ABOUT THE CASEBACKGROUND• TFC was a successful cable television network• It was dedicated solely to fashion• It had experienced constant revenue and profit

growth in the industry average• Niche network- 80 million households- Avid viewers between 35-54years (women)• In 2006 it faced competition from other networks-Thomas quoted “ It’s time for us to build a modern brand strategy and secure TFC’s position as a market leader.”

Dana Wheeler

• Vice president of marketing in TFC• As per her , they key to success would be- targeting the right viewer- Offering advertisers the right mix of viewers

TFC’S Revenue Model

• Advertising Revenue ( $230.6 million in 2006)• Cable Affiliate Fees ($70 million in 2006)

TFC’S Advertising Revenue Model

• Primary source of revenue• Almost $20 million was spent in buying spots• Networks were evaluated on their ability to deliver

specific target groups• Ad units prices were based on several factors• Premium would be paid on CPM if the network

targets certain groups• CPM would increase from 25% to 75% on

attracting highly valued viewers

Cable Affiliate Fees

• TFC was a part of the basic line up amongst channels

• It received a fee of $1 per subscriber per year• Fee was on basis of carriage• Full penetration of available cable households was

done

Competition• CNN and Lifetime took away ad buys• Alpha research study on consumer satisfaction with

cable networks showed ratings of- 3.8 TFC- CNN 4.3- Lifetime 4.5

• 1. How would you interpret consumer and market data from Dana Wheeler’s point?

Average household

All T.V Viewers;

110

The Fashion Channel; 1.1

Lifetime ; 3.3

CNN; 4.4

Viewers demographics

All T.V Viewers The Fashion Channel

Lifetime CNN0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Based on gender

Axi

s Ti

tle

Viewers Demographics – Age Wise

All TV

View

ers TFC

Lifetim

e Fash

ion To

day

CNN Fashi

on To

night

0%5%

10%15%20%25%30%35%40%45%50%

18-3435-5454-74>74

Competitors threat

TFC CNN Lifetime Category 40

1

2

3

4

5

6

Axi

s Ti

tle

Viewers demographics

All T.V Viewers The Fashion Channel

Lifetime CNN14%

16%

18%

20%

Based on Income

Axi

s Ti

tle

Market research findings

Market research finding helps TFC in :

to identify and target audience To create and show content based on audience preference To take on competition by effectively targeting audience based on their taste and preference

Clusters (100%)

BEHAVIOURALISTIC segmentation

Demographic segmentation

PSYCHOGRAPHIC-BENEFIT SOUGHT segmentation

Benefit sought

Fashionistas (15%)

Highly engaged in fashion

Female- 61%

Anticipate trends, stay up to date, enjoy shopping

Physical goods, Social benefit.Psychological benefit

Planners and shoppers (35%)

Participant is fashion on regular basis

Female- 53%18-34 – 25%

Fashion is practical, interested in value

Physical goods, Psychological benefit

Situationist (30%)

Participate in fashion for specific needs

Female – 50%Children in HH – 45% 18-34- 30%

Shopping for specific needs, fashion is for specific situation

Physical goods,Psychological benefit

Basics (20%)

Disengaged Female – 45%Male – 55%

Do not enjoy shopping, interested in value

Physical goods

Total Revenue Ad Sales Net Income$0.00

$50,000,000.00

$100,000,000.00

$150,000,000.00

$200,000,000.00

$250,000,000.00

$300,000,000.00

$350,000,000.00

2006

FEASABILITY FORECAST (2007)DOWNWARD TREND IN ALL VARIABLESSHARP DECREASE BY NEARLY 50% IN

THE NET INCOMEDECLINE OF AD SALES

FINANCIAL ANALYSIS

YEAR 2006 2007 BASEAVERAGE RATINGS 1% 1%AVERAGE CPM $2.0 $0.8%PROFIT MARGIN 30% 19%

SOME OTHER SIGNIFICANT VARIABLES

DECRESASE OF PROFIT MARGIN DROPS 11%

DECREASE IN REVENUE CPM DROPS 10%

Scenario 1Fashionistas, Planner &

Shoppers and Situationalists

• Cross-Segment: Fashionistas, Planner & Shoppers, and Situationalists

• All segments include women aged between 18-34

Scenario 2:Single segment approach: Fashionistas

• Focus on single target segment: Fashionistas

• This represent 15% from total households

Scenario 3Fashionistas and Planner & Shoppers

• Dual targeting segment: Fashionistas and Planner & Shoppers

• Rating will increase to 1.2

Scenario ComparisonScenario 1 Scenario 2 Scenario 3

Rating Increase 20% (1.0 to 1.2)

Decrease 20%(1.0 to 0.8)

Increase 20% (1.0 to 1.2)

CPM Decrease 10%($2 to $1.8)

Increase 75% ($2 to $3.5)

Increase 25% ($2 to $2.5)

Programming Cost No Cost $15,000,000 $20,000,000

Ad Revenue CalculatorCurrent 2007 Base Scenario 1 Scenario 2 Scenario 3

TV HH 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000

Avg. Rating 1.00% 1.00% 1.20% 0.80% 1.20%

Avg. Viewers 1,100,000 1,100,000 1,320,000 880,000 1,320,000

Avg. CPM $2.00 $1.80 $1.80 $3.50 $2.50

Avg. RevenueAd Minute

$2,200.00 $1,980.00 $2,376.00 $3,080.00 $3,300.00

Ad. Minutes/Week

2,016 2,016 2,016 2,016 2,016

Weeks/Year 52 52 52 52 52Ad

Revenue/Year

$230,630,400

$207,567,360

$249,080,832

$322,882,560

$345,945,600

Incremental Programming

Expense$ - $ - $ - $15,000,000 $20,000,000

Estimated Financials (Figures are in Millions)

Current 2007 Base Scenario 1 Scenario 2 Scenario 3

Revenue

Ad. Sales $230.63 $207.57 $249.08 $322.88 $345.95

Affiliate Fees $80.00 $81.60 $81.60 $81.60 $81.60

Total Revenue $310.63 $289.17 $330.68 $404.48 $427.55

Expenses

Cost of Operations $70.00 $ 72.10 $72.10 $72.10 $72.10Cost of

Programming $55.00 $55.00 $55.00 $70.00 $75.00Ad Sales

Commissions $6.92 $6.23 $7.47 $9.69 $10.38Marketing and

Advertising $45.00 $60.00 $60.00 $60.00 $60.00

SGA $40.00 $41.20 $41.20 $41.20 $41.20

Total Expenses $216.92 $234.53 $235.77 $252.99 $258.68

Net Income $93.71 $54.64 $94.91 $ 151.50 $168.87

Margin 30% 19% 29% 37% 39%

Scenario 1 - Fashionistas, Shoppers, Situationalists

PROS CONS

Awareness & viewing would go up Drop in CPM by 10%

Average Rating – 20% TFC price ability will erode

No additional cost of programming Net income is less

80% of households Not targeting a specific cluster of segments

Scenario 2 – Only FashionistasPROS CONS

Strong in high valued 18-34 female demographics

15% of Households

CPM - $3.50 Drop in average rating – 0.8

High degree of interest in fashion Loss of cable affiliated fees

Risk that the cable operators might drop the channel

Income > $100K Not attracting other segments

Additional cost of programming - $15M

Scenario 3 – Fashionistas & Shoppers

PROS CONS

Increase in average ratings – 1.2 Additional programming cost - $20M

Increase in CPM - $2.50

Covers 50% of the household

Net income - $168M

Profit Margin – 39%

Recommendations• Implement scenario 3 which is targeting two segments in the market

(Fashionistas and Planner & Shopper)

• Net income is the most as compared to other 2 scenarios with a profit margin of 39%

• Average rating is 1.2, an increase in viewers leads to increase in CPM ($ 2.50)

• Advertisers were ready to pay a premium CPM to reach certain demographics

• Although cable affiliated fees could not be raised, at least there would be no loss (like scenario 2)

• Consumer interest, awareness & perceived value improved because of proper segmentation

• Scenario 3 includes fashionistas who have income greater than $100k, because of which it will be able to fetch premium ads.