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7/27/2019 Final Paper CIMA

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CIMAGlobalBusinessChallenge2010-2011

CIMA2010-2011

This report is prepared by Team: NewBee Consulting

From: Shanghai JiaoTong University

Team member

Team leader: Liu Junjie 13916984777 [email protected]

Team member 1:Xue Yibin 13818049615 [email protected]

Team member 2:Nong Yuxin 13524712121 [email protected]

Team member 3:Zhou Wei 15021657161 [email protected]

NewBeeConsultingTeam

VYPCONSULTINGTHECASESTUDYCONCERNINGCERTAINISSUESABOUTVYP


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CIMA(CharteredInstituteofManagementAccountants)

[email protected]://gbc.cncima.com

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


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Contents

A. IntroductionB. Terms of Reference

C. Prioritization of Key Issues

D. Analysis and recommendations of Issues

I. ETN Proposal

i. Analysis

ii. Recommendations and Perspective

II. GTN Proposal

i. Analysis


III. The Chinese CNN Proposal

i. Analysis


IV. Other Issues

i. Analysis

ii. Recommendations

V. Ethical Issues

i. Analysis

ii. Recommendations

E. Conclusions

F. Appendixes

I. Appendix 1 -- SWOT Analysis of VYP

II. Appendix2 -- Extracts from VYPs statement of comprehensive income


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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.


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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


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I. ETN proposal

i. ANALYSIS

a. BCG MATRIX

According to the analysis of margins by program genre, we get the BCG matrix as

follow.

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

CASH COW

(Comedy and

entertainment)

STARS

(International

sale and

documentaries

QUESTION

MARKS

(Drama and

news)

DOGS

Gro

wthRate

High

Low

MarketshareLowHigh


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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 pay-

back 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

Market penetration(selling successful programs to other

TV broadcast companies)

Product development(operating the company as an

independent TV operator)

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 )

Ansoffs

matrix

NewproductsCurrentproductsCu

rrentmarkets

N

ewmarkets


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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


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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 calculation result

Subscription fee 150,000*50*12 90million

Advertising fee 90,000,000/0.3*0.6 180million

On-line marketing

revenue

90,000,000/0.3*0.1 30million

Total revenue 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: 6h*365d*0.8*52/60*4/7=867.66

The detailed process is as follow:

Indies

cost

perhour

Homemade

cost per

hour

hours of

homemade

hours

of

indies

homemade

costs

( 000)

indie

costs

( 000)

Total

costs

( 000)

documentaries 184.1 165.69 65.09 260.37 10,785 47,934 58,719

drama 426.3 383.67 28.61 114.45 10,978 48,789 59,767


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comedy 251.4 226.26 74.03 296.13 16,751 74,448 91,199

entertainment 122.9 110.61 49.18 196.71 5,439 24,175 29,615

total/average 216.91 867.66 43,952 195,346 239,299

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.


Advantages and disadvantages

Advantages 1. ETN has a high growth rate (20%).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.

Disadvantages 1. The resource of financing is simplex. It only relies ondebt 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 ofprograms

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 totalprograms. 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.


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2. About financingAccording 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 resourceBecause 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 hiremore 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-runTV 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 fromit. The company can find more problems and get more

experience from the test-run.

Perspective ETNs subscription fees will be expected to grow at arate 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 good-

quality programs to gain reputation. In the coming fewyears, ETN will be developed to a basic channel which

has a larger advertising and subscription market.


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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.

FeasibilityAnalysisoftheProposal

A. Preface,Historicalbackground,thedescriptionoftheproposal

1. CurrentbusinessstatusThererealreadytwomagnatesinthebusiness,the

BBCandtheCNN.

2. DescriptionoftheproposalTheproposalismoreaggressive,somewhatlike

todevelopasecondchannelinadditiontotheETNchannel,theGTN

channel,inshortforGlobalTelevisionNetwork,whichwillpositiona

neutralpointofview.Itwillbea24hoursnewschanneloperatedlikeBBC

orCNN.

3. AdvantageoftheproposalMostofthecurrentexistingnewschannels

broadcastfromawesternpointofview,whereasVYPsgoingtodofroma

neutralpointofview.

4. NewproductlistThenewproductdifferentfromthepreviousETN

proposalisthenewschannel(GTN).

5. Advantage&DisadvantagesofVYPseeAppendix1(theSWOTanalysisof

VYP)

B. Management


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1. VYPhas60staffcurrently,including44professionals&technicalin

programproducingand16humanresources/accountants.

2. DuetotheplannedexpansionofVYP,avarietyoftechnicalaswellas

managerialstaffshouldberecruited.

3. DuetotheplannedexpansionofVYP,avarietyofequipmentshouldbe

investedin,including6editingsuites,onecomputergraphicroom,

satelliteroom,broadcastingsoftware,asmallstudioplusaseriesof

broadcastingequipment.

C. Marketing

1. Targetmarket:Localmarket(theBritainmarket)

2. PricingStrategy:Thesubscriptionfeeforthetwotie-inchannelswillbe

setatGBP75perhousehold,inhopethatthesetwochannelscanmarket

bettertogetherthanisolated.

D. FinancialStatus

1. Initialcost:GBP10million(forequipmentsandhardwareinvested)

2. Operatingcost:additionalGBP1millionpermonth(besidestheGBP1

millionpermonthfortheentertainmentchannel)

3. Loans:additionalshorttermloanofGBP20million,principlepayable

inthreeyearstime,interestat12%perannum,whichwethinkcanbe

repaidbyGBP8.33millionannuallyforthreeyears.

4. Tax:anincometaxattherateof30%


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Secondly, we will show a 3C Analysis on the GTN proposal, to illustrate the

characteristics of the proposal from three different aspects


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.


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Advantage 1. The GTN channel can be sold as a bundle with the ETNchannel, which can promote the popularity and reputationof VYP.

2. The news channel is broadcasted in a fresh new point ofview, which is likely to be a unique selling point.

3. The target market is quite extended while the number ofcompetitors 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 entertainmentchannel goes in to its maturity and when VYP has enoughcash flow.

2. We also recommend VYP to seek different channels offinancing in order to get abundant funding (about the details offinancing 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


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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 projectStrength Weakness

1. Innovative perspective2. Specific direction---

news3. Rich human resource4. Small initial investment5. Good future planning6. Good cooperation

relationship with othermedia companies

1. Shortage of capital2. Narrow revenue

streams3. Lack of senior TV

operations personnel4. Unfamiliar Chinese

Market5. Low initial company

popularity

Opportunities SO WO

1. Chinas reform andopening up

2. Pay TV becomesmore acceptable inChina

3. Rapid developmentof network in China

4. Media market enjoysa strong vitality inChina

1. With active marketresearch, adaptChinese CNN to mediaenvironment as soonas possible

2. With rich humanresource, expandrevenue sources

3. Try to find a uniquedevelopment model forChinese CNN

1. Cooperate withChinese governmentto increase marketshare

2. Recruit excellent localstaff to promote newsmarket

3. Search for additionalinvestment to developChinese CNN

Threat ST WT

1. Complex mediaenvironment inChina, difficult toadapt

2. Fierce competitionfrom Chinese TV,even monopoly

3. Weak copyrightprotectionmechanism for newsin China

1. Adhere to the Orientalview to broadcast news

2. Actively organizecharitable activities toenhance ChineseCNNs image

3. Establish feedbackmechanism to meetaudiences news needs

1. Increase source ofnews to cater varioustastes

2. More cooperation withlocal mediacompanies

3. Focus on copyrightprotection

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.


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2. PEST Analysis for the Chinese CNN project

PoliticalFactors

We should firstly acquire standard business license andother relevant certificates.

In China, copyright protection becomes more and moreimportant, which can help media companies develop.Chinese government holds a friendlier attitude to foreignmedia than that in ten years ago.

EconomicalFactors

With Global Financial Crisis fading, media market in Chinaenjoys a quick recovery.In China, the media market has been mostly dominated bystate-owned television stations, such as CCTV.Modes of news transmission go into diversification, includingTV station, network and radio.

SocioculturalFactors

With more and more people interested in global news, VYPcan 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 toknow the world. While news broadcasting is an importantmethods for information exchange.Chinese have enjoyed a great improvement of educationlevel, which will promote the development of media industry.

TechnologicalFactors

The development of information technology will absolutelyfacilitate 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 comfortableenvironment.

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.


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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.


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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.


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, theChinese CNN needs the least initial investment,which will alleviate the economical pressure for thecompany.

2. Since the location of Chinese CNN is China, it willhave 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 areeager to co-operate with Chinese CNN.

4. Chinese government has changed its attitude toforeign media, from resistant to friendly, so ChineseCNN can seize the chance to rapidly occupy themedia market in China.


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Disadvantages 1. Since Chinese CNN specializes in news report, thestation revenue has narrow streams.

2. Though Chinese CNN has rich human resource, it still isunfamiliar with Chinese media market and environment.

3. In China, the media market has been mostly dominated

by state-owned television stations, such as CCTV. SoChinese CNN has to compete with these mediamagnates.

4. Chinese CNN suffers from shortage of capital, which willabsolutely inhibit its development in China.

Recommendations 1. Since Chinese CNN lacks of enough capital, thecompany 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 developmentof the Chinese CNN, but also reduce unnecessarycompetition.

3. Chinese CNN can conduct some market researches tounderstand what Chinese people are interested in news,and then decide what news should be given extraemphasis.

4. In order to expand the Chinese CNN visibility andinfluence, Chinese CNN can organize some publicactivities with communities and schools.

Perspective If Chinese CNN can accept our analysis and follow ourrecommendations, 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.


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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.


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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.


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Appendix 1 SWOT Analysis of VYP

INTERNAL

EXTERNAL

STRENGTHS

1.Richexperienceinthe

industryandhighreputation

throughaudiences2.Costsavingprogramsof

variousgenrecanbemade

byVYPoroutsourced

3.Positiveatmosphere,

stronghumanresourceand

teamspirit

4.Thoroughinternal

managementandencourage

system

5.Experienceininternational

markets

WEAKNESS

1.Shortageinfundsand

equipments

2.Lackofexperienceandstaffasanindependent

TVoperator

3.Insufficientdata

supportforthefuture

andthemarket

(advertisingrevenues

andsoon)

4.Limitsinoutputof

programsthatcannot

meettheneedofa

channel.

OPPORTUNITIES

1.ApplicationforTV

licensewasrelaxed

2.Gettingmoreshare

oftheinternational

market

3.Fewcompetitorsof

thesameentering

period4.Strengtheningbrand

effectafterexpansion

SO

1.Takingadvantageof

experienceandreputationin

programmakingtoexpand

2.Usinggoodhuman

resource(Tomandhisteam)

tofurtherdevelopthe

internationalmarkets

3.Thediversityofincome(includingincomefromboth

program-makingand

channels)

WO

1.Expandingtomeetthe

needsofmoreprograms

2.Optimizingthe

managementtoadapt

theexpansionofVYP

3.Raisingfundsby

differentways(for

example,privateequityfund)forexpansion

THREATS

1.Facingthestrong

competitionfromthe

formerchannels

2.falitohireadequate

qualifiedstaffs

3.Fewaudience,leadingtolowprofits

4.Notchangingwith

thetimes

5.Thefutureofthe

wholeindustrynot

predictable

ST

1.Appealingtomore

excellentstaffbythepositive

atmosphereandstrongteam

spirit

2.Advertisingthoseprograms

thathadhighreputationtoensuretheaudience

3.Gettingmoreroomto

developthroughthe

internationalmarkets(avoid

domesticcompetition)

WT

1.Enhancingthe

accountingdepartment

tobettercontrolthe

operatingcost

2.Doingmarketresearch

togetclearimageofthefutureoftheindustry

3.Learningadvanced

operationmodelfrom

thosesuccessful

channels


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Appendix 2

Extracts from VYPs statement of comprehensive income

(from 2013 to 2015)

2010

( 000)2013

( 000)2014

(000)2015

( 000)sales revenue 28,610 300,000 360,000 432,000

operating costs 25,228 251,300 301,560 361,872

operating profit 3,382 48,700 58,440 70,128

finance cost(net) 133 10,330 0 10,330

tax expense(effective tax rate is 30%) 975 11,511 17,532 17,939

profit for the period 2,274 26,859 40,908 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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