Nakednewsasia 2012

Information Memorandum
The Business Case for Naked News Korea
Contents
02 04 07
Conditions of Issue Executive Summary The Content Market Explained

- Content a brief description and overview - Size of the global content market by media type, region and value - Why Telco and Cellco providers need content a matter of survival - The position of Naked News in the content market regulatory perspective
17
Naked News in brief

- Media comment overview - Content programmes and services
23
The Business Case Why Korea (Part One)

- Technology Infrastructure penetration of content technologies, key statistics - Societal Impact consumer attitudes, behaviour and disposition - Size of Korean Content Market by media type and value - Korean Regulatory Environment censorship and opportunities
37
The Business Case Why Korea (Part Two)

- Korean Demographics key statistics relevant to Naked News - Prime Target Market of Naked News Korea qualied and quantied - Probability Risk Analysis revenue target risk assessment - Competitive Threats and Weaknesses competition, barriers to entry
47
The Business Plan

- History, current position, distribution agreements, things to do - Marketing, revenue, risk analysis
55
Financial Statements
- Cash ow, earnings and funding
69
The Offer
- Valuation and equity calculation
See endnotes for factual statements denoted throughout this document Reference to the placename Korea implies South Korea
Conditions of Issue
This Information Memorandum (Memorandum) has been prepared by Cruickshank Management Limited (CML) for Naked News Korea (NNK). It sets out general information about NNKs business (the Business) upon which the recipient of this Memorandum (Recipient) can determine whether to investigate making an equity investment in NNK. This Memorandum is supplied on the following conditions, which conditions are expressly accepted and agreed to by the Recipient in part consideration of the supply of the Memorandum as evidenced by the request for and the acceptance by the Recipient of this Memorandum. If these conditions are unacceptable to the Recipient, the Memorandum must be returned within 48 hours of receipt. (a) This Memorandum does not purport to contain all of the information that may be required to evaluate an investment in NNK and any intending investor and their respective advisors should conduct their own independent review, investigations and analysis of the Business and of the information contained or referred to in this Memorandum. (b) While considerable care has been taken to compile all information on a accurate and reliable basis none of CML or NNK, or its directors, ofcers and employees, (collectively the Beneciaries) make any representation or warranty, express or implied, as to the accuracy, reliability or completeness of the information contained in this Memorandum or subsequently provided to the Recipient by any of the Beneciaries including, without limitation, any historical nancial information, any estimates, budgets and projections and any other nancial information derived there from, and nothing contained in this Memorandum is, or shall be relied upon as, a promise or representation, whether as to the past or the future. (e) The Beneciaries may in their absolute discretion, but without being under any obligation to do so, update or supplement this Memorandum. Any further information will be provided subject to these terms and conditions. (f) This Memorandum, including any update or supplement to it, does not and will not form part of any contract of investment that may result from the review, investigations and analysis of the Business by the Recipient, any intending investor and their respective advisors. Any contract for investment in the Business will contain any and all information, representations and warranties upon which the Recipient or any other intending investor should rely. The formal investment contract will also contain an acknowledgement by the Recipient that it has not relied on any representations or warranties by any of the Beneciaries in entering into the investment contract other than any representations and warranties set out in the sale contract itself. (d) Any estimates, budgets and projections contained in this Memorandum involve signicant elements of subjective judgement and analysis, which may or may not prove to be correct. There are usually differences between forecast and actual results because events and circumstances frequently do not occur as anticipated and these differences may be material. The Recipient, any intending purchasers and their respective advisors should make their own independent review of the relevant assumptions, calculations and accounting policies upon which estimates, budgets and projections are based. (c) Except insofar as liability under any law cannot be excluded, the Beneciaries shall have no responsibility arising in respect of the information contained in this Memorandum or in any other way for errors or omissions (including responsibility to any person by reason of negligence).
Information Memorandum / YSPC01
(g) The information in this Memorandum is provided to the Recipient only as a matter of interest. It does not amount to a recommendation either expressly or by implication with respect to an investment in the Business. (h) The information in this Memorandum may not be appropriate for all persons and it is not possible for the Beneciaries to have regard to the investment objectives, nancial situation and particular needs for each person who reads or uses the information in this Memorandum. Each Recipient is responsible for checking the accuracy, reliability and completeness of information contained in this Memorandum and for obtaining independent and specic advice from appropriate experts. (i) The Recipient further acknowledges and agrees that NNK is not obliged to invite submissions of offers and may withdraw from negotiations at any time and shall not be under any obligation to proceed with any investment transaction until such time as a formal agreement for investment has been executed. (j) NNK reserves the right to evaluate any offers and to reject any or all offers submitted, without giving reasons for rejection. The Beneciaries shall not be liable to compensate the Recipient or any intending investors for any costs or expenses incurred in reviewing, investigating or analysing any information in relation to the Business, in making an offer or otherwise. (k) NNK may, at its sole discretion, accept an offer of investment from any party at any time (either earlier or later than the timetable set out in this Memorandum). (l) By accepting a copy of this Memorandum the Recipient agrees that it shall not contact or discuss the contents of this Memorandum or the proposed investment in the Business with any ofcer, employee, supplier, customer, franchisee or associate of NNK or related entities of NNK without the prior written consent of NNK.
(m) Upon request, the Recipient will promptly return the Memorandum and all or any other information supplied to it by NNK or its respective agents, employees or advisors, together with any copies taken of any such information. (n) In the event that any dispute arises in relation to this Memorandum, the Recipient submits to the jurisdiction of the courts of New Zealand and agrees that this Memorandum shall be governed by, and construed in accordance with, the laws of New Zealand.
All communication should be directed in the rst instance to; Yoav Sinai Auckland , New Zealand Telephone - 64-9-442-4223 Email- ysinai@gmail.com Yoav Sinai Auckland, New Zealand Telephone: +64 9 442-4223
Email: ysinai@gmail.com
3
Executive Summary
The Company is in the business of distributing entertainment content to consumers via Mobile Phones, the Internet, and Television. In February this year the Company acquired the exclusive territorial rights to an established content provider of international news, sports, adult entertainment and lifestyle programmes. This content package, known as Naked News, is viewed by more than 11 million paying subscribers per month, in over 80 countries worldwide(1). The business of the Company is to sell this content via Mobile Phone, Internet and payper-view television to subscribers in South Korea, a country with the highest penetration of these devices in the world(2) with 40 million and 34 million Mobile Phone and Internet subscribers respectively, from a total population base of 50 million(3). Todays modern Korea is the worlds 10th largest economy (GDP of US$1.1 trillion)(4), driven mainly by telecommunications, consumer electronics and a young, afuent and technology savvy population. During 2006, Koreans spent over US $20 billion on Mobile Phone services and US $38 billion in total telecommunications services(5). The prime target market for Naked News is males in their 20s and 30s. Korea has the youngest median age in the OECD at just 22 years of age(6), and according to industry observers Korea is a marketplace with an insatiable demand for new product and entertainment content7). Until a recent law change governing content censorship, it has not been possible to exploit this opportunity until now. The Company Principal has 15 years telco business experience in Korea and established relationships with senior government ofcials, and management of Koreas major telecommunication providers. This has resulted in all government regulatory approvals and licenses being granted ahead of schedule. Commercial network agreements with the Big 3 Mobile Phone and Internet portals have also been secured. Website construction, hosting, talent and management selection together with studio and broadcasting facilities are near completion in preparation for the Companys nal stage before full commercialisation. The content distribution business is a highly protable industry. The forecast EBITA for Naked News Korea in year-one, including one-off set up costs, is 84% (8). Revenues are forecast at US $35 million for the rst full years trading, rising to twice that gure by the end of year three. The Company considers this forecast conservative, based on obtaining less than 2% of the 19 year plus Internet and Mobile Phone subscriber base (9). Income will be cash-ow positive within the rst month of launch date. The Company considers it is now in a position, ready for investors, to proceed to the next phase and raise the planned additional capital to complete the commercialisation of its business plan. It is seeking US $1.8 million in funding,
The Company is offering 25% equity in itself for US $1.8 million, with full capital repayment back to the Investor at the end of month six. 25% equity position (and associated dividend entitlement) continues, notwithstanding the capital repayment.
Amount:
US $1.8 million
Capital Repayment: End of month six
Dividend Payments: At end of month six, quarterly thereafter 25 % of issued capital
Equity:
Security:
Preference A Shares, ensuring priority capital repayment and non-dilution protection
Conditions:
No other added-value contribution is sought from the Investor.
The Company need only achieve 10.5% of its after-tax prot forecast to meet its capital repayment obligations to the Investor. Given the Company achieves its nancial projections, the Investor should enjoy around US $10 million return over the next ve years from the initial six month, US $1.8 million outlay. The funding could be facilitated by: Two instalments, The provision of a draw-down facility up to the full amount required or A combination of both. This offer is designed to provide exibility to the Investor while at the same time achieving the Companys funding objective. The Company seeks to raise the capital from one or two investors only. This Information Memorandum is issued subject to the conditions described under Conditions of Issue and by the laws of New Zealand concerning habitual investors as dened under the Securities Act 1978.
The Content Market Explained
Introduction
The purpose of this section is to set the stage for the Companys business case by illustrating the size and relevance of the content market within the global economy. Supported by research, it explains why telecommunication companies need content to survive and how in turn consumer demand will drive the content market towards a US $80 billion(10) industry over the next ve years. Some industry quotes to help set the scene:
The conventional assumption that people watch TV at home, go to a movie theatre to watch motion pictures, talk on Mobile Phones and landline telephones no longer applies. The impact of technology is being felt on the hardware side as well as the content side. For hardware, PC monitors are now used as TV screens and an old fashioned cell phone now enables users to view TV anytime, anywhere. As for content and programming, broadcasting companies are rapidly losing their exclusive control over program scheduling. Content is delivered on-demand at the convenience of the consumer. Viewers can watch what they want, when they want. Viewers have control over time, space, and programming. An extract from Digital Broadcasting Content and Programming in Korea, research conducted by International Business Strategies, December 2006.
For many years Mobile service providers saw increasing revenues on the back of ever-increasing subscriber numbers. However, that is no longer the case in most developed markets, as price competition increases, particularly for basic voice and text messaging services, revenue growth opportunities become more limited. To compensate Mobile Phone network operators (Cellcos) have turned to added value services and particularly value added content services, to boost, or sustain revenues. Bruce Gibson, Senior Analyst, Juniper Research UK: Mobile Entertainment Markets - Opportunities - Forecasts, 2006 - 2011
The same is also true for xed landline Telecommunication providers (Telcos) and Internet Service Providers (ISPs). ISPs need to extend their services beyond connectivity and create a brand around content to encourage customers to remain longer online or on a content portal delivered by the operator. If operators do not do this, they will be reduced to being just a pipe-provider and will not own the customer at any point in the food chain. This is scary for operators, because they have always placed value on their network. In a consumerdriven personal broadband world, consumers do not place value on the networks; rather, they place value on the content. Jeff Heynen, Director Analyst, Broadband & IPTV, Infonetics Research
1.0
Content: A brief description and overview
The term content refers to paid entertainment and information services offered over the Internet, Television and Mobile Phone networks. The many types of content available over the Internet and Pay-TV channels (ranging from movie downloads, subscription-based publication and information services, sporting events through to adult entertainment) are generally understood by the wider viewing public. Less so however, is the kind of content now available over the growing Mobile Phone and immerging Mobile TV networks. Naked News Korea will offer its content across all four platforms, i.e.: The Internet, Mobile Phone, Mobile TV and Pay-Per-View TV and Mobile Phone networks. The following, provides a brief description of the various kinds of content available by media type, and quanties the size of the global and regional markets.
1.1
Mobile Phone
There is a consensus amongst service providers, social commentators, academics and users that the Mobile Phone is one of the most signicant lifestyle changing developments of the last decade. Not only has the Mobile Phone provided freedom from the constraints of wired communication for a third of the worlds population (2.1 billion subscribers worldwide in 2006),(11) 3G networks, (third generation high-bandwidth, high-speed and wireless Internet access technology) have dramatically increased the opportunity for revenue generation from value-added, media-rich Mobile entertainment content. As 3G technology penetration continues, the Mobile Phone assumes a greater role as a multi-function communications and entertainment device for an increasing sector of the mass market. Juniper Research, a UK based specialist research rm in global telecommunication markets, distinguishes six type of Mobile Phone content categories.
TABLE 1
MOBILE PHONE CONTENT CATEGORIES
CONTENT CATEGORY
Mobile Gambling: Mobile Adult Content: Mobile Games: Mobile Music: Infotainment: Information Services
DESCRIPTION
Sports betting, casino games & lotteries Adult videos, adult games, erotic images, wallpapers, stories, jokes, text messaging, adult SMS chat, moantones PC and console based games developed into Mobile versions Live and pre-recoded songs & albums or custom made, ringtones & ringbacks News, sports, weather & trafc updates, travel, leisure, and lifestyle content Financial market updates, stock alerts, specialised on-time services
The following table summarises how various types of content services are typically delivered via the Mobile Phone networks.
TABLE 2
MOBILE PHONE CONTENT DELIVERY
CONTENT
Music General News Financial News Sport Services Trafc Information Astrology and Horoscope Weather & Travel Information Yellow Pages and Directories Celebrity Interest Services TV and lm interest services Community services Gaming
DELIVERABLES
Video clip downloads, & streamed video Streamed video, video clip downloads, text messaging and alerts Picture messaging and alerts Video clips downloads, video streaming and chat Streaming video Wallpapers and graphics Video clips downloads and video streaming Streamed audio and audio clips Streamed video, text messaging and chat Video clip downloads Video clip downloads, chat Video clip downloads
= Entertainment content offered by Naked News Korea. See full details of programs and services under section heading Naked News In Brief
Time and time again, it has been proven that the consumer demand for high-quality video content, whenever and wherever they want to watch it, is insatiable. Mark Hefinger, Juniper Research.
Each type of delivery method has a different price format, ranging from instantaneous video clip downloads charged on a per-video clip download basis, to streaming video (usually a simulcast of live events charged on a per-minute basis), and set-priced models for example, stock alerts and scheduled automatic updating services. Mobile Phone content delivery via video clip downloads, - as opposed to streaming video - is expected to overtake streaming by mid 2008, ultimately reaching US $11.7 billion over the next ve years(12). Source Juniper Research Naked News Korea will generate its principal Mobile Phone income from two different pricing models; Video clip downloads and video streaming.
As a delivery method, Mobile Phone 3G video streaming content is forecast to grow from US $4.2 billion in 2008 to around US $9.5 billion in 2011. Notes Bruce Gibson, research Director, Juniper Research Mobile Adult
Content, Text, Images & Video, 2006-2011 (Third Edition),
1.2
Mobile Television
Mobile TV and live simulcast TV (one-way broadcast) on mobile devices, provides the same content as seen on regular satellite, digital or cable TV in the home, as well as on-demand video and short video clips that users can download. The idea of Mobile TV is to supplement or complement what the user watches on regular TV while on the move. Mobile TV is forecast to be the fastest growing product sector, (in the mobile technology eld) with estimated global content revenues exceeding US $15.9 billion by 2011(13). By 2012 it is predicted there will be 155 million subscribers worldwide, dominated by Asia Pacic (76.3m), followed by Europe (42.7m) and North Amercia (35.6m)(14). Both Juniper Research and Datamonitor Research, predict Asia-Pacic countries will continue to be the dominant player. Korea and Japan have the highest Mobile TV penetration in the world with 40% of total Mobile Phones currently in use. Note Mobile TV revenue should not be confused with Mobile Phone revenue for despite their similarity in name, they deploy different technologies (Mobile TV is one-way simulcast vs two-way unicast) and are different markets.
2.0
Global Mobile Phone Content Revenue
The total global market for mobile entertainment content was estimated to be US $17.3 billion in 2006 and forecast to grow to US$ 76.9 billion in 2011. This represents a cumulative average annual growth rate (CAGR) of 35%. Juniper Research Mobile Entertainment Markets, Opportunities & Forecast, 2006-2011.
Global Mobile Phone Content Revenue

Regional Split 2006 and Forecast 2011
2006 Revenue by Region US$17.3 Billion

3% 39% 19% 14%
Revenue by Region 2011 US$76.9 Billion

5% 32%
3%
7%
41%
37%
NORTH AMERICA
SOUTH AMERICA
EUROPE
ASIA-PACIFIC
REST OF WORLD
3.0
Global Internet Content
Content, by category, described for the Mobile platform applies equally to entertainment content found over the Internet. But unlike the Mobile Phone market, the free-to-use Internet, (outside a nominal ISP charge), has given rise to two forms of content known as User Generated Content (UGC) and SNS (Social Networking Service). These forms of content are not included in the following revenue calculations. Paid content on the Internet has been dominated by the music category (downloads now accounting for 44% of all global music sales)(15). Gaming, adult content, gambling, subscription-based publication and information services collectively account for 86% of global Internet content revenues. VoIP (Voice over the Internet Protocol), ringtone downloads and wallpapers are not included in these gures. The technology impact on the growth of the Mobile Phone content market, also applies to the Internet. The increase of broadband penetration, the deployment of IPTV (Internet Protocol TV), VOD (Video On-Demand) and digital two-way cable, have all opened up new opportunities for content providers. These new technologies have expanded the content market by giving Internet users faster access to more media-rich content in higher denition at higher download speeds of up to 300 Kbps. Technology penetration, user convenience and demand for instant gratication, are primary drivers in growing Internet content revenues. As seen in the global Mobile Phone market, Internet usage is again dominated by the Asian marketplace, accounting for 36%, followed by Europe 24%, collectively making up 65% of the global Internet subscriber base(16).
Figure 3
Internet Usage by World Region (2006)
50
100
150
200
250
300
350
400 418
Asia/Pacic Europe North Amercia Latin America Africa Middle East Australia/Oceania
34 20 19 110 233 322
Millions of Users
11
The Internet is currently accessed by nearly 18% of the Worlds population, but as Figure 4 reveals it falls well behind the ubiquitous Mobile Phone penetration at 33%. The total number of Mobile subscribers worldwide at the end of 2005 grew to 2.129 billion, an increase of 384 million subscribers from the start of the year. This gure is expected to increase to approximately 3.964 billion by the end of 2011. In the same time frame, the population of the world is likely to increase from approximately 6.5 billion to 7 billion, meaning the worldwide Mobile Phone penetration should pass the 50% mark some time around the end of 2009. By 2011, the Asia-Pacic region will account for approximately 50% of the entire worlds Mobile subscriber base(17).
Figure 4
Mobile Phone User and Internet Subscriber Penetration of World Population

2006 Actual to Forecast 2011
2006 Actual to Population 6.5 Billion
2011 Forecast to Population 7.0 Billion
17.74% 23.47%
19.91%
49.53%
32.73% 56.62%
2.129b
1.154b
3.217b
3.964b
1.394b
1.642b
MOBILE PHONE USERS
INTERNET SUBSCRIBERS
NON-USERS
4.0
Why Telcos and Cellcos need Content: A matter of survival
There are three main players in the content business: The content producer (who actually makes the content product/programme) The content distribution provider (who distributes the content via their network) and, The end consumer (who pays for the content)
Between these are billing services, hosting services, sub-portals and numerous other components that make the industry function. The dominant players in driving the business forward are those with the greatest vested interest: The Telcos and Cellcos. As discussed at the beginning of this section, Telcos and Cellcos need content just to maintain existing prot margins as they witness their traditional revenue stream from voice eroded by ever increasing price competition. Voice ARPU (average revenue per customer) fell in 2006 by an average of 5% for 13 key global mobile carriers and further declines will occur in 2007 and beyond according to Infonetics latest market research. These carriers collectively represent more than 1 billion subscribers worldwide. To compensate carriers are turning to added-value content data services to offset their losses. This scenario is particularly true in mature market places like Korea and Japan where Mobile Phone and Internet penetration has reached near 100% per capita and where increased prots can longer be extracted from increased subscriber growth(18). As voice becomes more and more commoditized, importance of wireless data revenues to protability cant be understated. One Cellco, NTT DoCoMo (Japan), is earning over US $1 billion a month from data services and their stated goal is to derive 80% of their revenues from data service by 2010 against current norms of 20-25%, states Chetan Sharma Consulting, 2005 a recognised industry expert in telecom data technologies. For operators around the world who are confronting a saturated subscriber base eager for enhanced services on which to spend their money, getting into the video business is the next logical step. Now, the broadcast technologies are here to make that a reality, and, in the process, Mobile operators have a new revenue stream. (May 2007) Telecoms-Asia Magazine.
In its short existence, there is already proof that video could be the next killer application for Mobile operators. (Jan 2007) Bruce Gibson, Senior Analyst, Juniper Research.
13
5.0
Position of Naked News in the Content Market: A regulatory perspective
The content nature of Naked News, that is, local and international news, sports news, travel, lifestyle, lm reviews/celebrity interest services, falls within the mass-market infotainment content sector. However, the presentation of this content by in-studio female presenters in varying degrees of undress - from half to full nudity - places Naked News in a crossover category between soft-core adult and general entertainment. Both content sectors are signicant in terms of subscriber volumes and revenues but a closer look at the implications of the adult sector is required to assess the potential of the Naked News opportunity.
Erotic adult entertainment is big business - sex and titillation sells particularly to young men. Not only does sex sell, but there is a lot of money to be made from it. Adult content business models have succeeded in other major delivery media: print, cinema, DVD, PPV TV (payper-view TV) and the Internet. There is no reason why the Mobile Phone platform should not be equally protable for adult industry players. Juniper Research.
Juniper went on to say, It is clear that even with relatively conservative estimates of market penetration, (US$3.3 billion revenues in Mobile Phone adult content sales by 2011), substantial revenues can be generated. Even at the high quality end of the market, high prices relative to other Mobile entertainment content and substantial demand, will mean good returns on investment for all players in the delivery chain, including network operators. Many of the market drivers that have favoured the growth of adult content over the Internet also apply to accessing content over the Mobile Phone. The most convincing advantage is the fact that it allows access anywhere/anytime and affords the user the opportunity for privacy, which many users may nd attractive. Like the Internet, Mobile Phone allows users to purchase product without having to take the product off the top shelf of a public retail outlet or enter the establishment that they may not wish to be seen entering. The penetration growth of 3G technologies, enabling Mobile video, will mean over the period 2006 - 2011, video-based services will account for over 70% of Mobile adult content within the next ve years.
Juniper Research.
The biggest opportunity is at the casual and softer end of the adult market lads in the pub sharing a video clip after a few pints and people looking for a bit of fun when they have spare time to kill not at the hard core stuff.
Juniper Research.
What differentiates the adult content market from other forms of entertainment is that it is a regulation constrained industry and is heavily regulated in most markets largely to protect children from seeing unsuitable adult content. Historically, access to adult content through various media has been a controversial issue for the public and subject to much debate. Since adult content has become available on Mobile Phones, which are used extensively by teenagers (and even younger children), the sensitivity of this issue has assumed greater signicance. Mobile networks operators the world over, are major brands (eg Vodafone) and brand image is important to their business development and competitive positioning. Most operators are reluctant to overtly offer, or promote, Mobile adult content for fear of it tainting their brand, or running foul of the law. The adoption of age verication procedures and screening technology has eased the situation in most of the emerging and more mature Mobile marketplaces. Worldwide, regulations controlling adult content on both Mobile Phone and Internet vary dramatically.
The introduction of age verication and ltering systems could be seen as a constraint on market development, yet many in the industry see it as a positive move. Robust age verication procedures enable the legitimate adult content to develop within a framework of trust, from consumer, through to operator and content supplier. For Naked News Korea, the Korean governments strict censorship laws offer opportunity rather than market restriction as pornography (in all media) is illegal in Korea, and thus, the consumer choice for alternative sexual titillation is restricted. Naked News has been approved by the Ministry of Information and Communications for broadcast as general entertainment. This subject is covered in more detail under Korean Regulatory Environment Censorship and opportunities.
15
Naked News in brief

Reliable, Responsible and Respectable.
Since its launch on the Internet in 1999 and subsequent debut on mainstream broadcast in 2001, Naked News has been watched by more than 50 million viewers worldwide with a monthly-paying subscriber base in excess of 10 million and cumulative revenues exceeding US $2 billion. Acknowledged by media commentators and service providers alike, as Reliable, Responsible and Respectable, its success, according to Naked News own media department; can be attributed to both the nudity and the solid and informative content. Presented in a series of themed segments like International News, Entertainment, Sports, and Life & Leisure. The program is sensual, but not sexual in nature and while many viewers tune in for the naked, they stay for the news.
1.0
Media Comment
naked news Canadian website offers the best international coverage this side of the BBC; the naked part, is gravy. Time Magazine. Naked News has become an Internet phenomenon, spreading like a virus throughout the world. Washington Post. The audience.would like its news to be more like entertainment shows; better stories told by attractive personalities in exciting ways. Theres Naked News. Its a woman giving the news as shes getting undressed. OR, on the other hand, you could have two boring people behind a desk. Les Moonves, Chairman CBS Television.
Following is an article extracted from Fortune Magazine;
A Naked Differentiation
In Canada, there is a news company that according to no lesser authority than Time magazine offers the best international coverage this side of the BBC. The company is called Naked News, and it broadcasts upbeat news and current events programs to more than 172 nations daily on the Internet and reaches a potential weekly television audience of 34 million in the United States and many more million viewers in the UK, Australia, and several other countries around the world. Naked News is also available as video on demand in over 1.4 million hotel rooms in North America, the Caribbean, and Europe.
17
The Naked News content is available daily to wireless Mobile Phones and handheld devices. Naked News digital products are cable and satellite-ready, and available for licensing in English, Spanish, and French distribution. Most of what the managers and other workers in this news company do is exactly what their colleagues in any other news company in the world do. But Naked News has a little something that it does differently, and thats the reason that some viewers prefer to watch them (and to pay a premium price!). Tagged The channel with nothing to hide, Naked Newss attractive anchor-persons (well, mainly young women) cover politics, business, sport, and entertainmentall naked. Its differentiation has no connection to the core benets of a news company. What it is doing in order to make itself distinct seems strange, even shameful and irrelevant to its competitors. And so, the chances that someone will imitate the Naked News are small.
Naked News is privately owned by two men, one a lawyer the other an accountant, both in their 60s and headquartered in Toronto, Canada. It currently employs over 250 people and the presenters/ anchors are typically in their 20s and 30s from a university background. None are from the sex or allied industries and they enjoy a huge celebrity status following, complete with their own dedicated fan club websites run by the Company. When conducting auditions (usually at a well know hotel such as the Plaza in New York) over 1,000 women will invariably apply, turning the auditions themselves into a media event.
2.0
Overview
Following are edited extracts from Naked News own media department. Full details covering Naked News corporate prole, worldwide distribution, daily programming, media advisory and other related topics appear in the accompanying DVD-CD Rom, alternatively, simply logon to www.nakednews.com/media
Naked News ranked at number one position on both Google and Yahoo search engines for the word naked leads users directly to Naked News as rst option. Naked News is not only unique in nature and the rst nude news Internet or television broadcast, but also the rst program to successfully cross over from Internet to television in the history of the world-wide web. Today, Naked News is breaking new ground as a rst in the wireless, Mobile Phone market. The brand, Naked News, has become both a symbol of freedom of expression and a vanguard for the technological and lifestyle changes of the 21st Century. Naked News along with many other naked derivatives including but not limited to; Naked Sports, Nude News, Nude Sports, Naked News TV, Topless News, Topless Sports and the Company slogan, The Program With Nothing To Hide are trademark protected worldwide.
3.0
Main products and services
Internet and PPV (Pay-Per-View) Television Broadcast Naked News Internet features 6 new programs per week as follows: Monday to Thursday Daily Program Friday Program Weekend Program
Naked New can be accessed 24 hours per day, 7 days per week. The program is recorded daily in Toronto, the Canadian-based studios of the Naked Broadcasting Network headquarters. Naked News offers the daily top headline news stories, entertainment, sports updates and more, in an entertaining 22-minute package. Available on the world-wide web at www.nakednews.com to Internet subscribers throughout the world, Naked News is available in English, Spanish and Japanese versions. The website is subscription based, at a Regular Membership of US $9.95 per month, $39.95 for 6 months and 59.95 for One-years subscription, rising to $14.95, $59.95 and $89.95 respectively, for Gold Membership which offers higher resolution and iPod formats. PPV TV prices, based in the 22 minute package, vary from region to region, cable company to cable company and hotel to hotel, but typically is priced around US $9.95 per hour session.
DAILY Internet Program - Monday to Thursday
These programs serve up the latest news from around the globe. Some of the segments include any of the following: News Off The Top (Most relevant world news stories of the day) International News (News stories from around the world) Entertainment (Hollywood gossip and star-studded news) Life and Leisure (Lifestyle report) Sports coverage that includes commentaries and features from around the world Inside line (latest odds) New Release Rack (Latest DVD releases) Weather (World map temperatures) Legal Briefs (Odd laws still in practice) Wheelz (Hottest new car reviews) Closing Remarks (Candid discussions about current events)
19
FRIDAY
Internet Program consists of evergreen content that has a much longer shelf-life. This program is more light entertainment focused where the Naked News anchors lighten up the mood and take a look at the lighter side of news. Some of the segments on the Friday program may include the following: News off the Top (Light-hearted news) Entertainment (Hollywood gossip and star studded news) Life and Leisure/Lifestyles (Lifestyle report) Movies (Film review) On the Web (Fun, sexy and helpful websites) Naked News Travel (Popular travel destinations) Legal Briefs (Odd laws still in practice) Guest Anchor Auditions (Will she be the next Naked News Anchor?) Lily in the UK (Reports from London) Talk is Cheap (Editorial)
WEEKEND
Internet Program is packed with sexy, fun, and entertaining segments. This program is timeless and meant to showcase some of the best original programming Naked News offers. Some of the segments you can expect to see on the Weekend program may include the following: Game Spot (Latest video game reviews) Flex Appeal (Fitness and workout demonstration) Naked in the Streets (Our topless reporter hits the streets full of questions) Fashion (Latest trends and runway shows) Cooking in the Raw (Recipes and demonstration) Naked Goes Pop (Pop culture, music, art, interviews and events) One on One (Interviews and sexy model features) Locker Talk (The hilarious life of a Naked News anchor)
Naked News Mobile Based on the willingness of viewers to pay a premium for Naked News over the Internet and on Pay-Per-View Television, it was a logical progression (with the increasing penetration and deployment of 3G technologies) into the Mobile Phone market, which Naked News entered in late 2004 in selected trial markets. Now Naked News Mobile editions (of which there are several) are available throughout parts of Europe, South America and Japan in both female topless and lingerie-only versions. Naked News Mobile TV and IPTV Following on the heels of the successful penetration of 3G technologies around the world, the burgeoning Mobile TV and IPTV (Internet protocol television) will become the next frontier for Naked News.
The Naked News Korean initiative, is seen as a signicant and important development for the Company. Setting a new benchmark for our future direction into the world of wireless, multimedia convergence by capitalising on this exiting, vibrant and substantial markeplace David Warga, CEO. Naked News Broadcasting Inc.
21
The Business Case Why Korea

Part One
This section sets out in two parts, the business case that supports the Companys belief that South Korea represents a unique and signicant business opportunity. A market place which is unequalled by any other country in the world at present, be it for Naked News or other content providers entering this marketplace. This contention is supported by research categorised under four broad headings that the Company identies as the primary success drivers for Naked News Korea;
PART ONE -
1.0
Technology Infrastructure
Penetration of content technologies, key statistics Societal impact, attitudes, behaviour and disposition
2.0
Korean Content Market
Size, receptivity, consumer demand and opportunities Regulatory environment, censorship and opportunities
PART TWO - completes the Why Korea question covering;
3.0
Korean Demographics
The prime target market for Naked News qualied and quantied
4.0
Barriers to Entry
Competitive Threats and Weaknesses Probability risk assessment
23
To the question:
Quick answer;
Of all the countries in the world why chose Korea?
Korea has the highest penetration of Mobile Phones, Mobile TVs and Broadband Internet connections in the world, making it one of the most vibrant and dynamic telecommunications markets on the globe. Supported by a visionary government, a creative and energetic private sector and a young, afuent, tech-savvy population with an insatiable thirst for content.
South Korea Key Statistics, Telecom Market
Overview & Analysis 2006. Research by Paul Buddle Communications Pty Ltd.
South Korea, the nation that has zoomed past others to achieve the highest broadband data penetration in the world, is now trying to leapfrog the rest of the planet on the digital multimedia video side too. Alan Breznick, Telecommunications Analyst and Editor of Cable Datacom News.
South Korea is at the leading edge of the digital revolution. It is a trailblazer for highspeed and wireless Internet services and has pioneered the distribution of TV via Mobile devices. Source; (November 2006), BBC World News, Asia-Pacic
1.0
Technology: Penetration of content technologies, key statistics
The content market requires high resolution, high-speed, new generation technologies (e.g. 3G and DMB Digital Multi-Band Broadcasting and devices) to deliver on consumer expectations of anytime, anywhere communication convenience. Many countries such as the United States, Canada, Germany, India, have both population size and technology but lack a unied telecommunications infrastructure necessary to promote market growth in the tech-driven content industry. These markets are fragmented with competing technology interests and commercial agendas that have slowed their universal deployment. Unlike Korea, where early government intervention became a visionary force, ensuring standardisation, penetration and planned sustainable growth.
Broadband Wonderland: Korea puts America to Shame. Result: This little nation could have a giant inuence on the digital future. Peter Lewis, of FORTUNE Magazine,
September 2004.
At the time the preceding article headline was written, Korea had the highest broadband penetration in the world at 75% per household (now 94%), while the US had slightly more than 20% household broadband connections. Three years later, the US industry and government bodies are still working to correct technology fragmentation while Korea continues to surge ahead.
Korea is the Land of Best Digital Opportunity.
Headline, Telecoms-Asia, 27 May 07.
Korea ranks rst in the world in DOI (Digital Opportunity Index) for the third time in a row, among 181 countries, based in 11 criteria. According to a UN report released by
MIC (Ministry of Information & Communications) based on independent economic research by ITU (International Telecommunications Union) survey.
The DOI is an index that shows a countys level of development in the information and telecommunications sector including IT infrastructure and utilisation, (access to, and use of, Internet Broadband and Mobile Phone services). Japan ranked 2nd, Taiwan 7th, Canada 17th and the US, 20th. The four tables that follow set out Koreas key performance statistics in the Mobile Phone, Mobile TV, Internet and Pay-Per-View technology markets.
TABLE 1
MOBILE PHONE
Mobile PhoneS
Number of subscribers Mobile penetration per capita Mobile penetration over age 7 Predominant technology 3G subscribers 3G subscriber forecast YE 2008 Payment on account Major Cellco Network Operators
KEY STATISTICS
40,600,000 82% 100% 2.5 & 3G (3rd generation) 4G in trial, June 2007 15,760,000 25,230,000 98.5% SK Telecom KTF LG Telecom Other
COMMENT
49,500,000 total population(19) Highest in OECD(20) Reported by PBC(21) Highest % 3G use in the world. World-rst in 4G(22) As at April 2006(23) Launched December 2003 According to MIC report(24) Highest in the world(25) 19,100,000(26) 11,900,000 6,500,000 3,100,000 2006(27)
Total Mobile Phone Revenue
US $20.4 billion
4G Marks true technology convergence between Mobile, Internet access and TV broadcast with ultra-high-speed wireless connectivity and data transfer using one technology standard across all media. The WiBro (Wireless Broadband) and HPi (High-speed Portable Internet), accessible even when travelling at speeds of 100kph plus, was launched by SK Telecom, KTF and LG Telecom via 3.5G in May 2006. By June 2007 there were 8.5 million users. Separately, 95.8% of Koreans have Internet accessibility via their Mobile Phone(28).
25
TABLE 2
MOBILE TELEVISION
(29)
Mobile TELEVISION
Terrestrial - DMB users (Digital Multimedia Broadcasting) T = land based transmission Satellite DMB subscribers
KEY STATISTICS
4,230,000
COMMENT
As at April 2007. Free-to-air service launched by all Cellcos, December 2005.
2, 350,000
As at February 2007. Monthly subscription based. Launched May 2005, SK Telecoms TU Media. Only S-DMB provider.
Mobile Phone DMB capable
28,000,000
70% of all Mobile handsets will be DMB capable by YE 2008
* DMB services are only one-way, transmitting data but not receiving data, not unlike standard television which relies on advertising revenue for prot. Note; TU Media (owned by SK Telecom) charge a monthly subscription and need content to drive consumer appeal and subscriber growth.
TABLE 3
INTERNET
(30)
Internet
Internet subscribers Broadband connections Penetration per household Internet penetration per capita Digital cable, LAN and Satellite penetration Major ISPs
KEY STATISTICS
33,900,000 14,870,000 94% 68.1% 47% KT Corporation Hanaro Telecom Onse Telecom
COMMENT
15.8 million households Worlds highest per capita Worlds highest per household All stats MIC as at May, 2007 Up to 300/kbps using non-xed telephone line networks 51% market share 30% market share 8% incldg Powercom, Dacom 11% market share among them ISP revenue excludes content
Others ISPs and resellers Total ISP Content Revenue
76 US $5.2 billion
* In June 1994 KT Telecom began Koreas rst commercial Internet service. June 1998, Thrunet became rst to offer cable modem Internet connection. April 1999, Hanaro Telecom introduced the worlds rst ADSL (Asymmetric Digital Subscriber Line) service via existing telePhone networks. KT followed in 2000. 2003 ADSL technology was superseded by todays high- speed xDSL broadband. Fixed-line connections are reducing (accounting for 53%) as faster, higher denition non-xed line alternatives, such as two-way digital cable and satellite transmission services, ideal for content streaming and content market growth, take increasing market share.
Korean households spent US $25.6 billion on telecommunications during 2006. For the rst time, they spent more on communications than they did eating out, according to government gures on domestic household spending patterns. Source; (February 2007), Hyo-Jeoung Kim, ZDNet Korea.
TABLE 4
PAY-PER-VIEW
(31)
PAY-PER-VIEW, SKY and IPTV

Cable TV households Cable penetration Major Cable Operators
KEY STATISTICS
11,500,000 73% C&M CJ CableNet Qrix Communications
COMMENT
15.8 million households US home of cable only 65%
HFC Two-way digital cable HFC Digital target YE 2008 Major HFC Networks
4,100,000 15,000,000 KT Corporation Hanaro Telecom Korea Thrunet
As at YE 2005, MIC Govt OpenCableO mandate for 100% digital homes HFC (Hi-Frequency Content Cable), allows Telcos to enter content PPV market SkyLife TV, launched 2004 IPTV (Internet Protocol TV) Watch TV via Internet portal. Only Cellco to enter IPTV fray
Satellite TV Major IPTV Networks
3,150,000 KT Corporation Hanaro Telecom SK Telecom
IPTV (Internet Protocol Television), allows users to watch TV via Internet portals, with VOD (Video-On-Demand) was launched commercially in selected areas of Seoul June 2003, another world rst. Due to the likes of these services, high penetration of broadband Internet, Mobile TV and 70 plus free-to-air television stations, Korean consumers are spoilt for choice. Thus, investment in paid-to-view satellite TV has had slow beginnings in contrast early generation analogue countries where digital satellite TV has been a welcomed and attractive alternative. (32)
With the convergence of broadcasting and communication, we could see one standard bandwidth, common network with unied platform to carry TV programs in future. The unied platform ultimately will offer Mobile TV, Mobile Phone and Mobile Internet all as one unied service.
Minhyung Um, Head of Digital Multi-Media Broadcasting; Korean Broadcasting Service.
1.1
Technology: Societal Impact, attitudes, behaviour and disposition
Korea, with more than twice as many Internet connections than there are households, and a Mobile Phone for every man, woman and child over the age of 18, technology has had a profound impact on Korean society as a whole. As if lifted from the pages of a futuristic sci- novel, Korea has become a test bed, if not a social experiment for the rest of the world, as marked changes take place in behaviour, attitude and response to a hi-tech lifestyle. The following few examples give a brief insight as to how Mobile Phones and the Internet have inuenced their behaviour and attitudes demonstrated by their day-to-day use of these technologies. Unlike other nations where consumer education is required to expand a market category (eg, a recent survey found 36% of Americans who owned and used 3G Mobile Phones, did not know their phones had video streaming or Internet access capability). (33) Korea, in contrast to the US and other burgeoning Asian markets, offers an immediate and inveterate marketplace, short on content and big on demand as veried under Korean Content Market in the following section.
27
Koreans spend more time in front of their Internet computer screens than they spend in front of the TV set* and spend more on telecommunications than they do eating out.(34)
Koreans spend 13.3 hours on average a week on the Internet. The majority, 97.7% go online at home, as well as 23.7% and 21.2% connecting at their workplace and Internet caf.(35)
Koreans, spend on average 4.1 hours per week talking on their Mobile Phones an average of 70.9 voice calls per week. Males spend 1.3 hours more per week than females.(36)
Additionally, Koreans send and receive on average 61.8 SMS messages per week.(37)
Mobile Phone users in 2005 spent US $2.4 Billion (14% of total Mobile Phone revenue) in premium charges to access the Internet via their Mobile Phones.(38)
Mobile TV subscribers (to paid S-DMB services) spend on average of 57 to 80 minutes per day.(39)
Of all Korean Internet users, 62% go online every day. Internet usage is higher among men at 78.5% and women at 67.2%.(40)
Koreans generate twice as many Blogs as other developed countries. Korean based Cyworld, was the rst SNS (Social Networking Service), in the world to pioneer the concept of blogs back in 1999.(41)
MIC reports on average 78.7% of Internet users across all age groups go online for entertainment. Males in their 20s are the highest group at 92%.(42)
Korean spent US $10.6 billion on online retail during 2005, an increase of 37.4% on 2004, noted MIC, and the number of online retailers grew to 3,915.(43)
According to a study conducted by the Motion Picture Association of America, 58% of Korean Internet users reportedly downloaded movies from the web, more than twice the rate found in any of the seven other major Internet countries studied.(44)
A recent survey (April 2007) of 3,000 respondents found 32% of Korean women replace their old Mobile Phone with a new one once EVERY year. Of all respondents, 86% keep their Mobile Phone with them 24 hours-a-day and experience loss and emotional disconnection if their phone is not within reach.(45)
According to 19 nancial institutes in Korea, 38.11 million Internet users subscribe to Internet Banking, (as at March 2007). During the rst quarter, 15.86 million, used Internet Banking PER DAY! During March 2007, 10.54 million Security Certicates (shares) were issued (once only at a time to a single user).(46)
MIC and KADO (Korea Agency Digital Opportunity & Promotion) released ndings on Internet Addiction. Youth most at risk, 12.7% (self assessed gures say 36%) and across ALL ages groups 15% throughout 2006. MIC moves to double professional counselling sessions and provide on-campus addiction prevention programmes.(47)
Koreans are habitual users of Mobile Phones and the Internet, which might help explain why they spend more (or choose to spend more), on their telecommunications than on dining/eating out. Such behaviour, perhaps foreign to most western cultures, demonstrates how technology has become entrenched in the Korean psyche and daily lifestyle. It also reveals how these devices have become the principal source of personal entertainment for most Koreans across all age groups.
2.0
Korean Content Market: Media type and value
Based on a content industry survey, conducted by the KIPA (Korea IT Industry Promotion Agency), the Korean content industry (production), grew 16.8% during 2005, with the digital video sector in particular, producing 43.7% more content on the back of new growth in MDB (Multi-Digital Broadcast). In 2005, US $475.8 million was spent by content production houses, to produce digital content for the telecommunications market (this gure excludes imported content which under Korean law must not exceed 20% of total content transmission).(48) Revenue from digital content grew by 18.5% to US $8.1 billion, affected by high growth in online games and digital video.(49)
29
Market demand for digital content is expected to grow by a CAGR of 13% through to 2010 with market volume exceeding US $10 billion in 2007, reaching US $15 billion by 2010.(50)
Figure 1
Korean Entertainment Content Market Valuation

2005 Actual 2010 Forecast
16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2005 2006 2007 2008 US $ BILLIONS 2009 8.10 9.15 11.68 10.34 13.20
14.92
2010
Figure 2, (next page), shows the split between the Mobile Phone, Internet and Mobile TV delivery channels. Mobile Phone content is forecast to dominant the market in dollar terms for the next three years, having surpassed the Internet during 2006 due to Cellcos driving added-value digital video services to mitigate falling prot margins from voice revenue.(51) The ubiquitous Mobile Phone has became the consumers preferred method of content delivery, with Mobile TV expected to become the fastest growing segment in percentage terms over the next ve years.
South Korean operators are scrambling to develop and acquire the programming content they will need for their digital rollouts. Theyre working on new video and audio programming, pay-per-view services, VOD offerings, among other things. Alan Breznick, Telecommunications Analyst and Editor of Television AM and Cable
Datacom News.
Figure 2
Korean Entertainment Content Market Valuation by Media Type

2007E (US $10 Billion)
$3.8 BILLION 38%

Internet Mobile Phone
$4.5 BILLION 46%
Mobile TV
$1.7 BILLION 16%
Mobile Phone
Mobile TV / SAT TV
Internet
According to KIPA, The current local supply of content cannot keep up with the demand as new digitised services continue to come on stream. This indicates sharing content between platforms and the globalisation and importation of content will be inevitable. In 2004, the Korean Broadcasting Commission (KBC) lifted the cap on imported content as a ration to total broadcast from 10% to 20% to help alleviate the shortage in the supply chain.
Its easy to see why equipment vendors, software developers and content providers are showing so much attention on South Korea. Besides the governments strong push to adopt cutting-edge digital technologies, the market is appealing because the Korean economy is growing at a steady clip and the nations citizens are relatively afuent. South Koreas GNI was US $17,730 in 2006. Its a very attractive market. Vivek Couto, Senior Analyst with Media Partners, (a major media research rm in the Asia-Pacic region).
31
2.2
Regulatory Environment: Censorship and opportunities
There is much concern globally about children gaining access to adult material over their Mobile Phone and Internet. Outside Muslim nations, nowhere is this truer than in Korea. Korea has strict laws protecting both minors and adults alike with nes of up to US $10,000 for individuals found violating these codes (and a years imprisonment) and up to US $100,000 for Mobile Phone operators and Internet portals who fail to prevent distribution of material deemed to be unwholesome information and indecent materials. South Koreas Constitution guarantees freedom of speech, but contains a caveat that such expression should, neither violate the honour or rights of other persons nor undermine public morals or social ethics states, Jun Ji-yun, Law Professor, Yonsei University, Seoul. He goes on to say, The law does not dene obscenity, but it was understood to be something that brings sexual disgrace to people. In January, 2005, The Korean government arrested 100 people for spreading obscene material under South Koreas Telecommunications Act. In March 2007, the Cyber Crime Investigation Division of Seouls Metropolitan Police, arrested a 39-year-old man, a SK Telecom employee, for receiving US$1.5 million in bribes and treats from 16 adult content providers.
In 2006, the Korean Internet Safety Commission (KISCOM), established an illegal and harmful information reporting facility known as the Violation Report Centre as a channel for Internet users, Netizens, to report any information thought to be harmful to youths. This initiative runs in parallel with the Korean National Police Agency and the Commission on Youth Protection. Other regulatory bodies include; The Ministry of Information and Communications (MIC), involving the departments of Information Security and Privacy, Information and Communications Ethics division, and the Ministry of Culture and Tourism and the Broadcasting Commission.
In March 2007 the Korean government announced tough new measures to combat endless illegal porn or obscene materials that constantly bombard online users blocking a further 180 foreign sites and servers, (mostly US based) to the 211 foreign sites already blocked. Blocked sites are in addition to the extensive MIC database of unsearchable key sex words containing about 700 words in Korean, judged to be adult and supplied to portals. Source; ZDNet Korea News Agency. In the same article titled Korea Announces Crackdown on Illegal Porn ZDNet Koreas Hyojeoung Kim quoted a KISCOM spokesman It will also prosecute anyone (whether administrator or user) who is unlawful, to beef up the measure. Parliament is currently revising the Digital Signature Act and the Information Infrastructure Protection Act to toughen-up the laws covering unwholesome information and indecent materials.
Figure 3
Not only can individuals who distribute adult material via SNS and ISP content providers be liable but also local bank managers who open accounts for receipt of subscription fees for foreign adult sites do not escape prosecution.
The Korean government continues to crackdown on adult content and the sex industry in general by tightening pornography laws and more recently by doubling penalties for crimes relating to prostitution, long illegal, but tolerated.
33
In May 2007, Google which debuted their Korean language service 2001 was forced by the MIC to introduce a two-step safeguard system to protect minors from adult content sites. In addition to their purpose designed proprietary software, SafeSearch, Google will adopt ltering measures mandated by the Korean Government for all Internet portals and Mobile Phone operators by using Age Verication. Source; (May 2007) Kim Tae-gyu, The Korean Times. Age Verication requires all users seeking adult content to enter their name and National Resident Registration Number, which is then checked against the MIC database to verify the users identication and age. In Korea you must be 19 years of age or older to access adult material via the Internet or Mobile Phone.
2.3
Regulatory Environment: Summary
While the introduction of age verication and ltering systems could be seen as a constraint on market development for Naked News Korea, the Korean governments strict censorship laws offer a signicant business opportunity rather than an impediment. In a marketplace where the consumer choice for alternative sexual titillation is restricted, the receptivity and demand for Naked News Korea should be considerably greater than in those that do. Like most countries around the world, the Korean male populations desire for sexual pleasure is no different. According to the South Korean Institute of Criminology, the amount spent on prostitution alone amounted to US $23.6 billion in 2002, (most recent survey results available). And this is in a country where brothels and prostitution are banned and where the sale of adult magazines, videos, DVDs, Phone-sex and Internet pornography is illegal. See Figure 4, over leaf. Legal adult content in Korea is determined as; material that is sexual by nature and does not undermine public morals or ethics. It must not bring sexual disgrace to people by depicting indecent sexual acts or genital exposure of the human form. This translates into soft-core adult material, which hides all the private parts below the waist and depicts wholesome heterosexual acts only. Naked News Korea, (where anchors will be shown in full nudity with genital area blurred), will be approved under the Telecommunications Act, the Criminal Law Act, and the Broadcasting Act administered by the MIC and the Ministry of Culture and Tourism and Broadcasting Commission, and classied as General Entertainment.
Figure 4
Korean Adult Marketplace

Mobile Phone, Internet, Print and Digital Media and Sex Industry
CONSUMERS CHOICE
PORN SITES BANNED
Adult DVDs ILLEGAL
Adult Mags ILLEGAL
Phone Ting BANNED
Sex Sites LEGAL
Mainstream Ent. LEGAL
Shut Down Jan 2007 An attempt will present

Korean Police Message
No DVD or Video for Sale or Rent
No Adult Theatres
Pre-recorded and Live TelePhone sex calls: Banned 2005
Intercourse, masked soft-core. No Parts.

Locally made must be Licenced operators.
Respectable. Mainstream. Wide appeal. Volume market. Naked News Classication
The site you are trying to access is blocked!
R19 Certication Required.
Prostitution ILLEGAL Brothels ILLEGAL Massage Parlours ILLEGAL
The only purchasable sexual commodity available to Korean males are Mens Clubs offering the Korean-Way of doing business rst, sex second. Consisting a Private room for hire for business meeting, food, alcohol included. After business, choice of hostess for an hour upstairs. An all-inclusive cost basis, this would typically, cost US$4-5,000 for four businessmen (upper end). Back-street massage call-girls, available illegally, controlled by Korean Maa. Note: Gambling of any kind is also illegal.
35
The Business Case Why Korea

P a r t Tw o
Part One presented: An insight into Koreas technology infrastructure and with the support of statistical data illustrated how content enabling technologies have had a profound impact on Korean society. Quotes from industry experts highlighted the acute shortage of entertainment content. A US$10 Billion market forecast to grow by more than 50% over the next three years and one driven by Cellcos and Telcos to compensate for falling voice revenues. As consumers become conditioned to this nascent form of entertainment, expectations have lead to an insatiable demand for more. Finally, a look at recent censorship law changes governing adult entertainment highlighted the uniqueness of the Korean marketplace that the Company believes offers an unprecedented opportunity for Naked News Korea.
Part Two all but completes the answer to the Why Korea? question, by qualifying and quantifying the size of the Prime Target Market for Naked News in Korea and discusses competitive threats and barriers to entry. The nal instalment to completing the business case is then presented by a probability risk assessment contained in the The Business Plan, Risk Analysis point 5.
3.0
Korean Demographics: Key Statistics
The following table comprises selected demographics relevant to the Naked News Korea market.
TABLE 1
RELEVANT DEMOGRAPHICS
RELEVANT DEMOGRAPHICS
Total population Religion
STATISTICS
49,500,000 26% Christian(52) 26% Buddhist 48% Non-Religious
COMMENT
World Bank, November 2006 Important factor as partial nudity banned in Asian Muslim countries and worldwide 95% high-school educated & tech-savvy by peer learning(53) Youngest nation in OECD(54) (For the record only) (For the record only) Large target for Naked News Fringe market for Naked News Lowest recorded in OECD(55) Urbanite Mobile commuters Afuent, young society Discretionary buying power
Literacy Median Age Population Aged 0-9 Population Aged 10-18 Population Aged 19-49 Population Aged 50-59 Population Aged 60+ Dwelling GNI Average Tax rate
97.9% (99.2 Male 96.6% Female) 21.8 years 9.55 million 19.3% 9.50 million 19.2% 23.41 million 47.3% 3.66 million 7.41% 3.36 million 6.8% 86% Urban US $17,730 17.3%
Koreas GDP for 2006 was US $1.011 Trillion (the worlds 10th largest economy), with a GDP real growth rate of 5.8% over 2005. Ination was 2.8% and unemployment for 2006 was recorded at 3.4%. The local currency is the Won equal to approximately 1,000 won to the USD. Most famous worldwide brands include, Samsung, LG Electronics, Pantech, Hyundai, Kia and Daewoo.
37
3.1
The Prime Target Market (PTM) of Naked News Korea
Condential marketing information obtained form Naked News International, which includes consumer research (qualitative and quantitative) and extensive subscriber proling has allowed Naked News Korea to more clearly identify and quantify its local target market than might otherwise have been possible. This knowledge provides a high level of condence as much of the guesswork and trial-by-error that can typify new market entry, has been considerably reduced, allowing accurate proling to lter the wider potential universe down to a dened prime target group.
One signicant adjustment to the customer prole model relates to the gender mix. Typically, Naked News has appealed to both sexes with females making up to 28% of the subscriber base. This is seen as a reection of the news quality and content entertainment value of the product rather than just the sexual titillation of the nudity that appeals more to the male audience.
The Prime Target Market for Korea has been dened as 95% male and only 5% female to reect the Confucian/Shaman conservatism inherent in the Korean female society, (albeit 48% of all Koreans are non-religious).
The Prime Target Market is dened as;
Gender: Age Range: Median Age: Socio economic:
Heavy male bias, 95% male 19 years to 49 32 years Groups 1-3 (White-collar bias with tertiary education) Single and married with 60/40 bias An urbanite mobile commuter, high user of public transport, (eg subway) moderate Internet gamer and blogger, heavy Mobile and Internet user
Marital Status: Prole:
The PTM comprising males aged 19 49 years represents a universe of 12,100,000 and 650,000 female prospects, totalling 12,750,000 in all. Figure 1 shows the PTM represents 42% of the total Korean population aged 19 and over and 77% of the male only population of the same age group.
Figure 1
Naked News Korea - Prime Target Market

In Relationship to Population aged 19 years and over
Market Universe All Aged 19 Plus (30.7 Million)
Prime Target Market Males only Aged 19 Plus (15.7 Million)
42%
24% 19 - 29
36% (5,694,150)
58%
40 - 49 (2,728,500) 30 - 39 (3,646,500) 17%
23%
Male PTM = 77% of all Males 19+
Figure 2
Figure 2, reveals that nearly half the PTM (47%) are aged 19-29 years, and that almost 8 out of 10 are aged 19-39 years, (comprising almost 10 million out of the 12.7 million PTM universe). Armed with this demographic information the advertising message can be specically targeted to appeal to this core segment and the media placement aimed accordingly at this age group.
PTM by Age Bracket

(12.75 Million)
23%
40 - 49 (2,881,500)
47%
19 - 29 (6,018,000)
30 - 39 (3,850,500
30%
19 - 29 30 - 39 40 - 49
39
Figure 3
Figure 3 shows that the PTM are heavy Mobile Phone users. Note; While the PTM represent 42% of the Korean population aged 19 plus, they account for 77% of all Mobile Phone revenues at US $15.7 billion of the estimated US $20.4 billion for 2007.
South Korean Mobile Market 2006(56)

Total Revenues by Age 3,500 3,000
Revenues ($ mn)
2,500 2,000 1,500 1,000 500 0
10 - 14
15 - 19
20 - 24
25 - 29
30 - 34
35 - 39
40 - 44
45 - 49
50 - 54
55 - 59
60 - 64
65 - 69
PTM AGE RANGE
2006
2007
PTM MALES
The PTM for Naked News is the biggest spenders and user group of Mobile Phones, who will collectively spend US $9.1 billion on non-voice, Mobile data services (SNS messaging, video downloads, video streaming, photos and all things content) during 2007(57).
According to a MIC report tabled in the Korean Parliament (March 20th 2005), prior to the Governments major Internet porn crack down throughout 2006 - 2007 one in two Mobile Phone subscribers bought adult content through their WiBro (Wireless Broadband) and spent US $2.4 billion doing so. It is perhaps, not unreasonable to assume the one of the two, were males who make up nearly 51% of the population.
The PTM will spend on average 30% more time on their Mobile (23 hours per month vs national average of 17.6 hours).
Figure 4
Figure 4 illustrates the PTMs Internet usage and reason for use. The following table reveals that the second most frequent reason given by online users for using the Internet was for entertainment purposes. According to a Globalscan Media Poll conducted in May 2006, 34% of respondents named the Internet as their most important source for news.
Reason Given for Internet Use(58)

By Age Group: Multiple Answer Survey
98.4% 100.0% 91.6% 74.4% 91.9% 77.8% 78.3%
80.0%
60.7% 60.0% 45.6% 43% 40.0% 32% 25.2% 20.0% 34%
0.0%
20 - 29
30 - 39
40 - 49
EMAIL
ENTERTAINMENT
BLOGGING
NEWS
When segmented by gender, males account for 78.5% of the total online population across all age groups.
Those in their 20s have the highest online ratio at 97.9%, (that is, 97.9% of people in their 20s are active Internet users), 91.7% for the 30s age group, 68.7% for those in their 40s.
According to a recent survey conducted by Metrix (July 2007), 70% of GOM Player users (Koreas most popular video player with 8.5 million in use since 1st June 2007 launch date vs MS Windows Media Player with 5.3 million in use), tried to access Internet pornography during that month. This is followed by 43% who watched movies, 30% local drama and 22% variety entertainment. Source; Chosum News Agency (July 20, 2007).
Note; While Internet pornography is illegal many users spread porn via UGC (user generated content) and website blogs via SNS (Social Networking System). Both the portal and user face heavy penalties if caught. See Regulatory Environment Censorship and Opportunities, point 2.2 for details.
41
3.2
Summary of the PTM
The PTM for Naked News Korea is the most active Mobile Phone and Internet user group. They spend more money on content, spend more time seeking entertainment on the Internet and Mobile, than any other segment. This target group of males are also more likely to have a predisposition to sexual titillation of the Naked News content.
Like most countries around the world, the Korean male populations desire for sexual pleasure is no different. For Naked News Korea, the Korean governments strict censorship law that bans pornography, offers a signicant business opportunity rather than an impediment. In a marketplace where the consumer choice for alternative sexual exhilaration is restricted, the receptivity and demand for Naked News Korea should be considerably greater than in those markets that do.
From a marketing perspective the age verication requirement for those seeking adult entertainment (users must enter their National Resident registration Number which is checked against a national database to verify users identication and age) means all Mobile Phone network operators and ISPs can target the PTM by gender and age. This offers signicant advantages over other, less restricted markets, where such pin-point direct marketing campaigns would not be possible. The fact that 98% of all Korean Mobile bills are paid on-account (as opposed to pre-paid) facilitates ease of transaction while reducing price awareness.
The 99% PTM penetration of both Mobile Phone and Internet technologies also offers economic marketing advantages because the ownership of these devices are not mutually exclusive. Signicant cross-fertilisation between the Internet advertising campaign and the separate Mobile campaign will occur resulting in the sum of the effect being far greater than its individual parts.
This dynamic will increase the advertising effectiveness both in terms of audience frequency (number of times the audience will see or hear the advertising message), and create greater brand awareness and top-of-mind recall. This level of activity should also enhance the PTMs perception of size, scope and relevance of the Naked News product.
The PTM for Naked News Korea also represents a far greater proportion of a countrys population than any other marketplace in the OECD*, both in terms of numbers and pre-qualication through technology penetration. Korea offers a truly unique and substantial opportunity.
Figure 4
Why Korea Highlights - A Graphic Summary
Content Market Success Drivers

High Resolution, High-speed Technology Technology Penetration Tech-savvy User Population Competitive Market Environment
Large Prime Target Market numbering 12.7 Million males aged 19-49
3G Mobile Phone and 100-300 Kbps Internet Broadband Technologies
Prime Target Market spends more time and money on Content than any other user group
Highest penetration of both technologies in the World
Plus highest penetration of emerging Mobile TV handsets

Naked News Classied General Entertainment Reliable, Responsible and Respectable
A marketplace where ALL Adult & Gambling Content is illegal
Korea ranks rst in the World in Digital Opportunity Index for third time in a row, among 181 countries
United Nations Report (ITU Survey), 2007
40,000,000 Mobile Phone Users
98% Pay on account, highest non-prepay market in the World

Acute shortage of Content product, Telcos & Cellcos want Naked News
Spend more than US $20 Billion on Mobile, including US $4.5 Billion on Content, 2007E
Telcos & Cellcos need Content due to falling voice revenues, thus driving market growth
34,000,000 Internet Subscribers
Worlds 10th largest economy @US $1.1 Trillion with afuent population
62% go online each day and spend 13 hours a week on the Internet
78% of Internet users go online for entertainment,
Koreans households spent US $26 Billion on telecommunications. More than they spend dining/eating out
34% for news, spending US $3.8 Billion on Content
43
4.0
Competitive Threats and Weakness Competition
Since Naked News was launched on the Internet in 1999 there have been many copycat attempts by numerous organisations globally. History has shown all that have tried, have failed. Industry observers and Naked News believe the reason behind these failures is due to a combination of factors, not the least of which is the quality of the content and the mix between what is reliable, respectable and responsible. In most cases imitators have either lacked the capital required to put a news and current affairs service in place or have placed too greater emphasis on the nudity. Many have been little short of sex shows and have failed to understand the balance and the market. Soft-core nudity such as the Playboy channel could arguably be seen as competition, but with no news content other than celebrity interests, it falls outside the Naked News content category and therefore is not considered a competitor. Naked News knows of no current or pending competitor.
At present Naked News owns the market, how long this will remain is uncertain. What is known is an emerging trend is taking place by the major networks in the United States to engage non-reporter, non-journalist anchors, much to the public consternation of traditional journalists. Networks are endeavouring to make news entertaining by employing young attractive front-desk talent, moving away from the old model of news presentations. The longevity of this new approach has yet to be tested over time, but it is unlikely that it will result in disrobing of the news presenters on mainstream television. The entertainment channel E-Online currently runs a late night E-Naked Online, and is available on payper-view cable television and satellite networks throughout the world. It is not currently available on the Internet. Naked News does not see E-Online, in its present format, as a competitor due to its celebrity and Hollywood entertainment only content. At the Korean level, foreign content and dubbing is restricted by local content quota and broadcasting laws which present a signicant impediment for outside competitors. Naked News knows of no other competing service or of a potential competitor planning to enter the Korean marketplace.
4.1
Barriers to Entry
In 2006 Korea ranked rst in the world (for the third year running) in the DOI (Digital Opportunity Index a measure of telecommunications and IT infrastructure and utilisation), among 181 countries* but ranked a lowly 116th in the World Bank annual economic survey in Ease of Doing Business. This survey identies the bureaucratic and legal hurdles an entrepreneur must overcome to incorporate and register a new rm. It examines the procedures, time, and cost involved in launching a commercial or industrial rm with up to 50 employees and start-up capital of 10 times the economys per-capita gross national income (GNI). This ranking is signicant for two reasons. One, it provides an independent assessment to lend weight behind the Companys contention that setting up a business and obtaining the necessary licences is not an easy task or an automatic function of time and money. In Korea the Korean business community is fraught with bureaucratic delays, backhanders and xenophobia*. It is a challenging exercise for locals, let alone foreigners.
The Korean-way is driven by personal contacts and the right connections that would be a considerable obstacle to any outsider wishing to achieve what Naked News has accomplished so far in the Korean business market. It is only by virtue of the Company Principals 15-year business experience and portfolio of contacts in the telecommunications industry, along with other attributes, that all regulatory approvals have been obtained. This fact was not lost on Naked News International when the Company was granted the Distribution Agreement for Korea ahead of other contenders. Besides the bureaucratic obstacles, regulatory approvals and the need to place sizeable bonds to obtain broadcasting licenses, company capitalisation for registration (US $350k) certain censorship criteria have to be met and Telco and Cellco contracts have to be negotiated. The latter is particularly problematic if no existing relationship with senior management is in place on both a professional and personal level. On the content side the Korean Broadcasting Commission imposes strict local content quota limiting 20% retransmission of foreign content and does not allow channels to insert local language advertisements. Dubbing content and use of subtitles is also restricted, which is seen as a major impediment especially for breaking real time news, should a foreign based copycat emerge. It is the Companys opinion that there are signicant obstacles and barriers to entry for a would-be competitor to overcome. For Naked News Korea there are no barriers remaining.
45
The Business Plan

1.0 A Brief History
In February 2007, the Company struck a distribution agreement for the rights to market Naked News in Korea ahead of one multi-national company and two Korean companies that were in discussion with Naked News International at the time. The Content Distribution Agreement between the Company and Egalaxy Multimedia Inc, (owners of Naked News.Com), is an exclusive, evergreen agreement based on a15% royalty of gross revenues. No other license of this type has been granted elsewhere in the world and is seen as a reection of the condence Egalaxy has in the Company, or put more accurately, the Principal of the Company. The Company Principal, Mr Yoav Sinai, (pronounced as spelt, yo av) is 40 years of age, an Israeli National and has been based in New Zealand for the past 10 years with his wife and three children. He is a telco entrepreneur with both a marketing and technical background. Yoav, has spent 22 years in the international telecommunications industry working with major telcos based in the UK, Europe, Japan and most relevantly, 15 years in Korea. During this time in Korea he has built a solid base of commercial relationships with both senior government ofcials and management in the private sector. Importantly, he has gained invaluable knowledge of the Korean telcommunications market on both supply and consumer sides of the equation. He understands the marketplace and its peoples. This intimate knowledge led Yoav to recognise that a gap existed in the Korean entertainment content market. This has subsequently been validated by research contained in this document. Senior management will be appointed to run the day-to-day business, however, Yoav will remain as CEO and maintain a hands-on management role in Korea during the next ve years.
1.1
Current Position
Naked News Korea will build on the successful Naked News International programming format (described under the section; Naked News - in brief), by localising and customising the content specically for the Korean marketplace. To enable this to take place technology protocols between the Naked News Canadian-based headquarters and Korea have been established to give timely data transfers of programme content transforming the international show into a local Korean-made content package. The easier option of sub-titles and dubbing Korean voice-overs was considered and dismissed as an undesirable shortcut as well as an impediment to sustainable longer-term revenue.
47
In the nine months since the inception of Naked News distribution agreement, preparation work on all things Korean are well advanced. Namely: Completion of Korean website design Internet hosting and portal inter-connectivity arrangements Completion of software inter-face for Mobile Phone distribution technologies Completion of billing and audit platform Editing and geo-targeting software installation Location of suitable premises in central Seoul for production, studio set-up, IT and administration facilities Commenced recruitment of local anchor and presenter talent Commenced recruitment of local programme producers, and in-house technical staff Appointment of Advertising Agency Appointment of legal rm
3.0
Marketing
The marketing budget has undergone numerous peer reviews and revisions. From this it has been ascertained that an amount representing 8.4% of gross revenues (US $2.9 million in the rst year) is appropriate. The Company takes the view that this expenditure is fundamental to maximising success. The marketing plan will engage the following strategies: Traditional above the line advertising campaign targeted at commuters through billboards (subway billboards in particular), in-train banner posters, subway dailies, press and targeted tech magazines and limited niche marketing opportunities, such as special events Call to action, direct marketing campaigns targeting Mobile Phone users by specic age, gender and historical use factors will be undertaken via ongoing Mobile Phone advertising Separate direct marketing campaigns targeted at Internet subscribers via front-page banner advertising on Koreas three, top-ranked portals and search engines will take place on a continuous basis Blogs and sms advertising techniques will also be deployed using both contract and a fulltime in-house webmaster, whose sole responsibility will be to managed web advertising, spread blogs and social networking messages The Company believes high-frequency advertising is needed to grow the business and drive the impulse purchasing behaviour both prior to and after critical mass has been achieved. Thus, the advertising strategy will focus on creating and sustaining top-of-mind recall rather than building brand-positioning values alone. Customer retention, cross-selling and upgrading subscriptions will form the backbone of the ongoing database marketing programme back to the existing customer base. Initial direct marketing campaigns will contain a strong call to action with an offer to try before you buy teaser and sign-up now strategies, accompanied by an attractive pricing offer for longer-term subscription periods.
4.0
Revenue
Revenue from the customer base is calculated on a multiple of the LTV (lifetime value) of an Internet subscriber and a Mobile Phone user at US $50.40 and US $64.70 respectively. These gures are based on the pricing model set out under Table 1 and take into account known customer renewal and churn rates over a typical calendar year. The churn and renewal rates are based on seven years experience of predictive nancial modelling by Naked News. Revenue is based on a 60/40 sales mix between Mobile Phone and Internet. Should the balance of this mix change it will not have a material impact on the revenue outcome as the LTV of each group is similar No allowance has been made in the nancial forecasts for income from the Mobile TV, IPTV, and Pay-Per-View TV markets. Unlike the Mobile Phone and Internet markets, content through these channels is not sold directly by Naked News to the consumer. Rather, the Naked News content will form part of the networks total viewing package on offer to the networks paying subscriber base. Income from Mobile TV and IPTV is expected to contribute 15% to total sales revenue Inherently, a 15% buffer sits in the nancial forecasts No income from anchor fan clubs has been included.
TABLE 1
PRICING MODEL
MEDIA
Mobile Phone
DELIVERABLES
Video-clip download Video streaming
DESCRIPTION
8 minute collage Choice of 10 daily Unlimited access Unlimited access Unlimited access
PRICE
$2.99 per download $0.99 per minute $14.99 $59.99 $89.99
Internet
One-month sub Six-month sub One-year sub
51
5.0
Risk Analysis
The nancial forecasts include on the last page a Prot and Loss Sensitivity Analysis, that calculates the breakeven point and expresses the minimum achievement needed as a percentile of projected revenue target and the number of customers required to recover ALL costs. This sensitivity analysis reveals the following: 5.1 Prot and Loss Sensitivity Analysis Based on a rst nine-month revenue target (representing 88% of the rst full 12-month trading target of US $35 million) only 17.6% of revenue needs be reached to breakeven This will require only 84,000 Mobile Phone customers or 15.8% of projected new customer numbers Should only 45% of revenue be attained this would result in a nine-month net prot before tax of US $5.6 million A 70% result would produce a net prot before tax of US $11.3 million. 5.2 Customer Acquisition Analysis Using customer acquisition numbers as a proportion of the PTM universe, the risk probability factor can be assessed by an entirely different set of gures. This methodology looks at the marketplace rather than the nancial statements, by taking the PTM and analysing the conversion ratio required to convert a prospect to a customer in order to reach the numbers needed to make revenue target. To reach revenue of US $35 million will require 605,000 customers from a pre-qualied PTM group of 12,700,000 (see visual next page) This equates to a 1:21 conversion rate of prospect to customer from the PTM group If the PTM was ignored and all males over 19 years was used as the prospect universe then only 3.6% would be needed to achieve revenue target. There are no like-for-like products in the Korean marketplace (or internationally), which offer any meaningful comparison in relation to conversion rate probability. However, anecdotal information obtained from a senior SK Telecom executive indicate that a successful content product will produce in excess of 100,000 downloads per day. Using this as an indicator, Naked News Korea would reach its rst years Mobile Phone revenue target in seven weeks or put another way, within 51 days.
Customers Required to Reach First-Year Revenue Target

Koreans Aged 19 Plus with a Mobile Phone and Internet connection. = Per Every 10,000 People (Female) = Per Every 10,000 People (Male)
30.7 Million Females 15 Million Males 15.7 Million
19 Plus
50 Plus
Customers Needed 605k
Prime Target Market Group 12.7 Million
53
Financial Statements
1.0 Cash Flow, Earnings and Funding
A three-month gestation period has been allowed from the time of capital intake to launch date. Like many new ventures, Naked News Korea will be cash negative at the start. However, unlike the typical start-up model, the Company expects to be cash ow positive in its rst month of trading. This is a reection of: The high advertising spend and launch campaign build up The impulse purchase nature of the product and service Koreans are proven early adoptors - leading to peer adoption The non-seasonal nature of the market The high gross prot margin at 84.25% net of royalties and commissions R&C The business is more akin to a franchise model rather than a green-elds start up, with a proven systems and market history The nancials reveal the following: 1.1 Cash Flow Positions The Company will be cash negative during the rst quarter, peaking at US $1.3 million at the end of the period. This gure is heavily inuenced by US $500k in month-three advertising spend. Period ending month-four, and after taking into account rst quarter decit, the Company will be cash positive by US $1.8 million (including a further US $380k in advertising spend) on turnover of US $3.7 million net of R&C The Company remains cash positive from month-four onwards and throughout the scal year From month-four onwards all gures remain cash positive throughout the scal year Period ending month-six the Company expects to have cash reserves available for shareholder distribution of US $9.4 million All costs have a 10% contingency added to the working gures
55
1.2 Earnings The Company expects to generate 40% of rst year revenues during month 4, 5 and 6 (I.e.; rst three months of revenue generation), due to a heavy Initial promotional expenditure US $1.25 million over this period. Resulting in a cumulative EBITA of US $9.4 million on revenues of US $11.8 million net of R&C By month 12, after nine-months trading, net prot before tax is forecast at US $21.5 million on net operating revenues (i.e. post R&C) of US $26 million to end the period at 88% of rst full year sales budget of US $35 million in gross revenues. The Company plans to make its rst dividend payout at the end of month-six at 95% of accumulated cash reserves of US $9.4 million and at 75% thereafter on a quarterly basis 1.3 Funding To date approximately US $700 has been invested. To complete the pre-launch phase, (month-one to month-three), US $307k in capital expenditure is required and US $512k in operational set up costs, totalling US $819k Assuming payment in same month of transaction, a projected funding requirement of US $1.3 million is needed when the planned US $500k launch campaign budget is added. It should be noted that no revenue has been attributed to the advertising spend occurring in that month. Thus the funding gure is potentially overstated by upwards of US $500k for the period ending month-three See The Offer for funding rationale
FINANCIAL SUMMARY
Year 1 Income & Expenses Income Sales by Internet Sales by Mobile Phone Year 2 Year 3
12,418,560 18,504,200 30,922,760 4,823,951 26,098,809 4,749,956 21,348,854 4,269,771 17,079,083
21,168,000 31,541,250 52,709,250 8,222,643 44,486,607 5,262,130 39,224,477 7,844,895 31,379,582
28,153,440 38,480,325 66,633,765 10,394,867 56,238,898 5,234,009 51,004,889 10,200,978 40,803,911
Direct Costs Gross Profit Expesnes Profit Before Tax Tax Profit After Tax
Cash Flow Inflows Income
30,922,760 30,922,760
52,709,250 52,709,250
66,633,765 66,633,765
Outflows Direct Costs Expenses Interest Tax Dividend Payment to Funder Set-up Costs
4,604,680 4,593,810 0 4,103,050 1,800,000 509,850 15,611,390 15,311,370 15,306,370
7,563,426 5,179,080 0 7,131,001 0 0 19,873,507 32,835,743 48,142,113
10,253,946 5,179,080 0 10,048,112 0 0 25,481,138 41,152,627 89,294,739
Cash Surplus/(Deficit) Closing Bank Balance
57
INCOME & EXPENSES

Variable Sales Revenue % Expectation Subscriber Growth Sales - Internet Target Annual No. of Subscribers Actual No. of Internet Subscribers Average LTV per Subscriber Internet Sales Income Sales - Mobile Phones Target Annual No. of Subscribers Actual No. of Mobile Subscribers Average LTV per Subscriber Mobile Phone Sales Income Year 1 Year 2 Year 3
88.0%
100.0% 50%
100.0% 33%
280,000 246,400 $50.40 $12,418,560
420,000 420,000 $21,168,000
558,600 558,600 $28,153,440
325,000 286,000 $64.70 $18,504,200
487,500 487,500 $31,541,250
594,750 594,750 $38,480,325
Total Subscribers Total Income Direct Costs Royalty Billing Commission
532,400 $30,922,760
907,500 $52,709,250
1,153,350 $66,633,765
15.0% 0.6%
4,638,414 185,537 4,823,951 26,098,809
7,906,388 316,256 8,222,643 44,486,607
9,995,065 399,803 10,394,867 56,238,898
Gross Profit Expenses Overheads 10%contingency Marketing & PR Costs Advertising Costs
1,847,100 184,710 147,000 2,450,000 4,628,810 21,469,999 121,146 0 21,348,854 20% 4,269,771 17,079,083
2,062,800 206,280 60,000 2,850,000 5,179,080 39,307,527 83,050 0 39,224,477 7,844,895 31,379,582
2,062,800 206,280 60,000 2,850,000 5,179,080 51,059,818 54,929 0 51,004,889 10,200,978 40,803,911
EBITDA Depreciation Interest Profit/(Loss) Before Tax Tax Allowance Profit/(Loss) After Tax
CASH FLOW
Year 1 Year 2 Year 3
Inflows Income Total Inflows 30,922,760 30,922,760 52,709,250 52,709,250 66,633,765 66,633,765
Outflows Direct Costs Royalty Billing Commission Expenses Overheads 10%contingency Marketing & PR Costs Advertising Costs Depreciation - n/a non-cash Interest Tax Capital Repayment to Investor Set-up Costs 10% contingency Total Outflows
4,427,577 177,103
7,272,525 290,901
9,859,564 394,383
1,847,100 154,710 142,000 2,450,000 0 0 4,103,050 1,800,000 463,500 46,350 15,611,390
2,062,800 206,280 60,000 2,850,000 0 0 7,131,001 0 0 0 19,873,507
2,062,800 206,280 60,000 2,850,000 0 0 10,048,112 0 0 0 25,481,138
Cash Surplus/(Deficit)
15,306,370
32,835,743
41,152,627
Opening Bank Balance Closing Bank Balance
0 15,306,370
15,306,370 48,142,113
48,142,113 89,294,739
59
COSTS
Month 1 Set Up Costs (Capitalised*) Premises Set-up Remaining Partitioning/Sound proofing* Remaining Fit Out* Data Cabling & Communications* Signage* Legals etc Trademarks Legal Development Final IT Development Design and Print Advertising Agency Plans PR Agency Strategic Plans Recruitment Agency Advertising Recruitment Fees Equipment Editing & Transmission Software* Virtual Studio Software* Direct Costs Royalty Naked News Canada Billing Commissions Internet Company (KTF Telecom) Internet Revenue 40% Average Billing Commission Month 2
12,500 8,000 12,000 5,000 12,000 10,000 10,000 7,500
12,500 4,000 3,000
10,000
20,000 12,000 15,000 60,000 75,000 50,000 217,000 75,000 50,000 246,500
15% 1.5% 0.6%
Monthly Overhead Expenses General Legal Accounting & Auditing Office Telecommunications Rent Power Data Centre Travel Entertainment Equipment Rental Computer Leasing Security General Office / Cleaning etc Couriers General Office Expenses Accommodation Local Transportation Liability Insurance Equipment & Premises Insurance Wages & Salaries Company Manager Personal Assistant/Interpreter Production Director Assistant Production Editor Technical Network Manager Webmaster Technical Staff (Three) Anchors & Presenters (Five) Celebrity Anchor (s) Wardrobes Management Fee(s) Total
Annualised
1,700 2,000 2,000 7,000 1,700 10,000 4,000 5,000 5,000 1,000 1,200 300 1,700 1,000 4,000 2,000 2,000 1,000 7,000 3,000 8,300 6,000 4,000 4,000 9,000 25,000 30,000 3,000 20,000 119,300 171,900
20,400 24,000 24,000 84,000 20,400 120,000 48,000 60,000 60,000 12,000 14,400 3,600 20,400 12,000 48,000 24,000 24,000 12,000 84,000 36,000 99,600 72,000 48,000 48,000 108,000 300,000 360,000 36,000 240,000 1,431,600 2,062,800
INCOME & EXPENSES

Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 7 Mth 8 Mth 9 Mth 10 Mth 11 Mth 12
Variable
Sales Revenue % Expectation Subscriber Growth 12.5% 13.5% 14.0% 12.0% 11.5% 11.5% 4.5% 4.5% -
4.0%
0 $0 $0 $0 $1,764,000 $1,905,120 $1,975,680 $1,693,440 $1,622,880 $1,622,880 $635,040
35,000
37,800
39,200
33,600
32,200
32,200
12,600
12,600 $635,040
11,200 $564,480
Sales - Internet Target Annual No. of Subscribers Actual No. of Internet Subscribers Average LTV per Subscriber Internet Sales Income
$50.40
0 $0 $0 $0 $2,628,438 $2,838,713 $2,943,850 $2,523,300 $2,418,163 $2,418,163
40,625
43,875
45,500
39,000
37,375
37,375
14,625 $946,238
14,625 $946,238
13,000 $841,100
Sales - Mobile Phones Target Annual No. of Subscribers Actual No. of Mobile Subscribers Average LTV per Subscriber Mobile Phone Sales Income
$64.70
Total Subscribers Total Income
0 $0
0 $0
0 $0
75,625 $4,392,438
81,675 $4,743,833
84,700 $4,919,530
72,600 $4,216,740
69,575 $4,041,043
69,575 $4,041,043
27,225 $1,581,278
27,225 $1,581,278
24,200 $1,405,580
Direct Costs Royalty Billing Commission 0 0 0 0 0 0 3,707,217 4,003,795 4,152,083 3,558,929 0 0 0 0 0 0 658,866 26,355 685,220 711,575 28,463 740,038 737,930 29,517 767,447 632,511 25,300 657,811
15.0% 0.6%
606,156 24,246 630,403 3,410,640
606,156 24,246 630,403 3,410,640
237,192 9,488 246,679 1,334,598
237,192 9,488 246,679 1,334,598
210,837 8,433 219,270 1,186,310
Gross Profit
Expenses Overheads 10%contingency Marketing & PR Costs Advertising Costs 50,000 5,000 55,000 (55,000) 7,417 0 (62,417) 0 (62,417) (122,259) (676,832) 0 0 (122,259) (676,832) 3,126,706 453,040 2,673,667 12,259 0 11,832 0 11,421 0 (110,000) (665,000) 3,138,127 3,439,705 11,024 0 3,428,681 685,736 2,742,944 3,650,993 10,642 0 3,640,352 728,070 2,912,281 100,000 10,000 110,000 150,000 15,000 50,000 450,000 665,000 171,900 17,190 30,000 350,000 569,090 171,900 17,190 25,000 350,000 564,090 171,900 17,190 12,000 300,000 501,090
171,900 17,190 5,000 250,000 444,090 3,114,839 10,273 0 3,104,566 620,913 2,483,653
171,900 17,190 5,000 150,000 344,090 3,066,550 9,917 0 3,056,633 611,327 2,445,306
171,900 17,190 5,000 150,000 344,090 3,066,550 9,574 0 3,056,975 611,395 2,445,580
171,900 17,190 5,000 150,000 344,090 990,508 9,244 0 981,264 196,253 785,011
171,900 17,190 5,000 150,000 344,090 990,508 8,925 0 981,583 196,317 785,267
171,900 17,190 5,000 150,000 344,090 842,220 8,618 0 833,602 166,720 666,882
EBITDA
Depreciation Interest
Profit/(Loss) Before Tax
Tax Allowance
20%
Profit/(Loss) After Tax
Tax Calculation Surplus/(Deficit) Before Tax Accumulated Deficits b/f Taxable Surplus/(Deficit) Tax thereon (62,417) 0 (62,417) 0 (122,259) (62,417) (184,676) 0
(676,832) (184,676) (861,508) 0
3,126,706 (861,508) 2,265,198 453,040
3,428,681 0 3,428,681 685,736
3,640,352 0 3,640,352 728,070
3,104,566 0 3,104,566 620,913
3,056,633 0 3,056,633 611,327
3,056,975 0 3,056,975 611,395
981,264 0 981,264 196,253
981,583 0 981,583 196,317
833,602 0 833,602 166,720
61
INCOME & EXPENSES

25,128 $1,266,462 $1,356,923 $1,447,385 $1,537,846 $1,628,308 $1,718,769 $1,809,231 $1,899,692 $1,990,154 $2,080,615 26,923 28,718 30,513 32,308 34,103 35,897 37,692 39,487 41,282 43,077 $2,171,077 44,872 $2,261,538 29,167 $1,887,083 $2,021,875 $2,156,667 $2,291,458 $2,426,250 $2,561,042 $2,695,833 $2,830,625 $2,965,417 31,250 33,333 35,417 37,500 39,583 41,667 43,750 45,833 47,917 $3,100,208 50,000 $3,235,000 52,083 $3,369,792 54,295 $3,153,545 58,173 $3,378,798 62,051 $3,604,051 65,929 $3,829,304 69,808 $4,054,558 73,686 $4,279,811 77,564 $4,505,064 81,442 $4,730,317 85,321 $4,955,571 89,199 $5,180,824 93,077 $5,406,077 96,955 $5,631,330 473,032 18,921 491,953 2,661,592 2,851,706 3,041,819 3,231,933 3,422,047 3,612,160 3,802,274 506,820 20,273 527,093 540,608 21,624 562,232 574,396 22,976 597,372 608,184 24,327 632,511 641,972 25,679 667,651 675,760 27,030 702,790 709,548 28,382 737,930 3,992,388 743,336 29,733 773,069 4,182,502 777,124 31,085 808,209 4,372,615 810,912 32,436 843,348 4,562,729 844,700 33,788 878,488 4,752,843 171,900 17,190 5,000 300,000 494,090 2,167,502 8,321 0 2,159,181 431,836 1,727,345 1,999,664 2,151,976 499,916 537,994 2,499,580 2,689,970 2,730,349 546,070 2,184,280 8,035 0 7,760 0 7,494 0 2,507,616 2,697,729 2,737,843 2,777,957 7,237 0 2,770,720 554,144 2,216,576 3,268,070 6,990 0 3,261,081 652,216 2,608,865 171,900 17,190 5,000 150,000 344,090 171,900 17,190 5,000 150,000 344,090 171,900 17,190 5,000 300,000 494,090 171,900 17,190 5,000 450,000 644,090 171,900 17,190 5,000 150,000 344,090 171,900 17,190 5,000 150,000 344,090 3,458,184 6,751 0 3,451,433 690,287 2,761,146 171,900 17,190 5,000 450,000 644,090 3,348,298 6,521 0 3,341,777 668,355 2,673,421 171,900 17,190 5,000 300,000 494,090 3,688,412 6,299 0 3,682,112 736,422 2,945,690 171,900 17,190 5,000 150,000 344,090 4,028,525 6,085 0 4,022,440 804,488 3,217,952 171,900 17,190 5,000 150,000 344,090 4,218,639 5,878 0 4,212,761 842,552 3,370,208 171,900 17,190 5,000 150,000 344,090 4,408,753 5,679 0 4,403,074 880,615 3,522,459 2,159,181 0 2,159,181 431,836 2,499,580 0 2,499,580 499,916 2,689,970 0 2,689,970 537,994 2,730,349 0 2,730,349 546,070 2,770,720 0 2,770,720 554,144 3,261,081 0 3,261,081 652,216 3,451,433 0 3,451,433 690,287 3,341,777 0 3,341,777 668,355 3,682,112 0 3,682,112 736,422 4,022,440 0 4,022,440 804,488 4,212,761 0 4,212,761 842,552 4,403,074 0 4,403,074 880,615
Variable
Sales Revenue % Expectation Subscriber Growth
$50.40
$64.70
Direct Costs Royalty Billing Commission
15.0% 0.6%
Gross Profit
Expenses Overheads 10%contingency Marketing & PR Costs Advertising Costs
EBITDA
Tax Allowance
20%
Tax Calculation Surplus/(Deficit) Before Tax Accumulated Deficits b/f Taxable Surplus/(Deficit) Tax thereon
INCOME & EXPENSES

Variable
Sales Revenue % Expectation Subscriber Growth
36,777 $1,853,557 $1,943,114 $2,032,671 $2,122,228 $2,211,785 $2,301,342 $2,390,898 $2,480,455 $2,570,012 $2,659,569
38,554
40,331
42,108
43,885
45,662
47,438
49,215
50,992
52,769
54,546 $2,749,126
56,323 $2,838,683
$50.40
42,000 $2,717,400 $2,806,363 $2,895,325 $2,984,288 $3,073,250 $3,162,213 $3,251,175 $3,340,138 $3,429,100
43,375
44,750
46,125
47,500
48,875
50,250
51,625
53,000
54,375 $3,518,063
55,750 $3,607,025
57,125 $3,695,988
$64.70
78,777 $4,570,957
81,929 $4,749,476
85,081 $4,927,996
88,233 $5,106,515
91,385 $5,285,035
94,537 $5,463,554
97,688 $5,642,073
100,840 $5,820,593
103,992 $5,999,112
107,144 $6,177,632
110,296 $6,356,151
113,448 $6,534,671
Direct Costs Royalty Billing Commission 685,644 27,426 713,069 3,857,888 4,008,558 4,159,228 4,309,899 4,460,569 4,611,240 4,761,910 712,421 28,497 740,918 739,199 29,568 768,767 765,977 30,639 796,616 792,755 31,710 824,465 819,533 32,781 852,314 846,311 33,852 880,163
15.0% 0.6%
873,089 34,924 908,012 4,912,580
899,867 35,995 935,862 5,063,251
926,645 37,066 963,711 5,213,921
953,423 38,137 991,560 5,364,592
980,201 39,208 1,019,409 5,515,262
Gross Profit
Expenses Overheads 10%contingency Marketing & PR Costs Advertising Costs 171,900 17,190 5,000 300,000 494,090 3,363,798 5,487 0 3,358,311 671,662 2,686,649 2,927,333 3,048,013 731,833 762,003 3,659,167 3,810,016 3,810,859 762,172 3,048,687 5,301 0 5,122 0 4,950 0 3,664,468 3,815,138 3,815,809 3,816,479 4,783 0 3,811,696 762,339 3,049,357 4,267,150 4,623 0 4,262,527 852,505 3,410,022 171,900 17,190 5,000 150,000 344,090 171,900 17,190 5,000 150,000 344,090 171,900 17,190 5,000 300,000 494,090 171,900 17,190 5,000 450,000 644,090 171,900 17,190 5,000 150,000 344,090
171,900 17,190 5,000 150,000 344,090 4,417,820 4,468 0 4,413,352 882,670 3,530,682
171,900 17,190 5,000 450,000 644,090 4,268,490 4,318 0 4,264,173 852,835 3,411,338
171,900 17,190 5,000 300,000 494,090 4,569,161 4,173 0 4,564,987 912,997 3,651,990
171,900 17,190 5,000 150,000 344,090 4,869,831 4,034 0 4,865,797 973,159 3,892,638
171,900 17,190 5,000 150,000 344,090 5,020,502 3,900 0 5,016,602 1,003,320 4,013,282
171,900 17,190 5,000 150,000 344,090 5,171,172 3,770 0 5,167,402 1,033,480 4,133,922
EBITDA
Tax Allowance
20%
Tax Calculation Surplus/(Deficit) Before Tax Accumulated Deficits b/f Taxable Surplus/(Deficit) Tax thereon 3,358,311 0 3,358,311 671,662 3,659,167 0 3,659,167 731,833
3,810,016 0 3,810,016 762,003
3,810,859 0 3,810,859 762,172
3,811,696 0 3,811,696 762,339
4,262,527 0 4,262,527 852,505
4,413,352 0 4,413,352 882,670
4,264,173 0 4,264,173 852,835
4,564,987 0 4,564,987 912,997
4,865,797 0 4,865,797 973,159
5,016,602 0 5,016,602 1,003,320
5,167,402 0 5,167,402 1,033,480
63
CASH FLOW
0 0 0 0 4,392,438 4,743,833 4,919,530 4,216,740 4,041,043 4,041,043 1,581,278 0 0 4,392,438 4,743,833 4,919,530 4,216,740 4,041,043 4,041,043 1,581,278 1,581,278 1,581,278 1,405,580 1,405,580 0 0 0 0 0 0 0 0 658,866 26,355 711,575 28,463 737,930 29,517 632,511 25,300 606,156 24,246 606,156 24,246 237,192 9,488 237,192 9,488 50,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 453,040 0 0 685,736 1,800,000 0 0 3,726,864 0 0 1,939,607 0 0 728,070 0 0 620,913 0 0 50,000 450,000 100,000 150,000 171,900 17,190 30,000 350,000 171,900 17,190 25,000 350,000 171,900 17,190 12,000 300,000 171,900 17,190 5,000 250,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 150,000 0 0 611,327 171,900 17,190 5,000 150,000 0 0 611,395 171,900 17,190 5,000 150,000 0 0 196,253 171,900 17,190 5,000 150,000 0 0 196,317 217,000 21,700 288,700 371,150 650,000 569,090 1,702,350 246,500 24,650 0 0 0 0 0 0 0 0 1,622,815 0 0 1,585,819 0 0 1,585,888 0 0 787,022 0 0 787,086 (288,700) (371,150) (650,000) 3,823,348 3,041,483 1,192,666 2,277,133 2,418,228 2,455,223 (4,610) 794,255 618,494 0 (288,700) (288,700) (659,850) (659,850) (1,309,850) (1,309,850) 2,513,498 2,513,498 5,554,980 5,554,980 6,747,646 6,747,646 9,024,779 9,024,779 11,443,007 11,443,007 13,898,230 13,898,230 13,893,620 13,893,620 14,687,875 14,687,875 15,306,370
Inflows
Income
Total Inflows
Outflows
Depreciation - n/a non-cash Interest Tax Capital Repayment to Investor
Set-up Costs 10% contingency
Total Outflows
CASH FLOW
Inflows 3,153,545 3,153,545 3,378,798 3,604,051 3,829,304 4,054,558 4,279,811 4,505,064 4,730,317 4,955,571 5,180,824 3,378,798 3,604,051 3,829,304 4,054,558 4,279,811 4,505,064 4,730,317 4,955,571 5,180,824 5,406,077 5,406,077 5,631,330 5,631,330
Income
Total Inflows
Outflows
Direct Costs Royalty Billing Commission 210,837 8,433 473,032 18,921 506,820 20,273 540,608 21,624 574,396 22,976 608,184 24,327 641,972 25,679 675,760 27,030 709,548 28,382
743,336 29,733
777,124 31,085
810,912 32,436
Expenses Overheads 10%contingency Marketing & PR Costs Advertising Costs 171,900 17,190 5,000 300,000 0 0 166,720 0 0 431,836 0 0 499,916 0 0 537,994 0 0 546,070 0 0 554,144 0 0 652,216 0 0 690,287 171,900 17,190 5,000 150,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 300,000 171,900 17,190 5,000 450,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 450,000
171,900 17,190 5,000 300,000 0 0 668,355
171,900 17,190 5,000 150,000 0 0 736,422
171,900 17,190 5,000 150,000 0 0 804,488
171,900 17,190 5,000 150,000 0 0 842,552
Depreciation - n/a non-cash Interest Tax Capital Repayment to Investor 0 0 880,081 1,267,879 1,371,099 1,594,316 1,787,531 1,530,745 0 0 0 0 0 0 0 0 0 0 0 0 1,663,957
0 0 2,037,167
0 0 1,900,375
0 0 1,853,581
0 0 1,956,787
0 0 2,029,990
Total Outflows
2,273,464
2,110,919
2,232,953
2,234,989
2,267,026
2,749,066
2,841,107
2,693,151
3,055,196
3,327,242
3,449,290
3,601,340
15,306,370 17,579,834
17,579,834 19,690,752
19,690,752 21,923,705
21,923,705 24,158,694
24,158,694 26,425,720
26,425,720 29,174,786
29,174,786 32,015,894
32,015,894 34,709,044
34,709,044 37,764,240
37,764,240 41,091,482
41,091,482 44,540,772
44,540,772 48,142,113
65
CASH FLOW
4,570,957 4,570,957 4,749,476 4,927,996 5,106,515 5,285,035 5,463,554 5,642,073 5,820,593 5,999,112 6,177,632 4,749,476 4,927,996 5,106,515 5,285,035 5,463,554 5,642,073 5,820,593 5,999,112 6,177,632 6,356,151 6,356,151 6,534,671 6,534,671 844,700 33,788 685,644 27,426 712,421 28,497 739,199 29,568 765,977 30,639 792,755 31,710 819,533 32,781 846,311 33,852 873,089 34,924 899,867 35,995 926,645 37,066 953,423 38,137 171,900 17,190 5,000 300,000 0 0 880,615 0 0 671,662 0 0 731,833 0 0 762,003 0 0 762,172 0 0 762,339 0 0 852,505 0 0 882,670 171,900 17,190 5,000 150,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 300,000 171,900 17,190 5,000 450,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 150,000 171,900 17,190 5,000 450,000 171,900 17,190 5,000 300,000 0 0 852,835 171,900 17,190 5,000 150,000 0 0 912,997 171,900 17,190 5,000 150,000 0 0 973,159 171,900 17,190 5,000 150,000 0 0 1,003,320 0 0 2,253,192 1,728,821 1,816,842 2,024,861 2,202,878 1,930,895 0 0 0 0 0 0 0 0 0 0 0 0 2,048,910 0 0 2,406,924 0 0 2,254,937 0 0 2,192,949 0 0 2,280,960 0 0 2,338,970 2,317,765 3,020,655 3,111,154 3,081,655 3,082,156 3,532,659 3,593,164 3,413,669 3,744,175 3,984,683 4,075,191 4,195,701 50,459,877 53,480,532 53,480,532 56,591,686 56,591,686 59,673,341 59,673,341 62,755,497 62,755,497 66,288,157 66,288,157 69,881,320 69,881,320 73,294,989 73,294,989 77,039,165 77,039,165 81,023,847 81,023,847 85,099,039 85,099,039 89,294,739
Inflows
Income
Total Inflows
Outflows
Depreciation - n/a non-cash Interest Tax Capital Repayment to Investor
Total Outflows
48,142,113 50,459,877
PROFIT & LOSS SENSITIVITY ANALYSIS
1a The breakeven to recover ALL costs would require reaching only 17.62% of first 9-month sales target
b The breakeven point on ALL costs would require 84,217 Mobile Phone users or 15.82% achievement of first 9-month's total customer target or
c Put another way require 108,112 Internet subscribers representing 20.31% achievement of total first 9-month's target
Month 1 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 8 Mon Mo
Calander Months
Trading Months
2.
45% of Budgeted Sales for First 12 months
Number of Subscribers & Users @ 45% of Budget 50,000 100,000 650,000 569,090 564,090 501,090 444,090 1,457,899 1,574,531 1,632,847 1,399,583 1,341,267 344,090 257,276 277,858 288,149 246,985 236,694 1,715,175 1,852,389 1,920,996 1,646,568 1,577,961 34,031 36,754 38,115 32,670 31,309
31,309 1,577,961 236,694 1,341,267 344,090
12,251 617,463 92,619 524,844 344,090
12,251 617,463 92,619 524,844 344,090
1 54 8 46 34
Total Gross Revenue
Less Naked News 15% Royalty Payment
Gross Margin
Total Indirect Expenses
EBITDA (50,000) (100,000) (650,000) 888,809 1,010,441 1,131,757
955,493
997,177
997,177
180,754
180,754
12
3. 50,000 100,000 650,000 569,090 2,267,843 2,449,270 564,090 400,208 432,224 2,668,050 2,881,494 52,938 57,173 59,290 2,988,216 448,232 2,539,984 501,090
70% of Budgeted Sales for First 12 months 50,820 2,561,328 384,199 2,177,129 444,090 48,703 2,454,606 368,191 2,086,415 344,090 48,703 2,454,606 368,191 2,086,415 344,090 19,058 960,498 144,075 816,423 344,090 19,058 960,498 144,075 816,423 344,090 1 85 12 72 34
Number of Subscribers & Users @ 70% of Budget
Total Gross Revenue
Less Naked News 15% Royalty Payment
Gross Margin
Total Indirect Expenses
EBITDA
(50,000)
(100,000)
(650,000)
1,698,753
1,885,180
2,038,894
1,733,039
1,742,325
1,742,325
472,333
472,333
38
67
1.0
The Offer
Item 3.3 quantied the funding requirement of US $1.3 million (inclusive of US $307k in capex and US $512k in operational set up costs), to cover the expected cash shortfall occurring end of month three, prior to going cash positive from month four onwards. To reiterate, this gure is heavily inuenced by the planned promotional spend of US $500k occurring in month three, with no revenue attributed to this expenditure until month four. Thus the US $1.3 million gure is exaggerated by this advertising spend and by the fact that the cash ow forecasts have been projected on the assumption that payment is made in the month of transaction, rather than normal trading terms of 20th month following. Inherently, this nancial treatment presents a worst-case scenario. An outcome which Is In addition to the 10% cost contingency already factored into the accounts. While considerable care has been taken to compile the nancial statements on an accurate and reliable basis the Company recognises that things do not always go exactly to plan. Accordingly, the Company wishes to build-in a buffer to cover such an eventuality by raising US $1.8 million, even if such additional funds are not ultimately needed. Although these funds are required for only three months the Company also recognises that a short-term debt instrument may not be appealing to an investor. Therefore, in exchange for making available US $1.8 million, the investor(s) will receive a 25% equity share in the Company. The US $ 1.8 million will be secured by Preference A Shares and repaid as priority back to the investor(s) at the end of month six. The Company is offering 25% equity in itself for US $1.8 million, with full capital repayment back to the Investor at the end of month six. The 25% equity position (and associated dividend entitlement) continues, notwithstanding the capital repayment.
Amount:
US $1.8 million
Capital Repayment: End of month six
Dividend Payments: At end of month six, quarterly thereafter 25%
Equity:
Security:
Preference A Shares, ensuring priority capital repayment and non-dilution protection
Conditions:
No other added-value contribution is sought from the Investor.
NOTE: The Company need only achieve 10.5% of its after-tax prot forecast to meet its capital repayment obligations to the Investor. Given the Company achieves its nancial projections, the Investor should enjoy around US $10 million return over the next ve years from the initial six month, US $1.8 million outlay.
69
The funding could be facilitated by: Two instalments, The provision of a draw-down facility up to the full amount required or A combination of both. This offer is designed to provide exibility to the Investor while at the same time achieving the Companys funding objective. The Company seeks to raise the capital from one or two investors only. This Information Memorandum is issued subject to the conditions described under Conditions of Issue and by the laws of New Zealand concerning habitual investors as dened under the Securities Act 1978.
Investor Returns
Capital Repayment (6 Months) Dividend Cumulative
Year 1
$1,800,000 $853,954 $2,653,954
Year 2
Year 3
Year 4
Year 5
$1,568,979 $4,222,933
$2,040,195 $6,263,128
$2,244,434 $8,507,562
$2,469,098 $10,976,660
2.0
Valuation and Equity Calculation
Set out over leaf is the Company valuation. A discounted cash ow approach has been chosen as the most appropriate method, however an earnings multiple has also been applied as a cross reference. A period of 5 years has been used. No value has been attributed for periods after year-ve. By applying a weighted average cost to capital of 40.37% the free cash ow has been discounted signicantly to arrive at a valuation of US $75 million. Using a two times multiple to represent a 50% return on funds a similar valuation of US $78 million is arrived at. Both methods of valuation are severe, and while the Company acknowledges the subjective nature of such valuations it has endeavoured to present a realistic picture for equity participation.
VALUATION
ALL US$ EBITDA Less: Depreciation EBIT Less: Tax NOPAT Add: Depreciation +/- Change in Working Capital Less: Capital Expenditure Free Cash Flow (See calculations below) WACC Terminal Growth Rate (Not Applicable) Period Number Discounted Cash Flow Sum of Discounted Cash Flows Terminal Value (Not Applicable) 40.37% 0.5 14,087,341 $74,948,731 1.5 18,918,365 2.5 17,502,508 3.5 13,704,727 4.5 10,735,789 Year 1 21,469,999 121,146 21,348,854 4,269,771 17,079,083 121,146 0 (509,850) 16,690,379 Year 2 39,307,527 83,050 39,224,477 7,844,895 31,379,582 83,050 0 0 31,462,632 Year 3 51,059,818 54,929 51,004,889 10,200,978 40,803,911 54,929 0 0 40,858,840 Year 4 56,165,799 54,929 56,110,870 11,222,174 44,888,696 20,000 0 0 44,908,696 Year 5 61,782,379 54,929 61,727,450 12,345,490 49,381,960 0 0 0 49,381,960
Enterprise Value
Less: Net Debt
$74,948,731
0
Equity Value
$74,948,731
EBIT Multiple Valuation Earnings Before Interest & Tax (EBIT) Normalised EBIT - Average, Being Year 2 39,224,477 21,348,854 39,224,477 51,004,889 56,110,870 61,727,450
Equity Value at 2 Times Multiple Equity Value at 2.5 Times Multiple
$78,448,954 $98,061,192
Calculation of WACC Risk Free Rate (US Govt 30 Year Bonds) Business Risk Premium Beta Equity Ratio Weighted Cost of Equity Cost of Debt After Tax Debt Ratio Weighted Cost of Debt WACC 5.37% 7.00% 5.0 100% 40.37% 10% 8.0% 0% 0.00% 40.37%
71
End Notes
Section: Executive Summary
1 2 3 4 5 6 7 8 9 nakednews.com/media Paul Buddle Communications Pty Ltd. Research paper: South Korea Key Statistics, Telecom Market Overview & Analysis (Jan 2007) World Gazetter.com OECD Observer 2006 Supplement 1 OECD In Figures 2006-2007 Year Book OECD Observer 2006 Supplement 1. Paul Buddle Communications Pty Ltd. Research paper: South Korea Key Statistics, Telecom Market Overview & Analysis (Jan 2007) Naked News Korea Financial Statements, Section 6 Prime Target Market Risk Assessment, Section 6
Section: The Content market Explained

10 11 12 13 14 15 16 17 18 Juniper Research: Mobile Entertainment Markets Opportunities & Forecasts, 2006 2011 Portio Research UK, (June 2006) Juniper Research: Mobile TV The Opportunities for Streamed & Broadcast Services, 2006 2011 (2nd Edition) Juniper Research: Mobile Entertainment Revenue Opportunities 2006- 2011 Digitalmedia Wire, Chris Khouri, Research Analyst, Datamonitor Inc, (May 2007) Telecomasia; Neeraj Roy, CEO Hungama Mobile, (June 2006) Internet World Statistics.Com Usage & Population - 2006 Portio Research UK, (June 2006) Paul Buddle Communications Pty Ltd: Global Mobile Revenue, ARPU and Call Charges Analysis, (May 2007)
Additional Sources: Infonetics Research; Global Broadband and IPTYV Markets 2006, Chetan Sharma Consulting; Perspectives; Wireless Data ARPU, (June 2005,) Informa Telecoms & Media; Mobile Content & Applications 2006, Juniper Research; Mobile Adult Content Text, Images & Video, 2006-2011 (Third Edition, Technology News World, Wireless Adult Entertainment, Digital Media Wire, World Market for Wireless Adult Content.
Section: The Business Case - Why Korea (Part One)

19 20 21 22 Ministry of Information and Communications of Korea (MIC OECD: Information and Communications Technologies, Outlook 2006-2007 Paul Buddle Communications Pty Ltd. Research paper: South Korea Key Statistics, Telecom Market Overview & Analysis, (Jan 2007) Paul Buddle Communications Pty Ltd. Research paper: South Korea Mobile Market 3G Mobile Data, (Feb 2007) White Paper: National Internet Development Agency of Korea Ministry of Information and Communications of Korea (MIC): Wireless World Forum Research: South Korea Mobile Market 2006 International Business Strategies: Digital Broadcasting Content and Programming In Korea (December 2006) and Telecomasia
23-24 Ministry of Information and Communications of Korea (MIC): Market Statistics; (April 2006) 25 26 27 28
29-31 Ministry of Information and Communications of Korea (MIC) 32 33 34 37 40 41 44 45 46 47 Hyo-Jeoung Kim, ZDNet Korea, (Sept 2006) Forrester Research: United States 3G and GSM Market 2006 Korean Department of Statistics: 2006 Sensus Review Metrix Research reported by Biz/Tech Chosun News Agency, (July 2007) Ministry of Information and Communications of Korea (MIC) Hyo-Jeoung Kim, ZDNet Korea, (March 2006) Motion Picture Association of America, (July 2004) Metrix Research as reported by Telecoms-Korea, (May 2007) Bank of Korea press release, (March 2007) MIC; Korea Agency Digital Opportunity & Promotion: 2006 Internet User Survey.
35-36 Ministry of Information and Communications of Korea (MIC) 38-39 The Korean Times. reporting on MIC survey highlights, (May 2007)
42-43 Ministry of Information and Communications of Korea (MIC)
48-51 International Business Strategies: Digital Broadcasting Content and Programming In Korea (December 2006)
Section: The Business Case - Why Korea (Part Two)

52 53 World Gazetter.com OECD Observer 2006 Supplement 1
54-55 OECD In Figures 2006-2007 Year Book 56-57 Wireless World Forum Research: South Korea Mobile Market 2006 58 Ministry of Information and Communications of Korea (MIC)
Additional Sources: Korean Broadcasting Commission, Datamonitor Research; Mobile TV -Wordwide Markets - Forecast to 2012, Korea Information Strategy Development Institute, Korea Association of Information and Telecommunication, The Electronic Times Internet - IT News Service, Asia Media News Daily, BBC News/World/ Asia, Cable Datacom News, Korea Times News Agency, ABC News, Fairfax Digital News Service, Korea Media Ratings Board, Fulbright Korean-American Education Commission, The World Bank Group, Korea Ministry of Communication.
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Information Memorandum

The Business Case for Naked News Korea

Conditions of Issue Executive Summary The Content Market Explained

Naked News in brief

The Business Case Why Korea (Part One)

The Business Case Why Korea (Part Two)

The Business Plan

Information Memorandum / YSPC01

Capital Repayment: End of month six

Dividend Payments: At end of month six, quarterly thereafter 25 % of issued capital

Preference A Shares, ensuring priority capital repayment and non-dilution protection

No other added-value contribution is sought from the Investor.

The Content Market Explained

Content: A brief description and overview

MOBILE PHONE CONTENT CATEGORIES

MOBILE PHONE CONTENT DELIVERY

Global Mobile Phone Content Revenue

Global Mobile Phone Content Revenue

2006 Revenue by Region US$17.3 Billion

Revenue by Region 2011 US$76.9 Billion

Global Internet Content

Internet Usage by World Region (2006)

Mobile Phone User and Internet Subscriber Penetration of World Population

2006 Actual to Population 6.5 Billion

2011 Forecast to Population 7.0 Billion

MOBILE PHONE USERS

Why Telcos and Cellcos need Content: A matter of survival

Position of Naked News in the Content Market: A regulatory perspective

Naked News in brief

Following is an article extracted from Fortune Magazine;

Main products and services

DAILY Internet Program - Monday to Thursday

The Business Case Why Korea

Korean Content Market

PART TWO - completes the Why Korea question covering;

Competitive Threats and Weaknesses Probability risk assessment

Of all the countries in the world why chose Korea?

Technology: Penetration of content technologies, key statistics

Korea is the Land of Best Digital Opportunity.

Headline, Telecoms-Asia, 27 May 07.

Total Mobile Phone Revenue

Mobile Phone DMB capable

70% of all Mobile handsets will be DMB capable by YE 2008

Others ISPs and resellers Total ISP Content Revenue

PAY-PER-VIEW, SKY and IPTV

4,100,000 15,000,000 KT Corporation Hanaro Telecom Korea Thrunet

Satellite TV Major IPTV Networks

3,150,000 KT Corporation Hanaro Telecom SK Telecom

Technology: Societal Impact, attitudes, behaviour and disposition

Korean Content Market: Media type and value

Korean Entertainment Content Market Valuation

Korean Entertainment Content Market Valuation by Media Type

$3.8 BILLION 38%

$4.5 BILLION 46%

$1.7 BILLION 16%

Regulatory Environment: Censorship and opportunities

Regulatory Environment: Summary

Korean Adult Marketplace

PORN SITES BANNED

Adult DVDs ILLEGAL

Adult Mags ILLEGAL

Phone Ting BANNED