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Reorienting Game Show Network for Casual Games Market

Proposed reorientation of Game Show Network to capitalize on the growth of casual games off TV. Seeking a multi-platform game business model to attract a similar but not identical audience with a similar but not identical consumer experience.

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Reorienting Game Show Network for Casual Games Market

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  1. Discussion MaterialsOctober 4, 2007

  2. Summary • Very undesirable audience from a TV perspective • Limited reach to launch hit or demo-changing shows • Incremental improvements more difficult due to: declining ratings, fragmentation, return of game shows to broadcast, affiliate pressures • Ambitious re-orientation of business proposed to capitalize on growth of casual games off TV • Seek genuine multi-platform games biz model: packaging, online ad sales, online fees, formats, mobile • Key issue: can Game Show Network broaden to attract similar, but not identical, audience with similar but not identical consumer experience?

  3. Current Situation

  4. 2007 Forecast * Other Revenue includes casino site fees, international series licensing, lottery ticket and merchandise licensing. SG&A & Other costs exclude benefit from appreciation plan settlement.

  5. Historical financial performance * Other Revenue includes online ad, online games, participation TV fees, casino site fees, international series licensing, lottery ticket and merchandise licensing. 2007 SG&A & Other costs include Participation TV and exclude benefit from appreciation plan settlement.

  6. Ratings trend 2007 07 Budget targets HH ratings P25-54 ratings Source: Nielsen Media Research, full-day average basis.

  7. Efforts to broaden the audience: original programming Cash spend by genre (000): * * Does not include World Poker Tour, $2.8M spent in 2007, $4.1M due in 2008, plus $3.0M marketing commitment ($1.5M hard-dollars) in 2008.

  8. 2007 programming & marketing spend * Does not include World Poker Tour, $2.8M spent in 2007, $4.1M due in 2008, plus $3.0M marketing commitment ($1.5M hard-dollars) in 2008.

  9. Female skewing audience Audience composition: Source: Nielsen Media Research via Marketbreaks. 1/1/07-8/26/07.

  10. Older skewing audience Audience composition: * * GSN median age = 61. Source: Nielsen Media Research via Marketbreaks. 1/1/07-8/26/07.

  11. Competitive ranker P25-54 VPVH prime Source: Nielsen Media Research via Marketbreaks. 1/1/07-7/29/07. M-Su 8p-11p.

  12. Moderate to low income audience Source: Nielsen Media Research via NPower. 1/1/07-7/29/07. M-Su 8p-11p.

  13. Dayparts are not clearly differentiated Current GSN schedule; ratings / VPVH for 3Q07.

  14. Majority of GRPs still from re-run game shows Formats as % of total GRPs: • Casino, reality, all other • GSN original game shows • Library game shows, modern • Library game shows, classic * 2007YTD is through end of 8/31/07.

  15. DR unit rates higher than general rate

  16. Declining delivery creates make-good challenge

  17. Participatory elements are minor Revenue (000): * * Other includes casino site fees, international series licensing, lottery ticket and merchandise licensing.

  18. Online business still small Source: Rank out of 125 listed games sites; ComScore, My Metrix, July 2007

  19. Reach is low, new show launches a challenge Source: Nielsen Media Research , August 2007. Rank out of 72 major nets, total monthly cume, HH basis.

  20. Poker is an island % female comp: Source: Nielsen Media Research, 1/1/07 – 9/21/07.

  21. We are vulnerable to migrations • Migrations 2006-2007 YTD • Comcast: 6.0M EB subs lost (net loss = 2.1M) • Time Warner: 850K EB subs lost (net loss = 425K) • Threatened migrations through 2008 YE • Comcast: 4.8M EB subs (proj. net loss = 1.5M-2.2M) in Boston, Albuquerque, Sacramento, Pittsburgh, Florida • Charter: 2.5M EB subs (proj. net loss = 850K) in Los Angeles, Madison, Greenville • Time Warner: 350K EB subs (proj. net loss = 125K) in NE Ohio

  22. GSN’s strategic advantages • The only network in this space • 66.4 million Nielsen UE • Solid household core • Audience is highly engaged • Audience over-indexes on computer / internet usage • Casual games space has exploded • GSN demographic a plausible fit with casual games

  23. Opportunity

  24. Casual games opportunity • 55 million online casual gamers in the U.S. • The #2 activity on AOL, behind only email / IM • The “stickiest” form of online entertainment • Heavily female • Older than typical internet audience • Multiple but modest-sized revenue streams (ad, subscription, download, cash games, etc.)

  25. Casual games usage is heavily female Total time spent on game sites (US): (in millions of minutes) Women 55+ • F25-54 player averages: • 9.0 days per month • 22.1 min per usage day • 199 min of play per month • F55+ averages: • 296 min per month Men 25-54 18-24 41% 59% Source: ComScore Media Metrix, July 2007

  26. “Stickiness” of best-in-breed sites Frequency Duration Sources: ComScore Media Metrix, July 2007

  27. GSN and casual games audience intersection GSN TV audience Casual games top sites All US TV HH WorldWinner Sources: ComScore Media Metrix; Nielsen Media Research

  28. High audience engagement Length of tune-in; rank out of 72 major nets: RANK 1 HALL 7 LIFE GSN 10 COURT 13 23 FAM 35 WE 36 OXYG G4 50 Source: Nielsen Media Research, full-day HH basis.

  29. Audience over-indexes on computer / internet usage Of 72 major networks, GSN ranks #1 in F25-54 and #4 in P25-54 for indexing of heavy computer / internet usage: Source: MRI Doublebase 2006. P25-54 and F25-54. Heavy computer / internet = 10+ hours per week.

  30. What to do

  31. 6 key objectives in building business plan • Accept fundamentally older female demo, gradually seek to get marginally younger • Make play, accessible participation central to all programming • Focus on brand • Market untraditionally • Build multi-platform business models • Own, exploit our own IP

  32. Revitalize air while staying true to core • Game shows remain the workhorse of the schedule • Create sense of “lights on” at network • Interstitials • Games • Same-day promotion • IDEA: Utilize a substantial live-hosted block to establish unique tone, new business models, refresh library programming • Current thinking: fringe 4-7pm, 6-8 minutes per hour • GSN, online promotion • Live games with prizes • Tied to programming • Major sponsorship vehicle

  33. continued… • Substantial programming / marketing investment • Production costs estimated at $2 million per 13 weeks • Prizes estimated at $0.5 million per 13 weeks • Lost ad inventory to stay on clock, foregoing $1 million in revenue per 13 weeks • Single feed (some cost recapture) • Build greater differentiation between dayparts • Idea: use varying degrees of participation to define blocks, counter-program broadcast game shows • Poker as an island • Drop or create “male swim”

  34. Play games, utilize accessible interactivity all day • Trade technological innovation for accessibility • Vary levels of interactivity • Interstitials • Audience participation shows (e.g. “Bingo”) • Playmania-type • Long-term games, continuity • Real stakes • Invest in prizing • Seek sponsorships, partnerships • Create currency • Cross-platform driver • Encourage team, league play to build community • Drive subscriber growth • Partner with affiliates for walled garden games

  35. Build strong well-defined brand, targeting actual core audience • Look and feel of network, programming / marketing choices reflect: • Female • Casual • Accessible, not edgy • Family friendly • Competitive but fun • Ever-present diversion • Participatory but not technology driven • Focus on brand in everything we do • Focus on our community – GSN is “their” network • 4.9 million registered users • Embrace identity • Celebrate, don’t run away from classics • Tie classics to online games

  36. Market unconventionally • Shift off-air media resources to prizing • Focus marketing on community • Focus on GSNtv.com community • Games as continuity – build our own currency • Be TV partner of all major games sites • Barker channel for games community • Syndicate games widely • Affiliate sites • Partner portals • Advertisers • Arbitrage opportunities to showcase brand • GSN HD (see appendix 1) • GSN radio (costs < $1 million / year) • GSN location

  37. Build cross-platform business model • Packaging value: use online to monetize low-value TV audiences, TV to monetize free casual gamers • Targeting, engagement the key to ad pricing, not audience size • Merge WorldWinner into GSN.com (see appendix 2) • Jump-start monetization online • Greater sophistication regarding traffic, metrics • Acquire female-oriented casual games sites to achieve necessary scale (approx. 10 million uniques) • Immediate need to expand model • GSN slow starter – 700K monthly uniques • Several sites at 1 to 3 million uniques can be bought for 5-7X revenues • Advertising services agreements an alternative, complement

  38. continued… • Focus programming spend on sub-brands, formats that can thrive cross-platform • Create GSN mobile brand • Packaged with ad sales effort • Acquire or partner • Use prizes to build audience • IDEA: launch an all-participation network on revenue share model with affiliates

  39. Own IP as core of originals strategy • Focus on cross-platform franchises and rights • Experimental (shorter runs, varied formats) • Lower cost, higher frequency • Development lab (team of 7-10 people, cost < $1 million / year) • Build flexible production facility (see appendix 3) • Partner with Imagination Entertainment (see appendix 4) • IDEA: buy library, preferably Goodson (at least North America) • Essential to secure base, defensive position • Unlimited multi-platform rights • Format, remake rights • Clip flexibility • BUT, remain open to external development • Full freedom to monetize

  40. Team

  41. Senior management

  42. Build an equity culture • Current bonus programs have essentially no performance variability • Annual cost: $2.5 million • “Profit-sharing” scheme anything but • Annual cost: $425K • Need team focus on building long-term equity value, rather than annual EBITDA • Recent payout demonstrates problems with “valuation” approach to group compensation • IDEA: rolling deferred bonus plan (see appendix 5)

  43. Governance

  44. Proposed changes to governance • Remove normal operating decisions from required board approvals • Greenlighting original shows • Licensing IP • Replace approvals with approval thresholds • Affiliate agreements impacting > 10% of subscriber base • Budgeted line item increases or unbudgeted expenses > 0.5% of annual revenue • Hiring approvals limited to CEO, CFO, and executives with guaranteed comp > $1.5 million over length of contract • Approvals for commencing or settling litigation limited to cases with settlement or amount in controversy > 0.5% of annual revenue • IDEA: bring in outside board members to add perspective, establish relationships • Differentiation between owners’ required approvals (capital structure, M&A, CEO hiring, annual budget) and normal board operations

  45. Appendices

  46. Appendix 1: GSN HD • Upgrade current Bowtruss master control, operations center, and uplink infrastructure to full HD capabilities • Increased exposure for GSN within narrower HD channel lineups • Meet affiliate needs for HD programming volume • Modern acquired programming increasingly available in HD • GSN would begin building an original HD library • Financial impact • Facilities cap ex: $1.9 million • IRD receivers for MSO head-ends: $7.4 to $12.4 million over several years, pending MSO demand and receiver pricing declines • Incremental operating expenses: $822K per year • 15% premium to produce originals in HD

  47. Appendix 1: GSN HD

  48. Appendix 2: WorldWinner • The #1 ranked casual skill games site • 2.1 million uniques • Skill games provider to AOL, MSN, Pogo, GSN • Business model based on fees for administering online cash entry tournaments and competitions • Entry fees range from $1 to $10 per tournament • Average entry fee: $1.90 • WorldWinner retains 20% • High growth mode • Revenue: 2007 = $43M; 2008E = $65M; 51% growth • EBITDA: 2007 = $8M; 2008E = $12M; 50% growth

  49. Appendix 2: WorldWinner is an “upsell” for the most passionate online players 12 DAYS+ (74% of users) PLAYING DAYS / MONTH: AVG. = 4 DAYS Sources: ComScore Media Metrix, July 2007; WorldWinner study

  50. Appendix 3: GSN Studios production facility • Flexible production facility allows GSN to bring content from conception to air quickly, while saving costs • Environment in which to rapidly pilot and test new concepts • Produce more programming in-house; greater control and savings • Increased live programming capabilities, interstitials • Improved flexibility in advertising / sponsorship integration • Increased production of online broadband content, GSN radio, etc • GSN will realize financial and operational efficiencies • $12.4 million capital outlay • 14 FTEs decrease reliance on outside companies • $2.1 million annual operational savings (Bowtruss rent, studio rentals, outside production teams) • 5.8 year payback period, assuming $0 rental revenues

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