ANALYSISThe task at hand for Dana Wheeler who is the VP of marketing for The Fashion Channel is to increase revenue aggressively and maintain TFCs position as the market leader while staving off competition from competitors like CNN and Lifetime. The two streams of revenue for TFC are from the cable affiliates and the revenue from advertisements.CABLE AFFILIATESAt $1 per household TFC is making about $80 m (80 million households with cable access) as revenue from this. However its ratings have been decreasing on parameters like consumer interest, awareness and perceived value when compared to channels like CNN and Lifetime which are the major threats to its position as market leader. The following table gives the ratings for the above mentioned parametersCONSUMER INTERESTAWARENESSPERCEIVED VALUE

TFC3.84.13.7

CNN4.34.64.1

LIFETIME4.54.54.4

From the above table we can see that the ratings of TFC are lower than CNN & Lifetime in all three parameters .One of the major reasons for this is the fact that CNN is a news channel and Lifetime is a movies channel. This gives these channels more visibility as compared to TFC as more people will be viewing these channels as compared to a niche channel like TFC which focusses only on Fashion 24/7.Therefore TFC has to advertise more and create a greater awareness and consumer interest for their channel.There is a risk that cable operators will start offering TFC in less appealing packages if the network underperforms on the above mentioned parameters. This has to be a key focus point for TFC.

ADVERTISING REVENUESDana wheeler focussed on segmentation of the market as it was evident that companies like CNN and Lifetime were TV drawing ratings of 4.0 and 3.0 respectively by providing programs focussing in men of all age groups and women in the age group of 18-35 years.The data in exhibit 1 shows that CNN has 45% of the male viewers as compared to 39 %in TFC. Lifetime is having around 43 % female viewers as compared to TFC which has only 33 %.This clearly shows the areas TFC has to focus on and how it has to segment the market.Dana made a list of three scenarios which had to be evaluated in terms of revenueSCENARIO 1-Investing in a major marketing campaign ,advertising campaign as well as programming for all the customers without focus on any particular segment. This would boost viewership ratings by 20 % however the CPM received from the advertisers would decrease by 10 % according to sales forecasting .This decrease is mainly because it is a multi-cluster strategy and companies will pay a premium on CPM only when you deliver to the specific target audience that the company is interested in.SCENARIO 2-The target segment in this case is the Fashionista group. This segment is strong in the 18-34 group and has 61 % females with an income of more than $100000.Though this strategy might lead to a decrease in viewership rating by about 20 % to 0.8 it will result in a greater CPM. Companies will be willing to pay about $3.50 for an audience stronger in the younger, female oriented Fashionista segment. In addition to this TFC would have to spend an additional $15 million per year on programming under this scenario.

SCENARIO 3-The third alternative is to target to segments The Fashionistas and the Shoppers/Planners. The dual targeting would drive the average ratings to around 1.2 and the potential CPM will be round $ 2.50.This appears to be a good strategy as both these segments are fashion enthusiasts and any marketing expenditure incurred towards these customers will create a loyal customer base. However this comes at an additional $20 million on programming to ensure that there were selections at both segments.The following tables give a detailed analysis of TFCs revenues as well as its expenses and and gives us a clear picture of which strategy to adopt in order to maximize our revenue Ad Revenue Calculator

Ad Revenue Calculator

Current2007 BaseScenario 1Scenario 2Scenario 3

TV HH1100,00,0001100,00,0001100,00,0001100,00,0001100,00,000

Average Rating1.0%1.0%1.2%0.8%1.2%

Average Viewers (Thousand)1100110013208801320

Average CPMa$2.00$1.80$1.80$3.50$2.50

Average Revenue/Ad Minuteb$2,200$1,980$2,376$3,080$3,300

Ad Minutes/Week20162016201620162016

Weeks/Year5252525252

Ad Revenue/Year$2306,30,400 $2075,67,360 $2490,80,832 $3228,82,560 $3459,45,600

Incremental Programming Expense $ 150,00,000 $ 200,00,000

a Revenue/Thousand Viewers

b Calculated by multiplying Average Viewers by Average CPM

Ratings-Viewers/Total TV House HoldsAdvertising Revenue on Individual spot-(Households * Ratings)/1000*CPM

2006 Actual2007 BaseScenario 1Scenario 2Scenario 3Assumptions

Financials

Revenue

Ad Sales$2306,30,400 $2075,67,360 $2490,80,832 $3228,82,560 $3459,45,600 Insert scenario results from revenue calculator

Affiliate Fees$800,00,000$816,00,000$816,00,000$816,00,000$816,00,000Grows 2% per year with population

Total Revenue$3106,30,400 $2891,67,360 $3306,80,832 $4044,82,560 $4275,45,600

Expenses

Cost of Operations$700,00,000$721,00,000$721,00,000$721,00,000$721,00,000Grows 3% per year with inflation

Cost of Programming$550,00,000 $ 550,00,000 $ 550,00,000 $ 700,00,000 $ 750,00,000 Add incremental programming expense

Ad Sales Commissions$69,18,912$62,27,021 $74,72,425 $96,86,477 $103,78,368 3% of ad sales revenue

Marketing & Advertising$450,00,000$600,00,000$600,00,000$600,00,000$600,00,000Reflects increased spending of $15M

SGA$400,00,000$412,00,000$412,00,000$412,00,000$412,00,000Growing with inflation 3%

Total Expense$2169,18,912$2345,27,021$2357,72,425$2529,86,477$2586,78,368Spreadsheet calculates automatically

Net Income$937,11,488 $546,40,339 $949,08,407 $1514,96,083 $1688,67,232 Spreadsheet calculates automatically

Margin30%19%29%37%39%Spreadsheet calculates automatically

From the above calculations we can see that targeting both the Fashionista segment and the Shoppers/Planners segment gives us a profit margin of around 39 % .So Dana Wheeler should go to the board with this strategy.