Content

Ster-Kinekor Theatres increased its black consumer attendance from 14% to 36% following the successful launch of Ster-Kinekor Junction

DIVISIONAL RESULTS*

OVERVIEW

This is the first full year of reporting for Primedia’s content division, a new division designed to ramp up and diversify the group’s content businesses. The content division currently comprises cinema exhibition, film distribution, video and DVD distribution, electronic games distribution and mobile content.

Excluding the new businesses developed by Primedia Unlimited Content, the division posted an impressive performance with revenue increasing by 22% to R1,1 billion and PBIT increasing by 17% to R87,6 million. The November 2005 resolution of product supply problems at Ster-Kinekor Theatres assisted that division to deliver an impressive second half performance. This performance was also positively impacted by good cost improvements due to benefits derived from prior-period expenditure on technology and systems. Ster-Kinekor Games performed very strongly.

FILMED ENTERTAINMENT

Revenue (R’mil)		PBIT (R’mil)		Contribution to content PBIT

Ster-Kinekor Theatres

Ster-Kinekor Theatres operates 14 Ster-Kinekor Classic, 26 Ster- Kinekor Junction and 5 Cinema Nouveau cinemas in South Africa as well as cinemas in Namibia, Zimbabwe and Zambia.

In November 2005 a negotiated compromise with a major distributor allowed Ster-Kinekor Theatres to show movies at all of its Ster-Kinekor Junction cinemas, where cinema ticket prices have been lowered significantly. For the year, Ster-Kinekor Theatres increased its overall theatre attendance by 12% to 18,2 million and total revenue by 9% to R477,9 million. The black consumer attendances as a percentage of total attendances grew from 14% in June 2005 to 36% in June 2006. Revenue at Ster-Kinekor Junction sites increased by 42% subsequent to the resolution of the product supply problems, as compared to the corresponding prior period. Taking into account the slower rate of revenue growth at the Ster- Kinekor Classic sites, Ster-Kinekor Theatres' overall revenue increased by 20% over the same period.

A key component of Ster-Kinekor’s successful Junction rollout is the delivery of “accessible cinema” to all South Africans. Following a tender process, Ster-Kinekor was selected to build a 10-screen Junction cinema in Maponya Mall, a 65 000m² shopping and entertainment mall in Soweto, scheduled to open in November 2007. We are confident that the Maponya Mall will enable us to build further on the affordable cinema strategy.

Tangible innovations resulting from the implementation of Ster- Kinekor’s technology system can be seen with the rollout of the Self Service Terminals (“SSTs”). SSTs have contributed to the increase in total revenue as the reduction in time spent by patrons at the box office results in more time being spent at the catering counters. As 40% of all tickets are now bought at the SSTs, further savings in operating costs should be realised going forward. Other exciting innovations for the new year include catering purchases at SSTs, movie ticket subscription plans and enhanced loyalty/partner offerings. The new systems will also enable enhanced cost management leading to cost reductions over the next 12 to 18 months.

Ster-Kinekor Product Distribution

Ster-Kinekor Product Distribution continues to maintain excellent relationships with its Hollywood studios, Sony Pictures Releasing Internationally (“SPRI”) and Buena Vista International (“BVI”)/ Disney. The Ster-Kinekor team remains one of the top performers for both the studios and particular highlights for BVI/Disney include the incredible success of Cars and Pirates of the Caribbean in the South African market. Exciting releases from SPRI included the long and eagerly awaited Da Vinci Code.

A highlight of the year was the success of the Oscar winning, locally made movie, Tsotsi. Ster-Kinekor Product Distribution has been working with Tsotsi’s producer and director since 2002 and was honoured to have been appointed as the movie’s South African distributor for theatrical, home entertainment and television.

Ster-Kinekor Product Distribution’s recent support and investment in local content is beginning to pay off and as more local movies make it onto screen, based on the success of Tsotsi as a role model for local producers. Ster-Kinekor Product Distribution remains confident that commercial success will soon follow.

Ster-Kinekor Home Entertainment

Ster-Kinekor Home Entertainment is the appointed distributor for Universal, DreamWorks and Sony Pictures Home Entertainment and from 1 July 2006, it has secured a new licence from Paramount Home Entertainment, Paramount Pictures Corporation, DreamWorks Live Action and DreamWorks Animation. Ster-Kinekor Home Entertainment looks forward to the opportunity to distribute Paramount product, with its extensive award-winning catalogue and forthcoming blockbusters, which include Mission Impossible 3, Failure To Launch and Last Holiday. Paramount’s strong catalogue and exciting future line up will complement the product distributed by Ster-Kinekor Home Entertainment from Sony Pictures (which includes MGM), Universal Pictures and DreamWorks.

Ster-Kinekor Home Entertainment recently received Sony’s Distribution Partner of the Year award. Ster-Kinekor Home Entertainment competed against distribution from 32 other countries on criteria such as sales volumes, reporting process and royalties generated.

The introduction of the UMD (universal media disk) format into the market for Sony PlayStation was successfully executed with an attachment sales ratio of UMDs to Sony PlayStation Portables (“PSP”) equivalent to the best in the world. To date 38 000 units have been sold into the market.

The retail business continues to enjoy growth, largely because of increased DVD ownership. This is particularly evident in sales of children’s product given their access to DVDs and tendency to watch them repeatedly from “home libraries”.

Parallel importing (the importing of genuine product from one country to another without the permission of the intellectual property rights owner) is becoming as big a threat to the home entertainment industry as piracy. South African distributors and the Southern African Federation Against Copyright Theft (“SAFACT”) are in discussions with the Films Publication Board (“FPB”) to play a more active role in ensuring that all DVDs, including parallel imported DVDs, are registered with the FPB. The cost and time spent in registering all parallel DVDs by “parallel importers” will assist in ensuring the playing fields are level for all distributors in the market.

SAFACT’s strategy of managing the piracy problem at source, lobbying for harsher sentences and focusing on convictions has shown results. However, piracy continues to be Ster-Kinekor Home Entertainment’s number one challenge.

The launch of Blue-ray and Hi-Def in November 2006 and cellular phone adaptable movie memory cards (launched in September 2006) will create new excitement in the home entertainment industry. The new technologies should assist in the fight against piracy and also ensure that the customer experience is taken to new heights.

ELECTRONIC GAMES

Revenue (R’mil)		PBIT (R’mil)		Contribution to content PBIT

Ster-Kinekor Games delivered a 53% increase in revenue due to excellent sales of PlayStation II consoles (“PS2”) consoles and games and the launch of PlayStation II portable (“PSP”). PBIT also increased by a very satisfactory 51%.

Ster-Kinekor Games sold 151 000 PS2 consoles and 46 100 PSP consoles in the period under review, with more than 536 000 PS2 consoles now in the South African market.

With the ongoing reduction in prices, particularly of PS2, Ster- Kinekor Games has successfully taken this product to the wider consumer market in South Africa. With PSP launching in the second quarter of the financial year, Sony PlayStation has cemented its dominance of the console gaming market in South Africa. PSP is a handheld Sony PlayStation device that takes console gaming to the highly mobile youth market.

Ster-Kinekor Games’s drive to be the preferred distributor for PS2, PSP and PC games for the major studios continued and Ster-Kinekor Games now represents 15 gaming studios in South Africa, with the majority of these on all three platforms, PS2, PSP and PC. Key titles released during the year included Grand Theft Auto San Andreas, WWE 2006 and Rise and Fall: Civilisations at War.

Ster-Kinekor Games was awarded the distributor territory of the year for Sony PlayStation, which is a clear indication that Ster-Kinekor Games is managing the PlayStation business in South Africa with the total support and recognition of our rights holder.

SAFACT continued the fight against the piracy of games. The PC gaming market is particularly plagued by piracy and more and more pirated PS2 games are being found in the South African market. With the support of Sony, SAFACT has continued its drive to get to the source of the pirated goods.

PRIMEDIA UNLIMITED CONTENT

Primedia Unlimited Content reported a loss of R7,9 million in the fiscal (2005: loss of R1,1 million), mainly due to the R4,4 million loss incurred by Book4Golf, the online golf booking business and a loss of R1,6 million incurred by the video and DVD business targeted at the township areas. The video and DVD business has been sold due to insufficient availability of suitable outlet sites. Book4Golf was not considered viable and has been closed.

Subsequent to year-end, and recognising the opportunities in the mobile content market, the acquisition of a controlling stake in eXactmobile made the group the leading provider of mobile content in the South African market. Further consolidation is expected in this market through synergies.

Given the product distribution competencies of Ster-Kinekor and our excellent relationships with the major Hollywood studios, we see “richer” content via mobile phones growing this market exponentially over the next few years.

INDUSTRY FORUMS

Ster-Kinekor remains an “influential” member of SAFACT, with four representative members and one board member on SAFACT. Ster- Kinekor continues to give advice and resources to SAFACT, in particular in the areas of human resources management, financial management, marketing and legal. With the new CEO at the helm of SAFACT, we are confident that consumer awareness and legal enforcement remain the key strategies that will help win the fight against piracy.

Ster-Kinekor is also represented on the board of SAFTA, the industry body organising the South African Oscars, as we believe that the recognition of local talent in film and television is critical to the establishment of a vibrant and successful local industry.

PROSPECTS

The division remains committed to an accelerated expansion into new media sectors, with an increased exposure to content based media as well as realising the full benefit of Ster-Kinekor Theatres' low price ticket strategy. The group’s objective to increase its earnings contribution from content and drive scale from recent acquisitions will further position the division for sustainable growth.

We are confident and optimistic about the future prospects for the division. Once approval has been received from the Competition Commission for the group’s recent acquisition of eXactmobile (expected before the end of December 2006), the Primedia Unlimited Content division should start to contribute positively to Primedia’s results.

F Gazendam
Divisional Chief Executive, Content Division

25 October 2006