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ATTORNEY / CLIENT PRIVILEGED Confidential Draft

Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY November 2008. ATTORNEY / CLIENT PRIVILEGED Confidential Draft. Access Rules. 1a. Separate User Payment to Opt-in for all Services besides Netflix Starz Play would require a separate brand, payment, and user action to add on.

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ATTORNEY / CLIENT PRIVILEGED Confidential Draft

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  1. Starz / Netflix Considerations FOR SONY INTERNAL USE ONLY November 2008 ATTORNEY / CLIENT PRIVILEGED Confidential Draft

  2. Access Rules • 1a. Separate User Payment to Opt-in for all Services besides Netflix • Starz Play would require a separate brand, payment, and user action to add on. • Advantages • In conjunction with deemed prices (on next page), increases likelihood of an end-user charge and downstream perception of “premium” service • Disadvantages • Separate payment can be “gamed” with $0.01 add-on charges • 1b. Separate User Action to Opt-in for Netflix • Starz Play on Netflix will not require a separate charge. But access to Starz Play will require separate branding and affirmative user action to add-on. In other words, Netflix users do not automatically receive Starz Play unless they proactively opt-in • Advantages • In conjunction with requiring Netflix to bundle on a higher tier, further narrows the universe of Netflix users with access to the Starz Play service • Disadvantages • May not be necessary to ask for at highest tiers.

  3. Access Rules • 2a. Premium Pricing Protection for Services other than Netflix • Deemed Price - For a Service Including Pay 1, Pay 2 and Library • A la carte or $4.99 tier $ 9.99 • $8.99 tier $ 8.99 • $13.99 tier $ 7.99 • $16.99 tier $ 6.99 • >$16.99 tier $ 5.99 • Deemed Price - For a Pay 2/Library Only • A la carte or $4.99 tier $ 5.99 • $8.99 tier $ 4.99 • $13.99 tier $ 3.99 • $16.99 tier $ 2.99 • >$16.99 tier $ 1.99 • Advantages: • Starz Play may be bundled, but the pricing floor increases as the base tier gets cheaper • Disadvantages: • Deal Risk for Starz: Starz may have trouble controlling price to consumer, which is set by Starz partners. Starz would have to pass through its obligations to Sony set out above

  4. Access Rules • 2b. Premium Pricing Protection for Netflix • Starz Play may only be bundled with the $16.99 or higher tier • Advantages • Simple solution for ensuring offering is viewed as premium without requiring Netflix to “retrofit” an add-on charge into their model • Disadvantages • Limits Netflix ability to offer more broadly on an a la carte basis or as an add-on to lower tiers • Need to discuss mechanism for enforcing this

  5. Deemed Price / Revenue Share Model Sony receives the greater of a Deemed Price Calculation and Sony’s Share of 60% of any Flat Fee Starz receives Sony’s Share Definition • Sony Title Share -- Number of Sony Titles in the Offering / Total Titles in the Offering, OR • Sony Usage Share -- Number of Sony Movies Viewed on Starz Play / Total Movies Viewed (may be more volatile on upside and downside) Subscriber Definition • For Netflix – Anyone that has gained access to Starz Play by: • Subscribing to the Netflix $16.99 tier or higher • AND, Proactively opting-in to gain access • For those other than Netflix – Anyone that has gained access to Starz Play by: • Paying for access to the service Deemed Price Calculation • For Netflix: • Sony Share X 60% X $4.99 X Subscribers X Starz Share • Starz Share is assumed to be 60% X $4.99 • For those other than Netflix • Sony Share X 60% X Deemed Price (See 2a.) X Subscribers X Starz Share • Starz Share is assumed to be 60% X (the greater of deemed price or actual price) • * The 60% share could be reduced, eg, to 50% for a full service and 40% for a Pay 2/Library only service

  6. Other Considerations As a working team, we should discuss the potential need to forgo the Deemed Price Calculation and work with a straight revenue share • Advantages • Reduced deal risk for Starz because (a) Sony isn't paid based on actions such as usage and opt-ins beyond Starz' control and  (b) Starz has flexibility to price based on where market is in a given year (i.e., lower in early years, higher in out years) • Sony Upside: Sony would rely on Starz' self interest to cut the best deals possible. • Disadvantages • Starz may cut a bad deal • Deal risk for Starz: if Disney/others insist on a different apportionment mechanism, then Starz could come out underwater

  7. FINANCIAL EXAMPLES

  8. Netflix Example

  9. Theoretical Service

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