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 Sophisticated Investor
Confidential Information Memorandum

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Purpose of Document
This document is of a confidential nature and is not for public issue. Receipt of this document requires the recipient to have
signed a confidentiality and non-disclosure agreement with Bluebox Devices. If you have not signed the agreement, or have
received this document in error, please contact Bluebox Devices immediately. This document is encoded with a unique
signature stating the name of the authorised recipient who is accountable for the security of this document. Sharing of the
document is expressly forbidden and in breach of the terms of the Bluebox Devices Non-Disclosure Agreement.
This document, entitled the Sophisticated Investor Information Memorandum (“the Document”), has been produced by
Bluebox Devices Pty Ltd (“Bluebox” or “Bluebox Devices”, as the case and context may be), and provides additional
information relating to a proposed investment by investors, who are entitled to be offered and issued shares, pursuant to
section 708 of the Corporations Act, without the need for a prospectus or an offer information statement. The Document is
distributed to parties who have expressed an interest in Bluebox Devices, and is only for sophisticated investors (as defined
in Part 7 of the Corporations Act). It is not a prospectus or offer information statement under the Corporations Act. The
Document has not been lodged with the Australian Securities and Investments Commission (“ASIC”).
The Document does not constitute an offer or invitation in any place in which, or to any person to whom, it would not be
lawful to make such an offer or invitation. No action has been taken to register or qualify the shares or the offer or
otherwise to permit a public evaluation of Bluebox.
Although Bluebox, its Directors and advisers have used due care and diligence in the preparation of the Document no
representation or warranty is made by Bluebox Devices’ Directors, officers or any of its advisers as to the accuracy or
completeness of the information in the Document. No information contained in this Document or any other written or oral
communication transmitted or made available to the recipient or advisers is, or shall be relied upon as, a promise or
representation, and no representation or warranty is made as to the accuracy of attainability of any estimates, forecasts or
projections set out in the Document. No liability will attach to Bluebox Devices’ Directors, officers or any of its advisers with
respect to any such information, estimates, forecasts or projections. The investment referred to in this Document should be
considered speculative.
Investors should read this Document in its entirety. If, after reading the Document, you have any questions about, or wish
to express an interest in, an investment in Bluebox Devices, you should contact the person who provided you with this
Document. Bluebox Devices reserves the right to decide whether or not to make offers and to issue shares to any person in
their absolute discretion.

Corporate Registry
Bluebox Devices Pty Ltd ACN 118 929 123
Chairman: Mr Bruce M Bilney
Patent Attorneys: Mr Nik Ramchand, Blake Dawson Waldron Patent Services
Corporate Counsel: Fetter Gdanski P/L
Accountant: Mr Max Davenport, Davenports

For Further Information Contact

Mr Getha Somasundaram
E: [email protected]
M: 0411 875 051

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 Table of Contents

Purpose of this Document 3

Executive Summary 5

A brief explanation of our business 5

Introduction to Bluebox Devices 7

Opportunity for Bluebox Devices 7

Paid for View – The new advertising paradigm 8

A compelling approach for Advertisers 9

Increasing business for ISP’s and Telcos 10

Content Suppliers 11

Competitive Outlook 11

Path to Market 12

Investor Analysis 13

Capital and Investment Structure 13

Earnings Potential 14

Assumptions 15

Verification of Assumptions 16

Investment Analysis 16

Returns and breakdown of revenues 18

Forecast Scenarios 20

Risks 20

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Executive Summary
This document provides an overview of new component technologies under development at Bluebox Devices and how
these technologies are driving outstanding business opportunities for the company.
Bluebox Devices has developed a unique business model which fundamentally changes the advertising paradigm used to
support content consumption, offering consumers reward for viewing and advertisers precision targeting and dramatically
increased conversion potential.
Organisations including IBM, Intel, Internode, Starcom have established major commercial relationships with Bluebox to
bring this model to a commercial reality.
To fund this, Bluebox is offering a Series A1 equity investment opportunity by private placement of up to 200 million fully
paid shares at AUD0.10c to raise AUD20m.

A brief explanation of our business

Bluebox offers the first Web 2.0 electronic media delivery system with a unique approach to the commercial relationship
between content provider, advertiser and consumer. Bluebox is the alternative to the traditional DVD rental and free to air
TV model for mass media advertising that packages content and ads together for the mass market. The Bluebox model
focuses on micro commerce, where the consumer is a participant in the value chain rather than a passive audience, using a
download rather than streaming delivery mechanism.
Our approach provides significant benefits for consumers, content providers and advertisers:
• For the consumer, easy access to a vast and growing on demand library of movies, TV and music for free under an
arrangement that respects their time, and provides a new source of value though participation.
• For content-providers, a legitimate and profitable way to deliver high volume content consumption to retail consumers
over the Internet. It also addresses critical industry concerns with consumer piracy.
• For the advertiser, a form of advertising that overcomes the major hit and miss shortcomings of broadcast TV, being
consumer targeting and accountability. Bluebox’s advance in this area is unprecedented for the advertising industry.
Bluebox has identified and is addressing the inefficiencies of free to air, Internet and cable broadcast advertising models
which are increasingly out of step with the people they are trying to reach. By contrast, Bluebox offers a business model and
supporting commerce system that is far more in tune with how people get and participate with media in the age of the
Internet.
To demonstrate this unique approach, Bluebox has partnered with companies such as Optus for a 2,000 user Alpha trial
followed by a 20,000 to 50,000 user Beta Trial with leading Australian G9 ISP, Internode, in early 2009. These trials will be
conducted under full commercial conditions in Melbourne, Sydney and Adelaide.
The Beta Trial will be followed by a commercial launch in Australia, and then a launch overseas, commencing with the
Singapore then the United Kingdom where broadband penetration and adoption are at much higher levels.
During the Beta Trial, Bluebox will be offered to customers of partner ISPs as a free software product called Meander, with
un-metered downloads (free bandwidth), thus making the barrier for consumer entry extremely low. Consumers will be able
to choose from a vast library of content and, by using the Bluebox patent pending process of ‘Paid for View’, gain credit for
the viewing of targeted commercials, which offsets the cost of hiring or purchasing the content they view.
Bluebox’s new medium has captured the attention of visionary companies including Intel and IBM; Internet Service
Providers (ISPs) such as Optus and Internode; content providers and leading stakeholders in the advertising industry such as
Starcom and J. Walter Thompson, all of whom see an opportunity to profit by working with Bluebox to bring this unique
approach to market.
These, and similarly driven companies recognize the opportunity that the Bluebox business model represents:
Advertisers and the Revenue Base: Bluebox generates its revenues from advertising spend by offering advertisers a targeted,
accountable, and interactive advertising platform, one that simultaneously captures and delivers consumer feedback. No
other advertising model can do this.

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TV, print and radio maintain their reliance on interruptive broadcast advertising. Online mediums, particularly Google, rely
on interruptive advertising pushed out to consumers. While online may be considered a narrowcast approach to advertising,
it is still ‘hit and miss’ that is neither engaging, accountable nor capable of feedback.
The Bluebox environment contains core socio demographic information on our customers which is continually built upon
and supplemented by capturing consumer behaviour and consumption patterns. In doing this we refine and improve our
ability to offer increasingly targeted audience profiles to prospective advertisers thereby increasing the effectiveness of
advertising campaigns and consequently overall profitability.
Consumers: Consumers are paid by Bluebox for their time and feedback. They choose the ad categories of interest and
relevance to them, which are then only delivered on demand and under their control, not intrusively embedded into
content. Meander, Bluebox’s content search engine, allows consumers to easily search for content based on their viewing
preferences, history and the relationships between individual pieces of content, e.g. artist, directors, genres, etc.
Content Owners, ISPs and Telcos: Through Bluebox consumers can purchase content (Movies, Music, etc) by watching ads.
Content providers will realise increased revenues through decreased consumer use of illegal copying and file sharing.
Similarly Internet Service Providers (ISPs) and Telecommunications Carriers (Telcos) currently carry the delivery burden of
Video-on-Demand (VOD) and IPTV traffic for no reward, and, in many cases, economic loss. Bluebox’s business model gives
them a share of the advertising revenues previously unavailable to them. By working & marketing within the ISP’s & Telco’s
network Bluebox will gain immediate access to, and be able to leverage their customer bases.
Consumer Electronics Manufacturers: With the international rollout, Bluebox is planning to release its family of digital
lifestyle products to extend the in-home viewing experience through to the consumer’s living room, which will be paid for
through the Paid for View credits. These devices are to be licensed as a technology platform in partnership with Intel
Corporation, supplying core componentry to the consumer electronics industry. Intel Corporation has recently signed a
share warrant co-marketing agreement with Bluebox for this purpose.

Bluebox has the potential to reshape the global Advertising and Video market with a model that resolves value issues with
Video on Demand resulting in real competition against DVD rental and TV broadcast markets by creating a unique Web 2.0
environment for content and advertising.

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Introduction to Bluebox Devices
Opportunity for Bluebox Devices

“The big opportunity to bridge the growing chasm between TV and the Internet”
Bluebox’s ‘Paid for View’ is a business system that challenges the conventional ad-supported content model presently used
throughout TV, print media and the Internet. The traditional model is built around advertisers paying for space or time, with
no value considered, accounted or monetised for the viewer’s role.
The limitations of the TV industry have become apparent over the last few years, which, for the first time since the
appearance of commercial television in the 1940’s, has begun a negative growth trend. This trend is largely due to the
emergence of the Internet and personal computers as the dominant entertainment medium amongst Generation X and Y
consumers. These consumers find the Internet a more efficient and fulfilling medium to acquire media rather than watching
TV alone.
In recognition of this shift in the market, advertisers are following the trend by reducing their budgets for TV and increasing
their budgets for online advertising and actively looking for new media options to get the advertising message to the
consumer. Online advertising growth rates are beginning to slow, however, as advertisers begin to question this new
medium’s campaign effectiveness, but few alternate options are available.
In the absence of a legitimate and competitive product the consumer culture of ‘free’, ingrained by TV for several
generations, has seen the proliferation of illegal Peer to Peer (P2P) file sharing of TV, movie and music content amongst
young consumers as the most popular medium for acquiring ‘what they want, when they want it’. This has cost the movie,
TV and music industries billions of dollars. Bluebox believes there is a profound opportunity for media providers to meet
this market demand.
A free content medium, that overcomes the shortfalls of the traditional TV model while addressing the demand for choice,
immediacy and efficiency by today’s consumer, would open up vast new markets for content providers by providing the best
of both worlds. Of even greater appeal is a medium that both beats piracy and generates far better profits than is currently
possible for content providers. This is what Bluebox’s ‘Paid for View’ delivers.

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‘Paid for View’ – The new advertising paradigm

“Free content with fewer, better ads”

‘Paid for View’ is a simple yet powerful business system. It is the technological implementation of a business process and is
currently under patent application by Bluebox with the United States Patent and Trademark Office.
The consumer downloads software (Meander) free via the Internet, and then builds credits by viewing ads. ‘Paid for View’
makes a micro payment to a consumer’s media account for viewing an ad while simultaneously capturing feedback from the
consumer. The credits accrued can be used to either hire or purchase digital content such as movies, TV and music when
the user wants to.
Importantly, the system also captures consumer feedback as part of the ad viewing process. This can be used to provide near
real time data to advertisers on the quality, appeal and effectiveness of each advertisement along with contributing to
statistical and demographic profiling processes and knowledge bases.
The advertiser pays Bluebox, who provides the consumer with the content after the consumer has viewed the advertising.
By allowing the consumer to select topics of interest for advertising the advertiser can target advertising to specific
consumer interests as viewing history and preference is captured. An advertiser is able to target its product or service to the
right audience based on demographic selection or consumer preference, dramatically increasing the efficiency of its
advertising dollar through a highly effective and accountable medium.
Because a consumer can download digital content on demand for free, without ads being embedded in the content, the
consumption rate is predicted to increase dramatically. Bluebox has removed the intrusive nature of advertising - no ads in
the middle of movies or TV episodes.
‘Paid for View’ is implemented in two parts: the Media and Commerce System manages consumer and advertiser accounts,
and content distribution; and the Meander Media Application Software (run on a PC or Mac) operating at the consumer
level.

Meander’s value proposition to the consumer is simple: get the content you want, for free. Meander combines the functions
of a Digital Media Store (like iTunes Music Store), the ability to gain credit though ‘Paid for View”, and a media player, all
through a simple and intuitive graphical user interface. Meander can also manage consumer viewing preferences to assist
when searching through the vast libraries of viewing or listening choices.

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A compelling approach for Advertisers

‘Bluebox Control targets TVC’s”

Bluebox Control, a web based interface for advertising professionals, is a rich set of tools for targeting, managing and
reporting on advertising campaigns. It allows media planners to apply their knowledge, intellectual property and expertise to
get the best results for their clients.
Targeting can be managed by geography (from country down to postcode), demographic, interests and attitudes, or by
program. This completely eradicates the limitation of targeting a Television Commercial (TVC) by timeslot or program.
Bluebox Control provides detailed reporting, allowing advertisers to analyse their campaigns and gauge the effectiveness on
the targeted audience. Campaigns can be changed quickly to increase relevance, impact and focus, and consequently
improve returns on advertising budgets.
The detailed feedback provided through Bluebox Control can also be used to build a proprietary knowledge base for future
campaigns.

Bluebox Control

1. Create
Upload: Start by giving your campaign a name and description then upload your Ad into
your new campaign.
Target: Set the targeting parameters for your campaign. Be as broad or targeted as you like,
from postcode to country, sex, interests and attitudes or tv programs.
Budget: Set the budget for your campaign, then set a start date, and choose an end date or
finish when the budget has been spent.

2. Run
Control: Here you have the control to directly start, pause or stop a campaign.
Monitor: Get daily updates on your campaign emailed to you. You can also set alerts to help
manage budgets or viewer responses.
Tweak: Are you are getting feedback from your campaign that you would like to incorporate
into your targeting or budget? Then pause the campaign, make the necessary changes, then
start the campaign again. Simple.

3. Report
Scorecard: At the end of the campaign a confidential standardized scorecard is automatically
generated for you, providing 'at a glance' vital stats on how the campaign ran.
Detailed Reports: If you want you can easily generate reports that focus on the interests of
media planning or your advertising customers such as ROI and successful impressions.
Download Stats: If you are interested in crunching the numbers, you can download the raw
data ready for import to Excel, or 3rd party reporting tools.

Bluebox is working collaboratively with advertising partners like Starcom MediaVest to ensure Bluebox Control provides
Media Buyers with the tools, control and information they want. Starcom’s director of digital says “Bluebox control provides
a source of hard data to the black arts of media planning. We see Bluebox control as a formidable weapon in a very
competitive market”

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Increasing business for Internet Service Providers (ISP’s) and
Telecommunication Companies (Telcos)
Bluebox is a complete ‘turnkey’ Content on Demand system, with comprehensive content, commerce management, storage
and delivery. Integration with Bluebox is simply a matter of connection from the Bluebox system into their network. Key
business drivers for ISP adoption of Bluebox are as follows:
• It recognises and capitalises on the significant demand for illegal Peer-to-Peer (P2P) file sharing of movies, music and TV
shows over the Internet. Up to 89% of Internet traffic (by volume) is from illegal file sharing with certain Australian ISP’s.
Having a legal and competitive alternative within an ISPs/Telco’s own network has the potential to monetise these users
and dramatically reduce ISP wholesale overhead costs for overseas trunk fiber access used by illegal P2P file sharers –
which is a major running cost for ISPs.
• When delivered though the ISPs own infrastructure, ISPs receive a revenue share on a transactional basis on every
consumer hire and purchase of movies, TV shows and music, creating a new source of revenue.
• Paid for View’ addresses the multi-billion dollar loss of revenue through illegal P2P file sharing, providing a legal and
competitive value proposition to consumers. At present the Content Supplier looses and the ISP has to provide a pipeline
to cope with the illegal file transfer, both loose. With Bluebox, get what you want, when you want it, get it for free, and
get it legally. ‘Paid for View’ achieves this whilst paying Bluebox partners for every unit of content consumed.
• Bluebox is an opportunity for product differentiation that encourages consumers to move to higher speed plans.
• There is no requirement for new or dedicated infrastructure. Bluebox runs on existing ISP IP high-speed Internet
infrastructure, minimizing capital investment demands.
• It’s complementary to existing service bundling – Bluebox is designed to compete with DVD rentals and Free to Air TV.

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Content Suppliers

“Legitimising Content Downloads.”

ISPs estimate that P2P Internet file sharing systems, such as Bit-torrent and Limewire, account for over 34% of global
Internet traffic, and almost 90% of Australian Internet traffic with certain ISP’s. These systems are wildly popular with
Generation Y and X and represent billions of dollars in lost revenue to content distributors. Illegal file sharing also uses a
large proportion of ISP’s Internet capacity.
Bluebox provides content distributors revenue on a per download basis at the same rate as a conventional Video on Demand
(VOD) service. As content is free to the consumer, it is likely that the rate of consumption will be far higher than
conventional VOD service - a bonus to content providers.
One of the greatest unsolved challenges of digital content distribution over the Internet is preventing piracy whilst not
disadvantaging consumers. Bluebox understands this is a major hurdle to mass consumer adoption of online content, and,
in response, utilises industry leading Digital Rights Management (DRM) that is acceptable to major studios. We believe that
evolving DRM standards will remove the major hurdle of achieving consumer acceptance of digital rights, allowing the
proliferation of digital content in the home, and providing the best protection of content providers’ intellectual property.
To meet these requirements from the content providers, Bluebox has signed a partnership agreement with Verimatrix, one
of the world’s leading independent DRM developers who has obtained approval for their DRM from studios. This
partnership provides not only access to Vertimatrix’s DRM for our system, but also gives Bluebox a strong technical and
commercial partner through which we can together develop and implement a more open DRM aimed at the needs of our
customers as well as protecting content providers.

Competitive Outlook

“Bluebox and other VOD solutions in the Australian market”

Several products attempt to fill this space in the local market (such as Bigpond Movies, Anytime and Reeltime).
Unfortunately these have so far failed due to an overwhelming perception by consumers that they are expensive, that there
is a lack of real choice in the available content and the interface is hard to use. In short they offer no real advantage over
renting a DVD from the local Blockbuster.
Bluebox has addressed these limitations with a consumer offering that is cost neutral, and can solve the problems of the
user interface and DRM. Bluebox has an opportunity to successfully compete with Internet VOD systems like Bigpond
Movies, but can challenge the far larger market of DVD rental and Free to Air TV.
• Bluebox is developing a set top box (STB) designed specifically for Telco’s and ISPs to market VOD to the mass market
independent of a PC.

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• Bluebox has a vast and growing array of content, including, the major studios but also independent and niche content.
Bluebox is not solely a VOD business, but provides VOD as one of its product offerings.

Path to Market

Beta Trial (limited commercial release)

Bluebox is conducting a public Beta Trial of its system beginning in Q1/Q2 2009 in Australia. For the trial, the system will be
released to consumers on an invitation basis as a free software download, known as Meander, run on broadband connected
PCs and Macs. By using Meander consumers can browse from a large library of movies, music and TV shows and take
advantage of “Paid for View”.
The trial will be limited to between 20,000 and 50,000 users over three months, to be followed by a full-scale commercial
release in Q2/Q3 2009. Bluebox is working with several major ISPs in Australia to deliver the service on an un-metered
download basis, allowing consumers to use Bluebox as much as they like without impacting their monthly download caps.

Full-scale commercial release

Data gathered in the Beta Trial will be used to plan how the Bluebox infrastructure system will need to be scaled up in order
to meet growing demand under a full release in the Australian market. This full release will be used to fine tune the system
and prepare our product before addressing far larger international market opportunities.

Digital lifestyle product commercialisation

Bluebox’s agreement with Intel Corporation provides a development pathway for Bluebox to bring Bluebox embedded
Consumer Electronics (CE) hardware to market. This process is already underway, with the objective of co-ordinating the
availability of consumer hardware with Bluebox’s international launch.
Bluebox has current designs for a family of consumer electronic devices that support the Bluebox platform. Details are
contained in the Technology Addendum.

International launch
This is scheduled for approximately three months after the full-scale commercial release in Australia. The International
launch will begin in the Singapore and the United Kingdom followed by rollouts into markets where broadband adoption
rates are high.

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Investor Analysis
Capital and Investment Structure

The purpose
To provide Bluebox with the capital required to complete product development and technology protection for
commercialisation, both domestically and internationally

The Offer
Bluebox is now entering a capital raising round for AUD20 Million, sourced from Australia, Asia and the United States. This
will be used to complete software development and its protection, followed by the Beta Trial subsequently enabling Bluebox
to stage the commercialisation first domestically then internationally.
Bluebox is offering equity investment opportunity by private placement for 200 million fully paid shares at AUD0.10c to raise
AUD20m. This will be done via three calls on the share capital scheduled as follows:
• 40% on application,
• 30% Q2 2009,
• 30% Q3 2009.
The first call scheduled for Quarters 3 & 4 of 2008 allows for the completion of Bluebox systems together with their
protection, and for the Beta Trial and launch.
The second call in late Q4 2008 is to fund the expansion of back end systems and infrastructure to support the growth in
customer numbers.
The third and final call schedule for the beginning of Q3 2009 will be utilized for international rollout.
Bluebox have a signed Memorandum of Understanding with Intel, where Intel will take an equity position. In addition,
negotiations have commenced for a further Intel investment of USD20-25m to support international rollout of Bluebox post
the Beta Trial
Bluebox’s current major shareholders share structure register is available upon request.

Exit Strategies
Bluebox anticipates an exit opportunity for investors, either by trade sale or listing, within three years. Currently three
distinct opportunities have been identified
• Six months after the start of the Beta Trial, Bluebox will have demonstrated revenues and have proven its business model.
These will enable Bluebox to list on either the ASX or AIM.
• Subsequent to this initial listing opportunity, and once Bluebox has completed six - twelve months of operations outside
Australia, it will be well positioned to list in the United States, on either the NASDAQ or NYSE, or proceed to the LSE to
bring the company into the major international exchange boards.
• Bluebox anticipates a third option through a trade sale, which, if commercially reasonable, could provide investors a
further opportunity to realise investment returns.
The final decision as to whether IPO or trade sale is adopted will depend on the business position, market conditions and
ultimate returns to investors.
To assist in expansion Bluebox may seek Joint Venture partners in OECD countries or markets entered, and invite local
institutional investment into the JV to conserve funds and devolve risk for Bluebox.

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Earnings Potential
Note: revenues are quoted in Australian dollars.

The Australian and International Markets

Bluebox revenue streams have been predicated on achieving 35% share of the Australian domestic Broadband user market
over a five year period using a standard technology product adoption curve. This equates to 1,070,000 users by the end of
2012. Bluebox has, for the purpose of this analysis, not attempted to predict the growth of broadband in Australia, which
would add to the revenue streams identified beyond that used in the financial modeling.
Internationally Bluebox has identified a potential user market of 40 million, which would result in a predicted user base, over
a four year period, in excess of 7.9 million users.
Revenues have been based on AUD1 per ad viewed, from which the consumer gets a notional credit to hire or purchase
content. Consumption has been based on highly conservative average per user consumption of:
• two TV program per month
• two old Videos per month
• four songs per month,
• one new video release every two months
• and one downloaded music Album per year.
While some individual usage is expected to be much higher, the Bluebox model is averaged across all users. The user
behaviour consumption estimates above are based on existing research. The Beta Trial will assist in refining these usage
patterns further.

User Base, Revenue and Profit Projections

Bluebox Users – in ‘ 000s
Country FY – 2008 FY – 2009 FY - 2010 FY - 2011 FY - 2012
Australia - 101.6 832.9 944.1 1070.2
International - 28.5 3033.1 6068 7925.1
Total - 130.1 3865.9 7012.1 8995.3
Revenue: AUD275 revenue per user per year:
Revenue $ Millions
Country FY – 2008 FY – 2009 FY - 2010 FY - 2011 FY - 2012
Australia 13.3 123.8 175.8 151.1
International - 2.6 211.0 1231.1 1282.0
Total - 15.9 334.8 1406.9 1433.1
Note: the churn factor of 3% per month impacts revenue once growth levels off with the technology adoption curve.
Profit $ Millions
FY - 2008 FY – 2009 FY - 2010 FY - 2011 FY - 2012
Bluebox -4.9 -10.8 27.2 174.0 142.3
Note: in year 2012 two Tax payments, for years 2011 & 2012, have been factored in for the purpose of this analysis
The user behaviour consumption estimates above are based on existing market research conducted by Bluebox. The Beta
Trial will assist in quantifying and qualifying the estimated usage patterns.
Content and Ad supported revenue has then been adjusted for demographic and socio-graphic purchase behavior. In
addition a 3% per month churn (drop off) rate has been applied to the user population.

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Conservatively the Bluebox model would generate gross revenues of AUD275 per user per year in revenue. A more
comprehensive assessment of the potential revenue of Bluebox can be gained by running scenarios on the Bluebox financial
model, which will provide a more detailed assessment of the potential revenues and subsequent profit for Bluebox. The
financial model will be made available to investors under supervision by Bluebox.
Bluebox has been structured to deliver four distinct and complimentary revenue streams.
The four revenue streams are:
• Retail of digital content via Meander to the consumer – (included in the financial model)
• Advertisers paying to advertise on the Bluebox system to reach their target market - (included in the financial model)
• The supply of campaign information back to the advertiser once a critical mass of Bluebox users has been established.
This will present advertisers with a unique opportunity to analyse viewer response and preference in detail and utilise this
information to improve campaign effectiveness and targeting - (not included in the financial model)
• The fourth stream relates to the sale, licensing and joint venture revenues concerning the development and sales of
digital lifestyle products. This revenue stream is yet to be fully researched and quantified but will contribute significantly
to Bluebox’s profitability - (not included in the financial model)
Only the first two (retail content and advertising revenue, being the more immediately realizable and major revenue streams,
have been utilised in the preparation of this information memorandum.

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Assumptions Driving Sales and Market Penetration
Key factors in estimating sales volume relates to discretionary interest (purchase) from Generation Y, X and Baby Boomer
markets across innovator, early adopter and early majority buyer behaviours. These segments represent half the population
of a first world geographic market.
New technology adoption rates over time for comparable products and applications have been used in predicting the take
up of Bluebox- the technology product adoption curve referred to previously.
In practical terms the drivers for these groups are:
• Strong response to Innovation or level of improvement over incumbent product (TV, DVD, and illegal file sharing)
• Cool factor/sex appeal (design and presentation)
• Entry price sensitivity for Early Majority (34% of total market) – has to be the right price – Free has proven highly
successful
By making Bluebox a free software product, it eliminates the capital burdens of a hardware driven market entry. This
strategy also provides a very low barrier to entry for consumers.
“Free” has been the hallmark of the most successful Internet based products, a proven pre requisite to drive rapid adoption
and a leading market position. Providing a free product also allows Bluebox to quickly build a ‘ready made market’ into
which we can licence our digital lifestyle products with far lower commercial risk to Bluebox and consumer electronics
licences.

Content consumption by the individual user

The vast majority of Bluebox revenue is from the consumption of content and advertising. Consumption of content, and
therefore advertising, is completely dependant on the consumer’s individual behaviour. This is because content is ‘pulled
down’ by the consumer rather than ‘pushed out’ via broadcast.
The scenarios presented below demonstrate very different user behaviours that highlight the relationship between how
content and advertising are consumed, and how it affects Bluebox profitability.
The key variables in revenue generation are: to what extent content consumption is funded through ad viewing; and how
much content an individual consumes.
Bluebox has conducted detailed user consumer surveys to understand trends in individual consumption and how they
would use ‘Paid for View”.
The consumer population has been broken down in to four distinct viewing behavioural groups, these being:
• Group A. –customers who will consume only ad supported content, representing 10% of the total viewing population.
• Group B. –customers who will consume predominantly ad supported content, representing 80% of the total viewing
population.
• Group C. –customers who will consume predominantly purchased content, representing 5% of the total viewing
population.
• Group D. –customers who will consume only purchased content, representing 5% of the total viewing population.
Groups A, B, C and D encompass consumers from each of the Generation Y, X and Baby Boomer profiles.

The Teenager – Gen Y

In consuming digital media content Teenagers (mostly Generation Y) overwhelming indicated that they like the control and
discretion over advertising that Bluebox provides, and would in most cases use the ‘Paid for View’ system to completely
support their purchase of content.

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The Gen X-er
Generation X-ers are critical, suspicious, want ownership and control, are notoriously hard to target as a market segment,
and love cult and retro movies, TV, and music. Generation X-ers have indicated that they will use a mix of both ‘Paid for
View’ and direct purchase of content.

The Baby Boomer

This market will consume the least amount of advertising and generally have the means to purchase what they want.
To this generation, the ‘long tail’ content available is particularly appealing. Judicial use of advertising to this market,
especially when targeted with a high degree of certainty, is the ‘sweet spot’ particularly for big-ticket items like cars, holidays
and investments which Bluebox will charge advertisers a premium for.

The potential upside of free

‘Paid for View’ is the tipping point for mass consumer adoption of Bluebox. Free access to a diverse range of content
generally increases the rate of consumption. The impact of this is potentially very powerful making a significant boost to
Bluebox revenue. Market research indicates for the majority of consumers, ‘Paid for View’ would see them increase their
content consumption over DVD rental anywhere between four to ten times.
It‘s important to note the power of ‘Free’ and its relationship to the potential upside of Bluebox Devices. ‘Paid for View’
allows cost neutral consumption of content by the end user. Analysis and surveys indicate the availability of ‘Paid for View’ to
offset the cost of content consumption increases the rate of consumption by a factor of 10 for Gen Y, a factor of 6 for Gen X,
and a factor of 4 for Baby-boomers.

Verification of pricing assumptions

Bluebox Devices has sought industry verification of its business model. Feedback from advertising leaders and media
distributors based in Australia and the United States as well as CE manufacturers and retailers, has been actively sought. This
feedback and proved very beneficial and encouraging.
Former chairman of Ogilvy & Mather advertising, Renny Cunnack, has examined the concept of ‘Paid of View’, and together
with a number of advertising experts and leading executives support the concept of Paid for View and its fundamentals.
Further investigations and validations of pricing assumptions, particularly in relation to the advertising pricing has been
done through a comparison with web products including Google AdWords. This research has been combined with detailed
discussions involving Bluebox’s advertising industry partners, Starcom, ZenithOptimedia and J Walter Thompson.
The Beta Trial will be used to refine and confirm the price sensitivity and consumption patterns by demographic profiles.

Investment Analysis
The assumptions and forecasts in the financial model are based on industry norms where available. Where none exists, or is
accessible, research has been undertaken by Bluebox.
The most critical assumptions and information effecting Bluebox’s understanding of the likely performance of the business
relate to three key questions:
• how much content consumption is funded through ad viewing,
• how much will an individual consume,
• and how many consumers will Bluebox have?
These are addressed both below and in detail in the financial model. A listing of assumptions and data used to develop the
Bluebox financial model is available for examination. The Model is available for the execution of ‘what-if’ scenario under
supervision upon request.

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Approach to scaling growth
The philosophy of ‘Paid for View, as a more efficient commerce system, unlike other Internet and Dot.com companies, will
generate revenue from every transaction from day one.
‘Paid for View’ generates a strong cash position quickly, giving Bluebox the capacity to grow steadily as each user generates
revenue. This will ensure that Bluebox is able to grow from its own financial resources, beyond the capital raised under this
IM to enter the market.

Timing of revenue streams

Bluebox will start generating revenue from the Beta Trial onward, as it is a full commercial trial. Next will be commercial
release in the Australia market, and then an international market.
The international release, commencing with Singapore or the UK, will be followed by the first hardware related revenue
stream, being the Convergent Media Adapter (CMA), subsequently followed by the launch of both hardware and software to
subsequent markets like Japan and the USA.
Although Bluebox does intend to move to many more countries, such expansion is too far into the future to be reliably
included in our forecasts. Future expansion is intended to be cash flow funded.

Returns expected and breakdown of the basic revenue

streams

Retail Media Sales and ‘Paid for View ’

Bluebox expects to generate an average Revenue of A$275 per user per year. 85% of content consumption is expected to be
supported by the viewing of advertising via ‘Paid for View’. The Bluebox revenue is split into two streams.
Stream 1 is Advertising, the average users will consume $137 + per year with a 27% contribution.
Stream 2 is content hire and sales being $139 with an average 15% contribution. Within this figure 15% will be direct
purchase of content supported by credit card.
As the content consumption have to date only been verified by a small sample they have been discounted by 60% for the
sake of this analysis so as not to over value the outcome.
The initial limiting factor to market penetration will be suitable bandwidth and availability of hardware to enhance the
viewing experience. At present there are 3.5 million Australian households connected to Broadband. Bluebox will target G9
ISP (not Bigpond), which have the flexibility and motivation to implement Bluebox, and subsequently target Telstra’s clients
as Telstra’s bandwidth grows.

Where does the Revenue come from?

Advertising revenue will generate 63% of Bluebox’s gross contribution. Bluebox will nominally charge advertisers a rate of $1
per impression of which 30c is net ‘Paid for View’ revenue for Bluebox, and 50c is directed to the consumer’s media account
for content purchases. The viewing of seven TVCs yields a credit of $3.50 (enough to rent a new release movie) for the
consumer, and $2.10 ‘Paid for View’ contribution for Bluebox, plus a $0.52c contribution on content.

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Critical factors effecting revenue streams
Building, maintaining and improving a strong consumer product is essential to generate a large and growing audience to
offer advertisers. Bluebox needs to achieve a critical mass of users to be considered a viable advertising medium. In Australia,
this is believed to be a market of 500,000+ users.
The larger Bluebox’s user base, the more valuable it is to advertisers. A strong consumer product will also encourage
increased individual consumption, which hinge on three factors: Free, easy to use, and a diverse array of content.
Revenue from hardware and software licensing are expected to contribute starting in years two and three (currently
excluded from the financial analysis, as the details have not been finalised). While content retailing and hardware and
software licensing may appear relatively small they are critical business components, as they broaden the Bluebox market
appeal by being able to ‘enter the living room’ to compete directly with broadcast TV and DVD rental which is a far larger
main stream market with broader demographic representation.
A critical factor to drive Bluebox growth beyond use on PCs and Macs though Meander software, will be achieved by getting
the CMA adaptor and or STB (set to box) into the market. Doing so will generally broaden Bluebox’s product appeal (as it is
more capable), and open up markets for mainstream consumers who see access to content though computers as to difficult
and awkward. A detailed description of the Bluebox hardware offering is contained within the Bluebox Technology
compendium.

Forecast Scenarios (supplied on request)

Risks
Every endeavour has been made to identify and manage the key risks to Bluebox of technology, management and market.
Identifying risks to our business has helped discover limiting factors and roadblocks.
Immediate and medium term risks that Bluebox faces are summarised below (a comprehensive analysis is contained in the
document titled “Bluebox Detailed Description of our Business, Appendix 1”):
• Securing commercialisation capital in a timely fashion to ensure market entry on schedule.
• Delivering the Technology to market in a timely manner.
• Building a large content library – the diversity of our content library is critical in the offering of media people want
to see and hear.
• Securing advertisers – which directly affects the value of our product to the consumer, and to content suppliers
and advertisers.
• Securing commercial relationships with companies such as Internode and Optus to deliver over 1,250,000
potential users of the Meander application.
• Legislative blocking and lobbying from the TV industry – may slow down large scale implementation marginally but
will be a defensive move on their part.
• Competitive Risk – Bluebox is aiming to compete in consumer terms with principally the DVD rental, then Cable
and Free to Air TV markets. These markets are dominated by large and well established players. However given
that Bluebox is coming from the Internet, it is likely we will not be perceived as a direct competitive threat.
• IP – Success for Bluebox Devices will depend largely on its ability to obtain the use of patents, typically to support
licensing and to head off “Me too products”.
• No assurance can be given that the value of the intellectual property rights will be completely protected by a
combination of copyright, trade secrecy laws, patent, confidentiality and other intellectual property rights.
It is prudent for investors to make an investment only after considering the risks involved. The forecast returns are
connected to the risks of introducing a new product to market and developing a new business and is contingent on the
company’s success. Investors should undertake due diligence to their satisfaction before making an investment in Bluebox.

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Here at Bluebox we have the potential to reshape the global Advertising and Video industry with
our innovative business offerings.

By providing our consumers the ability to watch what they want, when they want, and on a cost
neutral basis we have created a unique commercial relationship of benefit to consumers,
content providers and advertisers alike.

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