1. UK Digital Discussion September 2011

2. page 1 Executive Summary – Industry Trends As consumer behavior shifts and digital consumption increases, the windowing concept remains –Existing windowed distribution models are expected to remain in place Initially, titles are monetized most strongly in sale and rental Thereafter, sold in exclusive packages that support channel or online distributor brands for subscription and ad-supported models However, new windows and business models are being added –For Hollywood studios, each existing consumer business model is expected to have an analogous digital component (e.g., ad-supported, subscription and transactions, both rental and sale) –New windows for VOD, and potentially EST, are being introduced to driver higher value As with existing models, the margins for these new models vary widely –In this landscape, studios seek to emphasize and drive adoption of higher margin digital models Privileged and Confidential; For Discussion Purposes

3. page 2 The UK market, similar to the US, is in the early stages of developing a vibrant, legal digital marketplace –Globally, digital transactional revenues already represent in excess of 25% of the home entertainment business contribution, and this number is expected to increase rapidly –In the UK, the physical market is characterized by a higher than normal mix of sales to rental for films, and the early indicators online generally support digital ownership as a viable product Challenges in driving the sale of digital product today are four-fold –Encouraging consumers to own content, rather than rent or steal –Improving the digital product proposition –Driving the speed of adoption and movement of product online while managing incumbent businesses –Addressing bandwidth and infrastructure issues Ensuring a viable marketplace for digital downloads will require –Making the product digitally available at the right price, both SD and HD –Ensuring that incumbent players do not inhibit the development of the digital marketplace –Managing piracy appropriately –Supporting infrastructure development Privileged and Confidential; For Discussion Purposes Executive Summary – Digital Marketplace and a Way Forward

4. Background – Industry Trends Consumer views on digital Current status and challenges to digital adoption Driving further adoption Agenda page 3 Privileged and Confidential; For Discussion Purposes Back- ground Consumer & Digital Challenges Driving Adoption

5. Traditional Windows Privileged and Confidential; For Discussion Purposes Theatrical Hotel & Airline DVD Sell-Through & Rental PPV / VOD Pay TV Broadcast +60 Days+90 Days+120 Days+2 years0 Days +180 Days From CY1998 to CY2005, the industry’s window structure was generally stable, generating strong profits for studios during the growth period of the DVD market: page 4

6. Introduction of subscription/kiosk rental and EST Privileged and Confidential; For Discussion Purposes Theatrical Hotel & Airline DVD Sell-through and Brick & Mortar Rental PPV / VOD Pay TV BroadcastSubscription Rental Kiosk Rental (primarily U.S.) Electronic Sell-Through +60 Days+90 Days+120 Days+2 years0 Days +200 Days VOD and EST are digital counterparts to physical rental and sell-through offerings (respectively) Subscription (LoveFilm, Netflix) and kiosk (primarily U.S.) rentals have come to market as a low-cost alternative to consumers and is contributing to declining home video profits Studios are experimenting with other offerings, such as Premium Home Theater, a high priced PPV/VOD product offered in advance of other home entertainment offerings page 5 Home Theater +45 Days

7. The three major windows each capture roughly equal gross profits – Digital’s growth has helped offset declines in physical home video % of Gross Contribution 10 Year Gross Contribution 1, by Window FY10 Theatrical Releases 40% 25% 35% Notes:1.Before marketing, amortization, and overhead 2.Except for Netflix (subscription model) 3. ~70% of physical contribution occurs in the In-Home Transactional window ExhibitionIn Home Transactions 2 Multiple Business Models Privileged and Confidential; For Discussion Purposes page 6

8. Digital is an attractive opportunity for content owners and retailers Privileged and Confidential; For Discussion Purposes page 7 Digital has higher margins relative to physical for both sell-through and rental Traditional B&M offerings and new digital offerings all have higher margins than low-cost subscription and kiosk business models EST BD DVD VOD B&M Kiosk High Margin Low Margin Sub. Mail Sell- Through Rental Digital Key Observations Relative Margins by Business Model

9. The UK has a relatively strong sell-through market, leaving it more exposed to piracy and introduction of lower-cost rental options (as in U.S.) Source: Screen Digest Notes:Excludes subscription revenues Privileged and Confidential; For Discussion Purposes page 8 $2.5B$18.3B 344M3520M Sell- Through Rental Home Entertainment Consumer Revenue (2010) Home Entertainment Transactions (2010)

10. Ownership still makes economic sense as a means of accessing content for multiple/repeat viewing –On average, consumers watch a movie that they bought 3 times Online’s share of movie viewer-ship is growing rapidly –The incidence of watching movies online (through subscription streaming, digital rental, and EST) doubled over the past year However, increased online activity requires: –Increased connectivity of TVs to digital content –Increased ability to access content across different devices Summary of Consumer Behavior Privileged and Confidential; For Discussion Purposes page 9 Back- ground Consumer & Digital Challenges Driving Adoption

11. Source:2011 SPHE UK A&U Notes: How many times did you watch…? Data based on New Release buying occasion in the last 6 months Inherent viewing behaviors with purchased physical discs continue to support ownership of content as a means to enabling multiple title views Privileged and Confidential; For Discussion Purposes page 10 The vast majority of consumers who bought a movie ended up watching the movie For consumers who watch a movie multiple times, ownership remains a compelling option –From the stand-point of a consumer’s wallet, a £4 rental from Blockbuster or online through Apple would cost £10.40 if rented 2.6 times –Ownership increases convenience by eliminating the need to return a DVD or watching within a defined time period –Furthermore, ownership preserves the future option value to watch again at no incremental cost Watched DVD/BD Purchased – Yes/No Avg. # of times Watched Movie Overall: 2.6 Key Observations DVD/BD Ownership Behaviors

12. Digital – as a channel for both ownership and rental – is expected to benefit from improvements in consumer understanding Privileged and Confidential; For Discussion Purposes page 11 Technology and Home Entertainment Attitudes % ‘Definitely Would Agree’ 6,7 Rating on 7-point scale* Source:2011 SPHE UK A&U Notes: * 2009 & 2010 data shown is 8,9,10 ratings on a 10-point scale ; Base: Total HE Respondents (2011 = 2149); A1. Now we have some questions about your general technology and home entertainment attitudes and behaviors; PA7. Listed below are some possible future scenarios in home entertainment. Please indicate when, if ever, each scenario might happen for you. Future Scenarios % Scenario will happen to me 200920102011

13. Improvements in connectivity and access are top consumer motivators to drive digital sales Privileged and Confidential; For Discussion Purposes page 12 Source:2011 SPHE UK A&U; Notes:Base: DV7 – Have not streamed/downloaded movie or TV show in past 6 months = 898; EST9 - Purchased movie digitally in past 6 months = 267 DV7. Which, if any, of the following would encourage you purchase films digitally? EST9. Which, if any, of the following would encourage you to purchase more films digitally? Motivators to Purchase Movies Digitally Top Mentions

14. Challenges in driving the adoption of digital product today are four-fold Encouraging consumers to own content, when: –The online sale offer exists immediately adjacent to lower priced rental offers –Subscription and ad-supported catalog content are a click away –Illegal alternatives to new release and catalog product continue to evolve Improving the value of digital ownership and ensuring that consumers understand potential benefits of storage and access relative to the existing physical product Driving the speed of adoption and movement of product online, as traditional distributors such as Sky fight to defend their existing businesses. Sample contractual holdbacks include: –No VOD during Pay TV window –Cap on EST transactions allowed during Pay TV window –Floor for prices for EST during and ahead of Pay TV window Addressing bandwidth and infrastructure issues –Tiered pricing and usage caps –Cloud-based solutions to make storage and ubiquity of access more viable and user-friendly page 13 Privileged and Confidential; For Discussion Purposes 1 2 3 4 Back- ground Consumer & Digital Challenges Driving Adoption Consumer-related 3 rd Party-related

15. High-quality copies of pirated content are available both physically and digitally before official studio releases Resident Evil: Afterlife Piracy Timeline Activity Chart 25 20 15 10 5 0 # of Piracy Incidents Notes:Number of piracy incidents includes internet finds as well as hard goods. Red lines represent days in which at least one new picture source appeared Privileged and Confidential; For Discussion Purposes page 14 1 EXAMPLE UK Theatrical Release Sept. 10, 2010 UK DVD Release Jan. 10,.2011 9/9/109/13/109/17/109/21/109/30/1010/17/1011/25/10 Russian Cam Sept. 9, 2010 Suspected R5 DVD Rip Sept. 28, 2010 Blu-ray Rip Nov. 22, 2010

16. Cloud-based solutions (including digital lockers) are hindered by low awareness and security concerns page 15 Privileged and Confidential; For Discussion Purposes Attitudes Towards Digital Lockers % ‘Definitely Would Agree’ (6,7 Ratings on a 7-point scale) Awareness of Digital Lockers 19% Source:2011 SPHE UK A&U Notes: Base: Total HE respondents (2011 = 2149); DL1. Before today, were you aware of digital lockers/cloud? DL3; DL4. How interested are you in creating an online digital locker/cloud and using it to access your films and TV shows? DL5. How interested are you in converting your DVD and Blu-ray collection into a digital library accessible through your digital locker/cloud? 2

17. Traditional distribution partners such as Sky can either constrain or spur digital growth page 16 Privileged and Confidential; For Discussion Purposes In the UK, Sky has competing incentives –As a multi-channel TV operator, Sky wants its customers to buy VOD content –As an owner of Pay TV channels, Sky wants subscribers for its premium channels Sky can use its market power to constrain digital growth through extending restrictions in their traditional exclusivity window to digital windows –No VOD during Pay TV window –Cap on EST transactions during Pay TV window –Floor on prices for EST during and ahead of Pay TV window On the other hand, Sky (and other broadband providers) can facilitate digital growth through increasing broadband speeds to enable improved digital access 3 Download Times at Current Files Sizes Current Avg. Speed

18. Usage caps and regulatory uncertainty governing net neutrality inhibit growth in the streaming of high-quality video content page 17 Privileged and Confidential; For Discussion Purposes No official government regulation to date The Broadband Stakeholder Group— representing most of UK’s large ISPs—has drawn up a voluntary code of practice aimed at greater transparency (piloting in 2011) Fair Usage policies (even for “unlimited” data plans) restrict heavy users –Restrictions can include warnings, throttling bandwidth speeds during peak times, and terminating service In 2010, the FCC adopted the Open Internet Order, which outlines rules around transparency of network management practices and restricts traffic discrimination –This legislation is currently being challenged in court 56% of U.S. broadband subscribers are subject to some form of caps* –Restrictions can include warnings, extra fees for exceeding allowance, and terminating service Capped Usage Regulation UK USA Source:Ofcom, FCC Notes: *According to public interest groups Public Knowledge and New America Foundation’s Open Technology Initiative 4 Whether all traffic on the net should be treated equally remains an open debate –UK regulator Ofcom to clarify its stand on the issue later this year BT offers a service allowing content owners to pay for priority video content distribution Net neutrality is a high profile debate in U.S. due to consumers having fewer choices in ISPs Google & Verizon support “open internet”, but include loopholes for mobile traffic Net Neutrality

19. Ensuring a viable marketplace for digital requires initiative from studios and our various partners Industry stakeholders providing support to overcome the challenges previously discussed through: –Ensuring that incumbent players do not overly inhibit the development of the digital marketplace –Managing piracy appropriately –Supporting infrastructure investments and development Studios are actively pursuing the following initiatives: –Making the product digitally available at the right price, for rental and sale HD product availability is especially critical Day/date Catalog product –Improving the digital ownership proposition through advancement of UltraViolet: Compatibility across multiple devices and apps Cloud-based storage Wide availability of content through both physical and digital retailers page 18 Privileged and Confidential; For Discussion Purposes Back- ground Consumer & Digital Challenges Driving Adoption

20. Studios are developing UltraViolet (UV) – enabling a “Buy Once, Play Anywhere” consumer model Ultraviolet is a free cloud-based solution providing ubiquity of access by enabling consumers to pay once for a physical or digital copy of a film from one of many participating retailers and play it on a wide range of compatible devices page 19 Privileged and Confidential; For Discussion Purposes Compatibility across multiple devices and apps Content available across major content owners and through multiple physical and digital retailers Endurance of entertainment collection across future formats and mediums Convenience through UV Digital Rights Locker providing access both at home and on the go Ability to share entertainment with household via downloads, discs, and streaming 60+ Alliance Members including… Content Devices Retail Technology Description Value Proposition

21. UltraViolet Goal: First true digital “product” for consumers UltraViolet branded digital product sold by multiple retailers Interoperable Rights Locker for family/household, enabling: –Interoperable download “product” (cross-platform/DRM + App/Device registration) –Remote access streaming –Bundled digital/physical offers Consistent message and product proposition 20 © 2011, DECE LLC Retailer Key Benefits UV Ecosystem

22. In Conclusion The digital market is at a challenging point in its evolution –Consumers still coming up to speed on possibilities online –Actions by incumbents impacting strength of online alternatives –Piracy siphoning legitimate transactions –Infrastructure still developing Opportunities exist to drive online transactions –Right pricing vs rental, and other alternatives (including piracy) –HD product offers –Day/date availability –Robust amount of catalog product –Ultraviolet and other cloud storage services –Appropriate policies with respect to piracy and illegal alternatives Studios, service providers and the government will need to work together to make a valuable digital marketplace a reality page 21 Privileged and Confidential; For Discussion Purposes