Business Plan on Launching a Web-Based TV Channel - Essay Example

?BUSINESS PLAN The ideas of business have been enhanced since the availability of internet on ground level. Entertainment, which has become one of the needs of people, has been the main concept of number of business project. Entertainment using modern methods has become an ingenious way to pioneer the entertainment business. A concept of providing private channel on internet has thus become common and is being done by various TV channels through their own website. With the incorporation of certain changes, this concept can be made even more effective and attractive. The paper discusses the concept of a business plan of launching a web based TV channel to be called “Launch Party TV”. The basic and primary business model of this web based TV channel is likely to remain the same. The company will generate its core revenue from subscriptions received. These subscribers will include both individuals and TV networks all around the world. The characteristic that will make the launch party TV channel a unique experience for the users and is likely to be a breath of fresh air in the market, is its exclusivity in providing behind the scenes footage of TV shows and movies. These behind the show footage will mainly include ‘bloopers’ a colloquial term for the mistakes made by the stars of the show during the shooting of the program and interviews with the stars, directors, producers and other related staffs. In addition, the contents of the TV channel will also cover the buildup events and the entire procedure through which a film or TV show is likely to go through before it is finally presented to the audience. The content of the channel will be spread from movies to TV channels, music and reality shows, sports, news and other high profile events. The main concept behind the TV channel is to make the viewers acquaint with the stars of the shows and what their true aura is behind the camera. Recently, a survey was conducted by various giant production houses which yielded a very interesting fact. It came to the knowledge of these studios that motion pictures having behind the scene footage and bloopers, which are shows at the end of the movie along with the credits, performed comparatively well on the box office as compared to the others. Moreover, the survey also showed that people are more curious in obtaining more and more knowledge about these behind the scene footages, director’s cut and exclusive interviews with the celebrities. Based on this entire concept, the ‘Launch Party TV’ is based which will strive to eliminate the gap between the stars and the viewers and provide a unique experience to its viewers by acquainting them with the entire process of showbiz production. Although due to the uniqueness of the content of the channel, the TV channel is likely to have a target audience of vast demography, but the main chunk is likely to fall between the age group of 18-30 years. Teenagers are more curious about the pre-production process and are inquisitive about knowing how their ‘super and action’ heroes go by in their daily life and how they cope with the challenges and process of production. The main marketing event of the Launch Party TV Channel would be the launching party which will be held in the headquarters of the company. The event will showcase the basic theme of the company and portray its entertainment philosophy. In order to grab the attention of the print and electronic media, a press conference will also be conducted before the start of the main ceremony in which all the major newspapers, tabloids and TV channel will be invited. This will give Launch Party TV a presence in the press and will likely to create awareness among the masses within a short period of time. The main event of the launch party will include performances by some of the current famous rock and alternate music band which will likely to drag teenage audience. In addition, it is also being planned to set up a stand up comedic act in order to lighten the mood and create more amicable environment. The rest of the show will comprise of endorsement by famous celebrities and clips of what is in stores for the audience of the TV channel. Other marketing tactics primarily include creating footsteps in the entertainment through social networking websites. The company has already created its page on Facebook and Twitter through which the masses will be contacted and the mass advertisement will be conducted. In addition, the TV channel is also likely to commence major advertising campaign in which ads will be printed in major magazines and tabloids, and holdings and billboards will be planted on major streets of the several cities. Making the proper usage of advancement in information technology, the channel is planning to conduct mass advertising through mobile text messages. The content of the TV channel is unique and one of a kind therefore it is expected that the company will not have any substantial hurdle in penetrating the entertainment market and capturing a considerable market share in a short span of time. Following will be the management team of the TV channel Designation Job Description Chief Executive Officer Chief Executive Officer will be at the ultimate top in the hierarchy of the company. He will bear the ultimate responsibility and thus will exercise ultimate discretion in decision making. Chief Executive officer will likely be an individual having ample experience in running a TV Channel before so that he can adequately understand the business need and appropriate strategy. All the department heads shall be reportable to the chief executive officer of the company. The election of the chief executive and his performance appraisal will be conducted by a board of directors of the company. Marketing Department Since it’s a new business in an already established market, marketing department needs to fully equipped with the latest marketing tactics and ideas. This can only be possible through a dynamic marketing department. It shall be the responsibility of the marketing department to devise an ingenious marketing plan in order to not only penetrate the entertainment market, but also capturing a fair share of the television ratings. The marketing head department shall be responsible for overseeing the performance of the marketing department and reviewing the marketing plan. Conducting meeting with the print and electronic media shall also come in the job description of the marketing head who shall act as the spokes person of the channel   Technical Department This department shall act as the back bone of the organization and will be responsible for setting up the web-site through which the transmission of the channel shall be broadcasted. This department will require a considerable number of highly skilled and dedicated staff who is able to understand the technical need of the business and will be able to deliver the services up to the industry standards. The technical department will further be divided into “Web-site development”. “Maintenance” and “Broadcasting”. All of these departments shall have their respective group heads that shall then be reportable to the head of the technical department. Financial Department  This department will be responsible for all the financial aspect of the company. This will include creating budget, financial statement, cash flow forecasting and allocation of resources. Chief Financial Officer shall be the head of this department who shall oversee all the major transactions with sponsors and network TV channel. Routine transactions such as recording of the subscription money shall be recorded by the line accountants who shall also be responsible for posting such entries in the general ledger of the system. The financial department will also be responsible for costing of the services in order to maximize the profit of the channel and manage the outflow of economic resources. Procurement Department  Procurement department will be responsible for dealing directly with the customers of the channel. This will involve billing the subscribers and sending them with monthly bills based on the package they have opted, entertaining the complaints of the subscribers, and resolving them on timely manner. The procurement department shall have a 24/7 helpline on which customer can send e-mail or chat online with a representative of the department for the timely solution of their problems. Like every other department, this department shall also have a head and all the salesmen shall be reportable to him. Financial Plan In order to finance the project, the management of the company would need a considerable amount of funds. The funds will be utilized in various core expenditure and ancillary expenditures. The core expenditures would include purchase and installation of technical machinery and registration of website of the channel. The ancillary expenditure normally includes organization of launching ceremony and various other marketing expenditures. The primary decision that the company has to take in such circumstances is to whether to finance these funds through debt or through equity. In order to finance any project, a company needs to raise capital in the form of revenue funds, short term finance, long term finance, running finance etc. Raising capital can be a significant and crucial task for any company as several technicalities and procedures are involved. It is generally observed in an economic scenario that the company with a good credit history and uplifted financial outlook is likely to raise funds easily as compared to the otherwise. Raising capital significantly affect the gearing of a company. Gearing identifies the sources from which the core funds and capital of the company, for operational purposes, have been raised. An equity geared company represents that the operations of the company are primarily financed by raising capital through issuance of equity shares, preference shares and debentures. There are other sources as well through which capital can be raised in order to finance any venture or to execute the day to day general operations of the entity. Both modes of financing i.e. equity and debt, comes with their advantages and disadvantages. Several factors, such as statutory rules and requirements, terms and conditions imposed by the counter party and general economic conditions are analyzed before selecting one of the options. The downside of acquiring financing through issuance of equity is that the procedure is quite complicated as compared to acquiring funds by approaching any bank. In most cases, a loan is acquired from any bank o financial institution by filing an application for the sanctioning of the loan. The bank or any other financial institution, after evaluating the necessary details such as credit history, financial outlook for assessing the ability of the entity to repay the loans in future, and the purpose of the project for which the loan application was filed, sanctions the loan. Whereas in the case of raising finances through issuance of equity shares, the company has to fulfill several requirements such as issuing a pre defined number of shares, issuing shares to the existing shareholder in proportion to their existing shares and appointing a financial advisor for conducting a due diligence of the entity’s operations. Although these statutory rules and requirements are enforced by the relevant authorities in order to safeguard the interest of the organization and general public, complying with them can be quite troublesome when the requirement of the fund is urgent. The cost of acquisition of funds, in the form of loan, is quite less if compared to the cost of raising financing through shares or bonds. Initial cost pertaining to the raising of equity financing includes printing of shares, cost of listing of shares on the stock market and professional charges paid to financial advisor for conducting the due diligence of the issuance of shares. Whereas, no or very minimal cost is expended in the acquisition of short term or long term financing. The biggest advantage of financing through shares or bonds is that no subsequent cost arises after the issuance. In case of debt financing, subsequent cost arises in the form of interest payments which is spread over the period of the term of the loan. Although, initially the cost of raising equity financing would be much higher, but the burden put on by the debt financings, in the form of interest payments, would significantly affect the net earnings of the company for a longer period. Moreover, if a company finds itself in a stringent economic condition and the repayment of interest charges and principal becomes difficult for it, the credit rating of the company would be adversely affected which in turn would affect its financial outlook FINANCIAL PLAN Following is the revenue forecast for the coming three years of the channel Y1 Y2 Y3 In thousand $ Sales 528,623 499,516 459,539 Following is the profit and loss statement of the company for the coming three years Y1 Y2 Y3 In thousand $ Sales 528,623 499,516 459,539 Cost of Sales 422,066 408,067 380,575 Gross Profit 106,557 91,449 78,964 Operating Expenses Operating Profit 106,557 91,449 78,964 Other 773 1,424 2,338 Profit before interest 107,330 92,873 81,302 Finance expense 500 500 500 Taxation 37,398 30,657 24,353 Profit after taxation 69,432 61,716 56,449 Following is the projected cash flow statement for the next 12 months ending. In thousand $ Y1 OPERATING ACTIVITIES 69,932 Net income Adjustment Pertaining to non-cash items Depreciation 57,876 Deferred Income taxes 14,743 Amortization of intangibles 150 Gain/(loss) on disposal; of property and equipment (32,133) Changes in certain working capital Trade receivables (2,579) Prepaid expenses and other current assets (6,459) Accrued liabilities (952) Accrued income taxes (1,498) Net cash generated by operating activities 99,080 INVESTING ACTIVITIES Proceeds from sale of property and equipment 73,018 Purchase of property and equipment (126,257) Maturity of investments 38,125 Change in other assets (1,818) Net cash (used in) provided by investing activities (16,932) FINANCING ACTIVITIES Cash Dividends (7,148) Repurchase of common stock (56,350) Net cash used in financing activities (63,498) Net increase (decrease) in cash and cash equivalent 18,650 CASH AND CASH EQUIVALENT Beginning of period 121,120 End of period 139,770 Following is the projected balance sheet of the company for the next three years 2011 2010 2009 In thousand $ Non-Current Assets 312,231 312,249 426,649 Current Assets Stock 12,820 6,570 6,579 Trade and other receivable 44,198 41,619 37,361 Other 16,647 24,477 28,223 Cash 139,770 121,120 52,351 213,435 193,786 124,514 Total assets 525,666 506,035 551,163 Current Liabilities Trade and other payable. 24,077 10,972 6,953 Overdrafts - - - Other 21,586 37,928 40,101 45,663 48,900 47,054 Non-Current 139,232 122,948 136,439 Liabilities Total Liabilities 184,895 171,848 183,493 Net Assets 340,771 334,187 367,670 Equity Share Capital (?1 nominal) 1,496 1,346 1,346 Accumulated other CL (59,431) (3,081) (5,326) Retained Profits 398,706 335,922 371,650 340,771 334,187 367,670 Debt and equity 525,666 506,035 551,163 Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity. The primary reason to conduct a ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of the financial feasibility. The ratios can be divided into various categories such as profitability, gearing and liquidity, each focusing on a different area of the financial outlook of the organization and highlighting the company’s performance. The financial analysis of Launch Party TV is divided into three main categorize namely Profitability, Liquidity and Gearing. Profitability Ratios   Y1 Y2 Y3   Gross profit margin 20.16% 18.31% 17.18% Net profit margin 20.30% 18.59% 17.69% ROCE 31.50% 27.79% 22.11% EPS 0.78 0.69% 0.62 Gross profit margin is an analyzing tool which assists in identifying how effectively and efficiently the company is utilizing its resources, variable cost related to labor and fixed costs such as rent and depreciation of property plant and equipment. Net profit margin, on the other hand analyzes the profitability of the company before deducting the taxation and finance charges from the earnings. The ratio is calculated by dividing the profit before interest and tax with the sales revenue of the current financial period. The ratio highlights how well the company is managing its selling and administrative expenses it also highlights the other income generated by the company during the course of its operations. The net income follows the same trend as the gross profit margin. Return on capital employed (ROCE) is, according to the analyst, is considered to be the most significant ratio in order to evaluate a company’s performance from an investor’s point of view. ROCE measures a company’s ability to earn a return on all of the capital that is being employed by the company. The ratio is calculated by dividing net income for the year with the capital employed by the company. Earnings per share (EPS) are considered one of the most important financial ratios from the investor’s point of view. The ratio highlights the average earnings from the shares transacted and is calculated by dividing the profit attributable to the common share holders and multiplying them with the weighted average number of shares outstanding during the period. The EPS has shows an inclining trend all over the recent past. This increase is primarily due to the increase in the cost of production which is already represented through the declining trend showed by the net profit margin and the net income margin. Earnings per share represent the amount earned by the investor per $1 invested by him. Liquidity and Efficiency Ratio Y1 Y2 Y3 Current ratio 4.67 3.96 2.65 Acid test ratio 4.39 3.83 2.51 Debtors turnover period 11.96 12 12.3 The liquidity ratio measures the company’s ability to pay its short term liabilities. The ratio illustrates that how quickly a company can convert its assets into cash and cash equivalent in order to pay off its short term liabilities. The most commonly used liquidity ratio, the current ratio, which is calculated by comparing the current assets and current liabilities. The strengthened the current ratio the more ability the company has to pay its debts and short term obligations over the next 12 months. The acid test, which is also regarded as the quick ratio, is calculated by subtracting the inventory balance from the total current assert balance. . Out of the current assets mentioned, inventories are regarded as the one which takes comparatively more time to be converted into cash or cash equivalent. The acid test ratio has followed the same trend as the current ratio. Receivable turnover represents how quickly the cash is received from the debtors. The ratio is calculated by dividing the revenue generated from the sales by the receivable balance as mentioned in the balance sheet of the company. The formula calculates the number of times the debtors are turned over during a year. The higher the value the more efficient the management is or it could also mean that the debts are more liquid. Receivable turnover ratio implies how much of the sales are made on cash and how much is on credit terms. Higher the ratio the more beneficial it is for the company Gearing Ratios Y1 Y2 Y3 Equity ratio 0.65 0.66 0.67 Debt ratio 0.35 0.34 0.33 Debt : equity ratio 0.65:0.34 0.66:0.34 0.333 : 0.667 Borrowing ratio 0.41 0.37 0.37 The gearing ratios and indicate the level of risk taken by a company as a result of its capital structure. These ratios are a great source of determining the level of financial risk to which the company is exposed and thus helps in reducing it to the optimum. The equity ratio indicates how much of the entity’s assets are financed through the finances generated through the revenue generated from the operations of the entity and raising financing through equity issue rather than acquiring debts or other financial institution. Debt ratio is always the opposite of the equity ratio and thus represents s a reciprocal trend. Another ratio to assess the financial leverage of the company is by calculating the borrowing ratio of the company. The ratio is calculated by dividing all the short term and long term borrowing of the company in the form of overdraft, long term loan and finances etc., with the shareholder’s equity. References [1] Richard Loth “Financial Ratio Tutorial.” investopedia.com. Investopedia, n.d. Web. 25 July 2012. [2] “Equity Financing.” investopedia.com. Investopedia, n.d. Web. 25 July 2012. [3] Ben McClure “Spotting Profitability with ROCE” investopedia.com. Investopedia, n.d. Web. 25 July 2012. [4] “Importance of Cash Flow.” buzzle.com. Buzzle.com, n.d. Web. 26 July 2012. [5] “How to increase profitability of your company”,ehow.com, E-how. n.d. Web. 25 July 2012. [6] Pierre Vernimmen “Corporate Finance – theory and practice” John Wiley & Sons Ltd. Volume 10 [7] “Finance director job description” buzzle.com”. Buzzle.com – intelligent life on the web, n.d. Web. 24 July 2012. [8] “What does a financial manager do” wisegeek.com” Wise Geek. n.d. Web. 25 July 2012. [9] “Objectives of financial reporting” answers.com. Answers corporation, n.d. Web. 25 July 2012. [10] Rosemary Peavler “Debt and Equity Financing.” Bizfinance.about.com” About.com – a part of the New York Times company, n.d. Web. 25 July 2012. Read More