Key Trends in the Entertainment Industry: Digital Access, Changing Consumption Patterns, and Retail Partners

1. Key Trends, Issues, and Opportunities for SPE’s Mid-Range Plan August 27, 2010 CONFIDENTIAL

2. Entertainment Industry Megatrends (1 of 2) Accelerating Pace of Digital Access • In the next five years, digital technologies will accelerate as a means of accessing all forms of entertainment and media • Worldwide broadband households are projected to increase at a 7% CAGR from 487.2MM in 2009 to 677.1MM in 20141 • Proliferation of technologies for viewing video digitally • Worldwide 3G-enabled smartphone shipments are expected to grow at a 50% CAGR from 131MM units in 2009 to 656MM units in 20132 • Worldwide connected game consoles households are expected to grow at a 14% CAGR from 94.8MM in 2010 to 160.7MM in 20143 • Worldwide connected TV 3 households are projected to grow at a 51% CAGR from 49.7MM in 2010 to 255.8MM in 2014 • Increasing consumption of filmed entertainment • B.O. admissions and ticket prices grew through 2009; future revenue growth expected to be primarily from ticket price increases, including premium for 3D • HE total transactions were up through 2009 as customers adopted new business models and accessed content through new platforms • However, consumers are increasingly driven by convenience. Low-margin rental models evolved to meet this need, capturing much of the increased demand • Kiosk and subscription rentals are projected to continue to grow, accounting for 52% of the US consumer rental spending in 20134 • Global video piracy is still strong and is expected to increase, driven in part by rising broadband penetration • Changing Consumption Patterns Source: 1 ScreenDigest 2 Morgan Stanley, "The Mobile Internet Report," December 15, 2009 3 Parks Associates, Connected TV figure does not include digital video players, connected game consoles or connected Blu-ray players 4 SPE Home Entertainment

3. Entertainment Industry Megatrends (2 of 2) Retail Partners • Physical retailers are converging with digital offerings (Wal-mart/Vudu, Best-Buy/CinemaNow, Amazon) • Digital models differ significantly from physical, yet retailers are attempting to blend the two, squeezing the studio’s for margin • Pure “rentailers” like Hollywood Video, Movie Gallery and Blockbuster have entered or are facing bankruptcy and studios are losing shelf space • Emerging Markets • Emerging markets will see the fastest growth in media spend, but cannot be handled with a uniform approach • Spending on M&E: Latin America 8.8%, Asia Pacific 6.4% CAGR (’10-’14) vs. North America 3.9% and Europe/Middle East 4.6%1 • Not all markets work well for media: China’s media spend is forecast to grow at 12%, but piracy concerns, quotas, and poor retention for Western content results in limited profit opportunity1 • India, by contrast, is showing rapid growth, including TV subscription revenue forecast to grow at 12.3% CAGR through 20141 Source: 1 PricewaterhouseCoopers, Global entertainment and media outlook: 2010-2014

4. Impact on Entertainment Economics and Industry Responses (1 of 2) • Despite faster growth in digital revenues, traditional/physical revenue streams will remain significantly larger for the next five years • Continued Importance of Physical Revenues • Declining home entertainment market driven by shift from higher-margin sell-through to lower margin kiosk and subscription rental • New release sell-through box office factor is 39% below 2006 peak1 • Rental transactions are roughly flat, but margins down with shift to kiosk and subscription • Catalog revenues are declining at a concerning rate Home Entertainment: Impact on Economics • Studios seek to sustain higher-margin physical models where possible, emphasizing Blu-ray and using superior functionality and bundles as drivers • Studios nurturing emerging digital transactional models (EST, VOD) – achieving high growth rates but off a small base • Studios are emphasizing higher margins within emerging models • Experimenting with windowing strategies, including day-and-date VOD and early windows • Segmenting product by window to limit cannibalization of higher-margin product • Home Entertainment: Experimentation w/ new models Source: 1 Nielsen Home Scan, title-level analysis; box office adjusted for inflation and 3D admissions

5. Impact on Entertainment Economics and Industry Responses (2 of 2) • 3rd party film financing sources are demanding improved economics under attractive terms, less capital is available • Franchises remain critical drivers of studio profits and must be maximized across all revenue streams • Studios are increasingly focused on tight cost management. However talent costs, production budgets, and marketing have not dropped sufficiently Film Production • Networks • Network revenues are expected to see continued growth • Subscriber revenue has proven recession-proof • Key ad markets are rebounding • Competition is increasing to roll-out channels worldwide, but numerous opportunities still exist to launch new networks • Distribution • New digital players in the U.S. (e.g., Hulu, Netflix) are acquiring content in the premium subscription window, creating an additional customer for SPE • Broadcast and cable partners are seeking expanded digital and cross-platform rights to remain competitive with emerging competitors • Production • U.S. demand for dramas (procedurals) and comedies is on the rise; non-scripted is still in-demand but only a few series break-out • International production is rapidly consolidating but opportunities still remain in key markets (UK, India) • TV Revenues

6. SPE-specific Issues and Initiatives (1 of 3) Overall Economics • Pursue opportunities to generate cash with a goal of becoming cash flow positive • Increase margins and overall operating income to exceed $500 mil in FY13 and FY14 • Secure and fully exploit franchise films • Potential franchises in Girl with the Dragon Tattoo, Smurfs, Karate Kid, 21 Jump Street • Re-establish/continue to exploit existing franchises in Spider-Man, Men in Black, Ghostbusters, Ghost Rider, Dan Brown films, Resident Evil, Underworld • Continue to reduce talent costs • Talent compensation structures are shifting from first dollar to post-breakeven deals • Emphasize films with international potential • Action, family and franchise films (e.g. Girl with the Dragon Tattoo, Men in Black 3, Smurfs) • Continue to pursue attractive financing options and deal structures • Prioritize investment on higher margin films • Film Economics

7. SPE-specific Issues and Initiatives (2 of 3) • Physical • Continue to grow Blu-ray segment by promoting new product features (3D, BD-Live, digital copy) and adjacent initiatives (DVD2BLU, MOD) • Implement rigorous commercial planning approach to maximize the profit potential of each title – from manufacturing strategy to retail execution • Restructure organization to be more flexible and responsive to changes in the market, including CPG-like customer channel alignment • Digital • Lead physical customers in transition to digital business model (Amazon, Wal-Mart/Vudu, Best Buy/Cinema Now) – be the ‘category captain’ for digital • Develop product features that make ownership model more attractive for consumers (Ultraviolet, short-form apps, e-fulfillment, digital extras, playlists) • Continue to experiment with release windows (day/date VOD, early windows) to drive higher-margin transactions • Home Entertainment

8. SPE-specific Issues and Initiatives (3 of 3) • Networks • Continue to invest in television networks internationally, including channels in India • Continue to invest in U.S. channels and increase U.S. channels contribution • Production • Increase television production presence in highly strategic markets including UK and expand to emerging territories • Expand number of television shows in syndication in the U.S. • Distribution • Expand SPT's distribution presence in selected emerging markets (Middle East, Africa, Hungary, Central and Easter Europe) and key markets (Netherlands and Scandanavia) • Capitalize on new distributors, complete direct-to-video deal with Netflix Television • Additional Growth Opportunities • Pursue growth opportunities in 3D across entire business (theatrical releases, Blu-ray releases, television networks, and technology) • Leverage Sony United collaboration opportunities page 7

9. Opportunities for Sony to Facilitate SPE Growth • Launch a robust content service across all Sony devices • License existing SPE content to benefit devices • Provide a platform for launching new film and TV content • Ensure Sony hardware supports digital rights locker models, including Ultraviolet that will help grow higher margin EST model • Include HDMI cables with all devices to support digitally secure offerings in earlier windows (e.g. premium home theater) • Leverage Sony playback device and connected device installed base to support growth in Blu-ray and electronic sell-through products • Movie-device bundles • Content services that develop advanced sell-through specific features (digital extras, exclusives, etc) • Continued commitment of capital to enable ongoing investment in international networks, a key driver of the business' growth