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Sony Pictures Entertainment: “The Interview” Roy Ju - Michael Jennings - Nina Liu.

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Presentation on theme: "Sony Pictures Entertainment: “The Interview” Roy Ju - Michael Jennings - Nina Liu."— Presentation transcript:

1 Sony Pictures Entertainment: “The Interview” Roy Ju - Michael Jennings - Nina Liu

2 Recommendation  December 31, 2013: positive profitability prospects  December 16, 2014: decreased profitability prospects  Consider creation of SPV to cover expected lawsuit settlements  December 20, 2014: negative profitability prospects

3 Cash Flow Projection  Dec 31, 2013  Revenue Streams and Profit Retention  Theater Box Office: 30%  DVD and Blu-ray sales: 50%  Pay-Per-View: 100%  Premium Services: 100%  TV Broadcasts: 100%  Budget: $44 million

4 Peer Group  7 movies with similar characteristics  Genre and Target Audience  Budget  Same Entertainment Company  Christmas Day Release  Box Office Sales  Projected Box Office Sales: $273.5 million

5 Capital Budgeting Analysis  Results:  Beta = 1.33  WACC = 9.06%  NPV = $38.82 million  ROIC = 88.2%

6 Sensitivity Analysis % Change in SalesNPV (in millions) Baseline$ %$ %($2.59)

7 Profitability after Terrorist Threat  Dec 16, 2014  88% retention of box office sale forecast  Increased operational risk (expected lawsuit settlements) = $.26 million  Peer group expanded  Increased Beta, increased WACC  NPV = $21.54

8 SPV Diagram SPV Investors Credit Rating Agency Sony

9 SPV and Catastrophe Bonds  NPV after SPV = $16.58 million  Offload risk  Operational  Liquidity  $102 M in principal, 7.5%  Current low-interest environment  Vs. reinsurance  WACC adjustment immaterial

10 Sensitivity Analysis 12/16/2014Before SPV (in mill)After SPV (in mill) % Change in Sales NPVVaRNPVVaR Baseline$21.54($44.59)$16.58$ %$4.37($61.77)($0.59)$ %($12.81)($78.94)($17.77)($12.64)

11 Profitability after Normal Release Cancellation  Dec 20, 2014  Decrease in quantity of sales, 50% increase in price  Decreased expected lawsuit settlement amount  Cap bond issuance at $42.5M  Expected Loss on Project

12 Sensitivity Analysis 12/20/2014Before SPV (in mill)After SPV (in mill) % Change in Sales NPVVaRNPVVaR Baseline($3.63)($31.19)($5.70)($3.56) -25%($14.49)($42.05)($16.56)($14.42) -50%($25.35)($52.91)($27.42)($25.28)

13 Conclusion  Mitigate Risk  SPV and Catastrophe Bonds  Minimize Loss  Marketing Strategy

14 Thank You   


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