executive financial strategy

FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

Islamic Television Project Copyrightã2003 Registration Number 4138904

Pricing Policy Needs/Risks

1. ‘No Frills’ Likely to be segmented specific

2. Low Price Risk of price war and low margins; need to be cost leader.

3. Hybrid Low cost base and reinvestment in low price and differentiation.

4. Differentiation(a) Without price premium Perceived added value by user, yielding

market share benefits.

(b) With price premium Perceived added value sufficient to bare price premium.

5. Focused differentiation Perceived added value to a particular segment, warranting price premium

6. Increased price/Standard value

Higher margins if competitors do not follow; risk of loosing market share.

7. Increased price/Low Value Only feasible in monopoly situation.

8. Low Value/Standard Price Loss of Market share

High

Low High

1.

2.

3.

4. Islamic Television Project

5.

6.

7.

8.6 + 7 + 8 =

Strategies destined for ultimate failure

PRICE

PRE

CIE

VE

D A

DD

ED

VA

LU

E

Like

ly F

ailu

res

Diff

eren

tiatio

n


Pricing Policy 1

Needs/Risks 1

PRICING STRATEGY 3

A. PRICE STRUCTURE 3

B. PRICE 5

C. METHODS OF REVENUE 8

D. COST ANALYSIS 9

BIDDING SYSTEM 10

E. COSTING 12

1. BROADCASTING 12

2. PRODUCTION 13

3. OPERATIONS 14

F. EXECUTIVE SUMMARY 15

G. Executive financial summary 16



Pricing Strategy

A. Price Structure

After extensive feasibility study, suitability analysis and furthermore, research on acceptability, it could be concluded that the Pricing strategy most desirable for the needs of Islamic television project is based on Added Value and differentiation. This is illustrated in the diagram as route 4. It is the differentiation without a price premium, which Channel Islam’s pricing policy would adopt. A differentiation strategy seeks to provide products or services unique from those from the competitors in terms of dimensions widely valued by viewers. In the case of Channel Islam, we can confidently claim that we have a unique product targeted to a niche market, which has not yet been perused in the television broadcasting industry. The market demand for the product is immensely high, whilst there are no providers other than Islamic television project itself.

The buyers widely and highly value the services offered by Channel Islam. The primary buyer’s being the viewers and subscribers would enjoy a dedicated service of ‘Digital Video Broadcasting’ (DVB) on both Cable and Satellite systems.

Advertisers are essential customers of Channel Islam; they are the secondary form of customers. Unlike most commercial channels, Islamic television project is not largely reliant on advertising and sponsorships. The Market platform and access to the unique market segment offered by Islamic television project is greatly sought after by many Muslim and non-Muslim businesses alike. The only current media facilities available for them are via Radio, Newspapers and Magazines, however; the radio is on a seasonal and local network. The newspaper and magazines operate within specialist areas and groups. Thus, Islamic television project is the only national base medium, which caters for the Muslim market as a whole, with the option for localized promotion. This allows the company to offer a package deal, designed to cater for individual businesses needs, in terms of who they target and how.

There is no dependency on a single revenue stream. The mixed revenue stream will allow Islamic television project to offer discounted prices, which are significantly lower then the market average to both Primary and Secondary buyers. Therefore, Islamic television project may successfully pursue the route four pricing strategy within the framework of ‘Differentiation’ and ‘Added Value’.



A. Estimated Volume and Targets

i) Primary Buyers – Viewers/SubscribersItem Description Volume/Amount

Market size Total Muslim Population 3,000 000 (million)

Number of Households

Average four (4) member per household

750,000

Market Share Percentage of Households Targeted

Exclusive Subscription

1.3% 10,000

Regular Subscription 5.3% 40,000

Total 6.6% 50,000

ii) Secondary Buyers – Advertisers and Sponsors Item Description Volume/

AmountPotential Buyers

Market size Muslim

Total

Non-Muslim

Corporate Business in UKForeign CompaniesSmall BusinessOrganisations

Corporate Business in UKSmall Business

20271

4672

56003

724

8168

1305

2005

Total Number of Businesses 8498


Obtained from Muslim Ltd Companies registered with the companies house2 Companies importing goods in terms of products and services to the UK Muslim Market, estimated to the bare minimum figure, derived from the Mintel. 3 Estimated from the Muslim directory, yellow pages, Thomas directory and other sources. The estimate holds the lowest figures indicated. 4 Only accounting for medium to large size organisations, including some Charity organisations as well as many commercial ones too. 5The estimated levels of interests from the non-Muslim Corporate and small businesses


iii) Secondary Buyers – Advertisers and Sponsors

Item Description Volume/Amount

Potential Buyers

Target Muslim

Non-Muslim



10%4.6%15%7.2%

3%10%

Market Share Muslim

Non-Muslim

Total



203228407

420

1095

B. Price

i. Primary Buyers – Viewers/SubscribersItem Quantity Price

£Revenue

£

Exclusive Subscription

10,000 £115.00For 3 year

£1,150 000

Regular Subscription

40,000 £55.00Per Year

£2,200 000

Total 50,000 £3,350 000



International Advertising Packages – Pan European and USA (to be developed)National Advertising Packages – UK and USALocal Advertising Packages – UK and USA regional segmentation

ii. Secondary Buyers – Advertisers and Sponsors

National Advertising Packages 10sec 20sec 30sec

5 spots package £2,125 £3,530 £4,25010 spots package £4,075 £6,750 £8,15015 spots package £5,950 £9,875 £11,90020 spots package £7,750 £12,865 £15,500

All off-peak packages are discounted at the fixed rate of 40%

Local Advertising Packages 10sec 20sec 30sec

5 spots package £1,000 £1,660 £2,00010 spots package £1,900 £3,150 £3,80015 spots package £2,763 £4,585 £5,52520 spots package £3,600 £5,975 £7,200

All off-peak packages are discounted at the fixed rate of 40%



iii. Secondary Buyers – Advertisers and Sponsors

Item Quantity Price£

Revenue£

Average spending on advertising packages The Off-peak revenues are not included, this again shows that far greater Margin of

revenues available, compared to that stated below.National AirtimeCorporate Business in UKForeign CompaniesOrganisations

Total

203227

232

£7,726£7,726£5,000*

£1,568,387£169,972£35,000

£1,773,359

Local AirtimeSmall BusinessOther

Total

8400

840

£3,597 £3,021,480£0

£3,021,480

Total 1072 *Discount £4,794,839

The cost of advertising packages for the consumer is lower than local or national radio advertising rates in the UK. The price comparison’s can be made through BRAD (the media publication). The packages above are inclusive prices, thus including the cost of advert production and editing, as well as transmission. In essence, the focus is providing value for money for the advertisers.

Item Item Quantity Revenue£

Subscription

Sub-Total

Exclusive Regular

10,00040,000

50,000

£1,150 000£2,200 000

£3,350 000

Advertising and Subscription

Sub-Total

National AirtimeLocal Airtime

232840

1072

£1,773,359£3,021,480

£4,794,839

Grand Total £8,144,839



C. Methods of Revenue

D. Cost Analysis

Cost Structure


SubscriptionStandard offer 40,000 Target units at £55.00

(pa) £2,200,000

Advertising

Local Airtime Small Business Rates(pa) £3,021,480

National Airtime incl. Promotional Packages (pa) £1,773,359

Total Annual Revenue

£8,144,839 (pa)

Government grant entitlement from the Ministry of Culture and European level funding for Midlands business initiatives calculated at a minimum grant levels estimated at (pa) £1,200,000. The processes of grant entitlements have exceeded the application stage and awaiting review and audits stages to complete the entitlement processes.

Extra revenue can be realised through sales of programme library (broadcasting copyrights) to existing Channel’s looking for authentic, high quality, inspirational Islamic programming, specifically to cater for those audiences for English speaking countries. Secondly, the lease of extra three channel capacity broadcasting play-out facility, if the broadcasting capabilities are fully owned and managed.


There are three major cost generators within Islamic television project, which may be categorized by the following activities; Broadcasting, Production and Operations.

Broadcasting

This includes all necessary components required to be able to provide end-to-end digital video broadcasting. The primary costs associated with broadcasting are the maintenance of the infrastructure and networks. However, there are various options available, which allow the costs to be varied in forms, therefore adapt it to the nature of the cash flow requirements. The key element in determining the composition of the costs in this sector depends on the nature of contracts and arrangements negotiated with the service providers. The cost generated from this activity could be defined as a fixed cost.

Production

The production cost is the most complicated cluster of costing, as it consists of multiple cost centres derived from multiple mediums. This is the most expensive segment of activities, as the processes involved may require technical expertise and external resources. The activities within this cluster may be categorized as, In-house, Outsourced and On-shelf.

i. In-house productions are the programmes produced internally within the Islamic television project Ltd facilities. The types of programmes produced ‘In-house’ would include, News and Current Affairs, Talk shows, Documentaries and other programmes, which do not require a high level of technical expertise, nor have a long turnaround time. Relevant costing system should be used where appropriate.

ii. Outsourced production will include editing, subtitling and dubbing activities, as well as production of unique and dedicated programming for CIL (Islamic television project Ltd). The outsourced activities would be operated within a bidding system, which will be used to select appropriate Production Company’s to carry out the task on the basis of the specialist area and cost efficiency. However, this still would remain the highest cost generator amongst all the three strands of activities, Therefore, reliance on this strand on activities should be minimized without compromising the needs for high quality inspirational programming.

Bidding System

Most Islamic television project Ltd Productions are quoted on a fixed bid system.Islamic Television Project Copyrightã2003 Registration Number 4138904


This means that once an estimate is approved, the Production Company price is binding with 50% of the quoted budget being paid upon the job go ahead and the remaining 50% upon satisfactory completion of the film. And others where, the production company takes full responsibilities, and payments are made on transmission of the projects.

As part of the Bid System, Production Companies are required provide a detailed breakdown of the estimate in line with the Production and Insurance Budget Specification guidelines agreed by the Joint Working Party between Islamic television project Ltd and the respective producers. This allows the producers to understand the pricing of the key elements behind the bid and is broken down by key cost components i.e. Unit Salaries, Equipment Costs, and Location Costs etc.

iii. On-shelf productions are programmes that have already been produced and are available with copyright ownerships. These programmes will require editing, subtitling and dubbing, which will be outsourced to production companies. Majority of the On-shelf products will be purchased from the Middle East, including Iran. The types of programmes included in this category are films, dramas, cartoons, debates and other forms of informative, educational and entertaining materials within CIL protocol. Some Copyright reserves maybe purchased at a very low price, whilst others may require persuasive negotiations. However, turnaround times for these programmes may be high, as translations will be required for subtitling, and dubbing and will require even more time. Another important factor which will consume a lot of time and efforts are editing the materials to enhance quality as well as censorship controls.

Operations

The Operational activities of the company includes all managerial and organisation activities necessary to keep Islamic television project Ltd running, including the day to day activities and routines. The cost centers include costs generated from all the departments within the company, including Marketing, Sales, administration and the Creative department. The basic definition of the cost centre in relation to Islamic television project Ltd is the sum of all costs associated with operating the company successfully. There are various levels and types of costs involved here, including fixed and variable costs, Direct and Indirect costs. Even in some cases stepped fixed costs are involved here. Therefore, ‘Cost Volume Profit Relationship’ analysis will be used to audit the costs generated.


ITC –Government License

SES Astra –Satellite

COST STURUCTURE


E. Costing1. Broadcasting

The broadcasting costs are fixed costs as stated previously, and the costs can be associated with the start-up cost. The costing systems for Astra, Sky and NTL are based around the number of hours broadcasting and since Islamic television project will be broadcasting for 24hours, the costing rates are on a flat-rate basis. However, the cost of the ITC License is a one-off cost, which is renewed at the end of its contracted period. The costs of broadcasting may be expressed as a unit


Islamic television project

Broadcasting

Production

Operations

Sky – EPG/mPlatform

NTL – Cable & Sat Uplink

Play-out Center

In-Housed –60% of Production

Out-Sourced –20% of Production

On-Shelf –20% of Production

Management & Organisation

Marketing & Sales

Administration & Control

Financial & Mgt Accounting


per hour. Once the annual costs per item are identified, using appropriate formula the unit cost may be calculated.

Item Price£

Cost£

ITC is a 10 (ten) years Contract The difficulty is in calculating a fixed burn rate, to indicate the cost of broadcasting per unit

in terms of per hour broadcasting, as the control room is a one off purchases. Broadcasting - Infrastructure Per Annum

ITC – DVB LicenseAstra - SatelliteSky – Platform EPG/mNTL – Cable and Uplink

Total

£10,000£360,000£95,000£250,000

It must be noted that financial reimbursements will be made by NTL

£715,000

Internal ResourcesControl Room - Equipments

Control Room SwitcherStorage & ArchivingOmneon Video NetworkFlip factory - Web streamingMics ProductsHD 880 Lines Cameras * 3Control Room and other Equipments

Total

£100,000£75,000£50,000£12,000£110,000£60,000£114,000

These are one-off capital investment costs, therefore, should not be included in the burn rate.

£521,000

Total £1,236,000

2. ProductionItem Price

£Cost

£ Concessions* are expenses paid for guests and audiences participating in C I programmes. The Copyrights and ownership of projects out-sourced are retained with Islamic television

project Ltd. Editing includes subtitling and dubbing of selected programmes.

60% Production – In-House Per AnnumStudioNews & Views (Fixed) £15,000 The studio costs



Studio 1 (Medium)Studio 2 (Large)Studio 3 (Extra)

ProgrammesProduction Equipments *

Total

£25,000£30,0008,000

£416,000£170,000

Projects are sole production of a complete programme and its series for the uses of Channel ISLAM

include fittings and fixtures, for various single and multi programme sets

£664,000

30% Production – Out-Sourced

Projects Editing

Total

£210,000£165,000

£375,000

10% Production – On-Shelf

FilmsDramasDebates and Talk-showsOther

Total

£110,000£85,000£60,000£18,000

Copyright ownership is obtained for both 1st transmission and repeats. It most be noted that many programmes have diminutive (very little) interests and demands from current media

£273,000

Total £1,312,000

3. Operations

Item Price£

Cost£

Cost of employees working as production crew is included in the cost of production. Miscellaneous costs account for costs that are difficult to forecast or categorize, it also

provides with a buffer zone for cost activities. Operations - Employees Per Annum



Recruitment DirectorsManagersCoordinators/SpecialistsSkilled Semi-SkilledStandard

Total

£10,000£186,000£88,000£81,000£140,000£272,000£182,000

Total employees working full-time are 49. Part-time allowance is put a side for seasonal demands. Such as Ramadan.

£959,000

Operations – Assets

Fixed

Property - Lease & DepositsFitting and FixturesMaintenanceBills & RatesComputers and IT

Overheads

StationaryMarketing & PromotionsMiscellaneous

Total

£144,000£80,000£25,000£22,000£50,000

£12,000£70,000£60,000

£321,000

£142,000

£463,000

Total £1,422,000

F. Executive Summary

i. Grand Total for Costing

Item Price£

Cost£



Total Cost Per Annum

Broadcasting £1,236,000

Production £1,312,000

Operations £1,422,000

Total £3,970,000

ii. Burn Rate Per Hour

Type Quantity Total Cost£

Rate£ Per unit

Looking at a flat rate, rather than distinguish a peak and off-peak rate.Monthly Transmission

12 Months £3,970,000 £330,833

Weekly Transmission

52 weeks £3,970,000 £76,346

Daily Transmission

365 days £3,970,000 £10,876

24 Hours Transmission

8760 hours £3,970,000 £453

G. Executive financial summary

Primary Revenue – Subscription

Exclusive SubscriptionRegular Subscription

Total Subscription Revenue

£1,150 000£2,200 000

£3,350 000



Cost

BroadcastingProductionOperation

Total Costs

£1,236,000£1,312,000£1,422,000

£3,970,000

Gross Profit -£620,000

Secondary Revenue – Advertising

International Advertising PackagesNational Advertising PackagesLocal Advertising Packages

Total Advertising Revenue

£0£1,773,359£3,021,480

£4,794,839

Operating Profit £4,174,839

Key Notes:

1. Islamic television project will be free to view for the first year, developing and establishing a solid foundation of customer base upon which advertisers could be enticed.

2. The second year will begin with offering of the exclusive subscription package, which will be £115.00 for 3 years. This exclusive offer will be available for the first 10,000 subscribers. This is to create a concrete customer base, as well as for strategic marketing purposes. Observe the Marketing Strategy for further details.

3. The Regular subscription will begin by the end of the exclusive offer, which will be £55.00 a year. This is £4.50 per month; this is 55% lower than any current channel subscription, even as competitive as the prices of Internet membership subscription.

4. Please study the Income & Expenditure report of Year 1,2 and 3 for financial illustration of this strategy and its implications.


executive financial strategy

Documents