Final Paper CIMA

CIMA
Global Business Challenge 2010-2011 CIMA 2010-2011

NewBee Consulting Team
VYP CONSULTING
THE CASE STUDY CONCERNING CERTAIN ISSUES ABOUT VYP
This report is prepared by Team: NewBee Consulting From: Shanghai JiaoTong University Team member Team leader: Liu Junjie Team member 1:Xue Yibin Team member 2:Nong Yuxin Team member 3:Zhou Wei 13916984777 13818049615 13524712121 15021657161 Mickey900504@hotmail.com Stella_xue@hotmail.com Circlenong@yahoo.com.cn Zhouwei19891212@yahoo.cn
Dear Mr. Steve Voddil and John Young It is a privilege for us to present the revised copy of the NewBee business plan. After studying every detail of your case and scenario, we got an overview of your companys financial situation, marketing strategy, and organization structure, profit figure, customer growth etc. We immediately throw ourselves into the analysis of certain cases. After 2 weeks hard working and discussion, we finally get the clear image of VYP, and present our analysis and recommendations in the following report. In the report, we analyze the advantages and disadvantages of three proposals that your board has given in detail, according to which we give our recommendations on each proposal. We also mentioned some important details that VYP has to pay attention to. It is set up according to the present situation of VYP. Consequently, we have fullest confidence in this plan, which we think could help your business head forward to the destination of success. So once again, thank you for your attention to this project and we are truly grateful to have gone through this experience.
Best wishes, NewBee consultant group
CIMA (Chartered Institute of Management Accountants) T. 400 820 4080 E. gbc.china@cimaglobal.com Web. http://gbc.cncima.com
Contents
A. Introduction B. Terms of Reference C. Prioritization of Key Issues D. Analysis and recommendations of Issues I. ETN Proposal
i. ii. i. ii. i. ii. i. ii. i. ii. Analysis Recommendations and Perspective Analysis Recommendations and Perspective Analysis Recommendations and Perspective Analysis Recommendations Analysis Recommendations
II. GTN Proposal
III. The Chinese CNN Proposal
IV. Other Issues
V. Ethical Issues
E. Conclusions F. Appendixes
I. Appendix 1 -- SWOT Analysis of VYP II. Appendix2 -- Extracts from VYPs statement of comprehensive income
A. Introduction
Recently the UK Broadcasting Authority has relaxed the application of TV broadcasting regulation that all legal entities can apply for TV license in UK and the major European communities. Despite the fact that there is no special requirements to the application, it is expected only a few applications will express interest, due to the heavy capital investment and the uniqueness of business, that ultimately only very few potential candidates are able to get into the final assessment process. V and Y Productions (VYP) is an independent TV production company established in 2003. VYP was facing the chance to enter the TV operation industry, and three proposals, ETN (Entertainment Television Network), GTN (Global Television Network) and the Chinese CNN, has been discussed through three board meeting. As an independent business consultant team and a qualified member of CIMA, we are honored to give our analysis and recommendations to the new development of VYP. Using the SWOT analysis (Appendix1) of the whole company, we will have a clear image of the situation of VYP.
B. Terms of Reference
As a consultant to the VYP, our team is required to analyze and give recommendations on the issues which VYP must address. In the following report, our team priorities and analyzes the issues facing VYP and makes our recommendations.
C. Prioritization of Key Issues

Considering VYP presently got three proposals to be determined. We prioritize issues as follows. The ETN proposal comes first, because it deemed to be the most important and easy-handled proposal for VYP to be operated as an independent TV operator. And it seems to bring VYP great profits in the near future. The GTN plan is the second one to consider, since it will be marketed as bundle with ETN, which means both channels share the same audience, but it acquires more origin costs. The last proposal, the Chinese CNN, could be seen as a replacement of GTN in the international market, especially in the Asian Market. Some other issues and ethical issues should also be taken into consideration and is shown in the latter part of our report.
D. Analysis and recommendations of Issues
I.
ETN proposal
i. ANALYSIS
a. BCG MATRIX According to the analysis of margins by program genre, we get the BCG matrix as follow. STARS (International sale and documentaries) QUESTION MARKS (Drama and news) CASH COW (Comedy and entertainment) DOGS
About cash cow -- we can see clearly that entertainment and scripted comedy are VYPs cash cowthey have high market share and they both can bring big cash flow into the company, while we can see in the case that these two genres are mature. So with high market share and low expected growth rate, we can classify them as cash cow. Now with the companys goal of being an independent TV operator, they should make full use of these mature resources. About stars documentaries and international sales are already making a great profit now, while concerning about the history of the company, we can still have faith in their
High Growth Rate Low High
Market share
Low
growth rate. So they are certainly put into stars. As for stars, we highly recommended that the company should put more money into them and we believe that with proper management, they can get the company a good return. About question marks from the information we have now, we suppose drama and news are going to grow rapidly. But the company still cannot be too optimistic, drama and news need a lot of operating costs and we are not sure they can get a good payback within a short time. So we suggest that the company should keep an eye on these two genre and make separate accounts to control cost and risk. About dogs the company is growing right now so there are no dogs in short period of time.
b. Ansoffs Matrix
Current products Current markets New markets Market penetration

(selling successful programs to other TV broadcast companies)
New products Product development

(operating the company as an independent TV operator)
Ansoffs matrix
Market development
(broadcasting VYPs good-reputation programs on their own TV channel, such as drama series, general entertainment and documentaries)
Diversification
(broadcasting special programs on their own TV channel , such as entertainment news, drama series, general entertainment, music video and on-line TV marketing )
From the Ansoffs matrix, we have a different view to observe VYPs operation. VYP should try their best to make their operation and programs distinctive. VYP can seize this opportunity to develop their own TV operator and make new programs. In their positive atmosphere, the team can come up with new ideas and make them come true. They can never forget their innovation or it will look like any other TV operator. The other companies can be impelling competitors if VYP loses this opportunity.
c. Financing part
According to VYPs current finance statements and the predicted income of ETN, we can assume that it will be balanced during the first two years. Without the pressure of returning debt the first two years, the company could focus on their brand-building. So from the third year the company can make profit and begin to pay off the debt. And we get this VYPs statement of comprehensive income based on the related information from the financial year ended March 2010. Assumptions: 1. The percentage of subscription fee, advertising fee and on-line marketing revenue is 30%,60% and 10%. 2. Indies make up to 80% of the total programs
3. Indies cost 10% more than those homemade programs. 4. The cost is based on 2009 statement and we assume that every kind of programs count the same percentage as in 2009. 5. The growth rate of ETN is expected to be 20%. Related calculations: About revenue
item Subscription fee Advertising fee On-line marketing revenue Total revenue calculation 150,000*50*12 90,000,000/0.3*0.6 90,000,000/0.3*0.1 result 90million 180million 30million
90+180+30
300million
About costs Regular cash expenditures: 12million Total hours of homemade program: 6h*365d*0.2*52/60*4/7=216.9 Total hours of indies program: The detailed process is as follow:
Indies cost per hour documentaries drama 184.1 426.3 Homemade cost per hour hours of homemade hours of indies homemade costs ( 000) 10,785 10,978 indie costs ( 000) 47,934 48,789 Total costs ( 000) 58,719 59,767
6h*365d*0.8*52/60*4/7=867.66
165.69 383.67
65.09 28.61
260.37 114.45
comedy entertainment total/average
251.4 122.9
226.26 110.61
74.03 49.18 216.91
296.13 196.71 867.66
16,751 5,439 43,952
74,448 24,175 195,346
91,199 29,615 239,299
Total cost of making programs: 239.30million Total operating cost: 251.30million Finance cost: From the third year, VYP Company should pay back their debt 10.33million per year. ii. Recommendations and Perspective
Advantages and disadvantages 1. ETN has a high growth rate (20%). Advantages
2. ETN focus on what the company is good at, so it has a lower risk compared to the other proposals. 3. This proposal has more complete information and figures. 4. The capital expenditure is small compared to the other two proposals. 1. The resource of financing is simplex. It only relies on Disadvantages debt and it can be a huge burden for the company when the situation is not as good as we hoped. 2. The company may grow too fast during the first few years and the management may face some difficulties. 3. With too much debt to pay, the currency may be not enough and this can result in big financial problems. Recommendations 1. About the percentage of different source of programs For the first few years, the company is short of equipment, staff and capital, so we suggest that VYP should buy most of their programs from indies, in the statement before we assume it to be 80% of the total programs. In this way ETN can have enough programs and have enough time to update the equipment. After an amount of time, ETN will grow to a channel with reputation and enough cash flow. That is the time when they can make more of their own programs.
2. About financing According to the analysis above, we can see clearly that ETNs biggest weakness is the lack of money which results in a series of problems like hiring people and buying equipment. To solve it, we suggest that VYP search for more ways of financing, like investment trust, angel-investor, venture-investment or get listed on FTSE. And we recommend that VYP should sell some of their shares to the staff, in this way can they feel more recognized and attributive. 3. About human resource Because of this opportunity, VYP may expand rapidly in the next few years. This may cause a lot of management problems like lack of HRs and other managers. We highly suggest that VYP should hire more HR and accountants to keep up with the changing of company structure. The managers should also keep an eye on their own team members; encourage them to do more for the whole team. 4. About test-run TV operator is a whole new role for VYP, so we suggest that they should do surveys before they run the channel. And when they are prepared they should run a test-run and make more analysis based on the information from it. The company can find more problems and get more experience from the test-run.
Perspective
ETNs subscription fees will be expected to grow at a rate of 20% per annum from an estimated start of 150,000 households from the third year. ETN will not expect to achieve significant growth in both advertising and subscription revenue in the first two years. But during that time ETN would broadcast some goodquality programs to gain reputation. In the coming few years, ETN will be developed to a basic channel which has a larger advertising and subscription market.
II.
GTN Proposal (the more aggressive plan proposed by Steve)

i. ANALYSIS
First of all, we NewBee Consulting team has done a feasibility analysis of the GTN proposal to see every aspect of this proposal, trying to figure out whether this proposal is feasible in the near future.
Feasibility Analysis of the Proposal A. Preface, Historical background, the description of the proposal 1. Current business status Therere already two magnates in the business, the BBC and the CNN. 2. Description of the proposal The proposal is more aggressive, somewhat like to develop a second channel in addition to the ETN channel, the GTN channel, in short for Global Television Network, which will position a neutral point of view. It will be a 24 hours news channel operated like BBC or CNN. 3. Advantage of the proposal Most of the current existing news channels broadcast from a western point of view, whereas VYPs going to do from a neutral point of view. 4. New product list The new product different from the previous ETN proposal is the news channel(GTN). 5. Advantage & Disadvantages of VYP see Appendix 1 (the SWOT analysis of VYP) B. Management

1. VYP has 60 staff currently, including 44 professionals & technical in program producing and 16 human resources/ accountants. 2. Due to the planned expansion of VYP, a variety of technical as well as managerial staff should be recruited. 3. Due to the planned expansion of VYP, a variety of equipment should be invested in, including 6 editing suites, one computer graphic room, satellite room, broadcasting software, a small studio plus a series of broadcasting equipment. C. Marketing 1. Target market: Local market ( the Britain market) 2. Pricing Strategy: The subscription fee for the two tie-in channels will be set at GBP 75 per household, in hope that these two channels can market better together than isolated. D. Financial Status 1. Initial cost: GBP 10 million ( for equipments and hardware invested) 2. Operating cost: additional GBP 1 million per month ( besides the GBP 1 million per month for the entertainment channel) 3. Loans: additional short term loan of GBP 20 million, principle payable in three years time, interest at 12% per annum, which we think can be repaid by GBP 8.33 million annually for three years. 4. Tax: an income tax at the rate of 30%
Secondly, we will show a 3C Analysis on the GTN proposal, to illustrate the characteristics of the proposal from three different aspects
ii. Recommendations and Perspective From the two models above, we NEWBEE consulting team has concluded the advantages and disadvantages of this proposal. Also well give our recommendations as well.
Advantage
1. The GTN channel can be sold as a bundle with the ETN channel, which can promote the popularity and reputation of VYP. 2. The news channel is broadcasted in a fresh new point of view, which is likely to be a unique selling point. 3. The target market is quite extended while the number of competitors is relatively small. Disadvantage 1. VYP lacks the experience in the news broadcasting business. 2. The initial investment is too big for VYP to keep its cash flow stable, and it may results in a huge pressure in the company. 3. The data collected is somehow insufficient, which makes the future development of the proposal uncertain. Recommendations 1. We highly recommend postponing this GTN proposal. This proposal can only be put into practice when the entertainment channel goes in to its maturity and when VYP has enough cash flow. 2. We also recommend VYP to seek different channels of financing in order to get abundant funding (about the details of financing please see the Recommendation part of the ETN proposal) Perspective We NEWBEE consulting team dont feel promising about this GTN proposal. We can just say that if VYPs got effective financing for this GTN proposal, it can be developed and get mature in three years; otherwise we dont think this GTN channel can be put into practice.
III.
The Chinese CNN proposed by Tom

i. ANALYSIS
Just as Toms prediction, the Chinese CNN really has some strong points, such as its innovative perspective to broadcast the news and vast potential news market; while this proposal still has its unique weak points, which may bring about a total failure to the whole project if not well controlled. In order to get a comprehensive knowledge of this project and advance our sincere and elaborate recommendation, we use three
consulting tools to analyze the Chinese CNN, including SWOT Analysis, PEST Analysis and ADL Matrix. More details are as follows: 1. SWOT Analysis for the Chinese CNN project Strength Weakness 1. Innovative perspective 1. Shortage of capital 2. Specific direction--2. Narrow revenue news streams 3. Rich human resource 3. Lack of senior TV 4. Small initial investment operations personnel 5. Good future planning 4. Unfamiliar Chinese 6. Good cooperation Market relationship with other 5. Low initial company media companies popularity Opportunities SO WO 1. Chinas reform and 1. With active market 1. Cooperate with opening up research, adapt Chinese government 2. Pay TV becomes Chinese CNN to media to increase market more acceptable in environment as soon share China as possible 2. Recruit excellent local 3. Rapid development 2. With rich human staff to promote news of network in China resource, expand market 4. Media market enjoys revenue sources 3. Search for additional a strong vitality in 3. Try to find a unique investment to develop China development model for Chinese CNN Chinese CNN Threat ST WT 1. Complex media 1. Adhere to the Oriental 1. Increase source of environment in view to broadcast news news to cater various China, difficult to 2. Actively organize tastes adapt charitable activities to 2. More cooperation with 2. Fierce competition enhance Chinese local media from Chinese TV, CNNs image companies even monopoly 3. Establish feedback 3. Focus on copyright 3. Weak copyright mechanism to meet protection protection audiences news needs mechanism for news in China From this SWOT Analysis, we can get a better understanding of Chinese CNN in China. And this diagram can help VYP make more informed decision. But there are still some urgent aspects which we cannot find out from SWOT, so we use PEST Analysis to supplement our analysis.
2. PEST Analysis for the Chinese CNN project
Political Factors
We should firstly acquire standard business license and other relevant certificates. In China, copyright protection becomes more and more important, which can help media companies develop. Chinese government holds a friendlier attitude to foreign media than that in ten years ago. With Global Financial Crisis fading, media market in China enjoys a quick recovery. In China, the media market has been mostly dominated by state-owned television stations, such as CCTV. Modes of news transmission go into diversification, including TV station, network and radio. With more and more people interested in global news, VYP can enjoy a large number of audiences. With Engel coefficient reduced in China, more and more people can afford pay TV. In China, reform and opening up arouses Chinese interest to know the world. While news broadcasting is an important methods for information exchange. Chinese have enjoyed a great improvement of education level, which will promote the development of media industry.
Economical Factors
Sociocultural Factors
Technological The development of information technology will absolutely Factors facilitate the news transmission. Since network becomes easily accessible for Chinese, a few people may be willing to pay for a TV station. With the constant improvement of copyright protection going, media companies can enjoy a safer and more comfortable environment. According to the PEST Analysis, we can find more knowledge about Chinese media industry. Considering these four factors, we can draft more suitable strategy for Chinese CNN. After SWOT and PEST Analysis, we have got a relatively comprehensive understanding of Chinese CNN as well as Chinese media environment. So we put forward the third method ------ ADL Matrix to show our prediction for Chinese CNN.
3. ADL Matrix for the Chinese CNN project
More details for this ADL Matrix: During Embryonic Age, since Chinese CNN has small scale, and lacks of capital, Chinese CNN develops at a slow speed, and covers a small market share. Whats more, as a newcomer, Chinese CNN is unfamiliar with China media market as well as Chinese audience, so this company may encounter some difficulty, and its life-cycle is a little lower than natural development during this stage. When the media industry steps into Growth Age, the whole market enjoys a booming development, including Chinese CNN. At this time, Chinese CNN gradually enter the normal operation of tract, and it has established a certain reputation in media market, so Chinese CNN gets a rapid development both in company size and in company strength.
As a result, its life-cycle shows a faster development than natural development during this stage. After the media industry enters Mature Age, the whole market goes into a stable period. And more and more competitors hinder the further development of Chinese CNN, so Chinese CNN should seek changes in marketing as well as corporate strategy. If well changed, Chinese CNN can find a distinct differentiated competition strategy. At this stage, its life-cycle takes on a slow growth. Finally, when media industry goes into Aging age, the whole market environment has become worse and worse for companies and TV stations to live in, Chinese CNN needs to conduct more profound changes and seek for new market in order to pursue further development. But as far as we are concerned, the media market will not enter into its Aging age in a short term. So Chinese CNN continues a slow growth in its life-cycle.
ii. Recommendations and Perspective From three professional analyses, we can conclude the following summarily diagram. In this diagram, we make a summary from four aspects, which is as follows: Advantages 1. When compared with the other two proposals, the Chinese CNN needs the least initial investment, which will alleviate the economical pressure for the company. 2. Since the location of Chinese CNN is China, it will have a huge potential market, which may lead to a bright future for Chinese CNN. 3. Chinese CNN has a rich human resource, and some media conglomerates in Hong Kong and Taiwan are eager to co-operate with Chinese CNN. 4. Chinese government has changed its attitude to foreign media, from resistant to friendly, so Chinese CNN can seize the chance to rapidly occupy the media market in China.
Disadvantages
1. Since Chinese CNN specializes in news report, the station revenue has narrow streams. 2. Though Chinese CNN has rich human resource, it still is unfamiliar with Chinese media market and environment. 3. In China, the media market has been mostly dominated by state-owned television stations, such as CCTV. So Chinese CNN has to compete with these media magnates. 4. Chinese CNN suffers from shortage of capital, which will absolutely inhibit its development in China.
Recommendations 1. Since Chinese CNN lacks of enough capital, the company should broaden the sources of funding. Chinese CNN can get funding through Venture Capital, and company also can raise money within company. 2. Chinese CNN should actively cooperate with local TV stations, which can not only promote early development of the Chinese CNN, but also reduce unnecessary competition. 3. Chinese CNN can conduct some market researches to understand what Chinese people are interested in news, and then decide what news should be given extra emphasis. 4. In order to expand the Chinese CNN visibility and influence, Chinese CNN can organize some public activities with communities and schools. Perspective If Chinese CNN can accept our analysis and follow our recommendations, then make wise decisions when facing with difficulties. Chinese CNN is very likely to succeed, and become a foreign media leader in China. If everything goes well, just as Tom said, this business model can then apply to other bigger communities like French speaking nations or Spanish speaking nations. Finally, VYP will become a news media leader in the world.
IV.
Other Issues
1. Getting listed in FTSE. In that way, VYP can get enough money to satisfy their wildest dream and money wont be their problem of expansion. 2. Expansion of the company. VYP should hire more employees involved in HR, finance, administration and contract handling work. With the professional part, VYP should hire some experienced programme-making people to train the young staff. 3. Cooperating with websites. VYP should sell some of their programmes to the website such as youtube. VYP can gain much reputation through this and they should expect too much net income from this.
V.
Ethical Issues
1. Charity and Community work We strongly recommend VYP to insist in doing charity and community work, because it could be a message VYP delivered to the whole society that VYP has made great dominant to it. The actions could be another good way to gain more audience. 2. Public good advertisement VYP could broadcast some public good advertisement in the channels. 3. Wellbeing of staff Facing the quick expansion, VYP also need to focus on the wellbeing of staff. That will provide staff a better mood to work in the company.
E. Conclusion
After the analysis and recommendations of three channels, our team suggests that VYP operate just ETN at the moment. When ETN have stable income in the future, the second channel could be operated then. Of the two news channels, we recommend the Chinese CNN instead of GTN, because it has a bigger future market.
Appendix 1 INTERNAL EXTERNAL
SWOT Analysis of VYP STRENGTHS 1.Rich experience in the industry and high reputation through audiences 2.Cost saving programs of various genre can be made by VYP or outsourced 3.Positive atmosphere, strong human resource and team spirit 4.Thorough internal management and encourage system 5.Experience in international markets SO 1.Taking advantage of experience and reputation in program making to expand 2.Using good human resource(Tom and his team) to further develop the international markets 3.The diversity of income (including income from both program-making and channels) ST 1.Appealing to more excellent staff by the positive atmosphere and strong team spirit 2.Advertising those programs that had high reputation to ensure the audience 3.Getting more room to develop through the international markets (avoid domestic competition) WEAKNESS 1.Shortage in funds and equipments 2.Lack of experience and staff as an independent TV operator 3.Insufficient data support for the future and the market (advertising revenues and so on) 4.Limits in output of programs that cannot meet the need of a channel. WO 1.Expanding to meet the needs of more programs 2.Optimizing the management to adapt the expansion of VYP 3.Raising funds by different ways (for example, private equity fund) for expansion WT 1.Enhancing the accounting department to better control the operating cost 2.Doing market research to get clear image of the future of the industry 3.Learning advanced operation model from those successful channels
OPPORTUNITIES 1.Application for TV license was relaxed 2.Getting more share of the international market 3.Few competitors of the same entering period 4.Strengthening brand effect after expansion THREATS 1.Facing the strong competition from the former channels 2.fali to hire adequate qualified staffs 3.Few audience, leading to low profits 4.Not changing with the times 5.The future of the whole industry not predictable
Appendix 2 Extracts from VYPs statement of comprehensive income (from 2013 to 2015)
2010 ( 000) sales revenue operating costs operating profit finance cost(net) tax expense(effective tax rate is 30%) profit for the period 28,610 25,228 3,382 133 975 2,274 2013 ( 000) 300,000 251,300 48,700 10,330 11,511 26,859 2014 ( 000) 360,000 301,560 58,440 0 17,532 40,908 2015 ( 000) 432,000 361,872 70,128 10,330 17,939 41,859
From our prediction above, we can have the faith that VYPs TV will run very well and gain great profit for the whole company. And it is a feasible plan considering the companys ability now.

Final Paper CIMA

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CIMA

Global Business Challenge 2010-2011 CIMA 2010-2011

NewBee Consulting Team

Best wishes, NewBee consultant group

II. GTN Proposal

III. The Chinese CNN Proposal

IV. Other Issues

C. Prioritization of Key Issues

D. Analysis and recommendations of Issues

High Growth Rate Low High

Current products Current markets New markets Market penetration

New products Product development

comedy entertainment total/average

74.03 49.18 216.91

296.13 196.71 867.66

16,751 5,439 43,952

74,448 24,175 195,346

91,199 29,615 239,299

GTN Proposal (the more aggressive plan proposed by Steve)

The Chinese CNN proposed by Tom

2. PEST Analysis for the Chinese CNN project

3. ADL Matrix for the Chinese CNN project

Appendix 1 INTERNAL EXTERNAL

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