An old business plan for establishing value-added-service-operator (VASO) in China. iBIT was incubated by Morning Forest back in 2002 and had a wholly owned subsidiary in China for this experiment.

1. CREATING A VALUE-ADDED
SERVICE OPERATOR IN CHINA
Xiaolin Lu
iBIT, Inc
Macro
Environment
Opportunities
Business Consumer
Environment Behavior
Culture
Proprietary Information Property of iBIT, Inc 1

2. What is this all about?
 A high-level business plan for iBIT, our
incubated company to become a value-added
service operator (a virtual operator) in China.
 All things were in places and the first market was
Zhengzhou Cable (see the design: Digital ZBN).
 Uncertainty of China cable regulation forced us to
migrate from a cable-play to an internet-play,
which resulted in the creation of BOCOO Online.
 We publish this as a reference for those entering
China media market or just for a laugh 
Proprietary Information Property of iBIT, Inc 2

3. CONTENT
 Introduction
 Market Opportunity
 Regulation & Business Environment
 iBIT Business Model & Strength
 Execution & Financial Forecast
 Risks and Risk Management
Proprietary Information Property of iBIT, Inc 3

4. INTRODUCTION
Proprietary Information Property of iBIT, Inc
4

5. iBIT VISION
 Be the Liberty Media of China
 Scale & control of the value chain
 Create a new value chain for
China media business
 Personalized Media: prestige life
style – liberate the way of
entertainment
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6. BUSINESS SCOPE
Value-added service operator (VASO) that provides
transaction-based services
Transaction-based platform
 Control and protection
 Personalized entertainment
Partner with MSOs and Telcos Aggregate diversified contents
 Many distribution mechanisms &  Scale and appeal to the largest
many revenue streams and diversified China market
Unregulated business in a regulated environment
 Ride the wave of media business commercialization,
the mandated digital TV roll-out, and VAS launch
Proprietary Information Property of iBIT, Inc 6

7. MARKET OPPORTUNITY
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7

8. CHINA PRIVATIZATION TIMELINE
16,000
PER CAPITA GDP (RMB)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: China Net, CSFB
Agriculture & Foreign investment Market Price System Property SOE
Small Business & Private enterprises (chaos & re-balance) Ownership financial system
Irreversible Commercialization & Privatization Process
1980 1985 1990 1995 2000s
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9. INCOME AND SPENDING
p. a. Income
16,000
14,000 Urban Rural GDP p.a.
12,000
 57.3% population resides in coastal
areas, which has significant higher
10,000 income level and spending power
RMB
8,000  Average engineer’s salary in big
6,000
cities: $20K – 30K/year
 Commercial apartment in Beijing:
4,000
$1K – 3K/sqm.
2,000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Urban Spending
6,000
RMB/Person/Year
Others
5,000 House
Entertain
Communication 21.6% on communication
4,000 Medical
Household
Clothing
& entertainment
3,000 Food
2,000
1,000
0
1985 1990 1995 1999 2000 2001 Source: CSFB, MII
Proprietary Information Property of iBIT, Inc 9

10. SERVICE PENETRATION
Population (M) p.a. Income ($) Mobile PC VCD TVsets Internet
US 281 31,459 56.9% 59% 218% 64%
CHINA 1,290 934 63% 21% 53% 126% 6.2%
Shanghai 16.1 1,606 80% 47% 58% 158% 27%
Beijing 13.8 1,511 94% 56% 52% 148% 28%
Zhejiang 43.2 1,420 89% 27% 55% 150% 10%
Guangdong 77.8 1,349 123% 45% 73% 149% 12%
Tianjin 10 1,132 39% 24% 43% 126% 14%
Fujian 34.4 1,114 93% 25% 66% 137% 9%
Jiangsu 73.6 991 61% 20% 46% 136% 8%
 TV-centric & in favor of advanced CPE
 Show-off mindset & blooming city-rebuild further drive advanced CPE
penetration
Source: CSFB, MII
Proprietary Information Property of iBIT, Inc 10

11. TV CENTRIC ENVIRONMENT
60
Export Domestic Production 52.13
50
mn TV
40 39.5
37.73
 10% of TV household purchase
30
new or change TV set every year
20
10
0
2000 2001 2002
34' & above Below 21'
6% 11%
29'
25%
 Booming city re-build and show-off
mindset drive large screen and high-
end TV sales
21'
38%
25'
20%
Source: MII, CSFB
Proprietary Information Property of iBIT, Inc 11

12. ONLINE & BROADBAND PENETRATION
90 14
80
Internet users 12
70 Dialup
mn PC Sale
BB 10  Fast growing broadband
mn Sub
60 PC Sale
8
penetration lead by
50
telecom industry
40 6  Customers are more
30
4 happy with broadband
20 than dialup
2
10
0 0
1997 1998 1999 2000 2001 2002 2003
60.00%
50.00% Dialup BB
ADSL 40.00%
LAN 30.00%
CM
20.00%
Other
10.00%
0.00%
Great Good OK Bad Very Bad
Source: CSFB, MII
Proprietary Information Property of iBIT, Inc 12

13. REGULATORY & BUSINESS
ENVIRONMENT
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13

14. INDUSTRY & REGULATION
Propaganda IIO MII
SARFT
Telecom • Manufactures
policy
policy
Groups • R&D
CCTV CBN CCN
Local
Government
BRFT TVG IIO Local
Telcos
 Assets: CCTV:
national broadcaster Station MSOs
 License: National
broadcasting
 Assets: programming & distribution  Assets: national and
 Start loosing its
 License: video & ISP local infrastructure
monopoly on
content distribution  Limited programming capability,  License: voice & ISP
 Rely on outsourced mainly CCTV carriage  Aggressively move to
programming  Flexible policy on DTV & Interactivity content distribution &
 Aggressive consolidation & desire triple play, but has no
for VAS content
Proprietary Information Property of iBIT, Inc 14

15. EXPLANATION OF THE POWER BASES
 Ministry of Propaganda
 Policy maker for the media industry
 State Administration of Radio, Film, & Television (SARFT)
 Government agency managing media policy
 Key asset: China Central Television (CCTV), a national
broadcaster
 TV Group (TVG)
 Locally commercialized corporation originally 100% owned by the
local government (currently minority owner)
 Ministration of Information Industry (MII)
 Managing Telecommunication and IT industries
 Information Industry Office (IIO)
 Special government agency overseeing communication and IT
development and policy
 Local office inside every local government
Proprietary Information Property of iBIT, Inc 15

16. THE TRENDS
 “Culture Reform” initiated by Government in 2003 signals
the beginning of media business commercialization
 Government-mandated digital pay TV is expedited by the
“complete conversion” model
 2003 start, 2005 DTH, 2008 Terrestrial, 2010 complete conversion,
2015 shut down analog.
 More flexible pricing, censorship, quota, distribution, & ownership;
very favorable treatment to IP streaming (telcos received IP video
distribution rights, but have no content)
 Fast-pace consolidation (land grabbing) and moving to
triple-play
 Critical needs:
 Commercial operation experience and processes
 Infrastructure and platform readiness
 Value-added services to materialize the government-mandated DTV
roll-out and to increase the valuation (ARPU)
Proprietary Information Property of iBIT, Inc 16

17. MARKET POTENTIAL
700 16000
600
Urban Pop 14000  Steady income growth
mn Population
Income
500
12000 stimulates desire for
10000 new services
RMB
400
300
8000
 Fast growing DTV and
200
6000
broadband penetration
4000
provide platforms for
100 2000
value-added service
0 0
Today 2010
40 160 45
35 140 BB User 40
DTV Subs
Paid Game User 35
30 120
mn Subs
mn Subs
30
25 100
25
20 80
20
15 60
15
10 40 10
5 20 5
0 0 0
Today 2008 Today 2010
Source: CSFB, MII
Proprietary Information Property of iBIT, Inc 17

18. CHALLENGES & OPPORTUNITIES
Domestic Situation Foreign Investment Consumer Preferences
 No pay TV history  No landing rights and  Diversified Preferences:
 Piracy; No UHS/DVD rental brand name  Geographic
market  Demographic
 Quota limitations  Income level
 Current content is limited  No control over content
 CCTV re-broadcasted by all  Personalization:
stations (very limited choice at distribution and ROI  Life style
any particular time)  No dual revenues (no-  Presentation format
 No dual revenues (no-coexist coexist of advertising &  Time of entertaining
of advertising & pay TV) pay TV)  Easy transaction
 Lack of appealing content &  No direct access to
content packaging technique
become the bottleneck for customers
DTV roll-out
 Single type of content & individual provider cannot cover & satisfy China mass market
 Diversified Content Aggregation
 Linear channel alone cannot differentiate from traditional free-service, difficult to
sustain with single revenue stream, and provide no control to content providers.
 Diversified Distribution Mechanisms + Transaction-based platform
Proprietary Information Property of iBIT, Inc 18

19. REVENUE STRUCTURE
120%
100%
80%
Others
Adv
60%
VAS
Basic
40%
20%
0%
US Aisa Pacific China
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20. COMPETITION IN ADVERTISING BUDGET
$12B Advertising Market
TV
Others
YP Newspaper
Online Outdoor
3
Magazine
CCTV Others
Radio 2.5
2
1.5
$B
1
0.5
0
1997 1998 1999 2000 2001 2002
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21. LIMITED CONTENT SPREADS ACROSS
MANY CHANNELS
300
TV Drama # Channels Carried
252
Rebel 45 250
# OF TV DRAMA SERIES
The Age of Excitement 43
200
Never Give up 40
Go Ahead, Dad 34
150
A Family from the Northeast 32
Don’t talk to strangers 31 100
64
My Bride 30
Celebration 30 50
3 8
The orange is red 29
0
Jealous 28 >40 >30 >20 >10
# OF CHANNELS
 In 2002, 1,564 TV drama series were broadcasted in the prime time over 156
channels in 33 cities
Source: CSM
Proprietary Information Property of iBIT, Inc 21

22. DIVERSIFIED MARKET
National Market An Hui Market
CCTV Others
Provincial SAT 0%
8%
CCTV 5%
39%
Provincial SAT
61%
AnHui Local
87%
 Nation-wide, CCTV controls  Local preference dominates
substantial market share local market
Source: CSM
Proprietary Information Property of iBIT, Inc 22

23. iBIT SOLUTION
Proprietary Information Property of iBIT, Inc
23

24. A VALUE-ADDED SERVICE OPERATOR
Transaction-based platform
 Control and 100% protection
 New revenue opportunities and
bundle-effects to MSOs/Telecos
Partner with MSOs and Telcos Aggregate diversified contents
 Many distribution mechanisms,  Scale and fit the mass market
wide audience coverage, and  Appeals to consumer preferences
many revenue streams for new services/contents
Unregulated business in a regulated environment
 Leverage favorable policy on interactivity: compliant
with regulation while eliminating all the constraints
 Non-intrusion
 Enabling
 Control
Proprietary Information Property of iBIT, Inc 24

25. VAS OPERATOR BUSINESS MODEL
Government
Agency
Enabling
iBIT Platform MSO program
Post-Program Sale
China content
Network
On-demand
International Telecom Promotion
content Linear
Satellite Channel
VAS Operator Distribution Front Distribution Channel
 Diversified contents  Many partnerships (fronts)  Personal media center
 Aggregation, Storage,  License & Policy shelters  Many presentation formats
Packaging, Distribution  Infrastructure  Cross-channel marketing &
 Transaction platform  Partnership for marketing, promotion
 Transaction management sales, & customer services
 Customer management
 Resource management
Proprietary Information Property of iBIT, Inc 25

26. SERVICE PACKAGING
Issues: Single type of content cannot satisfy diversified consumer
market; Individual content provider cannot cover China mass market
Solution: Diversified Content Aggregations to Many Distribution
Channels (group effect)
Consumer Preferences
China
Science
 Local Syndications
 31 Provincial Culture
 Internet News Enabling Program
Tiered Education
Linear Channel
On-
Pop Music
iBIT
Demand
International Package Sports
 Sitcom (US) Health
 Drama (Asia)
 Movie (US & Asia) Weather
 Sports (US) Basic
Drama
On-
 Game demand News
 Music
0 20 40 60 80 100
Source: CCTV”/SARFT
Proprietary Information Property of iBIT, Inc 26

27. CHANGE THE RULE OF GAME
MORE CONTENT
CONTENT CONTENT
Current Digital
CHANNEL
CHANNEL
...
CHANNEL
Pay TV Model
CHANNEL
CHANNEL
CHANNEL
CHANNEL
CHANNEL
... ...
 Limited content spread  Spread across even more channels
across many free-channels with additional cost to consumers
DESTINATION: iBIT Diversified Content Aggregation & Distribution
On-demand
Diversified Personal Choice:
content Promotion
Channel
Anytime, Anywhere
Proprietary Information Property of iBIT, Inc 27

28. DISTRIBUTION MECHANISMS
iBIT Aggregation & Distribution Platform
IP Streaming TV On-demand Linear Government
& Downloading & STVOD Channel Agencies
 Telcos just received video  Personal media center  On-demand & L-channels for
distribution license, but have  Promotion from linear channels remote education, training,
very limited content  Policy allows 49% ownership of L-channel government online, etc.
 management
Desire for flexible entertainment  Different format of content sale
environment (DVD, CD, etc)
Cross format content distribution
(PC, TV, PDA; L-channel, On-demand, DVD, CD, etc)
Broadband Penetration On-Demand Preferences Education Market
Government
40
VOD
COD
Millions
17% On-Job
30 24%
Game
20 12% Langrage
10 Tech
Commerce
9%
0
Download Rt Education
2001 2003 2008 38%
0 10 20 30 40 50 60 70
Source: MII, SARFT
Proprietary Information Source: CNNIC Property of iBIT, Inc 28

29. MULTIPLE REVENUE STREAMS
Special Program
Government
Agencies
Advertisers
Special
Program Sale
Consumers
Broadband Operators
Advertise Content & Content &
iBIT Advertise Advertise
Providers
Content
Content
Fee
Fee Fee
 On-demand revenue: subscription and ala cart
 Advertising revenue: through linear channels & before/after on-demand
 Post program sale: special program for education, on-job training, etc in the
format of on-demand, linear channels, CD/DVD, etc, through government agencies.
Proprietary Information Property of iBIT, Inc 29

30. TECHNICAL PLATFORM
RDC
Ad
Content
DRM/CA OSS/BSS Insertion Server
Mobile
Utilize operators Network
metro network
CA Caching
server STB
n x 8Mhz channels TV
M
U Linear Channel Access
CM
Others X Network
m x yMpbs capacity PC
HE On-demand DSL
 Controllable and cost efficient platform
 Centralized content aggregation, co-located with operators RDC
 Distributed caching utilizing operators last mile infrastructure
 CA + DRM for high security
 Fiber deep HFC (mFN) with smaller node (500 HHP) for capacity needs
 Many presentation format & interactivity: MPEG/IP; PC/TV; STB/CM/DSL/Cell
 Flexible billing: 2-way STB, prepaid card, cell phone
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31. BENEFITS TO CONTENT PROVIDERS
iBIT Model Traditional Linear Channel
Censorship Provincial Stations, Telcos, SARFT SARFT only
Brand name Yes No
Quota (foreign content) N/A 10% prime time, 25% total
Advertising (pay TV) Yes No
MSO, Station, Telco, BB,
Distribution Front Government agents
Station & MSO
On-demand, IP streaming,
Distribution Channel Downloading, Linear channel
Linear channel
BB customers, TV customers,
Audiences government agents
TV customers
Subscription, Ala Cart,
Revenue Advertising, B2B
Subscription OR Advertising
Control Contents Yes No
Control Customers Yes No
Proprietary Information Property of iBIT, Inc 31

32. BENEFITS TO DISTRIBUTION PARTNERS
 The existing content and CCTV carriage are not enough to
generate new revenues and help the digital TV roll-out, while
complete foreign landing is not legally allowed
 iBIT diversified content aggregation and transaction-based
distribution compliant to current regulation, appeal to mass market
and therefore providing MSOs and Telcos a new mechanism to
attract customers with multiple new revenue opportunities
 The traditional linear channel distribution mechanism and “all-
you-can-eat” packaging are difficult to differentiate from the free-
TV environment and provide no appealing content presentation
to consumers
 The diversified distribution mechanisms (on-demand, IP streaming,
downloading, linear channels) enable multiple distribution fronts and
create bundling-effect to attract different market segments
 Current policy does not allow dual revenues. The Pay-TV and
advertising-based broadcast TV compete for the same content,
and limit operators revenue generating capability
 iBIT’s transaction-platform works around this limitation, dual
revenue can be effectively materialized
Proprietary Information Property of iBIT, Inc 32

33. SUCCESS OF OTHER VASO
BUSINESS IN CHINA
ONLINE GAMING WIRELESS SMS/VAS
1000 800
900 700
800 600
$mn
700
$mn
600 500
500 400
400 300
300 200
200
100 100
0 0
2002 2003 2008 2001 2003 2008
 Utilizing any broadband infrastructure  SMS aggregation & distribution over
 HSD service reassembles traditional video China mobile’s infrastructure
business with content “channels”
 85/15 revenue sharing between VAS and
mobile operators
Proprietary Information Property of iBIT, Inc 33

34. A SUCCESS STORY
- KongZhong.com
RGU GROWTH REVENUE GROWTH
25,000 9,000
8,000
$Thousands
20,000
Thousands
7,000
6,000
15,000 5,000
10,000 4,000
3,000
5,000 2,000
1,000
0 0
May-Dec 02 2003 1Q 04 May-Dec 02 2003 1Q 04
 Utilizing China Mobile’s infrastructure: 85/15 revenue sharing
 First-move advantage: becomes the leading wireless VASO in China
 IPO in 2004: $100M ADS on NASDAQ
Proprietary Information Property of iBIT, Inc 34

35. iBIT STRENGTHES
 Experienced team with significant US and China cable
operation experience and China local market knowledge
 Unique transaction-based service model widely accepted
by major MSOs and Telcos in China
 Diversified revenue streams: make the “pie” larger rather
than cutting it into smaller pieces
 Access to customers: BB, cable, wireless, government, etc
 Cost-effective broadband platform solution suitable to
China market and reduce the operation cost
 Attractive financial model with largely success-based OpEx
and CapEx capital needs
 Close relationship with MSOs, Telcos, and government
agencies, as well as international and domestic content
providers
Proprietary Information Property of iBIT, Inc 35

36. EXECUTION AND
FINANCIAL FORECAST
Proprietary Information Property of iBIT, Inc
36

37. MARKETING STRATEGY
 Distribution: leverage on our partnerships
 MSOs, Telcos, & government agents be our distribution
fronts and marketing vehicles
 Establish the leader: focus on strategic
territories
 Major metro markets with higher disposable income and
rapid adoption of new services
 Economic centers (provinces & cities) and strategic
leadership in the industries
 Move to national scale while the examples
are set and the infrastructure is ready
 Replicate successful deployments in major metro markets
 Secure the controllable platform
Proprietary Information Property of iBIT, Inc 37

38. MARKET FOCUS
CREATING A NEW LIFE STYLE
160,000
140,000 Initial
Urban Population (K)
120,000 Market
100,000 Focus
2003
80,000
2010
60,000
40,000
20,000
0
3
00
33
67
00
33
67
00
33
67
-
7
0
3
7
0
3
7
0
3
7
83
66
50
33
16
00
83
66
50
33
16
,0
,8
,6
,5
,3
,1
,0
,8
,6
1,
2,
3,
4,
5,
5,
6,
7,
8,
9,
10
10
11
12
13
14
15
15
16
p.a. income (RMB)
Proprietary Information Property of iBIT, Inc 38

39. iBIT CURRENT STATUS
Geographic Strategic
Partners Market Importance
# Subs Status
Gehua Beijing Capital 3M Trial in process
Shanghai Cable Shanghai Economic center 2M In talk
Information
Tianjin Cable Tianjin
Industry base
2M In talk
MSO
Economic center
Sichuan Cable Sichuan
of west China
8M RFP completed
Economic center
Zhengzhou Cable Zhengzhou
of central China
700K Trial in process, LOI
North of China #2
Telecom China Netcom
Yangtze River telecom
3M BB In talk
Satellite China Satellite National In talk
Ministry of
Agriculture,
Powerful buyers
Government Ministry of Special program
and In talk
Agencies Education, distribution
distributors
Peking Univ,
Fudan Univ
Proprietary Information Property of iBIT, Inc 39

40. iBIT POTENTIAL PARTNERS
China Netcom
Proprietary Information Property of iBIT, Inc 40

41. AGGREGATION & DISTRIBUTION
STRATEGY
 Foreign content
 Initially focus on easy-censorship types and re-acquire rights
for those in CCTV’s library
 Focus on content with broad appeal to the China mainstream
audience (Asian drama, US sitcom, Sports, Documentary, etc)
 Domestic content
 31 provincial satellite channels aggregation & re-packaging
 Local syndications, including CCTV library
 Partner with event organizer for hot-ticket events
 Packaging
 Linear channel for promotions
 On-demand in many format (VOD, SVOD, downloading, etc)
 Post-program sales (CD, DVD, etc)
 Distribution
 MSO: MPEG
 Telco: IP streaming
 B2B: through government agents
Proprietary Information Property of iBIT, Inc 41

42. PRICING & REVENUE SHARING
 Transaction-based platform
Distribution
allows accurate revenue Content Fronts
Content
iBIT
Providers
sharing mechanism (MSO, Telcos)
Time-shift
 No ambiguity on content “free on- 10% 30% 60%
demand”
valuation, no need for front-
Movie &
payment Drama
30% 40% 30%
 Sharing ratio as a function of Sports 30% 40% 30%
content performance Music 20% 40% 40%
 Price competitive to current Events 20% 60% 20%
DTV offering (e.g., 40-60
RMB/month, 2-4 RMB/order, etc)
Proprietary Information Property of iBIT, Inc 42

43. PLATFORM BUILDUP
 Server Farms
 Centralized content aggregation and storages
 Distributed caching for fast distribution
 Leverage partners’ last-mile distribution platforms
(local caching servers, QAM modulators, GbE
distribution fronts, fiber deep HFC, etc)
 Content Protection
 Initially utilize partners CA systems
 Buildup DRM-kind inside the CA systems
 Flexible Transaction Management
 Advanced OSS/BSS adapted to China environment
 Many ordering mechanisms and billing interfaces (2-
way STB, prepaid card, telephone, cell phone, etc)
Proprietary Information Property of iBIT, Inc 43

44. PHASED APPROACH
Phase One (2005) Phase Two (06-07) Phase Three (08+)
Secure major aggregation &
Establish the aggregation &
distribution channels
OBJECTIVES distribution platform Market dominance
Transaction platform for many
Initial operation example
distribution mechanisms
 1-2major metros deployment (200-
500K subs)  Majorprovinces (1-5M subs)
Market  Agreements from 5-6 major  Government agents
 National (~20M subs)
MSOs/Telcos for next deployments
Distribution
Major MSO  Telco  All
Fronts
 Easy censorship  Local
syndication
Contents  CCTV foreign library  Special
program  Wider international
 Provincial satellite channels  Game & Music
 On-demand  Many packages and
Format  Linear
 Downloading
tiers
 Buildup server farms & localize
 Multi-billing
systems
Platform OSS/BSS
 Expand to DVR
 Cell & PDA
 Utilize 2-way STB & PC
 iBIT managed transaction platform  Real-timebilling
Billing  Utilizing existing link to banks  Prepared card
 Cell & others
Brand With MSO & Telco  Co-branding  Own branding
Proprietary Information Property of iBIT, Inc 44

45. MARKET PENETRATION
(VOD & SVOD Only)
7 30.00%
Ala Cart Olympic Game
6
SVOD 25.00%
Penetration of partner's footprint
5
20.00%
mn RGU
4
15.00%
3
10.00%
2
5.00%
1
0 0.00%
2005 2006 2007 2008 2009
 Focus on partners’ footprint (exclusive coverage)
 Conservative forecast: target at 15% of partners’ DTV subs by 2008
 VOD/SVOD customers only; linear channel and B2B customers are not included
Proprietary Information Property of iBIT, Inc 45

46. REVENUE OPPORTUNITY
(VOD & SVOD Only)
60
SVOD Ala Cart
50
 Solid initial metro market
40
entrance to set the example
$MN
30
 Expand to multiple provincial
20 markets when the platform is
10
ready
0
2005 2006 2007
1,000
900 SVOD Ala Cart
800
700
Olympic
 Expedite growth stimulated 600
$MN
Game
by 2008 Olympic Game 500
400
 Steady market penetration 300
afterward 200
100
0
2007 2008 2009 2010
Proprietary Information Property of iBIT, Inc 46

47. OPERATION FORECAST
Year 2005 2006 2007 2008 2009 2010
SVOD Revenue ($mn) 1.7 5.2 34.9 148.5 306.6 637.2
VOD Revenue ($mn) 1.2 3.7 21.2 62.9 122.2 236.5
Total Revenue ($mn) 2.9 8.9 56.2 211.4 428.8 873.7
Total COGS 1.8 5 32 115 221 427
Gross Margin 37% 40% 43% 46% 49% 51%
Opex 0.8 1.8 9.3 31.3 58.5 111.8
EBITDA 0.3 1.8 14.9 65.5 149.5 334.5
EBITDA Margin 11% 20% 27% 31% 35% 38%
Capex 3.09 4.42 26.88 61.36 60.28 93.51
% of Revenues 106% 50% 48% 29% 14% 11%
EBITDA - CapEx (2.8) (2.6) (11.9) 4.1 89.3 241.0
Cum. EBITDA - CapEx (2.8) (5.4) (17.3) (13.2) 76.0 317.0
 Conservative model based on VOD/SVOD only
 Revenue sharing (COGS) as a function of content performance
 Success-based Capex/Opex, high contention ratio is assumed
 FCF as a function of market penetration speed
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48. BUSINESS MODEL ASSUMPTIONS
 Market assumptions:
 Focus on partners’ footprint: 30M sub-base, 20% penetration @ year five
 ARPU assumption:
 5 RMB for base SVOD, 35 RMB for premier SVOD
 4 to 50 RMB ala cart order (e.g., movie or event)
 COGS:
 As a function of type of content (local & foreign) and content performance, see
page “Pricing & Revenue Sharing”
 Capex:
 Success-based central servers, utilizing partners’ last-mile infrastructure (QAM
modulator, caching servers, etc)
 20% simultaneous usage is assumed
 Opex:
 20 people team @ year one, and ramp up to 250-300 people team @ year five
 Partnering with MSOs and Telcos for marketing, sales, and customer services,
therefore reducing the operation cost.
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49. USE OF FUND & FORECAST
(less aggressive approach)
First Round: $10M for the first two years
 $6M for engineering & platform development, target @ 0.3M RGU
 $2M for content localization, packaging & distribution
 $1M for sales, marketing, and initial customer services
 $0.5M for corporate operation
Second Round: $30M for the next two years
 $14M for engineering & platform development, target @ 4M RGU
 $3M for content localization, packaging & distribution
 $2M for sales, marketing, and initial customer services
 $0.5M for corporate operation
Third Round Forecast
 For further market expansion (10+M RGU)
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50. WORKING PLAN
DTH Launch
DTH Launch World Cup Soccer
Beijing Olympics
2005 2006 2007 2008 2009
Business Development Provincial Market Penetration
(1-2 metros) (1-5M subs)
Local content & existing International, games, music, National Brand Buildup (10-20M subs)
approved CCTV library special program
Linear channel + on-demand
Launch DVR
Platform Buildup Launch Cell & PDA
Team Buildup
Initial Fund Raising 2nd round
Break even
fund raising
Development & Channel Building Branding/Market Expansion Market Dominance
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51. RISKS & RISK
MANAGEMENT
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52. RISKS & RISK MANAGEMENT
RISKS RISK MANAGEMENT
Availability
and suitable to Combine 31 provincial channels with foreign ones
Contents & China market Utilizing already approved CCTV foreign content
Protections Censorship barriers library
Copy right protection Use combined CA/DRM, and transaction platform
DTV penetration reality Utilizemany fronts, not rely on single platform
Market Broadband penetration Combine Linear channels & On-demand to capture
reality multiple revenue streams
 Leverage our partnership and let MSO/Telco be our distribution
fronts and policy shelters
Legal Rights to distribute in China
 Hybrid corporate structure with our China domestic company
holding the licenses
 US holding company be the investment carrier, no investments
Money in and out China exposed to China domestic activities
Financial Billing validation  Wholly owned subsidiary transfer money freely
 Transaction-based system for billing validation
No one be able to control all the pieces of the chain:
Do it themselves: MSO,
Competition content, distribution fronts, and platform
Telco, Content providers, etc
Partnership to bond the interests & provide incentives
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53. SUMMARY
 Creating a value-added service operator (VASO) in
partnership with large MSOs & Telcos in China, riding the
wave of media business commercialization
 Diversified content aggregation and distribution to China
mass market
 Transaction-based platform for 100% control of content
distribution and customers
 Multiple revenue streams: on-demand, subscription,
advertising, B2B, etc
 First-move advantage and control of the key pieces of the
value chain. Potentially becomes a dominant full-scale
operator after WTO agreement is fully materialized
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