more), before delivering
the film to the producer. However, this version may be cut again under the purview of the
producer (subject to any contractual agreements granting the director additional control,
17
such as “final cut”).
13
Producing, Financing and Distributing Film Baumgarten, Paul A. & Fleischer, Mark
14
dga.org
15
Young, Gong, & Van der Stede
16
Baumgarten, Paul A. & Fleischer, Mark
17
Baumgarten, Paul A. & Fleischer, Mark

Exhibit 45: Summary example of the production and development process

Financing
 Executive Producer: May be responsible for
Development (incl. Pre-Production) securing financing**
 Producer not under contract approaches the
studio with an idea or project (in various stages
of development) Production (incl. post production)  Director: Responsible for participating “in all
 A studio acquires right to a concept directly (e.g. The film then needs to be shot (principal creative phases of the film-making process….
a screenplay, or rights to the theatrical photography), edited, have visual effects [and contributing] to all of the creative elements
adaptation of a book) added, etc.. of a film and [participating] in molding and
 Producer under a “first look” deal approaches the integrating them into one cohesive dramatic and
studio with a concept aesthetic whole”*
 Producer: Has “final responsibility for all
The following then needs to be done before business and creative aspects of the
production can begin: production…”**
 Line Producer: Has “primary responsibility for
 Rights must be secured, script written, key talent the logistics of the production…”**
attached (important actors, director), budget set,
financing secured, in addition to other steps
Distribution/Monetization
 Executive Producer: May have
“made a significant contribution to
the development of the literary
property, typically including the
securement of the underlying rights
to the material on which the
motion picture is based.”**
Source: *dga.org, **producersguild.org, Ulin, Moore, RBC Capital Markets
Of course, this is a simplified example. For instance, if there are multiple producers on a film,
they cannot all have “final responsibility for all business and creative aspects of the
18
production”.
To provide a little more insight into the many different tasks that a producer might be
responsible for, we present the Producers Guild Of America’s description of a producer’s
responsibilities below. But again, we note these tasks are likely divided up among multiple
individuals. We also present a similar list for additional positions in the following chart.
18
producersguild.org

Exhibit 46: Producer responsibilities
Conceived of the Selected the director, co- Exercised final approval of the Provided in-person
Development
Pre-Production
Production
Post-Production/Marketing
underlying concept upon producer and unit production deals for the principal participation on visual effects
which the production is manager. components of the in consultation with the
based or involved at its Selected the principal cast in production. director, the studio or
consultation with the director. Provided continuous in-person financial entity.
inception.
In consultation with the consultation with the director Selected the composer in
Selected the material upon and principal cast consultation with the director,
director, selected the
which the production is and participated in-person
production designer, In collaboration with the
based and secured with the composer and the
cinematographer, editor and director, provided in-person
necessary rights for visual effects co. consultation with the director in the scoring process
development and production designer, art Provided in-person
Participated in location
production of the material. department, wardrobe, make- consultation with the editor
scouting in consultation with
up and hair. along with the director, the
Selected the writer(s). the director.
In collaboration with the studio or financial entity, and
Supervised and oversaw Supervised the preparation of participated on the final cut of
the preliminary budget and director, provided in-person
the development process. consultation with the stunt the motion picture.
approved and signed the final
Secured the initial budget in consultation with coordinator and on Consulted with the director
financing. the Co-Producer and UPM. mechanical effects (if and the editor during the
applicable). preparation of the first cut
Served as the primary point Creatively involved in the final that is shown to the
shooting script in consultation Supervised "on-set” and on a
of contact for the studio continuous basis the day-to- studio/financial entity.
and/or financing entity. with the director and the
writer(s) and approved and day operation of the Selected the music supervisor
signed the final shooting producing team and the entire in consultation with the
script. shooting company. director, and participated in-
Approved the weekly cost person during the music
Approved the final shooting recording sessions.
schedule in consultation with report.
the director. Viewed the "dailies” and Provided in-person
provided in-person consultation with the director
consultation with the director, on the re-recording stage.
the editor, the studio and/or Provided in-person
financial entity. consultation with the director
on the titles and opticals.
Provided in-person
consultation with the
cinematographer, the
director, the studio and/or
financing entity on the answer
print or edited master.
Consulted on the media plan
and materials, and the
marketing and distribution
plans for the motion picture.
Consulted on the plans for
exploitation of the motion
picture in ancillary and foreign
markets.
Notes: The above description is sourced verbatim from the Producers Guild of America’s Web site
Source: producersguild.org, RBC Capital Markets

Exhibit 47: Key players in the production of a film
Responsible for participating “in all creative phases of the film-making process…. *and contributing+ to all of the creative elements of a film and
Director *participating+ in molding and integrating them into one cohesive dramatic and aesthetic whole”*
May be responsible for securing financing or may have “made a significant contribution to the development of the literary property, typically including
Executive Producer the securement of the underlying rights to the material on which the motion picture is based.”**
"The individual receiving Produced By credit shall have final responsibility for all business and creative aspects of the production of the motion picture,
Producer with direct participation in making decisions concerning a majority of the producing functions..."**
(Produced By...)
"credit of Co-Producer / Line Producer is to be granted to the individual who reports directly to the individual(s) receiving "Produced By" credit on the
Co-Producer/Line theatrical motion picture"**
Producer "...the single individual who has the primary responsibility for the logistics of the production, from pre-production through completion of production;
all Department Heads report to the Co-Producer / Line Producer**
"reports directly and immediately to the person performing the Co-Producer/Line Producer or UPM function"**
Production
Supervisor/Manager "primary responsibility for the logistics of the production of the motion picture, from pre-production through the completion of production"**
"reports to the person(s) receiving the Produced By credit, the Co-Producer/Line Producer the Production Supervisor/Manager or UPM"**
Production
Coordinator "interacts with various studio and production departments concerning any and all logistics of production and is responsible for facilitating production
requirements including, but not limited to, equipment contracts, purchase orders... production reports, cast and crew lists"**
Source: producersguild.org, dga.org, RBC Capital Markets
More about credits — real-life examples

Given the complexity of film development and production, as well as the flexibility in titles, it
may be useful to approach the question of how a film is made by answering the question
‘Who are all those credits for?”. In this section, we will present some real-life examples of
how different parties are credited – although, it will likely be obvious that there is not a
simple set of rules for assigning credits, or interpreting what each credit means.

Exhibit 48: Major types of film credits

Credit What It Typically Means…. Example: The Dark Knight Rises Other Notes
This is the distributor of the film "A WARNER BROS. PICTURES Presentation"
Presented by…
(also an intro logo for WARNER BROS. PICTURES)
This is either a party that financed the film or actually "In Association with LEGENDARY PICTURES" (also an intro logo for Legendary co-financed
In association with… produced it LEGENDARY) The Dark Knight Rises
(25% stake)
Party who matches the producer with someone (or "Executive Producers BENJAMIN MELNIKER Thomas Tull is the
multiple parties) who finance its production, or "made a and MICHAEL E. USLAN" chairman of Legendary
significant contribution to [the film's] development".† On "Executive Producers KEVIN DE LA NOY
a major studio lot may be "in charge of logistics of THOMAS TULL"
Executive Producer production... keeping track of schedules, budgets and all
general production areas."‡ Could be a producer who
plays the role of "mentor" on the film, or a more
traditional "producer" role (see below).
Party that found the script, found the talent, found a "Produced by EMMA THOMAS" Syncopy is the production
distributor, or has final responsibility for business and "Produced by CHRISTOPHER NOLAN" company of Christopher
Produced by…
creative decisions through development and production. "Produced by CHARLES ROVEN" Nolan and Emma Thomas
"A SYNCOPY Production" (also an intro logo for SYNCOPY)
Person "who reports directly to the individual(s) receiving "Co-Producer JORDAN GOLDBERG"
"Produced By" credit " and "is the single individual who
Co-producer/Line producer…
has the primary responsibility for the logistics of the
production..."†
Associate producer… Various meanings…
This is the director "Directed by CHRISTOPHER NOLAN"
Directed by/A Film by…
"A Film by CHRISTOPER NOLAN"
Written by/Screenplay by… Wrote the screenplay "Screenplay by JONATHAN NOLAN and CHRISTOPHER NOLAN"
Story by… Writer of the source content (i.e. the book) "Story by CHRISTOPHER NOLAN & DAVID S. GOYER"
"Based upon characters appearing in comic books published by DC
COMICS" (also an intro logo for DC COMICS FROM DC
Other Credits….
ENTERTAINMENT)
"BATMAN created by BOB KANE"
Source: †producersguild.org, ‡Dictionary of Film Finance and Distribution: A Guide for Independent Filmmakers. Cones, John W., The Biz: the basic business, legal and financial aspects of the film industry. Moore,
Schuyler M., imdb.com, hollywoodreporter.com, latimes.com
To illustrate the number of different companies that could be involved on a film, and
Director Responsible for participating “in all creative phases of the film-making process…. *and contributing+ to all of the creative elements of a film and [participating] in
considered a producer, we take a look at Lionsgate’s upcoming film Ender’s Game.
molding and integrating them into one cohesive dramatic and aesthetic whole”*
May be responsible for securing financing or may have “made a significant contribution to the development of the literary property, typically including the
Executive Producer securement of the underlying rights to the material on which the motion picture is based.”**
Exhibit 49: Production companies on a single film
Producer "The individual receiving Produced By credit shall have final responsibility for all business and creative aspects of the production of the motion picture, with
Company direct participation Credit
in making decisions concerning a majority of the producing functions..."** What they do….
(Produced By...)
Production company of Bob Chartoff (producer on Ender's
Chartoff Productions A _________ Production Game )
Provides a portion of production budget financing for Ender's
Digital Domain A _________ Production Game
K/O Paper Products A _________ Production
Acquired movie rights to Ender's Game when WB's rights
OddLot Entertainment In association with… and A _________ Production expired and a portion of production budget financing
Summit Entertainment SUMMIT ENTERTAINMENT presents Distributor and ~25% financial stake in Ender's Game
Production company of Orson Scott Card (and partners),
Tailswapper A _________ Production doesn't necessarily take a hands on production role
Source: imdb.com, nytimes.com, taleswapper.net, RBC Capital Markets
The cost of development and production

The upfront costs to make a movie account for a significant portion of the total costs
associated with a movie over its life (referred to generally as negative costs or production
budget). For the average film released between 2009 and 2012 these negative costs are
estimated to account for 38% of total costs (excluding distribution fees and allocation of
overhead) over the life of the film.

Exhibit 50: Breakdown of film-related costs before distribution fees/overhead allocation (2009-2012 theatrical release, estimates)
For Films All Budgets For Films With Production Budgets Over $100mm
Average Video Cost:
Average Video Cost:
U.S., $5 mm, 12% Average P&A Non- U.S., $32 mm, 9%
US, $43 mm, 12%
Average Video
Cost: Non-U.S.,
Average P&A Non-US, $31 mm, 9%
$6 mm, 13% Average Video Cost:
Non-U.S., $4 mm, 8%
Average
Participations, $3 mm, Average P&A US,
7% $56 mm, 16%
Average P&A US, $10 Average

mm, 22% Participations, $35
Average Negative mm, 10%
Average Negative Cost, $158 mm,
Cost, $18 mm, 38% 44%
Notes: Excludes distribution fees, as well as allocation of overhead, etc…

Source: SNL Kagan, RBC Capital Markets
As indicated above, the production budget includes development costs, production costs,
and payments to talent. Development and production costs include a variety of costs from
acquiring talent to post-production work (such as editing and scoring). Payments to talent
exclude any back-end participation (however, if these participations are structured as a
19
“non-refundable advance” it will fall into the budget). Additionally, a wide variety of other
costs will be included in the budget. These fees include overhead (on an accounting basis
overhead must be attributed to a party with “with exclusive or significant responsibility for
20
the production of films” in order to be capitalized as part of film costs, while on a
participation basis overhead may be determined according to contractual stipulations and
might include fees above actual overhead costs), and (2) producer fees (fees paid for
“producing services” or “the upfront payment to the person who has developed a film
21
project and sells it to a studio” ). The equity owners of the film bear the burden of these
costs. But these costs may be shared by multiple investors and the risk may be reduced
through some of the financing methods we discuss in the following section.
19
Ulin
20
Pwc
21
Dictionary of Film Finance and Distribution page 301

Exhibit 51: Production budget
Production Costs Talent (ex-backend)

•Includes pre- and post- •Writers, directors, and
production costs actors
•For example, but not •Includes up-front payments
limited to, cost of but not backend
casting, location
scouting, soundstage, set
construction, editing and
special effects
Development Costs Other

•Acquisition of underlying •Overhead fees, producer
rights fees, financing and legal
costs, completion
guarantee costs
Budget
(negative costs)
Source: Vogel, Moore, RBC Capital Markets
What makes a hit and a bomb?

During the distribution and production stage of the process we focus on two key items: (1)
how much does the film cost, and (2) could its results significantly outperform or
underperform these costs. If significant underperformance is possible, we then try to
determine what magnitude of write-off is possible.
For large studios, individual film results are expected to exhibit a high degree of volatility; as
a result, we do not believe that it makes sense to attempt to track and predict the likely
profitability of every film in development and production for large cap entertainment
companies.
However, we do think it makes sense to look out for major box office hits and bombs. Even
though, for large cap media conglomerates, we don’t think a single “hit” or “miss” should
have a significant impact on valuation (with certain exceptions), such events could present
some headline risk. Additionally, there are two scenarios under which a “miss” or “hit” could
warrant greater impact on valuation.
(1) A string of “misses” could impact the perception of a studio’s ability to produce hits in
the future (which could impact the stock). On the other hand, a string of “hits” could
strengthen the perception of the quality of existing intellectual property or the
company’s ability to generate new IP. While we think that this is likely frequently the
result of the randomness of content, it may also reflect underlying strategic issues at a
studio.
(2) An expected or existing franchise makes a larger contribution to a company’s value than
a single film. If a film’s performance affects the expectation that a franchise will be
launched or continued, the impact on valuation could be greater.

Although we try to avoid getting into the realm of predicting the success of creative content,
there are a couple questions we ask about high-budget or important films:
(1) First, does the budget make sense considering the type of film? For example, higher
revenues may be expected from a film that appeals to four quadrants (men and women,
young and old), while certain types of films sell better or worse into international
markets (comedies often don’t travel well).
(2) Second, how risky is the film? For example, if the film is part of a franchise or based on a
story that was popular in another format, we think the risk of failure is typically lower.
(3) Third, how deep and complete is the source material? While we avoid the role of creative
critics, we do believe that certain source material may be more conducive to theatrical
adaptation. Namely, material such as comic books provides a deep and tested library of
stories, themes and adventures, while material such as video games or toys typically
provides less content that has been written and tested in another medium. Clearly, films
based on the latter sources can be very successful (e.g. Transformers), but we think the
there is more legwork to be done given the more limited library of stories.
Further, we will occasionally run across situations where we think it makes sense to go
beyond this high-level analysis. For example, if a kid-focused movie were particularly scary,
we might think the movie could be at risk of disappointing results at the box office.

Financing
Producing a major Hollywood “tentpole” is an expensive and risky endeavor (for our
purposes we define “tentpole” as a film with a production budget of more than $85MM, but
the industry uses this term more generically to refer to larger films whose financial
performance supports the studio — often used interchangeably with the term blockbuster).
In 2012, there were 21 films with production budgets of more than $100MM, with eight of
those films having production budgets of over $200MM. These metrics do not even capture
additional costs associated with distribution (such as printing film for cinemas and
marketing) or back-end participations and deferments. But we think it is sufficient in
demonstrating the significant capital investment required, especially considering that some
of the major studios can have a slates of 20+ films per year. Of course, studios will typically
have a wide range of budgets for films in an annual slate. In fact, there may be different
brands within a single studio focused on different types of movies; for example, Fox’s
Twentieth Century Fox focuses on bigger budget, mainstream releases (e.g. X-Men, Avatar),
while Fox Searchlight Pictures focuses on niche films (and some of these, such as Black Swan
and The Descendants, do quite well at the box office).
Exhibit 52: Number of films released in 2012 by production budget (out of top 100 films by
domestic box, i.e. domestic box greater than $28.8MM)
30 28
25 24
Number of Films
20
15 13
10 8
0
>=200mm 100-200mm 50-100mm 25-50mm
Production Budget
Source: boxofficemojo.com, the-numbers.com, variety.com, imdb.com, boxoffice.com, RBC Capital Markets
Not only can films be expensive, but individually they are also risky as it can be very hard to
predict how a film will be received before it is released (and even more difficult before it is
produced). Because it is hard to predict how a movie will perform, a large proportion of the
associated costs have to be incurred before the studio knows how the film will be received.
By the time the film is released, a large amount of costs will have been incurred, including
production costs, the cost of printing film (often both domestic and international, if released
at roughly the same time globally; although, as we discuss elsewhere, the switch to digital
has greatly reduced this cost), and a large proportion of marketing and advertising costs. On
a single film, losses can be significant — but vary greatly by studio depending on financing
strategy. Generally, we think this is a necessary risk given the large potential benefit if a film

is a “hit”. We believe Disney, for example, lost more than $100MM in 2012 on a single film,
John Carter, but it was followed by the release of the very successful The Avengers, which we
believe will generate lifetime profits many multiples higher than the John Carter loss.
While there are ways to track/estimate awareness and expected attendance, these methods
only provide so much information. Additionally, to manage risk a studio could make other
strategic decisions to reduce the risk associated with individual films, when it comes to what
types of films to produce. For example, a studio may choose to focus on franchises where it
can assume if the first film did well, future works should also do well (e.g., DreamWorks
Animation’s Madagascar was successful, so sequels Madagascar: Escape 2 Africa and
Madagascar 3: Europe's Most Wanted should also do well). Additionally, a studio could focus
on adaptations of successful content from other formats, which can provide a large existing
fan base and/or has demonstrated the underlying creative content resonates with
consumers (e.g. Harry Potter had major success as a literary title before Warner Bros.
produced a film). However, these methods are not foolproof or a complete template for
success, as there are only so many top-tier (almost “guaranteed success”) franchises.
While a studio can reduce risk and volatility through diversification, making it desirable for
studios to produce a slate of films every year, it may not be practical or desirable to fully
fund the diverse slate required. Thus, studios will often seek external financing for films
and/or partner with other studios.
Many methods can be used to finance a film, and these are often used in combination. These
financing methods can range from self-financing, to selling tax subsidies, or partnering with a
private equity investor.
Studio/balance sheet financing

At the simplest level, financing for a movie can come off a studio’s existing balance sheet
(from cash generated from equity issuance, debt issuance, or retained earnings). Such
financing could be used as part of a PFD (production/financing/distribution) agreement.
Under this structure, the studio will provide financing and receive distribution rights (in
addition to some control over the production process), while loaning the budget to a
22
producer.
Even when other sources of financing are used, the studio will likely have some downside
exposure; in many cases, if the studio wants to have more opportunity to the upside, it
needs to accept more risk. For example, if a studio pre-sells international theatrical rights it
may receive overages if the film does well, but we believe these likely will not make up for
the amount of money it could have made had it self-distributed (granted, having the option
to self-distribute requires the necessary infrastructure).
Even if a film is financed with the existing balance sheet we would anticipate that it would
still be contained in a bankruptcy-remote entity to protect the studio from losses beyond its
equity (and other) investment in the entity.
However, remember that not all films are produced by major studios; the option of largely
self-financing may not be available to or practical for smaller studios or independent
production companies.
22
Cones

Bank financing
One of the primary sources of outside funding for a film is bank financing, which can take a
number of forms. It is frequently a part of the other financing methods described elsewhere
in this section. For example, expected payments upon delivery from pre-sales may be used to
obtain a bank loan, or general corporate debt (a revolver, bank term loan) may be used to
fund a production (although when using general corporate debt we would consider this
studio/balance sheet financing).
One type of bank financing is known as gap financing. Gap financing is similar to financing
used in combination with a pre-sale (which we discuss below). However, in this case,
estimates of what the sale of certain rights (that are as of yet unsold) will generate are used
as the basis for the loan. This method can fill the gap between cash generated from pre-sales
(and other sources) and the total production costs. The bank usually will not provide a gap
23
loan without a completion guarantee, which we will discuss later in this section.
Because some pre-production expenses must be paid before a completion guarantee is

issued, bridge funding may be used (which does not require a completion guarantee). Such a
loan provides funding until other sources can be obtained, which will then be used to pay
down the bridge loan and relieve the burden of its typically very high interest rate.
According to Moore, a bridge loan can require “up-front fees equal to at least 10% of the
loan and interest as high as 1% per week”. On the other hand, gap loans typically have “up-
24
front fees equal to 10%-12% of the loan and interest at three to five points over LIBOR”.
Pre-sale financing (theatrical and other rights)

One of the primary methods of financing is pre-sales. In a pre-sale, a portion of rights are
sold to fund production (and there may be additional overage payments possible based on
performance). The anticipated payments from the pre-sale are then used as collateral for a
bank loan (the bank, in turn, will require a completion guarantee), which will offer financing
at a lower rate than gap or bridge loans. These deals can be structured in a variety of ways.
For example, a studio may sell its rights to certain territories completely, or it may structure
the deal so that it will still get a percentage of the profits after the distributor pays its costs
(“overages”).
Often, the term “pre-sale” is used in reference to the sale of international rights (and often
by territory). Such a deal could be constrained to a single window of rights (e.g., just
theatrical), or include rights to all formats for a specified period of time (or somewhere in
between). According to Moore, the vast majority of the “total value of foreign rights” is
25
attributed to a relatively small number of countries.
23
Moore
24
Moore
25
Moore

Exhibit 53: Value of foreign rights

90% Of Foreign Rights From Combination Of… The Hunger Games Pre-Sales Estimates
Australia Belgium Canada Pre-Sale Total Int'l Incl.
France Germany Italy Guarantee Overages
Japan The Netherlands Spain #1 47 85
U.K #2 85 TBD
($ million)
Note: Foreign rights for top 10 regions as a percent of total published in 2011; we note that this list may have changed since then.
Source: Moore, RBC Capital Markets estimates
Pre-sales can be an effective way to finance a significant portion of production costs. For
example, Lionsgate has said that “international pre-sales typically cover more than 50% of
26
production costs”. However, international pre-sales are no longer typically sufficient to
27
cover an entire film budget, as was once the case.
The negative pickup—The negative pickup is a specific form of pre-sale, although the precise
definition varies depending on who you ask. In a negative pickup, a distributor agrees to pay
a producer for production following delivery of the completed film, in exchange for
distribution rights, as we described above. And, as is the case for pre-sale contracts, the
negative pickup does not directly provide any financing for the film upfront, and thus is used
as collateral for bank financing.
Example: California Film & Some define a negative pickup as simply a more comprehensive version of a pre-sale,
TV Tax Credit Program perhaps of global rights for all windows or US rights for theatrical and home video (versus
highlights rights to several smaller countries, for example). Others define a negative pickup as an
agreement whereby a distributor agrees to distribute an independent producer’s film and to
 Tax credit available for pay for those rights upon delivery. An independent producer likely may not be able to
qualified in-state finance a picture without partnering with a larger studio. Effectively, these two definitions
spending are one and the same, as an independent likely needs to sell a large portion of rights to
 Eligible for 20% tax credit: obtain the necessary financing.
Feature films $1MM-
$75MM production Such a deal would be expected to provide all or the majority of production costs, while
budget leaving the independent in more control than if a major studio had purchased/or owned the
 Eligible for 25% tax credit: picture outright (if the studio owned the feature outright it could hire an external entity to
“Independent film” perform the production functions, or assign it to someone internally). The negative pickup
($1MM-$10MM budget, may also allow the studio to keep liabilities associated with the film off the balance sheet.
not publicly traded) The studio picking up the feature will have meaningful influence on the final product (and
 “Independent film” the ability to refuse to pay if the film does not meet certain requirements), but it typically
credits can be resold does not have the same influence as if it just purchased the rights and produced it directly.
 75%+ of production days
or production budget in
Tax credits and subsidy financing
Many governments offer subsidies to attract film production to their jurisdictions. These may
California required
be provided at the state level and nationally. In some cases, these tax credits are
Source: film.ca.gov transferable, which means they can be used to finance the film upfront because they can be
Ssold to another party for cash. In some cases, the company has to actually use the tax credit
o
to offset taxes; thus if the company does not have any taxes it is not useful. In other cases,
u
r
the
c
government agency will just “cut a check” when the film is done. From the point of view
eof a studio or production company, the most useful credit is one that is transferable and
:
*
v
a
r26 Lionsgate Presentation, July 2012
i27
e Moore
t
y
September 13, 2013 . 53
c
o
m
,
does not have to be used to offset actual profits because that allows the “asset” to be more
28
easily sold to a third party, providing cash upfront to fund production.
Overall, such credits can cover a meaningful portion of the budget (15%-25% of in-state
29
production budget spending), although we would note that there may be limits on the total
amount of credits allowable over a given period; thus, obtaining credits is not a certainty in
any particular district. As an example, we provide some highlights of the California Film & TV
Tax Credit Program above.
Product placement financing and promotional tie-ins

Given the large potential reach of theatrical releases, the integration of advertising into the
feature (which we believe may increase viewer engagement versus TV advertisements, and
eliminates the threat of ad-skipping) and the fact that cinema advertisements may help
reach people more difficult to reach via TV advertising, product placement is a valuable
advertising outlet. In addition to a straight product-placement deal, deals may be more
complex with additional tie-ins between the movie and product. Additionally, spend may be
in the form of cross-promotion rather than a cash payment for placement — helping to
reduce the portion of the marketing budget that the studio must bear. Although this really
does not fall under the category of production financing, it still helps defray costs and reduce
financial risk for the studio; for example, some reports indicated that Heineken spent
30
$75MM on marketing for Skyfall. Further, a film’s owner may be able to place its own
31
products in a feature; for example, co-financer Sony placed its products in Skyfall.
Exhibit 54: Notable cross-promotional deals

Iron Man 2 Skyfall Spider-Man 2
Theatrical Release 05/07/2010 11/09/2012 06/30/2004
From multple
Partner partners Heineken Burger King
Estimated Spend $100mm $75mm $40mm
On marketing, and Worldwide ad Tie-in marketing
Notes retail tie-ins campaign deal
Source: hollywoodreporter.com, the-numbers.com, adage.com, RBC Capital Markets
Alternative investment & slate financing

Another option for studios wishing to share the risk is a partnership with an alternative
investment fund (hedge fund/private equity), through slate financing.
In slate financing, a private equity investor (e.g., a hedge fund) will provide a portion of the
financing and receive a commensurate stake in the equity of the film. These deals typically
extend over a long period and involve multiple films (thus, a film slate). This allows the
investment partner to reap the benefits of portfolio theory, minimizing risk by diversifying its
investments: some films will be hits, some misses, and some middle of the road.
Each side often has some degree of selectivity around what films are included as they come
up during the course of the deal, while films that are expected to be produced may be
specifically excluded or included. For example, a studio may be permitted to exclude its slate
28
palmstar.com, nytimes.com
29
Ulin
30
hollywoodreporter.com
31
guardian.co.uk

partner from a certain number of films over the term of a deal, but otherwise must give its
Example: Notable slate
slate partner first choice on what films to finance. The ball is then in the slate financer’s
financing agreements
court, and the fund can then select whether or not to back a film (again certain restrictions
Fox and The Selig Group and may remain around this). Some of the controversy that arose around slate financing in the
Magnetar Capital— past was related to how and what films were selected to be included and excluded from the
Participation in almost all films deal.
(including next two Avatar
Private equity partners are similar in many ways to co-financing partners; however,
films); excludes animation and
“traditionally” we would expect slate partners to take a purely financial role. That said, the
smaller films); investors
line is blurred and some slate financers do take a creative role (and as they take a larger role,
typically have option to fund
they become more and more like a studio participating in a co-financing arrangement).
25%-50%; 11% distribution
Legendary Pictures is a prominent example of a production company that started out taking
fee.*
a financial role, and has since evolved into a creative producer (although the level of creative
Paramount and Skydance— control should be expected to vary by project).
Through 2018; $200MM-
Additionally, given that it is common that even successful films don’t earn a “net profit”
250MM/year for three-four
based on calculations to determine participations, it is necessary to calculate “profits” for
“event” films; Skydance has a
this type of financial arrangement differently. Otherwise, the financials would not be
creative role in some projects ;
attractive enough to warrant investment. There are two key items to note in this calculation:
Paramount has first rights and
co-fi opportunities on (1) All revenue (with potentially, but not usually, the exception of some ancillary revenues
Skydance projects as well.** such as theme park revenue) is included in the calculation, including 100% of home
entertainment revenue; and
Warner Bros.—Existing deal
(2) For determining profits on a slate deal a distribution fee in the range of 10%-15% is
with Legendary is expiring
typically used, rather than the roughly 30% distribution fee often charged against
(runs through films greenlit
revenues when calculating net participations. (This means that for a film, one equation
in ’13, according to some
may be used for calculating profits from a slate-financing perspective and another from
press reports). A
a participations perspective—not to mention two more methods will be used for GAAP
replacement deal has not
and tax accounting purposes.)
been announced yet, but
some news sources have
The studio/distributor will often be responsible for P&A. P&A spend will be reimbursed to
indicated a $400MM+ deal
the distributor; the distribution fee will be paid; and then the studio and slate financer’s
with Ratpac Entertainment is
investment will be repaid ratably, before profits can be calculated and split according the
in the works.
relative investment.
Source: *variety.com, **bloomberg.com,
deadline.com, hollywoodreporter.com Exhibit 55: Hypothetical calculation of profit to determine slate partner’s share
HF/PE Calculation Of Slate Financer Share
All Revenue (Possibly Ex. Some Ancillary)*

Other Financing - Production Costs (incl. studio overhead)
- Distribution fees (lower than for net
participation calculation below)
- Distribution Costs (incl. P&A, and
manufacturing costs)
- Deferments, Participations, Residuals and
Ownership Other
“Profits” Based Profits
On Partial Share
Calculation Slate financer and studio then split profits
based on equity investment
Payments Or Rights *See Exhibit 58 for notes on revenue classification
Depending On Type Source: RBC Capital Markets
Of Financing (e.g. Calculation Of Participations

interest, foreign
w Movie Co distribution rights) Gross Revenue*
September 13, 2013 - Gross points and certain deductions (e.g. 55
residuals)
Net Revenues
Co-financing (traditional domestic/international split and other)

It is common for a feature to be owned and financed by two (or more) separate entities that
have some creative role — such an arrangement is referred to as co-financing. Ownership,
however, could be defined as a divided equity stake, or as a split of distribution rights. One
example is the forthcoming film The Monuments Men, which according to press reports is
32
financed 50/50 by Sony and Fox, with Fox receiving the international distribution rights.
There can be a fine line between co-financing and slate financing, but we differentiate based
on the type of financing partner (studio versus private equity), and the degree of operational
involvement (creative or distribution versus financial). The line between co-financing and
pre-sales can also be blurry, and we would differentiate based on the size of the pre-sale
contribution (we would consider larger deals co-financing), and the timing and commitment
33
of payments (a non-refundable advance would suggest a co-financing arrangement).
These structures can vary and may or may not have shared revenues and profits (i.e., there
could, or could not be, payments made to equilibrate profits between two co-financers, even
if they have taken a distinct set of distribution rights). Rights may also be divided based on
geographical boundaries or according to other provisions. Traditionally, however, co-
financing was a cross-geography agreement, designed to take advantage of political policies
in different regions.
Completion bonds
Completion bonds may be a necessary step to receive certain types of financing, but our
sense is major studios typically don’t pursue financing that would require a completion bond.
A completion bond is a “guarantee that a motion picture will be completed and delivered to
the distributor in accordance with the script by a stated outside date” without exceeding a
34
certain production budget limit. The completion guarantor acts as a production manager to
ensure the film is completed on time and on budget (e.g., signs off on budget, makes sure
35
production is on schedule, etc.).
In a case where the film is not going to be completed, the guarantor can loan money to the
producer, take over the production, or stop production and refund the lender. However, in
most cases if a film is running behind schedule or over budget it is in the best interest of all
36
parties to avoid a takeover by the guarantor, and thus they are fairly rare.
32
hollywoodreporter.com
33
Ulin
34
Moore
35
Moore
36
Moore

Distribution costs and monetization

Once a film has been created, it can be monetized through a number of different channels. It
is important to realize that monetization beyond the theatrical window contributes a
significant portion of revenue and in many cases may be necessary for a film to reach
profitability. However, even if the theatrical release of a film doesn’t completely offset the
negative costs and distribution costs, it is important to recognize that in many cases
theatrical performance “sets up” the remaining windows. Success in theaters validates the
expectation of success in later windows, and marketing around the theatrical release (and
word of mouth) generates awareness.
Primary release windows can be categorized as follows:
Theatrical — The exhibition of the feature in movie theaters.

Home entertainment (including EST and traditional VOD) — The sale of DVDs and Blu-ray
discs through retailers, digital ownership through products such as iTunes, as well as
single film rentals such as VOD or rev-share with rental outlets like Redbox.
TV (free and pay TV) and SVOD — Licensing of rights to show the film on TV or as part of an
SVOD product.
Other ancillary — Could include licensing rights to create toys or a theme park ride based on
a character in a movie.
Revenue from a single film is earned over a period of time, as the film is released into
different media outlets. A studio will attempt to maximize the profits a film can earn, by
managing when each movie is released into each outlet. While we presented release
windows for some studios earlier in the report, we present the generic schedule of release
timing below. However, it is important to recognize that this schedule is not fixed. For
example, pay-TV, free-TV, and SVOD are now competing for some of the same content — as
a result, it is no longer a given that a film will be sold into pay-TV, then free-TV, and then
SVOD.
Exhibit 56: Domestic release windowing through the first four years
Months
Medium 1 6 12 18 24 30 36 42 48
Theatrical * * * - - -
Packaged Home Video - - * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Domestic
PPV/VOD - - - - * * *
Pay TV - - - * * * * * * * * * * * * * * * *
Network, Cable, and/or Broadcast Syndication * * * * * * * * * * * * * * * * * * * * * *
SVOD - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Merchandising * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
= Typical release window = Common variations in release window
Note: We have excluded some small windows for simplicity, such as window for airplane and hotel showings, merchandising opportunity (and thus window) doesn’t exist or is immaterial for most films.
Source: SNL Kagan, Ulin, wsj.com, latimes.com, RBC Capital Markets
Internationally, we generally assume that windowing roughly matches domestic timing, but
some discrepancies should be expected. First, it should not be surprising for revenue to be
recognized over a longer period of time, because there may/will be multiple releases or
transactions in different regions to different partners. For example, the free-TV window in
the US may involve a single sale to a cable and broadcast network (like FX and FOX), while
the international sale may be to many different channels all over the world with different
periods of availability.

Home entertainment (including digital) continues to account for the largest proportion of
revenue, but its contribution has declined from 48% in 2007 to 34% in 2012. Meanwhile the
percentage of distributor revenue from theatrical and TV has grown over the same period.
While some of the decline in home video revenue was likely the result of piracy, we believe
37
that it likely was also driven by an increase in consumption on free-TV, pay-TV, and SVOD
as well as a saturation of the market with many people having built out their home libraries
post-VHS to DVD conversion.
Exhibit 57: Estimated global revenue of motion picture distributors in 2012

PPV/"Traditional" 2007 2012
VOD/Other Theatrical Rentals PPV/"Traditional" Theatrical Rentals
$1,007mm $10,595mm VOD/Other $12,869mm
Merchandise 2% 22% $2,220mm 28%
Licensing 5%
$3,255mm Merchandise
7% Licensing
Pay TV $3,107mm
$4,183mm 7%
8% Pay TV
$5,378mm Home Video (Incl.
Free TV/Basic Cable 11%
Home Video (Incl. Digital, SVOD)
$6,386mm
Digital, SVOD) Free TV/Basic Cable $15,887mm
13%
$23,862mm $7,152mm 34%
48% 15%
Total Revenues Of U.S. Distributors: ~$49bn Total Revenues Of U.S. Distributors: ~$47bn
Note: Global revenues for domestic distributors
Revenue classification — Who’s entitled to a piece of what?

Most sources of revenue are categorized as gross revenues and are included in the
calculation of net profits for a film from a participations standpoint, but several important
sources are typically excluded. For example, typically merchandising revenues, music
royalties, and revenues from the exploitation via theme parks (think Disney) are not included
in gross revenues when calculating net profits for participations. Additionally, only 20% of
packaged home entertainment (i.e., DVD, Blu-ray) is included in the calculation of
participations, a convention that the Writers Guild of America (WGA) asserts was reached in
1985 in an effort to “help the fledgling *home entertainment+ business survive” and in
38
consideration of the manufacturing costs required to produce these products. However,
100% of electronic sell-through and SVOD is included. Revenues based on 100% of the
wholesale price is referred to as the distributors’ gross, while the 20% basis is referred to as
the producers’ gross; it is worth noting that this is only one part of the equation, and the
percent of gross or net profits paid likely factors into whether or not the basis is distributors’
gross or producers’ gross.
37
For comparison, Netflix had 9.4MM subscribers at the end of 2008, compared to 35.5MM unique subscribers at
the end of 2012.
38
variety.com

Exhibit 58: Sources of revenues
Sale Of Films To
VOD (incl. SVOD,
electronic sell-
Bypasses "Traditional" Participant
TV through,
electronic rentals) Gross Revenues
Other Revenues
Film Rentals 80% of Home Including From
Entertainment Merchandising Theme Parks Derivative Works
•Does not include share 20% of Home (DVD, Blu-ray) (e.g. music
of Box Office that goes Entertainment royalties)
to the Exhibitor
"Traditional" (DVD, Blu-ray)
Participant
Gross
Revenues
Might Be Included In Some Cases
Typically Included In Calculation Of Participations
Available For Slate Net Profits Typically Included In Slate Deals, But Inclusion and
Share May Vary And Should Be Considered On A Case
By Case Basis Where SIgnificant
Typically Available To Studio
Note: Availability of different revenue sources to different interests varies on a case-by-case basis, but we present a generic example above
There are some deductions that typically count against the gross revenue that participants
calculate their share off of, including residuals, trade dues, and certain taxes and checking
39
costs.
The basics of distribution

Distribution of a film is the process of providing it to the customer. Many studios self-
distribute into some windows or regions, while outsourcing distribution for others. Even
within one large cap media conglomerate, there may be multiple entities distributing a single
film into different outlets. Take, for example, The Dark Knight, which was distributed into the
theatrical window by Warner Bros., home entertainment by Warner Home Video, and into
the company’s premium and basic cable channels, HBO and TNT, respectively.
Exhibit 59: Distributors of Time Warner’s The Dark Knight

Company What they do….
Warner Bros. Theatrical Distribution
Warner Home Video DVD & Blu-ray Distribution
HBO Pay TV
TNT Free TV
Source: imdb.com, RBC Capital Markets
39
Hollywood Dealmaking: Negotiating Talent Agreements for Film, TV and New Media, Second Edition. Appleton,
Dina & Yankelevits, Daniel

Distribution costs are generally borne by the distributor. The distributor charges a fee against
the film (simply called a distribution fee — and calculated off of gross revenue), and recoups
distribution costs. These fees vary based on who they are being charged against, and what
the distributor is providing.
For example, in a slate financing arrangement, a distribution fee in the low double digits may
be charged (the fee must be low enough to provide an effective share in film profits that
warrants a financial investment). Whereas, for a distribution-only deal (sometimes referred
to as “rent-a-distributor”) rates may be in the single digits because the production studio has
both arranged financing and may have content that is valuable and expected to be successful
(minimizing risk for the distributor). On the other hand, other participants may be charged a
much higher rate, as in these cases the distributor/studio may be providing financing and
assuring distribution that would be otherwise be unobtainable or the participant has been
paid up front (e.g. an actor) and has not taken on financial risk to warrant an “equity-like”
stake. There is no real industry standard in these cases, but the chart below provides a guide.
An example of a variation, however, is that a producer that secures some financing will often
receive a more favorable rate “with the distributor deducting limited verifiable expenses and
40
a distribution fee well below its standard charge.”
Exhibit 60: Distribution rates

Rate Notes
Disney/DreamWorks distribtuion deal reported as "as much as 10%"* These rates can vary significantly, and are merely a more complex way to
Distribution only determine a share of profits. Generally, we would expect a producer to
Single Digits Fox/DreamWorks Animation distribution deal reportedly 6% for VOD and
(rent-a-distributor) see a lower distribution fee, while a writer might see the highest.
online distribution, and otherwise reportedly 8%**
Slate Financing 10-15% Fox/The Selig Group slate deal reportedly charges a 11% distribution fee*** However, these are all determined on a case-by-case basis.
US Theatrical 30% Charged against other (non-financial) participants
Foreign Theatrical 40% Charged against other (non-financial) participants For a major studio feature it may make more sense to simply look at
US network TV 25% Charged against other (non-financial) participants total non-financial participations as a share of profits before a
US Cable And Syndication 35-40% Charged against other (non-financial) participants distribution fee. These participations will often be 0%, although 5-10%
Home video 30-35% Charged against other (non-financial) participants would not be unreasonable on the high end. In special cases, think
Merchandising 50% Charged against other (non-financial) participants
Hunger Games, where it is necessary to lock up talent for a franchise,
participations could end up in the 20s. Although, in major studio
features like Iron Man, this likely would not be the case.
Source: *latimes.com, **ew.com, ***variety.com, Ulin, Industry sources, RBC Capital Markets
Notably, “distribution fees are based on gross receipts”, i.e., they are calculated before
41
distribution expenses, which boosts the amount of revenue the distributor captures.
To capture the degree to which calculation of net profits for the purposes of contingent
compensation (e.g., participations) may differ from actual profitability, we have presented a
participant income statement for Harry Potter and the Order of the Phoenix in the Appendix.
While, several years after its theatrical release, we think the film made money for Warner
Bros., net profits for participants were still well in the red.
40
Appleton & Daniel
41
Moore

Theatrical
Following the completion of a film, the first window into which it is sold is the theatrical
window (for the films we are most concerned with, although some films may be sold directly
into a later window, e.g., “straight-to-DVD”). Distribution in the theatrical window is all about
relationships, with one industry source reporting that without a distributor “you simply do
42
not get into the screens/theatres”. As a result, independents may have a major studio
distribute their films, because even if the film is good, it likely will not be shown on many
screens without the appropriate backing.
Although the details of the agreements between distributors and exhibitors can be quite
complicated (for example, with splits varying over time), for our purposes we only focus on
two key items: (1) aggregate splits, and (2) minimum run periods.
Splits refers to the fraction of box office receipts that go back to the distributor. In general,
we would expect a major distributor to receive roughly 50% of domestic box office receipts,
while a smaller distributor would likely receive less.
Although revenues under any one deal can vary significantly as deals can be structured in a
variety of ways, in our experience there is not sufficient information to warrant a more
detailed analysis of splits. However, we would note that according to industry sources splits
typically shift to favor exhibitors over time. Thus, theater owners are incentivized to keep a
movie in theaters longer if it is doing a “critical mass,” but the decision to continue a run
must be made in comparison to other possible features. Even if splits improve for the
exhibitor, they are still giving up both ticket sales and ancillary revenues if they pass on
showing a film that would draw a larger crowd.
Additionally, note that splits only include box office receipts, and not ancillary revenues
earned by the exhibitor (such as popcorn sales).
Exhibit 61: On average, major distributors should receive roughly 50% of domestic box office
receipts
Distributor
Exhibitor
~50/50 Split
100% To Exhibitor
42
Ulin

Minimum run periods are a commitment by the exhibitor to show a feature for at least a
certain number of weeks — typically two-four weeks. However, there is flexibility as neither
the studio nor the exhibitor wants to keep showing a bomb, and both would want to keep
showing a hit — and keep in mind that the exhibitor/distributor relationship is a long-term
one. As a result, both parties are incentivized to keep each other happy.
Box office receipts – timing and how a film is doing
Revenues earned from theatrical distribution are frontloaded heavily. In 2012, for example,
nearly 60% of total box office receipts for the top 100 highest grossing films (domestically)
were received within the first 10 days of release.
Exhibit 62: Percent of theatrical revenues realized over time, 100 highest-grossing films
(2012)
100%
For the top 100 opening 90%
weekends, on average:
Theatrical Dollars Realized
80%
70%
 ~31% of total domestic 60%
box was realized in the 50%
opening weekend 40%
 The average opening 30%
receipts per theater was 20%
~$22,800/over the three- 10%
day weekend* 0%
0 10 20 30 40 50 60 70 80 90 100
See Appendix for a Days Since Release
complete list of films. Source: boxofficemojo.com, the-numbers.com, variety.com, imdb.com, boxoffice.com, RBC Capital Markets
*Excludes films that don’t have a

three-day opening weekend While the average timing of box office receipts presented above does not hold true for all
gross.
films, it can still serve as a good proxy for estimating the total box office receipts for a film
post release. However, we would anticipate a particularly high degree of variation from this
pattern in a number of cases, including if (1) a film is originally released in limited
distribution, is well received, and then later released more broadly, or (2) if a film is heavily
and successfully marketed (particularly if it then turns out to be poorly received generally). In
the former case, we would expect revenues to be more back-weighted than average, while in
the latter case, we would expect box office receipts to drop off more quickly than normal.
Additionally, sequels (and beyond) generally seem to be more frontloaded than the first
release in the series (at least in the domestic marketplace). However, this is not a hard rule,
and there are exceptions (for example, The Lord of the Rings). Additionally, variation should
be anticipated around the release date (higher attendance anticipated at certain times of
year), and duration of the weekend (impacted by the release day, i.e., an opening weekend
that runs from Thurs-Sun would be expected to have a larger box than Fri-Sun) all else equal.

Exhibit 63: Later films in a franchise appear to be more front-loaded than the first film in the
series
Typically films in each franchise are

60%
released at roughly the same time of year,
HP: June 4
but exceptions are noted.
50%
SM: June 30-Jul 3
40% (others May 3-4)
30%
20%
10% 1st film released Jun 3rd film released Jun July 11-15
5, others May 23, 26 30, others released HP: Nov 15-19
Nov 16-21
0%
1 2 3 4 5 6 7 8
Harry Potter (HP) Dark Knight Hangover Lord of the Rings
Twilight Iron Man Spider-Man (SM)
Source: boxofficemojo.com, RBC Capital Markets
According to Ulin, an appropriate rule of thumb is that “an average of $10,000 or higher *per
theatre per day] is extremely good, and a picture starts to lose momentum as the number
43
dwindles into the low thousands and even less.” This, however, is a high bar, and even very
successful films will not necessarily reach this threshold; for example, Toy Story 3 grossed
$415MM domestic but averaged approximately $9,100/theater/day its opening weekend.
The example below is based on the opening weekend screens and domestic box office draw
for Thor. At an average box office of $5,539 per day per theater through the opening
weekend, the film was not a huge hit, although it did do well enough to warrant a sequel.
Exhibit 64: Hypothetical buildup to domestic box office receipts on opening weekend (Fri-
Sun)
Average Customers Per Showing 69
Average Ticket Price $8.00
Average Box Per Showing $554
Total Weekend Showings/Screen 15 Remember not all showings during most
Average Box Per Screen (entire weekend) $8,309 popular time of day
Average Box Per Screen (entire weekend) $8,309 Average Box Per Screen Per Day $2,770
Opening Weekend Screens 7,910
Opening Weekend Revenue (mm) $65.7
Screens/Theater 2.0
Opening Weekend Theaters 3,955

Average Box Per Theater (entire weekend) $16,618 Average Box Per Theater Per Day $5,539
Opening Weekend Revenue (mm) $65.7
Source: Ulin, boxofficemojo.com, RBC Capital Markets estimates
43
Ulin

However, total per theater gross should not be considered in isolation, as week-over-week
changes may give an indication of the rate of deceleration (or acceleration), which may be
more useful in making forward-looking decisions.
According to Ulin, an appropriate rule of thumb for a film with a large opening release is to
expect a roughly 50% drop off in total box in the second week, and that this rate of decline
should slow over time. A slower rate of decline would indicate that the film should be able to
maintain revenues, while a quicker rate of decline could indicate that box office receipts
could drop off quickly; however, it is worth noting that this number can be skewed by
outside factors. For example, a highly anticipated and heavily marketed film could see a
bigger than average drop off, but this may simply be an indication that many people came to
see the film during the opening week(end) who otherwise would have seen it in week two
44
(rather than that the film was poorly received). Further, to get the most accurate estimate,
it probably makes sense to compare the week-over-week change to similar films, released at
a similar time of year, and on a similar day of the week. One might expect a horror film,
released around Halloween, to see a steeper drop-off than the average release.
Additionally, a more crowded slate could result in a quicker drop-off in box as attention (and
associated marketing blitz) quickly moves on to the next film. If we use box office receipts as
a proxy for measuring the number of “big releases” we can see how the summer of 2013 has
been pretty crowded, which corresponds to commentary from industry sources that this was
the case, and that as a result box office has dropped off more quickly than expected in some
cases.
Exhibit 65: Is the release schedule getting more crowded?

10 60
(inflation adjusted) in the domestic box office
9
Major movies grossing at least $70mm
50
8
7
40
6
5 30
4
20
3
2
10
1
0 0
1991 1995 2000 2005 2012 2013
(thru
Aug
1991 1995 2000 2005 2012 2013 (thru Aug 31) 31)
It is clear that, in a competitive environment where revenues and marketing spend is heavily
frontloaded, opening weekend performance can be crucial in determining a film’s success or
failure. Over time, box office receipts have become more frontloaded, as demonstrated in
the chart below.
44
Ulin

Exhibit 66: Box office is becoming more frontloaded (domestic box)

100%
90%
80%
70%
Theatrical Dollars Realized

2011 2012
60% 2010 2009
50% 2008 2007
2006 2005
40%
2004 2003
30% 2002 2001
20% 2000
10%
0%
1 11 21 31 41 51 61 71 81 91
Days Since Release
Note: For top 15 films by domestic box in each year.

Source: boxofficemojo.com, the-numbers.com, variety.com, imdb.com, boxoffice.com, RBC Capital Markets
Of course, before a film opens, we need another method of estimating box office receipts.
While this can be difficult to predict, some of the key factors are highlighted below. Simply,
key factors include the number of theaters in which a film is released, the showings per
theater, the price per ticket, and the timing of the release. However, even with all this
information, consumer reception is still a significant unknown that could result in a heavily
marketed wide release panning at the box office.
Exhibit 67: Factors that impact opening weekend box office
Price Per Ticket

(3D tickets are typically priced
Number Of Theaters higher than non-3D) Showings Per Theater
(Quoted number of screens is (More screens dediciated per
actually often a reference to the theater means more showings are
number of theaters) possible; some releases warrant
midnight showings, etc.)
Release Timing/Definition
(Opening weekend can be impact
by factors such as holidays,
inclusion of Thursday if released on
Thursday, etc...)
Consumer Reception
Opening Weekend Box
To gauge the potential box office reception of a particular film there are several resources
available. Market research companies such as Rentrak, MarketCast, Worldwide Motion
Picture Group, and Nielsen’s NRG division will provide tracking (e.g., measuring customer

interest) before a film is released and the Hollywood Stock Exchange provides a simulated
marketplace for trading around box office results.
International Theatrical—There is somewhat less information available publicly for

international theatrical distribution. However, we generally believe that the behavior of the
domestic market provides a good starting point. We typically expect a film to be released at
the same time across geographies in response to piracy concerns. Additionally, we would still
expect box office to be frontloaded, although it appears to be less frontloaded than in the
domestic market.
Notably, the ratio of international box office to domestic box office has increased
substantially over the last several years for tentpole releases (releases with domestic box
office of greater than $85MM).
Exhibit 68: International contribution has grown considerably
2.0x
1.9x
1.8x
Ex-Harry
1.7x Potter
Ex-
1.6x Avengers
1.5x
1.4x
Ex-
1.3x Avatar
1.2x
1.1x
1.0x
2005 2006 2007 2008 2009 2010 2011 2012
While international indexing has increased dramatically, certain types of films are more
appealing internationally than others. Action and adventure films (which includes films such
as The Dark Knight Rises and Madagascar 3) indexes over 1.5x on average, while comedies
(which includes films such as The Heat and Gnomeo and Juliet) have indexed below 1x on
average over the last four years. This comparison is not surprising as humor is cultural and
often doesn’t travel as well, while big-budget action and adventure is more culturally neutral.

Exhibit 69: International indexing varies by type of film
2.5x 2.5x
2.0x 2.0x
1.5x 1.5x
1.0x 1.0x
0.5x 0.5x
0.0x 0.0x
Equal Weight To Each Film Average Weighted By Box Office

Action Adventure Comedy Drama Thriller/Suspense Action Adventure Comedy Drama Thriller/Suspense
There are some notable differences between domestic and international theatrical
distribution:
(1) The share of the box office that is eventually returned to the distributor/studio is lower.
We estimate that international splits are roughly 40%-45% for major studio features that
achieve wide release domestically (in aggregate). However, we believe these splits could
be lower for non-major studios.
(2) In international markets, we would assume it is more likely that a US studio will
outsource distribution, meaning that a sub-distributor may take a share of the box office
receipts. Major studios still self-distribute in most significant international markets
(assuming the studio owns the international distribution rights; in some cases
distribution is through a joint venture).
(3) International rights may be sold to another party (either through pre-sales or a co-
financing arrangement). In the case of pre-sales, revenues would be determined by the
level of guarantees and the calculation of overage payments. In the case of a co-
financing agreement, the domestic distributor may have no share of revenues. However,
in some cases, the co-financing agreement provides for a method of shifting profitability
between financing partners based on relative investment (thus, international results
may still be a determinant of profitability for the “domestic” co-financing partner).
Costs and revenues: Who gets what?

We have discussed in detail above the drivers of revenue in the theatrical window. Expenses
can be divided into: (1) allocated expenses (e.g., share of negative costs and participations),
and (2) distribution expenses (such as the cost of marketing). A summary of the theatrical
distribution supply chain is presented below.

Exhibit 70: Summary of theatrical distribution

Note: This is a simplified example of how a
theatrical film is distributed. Details of particular
The producer, content owner, and contracts and relationships can vary.
distributor may be a single studio.
Distributor typically pays for marketing Sells tickets to
Distributor's take, less consumers
distribution fee and Share Of Ticket Sales (~50% on average
distribution expenses. domestic, 40-45% international for majors)
Producer/Content Exhibitor
Owners/Participants Theatrical Distributor
Provides analogue or
Provides content digital prints
and pays a fee per
print/by duration
Laboratory
Source: Ulin, RBC Capital Markets
On a purely cash basis, many films that are ultimately profitable will not have made money
by the end of the theatrical run. Take Man of Steel, for example, which amassed ~$660MM
at the global box office. Assuming 50% of theatrical box returns to the distributor, the
theatrical run provided $330MM of revenue. On a purely cash basis (and ignoring any
potential impact of co-financing or slate arrangements, cross-marketing deals, or variance in
theatrical splits), theatrical revenues would be offset by estimated negative costs of
$225MM and estimated global marketing costs of $150MM. Adding up these cash inflows
and outflows, it appears the film had not recouped its cash expense following the theatrical
45
release ($330MM - $225MM - $150MM = -$45MM). However, we believe that this film was
profitable.
On an accounting basis, not all the negative costs are amortized during the theatrical run and
as a result the film could be recognized as profitable on a GAAP basis during the theatrical
window. Further, on a conceptual basis, while advertising costs are not capitalized and
amortized over the life of a film this investment does drive awareness that supports higher
revenues through the life of the film (and a higher box, which may be directly, or at least
indirectly, related to licensing revenues).
Allocated costs (such as negative costs & participations)

Negative costs, deferments, and participations are not tied directly to distribution, but will be
recognized as revenues are earned during the theatrical window (and other windows). The
majority of these costs are typically negative costs (production budget), which includes the
cost of development and actual production, producer fees, financing, and other costs.
There can, however, be some cloudiness regarding how deferments (payments made after
services are rendered, and may be contingent on certain events such as a box office hurdle)
and participations (contingent compensation paid based on a percent of some contractual
measure of revenue or net profits) are allocated between production budget and distribution
45
chicagotribune.com

costs. According to Ulin, “participations payable before net profits... may sometimes be
46
added into the costs of production and treated as part of the negative cost.”
Distribution costs
Distribution costs capture the costs to get a movie to consumers. For theatrical, the primary
distribution costs, excluding overhead, are prints and advertising (P&A). Global P&A averages
62% and 95% for films with budgets of over $100MM and $50MM-$100MM, respectively.
This ratio and the international to domestic weighting, however, can vary by genre. For
example, for films with a production budget of greater than $100MM, comedies have a
relatively smaller allocation to international P&A when compared to action. This, of course,
should not be surprising, as comedies typically do not index as well internationally.
Exhibit 71: P&A as a fraction of negative costs

P&A P&A Non Global
Budget Avg Negative P&A US P&A Non- Global P&A US/Negative US/Negative P&A/Negative
Genre ($MM) Cost ($mm) ($mm) US ($mm) ($mm) Cost Cost Cost
Action 0-49.9 18.1 16.1 8.0 24.1 89% 44% 133%
Comedy 0-49.9 10.6 10.0 5.7 15.7 94% 54% 148%
Drama 0-49.9 9.0 4.8 2.5 7.3 53% 28% 81%
Thriller 0-49.9 13.7 10.0 6.2 16.1 73% 45% 118%
Weighted Average* 0-49.9 8.2 6.1 3.4 9.5 74% 42% 116%
Action 50-99.9 71.6 40.4 25.1 65.5 56% 35% 91%
Comedy 50-99.9 66.2 42.2 22.3 64.5 64% 34% 97%
Drama 50-99.9 69.6 30.0 19.2 49.2 43% 28% 71%
Thriller 50-99.9 59.0 37.3 20.6 57.9 63% 35% 98%
Weighted Average* 50-99.9 69.0 40.5 25.3 65.8 59% 37% 95%
Action 100+ 163.4 57.2 47.9 105.1 35% 29% 64%
Comedy 100+ 105.3 51.3 23.3 74.6 49% 22% 71%
Drama 100+ 102.8 48.4 45.7 94.0 47% 44% 91%
Thriller 100+ 128.3 51.8 39.6 91.4 40% 31% 71%
Weighted Average* 100+ 158.2 55.7 42.6 98.3 35% 27% 62%
*Weighted average for all categories, not just categories broken out in this table
See Appendix for more details; for films released in 2009-2012
Advertising—Based on industry sources, we typically estimate roughly 90% of advertising and

marketing is spent in the eight weeks leading up to the release of a film, with the bulk of that
likely spent in the two-three weeks before release. There are, however, some cases where
chase marketing would be warranted—such as for a release that is well received and will
likely maintain solid revenues over a longer period. In these cases, this additional spend
might shift post-release marketing spend toward 20% of the total marketing budget (of
course, for a surprise hit, this could be higher).
As we have stated previously, we believe compression of the holdback period between

theatrical and home video release has allowed some savings on home video marketing, as
theatrical marketing builds awareness for the home video release.
Print—Print costs are the costs to actually get the movie from its finished form, to the
customer. This is made up primarily of the costs to print the movie onto an analogue film
reel, or to produce digital copies (these copies must then be transported to the exhibitor, via
freight or digitally). These costs account for a relatively small proportion of the P&A budget,
and thus, we focus on the aggregate P&A as a whole. However, it is worth noting that for
accounting purposes print costs may technically be capitalized and amortized to match
46
Ulin

against revenues (although given the relatively small size, some studios may expense all print
costs on the theatrical release date).
Exhibit 72: Rough estimate of global print costs
This example is intended to be entirely hypothetical as the number of theaters globally

and/or screens per theater is typically not available across the world.
Digital Analogue Total
Prints 13,489 6,031 19,520 The Lone Ranger opened in 3,904 theaters domestically (a wide
% of total 69.1% 30.9% release), if we assume prints were made for 1.5 int'l theaters for
every domestic one, and 2 prints were available per theater then
Cost/Print $500 $1,500 $809 total prints required would be 19,520.
Total Print Cost $7 mm $9 mm $16 mm
A wide range of print costs have been quoted, as low These assumptions would result in a total print cost of $16mm,
as $1,200 and $200 for analog and digital, up to small compared to estimated worldwide marketing costs of
$1,000 blended. We assume numbers toward the $175mm.
mid-point for this example.
Source: Industry sources, Ulin, hollywoodreporter.com, RBC Capital Markets estimates
Over time, digital screens have become more common (see Appendix), which has reduced
the costs of each print. However, this has likely been at least partially offset by the
increasingly common practice of releasing movies at the same time globally, making it
impossible to re-use a significant portion of domestic prints in international markets.
P&A financing
Typically, P&A costs are borne by the distributor (who pays for these costs with “cash”, i.e.
utilizing cash raised through general corporate debt, retained profits, etc.). However, for
smaller distributors, it may be necessary to seek financing of P&A — although P&A funds are
not as prevalent as they once were. According to one entertainment focused financial
services and independent production company, P&A financing often comes in the form of
senior debt (unsecured, but benefiting from being first in line to be paid chronologically), a
47
common interest range for which would be ~20%.
Income statement impact

Recognition can vary significantly by deal, but our baseline assumption for large cap media
companies in our coverage universe is that film revenues are recognized on a gross basis (i.e.,
all costs and revenues remitted to the distributor flow through the income statement).
Revenues would consist of the distributor’s share of box office, and potentially include pre-
sales and overages (although pre-sales may be recognized as a reduction in negative costs in
some scenarios). Expenses recognized include the share of production costs and
participations (see the section on film accounting for more detail — but simply, these are
designed to remain a constant percent of revenue through the life of the film if no
48
assumptions change ), as well as distribution costs (which are generally expensed as
incurred). If a mini-major were to distribute a film through a major under a rent-a-distributor
agreement, it would recognize the distribution fee as an expense, but otherwise recognition
47
palmstar.com
48
Although, in some cases, deferments may be expensed as accrued; pwc.com

would mirror that of a major (so long as it retained the financial risk — if not, it might
49
recognize the film on a net basis).
Exhibit 73: Recognition of theatrical revenues and related expenses

GAAP Accounting - If Self Distributed And No Partners, Excluding Overhead GAAP Accounting - Mini With A Rent-a-Distrbutor Deal With A Major Studio,
No Partners, Excluding Overhead, And Assuming Mini Bears Financial Risk
$110.0 Domestic Box Office $110.0 Domestic Box Office
50% x Rental Rate 50% x Rental Rate
$55mm Domestic Theatrical Revenue $55mm Domestic Theatrical Revenue
$78mm International Box Office In Regions Where Co. Self Distributes $78mm International Box Office In Regions Where Co. Self Distributes
40% x Rental Rate 40% x Rental Rate
$10mm + Theatrical pre-sales/licensing (could be a reduction in neg. costs) $10mm + Theatrical pre-sales/licensing (could be a reduction in neg. costs)
$41mm International Theatrical Revenue $41mm International Theatrical Revenue
$96mm Theatrical Revenue $96mm Theatrical Revenue
$35mm - Share of Production Costs (see below) $35mm - Share of Production Costs (see below)
$46mm - Distribution Expense (mostly P&A, assume 50% of negative costs) $46mm - Distribution Expense (mostly P&A, assume 50% of negative costs)
$5mm - Deferrments and participations (assume 5% of gross revenues) $8mm - Distribution Fee (assume 8% of theatrical revenue)
$10mm Net Profit On A GAAP Basis $5mm - Deferrments and participations (assume 5% of gross revenues)
$2mm Net Profit On A GAAP Basis
Share of Prod. Costs = Theatrical Revenue ($96mm) x Total Production Costs ($92mm) = $35mm
Estimated Ultimate Revenue ($250mm)
Assumed Total Negative Costs: $92mm
Source: pwc.com, RBC Capital Markets
Under a licensing arrangement, the studio typically receives a minimum guaranteed

payment, and the potential for overages under certain conditions. Minimum guarantees are
Are pre-sales recognized as Note: This is a simplified example of how a
recognized as the film is made available for distribution in various marketplaces while
theatrical film is distributed. Details of particular
revenue or a reduction in overages “would typically
contractsbe
and recognized by the producer once the variable fee exceeds the
relationships can vary.
The producer, content owner, and
negative costs?
distributor may be a single studio.
total minimum guarantee” on the licensing deal.
50
Sells tickets to
Recognition can vary.
Distributor's The
take, less consumers
distribution fee and
While we generally assume that a distributor recognizes theatrical revenue on a gross basis
Share Of Ticket Sales (~50% on average
earlier in the production
distribution expenses. — even when they have40-45%
domestic, a slate financing
international partner — there are some exceptions. For example,
for majors)
Producer/Content
process the pre-sale occurs,
Owners/Participants Theatrical Distributor
under the rent-a-distributor model, the distributor likely recognizes Exhibitor
revenues on a net basis
the more akin it is to an (i.e., just the 8% distribution fee). However, if this straight distribution deal does not protect
investment in the film, and the distributor against loss if revenuesProvides are not sufficient to recoup P&A expense, then it may
analogue or
thus the more likely it is to be recognized
Provides content on a gross basis by the digital distributor,
prints with payments to the producer treated as a
be recognized as a and pays a fee per
participation, and a net basis by the producer.
51
print/by duration
reduction in negative costs.
The later in the process the Under co-financing arrangements,
Laboratory each party would recognize its share of negative costs, as
pre-sale is made, the more well as revenues and distribution expenses in the regions where it holds the distribution
akin it is to the sale of a rights. There are a couple of possible methods for equilibrating profits between the two
finished good, and the more parties: for example, payments could be recognized as either revenue or a reduction in
likely it is to be recognized expenses.
as revenue.
Source: pwc.com
49
pwc.com
50
pwc.com
51
pwc.com

Home entertainment (packaged media, electronic sell-through and “traditional”

VOD)
Home entertainment provides a large proportion of distributor revenue, although the
contribution has declined to 34% from almost 50% in 2007. However, it is worth noting that a
significant proportion may come from library content. For example, DreamWorks Animation
52
reported that its library contributed ~23% of total company revenue in 2012. We would
stress that the contribution from library content can vary dramatically by size and type of
content.
A large proportion of these sales are likely through a relatively limited number of retail
outlets — Lionsgate reported that in FY2013, “Wal-Mart accounted for approximately 35% of
net home entertainment packaged media revenue” while DreamWorks Animation said
“Walmart, Target and Best Buy, accounted for approximately 63% of our domestic DVD
53
sales.”
Exhibit 74: Estimated global revenue of US-based motion picture distributors in 2012
PPV/"Traditional" 2007 2012
VOD/Other Theatrical Rentals PPV/"Traditional" Theatrical Rentals
$1,007mm $10,595mm VOD/Other $12,869mm
Merchandise 2% 22% $2,220mm 28%
Licensing 5%
$3,255mm Merchandise
7% Licensing
Pay TV $3,107mm
$4,183mm 7%
8% Pay TV
$5,378mm Home Video (Incl.
Free TV/Basic Cable 11%
Home Video (Incl. Digital, SVOD)
$6,386mm
Digital, SVOD) Free TV/Basic Cable $15,887mm
13%
$23,862mm $7,152mm 34%
48% 15%
Total Revenues Of U.S. Distributors: ~$49bn Total Revenues Of U.S. Distributors: ~$47bn

Recently, home entertainment spending has appeared to stabilize domestically, lifted by a

growing contribution from digital (note that digital above includes VOD).
52
Theatrical content considered library “starting with the quarter of a title's second anniversary of the initial
domestic theatrical release”. Library excludes contribution from Classic Media and “revenues not attributable to a
specific feature film title” such as “multi-property licenses for characters”. (DWA 2012 10-K)
53
LGF FY2013 10-K, DWA 2012 10-K

Exhibit 75: Domestic home entertainment spending
$25.0
U.S. Home Entertainment Spending ($bn)

$21.8 $21.7 $21.6 $21.4
$20.7 $21.0
$19.0 $19.4 $18.8
$20.0 $18.0 $18.0
$16.9
$13.9 $14.5
$15.0
$10.0
$5.0
$0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
VHS/UMD DVD BD/Hi- Def Combined Packed Goods Digital*
200%
150%
100%
YoY Growth (%)
50%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-50%
-100%
VHS/UMD growth DVD growth BD/Hi- Def growth Digital growth*
For more detailed information, and a quarterly breakdown from 2010-12, please see Appendix
Source: DEG, RBC Capital Markets
Additionally, contribution from Blu-ray appears to have increased significantly. According to

Home Media Research, between 1/1/2013 and 8/10/2013, Blu-ray sales accounted for
approximately 29% of total packaged home entertainment revenue, compared to ~14% in
2010 (according to the DEG).
Exhibit 76: DVDs still account for the majority of packaged home entertainment revenue
Retail Sales Revenue Average Disc Cost At Retail

$25.00
Blu-Ray Revenue
$1,180mm $19.10
29% $20.00
$15.00
$11.03
$10.00
DVD Revenue $5.00

$2,921mm
71% $0.00
DVD Blu-Ray
Average Disc Cost
For time period 1/1/2013-8/10/2013

Source: Home Media Research, RBC Capital Markets
Additionally, for new releases, revenue split appears to skew further toward Blu-ray.

Exhibit 77: Home entertainment revenue from DVD versus Blu-ray for releases with domestic
box greater than $50 million
Blu-ray
39%
DVD
61%
Not surprisingly, with declining packaged home entertainment sales, the estimated tie-ratio
between domestic packaged goods revenue and domestic box office has declined.
Exhibit 78: Domestic box office-to-DVD and Blu-ray tie ratio
0.90x
0.80x
0.70x
0.60x
0.50x
0.40x
0.30x
0.20x
0.10x
0.00x
2008 2009 2010 2011 2012
Note: For films with domestic box office greater than $85MM
Source: boxofficemojo.com, SNL Kagan, RBC Capital Markets
Depending on assumptions for splits with retailers (and relative contribution of theatrical
versus TV content), flat retail spending (including digital) could correspond to growing
EBITDA contribution for the industry from home entertainment.

Exhibit 79: Relationship between home entertainment retail spending and studio EBITDA
contribution
Note that if in the SVOD marketplace feature film content is
2011 2012
Retail Spending ($bn)
marginalized vs. TV content, the effective margin for feature
Packaged Goods $14.6 $12.9 films could be lower (as packaged may be declining more and
Digital $3.4 $5.2 digital growing less for theatrical vs. the industry as a whole).
Total $18.0 $18.1
YoY Growth 0.5%
Share intended to be illustrative only. First, there are multiple
Share For Studio digital outlets with different effective pass-thru rates for retail
Packaged Goods 70% 70% revenue. For reference, in 2012, Netflix reported
Digital 70% 70%
amortization of streaming content of ~64% of streaming
revenue .
Wholesale Revenue
Packaged Goods $10.2 $9.0
Digital $2.3 $3.6
Total $12.6 $12.6
Assumes equal marketing and sales costs (at 25% of gross
Wholesale Cash Margin revenues) in both cases, and that the net difference is the cost
Packaged Goods 55% 55% of pick, pack, and ship.
Digital 75% 75%
EBITDA Contribution
Packaged Goods $5.6 $5.0 Based on the assumptions above, even though total retail
Digital $1.8 $2.7 spend on home entertainment was up 0.5%, cash EBITDA
Total $7.4 $7.7 contribution to studios could be up 4.0% due to higher cash
YoY Growth 4.0% margin on digital wholesale revenue.
Cash Margin 59% 61%
Packaged Digital
Wholesale Revenue $1.00 $1.00
Assuming equal marketing and sales costs (at 25% of gross
Cash Margin 55% 75% revenues), a dollar of digital wholesale revenue is estimated to
Cash Profit $0.55 $0.75 contribute ~36% more to EBITDA.
Source: DEG, RBC Capital Markets estimates
For an individual film, box office performance is likely the best single indicator of home
entertainment performance, although there are other factors that drive home entertainment
revenue. As demonstrated below, higher box office is correlated with higher DVD sales. We
estimate that domestic box office of ~$200MM would equate to total domestic home
entertainment revenue of $107MM (including DVD, Blu-ray, packaged rental, EST, and
“traditional” VOD). However, as we indicate in the sidebar below, we would be a little careful
applying this rule as film-by-film results can vary, and industry sources indicate that home
entertainment as a fraction of domestic box office tends to decline as box office receipts
increase.

Exhibit 80: Higher domestic box office means possibility of higher unit sales and home
entertainment revenue
Though not reflected in the Other sources indicate that this equation
$400
correlation here, home may result in too high of an estimate for y = 0.5702x - 6.7177
Lifetime Home Entertainment Revenue Including Rental

films with a high Box Offce result. We R² = 0.7211
domestic entertainment $350 would exercise caution in using it, but
contribution may decline present it here for reference. In most
Rev-Share, "Traditional" VOD & EST (mm)

cases we would stay within the range
as a percent of domestic $300 indicated at the end of this section.
box, as box office receipts
increase $250
$200
Generally, industry sources
indicate that home
$150
entertainment revenue as a
percent of box declines as $100
box office receipts increase.
$50
While this phenomenon is
not observed in the data $0
$0 $100 $200 $300 $400 $500 $600 $700
presented here, we wonder
Domestic Gross Box Office Collection (mm)
if this is the result of either:
(1) the underlying 16 y = 0.0231x - 0.194
estimation methods or (2) R² = 0.6924
that the genres of films that 14
Lifetime Domestic Packaged Home Entertainment Sales
reach high grosses may also

sell better into home
12
entertainment (meaning
Excluding EST or VOD (mm units)
commentary from industry

10
sources may be true for any
single film, but not
observed in the industry as 8
a whole).
6
We also think some
individual estimates may be 4
off, but that overall
correlation generally aligns 2
with our expectations.
0
. $0 $100 $200 $300 $400 $500 $600 $700
Domestic Gross Box Office Collection (mm)
Note: Source data based on SNL Kagan, except we scale all estimates by 10% to account for the inclusion of EST and “traditional” VOD
Source: SNL Kagan, RBC Capital Markets estimates
With regard to timing of this revenue, we also expect sales to be frontloaded (although not
quite as skewed as for theatrical).

Exhibit 81: Pacing of DVD retail sales for top 100 DVDs, as a percent of total sales (as of Sept
06)
100%
90%
80%
DVD Dollars Realized

70%
60%
50%
40%
30%
20%
10%
0%
0 5 10
Weeks Since Release
Note: DVD only; movies excluded if no weekly results are provided;, if some weekly results are provided but complete set is not available, results may be
interpolated or estimated to try to maintain consistency of trends in the overall data; also excludes TV content, compellations, and content DVDs released
for the first time in prior years
Source: the-numbers.com, RBC Capital Markets
Additionally, the holdback period between the theatrical release and home entertainment
release has shrunk.
Exhibit 82: The home video release window has been shrinking
7
6
Months Between Theatrical Release
5
And Video Release
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: The National Association of Theater Owners, RBC Capital Markets
International home entertainment — In total, international home entertainment provides

roughly 50% of global home entertainment revenue for US distributors. Interestingly, while
international theatrical indexing has increased in recent years, the relative split for home
entertainment is estimated to have remained roughly 50/50 when including digital (EST,
digital rental, and SVOD), while for packaged media relative contribution from international
has grown.

We think it is possible digital contribution has lagged internationally as these distribution

methods are still in the relatively early stage in many international markets. However, we
also think international markets are more conducive to monetization through TV — given
high piracy in many regions, and numerous and differentiated TV channels internationally —
which may result in growth in post-first window revenue coming from somewhere other
than home video.
Exhibit 83: Large contribution from international distribution (estimates)
2007 2012
International Home Domestic Home

International Home Domestic Home
Video (incl. EST, Video (incl. EST,
digital rental & Video (incl. EST, Video (incl. EST,
digital rental & digital rental &
SVOD) digital rental &
SVOD) SVOD), $7,866mm,
$11,770mm SVOD), $8,021mm,
$12,092mm 50%
49% 50%
51%
2007 2012
Domestic Packaged
International
Home Video,
Packaged Home Domestic Packaged
International $6,365mm, 45%
Video Home Video
$12,092mm $11,700mm Packaged Home
51% 49% Video, $7,862mm,
55%

Accordingly, home entertainment revenue as a percent of box is typically significantly lower

internationally. While domestic home entertainment revenue may be about 45% of domestic
box, on average, we think international runs about 15-25 percentage points lower. This lower
tie ratio to respective box is likely the result of higher piracy in much of the international
marketplace as well as the high relative costs of a supply chain into some of the smaller
markets (making other distribution outlets relatively more appealing).

Exhibit 84: Domestic versus international home entertainment box office tie ratio for major
studio feature film
60%
Home Entertainment Revenue As A

Percent Of Respective Box Office
50%
40%
30%
20%
10%
0%
Domestic International
Note: This is only an estimate of the “most-likely” for a range of films. Any individual film could have results outside of this range.
Source: Industry sources, RBC Capital Markets estimates

We generally assume that the distributor (and for our purposes, studio), receives roughly
70% of the price at retail. Against these revenues, the studio must pay to produce the DVD or
Blu-ray (~$3/unit) or digital copy (low cost/unit), and market the release. In addition to its
own marketing spend, a studio may allow retailers to take “a few percent of actual wholesale
54
revenue” against advertising and related costs.
Exhibit 85: Summary of home video distribution

These could be two independent
companies, but for our purposes we
consider the distributor and studio a
single entity.
Markets to consumer Sells at retail price and
markets to consumer
Wholesale Price
typically est. ~60% of "Suggested Retail Price"
Or 70% of actual retail shelf price
Studio/Content Home Entertainment Retailer
Owners/Participants Distributor Retailer will typically have the ability to return
unsold copies, at least up to a cap. Studio
may provide marketing support.
If distinct entities, the studio may simply
receive a license fee/royalty, it could Provides physical
receive some share of the profit or DVD/Blu-ray disk and
Provides packaging
revenue (i.e. contingent payments
content &
based on a contracted formula), or a
pays fee
combination.
Manufacturing
Pick Pack And Ship
Provides mastering, building menus, making copies,

shipping, and a variety of other services. May be
multiple companies or a single one.
Source: Ulin, ifp.org, Industry sources, RBC Capital Markets
54
Ulin 191

Below we present a scenario that could result in a cash margin on home video of ~50%, but
we think this margin could reach about 70% for a major studio feature film.
Exhibit 86: Cash-basis financials of home video for a studio that self distributes – before any participations
Packaged Media
If we included digital contribution of
DVD Blu-ray $20.0 (Est. ~70% of retail)
$15.0 (Est. ~70% of retail) $20.0 (Est. ~70% of retail) $14.0 Wholesale price Assumed other costs
$10.5 Wholesale price $14.0 Wholesale price 0.3mm x Units sold $0mm of 3-5% of Gross
3.2mm x Units sold 1.0mm x Units sold $5mm Gross Revenues
$34mm Gross Revenues $14mm Gross Revenues
combined cash margin would be improved
$53mm Combined Gross Revenues
$48mm Combined Gross Revenues $13mm - Manufacturing and Pick, Pack and Ship (assume $3 per unit) + Other
$13mm - Manufacturing and Pick, Pack and Ship (assume $3 per unit) $12mm - Marketing & Sales Expense (assume 22% of gross revenue)
$11mm - Marketing & Sales Expense (assume 22% of gross revenue) $28mm Net Profit On A Cash Basis
$25mm Net Profit On A Cash Basis 53.5% margin
51.5% margin
$25mm Combined Gross Revenues If the film is distributed by another party this
varies - Share of Production Costs and Participations
math would change. The studio may simply be a
varies Net Profit on a GAAP Accounting Basis
license fee/royalty, it could receive some share of
the profit or revenue (contingent payments
based on a contracted formula), or a combination
of the two.
However, given our focus on the major studios,

we do not present such an analysis here.
Source: Ulin, Industry sources, RBC Capital Markets estimates
These could be two independent

companies, but for our purposes we
consider the distributor and studio a
single entity.
Sells at retail price and
markets to consumer
Wholesale Price
typically est. ~60% of "Suggested Retail Price"
Studio/Content Home Entertainment Retailer
Owners/Participants Distributor Retailer will typically have the ability to return
unsold copies, at least up to a cap. Studio
may provide marketing support.
If distinct entities, the studio may simply
receive a license fee/royalty, it could
Provides physical
receive some share of the profit or DVD/Blu-ray disk and
Provides package
revenue (i.e. contingent payments
content &
based on a contracted formula), or a
pays fee
combination.
Manufacturing
Pick Pack And Ship

Sale of film to TV and subscription VOD

The traditional process of TV and SVOD monetization was that a film would be licensed to a
pay-TV provider (such as HBO), then a broadcast network (such as CBS), and then finally to a
basic cable channel. A film may also be sold to a local station group; however, we will not
focus on that transaction in this analysis. Eventually, the film could end up on a subscription
VOD service such as Netflix. While this structure persists to some degree, it has been
disrupted due to changes in the TV ecosystem. We will focus on sales to both “traditional” TV
outlets and SVOD in this section, as there is now a meaningful amount of crossover.
Exhibit 87: Summary of domestic distribution outlets that resell as part of bulk product
No longer necessarily distinct windows although, for the most part the Pay TV
remains the first TV window, followed by network or cable, and then later SVOD.
Pay TV Free TV SVOD

• 1st window 12-18 months • Broadcast Network and • May compete with Pay TV,
but may be longer Basic Cable were in which case, we would
• Frequently structured as traditionally seperate expect an output deal to
output deals windows but, more and offer similar financials
• Baseline per film more, they're competing • May also purchase bulk
assumption for output for the same content deep library content
deals of ~13% of domestic • Often sold on individual
box with a mid-teens to low basis, or as a smaller set of
20s cap content
• Baseline per film
assumption of 8-12% of box
for domestic
Pay-TV — There are many possible structures and a number of variables. The typical pay-TV
deal is an output deal that licenses a studio’s ongoing production slate for an extended
HBO
period of time and includes every new film the studio distributes, with some exceptions; for
• 20th Century Fox: Extended in 2012 through 2022; Est. $200mm annually, across all platforms (online, mobile, etc.);
Allows EST through other parties during the Pay TV window
example, it could exclude films that are distributed under the rent-a-distributor model. The
• Universal: Renewed in January 2013 through 2022; similar in size to 20th Century Fox deal; across all platforms
• Warner Bros: Inter-company; existing deal through 2014
duration of these deals may or may not extend beyond the first pay-TV window, which
typically Netflix
begins six-eight months after the film first hits theaters and extends for 12-18
55
months . These deals should be expected to include guarantees from both parties. The
• Disney (incl. Disney, Pixar, and Marvel): Announced December 2012 and begins in late 2016; estimated $300mm/year,
(also had direct-to-DVD and deeper catalogue in deal).
• DreamWorks Animation: Announced in Sept. 2011; Est. ~$30mm/film
studio is likely required to deliver a certain number of films of a certain quality (this could be
• Relativity: Announced July 2010; duration of 5+ years; news outlets have reported a deal value of as much as
~$30mm/feature while others suggest $100mm annually
• The Weinstein Co: multi-year, first start show films in 2016
based on budget, box office receipts, or the inclusion of A-list stars); the deals may also
require the inclusion of films expected to be produced in the future. However, the studio
Showtime
• DreamWorks Studios: Extended in March 2013 through 2018
may have the option to have some films (unless prohibited otherwise) bypass the pay-TV
• Weinstein Company: Extends through 2018 (rights to thatrical release slate through 2016)
• IFC
deal.
Despite original programming becoming a more important aspect of the pay-TV offering,
theatrical content remains an important component — Time Warner Inc. CEO Jeff Bewkes
said that “about 40% of the HBO subs still primarily watch movies, and about 80% of the
56
viewing on our linear plex feeds are movies”.
55
latimes.com
56
4Q12 TWX earnings call

Financial Assumptions — There may be a minimum guarantee payment per year, but the
actual individual payments are typically a function of the box office receipts of the film
delivered. The higher the box, the higher the payment, although the payment is typically
capped. We would assume that the distributor receives a fee of about 13% of domestic box
office receipts, with a cap of somewhere between roughly $15MM to the low $20MM range.
We would expect a deal between EPIX and one of its JV owners to contain a cap on the lower
end of this range, while an output deal with HBO or Showtime would likely contain a higher
cap.
Exhibit 88: Sample output deals

HBO
• 20th Century Fox: Extended in 2012 through 2022; Est. $200mm annually, across all platforms (online, mobile, etc.);
Allows EST through other parties during the Pay TV window
• Universal: Renewed in January 2013 through 2022; similar in size to 20th Century Fox deal; across all platforms
• Warner Bros: Inter-company; existing deal through 2014
Netflix
• Disney (incl. Disney, Pixar, and Marvel): Announced December 2012 and begins in late 2016; estimated $300mm/year,
(also had direct-to-DVD and deeper catalogue in deal).
• DreamWorks Animation: Announced in Sept. 2011; Est. ~$30mm/film
• Relativity: Announced July 2010; duration of 5+ years; news outlets have reported a deal value of as much as
~$30mm/feature while others suggest $100mm annually
• The Weinstein Co: multi-year, first start show films in 2016
Source: deadline.com, latimes.com,Showtime

nytimes.com, reuters.com, variety.com, RBC Capital Markets
• DreamWorks Studios: Extended in March 2013 through 2018
• Weinstein Company: Extends through 2018 (rights to thatrical release slate through 2016)
• IFC
Free TV—Broadcast network and basic cable network
Traditionally, licensing deals to a broadcast network preceded a sale to a basic cable channel.
The length of the broadcast network window was typically three-four years and permitted
only limited telecasts, perhaps one showing a year. This is because, according to Ulin, “[as] a
rule of thumb, playing a film on network on average of more than once a year starts the
57
downward spiral [in ratings]”
Traditionally, the broadcast network deal could be followed by a licensing deal with a basic
cable network that would last for multiple years, and typically allow for more frequent
showings, in fact, “it is not unusual to see film deals with 10 or more runs of a title per
58
year”.
This was a natural first window and programming strategy before home video took off
because broadcast network TV was the first opportunity to see the film post theatrical
release. As a result, it made sense to limit telecasts to capture the higher value broadcast
network viewership given the ability to provide higher network-like ratings through “event-
like” telecasts. However, now that much more demand has been saturated by the time a film
reaches the free-TV window, and the ratings gap between broadcast network and basic cable
has closed, basic cable channels and broadcast networks often are competing for the same
properties in the same window. That said, we would still expect, on average, a broadcast
network deal to permit fewer showings, but details can certainly vary by deal.
57
Ulin
58
Ulin

Financial Assumptions — While it is possible to see an output deal for free-TV, we would
expect these deals to be smaller or for films to be sold on an individual basis. For modeling
purposes, we would treat films as if they are sold on an individual basis. As a general rule of
thumb, we assume that domestic free TV deals generally provide about 8%-12% of the
domestic box. Additionally, without a historical comp we might apply a “soft” cap of about
$25MM-$30MM in most cases, and without more information we would typically assume
only a basic cable deal.
However, revenues can vary dramatically depending on the film, and deal details (duration,
permitted showings). Let’s take Avatar, which grossed approximately $760MM domestic and
sold to FX for an estimated $25MM-$30MM (details unknown), while Spider-Man 2, which
59
grossed ~$370MM, sold to FX and Fox for an estimated $50MM.
It would also be possible for films to be sold with some component contingent on
performance on TV (though likely with floors and ceilings), such as payments based on
ratings or a share of advertising.
Exhibit 89: Sample free-TV theatrical licensing deals as reported by the press
Film Release date Dom BO (mm) TV partner Start Date Deal Value (mm) # of years Other Notes
"Sony has the right to carve out broadcast/cable windows in
the middle of Spider-Man 2's run on Fox and FX that could
Spider-man 2 30-Jun-04 $374 Fox/FX Jan 06 $50mm (not tied to box) 10 fetch an extra $10 million for the studio."*
DIS retains 'rights to carve out a broadcast run or two for
The Proposal 19-Jun-09 $164 FX Late 2011 12% of domestic box 4 “The Proposal” during FX’s window'**
Zombieland 02-Oct-09 $76 FX End 2010 12% of domestic box
2012 13-Nov-09 $166 FX beginning 2012 12% of domestic box
Avatar 18-Dec-09 $761 FX Mid 2012 Est. $25-$30mm "likely toward the end of the decade"**
Pirates of the Caribbean: On Stranger20-May-11
Tides $241 ABC Family 2013
late 2013-early
The Hangover Part II 26-May-11 $254 FX 2014 at least $24mm
late 2013-early
X-Men: First Class 03-Jun-11 $146 FX 2014
late 2013-early "close to 12%" of
Super 8 10-Jun-11 $127 FX 2014 domestic box***
The Lorax 02-Mar-12 $214 FX
21 Jump Street 16-Mar-12 $138 FX
The Hunger Games 23-Mar-12 $408 ABC Family Jul-05 ~$24mm Depending on "soft cap" we think value could be higher
over time, If Twilight films reach $200mm domestic box, FX could pay "close to $100 million" for the four
4 'Twilight' movies + 3 other movies FX beginning late 2011 movies****
~30 months after
13-title Warner Bros. movie package TNT/TBS domestic releases 10-12% of domestic box
Source: *imdb.com, **variety.com, ***deadline.com, ****hollywoodreporter.com, the-numbers, ibtimes.com, tvbythenumbers.zap2it.com, broadcastingcable.com, adweek.com, RBC Capital Markets
In a case like The Hunger Games, we would stress that while the press reported that the first
film in the franchise could receive $24 million from its sale to ABC Family, revenues could be
higher depending on how tight the “soft cap” is. Remember that because this transaction is
not typically part of an output deal, it is possible for a film to earn more than this cap (and we
think The Hunger Games may be one of those cases).
SVOD—No longer just deep library content

The distinction between TV distribution and SVOD distribution has blurred. Notably some
studios have signed deals that bypass pay-TV and go straight to Netflix, including Relativity
59
variety.com, imdb.com

60
(some estimates of up to $100MM/year) and DreamWorks Animation (estimated at
61 62
~$30MM/picture ).
Prior to these deals, much content was sub-licensed from pay-TV providers and/or was
“deeper” library that had completed runs in other windows. For example, Netflix struck a
deal with Starz in 2008 (expired in 2012), which brought content from several studios,
63
including Disney, to the site. Additionally, Netflix partnered with EPIX in 2010, in a deal that
64
brought EPIX movies to Instant Streaming 90 days after premiering on EPIX. EPIX signed a
deal with Amazon in 2012 after exclusivity expired.
International TV and SVOD monetization — Generally, we assume international TV timing

matches domestic timing and “[license] fees are tied to fixed sums per subscriber, with
65
overages applied against minimum guarantees.”
We believe TV licensing generates a larger percentage of respective box internationally than

domestic. As discussed in the prior section, we think this is likely the result of the relatively
large number of potential channels to which content can be sold, as well as the higher
degree of differentiation (between broadcast and cable channels internationally versus the
domestic market).
Exhibit 90: Domestic versus international TV monetization
30% 20%
18%
Free TV Revenue As A Percent Of
Pay TV Revenue As A Percent Of
25%
16%
Respective Box Office
Respective Box Office
14%
20%
12%
15% 10%
8%
10%
6%
4%
5%
2%
0% 0%
Domestic International Domestic International
Note: This is only an estimate of the “most-likely” for a range of films. Any individual film could have results outside of this range.
Source: Industry sources, RBC Capital Markets estimates
The impact of this phenomenon can also be observed in aggregate revenues for distributors
with an increased proportion of TV revenue coming from the international marketplace.
60
latimes.com
61
nytimes.com
62
nytimes.com
63
tvweek.com
64
theatlanticwire.com
65
Ulin

Exhibit 91: Large contribution from international distribution (estimates)

Domestic TV Domestic TV
Syndications 2007 Domestic Broadcast 2012
Syndications, Int'l Network TV
$158mm Int'l Network TV Networks, $336mm, $183mm, 1% Syndication (incl.
Domestic Broadcast 2% Syndication (incl. 3%
basic cable and basic cable and
Networks
b'cast) b'cast), $3,673mm,
$444mm
$3,146mm Domestic Pay TV, 29%
4%
30% $2,036mm, 16%
Domestic Pay TV
$1,713mm
16%
Int'l Pay TV
$2,470mm Int'l Pay TV,
Domestic Basic
23% $3,342mm, 27%
Cable, $2,960mm,
Domestic Basic Cable
24%
$2,638mm
25%
2007 2012
Total Domestic,
$5,515mm, 44%
Total Domestic
$4,953mm Total International
47% $5,616mm Total International,
53% $7,015mm, 56%

Our baseline assumption is that revenue is recognized upon availability of the film to the TV
channel; however, it is possible that a deal can be structured in such a way as to result in
revenues being split over the licensing period. Timing of recognition when a deal includes
restrictions over when a film is shown may warrant recognition over a period of time, but
specifics appear to be open to interpretation. For example, recognition over a period of time
may be warranted if the license period is broken into pieces and “the producer has the right
to license the product in the same territory to another licensee in that market during the
66
blackout period.” Generally, we assume cash margins on TV licensing before participations,
residuals, and amortization of negative costs are close to 100%.
Exhibit 92: Generic estimated timing of revenues from licensing to TV

14% $35mm
Cap On Licensing Fee (Hard or "Soft")
Pay TV Free TV
Licensing Fee As A % Of Domestic Box
Pay TV Free TV $30mm

12%
Soft Cap
10% $25mm
8% $20mm Contracted
Cap
6% $15mm
4% $10mm
2% $5mm
0% $0mm
0 3 6 9 12 15 18 21 24 27 30 33 0 3 6 9 12 15 18 21 24 27 30 33
Rough Estimate Of Time Of Delivery (Months Since Theatrical Release) Rough Estimate Of Time Of Delivery (Months Since Theatrical Release)
Source: RBC Capital Markets estimates
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pwc.com

Ancillary
Ancillary revenues can be a significant contributor to a movie’s profitability. For movies for
which these revenues may be a contributor, they should be a consideration in determining
whether or not to go through with development and production. Both merchandising
(consumer products) and theme park monetization opportunities can be major contributors.
That said, given the inherent uncertainty around adoption we would not typically build in an
assumption of these ancillary revenues for a new film; for later films in a franchise, it may be
safe to assume some ancillary revenues. Additionally, it may be more difficult to monetize
these revenue opportunities for the first release. For example, retailers may not want to
allocate a significant amount of shelf space and manufacturers may not want to risk a
meaningful amount of capital to sell toys of an unproven character. As a second example, it
seems highly unlikely that a theme park would commit the huge capital expenditure required
to build a ride or “land” dedicated to an unproven concept.
Further, given the general lack of direct translation from the big screen to these types of
ancillary revenue streams, we do not believe it would make sense to attempt to tie potential
ancillary revenues to box office performance. However, we present merchandising revenues
below for several brands to help capture and “ballpark” revenues that might be generated
from certain types of intellectual property.
Exhibit 93: Merchandising sales or licensing revenue by franchise

Film/Franchise Revenues Retail Sales Period/Year
Cars $240mm Consumer Product Licensing 2010
Cars $2,000mm/yr Merchandise Sales 5-year after Cars release
Harry Potter $7,000mm Merchandise Sales Total btwn 1st film and 2011 (~10 years)
Lucasfilm $215mm Consumer Product Licensing 2012 estimate
Marvel $215mm Consumer Product Licensing 2009
Marvel Entertainment $5,600mm Merchandise Sales 2010
Toy Story 3 $2,400-2,800mm Merchandise Sales 2010
Twilight $20-30mm/yr $200mm/yr Merchandise Sales First 4 films (~4 yrs)
Source: Company reports, latimes.com, deadline.com, RBC Capital Markets estimates
Generally, we assume that somewhere between 7%-15% of merchandising revenues may be

returned to the studio. However, this can vary significantly (particularly if the studio doesn’t
own the underlying rights).
Licensing revenue could be recognized under a number of methodologies, including all at

once or on a straight-line basis, “depending on the terms of the transaction and the
67
accounting policies of the enterprise.”
67
pwc.com

Putting it all together in one statement

Below we outline the life cycle of a film to summarize what we have discussed in this report.
Exhibit 94: The life cycle of a movie

Studio B/S Bank Financing Pre-Sales Negative Pickup Tax Credits/Subsidies Product Placement Alt. Investments
- A studio can -Often backed - The rights to - A distributor - Some states -Some Companies - Money from
Financing
utilize cash by Negative certain cash (e.g. a studio) and countries may be willing to hedge fund/PE
Studio’s may also pursue a Pickup or Pre- flows are sold subsidize pay a studio to - Often referred
generated from can offer to pay
co-financing arrangement, Sales. prior to production in have their product to as slate
debt or equity a producer (after
which would allow a sharing -If Negative production. their borders. used in a film. financing, as
issuance at the delivery of the
of costs (and respective Pickup or Pre- Frequently, Tax credits may -It may also be investors
company level, final product) in
equity stake) with another Sale not these deals sell be “assignable”, possible to fund finance portion
or profits from exchange for
studio signed/sufficient distribution i.e. can be sold P&A through of a large slate
previous distribution
ventures to fund then Bridge/Gap rights to foreign rights (type of upfront to a 3rd cross-promotional of films.
a production. loans an option. territories. presale). party. deals.
 Executive Producer: May be responsible for

Development (incl. Pre-Production) securing financing**
 Producer not under contract approaches the
studio with an idea or project (in various stages
of development) Production (incl. post production)  Director: Responsible for participating “in all
 A studio acquires right to a concept directly (e.g. The film then needs to be shot (principal creative phases of the film-making process….
a screenplay, or rights to the theatrical photography), edited, have visual effects [and contributing] to all of the creative elements
adaptation of a book) added, etc.. of a film and [participating] in molding and
 Producer under a “first look” deal approaches the integrating them into one cohesive dramatic and
studio with a concept aesthetic whole”*
 Producer: Has “final responsibility for all
The following then needs to be done before business and creative aspects of the
production can begin: production…”**
 Line Producer: Has “primary responsibility for
 Rights must be secured, script written, key talent the logistics of the production…”**
attached (important actors, director), budget set,
financing secured, in addition to other steps
Home
Theatrical VOD Television Ancillary
Monetization
Entertainment
Distribution/
 Executive Producer: May have

“made a significant contribution to
the development of the literary
property, typically including the
securement of the underlying rights
to the material on which the Pay TV Free TV
motion picture is based.”**

Future Media
Derivative Works (sequals, spinoffs, etc…)
Source: *dga.org, **producersguild.org, Ulin, Moore, RBC Capital Markets

The flow of cash can also be complex so we present a summary below, along with an outline
of the calculation of profit for different parties.
Exhibit 95: Flow of cash
HF/PE Calculation Of Slate Financer Share
All Revenue (Possibly Ex. Some Ancillary)*

Studio Other Financing - Production Costs (incl. studio overhead)
Production Co.
- Distribution fees (lower than for net
Paid: Producer Fee or Fee
participation calculation below)
To Acquire Film
- Distribution Costs (incl. P&A, and
manufacturing costs)
- Deferments, Participations, Residuals and
Film
Ownership Other
“Profits” Based Profits
Cash
On Partial Share
Theatrical Calculation Slate financer and studio then split profits
Distribution Co.. based on equity investment
Pays for P&A Paid: Distribution Fees Payments Or Rights
Reimbursed: Distribution Depending On Type
Expenses Cash Less Dist. Fees Of Financing (e.g. Calculation Of Participations
And Dist. Expenses interest, foreign
Cash New Movie Co distribution rights) Gross Revenue*
(Film Licensing
Rights - Gross points and certain deductions (e.g.
Rentals)
residuals)
Cash Less Dist. Fees
And Dist. Expenses Net Revenues
Licensing Participations -Production Costs (incl. studio’s overhead
Rights fee)
Home Video - Distribution Costs (P&A, manufacturing
Distribution Co.. costs)
Pays for marketing - Distribution fees and Imputed Interest
and Pick, Pack, & Ship
Distribution For
Talent - Deferments and Other
Other Outlets
(some may not be shared Net Profits For Net Participation
Wholesale revenues, depends on Calculation
revenue deal/contracts)
Split between studios producers and talent
*See Exhibit X for notes on revenue classification


Now that we have laid out this process, we present the financials from the perspective of a
major studio below. We generally assume that a film breaks even for a studio when
worldwide box office is more than 2.0x-2.5x the production budget, and take this
opportunity to demonstrate how one could arrive at breakeven in this range.
Exhibit 96: Hypothetical example of financials from a studio’s perspective

(units in $mm unless otherwise noted)
Domestic International
Revenues Range Comments Revenues Range Comments
Domestic Box Office 100 International Box Office 120

rental rate 50% rental rate 40% 40-45% could be lower for non-
Theatrical Rental Revenue 50 Theatrical Rental Revenue 48 majors
Wholesale price ($) $15.0

Units 3
Video Revenue 43 Video Revenue (incl. PPV, VOD, EST) 34
as a % of dometic box 43% ~32-50% as a % of international box 28% ~20-30%
Pay-per-view, VOD, EST Revenue 5

as a % of dometic box 5% ~10% of packaged
First Cycle Premium Network TV Revenue 13 First Cycle TV Revenue 20

as a % of dometic box 13% ~10-15% Cap on EPIX lower, Sho and HBO as a % of international box 17% ~10-25%
cap 20 on higher end no cap 9,999
First Cycle TV Network Revenue 9 no contractual cap, but we think Second Cycle TV Revenue 20
as a % of dometic box 9% ~8-12% you may see incremental willingness as a % of international box 17% ~15-18%
"soft" cap 25 to pay as a % of box decline as box no cap 9,999
increases
First Cycle TV Syndication Revenue 0 Other Revenue 0 Could see other ancillary
as a % of dometic box 0% as a % of international box 0% revenues internationally
no cap 9,999 no cap 9,999 as well
Total Merchandising Sales (retail) 50

share 10% ~10-15& can vary significantly, should consider
Total Merchandising Sales (wholesale) 0 on a case-by-case basis if significant
Other Revenue 0
Merchandise and Other Revenue 5
as a % of dometic box 5%
Gross Reveneus 125 Gross Reveneus 122
Expenses Range Comments Expenses Range Comments
World Wide Negative Cost 105

WWBO/WW Negative Cost 2.10x
Domestic Allocation of Negative Costs 53 allocated between by revs. Int'l Allocation of Negative Costs 52 allocated between by revs.
as a % of dometic gross revenue 42% between domestic and int'l as a % of int'l gross revenue 42% between domestic and int'l
Theatrical Distribution (mostly P&A) 50 there can by a wide variation Theatrical Distribution (mostly P&A) 37 there can by a wide variation
as a % of world wide negative cost 48% as a percent of negative costs as a % of world wide negative cost 35% as a percent of negative costs
as a % of domestic box 50% (often due to genre or budget) as a % of international box 31% (often due to genre or budget)
rarely greater than $75mm
Video Cost (Pick Pack & Ship + Mkting; incl. dig.) 19 Could be 30% or lower on Video Cost (Pick Pack & Ship + Mkting; incl. dig.) 13
as a % of domestic video revenue 40% wide, major studio release as a % of international video revenue 40%
Other Costs 2 Ex. includes some dist. costs Other Costs 2 Ex. includes some dist. costs
% of domestic revenues 1% related to TV % of international revenues 1% related to TV
Gross Expenses 124 Gross Distribution Expenses 104

% of gross revenues 99% % of gross revenues 85%
Gross Profit 1 Gross Profit 19

gross profit margin 1% gross profit margin 15%
Residuals And Other Costs 6 Residuals calculated off of home ent, Residuals And Other Costs 6
as a % of gross revenue 5% TV and VOD, but base of gross for as a % of gross revenue 5%
simplicity
Participation Costs 4 Participation Costs 4
as a % of gross revenue 3% as a % of gross revenue 3%
World Wide
Profit Before Any Overhead Allocation Range Comments With World Wide Box Office of 2.10x we
can see that this film has roughly broken
Gross Profit 20 even
Residuals 12
as a % of gross revenue 5%
Participation Cost 7
as a % of gross revenue 3%
Net Profit - World Wide Pre-Overhead 0 This doesn’t include an allocation

net profit margin 0% of overhead

Library – How much value is in the library?

A studio library can be an important contributor to value, as deep content can still be
monetized through a variety of outlets. Deep library films may occasionally be re-released
theatrically, as was done recently with a number of Disney films that were re-released in 3D,
but more commonly deep library will continue to be monetized through home video, pay-
and free-TV licensing, and sales to SVOD or local broadcast stations (as well as merchandising
and other ancillary sources in some cases). Typically, we believe that library value is
maximized through bundling with new content — the deep library content may not
necessarily have been sought out directly, but it still provides incremental value (meaning
without bundling it may not be sold, but through bundling it can be sold to a outlet that can
monetize it, and thus, will be willing to pass on that value as part of a larger transaction).
When we consider the value of a library, we consider two primary factors: the annual decline
in cash flow generated (industry rule of thumb is about 10%), and the discount rate (we
would start at 12% but for some libraries a much lower number may be used). These
assumptions imply that the appropriate multiple would be roughly 5x library cash flow.
However, these multiples can vary with the size of the library (large libraries typically receive
a premium), and the nature of the content (some content may hold value longer).
Additionally, this analysis excludes the benefit from any future derivative content (assumes
that the library does not provide rights to produce additional films based on the underlying
content). If this were not the case, assuming a reasonable reason to suspect there is content
that could be refreshed, a premium would be warranted.
Exhibit 97: Implied library cash flow multiples based on annual decline in cash flow
Assumptions
Year 1 Library Cash Flow $100mm
Discount Rate 12.0%
Annual Decline 10.0%
Extended Indefinitely
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 ... 15
Years to discount 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5 12.5 13.5 ... 14.5
Cash Flow $100mm $90mm $81mm $73mm $66mm $59mm $53mm $48mm $43mm $39mm $35mm $31mm $28mm $25mm ... $23mm
Discounted value $94mm $76mm $61mm $49mm $39mm $32mm $25mm $20mm $16mm $13mm $11mm $9mm $7mm $6mm ... $4mm
Sum Of Discounted Values $481mm

Year 1 Library Cash Flow $100mm
Implied Library Cash Flow Multiple 4.8x
Discount Rate
4.8x 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0% 16.0%
2.0% 14.6x 12.9x 11.5x 10.4x 9.5x 8.7x 8.1x 7.6x 7.1x 6.7x 6.3x 6.0x
4.0% 11.4x 10.3x 9.4x 8.7x 8.0x 7.5x 7.0x 6.6x 6.3x 5.9x 5.6x 5.4x
6.0% 9.3x 8.6x 8.0x 7.4x 7.0x 6.6x 6.2x 5.9x 5.6x 5.3x 5.1x 4.9x
Annual Decline
8.0% 7.9x 7.4x 6.9x 6.5x 6.1x 5.8x 5.5x 5.3x 5.1x 4.9x 4.7x 4.5x
10.0% 6.8x 6.4x 6.1x 5.8x 5.5x 5.2x 5.0x 4.8x 4.6x 4.4x 4.3x 4.1x
12.0% 6.0x 5.7x 5.4x 5.2x 5.0x 4.8x 4.6x 4.4x 4.3x 4.1x 4.0x 3.8x
14.0% 5.4x 5.1x 4.9x 4.7x 4.5x 4.4x 4.2x 4.1x 3.9x 3.8x 3.7x 3.6x
16.0% 4.9x 4.7x 4.5x 4.3x 4.2x 4.0x 3.9x 3.8x 3.7x 3.6x 3.5x 3.4x
18.0% 4.5x 4.3x 4.1x 4.0x 3.9x 3.7x 3.6x 3.5x 3.4x 3.3x 3.2x 3.2x
20.0% 4.1x 4.0x 3.8x 3.7x 3.6x 3.5x 3.4x 3.3x 3.2x 3.1x 3.1x 3.0x
The value of a library could also be analyzed based on comparable transactions. While there
is limited public information available on these transactions, we present a list of notable
transactions below.

Exhibit 98: Recent library deals

Library # of Value/
Value titles Title
Year Library Buyer ($mm) ($mm)
Majors
06 DreamWorks SKG Soros/Dune 900 59 15.3
06 Pixar Walt Disney 423 7 60.4
05 DreamWorks SKG Viacom 850 59 14.4
04 MGM Sony Corp. 4,541 4,100 1.1
03 Universal General Electric 4,875 3,535 1.4
02 Warner Bros. AOL Time Warner 6,933 5,872 1.2
01 Time Warner AOL 13,337 6,360 2.1
00 Universal Vivendi 3,189 3,500 0.9
Indies
12 Summit Ent. Lions Gate 413 47 8.8
11 Maple Pictures Alliance Films 39 n/a n/a
10 Miramax Tutor, Others 675 700 1.0
09 Rogue Pictures Relativity Media 150 34 4.4
06 Bayshore Global Ent. Holdings 60 14 4.3
06 Rysher Qualia Capital 66 200 0.3
05 Redbus Lions Gate 4 130 0.0
05 GoodTimes Gaiam 35 2,000 0.0
05 Modern Ent. Lions Gate 8 332 0.0
03 Artisan Lions Gate 210 6,700 0.0
01 USA Films Vivendi Universal 460 224 2.1
00 Harvey Classic Media 31 150 0.2
00 Trimark Lions Gate 85 651 0.1
Note: Some of these deals include more than what some might consider pure library, but they are presented here for reference

Summary of accounting
Film accounting is complex. We will address the most important aspects of it here:
recognition of revenue, recognition of expenses, and impairment. For additional information,
please see Statement of Position 00-2, Accounting by Producers or Distributors of Films.
Recognition of revenue
For accounting purposes we will categorize revenue into three categories to determine how
and when it will be recognized:
Theatrical release revenue — Theatrical revenue is recognized as the film is exhibited.
Home entertainment revenue — Packaged home entertainment revenues “recognized on the

later of receipt by the customer or “street date” (when it is available for sale by the
68
customer).”
Licensing revenue — Licensing revenue is recognized upfront provided that the revenue is
“fixed and determinable” and the film has been delivered. Licensing revenue may not
however, be recognized before the beginning of the licensing period. This may also apply to
agreements with a variable component — if a portion of the revenue is “fixed and
69
determinable” it may still be recognized. These licensing revenues must, however, be
discounted to present value. For example, if a studio sold a film, show, or library to Netflix
for $30MM to be paid yearly in $10MM increments, the $30MM (reduced by a discount rate)
would be recognized upfront. However, there may be some exceptions. Additionally, in cases
such as merchandising, inclusion in the film’s ultimate (defined below) will be dependent on
how closely the merchandise is tied to the creation and release of the film.
Recognition of expenses
Accounting for expenses can be categorized into four categories. However, before we
continue we would address the concept of ultimate film revenue. The ultimate is the sum of
total estimated revenue “…from all markets and territories where persuasive evidence exists
that such revenue will occur” over a period of up to, but often somewhat shorter than, 10
70
years. Ultimate may include merchandising revenue that can be attributed to the film if
there is reason to believe that this is reasonable (may use a third party licensing transaction
as a proxy, but not an estimate of the entire amount of merchandise that could be sold).
Generally capitalized expenses — A large proportion of expenses will be capitalized as they

are incurred. These include development and production costs (including some allocated
amount of production overhead) along with certain interest costs. These expenses are
amortized according to the equation below, but simply “in the absence of changes in
estimates, film costs are amortized and participation costs are accrued (expensed) in a
71
manner that yields a constant [profit margin] over the ultimate period.“
68
LGF FY2013 10-K
69
Statement of Position 00-2, Accounting by Producers or Distributors of Films
70
pwc.com
71
SOP 00-2, emphasis added

Exhibit 99: Equation for determining amount of expenses capitalized
Revenue Recognized In Period  Remaining (Unamortiz ed) Capitalize d Costs 

Amount To Be Amortized    
Estimated Total Remaining Revenue In Ultimate 
 At Beginning Of The Current Period 
Period At Beginning Of Current Period
Source: SOP 00-2, RBC Capital Markets
Additionally, participations and residuals are accrued in an analogous manner.
Expensed on a unit basis — Expenses associated with the production of DVDs, for example,
can be assignable to each individual unit. These expenses are recognized at the same time
that the revenues associated are recognized.
Expensed as incurred — Marketing, advertising, and PR costs are expensed as incurred.
Print expenses — Print expenses do not fit nicely into one of the buckets above. These
expenses are capitalized up to the theatrical release date. Print expenses can then be
expensed over the period that theatrical revenues are realized. But given the relatively small
contribution to total P&A expenses, and the fact that the theatrical window is short and
frontloaded, these expenses may simply be recognized all at once on the date of theatrical
release in some cases.
Impairment of capitalized film investment

Investment in a film must be impaired if the unamortized film costs are more than the fair
value of the film.
Fair value is typically calculated using a DCF analysis that includes all future “cash flows an
entity expects to generate from a film” and “all *future cash] outflows necessary to generate
72
the film’s cash inflows” (including cash flows beyond the ultimate period).
The determination of the fair value of the film must consider information that “market
participants would have considered as of the measurement date” and cash inflows will
“typically include domestic and foreign income from box office or theatrical sales, video
sales, merchandise, pay television, or pay-per-view as well as fees from broadcast licenses
73
with networks and syndication arrangements.” If this test determines that a write-off is
necessary, the investment should be written down by an amount that makes the
unamortized capitalized costs equal to the fair value of the film.
Film libraries and TV shows

74
Acquired film libraries are amortized over 20 years. This makes sense as the rate of decline
in revenues should have slowed once the film is well past its initial release.
The concept of capitalization and ultimates is similar for TV shows and acquired film libraries.
The accounting for TV productions is similar to the process for full-length feature films but
costs associated with early episodes such as the pilot or first season are not capitalized and
amortized similarly (we typically assume a pilot expensed as costs incurred, and first season
72
Deloitte. Media & Entertainment Spotlight: Impairment of Unamortized Film Costs. Issue 2, May 2013
73
Deloitte
74
Moore

expensed as exploited in first season). This is because there is not reasonable evidence that
significant revenue will be generated in later windows. However, once enough episodes have
been produced to make monetization in later windows likely (e.g., there are enough
episodes for syndication) expenses may be capitalized and expensed over a longer period of
time. Once this hurdle has been reached, capitalized costs are amortized over “10 years from
the date of delivery of the first episode or, if still in production, five years from the date of
75
delivery of the most recent episode.”
75
SOP 00-2

Appendix I: Additional data

Exhibit 100: Screen type has shifted from analogue to digital
U.S./Canada Latin America
45,000 45,000
40,000 6,426 40,000
35,000 14,921 35,000
13,363
30,000 30,000 19,977
25,000 21,643 25,000
20,000 13,774 20,000 12,271
15,000 15,000 7,592
10,000 10,000
13,695 14,734 11,642 13,963
5,000 5,000
0 0
2011 2012 2011 2012
Not many analogue
screens are left in the
Asia Pacific U.S. and Canada
EMEA
40,000 45,000
35,000 40,000
30,000 14,172 35,000

13,363
30,000 19,977
25,000
18,285 25,000
20,000
8,760 20,000 12,271
15,000 7,592
15,000
10,000 5,769
10,000
14,219 13,963
5,000 8,116 5,000 11,642
0 0
2011 2012 2011 2012
Digital 3D Digital Non 3D Analog
45,000
40,000
35,000
14,020
30,000
24,812
25,000
34,052 31,815
36,221 34,162
20,000 37,416 13,001
35,760 35,918 36,567
15,000
10,000 6,898
4,149 12,620
5,000 4,088 7,837
3,646 3,269
0 76
0 77
0 85
0 240
84 2,003
202 986 1,427
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Digital 3D Digital Non 3D Analog
Source: SNL Kagan, MPAA, RBC Capital Markets

Exhibit 101: P&A as a fraction of negative costs (budget $100MM+, 2009-2012 theatrical release, estimates)
U.S. P&A As A Fraction Of Negative Costs Non-U.S. P&A As A Fraction Of Negative Costs
180 180
On average U.S. On average U.S. On average U.S. On average Non- On average Non- On average Non-
160 P&A is 35.2% of P&A is 35.0% of P&A is 35.8% of 160 U.S. P&A is 26.9% U.S. P&A is 29.3% U.S. P&A is 25.3%
negative cost for negative cost for negative cost for of negative cost of negative cost of negative cost
140 140
films with Action films with Animated films for films with for Action films for Animated
120 negative costs of negative costs of with negative 120 negative costs of with negative films with
$100mm+ $100mm+ costs of $100mm+ costs of negative costs of
100 $100mm+ 100 $100mm+ $100mm+
($mm)
($mm)
80 80
60 60
40 40
20 20
0 0
Weighted Average* Action Animated Weighted Average* Action Animated
Average Negative Cost ($mm) P&A US ($mm) Average Negative Cost ($mm) P&A Non-US ($mm)
200 200
Remember Comedies
180 On average U.S. On average U.S. 180 often don't travel well; On average Non- On average Non-
On average U.S. On average Non-
160 P&A is 48.7% of P&A is 35.1% of P&A is 31.3% of 160 given smaller expected U.S. P&A is 22.2% U.S. P&A is 30.2% U.S. P&A is 23.0%
negative cost for negative cost for negative cost for box we would expect of negative cost of negative cost of negative cost
140 Comedy films Family films with Sci-Fi/Fantasy 140 lower P&A spend as for Comedy films for Family films for Sci-Fi/Fantasy
with negative negative costs of films with well. with negative with negative films with
120 120
costs of $100mm+ negative costs of costs of costs of negative costs of
($mm)
($mm)
100 $100mm+ $100mm+ 100 $100mm+ $100mm+ $100mm+
80 80
60 60
40 40
20 20
0 0
Comedy Family Sci-Fi/Fantasy Comedy Family Sci-Fi/Fantasy
Weighted average includes all genres: Action, Animated, Comedy, Concert, Documentary, Drama, Family, Foreign, Horror, Musical, Romance, Sci-Fi/Fantasy, Thriller, Western
Exhibit 102: P&A as a fraction of negative costs (budget $50MM-$99.9MM, 2009-2012 theatrical release, estimates)
U.S. P&A As A Fraction Of Negative Costs Non-U.S. P&A As A Fraction Of Negative Costs
80 80
On average U.S. On average U.S. On average U.S. On average Non- On average Non- On average Non-
70 P&A is 58.7% of P&A is 56.4% of P&A is 63.3% of 70 U.S. P&A is 36.7% U.S. P&A is 35.1% U.S. P&A is 43.5%
negative cost for negative cost for negative cost for of negative cost of negative cost of negative cost
60 films with Action films with Animated films 60 for films with for Action films for Animated
negative costs of negative costs of with negative negative costs of with negative films with
50 $50-99.9mm $50-99.9mm costs of $50- 50 $50-99.9mm costs of $50- negative costs of
99.9mm 99.9mm $50-99.9mm
($mm)
($mm)
40 40
30 30
20 20
10 10
0 0
Weighted Average* Action Animated Weighted Average* Action Animated
80 80
Remember Comedies often
On average U.S. don't travel well; given smaller On average Non-
70 On average U.S. On average U.S. 70 On average Non-
P&A is 72.6% of expected box we would expect U.S. P&A is 47.1%
P&A is 63.7% of P&A is 46.7% of U.S. P&A is 35.9%
negative cost for lower P&A spend as well. of negative cost
60 negative cost for negative cost for 60 of negative cost
Comedy films Family films with Sci-Fi/Fantasy for Family films for Sci-Fi/Fantasy
50 with negative negative costs of films with 50 with negative films with
On average Non-
costs of $50- $50-99.9mm negative costs of costs of $50- negative costs of
U.S. P&A is 33.6%
($mm)
($mm)
40 99.9mm $50-99.9mm 40 99.9mm $50-99.9mm

of negative cost
for Comedy films
30 30 with negative
costs of $50-
20 20 99.9mm
10 10
0 0
Comedy Family Sci-Fi/Fantasy Comedy Family Sci-Fi/Fantasy
* Weighted average includes all genres: Action, Animated, Comedy, Concert, Documentary, Drama, Family, Foreign, Horror, Musical, Romance, Sci-Fi/Fantasy, Thriller, Western

Exhibit 103: Domestic home entertainment spending
7,000
U.S. Home Entertainment Spending ($mm)
5,906 5,744
6,000 5,658
589
5,000 4,641 1,186 4,691
4,343 4,464 1,488
4,139 1,549 3,945 3,997
563 3,927 3,937 3,943
4,000 3,746 699
587 1,219 1,233 1,556
521 661 811 1,110
1,493 1,240 1,222 1,514
3,000 1,399 1,576
1,409 1,482 1,176 1,036
1,373
2,000 1,083 1,042
3,767 972
3,339 3,060
2,585
1,000 2,153 1,816 2,068 1,802 2,055 2,099
1,743 1,674 1,673 1,457
0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Sell-Thru Packaged Goods Rental (ex-VOD)* All Digital*

U.S. Digital Home Entertainment Spending
1,800 1,800
1,556 1,514
1,600 1,488 1,600
1,400 1,400
1,233 1,240 1,222
1,186
1,200 655 710 1,200
780
($bn)
1,000 549 1,000

811 506 579 579
800 699 661 800
563 587 589 85 255
600 0 521 0 123 600
0 0 538 615 474
400 483 531 487 455 400
435 455 462 473 408 420
400
200 200
197 295 231 259
127 133 121 128 141 130 136 153 174 187
0 0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Electronic Sell-Thru VOD Subscription Streaming*
1,800 1,800
U.S. Rental (ex-VOD) Home Entertainment
1,549 1,576
1,600 1,493 1,482 1,600
1,399 1,409 1,373
1,400 357 402 1,400
281 1,219
295 336 404 1,176
1,200 1,083 1,110 1,200
414 1,042 1,036
Spending ($bn)
972
1,000 457 1,000
523 523
620 671 468 492
800 551 579 455 497 800
685 458
600 607 600
411
348 324 301 285
400 270 261 400
689
553 495 572 504
200 393 352 351 333 200
306 291 286 269 253
0 0
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Brick and Mortar Rental Subscription (physical only 1Q11 and later)* Kiosk
* Prior to 1Q11 Subscription Streaming Revenue is included in Rental (ex-VOD) revenue, for 1Q11 and later it is included in All Digital revenue
Source: DEG, RBC Capital Markets

Exhibit 104: Harry Potter participants income statement
Source: deadline.com

Exhibit 105: Global box office by geography

$40
$35
2.8
2.1 2.6
$30
1.7
1.6 10.4
Billions of Dollars
$25 8.5 9.0
7.2
6.8
$20
9.9 10.4 10.8 10.7

$15 9.7
$10
$5 9.6 10.6 10.6 10.2 10.8
$0
2008 2009 2010 2011 2012
U.S./Canada Europe, Middle East & Africa Asia Pacific Latin America
2008 2009 2010 2011 2012 CAGR

U.S./Canada 9.6 10.6 10.6 10.2 10.8 3%
Europe, Middle East & Africa 9.7 9.9 10.4 10.8 10.7 2%
Asia Pacific 6.8 7.2 8.5 9.0 10.4 11%
Latin America 1.6 1.7 2.1 2.6 2.8 15%
Total $27.7 bn $29.4 bn $31.6 bn $32.6 bn $34.7 bn 6%
Source: MPAA, RBC Capital Markets

Exhibit 106: Top 100 opening weekends

Opening Box Total Domestic # of Avg. Opening
Rank Date Title Studio (mm) Box (mm) % of Total Theaters per Theatre
1 4-May-12 Marvel's The Avengers BV $207 $623 33.3% 4,349 $47,698
2 3-May-13 Iron Man 3 BV $174 $408 42.7% 4,253 $40,946
3 15-Jul-11 Harry Potter and the Deathly Hallows Part 2 WB $169 $381 44.4% 4,375 $38,672
4 20-Jul-12 The Dark Knight Rises WB $161 $448 35.9% 4,404 $36,532
5 18-Jul-08 The Dark Knight WB $158 $533 29.7% 4,366 $36,283
6 23-Mar-12 The Hunger Games LGF $153 $408 37.4% 4,137 $36,871
7 4-May-07 Spider-Man 3 Sony $151 $337 44.9% 4,252 $35,540
8 20-Nov-09 The Twilight Saga: New Moon Sum. $143 $297 48.2% 4,024 $35,497
9 16-Nov-12 The Twilight Saga: Breaking Dawn Part 2 LG/S $141 $292 48.3% 4,070 $34,660
10 18-Nov-11 The Twilight Saga: Breaking Dawn Part 1 Sum. $138 $281 49.1% 4,061 $34,012
11 7-Jul-06 Pirates of the Caribbean: Dead Man's Chest BV $136 $423 32.0% 4,133 $32,817
12 7-May-10 Iron Man 2 Par. $128 $312 41.0% 4,380 $29,252
13 19-Nov-10 Harry Potter and the Deathly Hallows Part 1 WB $125 $296 42.2% 4,125 $30,307
14 18-May-07 Shrek the Third P/DW $122 $323 37.7% 4,122 $29,507
15 14-Jun-13 Man of Steel WB $117 $290 40.3% 4,207 $27,720
16 5-Mar-10 Alice in Wonderland (2010) BV $116 $334 34.7% 3,728 $31,143
17 3-May-02 Spider-Man Sony $115 $404 28.4% 3,615 $31,769
18 25-May-07 Pirates of the Caribbean: At World's End BV $115 $309 37.1% 4,362 $26,303
19 18-Jun-10 Toy Story 3 BV $110 $415 26.6% 4,028 $27,385
20 24-Jun-09 Transformers: Revenge of the Fallen P/DW $109 $402 27.1% 4,234 $25,736
21 19-May-05 Star Wars: Episode III - Revenge of the Sith Fox $108 $380 28.5% 3,661 $29,619
22 19-May-04 Shrek 2 DW $108 $441 24.5% 4,163 $25,952
23 26-May-06 X-Men: The Last Stand Fox $103 $234 43.8% 3,690 $27,846
24 18-Nov-05 Harry Potter and the Goblet of Fire WB $103 $290 35.4% 3,858 $26,616
25 22-May-08 Indiana Jones and the Kingdom of the Crystal Skull Par. $100 $317 31.6% 4,260 $23,507
26 2-May-08 Iron Man Par. $99 $318 31.0% 4,105 $24,024
27 29-Jun-11 Transformers: Dark of the Moon P/DW $98 $352 27.8% 4,088 $23,937
28 24-May-13 Fast & Furious 6 Uni. $97 $238 40.8% 3,658 $26,620
29 4-Jun-04 Harry Potter and the Prisoner of Azkaban WB $94 $250 37.5% 3,855 $24,303
30 15-May-03 The Matrix Reloaded WB $92 $282 32.6% 3,603 $25,472
31 16-Nov-01 Harry Potter and the Sorcerer's Stone WB $90 $318 28.4% 3,672 $24,590
32 20-May-11 Pirates of the Caribbean: On Stranger Tides BV $90 $241 37.4% 4,155 $21,697
33 9-Nov-12 Skyfall Sony $88 $304 29.0% 3,505 $25,211
34 15-Nov-02 Harry Potter and the Chamber of Secrets WB $88 $262 33.7% 3,682 $23,997
35 30-Jun-04 Spider-Man 2 Sony $88 $374 23.6% 4,152 $21,232
36 29-Apr-11 Fast Five Uni. $86 $210 41.1% 3,644 $23,655
37 26-May-11 The Hangover Part II WB $86 $254 33.8% 3,615 $23,775
38 2-May-03 X2: X-Men United Fox $86 $215 39.8% 3,741 $22,871
39 1-May-09 X-Men Origins: Wolverine Fox $85 $180 47.3% 4,099 $20,751
40 14-Dec-12 The Hobbit: An Unexpected Journey WB $85 $303 27.9% 4,045 $20,919
41 25-Feb-04 The Passion of the Christ NM $84 $370 22.6% 3,043 $27,554
42 3-Jul-13 Despicable Me 2 Uni. $84 $347 24.1% 3,997 $20,895
43 21-Jun-13 Monsters University BV $82 $261 31.6% 4,004 $20,587
44 16-May-02 Star Wars: Episode II - Attack of the Clones Fox $80 $302 26.5% 3,161 $25,317
45 8-Mar-13 Oz The Great and Powerful BV $79 $235 33.7% 3,912 $20,223
46 15-Jul-09 Harry Potter and the Half-Blood Prince WB $78 $302 25.8% 4,325 $17,997
47 14-Dec-07 I Am Legend WB $77 $256 30.1% 3,606 $21,412
48 11-Jul-07 Harry Potter and the Order of the Phoenix WB $77 $292 26.4% 4,285 $17,995
49 19-May-06 The Da Vinci Code Sony $77 $218 35.4% 3,735 $20,635
50 18-Dec-09 Avatar Fox $77 $750 10.3% 3,452 $22,313
51 8-May-09 Star Trek Par. $75 $258 29.2% 3,849 $19,539
52 27-Jul-07 The Simpsons Movie Fox $74 $183 40.4% 3,922 $18,877
53 26-Jul-02 Austin Powers in Goldmember NL $73 $213 34.3% 3,613 $20,225
54 17-Dec-03 The Lord of the Rings: The Return of the King NL $73 $377 19.3% 3,703 $19,614
55 23-May-97 The Lost World: Jurassic Park Uni. $72 $229 31.5% 3,281 $21,985
56 3-Apr-09 Fast and Furious Uni. $71 $155 45.8% 3,461 $20,500
57 9-Mar-07 300 WB $71 $211 33.7% 3,103 $22,844
58 21-May-10 Shrek Forever After P/DW $71 $239 29.7% 4,359 $16,251
59 3-Jul-07 Transformers P/DW $71 $319 22.1% 4,011 $17,577
60 5-Nov-04 The Incredibles BV $70 $261 27.0% 3,933 $17,917
61 30-May-03 Finding Nemo BV $70 $340 20.7% 3,374 $20,821
62 2-Mar-12 Dr. Seuss' The Lorax Uni. $70 $214 32.8% 3,729 $18,830
63 16-May-13 Star Trek Into Darkness Par. $70 $227 30.9% 3,868 $18,140
64 21-Nov-08 Twilight Sum. $70 $193 36.1% 3,419 $20,368
65 3-Aug-07 The Bourne Ultimatum Uni. $69 $227 30.5% 3,660 $18,930
66 28-May-04 The Day After Tomorrow Fox $69 $187 36.8% 3,425 $20,071
67 27-Jul-01 Planet of the Apes (2001) Fox $69 $180 38.1% 3,500 $19,581
68 4-May-01 The Mummy Returns Uni. $68 $202 33.7% 3,401 $20,035
69 29-May-09 Up BV $68 $293 23.2% 3,766 $18,085
70 31-Mar-06 Ice Age: The Meltdown Fox $68 $195 34.8% 3,964 $17,163
71 23-May-03 Bruce Almighty Uni. $68 $243 28.0% 3,483 $19,510
72 14-Nov-08 Quantum of Solace Sony $68 $168 40.1% 3,451 $19,568
73 3-Aug-01 Rush Hour 2 NL $67 $226 29.8% 3,118 $21,619
74 21-Jun-13 World War Z Par. $66 $198 33.5% 3,607 $18,412
75 22-Jun-12 Brave BV $66 $237 28.0% 4,164 $15,928
76 24-Jun-11 Cars 2 BV $66 $191 34.5% 4,115 $16,072
77 6-May-11 Thor Par. $66 $181 36.3% 3,955 $16,618
78 9-Dec-05 The Chronicles of Narnia: The Lion, the Witch and the Wardrobe
BV $66 $292 22.5% 3,616 $18,130
79 13-Nov-09 2012 Sony $65 $166 39.3% 3,404 $19,165
80 22-Jul-11 Captain America: The First Avenger Par. $65 $177 36.8% 3,715 $17,512
81 29-Jun-05 War of the Worlds Par. $65 $234 27.7% 3,908 $16,602
82 30-Jun-10 The Twilight Saga: Eclipse Sum. $65 $301 21.6% 4,468 $14,510
83 19-May-99 Star Wars: Episode I - The Phantom Menace Fox $65 $431 15.0% 2,970 $21,825
84 7-Nov-08 Madagascar: Escape 2 Africa P/DW $63 $180 35.1% 4,056 $15,559
85 27-Jun-08 WALL-E BV $63 $224 28.2% 3,992 $15,803
86 16-Jul-10 Inception WB $63 $293 21.5% 3,792 $16,557
87 2-Jul-08 Hancock Sony $63 $228 27.5% 3,965 $15,789
88 2-Nov-01 Monsters, Inc. BV $63 $256 24.5% 3,237 $19,332
89 25-Dec-09 Sherlock Holmes WB $62 $209 29.8% 3,626 $17,183
90 20-Jun-03 Hulk Uni. $62 $132 47.0% 3,660 $16,975
91 18-Dec-02 The Lord of the Rings: The Two Towers NL $62 $340 18.2% 3,622 $17,120
92 3-Jul-12 The Amazing Spider-Man Sony $62 $262 23.7% 4,318 $14,360
93 2-Apr-10 Clash of the Titans (2010) WB $61 $163 37.5% 3,777 $16,213
94 8-Jun-12 Madagascar 3: Europe's Most Wanted P/DW $60 $216 27.9% 4,258 $14,166
95 6-Jun-08 Kung Fu Panda P/DW $60 $215 28.0% 4,114 $14,642
96 9-Jun-06 Cars BV $60 $244 24.6% 3,985 $15,086
97 2-Aug-02 Signs BV $60 $228 26.4% 3,264 $18,418
98 27-Mar-09 Monsters Vs. Aliens P/DW $59 $198 29.9% 4,104 $14,454
99 25-May-01 Pearl Harbor BV $59 $199 29.8% 3,214 $18,382
100 15-Jun-07 Fantastic Four: Rise of the Silver Surfer Fox $58 $132 44.0% 3,959 $14,663
Total/Weighted Average $8,768 $28,083 31.2% 384,254 $22,818

Ticker CBS DIS DISCA FOXA SNI TWX VIAB

Discovery Twenty-First Scripps
Company CBS Corporation Walt Disney Time Warner Viacom
Comm. Century Fox Networks
Price as of: 2013/09/12

Class A Shares N/A $65.49 $78.04 $32.31 $74.07 $62.80 $82.81
Class B Shares $55.26 N/A $77.11 $32.34 N/A N/A $82.55
Class C Shares N/A N/A $71.85 N/A N/A N/A N/A
50 Day Average Volume 3,707,359 6,945,981 981,072 11,337,152 591,283 3,885,321 2,906,246
ENT. VALUE CALCULATION

Total Diluted Shares Outstanding 624,091 1,811,130 359,305 2,255,835 147,178 939,553 494,118
Diluted Equity Market Cap $34,487,247 $118,610,880 $27,193,638 $72,909,979 $10,901,511 $59,003,908 $40,802,775
Total Enterprise Value $41,105,247 $129,369,880 $30,030,638 $77,811,705 $11,878,310 $74,253,908 $48,742,775
KEY FINANCIAL METRICS

Net Revenues
2010A 14,059,800 39,040,000 3,783,000 - 2,067,162 26,888,000 13,245,000
2011A 13,637,000 40,956,000 4,235,000 24,641,500 * 2,127,184 28,974,000 15,038,000
2012A 14,089,000 42,840,000 4,521,000 25,635,500 * 2,307,182 28,729,000 13,249,000
2013E 15,200,265 45,726,851 5,568,505 29,209,059 2,533,242 29,459,748 13,809,012
2014E 15,655,887 48,366,070 6,294,572 31,112,024 2,732,155 30,684,077 14,487,970
2012-13 Growth 8% 7% 23% 14% 10% 3% 4%
2013-14 Growth 3% 6% 13% 7% 8% 4% 5%
EBITDA
2010A 2,378,600 8,855,000 1,517,000 - 873,836 6,338,000 3,504,000
2011A 3,115,000 9,716,000 1,819,000 5,198,500 * 987,156 6,786,000 3,948,000
2012A 3,469,000 10,589,000 1,976,000 5,993,500 * 1,040,873 7,018,000 3,913,000
2013E 3,824,193 11,801,888 2,351,874 6,382,611 1,101,919 7,542,372 4,247,876
2014E 4,178,422 13,182,448 2,748,380 7,314,558 1,230,268 8,147,917 4,583,779
2012-13 Growth 10% 11% 19% 6% 6% 7% 9%
2013-14 Growth 9% 12% 17% 15% 12% 8% 8%
EPS
2010A $1.12 $2.28 $1.74 - $2.39 $2.41 $2.86
2011A $2.04 $2.64 $2.31 $1.03 * $2.79 $2.86 $3.81
2012A $2.52 $3.06 $2.51 $1.34 * $3.28 $3.24 $4.06
2013E $3.08 $3.51 $3.13 $1.36 $3.67 $3.73 $4.77
2014E $3.52 $4.07 $4.08 $1.72 $4.17 $4.31 $5.71
2012-13 Growth 22% 15% 25% 2% 12% 15% 17%
2013-14 Growth 14% 16% 31% 26% 14% 15% 20%
2012-14 CAGR 18% 15% 28% 13% 13% 15% 19%
FCF/Share
2010A $1.36 $1.69 $1.97 - $2.68 $2.63 $3.28
2011A $1.85 $2.16 $3.08 - $2.80 $3.07 $3.94
2012A $2.62 $2.43 $2.82 - $3.33 $3.43 $4.37
2013E $3.09 $3.40 $3.81 - $3.80 $4.43 $4.97
2014E $3.50 $3.78 $5.02 - $4.30 $4.66 $5.80
2012-13 Growth 18% 40% 35% - 14% 29% 14%
2013-14 Growth 13% 11% 32% - 13% 5% 17%
TRADING/VALUATION MULTIPLES Average
EV/2010A EBITDA 17.3x 14.6x 19.8x N/A 13.6x 11.7x 13.9x 15.2x
EV/2011A EBITDA 13.2x 13.3x 16.5x 15.0x 12.0x 10.9x 12.3x 13.3x
EV/2012A EBITDA 11.8x 12.2x 15.2x 13.0x 11.4x 10.6x 12.5x 12.4x
EV/2013E EBITDA 10.7x 11.0x 12.8x 12.2x 10.8x 9.8x 11.5x 11.3x
EV/2014E EBITDA 9.8x 9.8x 10.9x 10.6x 9.7x 9.1x 10.6x 10.1x
2012-13 EV/EBITDA To Growth 1.05 0.96 0.67 1.88 1.84 1.32 1.34
2013-14 EV/EBITDA To Growth 1.06 0.84 0.65 0.73 0.83 1.14 1.34
Price/2010A Earnings 49.5x 28.7x 45.0x N/A 30.9x 26.1x 28.9x 34.8x
Price/2011A Earnings 27.1x 24.8x 33.7x 31.3x 26.5x 22.0x 21.7x 26.7x
Price/2012A Earnings 21.9x 21.4x 31.1x 24.1x 22.6x 19.4x 20.3x 23.0x
Price/2013E Earnings 17.9x 18.6x 24.9x 23.7x 20.2x 16.8x 17.3x 19.9x
Price/2014E Earnings 15.7x 16.1x 19.1x 18.8x 17.8x 14.6x 14.5x 16.6x
2012-13 P/E To Growth 0.81 1.27 1.01 - 1.71 1.10 0.99
2013-14 P/E To Growth 1.11 1.02 0.63 0.72 1.29 0.94 0.73
Price/2010A FCF 40.8x 38.8x 39.7x - 27.6x 23.9x 25.2x 32.7x
Price/2013E FCF 17.9x 19.3x 20.5x - 19.5x 14.2x 16.6x 18.0x
Price/2014E FCF 15.8x 17.3x 15.6x - 17.2x 13.5x 14.2x 15.6x
2012-13 FCF/Share To Growth 1.00 0.48 0.59 - 1.41 0.49 1.21
2013-14 FCF/Share To Growth 1.19 1.54 0.49 - 1.31 2.51 0.85
*FOXA calandar historicals are a blend of fiscal years where noted because quarterly breakdown has not been provided
Figures in thousands, except per share data. All multiples based on calendar year estimates/consensus
FCF excludes changes in working capital and related items due to the high level of volatility in some large-cap media companies

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Media Deep Dive: The Current State of The Film Studio Business

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Media Deep Dive: The Current State of The Film Studio Business

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RBC Capital Markets, LLC

September 13, 2013

Media Deep Dive: The Current State

Studios with TV operations tend to have more consistent (and higher)

Front-loading of box office has intensified as films often make it or break

First-run output is key to library monetization – Being able to bundle

With Home Entertainment Contribution Now Trending Flat To Up,

September 13, 2013 2

September 13, 2013 3

September 13, 2013 4

September 13, 2013 5

Exhibit 1: Major film distributors

Parent Company 6 Majors Major Banners

Time Warner Inc. (TWX) Warner Bros. New Line Cinema

The six major studios account

September 13, 2013 6

I. Production capabilities only: No financing or distribution exists at the studio, so it must

The “independent” landscape is dominated increasingly by studios that have access to

September 13, 2013 7

Exhibit 2: Summary of recent film pacts

Major Studio Partner Studios Major Studio Partner Studios

Avi Arad Prods. Mosaic Bad Hat Harry Prods. PC Film

Bad Robot Indian Paintbrush Boxing Cat Films Mandeville Films

Alcon4 Life’s Too Short Aggregate Laguna Ridge

Windows are the life cycle of a film

September 13, 2013 8

Exhibit 3: Sample of film monetization flow chart

Home Pay TV Free TV Pay TV2/Free

Source: Walt Disney Company Reports, RBC Capital Markets

Exhibit 4: Seasonality of film releases and revenues ($MM)

Source: Boxofficemojo.com, RBC Capital Markets

September 13, 2013 9

Types of movies people watch

Exhibit 5: Top grossing movie production methods 1995-2012 ($MM)

September 13, 2013 10

Exhibit 6: Film ratings

General Parental Parents Restricted. No one age

Source: MPAA, RBC Capital Markets

Exhibit 7: Number of films released per MPAA rating (2012)

However, PG-13-rated movies grossed almost twice as much as R-rated movies. At an

September 13, 2013 11

Exhibit 8: Top grossing movie rating (2012)

$6,000 5,625 $50

Avg gross per movie ($ mm)

Source: RBC Capital Markets, boxofficemojo.com

September 13, 2013 12

The importance of tentpoles

Gone with the Wind

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800

Millions of Box Office Gross $s

Source: Boxofficemojo.com , RBC Capital Markets

September 13, 2013 13

Exhibit 10: All-time highest worldwide gross (unadjusted for inflation)

Millions of Box Office Gross $s

Source: Boxofficemojo.com , RBC Capital Markets

September 13, 2013 14

Source: Company reports, Boxofficemojo.com, the-numbers.com, RBC Capital Markets Research

September 13, 2013 15

September 13, 2013

Source:the-numbers.com, imdb, HSX.com, RBC Capital Markets Estimates

Worldwide Box/Production Budget

We assume a film breaks

Box office trends in 2013