WINTERTemplateTHE

FASHIONCHANNEL

01

WINTERTemplate

01The Executives

• Jared Thomas: founder and CEO• Dana Wheeler: senior vice

president of marketing– Background in marketing packaged

consumer products and in the advertising industry

• Norm Frazier: senior vice president of Advertising Sales

WINTERTemplate

01TFC Basics, Revenues• TFC: successful cable TV network

– Dedicated solely to fashion– Up-to-date and entertaining features– Broadcast 24 hours per day, 7 days per week

• Founded in 1996 by two entrepreneurs – Constant revenue and profit growth above

industry average since founding– Example: 2006 forecast at $310.6 million

• Resources: $60 million for national and affiliate advertising, promotion and public relations in 2007– Increase of $15 million over 2006 spending

WINTERTemplate

01Viewers and Message• Viewers

– Niche network– Reaches 80 million U.S. households who

subscribe to cable and satellite– Avid viewer: women between 35 and 54

(source: demographic survey)• TFC had no additional information about its

viewers beyond basic demographics

• Message: meant to appeal to as broad a group as possible – “Fashion for Everyone”– Popular 2005 series: “Look Great on

Saturday Night for Under $100”• TFC grew without segmentation,

branding, or positioning strategies

WINTERTemplate

01Competition Creates New Strategy

• Lifetime and CNN launch fashion-specific programming blocks– Receive notable ratings

• June 2006: Thomas changes his tune – “It’s time for us to build a modern brand strategy and secure The Fashion Channel’s position as the market leader. I want to use marketing to lay a foundation for future growth.”

WINTERTemplate

01Advertising Concerns• Frazier warns that TFC may have to

drop price per unit of advertising by 10%– Due to performance issues

• To hold or increase price TFC must attract critical mass of viewer attractive to advertisers

• Warning: TFC must still maintain overall ratings with cable consumers and the cable affiliate distribution network– Risk: loss of distribution support due to

disappointed consumers

WINTERTemplate

01Cable Affiliate Fees• Cable Affiliate Fees are the second source of

revenue for TFC– TFC on track to generate $80 million in 2006

• Consumers pay monthly fee for basic lineup of cable channels– Incremental fees for premium channels and on-demand

programming– TFC is a basic channel

• Multi-system operators (MSO) sign multi-year contracts with networks for a specified fee that the network receives for each household with the channel– TFC average: $1.00 per subscriber per year – fairly low for

industry standards due to niche content– Fee does not change as viewership changes

• MSOs and affiliate carefully monitor customer satisfaction– Threaten to drop unpopular channels due to viewer outcry

• Not much change to increase affiliate revenue due to full penetration– Goal: maintain good equilibrium

02TFC’s Advertising Revenue Model

• 2006 advertising: on target to generate $230.6 million

• Business model: based on a mix of male and female viewers measured by ratings– Percentage of television households

watching on average during measured periods

• TFC’s average rating: 1.0– Which means that out of 110 million

households 1,100,000 were watching at any point in time

02Revenue Model Cont.• Ad Sales team sells advertising spots of 30

or 60 seconds– 6 minutes of national ad time per half hour– Totals 2,016 minutes in 24 hours

• U.S. consumer advertisers spent almost $20 billion on such spots in 2006– Fierce competition for ad dollars and revenue

• Advantage: TFC is the only 24/7 fashion programming

• Advertisers buy ratings and demographics, not programming subjects– Lifetime and CNN offer strong programming

blocks that may skim more viewers and ad dollars from TFC

– Fixed supply of advertising makes competition fierce

02Revenue Model Cont.• Ad unit prices based on several factors:

– Number of viewers (ratings)– Audience’s characteristics (age, demographics,

lifestyle)– General competitive trends

• Formula =(Households x Ratings)/1,000 x CPM

• Prices: expressed as CPM: cost per thousand – Price an advertiser will pay for a moment of

viewing

• Networks evaluated based on ability to deliver specific target groups – Premium CPM group:– Men of all ages– Women from 18-34

• Increasing targeted group can increase CPM from 25% to 75%

03Competitive Threats• CNN: “Delivering great numbers on men”• Lifetime: “Taking lots of ad buys from TFC

[due to] younger female demographics”• Alpha Research Study – Used by operators

to:– Determine how much to pay for each network– Determine whether to include network in cable

offerings– TFC generally scored above the “midpoint”

 Consumer

InterestAwarene

ssPerceived

Value

TFC 3.8 4.1 3.7

CNN 4.3 4.6 4.1

Lifetime 4.5 4.5 4.4

Exhibit 1: Demographics03

03GFE National Consumer Field Study• National panel of consumers• Sophisticated statistical correlation program by a well-regarded

market research firm

03Wheeler’s Theories• Not wise to target Basics cluster – least likely to be

engaged with TFC content • TFC segmentation and positioning should be targeted

at women between 18 and 34 years of age• Ad Sales forecasts a 10% drop in CPM to $1.80 if

current audience mix remains the same• Option 1: Investing in broad appeal to Fashionistas,

Planner & Shoppers, and Situationalists– Ratings boost of 20% from 1.0 to 1.2– Might not deliver the audience needed to keep CPM the

same• Option 2: Target the Fashionistas

– Rating decrease of 20% from 1.0 to 0.8– CPM would increase to about $3.50 (Ad Sales forecast) – Requires an additional $15 million per year in

programming• Option 3: Target the Fashionistas and Planners &

Shoppers– Ratings increase 20% from 1.0 to 1.2– CPM would increase to $2.50– Requires an additional $20 million in programming

04Objectives• Strengthen competitive position• Build foundation for future growth• Secure TFC’s position as the market leader• Segmentation strategy to reach target consumers:

basis of all marketing tools– Traditional and internet advertising– Public relations and promotions

• Key levers to drive revenue growth– Increased viewership (ratings)– Increased advertising prices– Differentiation from competitors

• Find and market to a core group willing to become loyal to TFC– Concern: focus on fickle consumers and lose some

viewers in the process

  Current 2007 Base Scenario 1 Scenario 2 Scenario 3

TV HH110,000,00

0 110,000,000 110,000,000 110,000,000 110,000,000

Average Rating 1.00% 1% 1.20% 0.80% 1.20%

Average Viewers (Thousands) 1,100 1100 1320 880 1320

Average CPM*a $2.00 $1.80 $1.80 $3.50 $2.50

Average Revenue / Ad Minute*b $2,200 $1,980 $2,376 $3,080 $3,300

Ad Minutes / Week 2,016 2,016 2,016 2,016 2,016

Weeks / Year 52 52 52 52 52

Ad Revenue / Year$230,630,4

00 $207,567,36

0 $249,080,83

2 $322,882,56

0 $345,945,60

0

Incremental Programming Expense   0 0 15,000,000 20,000,000

05Ad Revenue

Revenue Current 2007 Base Scenario 1 Scenario 2 Scenario 3

Ad Sales$230,630,4

00 $207,567,360 $249,080,832 $322,882,560 $345,945,600

Affiliate Fees$80,000,00

0 $81,600,000 $81,600,000 $81,600,000 $81,600,000

Total Revenue$310,630,4

00 $289,167,360 $330,680,832 $404,482,560 $427,545,600

           

Expenses          

Cost of Operations$70,000,00

0 $72,100,000 $72,100,000 $72,100,000 $72,100,000

Cost of Programming

$55,000,000 $55,000,000 $55,000,000 $70,000,000 $75,000,000

Ad Sales Commissions $6,918,912 $6,227,020.80 $7,472,424.96 $9,686,476.80

$10,378,368.00

Marketing & Advertising

$45,000,000 60,000,000 60,000,000 60,000,000 60,000,000

SGA$40,000,00

0 $41,200,000 $41,200,000 $41,200,000 $41,200,000

Total Expense$216,918,9

12 $234,527,021 $235,772,425 $252,986,477 $258,678,368

Net Income$93,711,48

8 $54,640,339 $94,908,407 $151,496,083 $168,867,232

Margin 30% 18.90% 28.70% 37.45% 39.50%

05Net Income from Scenarios

05Conclusions• Target the Fashionistas and Planners &

Shoppers– Both participate in fashion on a regular basis– The majority are females– Between 25 and 50% of each group are ages 18-34– Both stay up to date on fashion and enjoy shopping

05

Slide layout copyright www.presentationmagazine.com

References