CONSULTANT TO

VYP INDEPENDENT PRODUCTION COMPANY

TEAM- TURN AROUND

INTRODUCTION

VYP is an independent TV production company in the UK which is commissioned by TV broadcast companies to make programs. It had revenues greater than £28 million and it made over 121.3 hours of programs in total last financial year. The company was formed only 7 years ago and has grown fast. Included in the £28 million of sales revenue is £1.3 million of sales of VYP programs to other TV broadcast companies around the world.

ISSUES

Re-commissioned of drama series

BBC wishes to re-commission the second series of a last year successful program. The program last year revolved around four rowers who were preparing for the world championship 2011. BBC has offered a 10% price arguing the major cost of sets and other normal teething cost have resolved last year. Janet Black, the Finance director anticipates the profit will not be more than 5% and the other issue is the lead rover is not available and is already contracted with GGG for 10 months.

Proposal to expand into corporate advertising videos

The idea for VYP is to produce corporate advertising videos. VYP wants to know scope of showing corporate advertising videos on social media and the cost involved in it. According to Steve Voddil 15% of cost will be saved for subsequent attempts as VYP gains experience.

Fee negotiation for new children program

Following the success of a pilot program, BBC is considering proceed with the first series of VYP‟s children program Sammy Squirrel. The negotiation is going very well except for the ownership of merchandising rights. Given the comparatively high margin on the sales of puppets and other items based on Sammy Squirrel, VYP is considering whether to accept a lower fee in return for the right to sell the merchandise itself.

Banks a friend or foe? A new documentary by VYP

Currently, VYP is producing a documentary which attempts to explain the cause of the financial crisis in 2008. However, this documentary is now forecasted to make a loss due to the inaccurate anticipation and the poor cost control.

Review

SWOT

STRENGHT

Has a good financial background.

Has good reputation in the market

Has experience people working in the company.

Has enhanced reputation and won several award for production of documentaries.

Has growth of 39% in 2011.

Has market share of 1.4%.

Is among the top 20 companies.

Completed 197 programs which

WEAKNESS

Average operating profit from 10.1% to 9.4

The company rents its head office and studio.

Graphic technicians are also outsourced

Inaccurate forecasting of the budget

Outsources around 400 people.

VYP out source script writer.

Does not own fully equipped premises.

Does not have a video crew for VT filming.

represented total of 121.3 hr of broadcast.

Is creative and artistic program making.

VYP outsource skills

At VYP performance based bonus is given and retention is very high.

Doing good in international market

Has given dividend of 0.9 million in 2010

Engaged in charity and finding new talent.

Commissioned has gone down.

OPPOURTUNITY

Opportunity to do re-commission of a drama series

Expand its business into making of advertising videos.

Can make good profit after making subsequent videos.

To make Sammy squirrel.

To get in merchandising of Sammy squirrel and earn profits.

Increasing the profit by lowering the quality.

THREAT

Large number of small production companies

VYP is only commissioned by 5 companies BBC, Channel 4, Channel 5, ITV

VYP‘s margins are getting reduced.

A reduction of 5% in profit are to made in re-commission of drama series

Have no experience in making advertising videos.

Will make less profit or a loss in initial period.

Have no experience in merchandising before and outsourcing will cut down the profit to 25%.

Loosing of commissioned amount offered by BBC.

The anticipation of cost is not happening properly.

Lowering down the quality of videos.

PEST

POLITICAL

Increase in competition has proven to be cost productive

ECONOMICAL

Advertising reduced its expenditure.

The entrepreneurial skill has boosted the television economy.

SOCIAL

Change in taste and preference of consumer.

Looking for a message while entertainment.

Exports of UK-made entertainment programs and formats have grown strongly in recent years.

More and more people would spend time on Internet instead of watching TV.

TECHNOLOGICAL

Introduce of GCI and other graphic image.

Website broadcasts/YouTube channels

Poter’s 5 force

LOW-MEDIUM-HIGH

WHY

Threat of new entrants

MediumLow entry barrier: renting facilities and availability of outsourcers enable start up at relatively low cost and limited expertise

Power of buyers HighLarge powerful

customers: BBC, ITV, CH4, CH5.The customers currently offer a commission fee which is adequate to provide VYP a 10% profit margin

Power of suppliers LowThe outsourced companies provide VYP with the equivalent of around 400 person years of work

Power of substitutes

MediumIn-house production Acquired programs

Other forms of entertainment the Internet, sports

Competitors MediumSevere competition from other indies Reducing commission revenue due to a price competition

Reputation Finance Urgency

Advertising video

4 5 3 11

Children 3 5 3 11

Fee negotiation 4 2 4 10

Bank friend or foe?

2 3 3 8

Proposal to expand into corporate advertising videos

COST ANALYSIS

DESCRIPTION 1st VIDEO(£)

2ND VIDEO(£)

3RD VIDEO(£)

FOR 3 YEARS(£

)REVENUE 17,000 17,000 17,000 51,000

STUDIO HIRE 5,000 4,250 3,612 12,826

ACTORS 2,800 2380 2,023 7,203

FLIM CREW 6,000 5100 4,335 15,435

SCRIPTING 1,200 1020 867 3,087

MUSIC 1,500 1275 1,084 3,859

TOTAL 16,500 14,025 11,920 42,445MARGIN 500 2,975 5,080 8,555

MARGIN % 2.94% 17.5% 29.8% 16.771%

WHEN ACTOR WILL BE CHARGING 2800

DESCRIPTION1st

VIDEO(£

)

2ND

VIDEO(£)3RD VIDEO(£) TOTAL OF

3 YEARS(£)

REVENUE 17,000 17,000 17,000 51,000

STUDIO HIRE 5000 4,250 3612 12,862

ACTORS 4800 4080 3468 12,348

FLIM CREW 6000 5100 4335 15,435

SCRIPTING 1200 1020 867 3,087

MUSIC 1500 1275 1084 3,859

TOTAL 18,500 15,725 13,366 47,591

MARGIN 1500 1275 3634 6,409

MARGIN % -8.82% 7.5% 21.3% 12.56%

WHEN ACTOR WILL BE CHARGING 4800

Change in scenario

TRADITIONAL APPROACH

WHAT HAPPENS NOW

Focus on corporate video’s

it is better it should be

Access to Video Controls by marketing or sales team

Created with the express purpose of being shared everywhere.

Frequency of production

1 0r 2 may 10 or more

Availability of producers

few very large

Usage website or few events

Youtube, press conference, FAQ, new product, delivery of message

Scope of video production

Broad– a single video covered as much ground as possible

Narrow- video focuses on a specific audience with a targeted message

INCREASE IN USAGE OF INTERNET

SOURCE: OFFICE FOR NATIONAL STATISTICS

Fee negotiation for new children program

Taking the inflation rate, which is 47.80% from 1997 to march of 2012, into consideration, we predict that the merchandise sales of Sammy Squirrel would be £185m. Increase in making of videos is by 41%.

Case 1

£

Total Revenue of VYP 6300000

Total fee accepted 6300000

Cost c

Commission per hour 350000

Total no of hours 18

Total Revenue 6300000-c

Case 2

£

Total Revenue of VYP 6,300,000Total fee +sales of merchandise 4095000+x

Cost for merchandise x-aCommission per hour 227,500

Total no of hours 18X

Cost of program6,300,000-c

Profit 6,30,000-c(x-a)

BREAKEVEN SALES= 22,050,000

The report of BBC Worldwide shows that Teletubbies generated more than £125m in 1997. Taking the inflation rate, which is 47.80% from 1997 to march of 2012, into consideration, we predict that the merchandise sales of Sammy Squirrel would be £185m, largely surpassing the breakeven sales.

Analysis of profit

The revenue from Teletubbies were more than 100 billion dollars so if we compare that the profit would be huge.

Banks a friend or foe? A new documentary by VYP

No more interviews, VYP must produce the program based on the evidence it has to date.

Expensive computer graphic interface will be cut back.

Re-commissioned of drama

The suggestion was given by the finance director that’s its that we explode the myth of re-commissioned program being significantly cheaper.

Revenue Comparison

DESCRIPTION 2011 2010 TOTAL CHANGE

Documentaries 6700 6900 (2.89)1%

Drama series 6820 0 100%

Scripted programs

10410 9840 5.79%

Entertainment 3380 2970 13.8%

International sale

1300 910 42.85%

Total 28,610 20,620 38.74%

Revenue Analysis with no revenue from drama series

DESCRIPTION In 2011 In 2010 TOTAL CHANGE

Documentaries 6700 6900 (2.89)%

Drama series 0 0 0

Scripted programs

10410 9840 5.79%

Entertainment 3380 2970 13.8%

International sale

1300 910 42.85%

Total 21,790 20,620 5.67%

Comparison of total number of program

DESCRIPTION 2011 2010 TOTAL CHANGE

Documentaries 40 32.1 24.61%

Drama series 23 0 -

Scripted programs

90 30 200%

Entertainment 39 35 11.42%

Total 192 94.9 103.61%

April JAN FEB MARCH & APRIL

John strong has 10 month contract with GGG and that is from April to February.

RECOMMENDATION

Proposal to expand into corporate advertising videos

VYP should take trend to penetrate the market of corporate video. The cost will be saved with every subsequent movie being made and with increase in the number of people using internet in UK. Advertising video should also be shown social media. In order to survive in this market, VYP should make efforts to initiate production meeting with clients and hire experienced corporate media producer who has experience in the field of corporate advertising videos.

Fee negotiation for new children program

We suggest that VYP accept a lower fee to make use of the high margin of merchandised sales. In regard of the potential risks, we also suggest that VYP to hire a

marketing manager and other required employees and initial it should start in small scale. The profit will be huge which depends on the success of the show.

Banks a friend or foe? A new documentary by VYP

At present, VYP should try to cut cost in every possible way that does not affect the quality of the program. Besides the two proposals raised in the scenario, VYP could also reduce the use of outside filming and the use of famous actors.

In the long run, VYP should improve its IT system and enhance the employees performance by offering training project and performance related bonus. VYP should also equip itself with studios and hire VT crew to save cost in the future.

The one way to promote the show could be releasing the already made and new videos on social media website as the users are on internet are increasing.

Re-commissioned of drama series

With VYP just started producing drama series and it being successful. The market share for VYP has increased and profits going down in the industry. VYP is making programs

from quit a number of years now. VYP should take note that without doing any harm to the relationship. It should pass on the message to BBC after the re-commissioning the

drama series that cost for re-commissioned programs have increased.

Conclusion

According to our analyses, by following the recommendations of this report, VYP is sure to succeed in strategic transition and have wider development space

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