Deal Memorandum - Playboy Networks Worldwide and TVN Entertainment Corp.
[LOGO OF TVN] 2901 WEST ALAMEDA AVENUE, 7TH FLOOR
BURBANK, CALIFORNIA 91505
(818) 846-4TVN FAX (818) 846-4626
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ARTHUR FIELDS
Senior Executive Vice President
June 22, 1995
PERSONAL AND CONFIDENTIAL
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James L. English
President
Playboy Networks Worldwide
9242 Beverly Boulevard
Beverly Hills, CA 90210
TVN - PLAYBOY DEAL MEMORANDUM
Dear Jim:
This Deal Memo summarizes the key deal points whereby TVN will provide certain
services for and also serve as a distributor of Playboy's newly announced 24
hour a day adult movie based entertainment channel, named "AdulTVision". Our
mutual goal is to have TVN provide a complete turn-key service for Playboy's
AdulTVision Channel when TVN's own pay-per-view programming services move to
G-IIIR, including transponder, uplink, playback, encryption, and tier-bit
control/authorization services. The deal points are as follows:
1. Commencing July 1, 1995, TVN will provide VideoCipher II Plus ("VCII
Plus") encryption and tier bit control services for the AdulTVision
Channel, as well as playback service using the programming elements
provided by Playboy as described in Paragraph 6 below, and uplink
service to a Playboy leased transponder on the Anik-2 ("E-2")
satellite for transmission to the cable and C-Band home satellite dish
(HSD) markets, for which Playboy will pay TVN the sum of $25,000 per
month. Tier bit control service will cover authorizations for pay-per-
view, subscription and cable head-ends. At that time or subsequently,
TVN may also "turn-around" this AdulTVision transmission from E-2, and
re-encrypt and uplink it to one of TVN's transponders on the Telstar
303 satellite ("T-303"), also for transmission and distribution by TVN
to the cable and C-Band HSD markets. As a result, there may be a
period of dual illumination on T-303 and E-2, prior to the planned
transition of the AdulTVision service to a TVN leased transponder on
the Galaxy III-R satellite ("G-IIIR"). During the Term hereof, TVN
will market, promote, distribute and sell the AdulTVision service as
described below.
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TVN ENTERTAINMENT CORPORATION
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2. At such time as TVN transitions its multi-channel pay-per-view
services from T-303 to G-IIIR, but not before January 1, 1996, TVN
will provide the use of one of its G-IIIR transponders, which shall
provide analog VCII Plus encrypted transmission solely for the
AdulTVision channel and meet Hughes' specifications for such G-IIIR
transponders. It will serve as the sole source for transmission of
AdulTVision to C-Band HSD markets, and as a source of transmission to
the cable market, to which Playboy may transmit its AdulTVision
service by other means as well. In the event that the G-IIIR
transponder fails to meet its specifications, TVN will provide the use
of the T-402R transponder for AdulTVision referenced in (P)7 below.
TVN will also provide the necessary playback, uplink, encryption (VC
II Plus) and tier bit control/authorization services for AdulTVision
Playboy will pay TVN the sum of $200,000 per month from such time as
TVN transitions its multi-channel PPV services from T-303 to G-IIIR,
and throughout the remaining Term of this Agreement (subject to
Paragraph 4 below), payable by Playboy on the first day of each
month for the services to be provided by TVN in that month.
3. This deal will remain in effect for a period of three (3) years (a
"Term") commencing as of the date of execution of this Deal Memo, and
shall automatically be renewed for a consecutive three (3) year Term
unless either party gives written notice to the other of non-renewal
no later than ninety (90) days before the expiration of any Term. In
the event that it becomes illegal to operate, transmit, distribute or
sell the AdulTVision service in all or substantially all of the United
States, either party may forthwith and in writing terminate this
Agreement and its obligations thereunder, except for those which have
accrued prior to such termination. If Playboy determines in good faith
that it has become economically unfeasible for it to continue
operating the AdulTVision programming service, then it may terminate
this Agreement by providing no less than ninety (90) days written
notice to TVN that it will discontinue such service, in which event
this Agreement will terminate without further liability by either
party to the other on the later of 90 days from the date of such
written notice, or the date on which Playboy ceases operations of the
AdulTVision programming service. Any such discontinuance of the
service will be handled in a reasonable manner, so as to foster a
positive relationship with AdulTVision customers.
4. As additional consideration for the services provided by TVN pursuant
to paragraphs l and 2 above, TVN shall be the exclusive distributor of
the AdulTVision programming service to the C-Band HSD market in all
transactional modes, including but not limited to pay-per-view
("PPV"), pay-per-block ("PPB"), pay-per-night ("PPN"), pay-per-day
("PPD") sales, subscription sales (monthly, quarterly or yearly and/or
impulse sales ("IPPV") by means of store and forward technology, i.e.
through VIDEOpal. TVN will provide encryption with its own TVN
provided VCII Plus encoder, set up with encoder redundancy, i.e., in
the event that the VCII Plus encoder used by TVN for encryption of
AdulTVision malfunctions or fails, TVN represents that it will utilize
one of its other VCII Plus encoders so that encryption of AdulTVision
is maintained. TVS will also provide
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tier bit control from whatever transponder(s) AdulTVision may be
transmitted, including from both T-303 and E-2 during any period of
dual illumination, and TVN represents that it will at all times during
each Term hereof make available tier bits necessary to provide pay-
per-view and subscription authorizations for AdulTVision. TVN will a)
pay Playboy a license fee equal to thirty percent (30%) of all such
HSD sales, with a minimum license fee of $1.785 per pay-per-view buy
(based on a suggested retail price of $5.95), b) provide complete end-
to-end customer service, including order processing, CSR, billing and
authorization functions for all such sales of the AdulTVision service,
and c) actively market, promote and sell AdulTVision to its existing
HSD subscriber base (approximately 750,000), and to the rest of the
C-Band HSD market. The 30% license fee payable by TVN to Playboy shall
be offset each month against the $200,000 monthly fee payable by
Playboy to TVN per paragraph 2 above and Playboy will send TVN a check
each month for the net amount owed to TVN, after offsetting the TVN
license fee owed to Playboy; if the 30% license fee exceeds the
$200,000 fee payable by Playboy, TVN will remit such excess amount to
Playboy by check monthly. TVN will not accept orders for the
AdulTVision service from such states as Playboy determines that its
service will not be made available for viewing by HSD and/or cable
subscribers.
5. At such time as TVN and Playboy mutually agree upon the license fee
payable by TVN for its AdulTVision sales to cable subscribers, TVN
will also be a non-exclusive distributor of the AdulTVision service to
the cable market, which it may offer via PPV, PPB, PPN, PPD and/or on
a subscription basis, only marketed together with TVN's own multi-
channel pay-per-view movie, event and transactional processing
services under the name TheatreVisioN Plus. TVN will coordinate its
AdulTVision marketing activity with Playboy, TVN will market and
promote the AdulTVision service, and TVN's marketing and promotional
materials utilizing the AdulTVision name will be subject to Playboy's
review and approval, in all instances and at all times, and will bear
Playboy's approved trademark designations.
6. With respect to the playback services TVN provides for Playboy,
[deletion] Playboy will create and provide TVN with fully edited,
ready-for-air videotapes of all AdulTVision programming elements, in
Beta SP format. Such videotapes will include all films, shows,
interstitial materials, music, graphics, programming and all other
elements necessary for TVN to assemble and playback the AdulTVision
service as a complete 24 hour a day, 7 days a week high quality
television channel, which meets the industry accepted RS250(b)
standard. Playboy will1 deliver such videotaped materials to TVN in a
form capable of being assembled and aired by TVN without editing or
additional post-production, and in a reasonable time prior to any
scheduled air-date. However, TVN will provide an electronic count-down
clock and titling capability which can be keyed in during interstitial
programming. Playboy will be solely responsible for all AdulTVision
programming content, and will indemnify, defend and hold harmless TVN
and its transponder provider from any and all third party claims
and/or governmental or agency actions based on or
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related to such programming content. TVN will indemnify, defend and hold
harmless Playboy from any and all third party claims arising from TVN's
willful acts or omissions while performing its services for Playboy hereunder.
C-Band HSD customers who want to order the AdulTVision service from TVN,
whether via PPV, PPB, PPN, PPD or subscription, need not pay any initial fees
for, order or subscribe to any other programming service owned, provided or
distributed by TVN.
7. TVN represents to Playboy that a) AT&T has leased a transponder on the
Telstar 402R satellite to a wholly owned subsidiary of Viacom, Inc.,
which begins on the in-service date of that satellite, b) it is a
"bronze" level transponder, leased for a three (3) year term with
options to renew, c) Viacom has assigned to TVN its rights to such
T-402R transponder, d) TVN has the right to provide the use of such
T-402R transponder to Playboy for AdulTVision, and will do so in the
event that (i) Hughes fails to approve, or approves but subsequently
terminates, Playboy's use of TVN's G-IIIR transponder for AdulTVision,
or (ii) there is a G-IIIR launch failure. TVN will obtain from Viacom
and provide to Playboy, within five (5) business days, written
confirmation of the foregoing and that Viacom will make this T-402R
transponder available to Playboy for the AdulTVision service without
interruption if that is within Viacom's control, in the event that
TVN's right to do so is terminated.
8. After this Deal Memo is signed by the parties, they shall begin work
and planning for the start of on-air operations, during which time a
Definitive Agreement consistent with the provisions of this Deal Memo
and containing a more detailed description of each party's respective
rights duties and obligations shall be prepared by the parties'
counsel. TVN will obtain written approval from Hughes, and provide
same to Playboy, for Playboy's use of TVN's G-IIIR transponder for
AdulTVision and to permit Playboy to directly assume TVN's rights,
duties and obligations under TVN's Transponder Lease Agreement with
Hughes with respect to the G-IIIR transponder used for AdulTVision
without interruption if that is within Hughes' control, including
Playboy's right and obligation to pay directly to Hughes the monthly
transponder fee payable by TVN for such transponder, only in the event
that TVN's rights to such transponder are terminated by Hughes. If TVN
is unable to obtain such approval from Hughes within a mutually
approved reasonable period of time, TVN agrees that it will provide
the use of its above described T-402R transponder for AdulTVision,
instead of its G-IIIR transponder, except that Playboy's fee therefor
shall be $175,000 per month, instead of $200,00 per month, payable as
provided in (Paragraph) 2 above. For the months of July-December 1995,
TVN shall retain the 30% license fee which would have been payable to
Playboy, up to $400,000, the first $200,000 of which will be a credit
against the first month's fee payable by Playboy, and the next
$200,000 (or a portion thereof) of which will be a credit against the
last month's fee payable by Playboy. If the 30% license fee falls
short of $400,000 during such six (6) month period, this shortfall
will be made up, subject to (Paragraph) 4, in the last month's fee
payable by Playboy. Any 30% license fee amount in excess of $400,000
shall be paid by TVN to
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$400,000 shall be paid by TVN to Playboy. If the T-402R transponder is
used instead of the G-IIIR transponder as above described, the "up
to" amount will be $350,000, half of which will be credited against
the first, and the other half against the last, month's fee payable by
Playboy. TVN shall obtain an acknowledgment from Hughes of the prepaid
transponder concept. The provisions of this Deal Memorandum, and all
discussions and negotiations regarding same, shall be kept strictly
confidential by each company and may not be disclosed to third parties
without each parties' prior mutual written approval.
9. The parties agree that after the execution hereof they will issue a
joint or separate press releases regarding TVN's role in the
AdulTVision service. Such press releases and other publicity
concerning TVN's role in AdulTVision shall be jointly planned and
coordinated by the parties, and shall refer to AdulTVision being the
new adult programming service which may be marketed together with
TVN's TheatreVisioN Plus movie programming. Neither party shall issue
any press release or make any press announcement regarding TVN's role
in AdulTVision, without the prior written approval of each other
party, which shall not be unreasonably withheld. Nothing contained
herein shall restrict Playboy's promotion of AdulTVision.
10. This Deal Memorandum contains the essential deal points agreed upon by
the parties with respect to the subject matter hereof. It supersedes
all prior and other contemporaneous agreements or negotiations,
whether oral or written, by the parties or their agents with respect
hereto; it may be amended only in writing signed by each party and it
may be executed in one or more counterpart copies via fax delivery to
the other party of a copy containing that party's signature, which
together with the other party's executed counterpart fax copy shall
constitute a single document having the same force and effect as a
fully executed original.
11. This Deal Memorandum and the rights, duties and obligations of the
parties hereunder shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts made
and to be wholly performed in that state. It describes a contractual,
independent contractor/distributor relationship, and nothing contained
herein shall be deemed to create any partnership, joint venture,
employment or similar relationship between the parties.
12. The above referenced Definitive Agreement shall contain terms and
conditions consistent with this Deal Memorandum, as well as other
mutually agreed terms and conditions including, but not limited to,
those providing for audit rights, license fee reports, payment and
report due dates, marketing plans, sales of AdulTVision by third party
packagers through TVN, and performance criteria for TVN's sales and
customer service operations for AdulTVision. Before such Definitive
Agreement is signed by the parties, this Deal Memorandum shall remain
in effect as the binding agreement between the parties.
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Kindly signify your agreement to the foregoing Deal Memorandum by signing below
where indicated.
Sincerely,
/s/ Arthur Fields
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Arthur Fields
Senior Executive Vice President
AGREED:
Playboy Networks Worldwide, a division
of Playboy Entertainment Group, Inc.
/s/ James L. English
By: ----------------------------------
James L. English
President
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