REQUEST FOR DILIGENCE MATERIALS
REGARDING GSN & FUN TECHNOLOGIES
BACKGROUND
The materials requested in this diligence list are intended to provide Sony Pictures a detailed understanding of three potential scenarios for GSN and FUN, including:
· An updated view of GSN’s financial forecast in a “Base Case”, assuming no formal partnership or merger with FUN Technologies
· The general nature of a potential “Partnership” between GSN and FUN (assuming no merger), including the associated financial forecast for both businesses
· The financial forecast for a “Merger” between GSN and FUN
OVERVIEW OF ASSUMPTIONS
· For the Base Case, describe any key assumptions, including recently identified improvements to the business
· In a Partnership scenario, address the overall relationship and anticipated flow of funds between the two companies. For example:
o Would FUN license game shows from GSN to be developed into casual games? If so, which properties? What are the anticipated license terms / economics
o Would GSN license a white-label platform from FUN (e.g., to power GSN.com/games)? If so, what are the anticipated license terms
· In a Merger, confirm which assets would be included (e.g., FUN Games) and excluded (e.g., FUN Sports)
· Describe how the below items would be managed in a Partnership and in a Merger (clarify if the approach would differ between the two scenarios).
o Promotion
§ How would GSN use its advertising inventory to promote FUN and vice versa
o Cross platform
§ How would GSN and FUN collaborate to bring interactivity to GSN shows? What investment would be required? How would they be funded
§ What would be the impact on revenues of leveraging TV ad sales packaging and content across all platforms
o Customers (Acquisition/Retention)
§ What would be the overall strategy for FUN to access GSN’s user base and vice versa
§ How would the partnership / merger expand the overall audience base
§ How would both companies drive reductions in customer acquisition and retention cost
FINANCIALS
For GSN (in all cases) and FUN (in the Partnership and Merger cases) please provide a 5-year forecast addressing:
· Base revenues by type and division:
o For FUN address:
§ Revenue by type (hosting fee retained on cash competitions, advertising, transactional)
§ Revenue by division (FUN Games, FUN Sports, Teagames, SkillJam, Worldwinner, Octopi, CDM)
§ Key growth drivers (growth in number of users per division, growth in partners and hosting fees by partner, changes in pricing, industry growth rates, changes in market share)
o For GSN address:
§ Revenues by type (license fees, advertising revenues, interactive and other revenues)
§ Revenue drivers (ratings assumptions, growth / changes in advertising CPMs and sell-out rates)
· Incremental revenues derived in a Partnership
o By FUN from GSN (e.g., fees paid by GSN to FUN to license technology)
o By GSN from FUN (e.g., to license shows to become casual games)
· Incremental revenues in a Merger
o Customer growth from cross-promotion
o Revenue growth from premium CPMs or improved account penetration
· Base Expenses
o Expenses by type
o Headcount assumptions
o Key areas of investment
· Incremental expenses and/or cost savings (clarify if these differ in a Partnership vs. in a Merger)
· Adjustments required to calculate cash flow in each case (amortization, CAPEX)