Industry Surveys: Movies & Entertainment

Industry Surveys
Movies & Entertainment

Tuna N. Amobi, CFA, CPA, Media & Entertainment Analyst
September 15, 2011
Current Environment ............................................................................................ 1 Industry Profile ...................................................................................................... 7 Industry Trends ..................................................................................................... 9 How the Industry Operates ............................................................................... 18 Key Industry Ratios and Statistics................................................................... 24 How to Analyze an Entertainment Company ................................................. 26 Glossary................................................................................................................ 31 Industry References........................................................................................... 33 Comparative Company Analysis ......................................................... Appendix
This issue updates the one dated March 17, 2011. The next update of this Survey is scheduled for March 2012.
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CURRENT ENVIRONMENT
A new wave of M&A hits the recorded music industry
In recent months, we have witnessed several significant developments that have triggered a new wave of merger and acquisition (M&A) activity among the major recorded music companies. One transaction has been completed, and one is still in the works. Looking ahead, Standard & Poors anticipates some key ownership changes that could set the stage for further consolidation in the music industry, hitherto dominated by four major companies that together represent nearly 90% of worldwide music sales. These companies are Universal Music Group (owned by France-based Vivendi SA); Sony Music Entertainment (owned by Japan-based Sony Corp.); EMI Group PLC (based in the UK); and Warner Music Group Corp. (based in the US). In July 2011, after an auction that lasted several months, Warner Music, the worlds fourth largest music company (by market share), was acquired by privately held Access Industries Inc. for $8.25 a share in cash, which represented a 34% premium over the companys average trading price for the six months preceding the initial announcement of the deal in early May. Including the companys entire music recording and publishing operations, the overall transaction was valued at $3.3 billion (including about $2 billion of assumed debt). Meanwhile, as of late August, EMI Group, the worlds third largest music company, was in the advanced stages of an auction arranged by Citigroup Inc., which had seized ownership and control of EMI in January from private investment firm Terra Firma for debt covenant violations. Interestingly, Warner Music is seen as a potential suitor for EMI and, if successful, the combination of Warner and EMI would create a new behemoth that would overtake Universal Music as the worlds largest music company. The latest frenzy of industry consolidation comes after a lull in major M&A activity over the past several years, as the industry confronted significant challenges on several fronts. Several transactions in the past have involved Bertelsmann AG, an international media company based in Germany. In 2006, it sold its music publishing arm to Universal Music for about $2.1 billion; and in 2008, it divested its stake in Sony BMG (a recorded music joint venture formed in 2004) to its partner Sony Corp. for about $900 million. Subsequently, Bertelsmann launched BMG Rights Management, which in 2009 became part of a new music-publishing joint venture with private equity firm KKR & Co. BMG Rights has also been named as a potential suitor in the EMI auction. Cloud-based music services hitting the mainstream A new generation of cloud-based (or so-called locker) music services has emerged to foster a seamless personalization of content across multiple platforms. Through Internet or mobile network connections, consumers may access files or applications from remote servers and download to various devices such as laptops/PCs, smartphones, tablets, and other gadgets. This space has increasingly attracted key potential players, including major technology companies such as Amazon.com Inc., Google Inc., and Apple Inc. All three companies recently unveiled cloud-based music offerings, which are free or available for monthly price points ranging from $20 to $24.99 (depending on storage capacity entitlements and other features). Launched in March 2011, Amazons Cloud Drive service offers a cloud-based streaming solution that is integrated with its digital music store (AmazonMP3). Among its features are the ability to re-download any content uploaded by users to the Cloud Drive, and the ability to stream all of the music stored online to any appropriately equipped Android devices. In May, the Google Music (beta) service made its highly anticipated debut. A cloud-based service that also offers social networking features and pay-for-download capabilities, Google Music is accessible through web-based music players or Android-enabled mobile devices.
INDUSTRY SURVEYS MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011 1

Most recently, in June 2011, Apple unveiled its iCloud service that allows users to store data (e.g., music files, photos, calendar, and applications) for an automatic download (including music purchases from iTunes) to multiple devices such as iPhones, iPods, iPads, and PCs running Mac OS X or Microsoft Windows. Importantly, iCloud offers a scan and match feature (in agreement with the major recorded music companies) that allows users to match their entire song collection for easy downloading from nearly 18 million songs in the iTunes database. This feature serves as a key distinction from the offerings of both Amazon and Google, where users must upload their music to the cloud. Competition in the cloud-based music space could further intensify after the highly anticipated US launch in July 2011 of Spotify, a fast-growing all-you-can-eat streaming service, which has about 10 million registered users and 1.6 million paid subscribers in Europe. In collaboration with the major labels, Spotifys three-tiered offering includes a free ad-supported service, a $4.99/month ad-free version, and a $9.99 premium plan that includes mobile streaming. Separately, in June 2011, Pandora Media Inc., an Internet radio company with more than 90 million registered users in the US that offers personalized streaming features, had an initial public offering (IPO). Other cloud-based music offerings include RealNetWorks Inc.s Rhapsody, Sonys Qriocity, and CBS Corp.s Last.fm. Latest album sales show some improvement After some steep declines over the past several years, music sales have shown some encouraging trends thus far in 2011. According to the latest data from market research firm Nielsen SoundScan, total album sales across all formatsboth physical and digital (minus track-equivalent albums)gained about 1% during the first half of 2011, to 155.5 million units (on a 7.2% gain in catalogs, versus a 3.9% drop in current albums), marking the first gain for the music industry since TOP-SELLING ALBUMS OF 2010* 2004. Leading the sales charts in 2011 were Adeles 21, NUMBER Lady Gagas Born This Way, Mumford & Sons Sing No SOLD More, Jason Adleans My Kinda Party, Bruno Mars DooARTIST ALBUM (THOUS.) Wops & Hooligans.
Recovery Eminem Lady Antebellum Need You Now Speak Now Taylor Swift Table B07: My World 2.0 TOPJustin Bieber SELLING The Gift Susan Boyle ALBUMS The Fame Lady Gaga Soldier Of Love Sade Thank Me Later Drake Raymond V Raymond Usher Animal Ke$ha *Includes digital sales. Source: Billboard. 3,415 3,089 2,960 2,319 1,852 1,591 1,300 1,269 1,183 1,143
Even so, for the music industry, a continued erosion of CD sales triggered by secular headwinds (amid a transition from physical formats) had led to double-digit sales declines over the past several years. In 2010, album sales fell 13%, to 326.2 million units, after plunging 13%, 14%, and 15% in 2009, 2008, and 2007, respectively. Last years top sellers were Eminems Recovery, Lady Antebellums Need You Now, and Taylor Swifts Speak Now.
Even worse, physical album sales (mainly CDs) fell 20% in 2010, to 314.9 million units, after dropping 16%, 21%, and 19% in the preceding three years. Amid shifts in music consumption, the past several years also saw significant shrinkage of retail shelf space for CDs sold through mass merchants and big-box outlets such as Wal-Mart Stores Inc., Best Buy Co. Inc., and Target Corp. We have also seen the bankruptcies of other major chains selling CDs, such as Circuit City, as well as other independent specialty outlets. Digital music sales still holding up In recent years, digital music sales, mainly comprising online and mobile downloads, have provided a bright spot for the music industry, helping to partly offset continued declines in CD sales During the first half of 2011, US sales of digital tracks rebounded nearly 11%, to 660.8 million units, according to SoundScan. The top digital songs in the first half were Katy Perrys E.T., Adeles Rolling in the Deep, Cee Lo Greens F**k You (Forget You), Lady Gagas Born This Way, and Rihannas S&M. The 2011 first-half improvement in sales of digital tracks comes after a deceleration to a relatively modest 1% growth for full-year 2010, to about 1.17 billion units. By comparison, digital track sales advanced 8%, 27%, and 45% in 2009, 2008, and 2007, respectively, while digital album sales rose 16%, 32%, and 53%.
MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011
INDUSTRY SURVEYS

Meanwhile, digital album sales (which account for about one out of every three album purchases) jumped about 19% to 50.3 million in the 2011 first half, on the heels of a 13% gain in 2010 to 86.3 million. In 2010, the top-selling artists in the digital category were Eminem, Ke$ha, Lady Gaga, Katy Perry, and Black Eyed Peas. Digital sales make up about 40% of the overall music market, according to The NPD Group, a market research firm. Apples iTunes store remains the dominant player in the digital music market, with a 66% market share at the end of 2010; and Amazon.com Inc.s MP3 store places a distant second, with a 13% share. Indeed, after overtaking Wal-Mart Stores in February 2008 to become the largest US music retailer, Apples iTunes, by inference, currently accounts for more than a quarter of all music purchases across all channels.
2011 CONCERTS SEASON ON PACE AS LIVE ENTERTAINMENT RECOVERS

The live entertainment industry appears to be on a rebound thus far in 2011, thanks to a continued improvement in macroeconomic conditions, and relatively healthy touring schedules through a summer concert season that has featured successful tours by several major artists. After some significant challenges in 2010, this trend should bode well for the two market leaders, Live Nation Entertainment Inc. and AEG Live. During the first half of 2011, total gross receipts for the Top 100 North American Tours increased 16.2%, to $1.12 billion, according to Pollstar, a trade publication. For the same period, overall ticket sales grew 5.3% to 16.7 million, while average gross per show rose 7.3% to $453,254. The highest grossing North American tours included U2, Lady Gaga, Bon Jovi, Kenny Chesney, Luis Miguel, Taylor Swift, Elton John, Lil Wayne, Cline Dion, and Rod Steward/Stevie Nicks. An improving outlook for live entertainment comes after double-digit declines in total grosses and ticket sales in 2010representing one of the worst ever years for the industry. Last years performance was marred by a confluence of disparate factors such as a weak economy, ill-informed ticket pricing and consumer dissatisfaction, in addition to several tour cancellations, postponements, or downsizing by major acts, including U2, Christina Aguilera, Jonas Brothers, American Idol Live!, The Eagles, Rihanna, and Limp Bizkit. In January 2010, Live Nation Inc., the worlds leading concert promoter, and Ticketmaster Entertainment Inc., a leading ticketing and artist management company, executed a vertically integrated combination to create a new company under the name Live Nation Entertainment Inc., an industry behemoth with diverse interests across several key areas of the live entertainment value chain. The combined company aims for optimal ticket sales to drive ancillary revenue streams, such as e-commerce, sponsorship, and online advertising.
SUMMER TENT POLES SIZZLE OVER LACKLUSTER 2011 BOX OFFICE

We have a tempered outlook for the 2011 box office, amid further declines in movie attendance (in terms of number of tickets sold), which is only partly offset by modestly higher average ticket prices, thanks in part to premium pricing on 3D releases (discussed in further detail below). Year to date through mid-August, domestic box office attendance had slipped 5.2%, according to data from Hollywood.com, a trade blog; with average ticket prices up only a modest 1.0%, gross receipts were trending down 4.2%, year to year. Nonetheless, after last summers fourth consecutive summer box office seasonal recordup 2.4% to $4.35 billionthis summer also seems to be holding up relatively well, thanks to several blockbuster releases, including a comparable number of seven franchise sequels. Through late August 2011, summer attendance was up 1.6%, to 520 million, driving a 3.8% increase in gross receipts, to $4.19 billion, and seemingly on track for another record season. Indeed, nine of the top 10 grossing films thus far in 2011 were summer blockbusters: Transformers: Dark of the Moon, Harry Potter and the Deathly Hallows: Part 2, The Hangover Part II, Pirates of the Caribbean: On Stranger Tides, Thor, Cars 2, Bridesmaids, Kung Fu Panda 2, and X-Men: First Class.

DOMESTIC THEATRICAL MOVIE INDUSTRY PROFILE
--- BOX OFFICE --MIL. $ % CHG. -- ADMISSIONS -IN MIL. % CHG. AVERAGE TICKET --------- PRICE --------NO. OF DOLLARS % CHG. SCREENS*
YEAR
Early waning signs for 3D attendance The novelty of 3D movies was significantly propelled by the all-time box office performance of Avatar, a Twentieth Century Fox late 2009 release that garnered more than 70% of its gross receipts from 3D screens. Last year also saw a number of subsequent 3D filmssuch as Toy Story 3, Alice in Wonderland, Shrek Forever After, and How to Train Your Dragonfor which 3D screens similarly accounted for the bulk (two-thirds or DOMESTIC THEATRICAL MOVIE HITS 2010 more) of each films overall box office (Ranked by US box office, in millions of dollars) receipts.
MOVIE DISTRIBUTOR BOX OFFICE (MIL.$) US WORLDWIDE
2010 10,570 (0.3) 1,340 (5.7) 7.89 Table B03: DOMESTIC 5.9 2009 10,600 10.1 1,421 7.46 THEATRICAL MOVIE (4.7) 2008 9,630 (0.5) 1,341 7.18 INDUSTRY PROFILE (0.9) 2007 9,680 4.1 1,407 6.88 2006 9,300 3.8 1,420 1.6 6.55 2005 8,960 (5.2) 1,398 (8.1) 6.41 2004 9,450 1.6 1,522 (1.3) 6.21 2003 9,300 (0.2) 1,542 (4.0) 6.03 2002 9,320 11.4 1,607 8.5 5.80 2001 8,370 8.0 1,481 3.2 5.65 2000 7,750 3.3 1,435 (2.8) 5.40 Note: Percentage changes based on unrounded data. Source: Hollywood.com; *National Association of Theatre Owners.
5.8 3.9 4.4 5.0 2.2 3.2 3.0 4.0 2.7 4.6 6.3
39,233 38,834 38,794 38,415 37,688 36,435 35,650 35,688 35,506 36,379 37,131
In 2010, domestic box office receipts were about $10.57 billionlittle changed from the all-time record of $10.60 billion set in 2009as lower attendance was mostly offset by a 5.8% increase in the average ticket price, to $7.89. From 2000 to 2010, average ticket prices rose at a compound annual rate of 3.8%.
Paramount/ 345.2 1,049.0 DreamWorks Warner 253.7 580.1 The Hangover Part II* B01: DOMESTIC Bros. Pirates of the Caribbean: On Stranger Buena Vista 239.0 1,037.5 THEATRICAL Tides MOVIE HITS Fast Five* Universal 209.8 604.4 Gulliver's Travels Fox 190.6 41.9 Cars 2* Buena Vista 185.2 443.6 Thor* Paramount 180.9 448.0 Bridesmaids* Universal 166.7 256.5 Kung Fu Panda 2* Paramount/ 162.9 613.9 DreamWorks Step Up 3-D Buena Vista 159.2 42.4 Captain America: The First Avenger* Paramount 146.9 253.4 X-Men: First Class* Fox 145.4 349.2 Rio* Fox 143.4 479.4 Super 8* Paramount 125.4 201.9 Rango Paramount 123.3 242.6 Green Lantern* Warner Bros. 114.6 160.3 Cats & Dogs: The Revenge of Kitty Warner Bros. 112.5 43.6 Galore Hop Universal 108.1 183.3 Horrible Bosses* New Line 106.5 131.4 Just Go With It Sony 103.0 214.9 Gnomeo and Juliet Buena Vista 100.0 190.0 The Green Hornet Sony 98.8 227.8 Bad Teacher* Sony 97.6 186.4 Green Zone Universal 94.9 35.1 *Love and Other Drugs Fox 93.6 32.4 Nanny McPhee Returns Universal 93.2 29.0 NOTE: Movies released in 2011; all receipts were not necessarily collected in the year that a movie was released. *Still in theaters as of August 2011. Source: boxofficemojo.com.
Harry Potter and the Deathly Hallows Part 2* Transformers: Dark of the Moon*
Warner Bros.
346.9
1,148.4
However, the attendance at a number of other 3D films released in the past year (including the 2011 first half) have raised some concerns about a potential slowdown of 3D attendance in domestic theaters. Recent indications suggest that a sizable audience of moviegoers continue to opt for 2D showings (which still far outnumber 3D screens). For example, this summers Transformers: Dark of the Moon and Harry Potter and the Deathly Hallows: Part 2 both saw exceptionally strong 3D screenings. However, there were several other franchise titlessuch as Kung Fu Panda 2, Cars 2 and Green Lantern and Pirates of the Caribbean: On Stranger Tidesfor which 3D screens accounted for less than half of their total domestic gross receipts. Despite early signs of waning performance on the domestic box office, 3D performance has remained generally robust internationally, with several developed and emerging markets sustaining a frenzy of screen deployments. As discussed in more
INDUSTRY SURVEYS

detail in the Industry Trends section of this Survey, worldwide screen deployment amid an increase in 3D releases remains crucial for our box office outlook over the longer term.
HOME VIDEO PROGNOSIS: ERODING DVD SALES VS. BLU-RAY GROWTH

Since reaching a peak in 2004, the continued decline in aggregate US home entertainment spending appears to have accelerated in 2011. While this decline may be partly attributable to difficult release comparisons for the early part of 2011, we think the underlying trend partly reflects a secular erosion of DVD sales amid increased consumption across a proliferating number of US CONSUMER HOME ENTERTAINMENT newer rental platforms and digital outlets.
RENTAL & SELL-THROUGH SPENDING (In billions of dollars)
VHS/ UMD BLU-RAY DISC/ DVD HI-DEF Table B13: US
YEAR
DIGITAL
TOTAL
In 2010, US consumer spending on home entertainment was off 3.3%, to about $18.8 billion, mainly due to a DVD sales decline of 11.3%, which resulted in a 5.8% drop in packaged media spending. Meanwhile, spending on Blu-ray discs jumped nearly 53% to $2.3 billion, including a 34% gain in such sales through brick-and-mortar outlets. More than 170 million Blu-ray discs were shipped to market in 2010, nearly double the number of shipments since 2007, when the format was launched. Among last years top sellers were Avatar, Toy Story 3, The Twilight Saga: New Moon, The Blind Side, How to Train Your Dragon, Despicable Me, Iron Man 2, The Princess and the Frog, The Hangover, and Alice in Wonderland. Looking ahead to the next few years, we expect packaged media to face more pressure, but, nonetheless, the decline should be increasingly mitigated by continued strong growth in Blu-ray. By the end of the first half of 2011, the US installed base of Blu-ray disc playback devices (including set-top box and games consoles) had exceeded 31.6 million units (up from 28.5 million in 2010), according to DEG, which also estimated the installed base of HDTV sets at 66.8 million US homes (versus 56 million in 2010). Newer outlets mitigate the demise of brick-and-mortar stores As sell-through spending has declined in recent years, more consumers are shifting to relatively lower-priced rental services such as Netflix Inc. and Coinstar Inc.s Redbox. In addition, personalization and timeshifting have also spurred the advent of video-on-demand (VOD) services, as well as electronic sell-through (EST) outlets such as Apples iTunes and Amazon.com. Total US consumer spending on home entertainment rentals (excluding VOD) in the 2011 first half grew 12.9%, to about $3.3 billion, as continued strong growth in subscription-based mail-order and streaming service providers (Netflix and others) and $1-per-night kiosks (such as Redbox) outweighed a 28% plunge in brick-and-mortar outlets. By the end of the 2011 first half, Netflix and Redbox had grown to nearly 25 million subscribers and 32,000 kiosks, respectively. (See the Industry Trends section of this Survey for further discussion on the growing impact of Netflix and other over-the-top video services.) In 2010, however, home entertainment rentals declined 2%, to about $6 billion, on the heels of separate bankruptcy filings by Blockbuster Inc. (whose 1,700-store chain was subsequently acquired in April 2011 by DISH Network Corp.), and Movie Gallery Inc. (which resulted in a closure of more than 800 stores).
2010 0.0 14.0 2.3 CONSUMER 2009 0.0 15.8 HOME 1.5 2008 0.1 18.4 0.9 ENTERTAINME 2007 0.1 19.7RENTAL & 0.3 NT 2006 0.4 20.2 0.0 SELL-THROUGH 2005 2.1 18.9 0.0 SPENDING 2004 4.4 16.7 0.0 2003 6.9 13.1 0.0 2002 9.6 8.6 0.0 2001 10.9 5.3 0.0 2000 11.4 2.4 0.0 Source: The Digital Entertainment Group.
2.5 2.1 1.6 1.3 1.0 0.8 0.7 0.7 0.7 0.7 0.7
18.8 19.4 21.0 21.4 21.6 21.7 21.8 20.7 19.0 16.9 14.5
In the first half of 2011, US home entertainment spendingcombined sell-through and rentals across all formatsincluding DVDs, Blu-ray, and digitalfell 5.1%, year-to-year, to about $8.3 billion, according to the latest data from DEG: the Digital Entertainment Group, an industry trade organization. On that score, sales of packaged media plunged 18.3%, to $3.9 billion, on continued erosion of DVD sales, only partly offset by relatively strong growth in Blu-ray (high-definition) discs. The top sellers included Tangled, Harry Potter and the Deathly Hallows: Part I, Megamind, Despicable Me, Red, The Kings Speech, Secretariat, Due Date, Beverly Hills Chihuahua 2, and Toy Story 3.

Looking ahead, we expect disappearing brick-and-mortar stores to exert further pressure on home video rentals, against continued gains by Netflix and Redbox. In addition, digital transactions, despite recent signs of a potential slowdown, have provided another bright spot for the home video market. In the 2011 first half, consumer spending on home entertainment through digital outlets grew 4.3%, to $1.2 billion, according to DEG, on 4.4% and 4.0% growth in VOD and EST outlets, respectively. This continued strong performance comes on top of a 19% growth of digital sales in 2010, to $2.5 billion, with VOD and EST up 21% and 16%, respectively, to $1.8 billion and $683 million.
OUR OVERALL MOVIES & ENTERTAINMENT INDUSTRY OUTLOOK

Our neutral outlook on the movies and entertainment sub-industry reflects a backdrop of continued weakness in US macroeconomic data (including consumer confidence and unemployment) that could further rein in consumer discretionary spending in the near term, versus stronger growth from international emerging markets. We see continued evolution of newer distribution windows and platforms creating both opportunistic and disruptive scenarios for entertainment content providers. Meanwhile, ongoing shifts in media consumption are significantly reshaping the industry landscape, amid a convergence of content, technology, and services. In addition, increased broadband connectivity and a shift toward time-shifted and personalization are spurring a new generation of multi-media applications, which increasingly allow consumers to access MOVIES & ENTERTAINMENT STOCK INDEX PERFORMANCE content when, where, and how they want 1 ,900 1 90 it. While cloud-based locker services are 1 ,700 1 70 rapidly evolving, and major technology Chart H01: M&E 1 ,500 1 50 companies join the battle to control the Stock Price Index 1 ,300 1 30 living room (e.g., Apple TV and Google 1 00 ,1 10 1 TV), a continued proliferation of 900 90 smartphones and tablets (like the iPad) 700 70 could further energize an apps explosion that could become the latest battlefront for 500 50 2004 2005 2006 2007 2008 2009 201 0 201 1 content providers.
Movies & Entertainment Index (Dec. 30, 1 994 = 1 left scale) 00;
With traditional formats (such as DVDs) and distribution channels (like pay TV) Source: Standard & Poor's. now in decline or reaching saturation, content providers are spurring dynamic shifts to newer formats (e.g., Blu-ray and 3D), innovative windows (such as premium VOD and EST), online platforms (like TV Everywhere), or mobile devices (including smartphones and tablets). While online video sites (such as Netflix, Hulu, and YouTube) and social networking platforms (like Facebook and Twitter) take root, brick-and-mortar stores (such as Blockbuster and Movie Gallery) have closed.
S&P 500 Composite (1 -43=1 right scale) 941 0;
While cautious on the box office outlook, we see further upside for 3D movies, despite a potential decline in consumer appeal, but 3D in-the-home could be much slower to take off. As secular headwinds buffet DVD sales, strong growth in Blu-ray discs, digital consumption, and newer rental windows (e.g., Netflix and Redbox) provide some bright spots. With album sales also eking out a modest gain (despite a secular CD slump) and concert attendance looking up thus far in 2011, the music and live entertainment sectors have thus far in 2011 enjoyed an apparent reversal of fortunes. Beyond continued exploitation of feature films and television, we expect 2011 second-half results for the group to reflect further benefits of a healthy advertising rebound and relatively steady worldwide affiliate revenues, plus increased monetization of digital distribution (e.g., Netflix streaming) and enhanced merchandise licensing opportunities. Improved capital market conditions and healthier valuations could also spur further M&A activity from strategic and financial buyers, following the recent private buyout of Warner Music Group, and such potentially transformative deals as Comcast/NBCU, Disney/Marvel, and Live Nation/Ticketmaster. Other strategic tuck-in deals in the social media and casual gaming arenas could follow the mold of last years acquisition of Playdom by Disney and Social Express by Viacom.
6 MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011 INDUSTRY SURVEYS
INDUSTRY PROFILE
Branded premium content shapes the long tail
Since the early 1990s, the US movie and entertainment business has experienced remarkable growth thanks to expanding audiences, pipelines, and content. These industries provide products and services for audiences around the world, including new films shown in theaters, video and music titles, and a wide range of television shows. Through various kinds of distribution arrangements, content owners receive their revenues from various sources, such as the sale or rental of their products to consumers, advertising sales, and subscription services.
DIVERSIFIED OPERATIONS & ASSETS OF MAJOR MEDIA AND ENTERTAINMENT COMPANIES
AREA NBC CBS CORP. DISNEY UNIVERSAL NEWS CORP. SONY TIME CORP. WARNER VIACOM
Basic cable network(s) Billboards/posters Book publishing Broadcast TV network(s) Table B04: Diverse Broadcast TV station(s) Entertainment operations Film production/library & assetsof Movie & TV Internet/broadband sites Magazines/newspapers companies Merchandising Premium cable network(s) Radio stations/networks Recorded music label(s) Theme parks/resorts TV production/library Note: Some relatively minor operations may be excluded. Includes significant equity interests in joint ventures or other companies. Source: Standard & Poor's Equity Research.
Meanwhile, the convergence of media platforms, combined with the expansion in media outlets and the continued creation of new ways to package and format content, are providing opportunities and challenges to all participants. For example, the explosion in social networking and user-content sites is not only accelerating content fragmentation, but also moving a large degree of control away from businesses and into the hands of consumers. Furthermore, the growth in digital formats has sharply boosted competitive conditions in the media and entertainment landscape.
THE FILM INDUSTRY

Movies remain a cornerstone of the US entertainment industry, with consumers paying billions of dollars annually to watch films in various formats. In 2010, more than 1.3 billion movie tickets were sold in North American theatersan average of about 4.0 million tickets per dayfor a box office total of about $10.6 billion. Meanwhile, consumers also spent approximately $18.8 billion on home video purchases and rentals across a variety of formats. For any given film, box office receipts and home video sales (both domestic and international) account for an overwhelming portion of revenues. However, other channels, such as TV licensing and pay-per-view, as well as emerging platforms such as video-on-demand (VOD) and Internet downloads, also contribute a meaningful (although significantly smaller) portion of a films total ultimate earnings over its life span.
INDUSTRY SURVEYS

The movie releases of six major film studiosall owned by conglomerateshave typically accounted for 80%85% of domestic box office revenues in any given year. These companies are Warner Bros. (Time Warner Inc.), Paramount Pictures (Viacom Inc.), 20th Century Fox (News Corp. Ltd.), Walt Disney Pictures (Walt Disney Co.), Sony Pictures (Sony Corp.), and Universal Pictures (Comcast Corp.). Among the independent studios are Metro-Goldwyn-Mayer (MGM); Lionsgate Entertainment Corp., DreamWorks Animation SKG Inc. (whose films are distributed by Viacoms Paramount), DreamWorks SKG (distributed by Disneys DOMESTIC BOX-OFFICE MARKET SHARES Touchstone Pictures); The (In percent) 2010 Weinstein Co., Summit BOX OFFICE Entertainment LLC, and CBS REVS. Corp.s CBS Films. Two DISTRIBUTOR 2005 2006 2007 2008 2009 2010 (MIL. $) formerly independent studios 20th Century Fox1 15.3 15.2 10.5 10.5 13.2 14.0 1,482 Pixar Animation Studios and Walt Disney Pictures2 10.4 16.2 14.0 10.5 11.6 13.8 1,456 Marvel Entertainment Corp. DreamWorks3 5.7 were acquired in 2006 and Focus Features 1.4 1.5 0.7 75 2009 by Disney, which in turn B02: DOMESTIC Fox / Searchlight 1.4 2.2 2.4 1.4 153 divested Miramax Films to BOX-OFFICE Lionsgate 3.2 3.6 3.8 4.5 3.8 4.9 516 certain independent parties in MARKET SHARES MGM/UA 2.1 1.8 3.8 1.7 2010. 4 Movie theaters Movie theaters retain about 50% of the dollars that consumers spend at the domestic box office, with the remainder going to the distributors as film rental fees. The three largest film Weinstein Company exhibitorsRegal Total, major distributors Entertainment Group, AMC Others Entertainment Inc., and TOTAL 1 Cinemark USA Inc.represent Largely owned by News Corp. 2Formerly Buena Vista. 3Acquired by Paramount in more than 40% of over 2006. 4Owned by Disney. 5Currently owned by NBC Universal, which is 80% owned 6 39,000 US theatrical indoor by General Electric Co. Currently owned by Time Warner Inc. movie screens. Including Source: Box Office Mojo. Carmike Cinemas Inc. and Cineplex Entertainment LP, the top-five theater LARGEST NORTH AMERICAN THEATER CHAINS chains represent about half of the total screen (Ranked by number of screens, as of June 2010) count.
CHAIN
Miramax New Line Overture Films Paramount Rogue Pictures Sony / Columbia Summit Entertainment Universal5 Warner Bros.6
2.1 4.8 9.4 10.4 11.4 15.6 90.4 9.6 100.0
2.7 10.3 18.6 8.9 11.6 2.5 91.4 8.6 100.0
1.3 5.0 15.5 0.8 12.9 11.4 14.7 95.1 4.9 100.0
1.1 16.4 13.2 2.4 11.0 18.4 93.3 6.7 100.0
1.5 13.9 13.7 4.6 8.2 19.9 1.9 96.2 3.8 100.0
0.8 16.2 12.1 5.0 8.3 18.2 0.8 96.2 3.8 100.0
82 1,715 1,283 523 882 1,924 81 10,171 396 10,567
6,777 5,336 Cinemark USA** 293 3,825 Carmike Cinemas 242 2,268 Cineplex Entertainment 130 1,347 Rave Motion Pictures 62 936 Marcus Theatres 54 668 Hollywood Theaters 49 546 34 450 National Amusements Harkins Theatres 30 429 Totals 1,820 22,582 *Includes Loews Cineplex. **Includes Century Theatres. Source: National Association of Theatre Owners.
Table North American548 Regal Entertainment Corp Theater Chains 378 AMC Entertainment*
AVERAGE NO. NO. OF NO. OF OF SCREENS B05: Largest SCREENS PER LOCATION LOCATIONS
TELEVISION
The Big Four English-language broadcast networks in the US are ABC (Walt Disney Co.), CBS (CBS Corp.), FOX (News Corp.), and NBC (Comcast). The CW Network debuted in fall 2006, after a merger of CBSs UPN and Time Warners WB networks. News Corp. launched another English-language broadcast network, MyNetwork TV, in September 2006. There are two major Spanish-language broadcast networks in the US: Univision (Univision Communications Inc.) and Telemundo (Comcast).
12.4 14.1 13.1 9.4 10.4 15.1 12.4 11.1 13.2 14.3 12.4
INDUSTRY SURVEYS

In addition, there are approximately five hundred cable and satellite TV networks across the entire spectrum. These include basic cable channels (e.g., ESPN, TNT, TBS, USA, MTV, Nickelodeon, Lifetime, Syfy, FX, Cartoon, Discovery, Fox News, CNN), an array of Spanish-language networks (e.g., Univisions Galavisin, Discovery en Espaol, Fox Sports en Espaol, MUN 2, ESPN Deportes and GOL TV), as well as premium subscription channels (e.g., HBO/Cinemax, Showtime, and Starz/Encore, and EPIX).
THE MUSIC BUSINESS

Total US album sales across all formatsboth physical and digital (minus track-equivalent albums)fell approximately 13% in 2010, to nearly 326 million units, according to Nielsen SoundScan, a market research firm. We believe that approximately two-thirds of the industrys revenue base is currently derived from the sales of CDs and other physical formats, with the remainder represented by digital revenues (downloads, mobile, etc.)
RECORDED MUSIC INDUSTRY SALES PROFILE
--- UNITS SHIPPED (MIL.) --2000* 2004** 2010 PHYSICAL SHIPMENTS (MILLION UNITS SHIPPED) ---------- VALUE (MIL. $) ---------2000* 2004** 2010
CD 942.5 767.0 CD Single 34.2 B08: RECORDED 3.1 Cassette 77.3 MUSIC INDUSTRY 5.2 LP/EP 2.2 1.4 SALES PROFILE Vinyl single 4.8 3.5 Music video 18.2 32.8 Total physical shipments 1,079.2 814.1 Singles Albums Kiosk Music video Total digital shipments Mobile downloads Subscription Digital performance royalties 0.0 0.0 0.0 0.0 0.0 0.0 0.0 139.4 4.6 0.0 0.0 144.0 0.0 0.0
225.8 1.2 0.0 4.0 0.3 9.1 240.5 1,162.4 83.1 1.7 18.1 1,265.3 220.5 1.5
13,214.5 142.7 630.6 27.7 26.3 281.9 14,323.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
11,446.5 15.0 23.7 19.3 19.9 607.2 12,154.7 138.0 45.5 0.0 0.0 183.5 0.0 0.0 6.9
3,361.3 3.3 0.0 87.0 2.2 178.8 3,635.2 1,366.8 828.8 6.4 36.1 2,238.1 526.7 200.9 249.2
DIGITAL DOWNLOADS (MILLION UNITS DOWNLOADED)
Four distributors dominate the worldwide recorded music industry: Universal Music Group (part of France-based Vivendi SA); Sony Music Entertainment (part of Japan-based Sony Corp.); EMI Group PLC (based in the UK); and Warner Music Group Corp. (based in the US). These four companies typically account for close to 90% market share of US music sales.
The live entertainment segment of the industry mainly generates its TOTAL MUSIC SHIPMENTS 1,079.2 958.1 1,727.8 14,323.7 12,345.1 6,850.1 revenues from ticket sales *Peak year for CD sales. **First year of digital sales. Note: Sales represent manufacturers' related to the promotion shipments, net of returns. Dollar values are based on suggested retail prices, which in many of music concerts and cases exceeded actual prices. Includes DVD audio and SACD. Includes singles and albums. other events. Concert Source: Recording Industry Association of America. promoters also derive a growing portion of revenues from ancillary sources such as online fan clubs, sponsorships, merchandising, and endorsements. The live entertainment market is highly consolidated, with the newly created Live Nation Entertainment Inc. by far the dominant player (as discussed in the Current Environment section of this Survey), while Anschutz Entertainment Groups AEG Live is the second largest.
INDUSTRY TRENDS
Over the past few years, the landscape of the movie and home entertainment industry has continued to evolve rapidly, as technological developments continue to affect the traditional means of content distribution, creating further shifts in the industrys economics. These trends have been spurred by continued changes in consumer behavior, amid a shift toward increased personalization of on-demand content. Facing declining sales on the saturation of physical formats such as CDs and DVDs, the music labels and film/TV studios are actively seeking to monetize their content by expanding into digital distribution. For example, these content providers are leveraging the growing popularity of various direct-to-consumer online

distribution channels and rapidly growing social networking sites, while also addressing the needs of consumers who wish to have access to such content while on the move. In the TV business, cable networks have significantly ratcheted up their investments in original programming in recent years, helping them to garner a greater share of viewers from the major broadcast networks that have faced steady audience erosion. The Internet and other emerging platforms also help to explain a secular increase in audience fragmentation across the TV landscape. Increasingly, consumers are making personal recordings at home directly onto their computers or wireless handheld devices. For content providers, changing consumer habits and a proliferation of online and mobile platforms have necessitated a new way of thinking on delivery mechanisms, as older technologies become increasingly obsolete. Standard & Poors expects consumer time-shifting and place-shifting to spur further convergence of content, technology, and services.
INTERNATIONAL MARKETS PROPEL GROWTH IN FILMED ENTERTAINMENT

Amid an increasingly saturated domestic box office, US film and television studios have increasingly looked for stronger growth opportunities in the international markets of Asia Pacific, Latin America, and Eastern Europe and, to a lesser extent, the Middle East and Africa. Among several emerging markets that have experienced superior growth in box office in recent years (relative to developed markets) are China, India, Russia, Brazil, South Africa, and the United Arab Emirates. The US entertainment industrys international presence is extensive. Despite increased competition from local productions, American movies and TV shows typically account for a substantial market share in several international territories, where consumer interest and access to US entertainment have been boosted by the construction of multiplex theaters (e.g., in Europe) and growth in the number of broadcast, cable, and satellite outlets.
WORLDWIDE BOX OFFICE (Billions of dollars) 35 30 25 20 1 5 1 0 5 0 2006 2007 US/Canada
Source: Motion Picture Association of America.
Chart H02: WORLDWIDE BOX OFFICE

16.3 16.6 18.1 18.8 21.2
9.2
9.6
9.6 2008
10.6 2009 International
10.6 201 0
Foreign demand is typically strong for the big-budget films that are a staple of the US movie industry. In the United States, films are marketed to a domestic population of more than 300 millionfar greater than the populations of many other developed countries. The large US market, plus the acceptance of English as an international language, gives US moviemakers a much bigger prospective revenue base than their foreign counterparts. In addition, movie videos from US companies enjoy a sizable overseas market.
Consequently, the proportion of international contributions to overall box office performance has steadily increased over the past decade. This is especially true of popular franchises with global appealsuch as Harry Potter, Star Wars, Spider Man, Shrek, Pirates of the Caribbean, Toy Story and Transformersfor which international contributions can far eclipse the films domestic box office performance. Also, with 3D deployment continuing apace, international markets accounted for about 61% of worldwide 3D screens that had been rolled out by the end of 2010 (discussed in more detail later in this section). Meanwhile, US suppliers of TV programs have also been tapping new international opportunities amid increased demand for licensing of their shows, especially as more channels become available throughout Europe and Asia Pacific, as well as Latin America, the Middle East, and Africa. Worldwide demand for programming should benefit from expanded services, including satellite TV.

With the US accounting for less than 15% of the worlds more than 800 million TV households, US program suppliers have significant growth opportunities overseas. For example, Disney expects three of its ABC prime-time showsDesperate Housewives, Greys Anatomy, and Lostto generate nearly $1 billion in operating income in the five years through its fiscal 2011. China remains relatively elusive Nonetheless, Standard & Poors notes that Chinathe worlds most populous country and one of the fastest-growing emerging marketscontinues to pose a myriad of challenges for US filmed entertainment companies, after relatively fruitless attempts in the past decade. Consider, for example, that Chinas box office has seen an explosive compound annual growth rate (CAGR) of over 35% in the past six years (to 10.2 billion yuan, or $1.2 billion, in 2010)a period during which the North American domestic box office saw a meager 2% CAGR, albeit to a record $10.6 billion in 2010. Yet, US film studios have continued to face substantial competitive hurdles in that market, even as they increasingly explore foreign language productions, sometimes in collaboration with local partners. Among such potential hurdles are censorship of content, protectionism, stringent media ownership caps and regulations for foreign-controlled entities, lack of legal and political transparency, cultural differences, bureaucracy, and concerns about piracy. In addition, under its quota system, China allows only 20 foreign film releases into its market each year, mostly outside of an imposed blackout period that coincides with popular movie-going seasons (e.g., the Chinese New Year). Meanwhile, studios are increasingly venturing into Chinese local language productions, such as Disneys The Secret of a Magic Gourd, a 1997 release in collaboration with China Film Co. Remarkably, three Hollywood releases in 2009Avatar, 2012, and Transformers: Revenge of the Fallencount among the all-time top performers at Chinas box office. Over the next few years, we expect to see US entertainment companies achieve some measure of gradual progress in the Chinese market.
SHIFTING PARADIGM FOR CONTENT DISTRIBUTION CHANNELS

With a continued saturation of traditional windows of film distributiontheatrical release, home video, and pay TVthe major content providers are aggressively exploring newer channels to exploit such content. As a result, we see a shifting paradigm for content distribution, aiming to counterbalance the desire for faster growth from emerging distribution platforms, against a potential cannibalization of traditional distribution platforms that still account for an overwhelming portion of the studios revenues and profits. Under the traditional release windows, studios would typically release films into the home video market after a 90- to 120-day theatrical run. Meanwhile, the gap between the theatrical and home video windows has shrunk systematically in the past few years, even for some high-profile films such as Disneys 2010 release of Alice in Wonderland. This trend has consequently encountered increased resistance from theater operators such as Regal Entertainment Corp., AMC Entertainment, and Cinemark Holdings Inc. In addition, the gap between the DVD and VOD release windows, which has traditionally ranged from 30 to 45 days, has also shrunk (or increasingly overlapped) in recent years. In 2010, for example, the number of titles released into both windows simultaneously (day-and-date) more than quadrupled from only 10 such releases in 2007. These trends have accelerated as studios increasingly grapple with a variety of windows for newer rental channels, such as Netflix and Redbox. Premium VOD reshuffles conventional windows In April 2011, DIRECTV became the first pay TV provider to launch a premium VOD offering exclusively to its entire subscriber base. Under the satellite TV providers new Home Premiere service, a select number of movie titles from four participating major Hollywood studios (Warner Bros., Twentieth Century Fox, Sony/Columbia Pictures and Universal Pictures) became available, 60 days after theatrical release, for rental over a 48-hour period, at $29.99 per title. As of June 2011, other providers such as Comcast, Time Warner Cable, and Wal-Marts Vudu were also testing a premium VOD offering in select markets.

While staunchly opposed by theater operators, we believe the introduction of premium VOD could portend the beginnings of a potentially revolutionary reshuffling of the traditional windows of movie distribution. Under the conventional release patterns, a film was available in the home video, and several weeks thereafter in the VOD channels, after a longer theatrical run that lasted up to 120 days. Conversely, the premium VOD window, under which any given title would be available for two weeks, in many instances should encroach upon a shortened 60-day theatrical window, and importantly, precede the commencement of the home video window. The premium VOD initiative came after the FCCs decision in May 2010 (on the so-called Selectable Output Control) granting permission to the Motion Picture Association of America (MPAA), a trade group, to disable viewers TV output for a 90-day period to provide VOD access for current film releases that were yet to debut in the home video window. Earlier in March 2010, a consortium of studios comprising Warner Bros., Twentieth Century Fox, Universal Pictures, Sony Pictures, Lionsgate Entertainment Corp., and Summit Entertainment launched joint VOD marketing efforts with a group of cable operators comprising Time Warner Cable Inc., Comcast Corp., Cox Communications Inc., and Bright House Networks. Emerging social media venues for content exploitation The continued rise of social media usage portends one of the latest and most compelling shifts in media consumption over the last several years, amid a growing popularity of social networking platformsa trend that Standard & Poors expects to continue in the years ahead. Currently, this fast-growing domain is benefiting from continued strong growth of Facebook, Zynga, and Twitter, which had more than 750 million active users, 230 million, and 200 million, respectively, by the first half of 2011. Consequently, as more users embrace emerging social media platforms, movies and entertainment content providers have sought to capitalize on this trend by distributing their content through partnerships with some of the major social networking sites, or by making select acquisitions. For example, in March 2011, Warner Bros. studio launched a pilot test to make certain titles (e.g., The Dark Knight) available for rental on Facebook for up to 48 hours. In July, this test also included Paramount Pictures, which placed the entire catalog of its Jackass films for rental on Facebook. Last year we saw a number of notable acquisitions by media and entertainment companies that we think increasingly underscore the growing impact of the social networking arena. In July 2010, The Walt Disney Co. Inc. acquired Playdom, an online social gaming platform, for about $763 million, as well as Tapulous, a developer of mobile games and apps (the price was not disclosed). Also in July, Viacom Inc. acquired Social Express Inc., a social games developer (for an undisclosed price).
APPS EXPLOSION FUELS NEW BATTLEFRONT FOR CONTENT PROVIDERS

The past few years have witnessed an exponential increase in multimedia applications (apps), driven by continuing shifts in media consumption, as consumers opt for increasingly personalized on-demand content, accessible on any device, in any place, at any time. This trend has spawned a plethora of applications, devices, and platforms aiming to enhance or otherwise enrich consumers overall experience. Amid the multiplication of consumer touch points, Standard & Poors believes the ongoing development of online and mobile applications could become another battlefront for movies and entertainment content providers. Thanks to platform vendors and operating system providers, including social media destinations such as Apple, Google, Amazon, Facebook, and Twitter, this ecosystem has supported a continued development of third-party applications. Broadband connectivity breeds smart applications Amid the ubiquity of broadband connectivity, a shift to personalization has highlighted a need for solutions that facilitate a seamless multi-platform integration. An explosive growth in online and mobile apps reflects a continued proliferation of smartphones, tablets, and other mobile devices. As of May 2011, nearly 234 million Americans (ages 13 and older) used mobile devices, according to comScore Inc., an audience measurement firm, and smartphone penetration had grown significantly, to 76.8 million users. By the end of

the 2011 first half, Apples iPad had sold nearly 25 million units since its April 2010 launch, fueling an intensifying war in the tablet space. Smart TVs have also seen tremendous growth in recent years. Industry trade group Consumer Electronics Association expects US sales of Internet-connected TVs to grow from about 3.2 million units in 2010 (about 9% of all sets sold) to 16.3 million in 2016 (about 52%). Meanwhile, a growing number of initiatives by some major companies aim to foster in-home connectivity, such as Google TV, Apple TV, and Yahoos Connected TV. Satellite TV providers such as DIRECTV Group Inc. and DISH Network Corp. have also begun to focus on broadband-enabled boxes to allow access of online content for their subscribers.
THEATERS ON TRACK WITH 3D SCREEN DEPLOYMENT

Increased consumer awareness (and popularity) of 3D movies over the past few years, thanks in part to Avatars record-breaking performance, has spurred a continued buildout of 3D screens by movie theaters.
DIGITAL SCREENS (In thousands) 40 35 30 25 20 1 5 1 0 5 0
Chart H04: DIGITAL SCREENS
Meanwhile, an accelerated pace of 3D deployment seems evident from a rapid growth in the number of 3D screens worldwide, which more than doubled to nearly 22,000 screens in 2010, based on data from IHS Screen Digest, a market research firm. In the domestic market, by the end of 2010, nearly 8,000 of the 39,500 US screens were 3D-capable (of which more than half were outfitted in 2010 alone).
In 2007, the Digital Cinema Implementation Partners (DCIP)a joint venture of the three 2006 2007 2008 2009 201 0 largest US exhibitors, Regal, AMC, and US/Canada International Cinemarkhad announced plans for a multiSource: Motion Picture Association of America. year buildout of 3D screens. These efforts continued into 2011, and by the first half, Regal, for example, had outfitted about 40% of its total screen count (more than 6,600) with 3D technology. 3D movie releases continue to ramp up The buildout of 3D screens has led to a steady increase in the number of domestic 3D releases in the past
US/CANADA 3D FILM RELEASES AND BOX OFFICE 30 25 20 1 5 1 0 5 0 2006 2007 2008 2009 201 0 3D FILM RELEASES 1 2 1 0 US/CANADA 3D BOX OFFICE (BILLIONS OF DOLLARS)
Chart H03:8 US/CANADA 3D FILM RELEASES 6 AND BOX OFFICE

4 2 0 2006 2007 3D Box office 2008 2009 201 0 2D Box office
Source: Motion Picture Association of America.
INDUSTRY SURVEYS
13

few years. From just seven films in 2007, the number of 3D releases more than tripled to 25 in 2010, according to data from Rentrak, an audience measurement firm. In addition, there were 13 films released in the IMAX 3D format. In 2010, 3D films accounted for approximately 20% of the domestic box office tally, thanks to premium ticket pricing of 25% to 30% above regular 2D tickets. The top movies in 3D were Toy Story 3, Alice in Wonderland, Despicable Me, Shrek Forever After, and How to Train Your Dragon. This year should see a further ramp-up of 3D releases, featuring a total of 35 3D films and 13 IMAX films, including Harry Potter and the Deathly Hallows: Part 2, Pirates of the Caribbean: On Stranger Tides, Cars 2, Kung Fu Panda 2, and Captain America: The First Avenger. 3D TV channels slower to take off While film studios are devoting more resources to 3D movies as theaters embark on a multi-year screen buildout to sustain increased demand, recent strides in 3D broadcast technology have thus far had relatively little impact on consumer adoption of in-the-home 3D television viewing. Among some cited hurdles for inthe-home 3D viewing are the dearth of 3D content, higher-priced sets (versus comparable HDTV sets), and the inconvenience (and potential cost) of requisite eyeglasses. Still, this year has thus far seen an official debut of a number of pioneering 3D television channels, including Disneys ESPN 3D sports channel, which plans to broadcast about 100 live sports events in the first year (after its historic 3D broadcasts during the 2010 World Cup). Other debuts include 3D net (for TV shows and movies), a joint venture of Sony Corp., Discovery Communications Inc., and IMAX Corp. Meanwhile, in 2010, DIRECTV unveiled three dedicated high-definition 3D channels (a linear 3D HD channel, a payper-view channel, and an on-demand movie channel).
OVD PLAYERS MAKING SOME MAJOR FORAYS

The competitive landscape for multi-channel video programming distributors (MVPD) is undergoing some major changes, as fiber-based video (and broadband) services from telcos go against traditional cable and satellite TV providers (for a more detailed discussion, see the Broadcasting, Cable & Satellite Survey). In more recent years, we have also seen the rise to prominence of online video distributors (OVD), the continued evolution of which we expect to have longer-term implications for content providers and distributors. The relatively nascent and rapidly growing OVD spaceessentially providing streaming video over broadband connections (also known as over-the-top services)has a number of major players. These include Netflix Inc. (further discussed below), Hulu, and Amazon.com Inc., as well as Wal-Mart Stores Inc.s Vudu. Hulu is a joint venture of three major broadcast networks (Disneys ABC, News Corp.s FOX, and Comcasts NBC) and one of the top US online video destinations. The site offers a large selection of television shows (including prime-time hits) and movies from about 260 individual content providers. Initially launched in 2008 as an ad-supported service, the site in 2010 added a subscription-based offering that also provides access for a selection of smartphones (including the iPhone) and Internet-connected devices (e.g., smart TVs and game consoles), Blu-ray players, and tablet devices such as Apples iPad. Separately, Amazon offers unlimited streaming of a growing selection of movies/TV titles to members of its Prime loyalty program, accessible through web browsers on computers, smartphones, and tablets, as well as certain Blu-ray players and some set-top boxes. Vudu also offers a large selection of movies for streaming through such devices as Blu-ray players, HDTV, computers, tablets, and PlayStation 3. Netflix reshaping industry economics The market leader in the OVD space, Netflix Inc. has increasingly emerged as a major catalyst for further changes in the movie and entertainment landscape through distribution pacts with all of the major film studios and several television networks. Initially launched as a DVD-by-mail service, Netflix is a rapidly growing OVD with nearly 25 million subscribers (as of June 2011) that are supposedly responsible for more than 30% of US peak Internet traffic. It offers well over 20,000 movies and TV shows for streaming on more than 100 devices (e.g., Internet-enabled TV sets and Blu-ray disc players).

Netflix has firmly established itself as a major player in the acquisition of content rights, potentially in competition with the traditional TV providers or premium cable channels. In 2010, the company committed nearly $1 billion for a five-year streaming deal with the Epix premium cable channel (a joint venture of Viacom Inc.s Paramount Pictures, Lionsgate Entertainment Corp., and MGM Studios Inc.) to offer new movies within 90 days of becoming available on Epix. Also in 2010, Netflix entered an exclusive streaming deal with Relativity Media LLC to secure major theatrical releases in the traditional pay TV window.
ONLINE DISTRIBUTIONENTERTAINMENT COMPANIES' HOLDINGS AND PARTNERSHIPS
COMPANY SAMPLE OWNED AND OPERATED ONLINE PROPERTIES* SAMPLE DISTRIBUTION PARTNERS
CBS
BNET, CHOW, CNET, CBS.com, CBSNews.com, CBSSprts.com, GameSpot,Last.fm, MaxPreps.com, Metacritic, mySimon, Search.com, TechRepublic, TV.com, UrbanBaby.com, ZDNet ABC.com, ABCFamily.com, ABCNews.com, Disney.com, DisneyChannel.com, Disney's Club Penguin, ESPN.com, ESPN360.com, Hulu.com, Playdom.com AccessHollywood.com, Bravo.com, ChillerTV.com, B12: ENTERTAINMENT CNBC.com, DailyCandy, eonline.com, exercisetv.tv, COMPANIES GROWING g4tv.com, golfchannel.com, Fandango.com, Hulu.com, TROVE mystyle.com, iVillage.com, MSNBC.com, mun2, OF ONLINE msnbc.com, NBC.com, OUTLETS NBCNews.com, NBCOlympics.com, Oxygen.com, SyFy.com, Sleuth, Telemundo.com, USANetworks.com, versus.com, weather.com AmericanIdol.com, Askmen.com, careerone.com.au, CARSguide.com.au, Fox.com, FoxNews.com, FoxSports.com, Hulu.com, IGN Entertainment, Milkround, News.com.au, Scout.com, truelocal.com.au, whatifsports.com
Amazon, Apple, BuddyTV, Chumby, Fancast, Mefeedia, Metacafe, MSN, Netflix, Roku, TVGuide.com, Windows Media Center, Yahoo!, Google/YouTube Apple, AOL, Fancast, MSN, MySpace, Netflix, Yahoo! AOL, Apple, Fancast, iTunes, MSN, Netflix, Yahoo!
Disney
NBC Universal
News Corp.
AOL, Apple, Fancast, Google, Hulu, MSN, Netflix, Yahoo!
Time Warner
Cinemax.com, CNN.com, CNNMoney.com, CWTV.com, Apple, BitTorrent, Gube, Facebook, Digital City, Essence.com, Fanhouse.com, Flixster.com, Google/YouTube, Netflix, Yahoo! Games.com, Golf.com, HBO.com, HBOSports.com, IN2TV, InStyle.com, Life.com, Mapquest.com, Myrecipes.com, NME.com, ParentDish.com, PawnNation.com, People.com, Pixcetera.com, Platform A, Propeller, RealSimple.com, Rottentomatoes.com, Shoutcast.com, SI.com, Stylelist.com, TheBoomBox.com, TheWB.com, Time.com, TMZ.com, Truveo, Userplane, Wallet.com, WarnerBros.com, When.com AOL, Apple, DailyMotion, GoFish, Hulu, MeeVee, MSN, Netflix, Veoh, Yahoo!
Atom.com, BET.com, AddictingGames.com, CMT.com, ComedyCentral.com, EPIX.com, Gametrailers.com, Logo.com, MTV.com, MTVFilms.com, Neopets.com, Nickelodeon.com, Noggin.com, Paramount.com, ParentsConnect.com, Quizilla.com, Shockwave.com, Social Express, Spike.com, TVLand.com, VH1.com, Xfire Source: Standard & Poor's Equity Research; company reports. Viacom
In 2011, Netflix also signed separate pacts with other independent studios such as Lionsgate Entertainment and Miramax Films. Separately, in its first foray into original content production in 2011, the company acquired first exhibition rights to 26 episodes of House of Cards, a political drama starring actor Kevin Spacey that is scheduled to debut in late 2012. TV Everywhere makes further strides Launched in the summer of 2010, the so-called TV Everywhere initiative represents an attempt by traditional pay TV providers, in collaboration with certain programmers, to defend their business turf against a continued encroachment by OVD players amid increased concerns with cord-cutting (as further discussed in the Broadcasting, Cable & Satellite Survey).

Under the TV Everywhere initiative, authenticated pay TV subscribers are provided access to streaming videos of full-length episodes of a growing selection of TV shows and movies) across multiple platforms, both within or outside the home (e.g., TV, ALL-TIME TOP BOX OFFICE FILMS PC, tablets and mobile (Ranked by domestic box office revenues, in millions of current dollars) devices) at no additional cost. BOX OFFICE (MIL.$) YEAR OF MOVIE DISTRIBUTOR US WORLDWIDE RELEASE For example, Comcasts Avatar Fox 761 2,782 2009 Xfinity online TV service Titanic Paramount 601 1,843 1997 recently offered more than Warner Bros. 533 1,002 2008 The Dark Knight 20,000 TV episodes and 2,000 Star Wars Fox 461 775 1977 movies. Shrek 2 DreamWorks 441 920 2004
E.T.: The Extra-Terrestrial Universal 435 793 1982 Star Wars: Episode I - The Phantom Fox 431 924 1999 Menace Pirates of the Caribbean: Dead Buena Vista 423 1,066 2006 Man's Chest Toy Story 3 Buena Vista 415 1,063 2010 Sony 404 822 2002 Spider-Man 402 836 2009 Transformers: Revenge of the Fallen Paramount/ Star Wars: Episode III - Revenge of Fox 380 849 2005 the Sith The Lord of the Rings: The Return of New Line 377 1,119 2003 the King Spider-Man 2 Sony 374 784 2004 Newmarket The Passion of the Christ 371 612 2004 Jurassic Park Universal 357 915 1993 Harry Potter and the Deathly Warner Bros. 347 1,148 2011 Hallows Part 2* B01: ALL-TIME TOP BOX Transformers: Dark of the Moon* FILMS Paramount/ 345 1,049 2011 OFFICE DreamWorks The Lord of the Rings: The Two New Line 342 925 2002 Towers Finding Nemo Buena Vista 340 868 2003 Sony 337 891 2007 Spider-Man 3 Alice in Wonderland (2010) Buena Vista 334 1,024 2010 Paramount 330 677 1994 Forrest Gump Buena Vista 329 784 1994 The Lion King Shrek the Third Paramount/ 323 799 2007 DreamWorks 319 710 2007 Transformers Paramount/ DreamWorks Iron Man Paramount 318 585 2008 Harry Potter and the Sorcerer's Warner Bros. 318 975 2001 Stone Indiana Jones and the Kingdom of Paramount 317 787 2008 the Crystal Skull The Lord of the Rings: The New Line 315 871 2001 Fellowship of the Ring Iron Man 2 Paramount 312 624 2010 Star Wars: Episode II - Attack of the Fox 311 649 2002 Clones Pirates of the Caribbean: At World's Buena Vista 309 963 2007 End Return of the Jedi Fox 309 475 1983 Independence Day Fox 306 817 1996 Pirates of the Caribbean: The Curse Buena Vista 305 654 2003 of the Black Pearl Harry Potter and the Half-Blood Warner Bros. 302 934 2009 Prince The Twilight Saga: Eclipse Summit 301 694 2010 Current domestic box office totals as of August 2011. Lists all films over $300 million in domestic revenues, when measured in current dollars. *Still in theaters as of August 2011. Sources: boxofficemojo.com; the-movie-times.com.
This initiative now counts more than 40 participating networks and has been deployed to more than 70 million US homes (as of June 2011). It has made some key strides in the period since its launch. Time Warners HBO GO, for example, is accessible by the premium channels subscribers through AT&T, Charter Communications Inc., Comcast, Cox Communications Inc., DIRECTV, DISH Network, Suddenlink Communications and Verizon FIOS.
MAJOR STREAMLINING OF FILM OPERATIONS

Amid the onset of the economic recession in the wake of the writers strike in 2008, most of the major film studios implemented several restructuring measures aimed to streamline their operations. In addition to significant workforce reductions, we believe these actions resulted in the overall decline in the number of film releases by the studios starting in 2009in some instances, trimming over 20% in a studios annual film slate. One of the major byproducts of these restructuring actions has been the closure by some of the major studios of several specialty and independent film labels. In
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2008, Time Warner folded the operations of its New Line Cinema studio into the Warner Bros. studio; in 2009, it shut down Warner Independent Pictures and Picturehouse, as well as the Paramount Vantage division. Meanwhile, skyrocketing film production costs have also drawn increased scrutiny, as studios face more pressure on the bottom line. To help contain the costs of creative talent, several of the major studios have significantly pared their production and development deals in the past few years, while also ratcheting down the use of so-called first dollar gross. Increasingly, these are being replaced by pay-for-performance deals (such as compensation as a percentage of box office revenues), where the talent assumes more of a films risk, as well as its potential rewards. Studios re-invent movie marketing The traditional ways of marketing and promoting movies have also begun to change, as studios take increasingly dramatic cost-containment measures, while at the same time responding to rapid changes in technology and consumer habits. Over the next several years, we expect the traditional film marketing function to continue to evolve, as studios experiment with new ways to reach their audiences through the most cost-efficient means. In that regard, Disney recently undertook one of the most ambitious changes in the way its movie studio markets and distributes films. It essentially consolidated the separate divisions that were previously responsible for selling a film first to movie theaters and then later on to home-entertainment formats and pay TV. The net result of these changes for Disney is that, throughout the commercial life of a given movie, a single team will now handle marketing and distribution. The new structure is designed to potentially wring more value out of films by coordinating marketing strategies that encompass both traditional and emerging distribution platforms. Meanwhile, social networking sites such as Twitter, YouTube, Facebook, and MySpace have become increasingly valuable tools for the studios to generate audience buzz well before a films release, as well as during its early theatrical run. We believe Paramounts Paranormal Activity offers one of the most potent cases of how clever marketing and word-of-mouth buzz helped transform a micro-budget film into one of 2009s biggest movie phenomena. Beginning its theatrical run with midnight-only screenings in 12 college towns across the US, the film quickly developed into a nationwide hit. After more than a million requests by fans visiting the films website demanding a showing in their city, Paramount expanded the films release nationally, where it played to packed theaters for four months, propelling the $15,000 movie to more than $100 million at the domestic box office. Franchise installments strategy provides a hedge In the movie industry, producing a sequela follow-up to a previous popular filmcan lead to box office success. Of the top 50 domestic box office hits of all time, more than half were follow-up installments of established franchises with built-in audiences, such as Harry Potter, Indiana Jones, Iron Man, Lord of the Rings, The Matrix, Pirates of the Caribbean, Spider-Man, Shrek, Star Wars, Transformers, The Twilight Saga, and Toy Story. The sequel strategy is alive and well. In 2010, five of the years top 10 films at the domestic box office were sequels: Toy Story 3, Iron Man 2, The Twilight Saga: Eclipse, Harry Potter and the Deathly Hallows; Part 1, and Shrek Forever After. Thus far in 2011, seven of the top 10 are follow-on installments: Harry Potter and the Deathly Hallows: Part 2, Transformers: Dark of the Moon, The Hangover Part II, Pirates of the Caribbean: On Stranger Tides, Fast Five, Cars 2, and Kung Fu Panda 2. Movie adaptations of popular TV showssuch as Sex in the Cityare similar to movie sequels, in that consumers familiarity with characters and story lines means that the film could ride some of its built-in audience at the box office. Studios also produce remakes or new variations based on earlier films. However, translating a popular book or TV show into film is no guarantee of a major hit.
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HOW THE INDUSTRY OPERATES

Companies in the movie and home entertainment industry are involved in the creation and delivery of various kinds of programming for consumers. Traditionally, this programming is recorded on film, tape, or disc so that it can be seen or heard repeatedly. Increasingly, recorded entertainment is being stored in various other newer digital formats (online, mobile, etc.), which can preserve a higher quality of images and sounds, and make them easier to transmit and copy. In addition, many entertainment events that are broadcast live are likely to be recorded, and then rebroadcast at future times and/or made available to consumers across various formats. Large, diversified companies dominate the industry. Among the biggest are Walt Disney Co., News Corp. Ltd., Time Warner Inc., CBS Corp. and Viacom Inc., as well as General Electric Co.s majority-owned NBC Universal Inc., and Sony Corp. These companies finance the development of new products, have extensive libraries of products, and often own distribution channels for bringing content to the public. The ownership of diverse entertainment businesses creates opportunities for cross-promotion. Companies can gain an economic edge from owning both the product (such as a TV show) and the distribution channel (such as a broadcast network). Additional opportunities to leverage trademarks, copyrights, and creative assets (i.e., writers, producers, actors, and the content they produce) are arising in the evolving multimedia sector. For example, a popular movie can spawn a best-selling music album or a video game, a novel can inspire a film, and so on. However, a single companys ownership of both content and distribution is no guarantee that its offerings will be well received by audiences. Ultimately, consumers will spend their money on the movies, programs, and music that they like and that are delivered conveniently and economically. In addition to self-produced content, several programming packagers and distributors rely on content from outside sources.
MOVIES: AN ESCAPE FROM REALITY

The six major Hollywood film studios are Time Warners Warner Bros., Walt Disneys Buena Vista, News Corp.s Twentieth Century Fox, Viacoms Paramount, Sony/Columbia, and General Electrics Universal. These studios typically account for close to 80% of the market share in terms of box office revenues. Movies today usually are made under a contract signed by a major distributor, a production company, and a collection of freelance talent. With a major theatrical film, a distributor typically funds a movie from start to finish or provides a portion of the financing in return for fees and a share of the proceeds. In some cases, a producer grants theatrical distribution rights to one party and sells home video rights to another; on occasion, the international rights may also be parceled out separately. In many cases, the company handling the films theatrical release also owns its distribution rights in the home video market. After arranging to have videos manufactured, the distributor usually sells them to video retailers. It also may distribute them through a revenue-sharing agreement, under which the distributor and retailer share consumers rental fees for a video title, or otherwise makes them available for purchase or rentals through electronic services. For many films, movie theater sales are no longer the principal source of revenues. Today, profitability often depends heavily on a films home video sales, as well as pay-TV licensing and merchandising, and increasingly, new media outlets. Still, box office performance will likely influence a films performance in other back-end channels; strong ticket sales can create built-in consumer awareness that could allow a film to continue to generate revenues in ancillary channels for several years thereafter. Spiraling film costs increasingly on the radar In addition to the costs of film production, other expenses associated with film distribution include advertising and duplication (making multiple copies for theaters), dubbing or subtitling the movie for
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foreign markets, and manufacturing and marketing the films home video release. In addition, creative talent involved in a movie may be contractually entitled to a portion of the films revenues or profits. Production costs vary widely. While the average cost to make and market a movie is over $100 million, some high-profile special-effects movies, such as Avatar or Pirates of the Caribbean, can cost several hundred million dollars. From a financial standpoint, the spiraling cost of film production creates a high downside risk for high-priced films that significantly underperform lofty box office expectations, of which there are numerous examples. Still, a significant number of low-budget films (costing $15 million or less) have also produced outsized returns across the various distribution windows taken together. Even so, most movies are not big moneymakers, and breakout commercial successes are typically rare. In this business, as in the music and television sectors, the successes must pay for the failures. According to the MPAA, six of 10 movies lose money on their original investment in their domestic theatrical run. Thus, most films must rely on the home video and other back-end channels to recoup their investment and make a profit. In addition, a recent influx of money hedge funds and private equity firms has allowed studios to hedge their downside risks. Dynamics of scale efficiencies and entry barriers In the filmed entertainment business, scale has some obvious advantages. A large firm can diversify its risk by developing a variety of projects, while the sheer volume of its products gives it more influence with theater owners and TV networks. In addition, factors such as brand-name recognition, management experience, relationships with creative talent, and product distribution capabilities tend to favor the larger, more established companies. Relative to some capital-intensive or highly regulated sectors, entry barriers in the filmmaking and distribution business are not extreme. Over the past decade, the industry has seen a growth market in recent years for independent films (indies). Despite some retrenchment (as discussed in the Industry Trends section of this Survey), a number of newer players have arrived on the scene, including CBS Feature Films, The Weinstein Co., Relativity Media LLC, and Summit Entertainment. However, long-lived success does not come easily. The ability of smaller companies to join the ranks of the industry leaders varies according to sector. Salient factors include access to capital, regulatory barriers, and management skill. Movie exhibitors as key stakeholders Many of todays cinemas are multiscreen theater complexes. This format lets theater operators attract more moviegoers by offering a variety of filmsand thus maximizes the value of their real estate. Multiscreen theater complexes also permit economies of scale, in that employees and facilitiesthe concession stands and box office, for instancecan serve patrons of more than one movie. Multiplex (or megaplex) facilities typically have fewer seats per screen than do single-screen theaters, so this format can also boost average capacity utilization. A theater operators largest expense is the rental of movies from distributors. Exhibitors license films by either negotiating directly with distributors or submitting bids to them. Rental fees, which average roughly 50% of ticket sales, are based largely on a revenue-sharing formula. Typically, if the fee is determined in advance, a distributor will receive either a percentage of box office receipts (which may decline as a films theatrical run lengthens) or a percentage of the amount that admission revenues exceeded a negotiated figure. During a films theatrical run, if the movie exhibitors weekly percentage of box office receipts increases over time, it provides an incentive for the exhibitor to keep the film on its screens longer. In addition, rental fees may be subject to a settlement process that is negotiated after a films theatrical run has concluded, based upon a movies performance. A given film typically reaps the bulk of its box office revenues within just a few weeks of its releasewith the highest in its opening weekbefore increased competition sets in as other releases jump into the fray. Still, a
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films life span can last several years before its entire revenue stream is exhausted. Although a movies box office revenues often are tallied publicly, a specific movies full cost structure is seldom disclosed. During the 1990s, the US movie theater industry over-expanded, opening more than 15,000 new movie screens while closing an insufficient number of older screens. Because of this and other factors, about half of the 12 largest US film exhibitors entered bankruptcy proceedings between 1999 and 2001. As of the end of 2010, there were more than 39,000 US movie screens in over 5,900 theater locations across the US, according to data from Nielsen EDI. About 28% of those locations had a single screen; 35% were so-called miniplexes (two to seven screens), 27% were multiplexes (eight to 15 screens), and the remaining 10% were megaplexes (16+ screens). Videos for sale or rent A variety of material is now available on digital versatile discs (DVDs; often called digital video discs when referring to movies), which have largely replaced videocassettes. Movies probably account for more than 70% of video rentals and at least 60% of the dollars spent on video purchases. New theatrical movies typically are released on DVD about three to four months after their theatrical debut. In addition, some movies are not shown in theaters but are released directly to consumers as videos. Suppliers of home videos seek to maximize revenues and profits by forecasting levels of demand from retailers and consumers at different price points. Videos that have a relatively high retail purchase price ($25 or more) are generally targeted for rental activity, while lower-priced DVDs, particularly those available for less than $20, are more likely to be purchased by consumers, though they also generate significant rentals. In some cases, especially with videos that are aimed at rentals by consumers, a retailer may acquire a video at a relatively low cost, and then have a revenue-sharing arrangement with the distributor, whereby consumer rental spending is split between the two parties. In other cases, a retailer may pay more for a video but is entitled to retain all of the customers rental fee or purchase price. Rentals have benefited from the growing popularity of $1-per-night kiosks such as Redbox, as well as DVD-by-mail and streaming services such as Netflix Inc.
TV LANDSCAPE: A GAME OF MUSICAL CHAIRS

The four major broadcast networks (ABC, CBS, NBC, and FOX) remain a primary force in US television programming. These networks are the largest providers of high profile, first-run showsas well as event programming extravaganzas like the National Football Leagues Super Bowl and the movie industrys Academy Awardsthat provide advertisers with the broadest audience reach possible. Nevertheless, in recent years, audiences have continued to migrate from TV broadcasters to the cable networks, many of which have significantly increased their overall programming investments. Some popular and award-winning original cable shows, past and present, include Sex in the City, The Sopranos, and True Blood (on HBO); Rizzoli & Isles and The Closer (TNT); The Shield, Nip/Tuck, and Rescue Me (FX); Dexter, Weeds, and Brotherhood (Showtime); Monk and Burn Notice (USA); Army Wives (Lifetime); Mad Men and Breaking Bad (AMC); and SpongeBob (Nick). Many cable networks also present off-network reruns of shows that originally aired on the broadcast networks. Networks as marquee programming conduits All of the major broadcast network companies own TV stations; they also have affiliate relationships with TV stations owned by others. The networks typically provide their owned stations and affiliates with 15 to 22 hours of programming per week. In exchange, networks obtain the right to sell the bulk of the advertising time during the periods when their shows are airing. Many affiliates also receive a fee, called compensation, from their networks. When affiliates are not airing a network show, they offer programming that they have either purchased independently (such as a syndicated show) or produced in-house (such as local news). Although costs are typically higher for shows that they produce themselves, affiliates get to sell more advertising time during

such programs than during network offerings. At times, an affiliate chooses to fill traditional network time with shows that the station has acquired independently from other program suppliers. (For more details, see the Syndication: a complementary business model heading later in this section.) Independent stations as local distribution allies Independent stations, which are not affiliated with a broadcast network, bear full responsibility for filling their schedules with programming and for selling advertising time. They incur all of the costs and keep all of the revenues associated with doing so. Program suppliers as arbiters of content The production of TV shows is similar to the movie business in many ways. Good cash flow from program libraries helps to finance new shows. Larger companies often contract for or jointly produce shows with smaller firms, and often distribute and market programs produced by others. The creation of a successful show by any production business can help generate additional network commitments. Major program suppliers for the networks include Time Warner Inc.s Warner Bros. Television Group, News Corp.s Twentieth Century Fox Television, CBS Corp.s CBS Paramount Television, NBC Universal Television Group, Sony Pictures Television, and the Walt Disney Co.s Touchstone Television Productions LLC. All of these businesses (or their parent companies) also are full or part owners of a broadcast network and/or cable networks. Network licensing for program schedules The broadcast networks often obtain first-run prime-time shows from program suppliers through license agreements, which let them air each episode of a series several times. This arrangement is generally more affordable for the networks than producing programs themselves, the cost of which can significantly exceed the network license feeespecially in the early years of production. When a program supplier licenses a show to a network for less than the cost of production, it may offset some or all of the deficit by selling the program to foreign markets. However, even after foreign sales are included, a supplier may accept a deficit in the hope of ultimately profiting through off-network syndication (selling reruns to individual TV stations or cable channels). The desirability of a programs rerun rights is determined largely by the size of its audience and its longevity on broadcast network TV. In a licensing arrangement, the program supplier retains ownership of a show. However, broadcast network companies are increasingly producing or acquiring ownership interests in shows that they air. Doing so usually involves a higher initial investment, but it can also generate greater returns if a program becomes a hit. Syndication: a complementary business model Syndicating a TV program means licensing a program to individual TV stations around the United States on a market-by-market basis. TV programs are also licensed to cable networks. Network affiliates and independent TV stations alike buy syndicated shows, although each has a different amount of time to fill. The syndication market comprises sales to both kinds of stations, as well as to cable networks. Affiliates buy such programs to fill airtime that is not used for network programming. While the affiliate must pay such programming costs itself, it gets to keep any advertising revenues gained during that time. Independent stations, which must fill their own schedules entirelybecause they do not have a network to do so for themhave an even greater need to license syndicated shows. The peak viewing period for syndicated shows is typically from 7 p.m. to 8 p.m. in the eastern and Pacific time zones, and from 6 p.m. to 7 p.m. in the central and mountain zonesthe hour before the broadcast networks start their prime-time schedules. Suppliers of new shows often find it difficult, if not impossible, to displace such proven successes as Wheel of Fortune and Entertainment Tonight in these valuable time slots. The development of the FOX, as well as the now-defunct UPN and WB networks, had convinced many independent stations to become affiliates, reducing the need for syndicated programming. Two kinds of
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syndicationfirst-run syndication and off-network syndicationare described later in this section. (In September 2006, the UPN and WB networks merged into a single new network, the CW Network.) First-run syndication. First-run syndication involves new shows created specifically for licensing in the syndication market. A program supplier may decide to distribute a program this way if networks are not interested in airing it for various reasonsbecause they already have similar shows, do not like the proposed program, or consider its potential audience too narrow. For some program suppliers, having a show debut in first-run syndication may be more lucrative than licensing it first to a network and then as reruns. Few first-run syndicated shows succeed in attracting audiences comparable to the prime-time network offerings. Many syndicated shows air during the daytime or late evening, when overall viewership is relatively low. None of the first-run syndication shows that have debuted in recent years has become a big hit. Many first-run syndicated programs, such as talk and game shows, are relatively low-budget productions. For program suppliers, this eases the cost of getting into the business. However, first-run syndicated programs also can create a glut of programming alternatives, making the market highly competitive. Off-network syndication. Off-network syndication involves program episodes that are licensed for airing as reruns after first being shown on network TV. Such shows have strong market appeal, due to viewers familiarity with and loyalty to them. Some programs enter rerun syndication while new episodes are still being produced for a networkCSI: Crime Scene Investigation, with new episodes airing on CBS, is one example. Other syndicated shows, such as I Love Lucy, left the networks long ago. A new crop of off-network or rerun shows becomes available each fall, at about the same time that the networks present their new first-run programming. Suppliers base the prices they charge to show reruns on various factors: the shows degree of network success, the financial health and programming needs of prospective buyers, and the supply of similar shows being offered at a given time. Prices may vary widely. Syndicated reruns can be highly lucrative for a program supplier, helping to offset the losses from failed shows. In addition, reruns of half-hour comedies generally tend to attract larger audiences (and thus to earn more for the station selling the ad time) than those of hour-long dramas. Recently produced hour-long dramas (which cost more to produce than comedies) have aired primarily on cable channels. With many syndicated programs, suppliers receive at least a portion of their revenue from selling ad time on the stations that air their shows. This process, known as bartering, is similar to the arrangement that broadcast networks have with affiliates. In return for providing a show, the program supplier receives ad time rather than monetary compensation from the TV station. The supplier, in turn, sells the ad time to other parties. When purchasing time on syndicated shows, national advertisers typically look for shows that can reach at least 70% of the TV households in the United Statesa large enough audience to attract the interest of national advertisers. The more a show is expected to be watched, the greater success a syndicator will have in selling it to a group of TV stations.
MULTI-CHANNEL DISTRIBUTORS: CHALLENGING THE STATUS QUO

Pay TV service in the USotherwise know as multi-channel videois primarily received through one of three major providers: cable and satellite TV operators, and most recently, one of the two major traditional phone companies. As of the end of 2009, nearly 100 million of the 114.5 million US TV homes, or over 87%, were subscribers to one or more of those services, a highly saturated market. (A further discussion of the key players may be found in the Broadcasting, Cable & Satellite issue of Industry Surveys.) Cable system operators provide a convenient delivery medium for entertainment and information, and thus have a significant bearing on the usage and value of content that it delivers to consumers. The cable industrywhich recently accounted to about 63% of the US pay TV marketcomprises hundreds of

pipeline companies that deliver cable signals to consumers homes via wired systems in return for monthly fees, which are partly used to defray programming costs and to support their infrastructure investments. In contrast, there are just the two major US satellite TV (direct broadcast satellite, or DBS) providers, namely, DIRECTV Group Inc. and DISH Network Corp. Both DBS providers deliver programming across a national platform to subscribers equipped with dish antennas to receive their signals. The DBS industry emerged in the mid-1990s and has since grown rapidly, recently accounting for about 31% of the US pay TV market. In recent years, Verizon Communications Inc. and AT&T Inc. have also entered the pay market. By the end of 2009, these two companies had garnered almost 6% of the US pay TV market. (For an in-depth description of the US telecommunications industry, see the Telecommunications: Wireline issue of Industry Surveys.) Cable and satellite programming networks Hundreds of networks are now available from cable and satellite operators. These networks, as well as local broadcast stations, are offered by cable and satellite TV operators as part of various monthly subscription packages covering hundreds of programming channels. Among those offerings are ad-supported basic channels (e.g., CNN, ESPN, TNT, USA), which have carved out some niche programming or feature a broad sampling of broadcast network reruns, movies, and sports, as well as premium channels (e.g., HBO, Showtime), which are offered for an additional monthly subscription. Several of the fully-distributed channels in this group reach over 90 million subscribers. Why are cable-only outlets called networks? Just as ABC, CBS, NBC, and FOX provide their affiliates (individual TV stations) with programming, the cable networks also deliver shows to affiliated cable system operators. Another similarity is that they often split commercial time with their affiliates. The larger cable networks receive revenue in two principal ways: by selling advertising time and by charging fees to affiliated cable systems. The fees that they charge cable system operators are typically levied on a monthly per-subscriber basis. However, cable system operators have limited channel space, so new cable networks have to fight increasingly hard to be carried by cable systems. To win the competition for shelf space and to gain audience exposure, new channels sometimes waive their carriage fees for several years or even agree to pay cable system operators to carry their signal. In such cases, ad revenues may become the new channels sole revenue sourceintensifying its need to build an audience and thus advertising demand. However, if a new network or channel becomes popular enough, its owner may be able to charge cable systems to show it in the future. In recent years, cable networks have increased their investment in original programming, as well as majorleague sports events and made-for-TV movies. As competition grows, there is a rising need for signature programmingshows that viewers identify with a particular channel, such as True Blood on HBO, Larry King Live on CNN, and The Daily Show with Jon Stewart on Comedy Central. For the pay-TV networks, such as HBO, Showtime, and Starz, movies remain the principal programming fare. Theatrical films typically become available on one or more of the pay networks about a year after they debut in theaters, after the video rental demand has dwindled.
MUSIC LABELS: HEDGING THEIR BETS

Each of the music industry leaders offers products under a number of different labels. Their relationships with artists are important: contractual obligations mean that musicians tend to record for a single company and label exclusively over a number of years. Radio and television (e.g., MTV) are significant factors in acquainting consumers with new music, as are a host of newer online sites for music discovery (e.g., MySpace Music, YouTube, Lastfm, Lala, iLike, imeem). A recording company typically pays an up-front fee to an artist who is to produce a new album, but it looks to recover its costs before the artist receives any additional payments. After such costs (including the advance)

are deducted, the artist is then likely to receive sales-based payments that could amount to somewhere between 5% and 13% of the records suggested retail price. The amount of the advance payment and the royalty percentage for the artist usually reflect the past sales success of the artists music and the expectations for the ALL-TIME TOP-SELLING ALBUMS new recording.
(Ranked by units shipped, in millions, as of August 2011)
NUMBER YEAR OF SHIPPED RELEASE* (MIL.)
ALBUM
ARTIST
LABEL
Consumers are increasingly acquiring recorded music via personal computers (PCs) and other wireless handheld devices, such as iPods from Apple Inc., which also may involve subscription services provided by major music companies. In addition, some music companies have recently been seeking to expand their business relationships with artists beyond traditional album sales (as earlier discussed in the Industry Trends section of this Survey).
Their Greatest Hits (19711975) Eagles Elektra Thriller Michael Jackson Epic Led Zeppelin IV Led Zeppelin Swan Song The Wall Pink Floyd Columbia Back in Black AC/DC Elektra Double Live Garth Brooks Capitol Nashville Greatest HitsVol. I & Vol. II Billy Joel Columbia Come on Over Shania Twain Mercury Nashville Table B10: All The Beatles The Beatles Capitol time top selling Rumours Fleetwood Mac Warner Bros. Appetite for Destruction Guns Geffen albums 'N Roses No Fences Garth Brooks Capitol Nashville Boston Boston Epic The Beatles/19671970 The Beatles Apple The Bodyguard Whitney Houston Arista Jagged Little Pill Alanis Morissette Maverick Cracked Rear View Hootie & the Blowfish Atlantic Hotel California Eagles Elektra Physical Graffiti Led Zeppelin Swan Song Greatest Hits Elton John Rocket Born in the U.S.A. Bruce Springsteen Columbia The Beatles/19621966 The Beatles Capitol Greatest Hits Journey Columbia Metallica Metallica Warner Brothers Saturday Night Fever Bee Gees Polydor/Atlas Supernatural Santana Arista Dark Side of the Moon Pink Floyd Capitol Sources: Recording Industry Association of America; *All Media Guide.
1976 1982 1971 1979 1980 1998 1985 1997 1964 1977 1987 1990 1976 1973 1992 1995 1994 1976 1975 1974 1985 1973 1988 1991 1977 1999 1973
29 29 23 23 22 21 21 20 19 19 18 17 17 17 17 16 16 16 16 16 15 15 15 15 15 15 15
Today, most of the albums shipped to stores and bought by consumers are in the compact disc (CD) format. For a CD with a suggested price to consumers of $18.98, the wholesale price for a retailer could be closer to $12, though this can vary due to a number of factors.
KEY INDUSTRY RATIOS AND STATISTICS

Macroeconomic factors such as employment, consumer confidence, and personal income generally do not have a significant impact on the entertainment business. The reason is that most movie and home entertainment products are relatively modest in price, so consumers can typically afford them even during periods of economic difficulty. Factors that have more of a bearing on the industry include technological change, which can lead to new products, means of distribution, and competition; the extent to which content creators produce filmed entertainment or music that appeals to consumers; and, especially for TV networks and stations, the amount of support that programming receives from advertising dollars. Television ratings. The size of a shows TV audience is an important determinant of its advertising revenue. The number of rating points for a given show in national distribution typically indicates what percentage of TV households watches that show. According to Nielsen Media Research Inc., a research firm

that measures audience size, there were approximately 114.5 million US television households. One national rating point (1.0) is equal to 1/100 of all the television homes, or about 1.15 million households. Data also are collected on the percentage of people watching television at a given time that are tuned in to a particular show. This number, which excludes potential viewers who are not watching TV, is known as share. Advertisers are likely to place a particular emphasis on specific demographic groups, such as 18- to 49-year-olds, who are believed to be big buyers of consumer products. Information published on ratings and share is provided by Nielsen Media Research and can be found in various periodicals and on Internet sites. Upfront television advertising sales. This category comprises advertising sales made by networks to national advertisers during the upfront seasontypically May and June, before the beginning of a new TV season. Advertising time unsold during the upfront period is then made available in the scatter market, from which advertisers purchase time closer to the date of broadcast. The disadvantages of buying from the scatter market are that it offers a narrower choice of slots and prices may be higher than during the upfront season. A potential advantage is that, if advertising demand is weak, prices may fall below those charged during the upfront market. If a TV show does not deliver its projected audience, which is typically measured by Nielsen Media Research, the network may compensate advertisers with make-good timescatter time provided free or at a discount. Indications of how well upfront sales are going can be obtained from various publications during the spring or summer, as well as from discussions with industry participants. Box office results. To gauge how much audience interest a theatrical movie is generating, analysts consider overall ticket sales, the average amount of ticket spending per screen, and the number of screens where a film is playing. Some movies are widely released (typically to between 3,000 and 5,000 screens), while others may get a limited release, at least initially. Opening weekends are particularly important because they are a leading indicator of a films longer-term audience interest. If a film opens poorly, a distributor may cut back on advertising, and theaters may lose interest in retaining the movie. If early audiences like a film, however, favorable word-of-mouth can help build future business. The performance of theatrical movies is reported in various media, with particular attention given to the amount of weekend ticket sales that a film generates. Standard & Poors believes that reported domestic box office totals for individual movies reported in the press typically include both the US and Canada. However, industrywide domestic totals may be limited to the United States. Various domestic box office information provided by Nielsen EDI, a box office measurement and research firm for the motion picture industry, can be found at http://www.nielsenedi.com/charts. Another source of box office information is the website http://www.boxofficemojo.com. Video sales and rentals. Information or estimates about demand for individual video titles, as well as industrywide figures, can be obtained from trade organizations, research firms, and various publications. For example, Rentrak Corp., a media measurement and research company, provides weekly tables with performance rankings for DVD sales and rentals, video on demand, domestic box office, and video game sales (http://www.rentrak.com/section/corporate/press_room/weekly_top_10_charts.html). Music sales. The Recording Industry Association of America (RIAA) measures domestic industry sales volume based on manufacturers shipment levels, minus returns. These data are released on a semiannual basis. When consulting these data, keep in mind that the RIAAs cited dollar amounts (value of shipments) are based on suggested retail price, while many albums actually may be sold to consumers at lower prices. At times, unit shipment levels are not a close approximation of the volumes that consumers are really buying. This could occur, for example, if retail spaceand related inventory stockinggrows faster than consumer sales. The RIAA reports music industry shipments on its website (http://www.riaa.com).
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Industry volume at the retail level is tabulated by Nielsen SoundScan, which tracks sales of music and music video products in the US and Canada. Certain SoundScan numbers are reported regularly in the back pages in Billboard magazine.
HOW TO ANALYZE AN ENTERTAINMENT COMPANY

The first step in analyzing an entertainment company is to determine its lines of business. What place does it hold in the chain of creating and delivering products to consumers? In addition, what are its competitive advantages or disadvantages? Does it have enough financing to create new products and withstand failures? Finally, a detailed study of the companys financial statements can reveal a lot about its past performance and foundation for future results.
LINES OF BUSINESS
The kind of assets and businesses that an entertainment company emphasizes determines the category to which it belongs. The four basic categories are content creators, distributors, packagers, and pipelines. The most prominent entertainment firms generally operate multiple businesses and belong to more than one category. Each of their operations may be attractive on a stand-alone basis, but it is important to ask if value is being added by having various assets under the same corporate roof. Does a company have opportunities to build brands and cross-promote its assets? For example, a companys theme park attractions might use some of its movie characters, while some of its cable TV networks help to promote shows that are debuting on a broadcast TV network owned by the company. Such interrelationships are sometimes said to create synergya combined effect that separate businesses would be less capable of achieving alone. On the other hand, some businesses might do better and be more appreciated by investors if they were separated from a larger parent company through such means as an asset sale or a spin-off. For example, when separated, a smaller business may become quicker or more agile with its decision-making, requiring fewer levels of approval than it did when part of a larger corporate parent. Content creators. Some firms are primarily content creators, producing movies, TV shows, music albums, or all three. To succeed, these companies must have both adequate financing and a means of delivering their product to the public. Delivery may involve the support of large distribution companies, which often help with the financing and marketing of a product in exchange for a significant share of the revenue. Distributors. Various forms of entertainment reach consumers through the marketing efforts of distributors, whose function is to arrange for movies, TV shows, videos, and music to become available to consumers through such outlets as theaters, TV stations, and retail stores. A distributor often receives its fee either as a portion of the sales price or a piece of the revenue generated from consumers. In addition, distributors sometimes help to finance a project (e.g., a movie production), which typically boosts the distributors share of the projects future revenue stream. Packagers. A packager is a company (often, a TV network or station) that organizes or schedules what consumers see or hear. This can include content produced by the packager or by affiliates, plus programming that it licenses or buys from third-party producers/distributors. There is a growing emphasis on packaging and delivering entertainment content that is tailored to the specific interests of individual consumers, particularly through specialized cable TV networks such as Home & Garden TV and the Golf Channel. For a TV network, success is largely determined by how many households are capable of viewing its programs and, of course, by how many of those who could watch are tuning in. Advertisers seek viewers whose buying patterns and interests match up with their products, and many especially value viewers in the 18-to-49 age group.
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Pipelines. Pipeline companies, which physically deliver entertainment to consumers, range from movie theaters and video stores to cable TV systems and Internet service providers. Important factors affecting their operations include capital spending plans (such as the cost to upgrade a cable system so new services can be offered) and the extent to which new competition is emerging (e.g., delivery systems available on cell phones and other devices via the Internet).
SUCCESS FACTORS
A number of factors influence the fortunes of an entertainment company. These range from companyspecific issues to matters affecting the entire industry, as outlined following. Copyrights to big-name characters. In evaluating a provider of filmed entertainment, it is important to consider the companys copyrights to any popular characters or brand names. To what extent have these assets been exploited successfully in different formats? What sort of track record does the business have in creating new consumer franchises? Given the growing number of entertainment choices being offered to consumers, it is becoming more important for entertainment companies to develop brands (e.g., Viacom Inc.s MTV) and signature programming (e.g., CNNs Larry King Live). Successful brands help a company to stand out. With the introduction of digital technology, piracythe illegal reproduction, acquisition/downloading, sale, purchase, or distribution of copyrighted products, such as recorded music and videoshas become a serious threat to copyright owners. The extent to which companies benefit from new digital delivery systems depends in part on how successful they are in being paid for the content to which they have ownership rights. New technology. New or improved delivery systems help to increase demand for various kinds of entertainment, while also affecting how consumers spend their time and money. In some cases, new technologysuch as music or video downloading on the Internet or a service that allows TV watchers to bypass advertisementsmay threaten the traditional business of an entertainment-related company. For example, during the early years of public Internet use, consumers became accustomed to getting information and entertainment on the Internet free of charge (apart from the cost of an Internet service provider). In particular, music industry sales were hurt by fans ability to download songs on their computers without paying a fee to the tunes copyright owners. Over time, companies may increasingly be able to use a new technology for their benefit, especially if it provides a new revenue source. Nonetheless, we believe that the use of file-sharing client programs over the Internet has created a challenge for entertainment companies to translate their market power into profits. In this case, companies must find a way to ensure that downloaded purchases more than offset the negative impact of unauthorized free downloading. Management. As in any other business, management quality is a key success factor for entertainment companies. Standard & Poors looks favorably on seasoned management teams that have performed well relative to their peers in both good times and bad. In addition, we generally prefer situations in which top executives own stock in the company, because that should bring managers interests more in line with those of other shareholders. We advise investors to keep an eye out for whether top executives are adding to their holdings or are lightening up on what they own. While there can be personal reasons for buying or divesting stock (e.g., estate planning issues), executive purchases and corporate buybacks often can be viewed as an expression of confidence in the underlying business and in the value of the stock. Some executives excel at cost containment, while others are better at creating new products or managing expansion activity. In evaluating a company, it is a good idea to look at top managers track recordsboth with that company and with other firmsin addressing the same kinds of needs and goals that are currently pertinent to the company. Furthermore, it is a good idea to look at the ongoing relationships and contractual commitments a company has with important product suppliers, distributors, packagers of

programming, and/or pipeline companies. It is advisable to think about what the consequences might be if a significant contract were not renewed or if a new relationship were formed. Even a new contract between the same parties (e.g., a cable system paying to carry a cable network through its wires) could alter profitability. At various times, the balance of power in negotiations can change depending on such factors as competitive conditions. At a time when individual industries are increasingly overlapping (e.g., entertainment, telecommunications, and computer services), a companys ability to form complementary and favorable alliances with others is likely to be of growing importance for entertainment-related businesses. Access to capital. When evaluating a company that has sizable capital requirements, it is important to look at its current debt and cash, and its cost of borrowing. How much operating cash flow will likely be available to service the debt? Is the company in a good position to refinance its debt or to borrow more funds in the future? One way to investigate a companys financial strength is to check ratings of its debt by a major credit rating agency, such as Standard & Poors or Moodys. In addition, it is advisable to assess whether a company has made capital or borrowing commitments that may be difficult to meet if the business environment changes. Selling equity (stock) is another means for a company to raise capital. In general, we look for a wellmanaged company to sell shares when market conditions for its stock are good and to repurchase shares when the stock appears under-priced. Size. Is bigger better? A large company tends to enjoy economies of scale, with overhead expenses supported by a bigger revenue stream and spread over a larger asset base than those of a smaller firm. A large company is also more likely to have stronger purchasing power and greater influence with customers. Small companies, however, may be more nimble than big firms in responding to market conditions. To the extent that its management is more entrepreneurial in spirit, a small firm is less likely to become bogged down in the multilevel decision-making process that hampers bigger companies. In general, we would expect smaller companies to be more willing and likely to take risks with newer kinds of entertainment or content. A principal advantage of big, established entertainment companies is the cash flow from their large libraries of older products. Revenues from licensing or selling such products (e.g., movies produced years ago), for viewing in such formats as television and home video, can help to finance new production. Diversification. For companies that produce movies and TV shows, successful ventures must cover the cost of many failures. Thus, we would be wary of a company that was betting the farm on one or two unproven films, TV shows, or other entertainment products. Consumer response is difficult to predict, so it is preferable to spread risks across a slate of creative efforts. Companies also can try to limit their risk by banking on highly popular movie stars or producing a sequel to an earlier hit film, even if the costs of such productions tend to be relatively high. A similar argument can be made for diversifying into multiple industries, because improving conditions in one sector may offset a slowdown elsewhere. However, diversification also carries risks: it may dilute the focus of top management or distract the company from its core strengths. Regulation. Regulatory constraintstypically promulgated by Congress or the Federal Communications Commissionshould be considered. For example, is a company likely to be affected by restrictions on ownership of certain kinds of businesses? Media ownership may be limited both on a national basis and within local markets. At times, however, the regulatory environment may ease, contributing to such activity as industry consolidation. For geographically diverse companies, regulatory bodies in areas such as Europe may affect plans such as merger activity. New products. Successful new products are the lifeblood of most movie, TV, and music companies. Do a firms new products have pizzazz? Has the inclusion of popular actors or compelling story lines boosted the

success of its movies? One way to gauge a companys efforts is to read trade magazines such as Billboard and Variety, which cover current popular movies and music albums. Supply and demand. The success of entertainment products such as movies and TV shows is likely to be affected by the balance between the amount of programming being produced and the level of interest or demand from both consumers and pipeline companies. For example, if movie production is growing, particularly among the major companies, costs for creative talent may rise and theater screen space may become hard to obtain. Marketing expenditures may also increase along with efforts to differentiate movies from their competitors. Labor contracts. Since many entertainment industry employees are represented by unions or labor organizations, it is advisable to know when major contracts are scheduled to expire. What are the prospects for a new contract being signed without labor unrest or a strike, or a significant change in the companys labor costs? For example, if the Screen Actors Guild goes on strike, what impact could this have on a companys ability to create and release new product? However, if a strike shuts down production at one major production company, it is likely to do the same to competitors.
ANALYZING FINANCIAL STATEMENTS

An analysis of an entertainment company involves scrutinizing the firms financial statements. Some important factors to consider are listed following. Revenues and customer base. What are the revenue sources, and how diverse is the customer base? Some companies, such as broadcasters, rely principally on advertisers, while others, such as video retailers, sell directly to the public. For content owners, distribution and marketing are relevant considerations. To reach the audience, it is important to have favorable distribution outlets (e.g., a time slot on a popular TV network) and the ability to favorably differentiate a firms content from that of other providers. Growth prospects. Are industry revenues expanding, or will a company have to take market share from competitors in order to grow? Are there opportunities to expand through sales to international markets? US movies and recorded music are often hot items with foreign consumers. Quality of earnings and one-time factors. Are there any one-time factors to consider? When looking at either revenues or profits, try to assess any one-time factors that may have inflated or depressed results. For example, earnings may be unsustainably high due to a gain from an asset sale, or they may be unusually low because of a restructuring charge or a one-time write-down of an assets value. Other items that can cause peculiarities in reported profits or in year-to-year earnings comparisons include unusual tax rates and accounting rule changes. If there are significant one-time or nonrecurring items in an earnings report, it is advisable to adjust the numbers to what would be considered normalized levels, which should help to reveal the underlying growth and quality of the companys profits. A change in accounting standards can affect year-to-year comparisons when calculating growth rates. For example, an accounting change in 2002 caused many companies to cease amortizing goodwill as an ongoing expense on their income statements. As a result, reported net income and earnings per share improved, but this should have had little or no impact on actual cash flow. (Goodwill is essentially the extent to which the purchase price for an acquisition exceeds the book value of the asset acquired; previously, its amortization was considered a noncash expense.) Nor did the improved results related to the absence of goodwill expense reflect underlying growth or business health. Going forward, we expect companies will periodically review the value of goodwill on their balance sheet. If the value appears inflated, we would expect companies to take a one-time charge for goodwill impairment. Employee stock options. Standard & Poors also advises examining the extent to which a company issues options to employees and the impact that they have on a companys earnings. Furthermore, if the company has significant pension or employee benefit plans, is the company accounting for them in a realistic and conservative manner?

Cash flow. How healthy is cash flow? Reported earnings may not be an accurate reflection of a companys cash flow generation or financial strength. Keep in mind that some expenses on a companys income statementsuch as depreciation, amortization, and write-downsare noncash items (i.e., they do not represent an actual cash outlay). Companies also generally have cash expendituressuch as production costs for movies that have yet to be released, debt repayment, and dividends to shareholdersthat are not included on the income statement. With movies and TV shows, there may be a period of several years between the start of production and the time, if ever, that the project generates a positive cash flow. To get at least a partial picture of these costs, look for the entertainment companys balance sheet and cash flow statement. The balance sheet, for example, may indicate what level of investment in movies or TV shows has yet to be recognized as costs on the companys income statement, while the cash flow statement should give an indication of both sources and uses of cash. We recommend considering whether the company has potential liabilities or obligations that are not clearly reflected on the balance sheet. These could include, for example, guaranteed payment of a loan that was made to another party. Asset valuations. When looking at a balance sheet, it is also important to judge whether the values reported are accurate measures of the assets total worth. For example, intangible assets, such as brand names or management ability, may not be reflected. At the same time, the value of some assets may need to be revisedsuch as those obtained through an acquisition, or an investment in a costly film that will actually turn out to be a failure. Such assets will likely be reappraised downward in the future. Also, look for noncore assets that could possibly be divested, generating proceeds that could be used to reduce debt, repurchase stock, or invest in other businesses.
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GLOSSARY
AnalogThe conventional system of storing and transmitting sound, pictures, or other material as an electrical wave (or wave form) that is a facsimile, or analog, of the original signal. This analog signal, or waveform, may be amplified, attenuated, or otherwise altered but retains the characteristics of its original signal. Of varying frequency and amplitude, these signals can be susceptible to noise interference. Average revenue per unit/user (ARPU)Term used by telephone carriers and cable system operators for measure of average monthly revenue generated by each customer unit; also referred to as revenue generating units (RGUs). BandwidthThe overall capacity of a transmission system to carry information, measured in bits per second (bps) for digital lines and hertz (Hz) for analog lines. In electronic communication, bandwidth is the width of the range (or band) of frequencies that an electronic signal uses on a given transmission medium. In computer networks, bandwidth is often used as a synonym for data transfer rate and is usually expressed in bits (of data) per second, or Bps. Bits per second (Bps)A measure of the speed by which information is transmitted over certain electronic media. A bit is a single binary pulse of information; megabits per second (Mbps) is million bps; kilobits per second (Kbps) is 1,000 bps. BroadbandHigh-speed Internet access, whether wired or wireless, with data transmission systems carrying multiple signals simultaneously. The term describes any transmission medium that supports a wide frequency range, including audio and video frequencies. It can be multiplexed to carry several independent channels, each in its own bandwidth. Broadband transmission is often in the range of one MHz or more. Broadband satellite service (BSS)A radio communications service that transmits or retransmits broadcast signals via space stations. BroadcastA signal transmitted to all user terminals in a service area. Cable modemA broadband access device which enables a computer to transmit data over a cable line. Cable television (CATV)A delivery system over a network of coaxial or fiber-optic cable that gives subscribers hundreds of video channels. A cable system includes the headend, trunk lines, feeder lines, and drop lines. CatalogOlder releases of recorded product that are not readily available in current retail display or rotation unless otherwise noted or advertised. CompilationA collection of previously-released songs sold as a one album unit, or a collection of new material, either by single or multiple performers, sold as a collaborative effort on one musical recording. DigitalA method of recording, transmitting, or reproducing sound, video, or other material by sampling an analog signal and translating those samples into digital information, or data. Digital subscriber line (DSL)A technology for bringing high-bandwidth information to homes and small businesses over ordinary copper telephone lines. It consists of a twisted-pair copper wire connection with a special modem at either end that filters out background noise and interference and allows high-speed data transfer. Digital television (DTV)Digital TV refers to televisions that can receive and display the digital TV signals that are broadcast over the air or transmitted by cable or satellite systems. The digital format enables the broadcast industry to deliver programs comparable in quality to other digitally delivered services, such as direct broadcast satellite and cable. In the US, digital broadcasting replaced analog in June 2009. DVDAn optical disc storage medium (formerly called digital video disc or digital versatile disc). The technology permits highdensity data storage, including movies with high video and sound quality. DVDs come in several formats. DVD-Video is the format designed for full-length movies compatible with television sets. DVD-Audio is a CD-replacement format with about seven

times the capacity of a CD. The extra capacity in the disc is used to achieve a high-quality, multichannel surround sound that is significantly better than current CDs, and may also be used to include features such as text, graphics, video and interactivity. High definition TV (HDTV)The highest quality digital TV available, offering more than five times the sharpness of analog television, plus digital surround-sound capability. (HDTV has 1125 lines of resolution, versus 525 lines for analog.) The shape of the HDTV picture is more rectangular (widescreen) because the aspect ratio (the relationship of the width to the height of the picture) is different from analog TV. HDTV is one of the two formats available with digital television (standard definition TV is the other). Interactive TVA TV broadcast that allows a viewer to do something other than watch the program, from getting more information, submitting an email, or making a purchase. International Standard Recording Code (ISRC)The international identification system for audio and video recordings on compact discs. Each ISRC is a unique and permanent identifier for a specific recording, and can be permanently encoded into a product. The code consists of 12 characters (letters and numbers, separated by dashes) for the country, registrant, year of reference, and designation code. Because it identifies the owners and other participants in sound and music video recordings, the encoded ISRC can be used for distribution of royalty payments. Recording owners, copyright organizations, broadcasting organizations, and libraries use ISRC codes. Internet-Protocol television (IPTV)Television and/or video signals are distributed to subscribers or viewers using a broadband connection over Internet Protocol (the method by which data is sent from one computer to another over the Internet.) ModemA device that enables a computer to transmit data over telephone or cable lines. MP3 (MPEG audio layer-3)The compression technology commonly used to make digital audio computer files relatively small while maintaining high audio quality. It is one of many formats used for uploading and downloading on the Internet. MPEG is the designation for a group of audio and video coding standards agreed upon by the Moving Picture Experts Group. NetworkA broadcast entity that airs programming and sells commercial time nationally via affiliated and/or licensed local stations. Examples are the NBC television network, the ESPN cable network, and the ABC radio network. PodcastingA method of distributing multimedia files, such as audio programs or music videos, over the Internet for playback on mobile devices and personal computers. Standard definition TV (SDTV)One of the two formats available with digital television (high definition TV is the other). Compared with analog TV, SDTV delivers clearer pictures, but the industry is moving toward even higher resolution with HDTV. SDTV offers 704 lines of resolution, versus 525 lines for analog. (See High definition TV.) Triple playA consumer package that includes Internet, telephony, and television services. Offering triple play on a broadband connection requires the use of IPTV and IP telephony (VoIP). Video on Demand (VOD)A system by which viewers can watch video programs transmitted from a central server to their own TV sets at the time that they choose. Most major cable operators offer VOD to their digital subscriberssome at no extra charge, others for an extra monthly nominal fee. A variant of this service is subscription video-on-demand (SVOD). VoIP (Voice over Internet Protocol)A technology for routing voice conversations over the Internet or any other IP-based network. VoIP involves sending voice information in digital form in discrete packets rather than by using the traditional circuitcommitted protocols of the public switched telephone network. A major advantage of VoIP is that it avoids the tolls charged by ordinary telephone service. Cable operators have been launching VoIP telephony service across their footprints since 2004.
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INDUSTRY REFERENCES
PERIODICALS Billboard http://www.billboard.com Weekly; covers the recorded music industry. Boxoffice Magazine http://www.boxoffice.com Monthly; covers the movie industry. Broadcasting & Cable http://www.broadcastingcable.com Weekly publication covering the television industry. Multichannel News http://www.multichannel.com Weekly publication; covers cable television, telecommunications, Internet video, and multimedia network news. The Hollywood Reporter http://www.hollywoodreporter.com Daily and weekly; covers filmed entertainment. TelevisionWeek http://www.tvweek.com Weekly; covers the broadcast, cable, and interactive media industries. Variety http://www.variety.com Daily and weekly; emphasis on filmed entertainment. BOOKS Entertainment Industry Economics: A Guide for Financial Analysis By Harold L. Vogel Cambridge University Press, 2007 Fact-filled discussions of leisure-time industries, including movies, TV, and music. TRADE ASSOCIATIONS Consumer Electronics Association (CEA) http://www.ce.org Produces numerous publications; monitors shipments of consumer electronic products. DEG: the Digital Entertainment Group http://www.dvdinformation.com An industry-funded corporation that advocates and promotes benefits associated with DVDs and provides information related to the DVD format. Entertainment Merchants Association (EMA) http://www.vsda.org Group representing those engaged in the sale and/or rental of entertainment software. IFPI (International Federation of the Phonographic Industry) http://www.ifpi.org Seeks to represent the music industry and has some 1,400 members in 66 countries. IFPI opposes music piracy, and seeks to help develop legal conditions and technologies for the recording industry in the digital era. Independent Film & Television Alliance http://www.ifta-online.org Comprises small companies that develop, finance, produce, and/or distribute English-language movies and TV programs worldwide. Motion Picture Association of America (MPAA) http://www.mpaa.org Represents mostly larger movie companies. Publishes annual statistical overview of the movie industry. National Association of Theater Owners http://www.natoonline.org Represents owners and operators of US and overseas movie screens. National Cable & Telecommunications Association http://www.ncta.com Represents cable systems, networks, hardware suppliers, and cable TV service firms; provides information on the US cable TV industry, including subscriber counts. Recording Industry Association of America (RIAA) http://www.riaa.com Produces semiannual data on industry shipments; also certifies best-selling recordings.
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RESEARCH FIRMS Screen Digest http://www.screendigest.com Provides market data and financial analysis of the filmed entertainment and interactive media markets. Alexander & Associates http://www.alexassoc.com Reports on home video, home computer use, and interactive entertainment. Forrester Research Inc. http://www.forrester.com Reports on and analyzes technological change, including that related to the entertainment industry. The Nielsen Co. http://www.nielsen.com/us/en.html Provides consumer research and analysis worldwide. Its Media & Entertainment segment, which includes TV, radio, music, books and DVDs, online, and video games, specializes in audience measurement, advertising effectiveness, and overall marketing performance and cross-platform strategies. Nielsen SoundScan is the sales source for the Billboard music charts, making it the official source of sales records in the music industry. Rentrak Corp. http://www.rentrak.com Media measurement and research company providing content measurement and analytical services to the entertainment industry. In addition to measuring box office, home video, set-top box TV and VOD, provides information on consumer entertainment behavior across all digital media distribution platforms. ShowBiz Data Inc. http://www.showbizdata.com Provides news and data related to the movie industry. SNL Kagan http://www.snl.com/Sectors/Media-Communications Provides news, forecasts, and financial data on TV, movies, radio, and Internet media. Veronis Suhler Stevenson http://www.vss.com Private equity firm that invests in the communications, media, information, and education industries in North America and Europe. Publications include Investment Considerations for the Communications Industry and Communications Industry Forecast, which contain data related to television, movie, recorded music, and other industries.
GOVERNMENT AGENCIES Federal Communications Commission (FCC) http://www.fcc.gov Independent US government agency, responsible directly to Congress; regulates interstate and international communications by radio, television, wire, satellite, and cable. CORPORATE INFORMATION EDGAR Database http://www.sec.gov/edgar/searchedgar/webusers.htm Website maintained by the US Securities and Exchange Commission that provides access to corporate documents, such as 10Ks and 10Qs. Quarterly and annual reports can be obtained directly from various companies. For product and other information, see company websites, such as: The Walt Disney Co.: http://disney.go.com Viacom Inc.: http://www.viacom.com ONLINE RESOURCES CNET Networks (part of CBS Interactive) http://www.cnet.com http://www.zdnet.com/news Sources of technology industry information, including news provided through ZDNet News and CNET News.com. The following sites provide news or data on the entertainment industry and/or industry-related links: http://www.boxofficemojo.com http://www.medialifemagazine.com http://www.showbizdata.com http://www.the-movie-times.com http://www.zap2it.com
COMPARATIVE COMPANY ANALYSIS MOVIES & HOME ENTERTAINMENT

Operating Revenues
Million $ Ticker Company Yr. End SEP DEC DEC JUN DEC SEP 2010 38,063.0 784.8 5,063.7 A 32,778.0 26,888.0 9,337.0 H 2009 36,149.0 725.2 4,181.0 D 30,423.0 A 25,785.0 D 13,619.0 7,773.3 514.7 D 13,014.6 1,976.5 A 155,777.0 F 1,583.7 A 5,978.6 2,893.9 1,541.2 D 3,176.0 2008 37,843.0 650.1 4,166.8 D 32,996.0 A 46,984.0 14,625.0 7,230.1 474.4 13,950.4 1,742.3 180,929.0 A D A A,F 2007 35,510.0 767.2 4,185.0 28,655.0 46,482.0 A,C A A D 2006 34,285.0 394.8 3,691.6 25,327.0 44,224.0 A A A,C A,C 2005 31,944.0 C 462.3 2,936.8 A 23,859.0 A 43,652.0 9,609.6 5,175.9 468.9 14,536.4 1,020.6 148,559.0 D A,C A,C D,F 2000 25,402.0 C NA NA 13,400.7 6,886.0 A NA 4,411.0 462.3 20,043.7 NA 128,051.0 C F A,C F MOVIES & ENTERTAINMENT DIS [] DISNEY (WALT) CO DWA DREAMWORKS ANIMATION INC LYV LIVE NATION ENTERTAINMENT NWSA [] NEWS CORP TWX [] TIME WARNER INC VIA.B [] VIACOM INC CAGR (%) 10-Yr. 4.1 NA NA 9.4 14.6 NA 5.1 0.6 (3.5) NA 1.5 24.4 6.5 NA NA NA 5-Yr. 3.6 11.2 11.5 6.6 (9.2) 1-Yr. 5.3 8.2 21.1 7.7 4.3 2010 150 ** ** 245 390 ** 164 106 70 ** 116 885 187 ** ** ** Index Basis (2000 = 100) 2009 142 ** ** 227 374 ** 176 111 65 ** 122 886 186 ** ** ** 2008 149 ** ** 246 682 ** 164 103 70 ** 141 820 225 ** ** ** 2007 140 ** ** 214 675 ** 147 106 70 ** 133 761 240 ** ** ** 2006 135 NA NA 189 642 NA 134 107 71 NA 126 546 224 NA NA NA
13,423.1 D 6,484.5 489.3 14,072.9 1,682.8 169,719.0 D D A A,C
11,466.5 A,C 5,927.5 495.5 14,320.2 1,220.6 160,854.0 976.7 7,176.0 2,598.1 1,323.5 3,516.0 C,D D A D,F A D A A,C A
(0.6) (31.4) 6.9 0.9 (0.7) 16.0 0.1 10.7 (1.5) 2.2 NA (3.2) (7.0) (4.6) 8.0 8.3 (4.3) (0.1) 0.7 (3.0) 34.1 (6.0)
OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CVC [] CABLEVISION SYS CORP -CL A DEC 7,231.2 A,C CKEC CARMIKE CINEMAS INC DEC 491.3 D CBS [] CBS CORP DEC 14,059.8 CNK CINEMARK HOLDINGS INC DEC 2,141.1 GE [] GENERAL ELECTRIC CO DEC 149,060.0 D,F LGF MGM RGC SNI WMG LIONS GATE ENTERTAINMENT CP MGM RESORTS INTERNATIONAL REGAL ENTERTAINMENT GROUP [] SCRIPPS NETWORKS INTERACTIVE WARNER MUSIC GROUP CORP # MAR DEC DEC DEC SEP 1,582.7 C 6,019.2 2,807.9 2,067.2 2,984.0
1,466.4 A 7,208.8 2,771.9 A 1,590.6 3,491.0 D
1,361.0 A 7,691.6 2,661.2 1,441.3 3,385.0 A
951.2 A 6,482.0 A 2,516.7 A NA 3,502.0
178.8 A 3,210.5 A NA NA NA
Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
MOVIES & HOME ENTERTAINMENT INDUSTRY SURVEY
Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies
Net Income
Million $ Ticker Company Yr. End SEP DEC DEC JUN DEC SEP 2010 3,963.0 170.6 (224.2) 2,539.0 2,578.0 1,175.0 2009 3,307.0 151.0 (136.5) (3,378.0) 2,079.0 1,591.0 285.6 (15.0) 226.5 97.1 11,218.0 (19.5) (1,291.7) 95.5 273.2 (100.0) 2008 4,427.0 142.5 (320.2) 5,387.0 (13,402.0) 1,233.0 (226.6) (41.2) (11,673.4) (48.3) 18,089.0 (163.0) (855.3) 72.5 23.6 (35.0) 2007 4,674.0 218.4 (11.9) 3,426.0 4,051.0 1,630.2 23.7 (127.1) 1,230.8 88.9 22,468.0 (74.0) 1,400.5 363.0 (130.4) (21.0) 2006 3,374.0 15.1 (31.4) 2,812.0 5,114.0 1,570.3 (133.0) (19.4) 1,382.9 0.8 20,666.0 27.5 636.0 86.3 233.8 60.0 2005 2,569.0 104.6 (130.6) 2,128.0 2,921.0 1,303.9 (125.9) 0.3 (8,321.8) (25.4) 18,633.0 6.1 443.3 91.8 NA (169.0) 2000 920.0 NA NA 751.7 1,232.0 NA 229.3 (73.6) (363.8) NA 12,735.0 5.5 166.2 NA NA NA 10-Yr. 15.7 NA NA 12.9 7.7 NA 4.8 NM NM NA (0.1) NM NM NA NA NA MOVIES & ENTERTAINMENT DIS [] DISNEY (WALT) CO DWA DREAMWORKS ANIMATION INC LYV LIVE NATION ENTERTAINMENT NWSA [] NEWS CORP TWX [] TIME WARNER INC VIA.B [] VIACOM INC CAGR (%) 5-Yr. 9.1 10.3 NM 3.6 (2.5) (2.1) NM NM NM NM (7.5) NM NM (3.3) NA NM 1-Yr. 19.8 13.0 NM NM 24.0 (26.1) 27.8 NM 219.7 50.5 12.5 NM NM (18.7) 46.7 NM 2010 431 ** ** 338 209 ** 159 NM NM ** 99 (969) (865) ** ** ** Index Basis (2000 = 100) 2009 359 ** ** (449) 169 ** 125 NM NM ** 88 (352) (777) ** ** ** 2008 481 ** ** 717 (1,088) ** (99) NM NM ** 142 (2,947) (515) ** ** ** 2007 508 ** ** 456 329 ** 10 NM NM ** 176 (1,338) 843 ** ** ** 2006 367 NA NA 374 415 NA (58) NM NM NA 162 497 383 NA NA NA
OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CVC [] CABLEVISION SYS CORP -CL A DEC 365.1 CKEC CARMIKE CINEMAS INC DEC (12.6) CBS [] CBS CORP DEC 724.2 CNK CINEMARK HOLDINGS INC DEC 146.1 GE [] GENERAL ELECTRIC CO DEC 12,623.0 LGF MGM RGC SNI WMG LIONS GATE ENTERTAINMENT CP MGM RESORTS INTERNATIONAL REGAL ENTERTAINMENT GROUP [] SCRIPPS NETWORKS INTERACTIVE WARNER MUSIC GROUP CORP # MAR DEC DEC DEC SEP (53.6) (1,437.4) 77.6 400.9 (143.0)
Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.
Return on Revenues (%)

Ticker Company Yr. End SEP DEC DEC JUN DEC SEP 2010 10.4 21.7 NM 7.7 9.6 12.6 2009 9.1 20.8 NM NM 8.1 11.7 2008 11.7 21.9 NM 16.3 NM 8.4 2007 13.2 28.5 NM 12.0 8.7 12.1 2006 9.8 3.8 NM 11.1 11.6 13.7 2010 6.0 10.8 NM 4.7 3.9 5.3 MOVIES & ENTERTAINMENT DIS [] DISNEY (WALT) CO DWA DREAMWORKS ANIMATION INC LYV LIVE NATION ENTERTAINMENT NWSA [] NEWS CORP TWX [] TIME WARNER INC VIA.B [] VIACOM INC
Return on Assets (%)

2009 5.3 11.2 NM NM 2.3 7.2 2008 7.2 10.8 NM 8.6 NM 5.4 2007 7.7 16.7 NM 5.8 3.1 7.3 2006 6.0 1.2 NM 5.1 4.0 7.7 2010 11.1 14.2 NM 10.5 7.8 13.1
Return on Equity (%)

2009 10.0 13.9 NM NM 5.5 20.2 2008 14.0 14.0 NM 17.5 NM 17.4 2007 14.9 21.3 NM 10.9 6.8 22.8 2006 11.6 1.5 NM 9.5 8.3 21.0
OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CVC [] CABLEVISION SYS CORP -CL A DEC CKEC CARMIKE CINEMAS INC DEC CBS [] CBS CORP DEC CNK CINEMARK HOLDINGS INC DEC GE [] GENERAL ELECTRIC CO DEC LGF MGM RGC SNI WMG LIONS GATE ENTERTAINMENT CP MGM RESORTS INTERNATIONAL REGAL ENTERTAINMENT GROUP [] SCRIPPS NETWORKS INTERACTIVE WARNER MUSIC GROUP CORP # MAR DEC DEC DEC SEP
5.0 NM 5.2 6.8 8.5 NM NM 2.8 19.4 NM
3.7 NM 1.7 4.9 7.2 NM NM 3.3 17.7 NM
NM NM NM NM 10.0 NM NM 2.6 1.5 NM
0.4 NM 8.7 5.3 13.2 NM 18.2 13.6 NM NM
NM NM 9.7 0.1 12.8 2.8 8.9 3.3 17.7 1.7
4.0 NM 2.7 4.4 1.6 NM NM 3.0 12.6 NM
3.1 NM 0.8 3.1 1.4 NM NM 3.6 11.5 NM
NM NM NM NM 2.3 NM NM 2.8 1.2 NM
0.2 NM 2.9 2.7 3.0 NM 6.2 14.2 NM NM
NM NM 3.2 0.0 3.0 2.5 3.0 3.5 NA 1.3
NA NM 7.7 15.2 10.4 NM NM NA 25.4 NA
NA NM 2.6 11.4 9.8 NM NM NA 21.6 NA
NA NM NM NM 16.4 NM NM NA 2.2 NA
NA NM 5.5 10.4 19.7 NM 28.3 NA NM NM
NA NM 6.1 0.1 18.6 13.8 18.0 2,241.6 NA 81.6
Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.
Current Ratio
Ticker Company Yr. End SEP DEC DEC JUN DEC SEP 2010 1.1 NA 1.1 2.0 1.5 1.3 2009 1.3 NA 1.0 1.5 1.5 1.2 2008 1.0 NA 0.8 1.6 1.2 0.9 2007 1.0 NA 0.9 2.1 1.0 0.9 2006 0.9 NA 1.0 2.1 0.8 0.9 2010 20.5 0.0 49.8 31.3 32.1 41.7 MOVIES & ENTERTAINMENT DIS [] DISNEY (WALT) CO DWA DREAMWORKS ANIMATION INC LYV LIVE NATION ENTERTAINMENT NWSA [] NEWS CORP TWX [] TIME WARNER INC VIA.B [] VIACOM INC
Debt / Capital Ratio (%)

2009 24.8 0.0 49.2 30.9 30.5 42.6 2008 24.0 0.0 52.5 27.4 41.0 52.7 2007 26.0 6.4 44.8 23.6 32.8 52.6 2006 23.7 6.3 44.6 24.4 31.2 50.8 2010 845.2 NA NM 144.0 367.6 639.5
Debt as a % of Net Working Capital

2009 396.6 NA NM 234.8 362.0 979.4 2008 NM NA NM 255.4 NM NM 2007 NM NA NM 144.4 NM NM 2006 NM NA NM 168.7 NM NM
OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CVC [] CABLEVISION SYS CORP -CL A DEC CKEC CARMIKE CINEMAS INC DEC CBS [] CBS CORP DEC CNK CINEMARK HOLDINGS INC DEC GE [] GENERAL ELECTRIC CO DEC LGF MGM RGC SNI WMG LIONS GATE ENTERTAINMENT CP MGM RESORTS INTERNATIONAL REGAL ENTERTAINMENT GROUP [] SCRIPPS NETWORKS INTERACTIVE WARNER MUSIC GROUP CORP # MAR DEC DEC DEC SEP
0.8 1.1 1.3 2.1 NA NA 1.2 0.7 6.9 0.7
1.0 0.6 1.2 1.8 NA NA 1.3 1.1 4.7 0.7
0.8 0.4 1.1 1.7 NA NA 0.5 0.7 3.8 0.7
0.7 0.5 1.4 1.9 NA NA 0.7 1.0 4.2 0.6
0.7 0.7 1.9 0.9 NA NA 0.9 0.4 3.5 0.7
207.5 100.0 36.2 59.0 74.8 88.8 68.8 133.0 30.3 105.2
173.8 97.0 40.4 61.9 75.9 95.6 65.3 114.2 35.4 95.7
185.2 93.9 43.8 62.7 73.6 100.5 62.6 113.8 5.3 93.0
179.3 85.8 23.2 57.5 70.2 84.1 54.1 107.0 28.4 91.1
179.6 67.4 21.4 69.0 66.0 72.8 64.1 101.1 35.5 89.4
NM NM 456.3 542.2 NA NA NM NM 71.5 NM
NM NM 736.0 735.0 NA NA NM NM 114.6 NM
NM NM NM 937.3 NA NA NM NM 17.0 NM
NM NM 434.6 833.4 NA NA NM NM 109.9 NM
NM NM 187.7 NM NA NA NM NM 177.0 NM
Price / Earnings Ratio (High-Low)

Ticker Company Yr. End SEP DEC DEC JUN DEC SEP 2010 18 - 14 22 - 13 NM - NM 18 - 12 15 - 12 21 14 2009 18 9 23 - 10 NM - NM NM - NM 19 - 10 12 5 2008 15 8 21 - 13 NM - NM 11 3 NM - NM 22 6 2007 16 - 13 16 - 10 NM - NM 23 - 17 21 - 15 19 14 2006 21 - 14 NM - NM NM - NM 25 - 17 18 - 13 20 15 MOVIES & ENTERTAINMENT DIS [] DISNEY (WALT) CO DWA DREAMWORKS ANIMATION INC LYV LIVE NATION ENTERTAINMENT NWSA [] NEWS CORP TWX [] TIME WARNER INC VIA.B [] VIACOM INC
Dividend Payout Ratio (%)

2010 17 0 NM 14 37 16 2009 20 0 NM NM 43 0 2008 15 0 NM 7 NM 0 2007 13 0 NM 11 22 0 2006 16 0 NM 15 17 0 2010 1.2 0.0 0.0 1.2 3.2 1.1 0.9 0.0 0.0 0.8 2.5 0.7
Dividend Yield (High-Low, %)

2009 2.3 0.0 0.0 2.4 4.2 0.0 1.1 0.0 0.0 0.9 2.2 0.0 2008 1.9 0.0 0.0 2.2 3.6 0.0 1.0 0.0 0.0 0.6 1.5 0.0 2007 1.0 0.0 0.0 0.6 1.5 0.0 0.8 0.0 0.0 0.5 1.0 0.0 2006 1.1 0.0 0.0 0.9 1.3 0.0 0.8 0.0 0.0 0.6 0.9 0.0
OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CVC [] CABLEVISION SYS CORP -CL A DEC 29 - 17 CKEC CARMIKE CINEMAS INC DEC NM - NM CBS [] CBS CORP DEC 18 - 11 CNK CINEMARK HOLDINGS INC DEC 15 - 10 GE [] GENERAL ELECTRIC CO DEC 17 - 12 LGF MGM RGC SNI WMG LIONS GATE ENTERTAINMENT CP MGM RESORTS INTERNATIONAL REGAL ENTERTAINMENT GROUP [] SCRIPPS NETWORKS INTERACTIVE WARNER MUSIC GROUP CORP # MAR DEC DEC DEC SEP NM - NM NM - NM 36 - 23 22 - 16 NM - NM
27 - 10 NM - NM 43 9 17 8 17 6 NM - NM NM - NM 24 - 14 26 - 11 NM - NM
NM NM NM NM 22 NM NM 45 NM NM -
NM NM NM NM 7 NM NM 14 NM NM
NM - NM NM - NM 21 - 15 25 - 18 19 - 15 NM - NM 21 - 12 10 7 NA - NA NM - NM
NM - NM NM - NM 18 - 13 NA - NA 19 - 16 47 - 31 26 - 15 38 - 31 NA - NA 74 - 46
38 NM 19 58 40 NM NM 416 13 NM
41 NM 59 81 59 NM NM 116 18 NM
NM NM NM NM 69 NM NM 255 107 NM
0 NM 66 37 52 NM 0 134 NA NM
NM NM 41 NA 52 0 0 207 NA 155
2.2 0.0 1.6 5.9 3.3 -
1.3 0.0 1.0 3.8 2.3
4.3 0.0 6.5 10.7 10.6 0.0 0.0 8.2 1.7 0.0 -
1.5 0.0 1.4 4.8 3.5 0.0 0.0 4.9 0.7 0.0
1.8 25.5 24.3 10.7 9.9 0.0 0.0 17.9 0.8 6.5 -
0.6 3.1 3.9 4.2 3.2 0.0 0.0 5.7 0.3 1.4
0.0 9.9 4.5 2.1 3.4 -
0.0 2.6 3.2 1.5 2.7
55.6 - 34.7 5.2 - 3.4 3.1 - 2.3 NA - NA 3.2 - 2.7 0.0 0.0 6.7 NA 3.4 0.0 0.0 5.5 NA 2.1
0.0 - 0.0 0.0 - 0.0 18.3 - 11.5 0.8 - 0.6 0.0 - 0.0
0.0 - 0.0 0.0 - 0.0 18.2 - 13.8 NA - NA 8.9 - 2.2
Earnings per Share ($)

Ticker Company Yr. End SEP DEC DEC JUN DEC SEP 2010 2.07 2.00 (1.36) 0.97 2.27 1.93 2009 2008 2007 2.33 2.18 (0.17) 1.09 3.27 2.42 2006 1.68 0.15 (0.48) 0.88 3.66 2.20 (0.47) (1.57) 1.81 0.01 1.99 0.25 2.25 0.58 1.43 0.42 MOVIES & ENTERTAINMENT DIS [] DISNEY (WALT) CO DWA DREAMWORKS ANIMATION INC LYV LIVE NATION ENTERTAINMENT NWSA [] NEWS CORP TWX [] TIME WARNER INC VIA.B [] VIACOM INC
Tangible Book Value per Share ($)

2010 4.40 14.50 (7.09) 1.17 (6.71) (3.65) (29.83) (0.04) (7.83) (3.79) 4.19 (0.82) 5.26 (4.48) 2.84 (16.40) 2009 5.39 12.86 (0.28) (0.03) (6.32) (5.38) (26.27) 0.78 (9.49) (5.04) 3.73 (3.47) 7.80 (2.84) 0.19 (16.82) 2008 4.25 11.00 (1.25) (1.71) (23.51) (8.42) (27.79) 1.86 (10.67) (5.24) 0.75 (3.99) 12.81 (2.84) 3.70 (17.92) 2007 3.15 10.24 0.17 2.37 (29.72) (7.67) (25.52) 5.26 (10.51) (4.38) 1.83 (0.31) 15.11 (1.96) NA (18.95) 2006 3.10 9.65 2.17 1.86 (25.05) (7.02) (26.96) 13.14 (7.45) (9.08) 2.52 0.52 7.68 (1.58) NA (17.98) 2010 38.00 44.77 16.90 17.00 34.07 28.71 26.61 8.17 11.61 26.43
Share Price (High-Low, $)

2009 32.75 - 15.14 40.77 - 17.32 8.96 - 2.47 14.00 - 4.95 33.45 - 17.81 31.56 - 13.25 26.43 11.54 14.56 14.85 17.52 9.34 1.00 3.06 6.75 5.73 2008 35.02 - 18.60 32.73 - 20.39 18.75 - 2.73 20.55 - 5.43 50.70 - 21.00 44.19 - 11.60 33.00 - 11.00 11.37 - 1.37 27.18 - 4.36 17.09 - 6.73 38.52 - 12.58 10.97 - 5.15 84.92 - 8.00 20.95 - 6.72 44.98 - 20.00 9.05 - 2.00 2007 36.79 34.99 25.63 25.40 69.45 30.68 22.70 12.50 19.00 48.51 2006 34.89 29.92 24.90 21.94 66.75 23.77 20.05 12.77 15.17 47.10
1.78 2.34 1.75 1.59 (1.65) (4.20) (1.29) 1.82 1.75 (11.22) 2.62 1.97
40.25 - 27.89 36.10 19.00 19.65 19.80 19.70 21.53 5.36 12.26 12.73 13.75
45.40 - 33.74 39.75 27.00 35.75 20.69 42.15 23.58 7.05 25.57 14.83 33.90
43.90 - 32.42 28.80 25.75 32.04 NA 38.49 18.00 16.74 23.85 NA 32.06
OTHER COS WITH SIGNIFICANT ENTERTAINMENT OPERATIONS CVC [] CABLEVISION SYS CORP -CL A DEC 1.25 CKEC CARMIKE CINEMAS INC DEC (0.99) CBS [] CBS CORP DEC 1.07 CNK CINEMARK HOLDINGS INC DEC 1.30 GE [] GENERAL ELECTRIC CO DEC 1.15 LGF MGM RGC SNI WMG LIONS GATE ENTERTAINMENT CP MGM RESORTS INTERNATIONAL REGAL ENTERTAINMENT GROUP [] SCRIPPS NETWORKS INTERACTIVE WARNER MUSIC GROUP CORP # MAR DEC DEC DEC SEP (0.41) (3.19) 0.51 2.40 (0.96)
0.98 (0.78) 0.08 (1.19) (3.25) (10.09) 0.34 (17.43) 1.72 0.89 (0.45) 0.84 1.03 1.79 2.21 (0.17) (3.41) 0.62 1.66 (0.67) (1.40) (3.06) 0.47 0.14 (0.24) (0.62) 4.88 2.39 (0.80) (0.14)
7.84 - 4.81 16.66 - 8.92 18.49 - 11.59 53.34 - 37.94 8.02 - 4.00
7.29 - 3.65 16.89 - 1.81 14.83 - 8.83 42.36 - 18.10 7.80 - 1.58
12.11 - 8.85 ##### - 56.40 23.14 - 17.58 NA NA 23.92 - 5.85
11.65 - 7.66 59.52 - 34.20 21.85 - 17.90 NA NA 31.00 - 19.23
Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.
The analysis and opinion set forth in this publication are provided by Standard & Poors Equity Research Services and are prepared separately from any other analytic activity of Standard & Poors. In this regard, Standard & Poors Equity Research Services has no access to nonpublic information received by other units of Standard & Poors. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.

Industry Surveys: Movies & Entertainment

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Industry Surveys: Movies & Entertainment

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Industry Surveys

Movies & Entertainment

September 15, 2011

Topics Covered by Industry Surveys

Global Industry Surveys

Telecommunications: Asia Telecommunications: Europe Tobacco: Europe

Standard & Poors Industry Surveys

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

2011 CONCERTS SEASON ON PACE AS LIVE ENTERTAINMENT RECOVERS

SUMMER TENT POLES SIZZLE OVER LACKLUSTER 2011 BOX OFFICE

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

HOME VIDEO PROGNOSIS: ERODING DVD SALES VS. BLU-RAY GROWTH

OUR OVERALL MOVIES & ENTERTAINMENT INDUSTRY OUTLOOK

THE FILM INDUSTRY

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

2.1 4.8 9.4 10.4 11.4 15.6 90.4 9.6 100.0

2.7 10.3 18.6 8.9 11.6 2.5 91.4 8.6 100.0

1.1 16.4 13.2 2.4 11.0 18.4 93.3 6.7 100.0

82 1,715 1,283 523 882 1,924 81 10,171 396 10,567

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

THE MUSIC BUSINESS

DIGITAL DOWNLOADS (MILLION UNITS DOWNLOADED)

INTERNATIONAL MARKETS PROPEL GROWTH IN FILMED ENTERTAINMENT

Chart H02: WORLDWIDE BOX OFFICE

10.6 2009 International

SHIFTING PARADIGM FOR CONTENT DISTRIBUTION CHANNELS

APPS EXPLOSION FUELS NEW BATTLEFRONT FOR CONTENT PROVIDERS

THEATERS ON TRACK WITH 3D SCREEN DEPLOYMENT

Chart H04: DIGITAL SCREENS

Chart H03:8 US/CANADA 3D FILM RELEASES 6 AND BOX OFFICE

Source: Motion Picture Association of America.

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

OVD PLAYERS MAKING SOME MAJOR FORAYS

AOL, Apple, Fancast, Google, Hulu, MSN, Netflix, Yahoo!

MAJOR STREAMLINING OF FILM OPERATIONS

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

HOW THE INDUSTRY OPERATES

MOVIES: AN ESCAPE FROM REALITY

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

TV LANDSCAPE: A GAME OF MUSICAL CHAIRS

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

MULTI-CHANNEL DISTRIBUTORS: CHALLENGING THE STATUS QUO

MUSIC LABELS: HEDGING THEIR BETS

KEY INDUSTRY RATIOS AND STATISTICS

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

HOW TO ANALYZE AN ENTERTAINMENT COMPANY

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

ANALYZING FINANCIAL STATEMENTS

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

MOVIES & ENTERTAINMENT / SEPTEMBER 15, 2011

COMPARATIVE COMPANY ANALYSIS MOVIES & HOME ENTERTAINMENT

13,423.1 D 6,484.5 489.3 14,072.9 1,682.8 169,719.0 D D A A,C

1,466.4 A 7,208.8 2,771.9 A 1,590.6 3,491.0 D

1,361.0 A 7,691.6 2,661.2 1,441.3 3,385.0 A

951.2 A 6,482.0 A 2,516.7 A NA 3,502.0

MOVIES & HOME ENTERTAINMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

MOVIES & HOME ENTERTAINMENT INDUSTRY SURVEY

Data by Standard & Poor's Compustat A Division of The McGraw-Hill Companies

Return on Revenues (%)