DRAFT Sony Pictures – Building For Tomorrow Project kick-off meeting November 2013

DRAFT

Sony Pictures – Building For TomorrowProject kick-off meeting

November 2013

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2131105 Sony Pictures kic ... ers v3

Today’s objectives

Recap on situation, project objectives, and high level approach

• Share labor baseline (in scope vs. out of scope)

• Share path forward: governance structure, milestones, roles, and key activities

1

2

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Revenue

100

Headcount

525

G&A costs

1,150

3 Year CAGR FY12-14

(indexed to revenue CAGR)

REVENE HAS BEEN FLAT WHILE G&A AND HEADCOUNT BOTH INCREASING

Financial performance has been challenged, limited opportunity for one-off transactions going forward


The external environment is getting more challenging and scrutiny of SPE is going to increase

TRADITIONAL MPG PROFIT POOLS SHIFTING

ACCOUNTABILITY AND TRANSPARENCY INCREASING

• Consumer interest in movies is still very strong and demand for movie content is expected to grow

• However, consumption is shifting to less profitable distribution channels- U.S. theatrical attendance flat and ticket

prices have leveled off- Growing international theatrical markets

offer limited ancillary revenue opportunities

- Home entertainment transactions are increasing, but shifting to lower-revenue, lower-margin models

• SPE is facing increasing pressure to improve profitability to stave off calls to spin-off the entertainment business

• Heavier scrutiny of financial performance and more disclosure around improvement plans is expected from shareholders and the market

• SPE senior team to be exposed to unprecedented transparency; investor day (Nov 21st) to be an increasingly common occurrence

How should SPE respond?


SPE is undertaking a number of initiatives to respond to these circumstances, today we will focus on organization

A NUMBER OF INITIATIVES CURRENTLY UNDERWAY AT SPE

BUILDING FOR TOMORROW PROJECT OBJECTIVES

Outsourcing of select services

(IT, payroll etc.)

Shared services for corporate

tasks (i.e. finance, IT)

Cut term deals by 50% from

their peak

Changes to greenlight process

Building For Tomorrow

Third-party financing for

certain films to reduce risk

JVs in key markets for HE & MP marketing &

distribution

Reduced development & marketing costs

in MPG

Reformed term deals

(talents as partners)

Improve SPE

profitability

Create an SPE organization that enables the company to contend – and win – in the filmed entertainment market over the next 3-5 years

• Create a stronger, more agile and efficient organization, aligned with SPE’s strategy:- Streamlined business processes and faster, more

effective decision making- Lower SG&A and overhead labor cost structure- Ability to re-invest in strategic long-term growth

opportunities

• Identify and capture significant FY15 cost savings- Achieve significant cost savings, and prevent

continual piecemeal cost-cutting agenda- Move quickly, making all necessary investments

(e.g., severance) in FY 2014

Consolidation of domestic and international

Television organizations

Restructuring of Sony Pictures

Digital Production


This process is going to look holistically within and across the SPE organization for value– Example questions

• Can we shift additional HR processing to outsourced providers?

• Can we improve the performance of our distribution teams by more effectively allocating accounts?

• Can we eliminate low value-add financial reporting activities?

• Can we streamline meeting attendance focusing only on key decision makers?

• …

Opportunities within functions

• Should we consolidate marketing activities into a center of excellence?

• Should we assign end-to-end P&L ownership (i.e., across all windows) of each film to a cross functional team immediately after initial greenlight?

• Can we standardize managerial spans across similar functions?

• Can we push down decision making and accountability to increase our agility?

• …

Opportunities across functions

How do we design the most efficient and effective SPE organization?

Exam

ple

s


High-level approach and milestone timing

Baseline Identify Prioritize Mobilize and implement

October November December January February March

• Prioritized opportunity list:- Savings potential- Ease of

implementation- Level of risk

• Size of prize & preliminary restructure charge estimate

• High level mobilization plan

• New organization structure with underlying changes under implementation:- New reporting

structures- New business processes- Share services/

outsourcing

• Identified retrenchment list

• Finalized re-structure charge

• Focus area for function teams for each department, i.e.:- Structure & reporting

line changes- New decision making

procedures- Outsourcing / shared

service models

• Prelim department and x-dept. opportunity list

• High-level size of prize ranges

DELI

VE

RA

BLE

S


We will be applying a host of analytical tools to help identify opportunities – Examples

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 7Bain_Sony Pictures _Mini slidesLAN 7ConsumerProductsSGASellingDeck

Client Competitor 1 Competitor 2 Competitor 3

Spend % of revenue

I nternal and external benchmarking


HR employees per total employees


Average response time


R&D product launch cycle time

Human Resources

Research & Development

Information Technology

Finance

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 8Bain_Sony Pictures _Mini slidesLAN

Supply Inspect A

Test A

Manufacture

Test B

CompleteInspect B Inspect C Out

YY Testing

Release

Post-ZZ Testing

Test C

Failure

XX Testing

Zero based budgeting

SampleSample

Error (P)

Test OK Test OK

Error (P)

Error (P)

Error (P)

Test OKTest OK

Sample Sample

XXX sub-process

YYY sub-process

Other processes

Error (T)

Error (T)Error (T)

Error (T)Error (T)

Error (T)

Sample

c

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 18SFR 130918 LSCo Org Effectiveness ...

Spans and Layers assessment

SPI DER CHARTS HI GHLI GHT POTENTI AL OPPORTUNI TI ES…

…AND SUGGEST ATTRACTI VE COST-SAVI NG ACTI ONS

Layer 5 1 0% - -Layer 6 13 4% 1 13.00Layer 7 74 21% 10 7.40Layer 8 115 32% 22 5.23Layer 9 157 44% 18 8.72Total 360 100% 51 7.04

FTES % TOTAL SUPV AVG SPAN

Director X

• Benchmark functions by ‘work type’ to set span of control targets – delayer to meet targets

• For functions too small to support reasonable spans of control, consider consolidating roles, sharing across departments and/or geos, or outsourcing

• Focus on changing roles and standardizing work to enable managers to manage more individual contributors

• Re-allocate responsibilities within department to maximize management spans- Eliminate duplication and/or encourage

job sharing where possible

• Apply Bain’s proprietary modeling tools to facilitate this process real-time


(06, RMB K) Company XFinancing provider

Company X & financing

company total

Dealers

Company XBenefit

a.1 Financing cost saved from working capital reduction x N.A. N.A.a.2 Financing benefit from receiving cash payment instead of B.A. x N.A. N.A.

Cost xa.3 Extra rebate to dealers x N.A. N.A.a.4 New financing cost (under dealer financing): paying rebate to dealers at purchase x N.A. N.A.a.5 Actual interest penalty on B.A. cancelled x N.A. N.A.a.6 Forgone installment markup to dealers x N.A. N.A.

Financing providerBenefit

b.1 Interest (from dealers) from dealer financing N.A. x N.A.Cost x

b.2 Funding cost for dealer financing N.A. x N.A.b.3 Bad debt provis ion for dealer financing N.A. x N.A.b.4 Operation-related cost N.A. x N.A.

DealersBenefit

c.1 Financing benefits N.A. N.A. x1) Cost (under consignment) saved: no need to finance advanced payment to Company X in Jun/Dec*N.A. N.A. x2) New financing benefit (under dealer financing): receive rebate from Company X at purchaseN.A. N.A. x

c.2 Extra rebate from Company X N.A. N.A. xc.3 B.A. processing fee saved N.A. N.A. xc.4 Actual interest penalty on B.A. cancelled N.A. N.A. xc.5 Forgone installment markup charged by Company X N.A. N.A. xc.6 Actual interest penalty on overdue A/P to Company X cancelled N.A. N.A. x

Costc.7 Financing costs N.A. N.A. x

1) Benefit (under cons ignment) forgone: with no more A/P to N.A. N.A. x2) New cost (under dealer financing): for discounting BAs from customers to pay financing providerN.A. N.A. x3) Benefit (under dealer financing) forgone: with no more interest of BAs’ deposit at banksN.A. N.A. x4) New financing cost (under dealer financing): of x% deposit at Company X N.A. N.A. x

c.8 Interest to Financing provider N.A. N.A. xc.9 Forgone markup from customers on product sold on installment** N.A. N.A. xc.10 Insurance required by financing provider N.A. N.A. x

Net benefit x x x x

* Detailed footnotes all removed

Source: Disguised client data; disguised dealers financial statements; dealer interviews; Bain analysis

Cost/ benefit analysis


Process redesign

CURRENT PROCESS FUTURE PROCESS

KEY CHANGES

• Product idea inputs typically from field teams- Product managers as well as sales teams

• Clear criteria for introduction with inputs from relevant teams- Cost competitiveness - Clear potential for market leadership- Differentiated product through value added R&D

• Ongoing monitoring and evaluation- Weekly calls to update status by molecule and take inputs where required- Monthly steering committees to track progress and resolve issues

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 27Bain_Sony Pictures _Mini slidesLANR Recommend A Agree P Perform I Input D Decide

Decision rights

Decisions

Positions

Strategy

Finance

CC CEO + Level C-1 Level C - 2 Level C - 3

Formulating overall

strategic plan A’ I I D R R R R R I I I I I I I I I

Entry in new markets (e.g.

agro)A’ D I I I I I I R I I I

Entry in new alliances (e.g.

Co-marketing)

A’ I I I D I I I I R

M&A A’ I I D I I I R I I I /P I I I PP:

Advisors

Entry in new businesses

D R I I I I IP

M&A(E)Overall IT strategy

I D I I I I R/P I I

Ongoing tracking and monitoring

I I I I I I D R

DPO targets I I I D A RI /P SC team

DSI targets (e.g. Dom)

D I A I I R

DSO targets (e.g. Dom)

D A R P

Deviation from targets (e.g. DSOs in

Dom)

D I A I R






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Design principles: In scope vs. Out of scope

In Scope Out of Scope

• All Overhead and SG&A departments:- All G&A functions (Finance, Facilities IT,

HR, Legal, SEHS, Communications)- Marketing & Distribution (Dom & int.)- Motion Pictures Group overhead - Home Entertainment- TV networks

• Only labor related cost components :- Salary- Bonuses and incentives- Fringe benefits- Other (e.g. T & E, entitlements etc.)

• TV production and distribution

• Sony Pictures Digital Productions

• Non-labor related costs (i.e.):- Information Technology systems spend- Facilities maintenance spend- M&A spend- Etc.






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Proposed program structure and SPE resourcing

Executive CommitteeMichael Lynton (Executive sponsor)

George Rose and Dave Hendler (Executive leads)

Steering Committee

Executive Leads• G. Rose• D. Hendler

• A. Pascal• L. Weil• C. Sipkins• D. Bishop• D. Belgrad• S. Bersch• C. Cookson• B. Osher

• J. Blake• S. Mosko• M. Barker• T. Bernard• M. Morita• C. Culpepper

Results Delivery Office and Org Design

Program Lead• Randy Lake

• HR Judy / Lisa• Finance Curtis Crider• Communications TBD

• Clear sponsorship, active engagement

• Key decisions

• Visible leadership• Resource tradeoffs• Break roadblocks

• Program management• Overall org design• Results Delivery• Communication

LEA

D

• Design solutions• Bring domain

expertise• Mobilize for

implementation

Finance IT Facilities

Security, Health

and Env safety

HR Legal Comms Techn-ology

Home Entertain-

ment

MPG Prod’n

Theatrical mkting/

dist,

TV networks

Ron McNair

Stephen Andujar

Craig Schwartz

Stevan Bernard

Jamie Chung

Pauline Matarazzo

Charles Sipkins

Terri Davies

Mike Corcoran

Andy Davis

Scott Sherr

Mark Rogers

MPG Creative

Andrea Giannetti

MPG Business Affairs

Michael Marshall

Dan Primozic

Pam Kunath


Proposed roles and responsibilities

RDO/BAIN ROLEFUNCTION LEADER ROLE

• Co-develop potential opportunities with function leader

• Manage the overall workplan to meet project objectives

• Prepare materials for working sessions and SteerCo presentations

• Conduct analysis to support function team working sessions

• Ensure consistency and coordination across the different functions

• Participate in functional working sessions (1-2 per week)- Help identify opportunities,

magnitude, timing, and risks- Challenge analytical output- Provide necessary context- Give broader perspective on cross-

functional opportunities

• Lead formal presentations (Steering Committees), with Bain support

• facilitate meetings with other function stakeholders as necessary

We will adjust individually according to your preferences


Steering Committee meeting calendar

Kick-off

SteerCo #1

SteerCo#2

SteerCo#3

MEETING DATE PURPOSE

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Today

Week ending

Dec 6th

Week ending Jan 10th

Week ending Jan 31st

• Alignment on project scope, milestones and governance structure

• Direction on focus areas per department

• Cross-organization opportunities

• Initial opportunity list and size of prize ranges

• Align on size of prize and initial prioritization

• Share preliminary re-structure charge estimates

• Sign-off on initiatives to go to implementation

• Agree & allocate teams for detailed design


• Function team working sessions: benchmarking, opportunities sizing

• Refine opportunity sizing

• Pre-wire meetings set-up with SteerCo members

• Pre-wire SteerCo members

• Planning for priority functions after SteerCo1

• Function team kick-off

• Initial function team working sessions: preliminary opportunities

• Management interviews

• Outside-in org analysis (e.g. spans & layers)

• Identification of key stakeholders to interview

Detailed roadmap - Path to SteerCo #1

WEEK 111/4

WEEK 211/11

WEEK 311/18

WEEK 411/25

WEEK 512/2

Key a

ctiv

itie

sD

eliv

era

ble

s

• Management interviews continued

• Function team working sessions: org structure

• Size current org vs benchmarks (SAP, other,…)

• Initial opportunity sizing

• Function team working session: SteerCo1 pre-wire

• Follow-up interviews as necessary

• Emerging org opportunities by function

• Initial view on spans & layers opportunities

• SAP/other benchmarking data summary

• Initial org opportunities by function

• SC1deck structure

• Refined org opportunities by function

• Initial view of post SC1 function prioritization

• ~80% SteerCo1 deck achieved

• Completed SteerCo1 draft

Function leader-led

Joint activities (Bain & function leader)

Bain-led

Legend

Bain & function leader working sessions (~1h+)


High-level activities over the next four weeks

•Engage individual function leaders to initiate diagnostic by function

•Complete departmental diagnostics, steeped in industry best practice, to identify areas of opportunity:- Benchmarking & industry best practice comparisons- Organization shape & decision making effectiveness- Blank paper activity approach

•Working group sessions with individual SteerCo members and functional leads to identify / pressure test opportunities

•Align functional leads and teams around opportunities & sizing

Documents

DRAFT Sony Pictures – Building For Tomorrow Project kick-off meeting November 2013