Current Multimedia Business Conditions - Case Study Example

Multimedia Industry: Defining Multimedia: Multimedia is an emerging knowledge-based industry which is creating a lot of sustainable job opportunitiesfor workers and new market opportunities for their employers. Multimedia companies tend to be small businesses with less that a total of 10 employees. In a recent survey, it was estimated that nearly 51% of all companies in this industry tend to belong to this category. While most of the employees get ancillary benefits, a small percentage of the employees work on short-term contracts. The prime source of revenue for multimedia companies is through website development. The next biggest source of business is from the education and training market. While of late, the video gaming and entertainment businesses are growing at a rapid pace. Hence, it is predicted by analysts that in another 5 years "video gaming and entertainment" would replace "website development" as the leading source of revenue. The term "multimedia" has come to represent applications and technologies that transform textual, visual and aural data. These applications also support the interactive usage of audio and video streams. In other words, multimedia is the presentation of information in a combination of multiple types of data ranging from text, graphics, animation and video. So from the above definition we learn that the market for the multimedia industry is very broad. With the advent of newer technologies and computerization of traditional institutions, the industry is set to expand exponentially over the next few decades. With the integration of more than one medium of data presentation, more sophisticated business models have to be invented to suit this new business terrain. This increase in complexity also adds to the hassles of "intellectual property" and "information security". So much so that these two terms always find mention in all discussions of multimedia. Stormnetmedia: Stormnetmedia is a leading multimedia company in the United Kingdom offering high quality CD and DVD duplication services at very competitive prices. The company has a strong customer base in London, Birmingham, Warwickshire and the Midlands. The video and DVD production are of broadcast quality. The company also provides encoding services for data protection. Other services provided include web designing, online education solutions and database applications. The Management Team and Employee relations: The company boasts of some of the best qualified veterans of the industry at the helm. The corporate culture within the business entity is also very advanced, especially the openness with which new team members are welcome. For example, in their own words the company "empowers our people, future team members will be recognized for their contributions and have the opportunity to grow their careers with the organization" The company is always striving to hire personnel from diverse ethnic and cultural backgrounds making work an enriching and highly rewarding experience. So this aspect of their business will fetch good rewards. Impressive financial results: The results for the year 2006 are an invitation for further investments. The total Revenue for the group rose from $40,437 in 2005 to a whopping $80,162 millions the subsequent year. This is an increase of nearly 100%. Such growth figures are not usually seen in companies that started with a modest capital. It just goes to prove how the company is head and shoulders ahead of its competition when it comes to performance. During the same period, its operating income rose from 25,000 dollars to 35,274 dollars, again an increase of nearly 40%. So, this small scale firm has got all the ingredients to make it a successful player in the multimedia market. With such strong financial performance in the recent past and a likely trend to follow, Stormnetmedia can look forward to opening the company for public investment. Strategic Branding: It is not just that the Stormnetmedia’s brand is popular and well-respected, they represent market leadership in terms of quality in their respective segments of the industry. With a wide variety of services, it offers great range of choice for its clientele, which ultimately contributes significantly to the bottom-line. This is another area where the company had displayed leadership in the industry. Strategic Advantage: Even after achieving positive financial results, the top management is not complacent on past performances. The company had constantly re-invented its product and service range through innovative operational strategies. The management team is also constantly striving to simplify its structures and increase co-ordination between various branches and implement cost-cutting techniques. So Stormnetmedia is ahead of its competition in this aspect, which should persuade venture capitalists to back this company in the future. The company always places the interests of customers above their own. This is reflected in its "approach towards managing its people, exceeding expectations of its customers, making a difference in communities and working with regulators" (Annual Report, 2005-2006)). Considering all the above reasons, we can conclude that during the course of next five years or so, Stormnetmedia will reach new heights. Other positive trends: In the small-scale multimedia market, the company had managed to achieve the fastest rate of organic growth. For instance, between 2003 and 2005 the growth rate is 60 points, which is a clear 20 point lead over its closest competitor. The Stormnetmedia management is constantly looking for newer opportunities in the digital media industry. It has plans to increase globally co-ordinated innovation and break-out innovation. Plans have also been drawn to capture a larger share of smaller markets by catering to local preferences. What lies ahead? The company is very well placed for further market consolidation. Add to it a greater synergy potential, and we have a company that is strong in its fundamentals. These strategic advantages are backed by sound financials as well. For example, a cash flow margin of 50% and a total asset worth of $500,000, Stormnetmedia’s shares must be very lucrative for investors, when it will eventually graduate to a public company. Eicom PLC Eicom Plc is into the management and optimizing usage of digital airwaves for television broadcasting. Performance Channel and SciTech TV are the two channels that the company presently operates. Past performance and Future plans: Eicom management has announced plans to expand their business outside the UK in the near future, which is their primary market as such. This would entail adopting newer technologies like broadband and Internet Protocol Television in the future. In the eighteen month period spanning from January-2005 to June-2006, the multimedia group had announced a turnover of 1,016,000 pounds. During the same period the group registered an EBITDA loss of 1,572,000 pounds leading to a net loss of 1,885,000. These numbers may not make the shareholders happy. But given the plans for expansion, most revenue from the new channels will translate into profits as fixed costs for the expansion had already been covered. So, Eicom had established a strong technological asset base, with which it can add new channels for relatively very low costs. The turnover for the period January-2004 to December-2004 was 365,000 pounds. The cost of sales during January-2005 and June-2006 is 1,153 pounds and for the period spanning January-2004 to December-2004, it was 304,000 pounds. Gross loss during the eighteen months between January-2005 and June-2006 was 488,000 pounds. The gross loss between January-2004 and December-2004 was 15,000 pounds. Between these two periods, the retained loss has had a dramatic decrease of 1,371,000 pounds. So overall the companys finances are charting an upward curve. The impact of a growing workforce: The total number of employees working for the group is 9,000 according to its latest annual report. So, both in terms of market capitalization and workforce numbers, Eicom Plc is a large business entity. This makes its plans of expansion elsewhere that much easier. In fact, nearly 15% of its turnover for the last year had arisen from markets outside the UK. The primary reason why the group is not showing profits yet is the nature of the market. The digital entertainment industry is at a nascent stage. A lot of areas like technological compatibility and software installation need to be standardized and regulated, before the market base expands and prices for the consumer declines. Its leading brand: “Performance MainStreet”: One of its channels - "Performance MainStreet" offers programs based on 20th century culture in the form of various music genres. Yet, its market share in the music industry is less than 2%. However, the channels performance improved during the last 6 months of 2005 and the first three months of 2006. This is a positive trend and is set to continue in this direction. The temporary dip in the revenues during the second half of 2006 is due to a general industry downturn - so the figures have to be evaluated in this light. Another reason why the future looks bright is the recent legislations. Some of the recently passed regulations to protect niche services such as MainStreet will have a damaging effect on its competitors in the mainstream television industry. Marketing Approach: The Eicom group has also initiated large-scale marketing efforts this year, which is already having a positive effect on revenues. As part of the companys strategy to delve into the IPTV market, it has come to an arrangement with the Nature magazine. Eicom group supplies multimedia material like videos for the magazines website on a regular basis. With an ever growing goodwill, such opportunities will soon multiply. Problems Confronting Eicom: One area where Eicom had struggled in the past is its inability to find a suitable revenue model for its Job Channel. As a result it has now become unviable to continue this service. Now that the directors have decided to remove the service, the time is opportune to choose the right revenue model this time around. Another deficiency with the business was its failure to utilize its overheads at their most efficient. This could be achieved by bringing various services under one UK based television channel. It remains to be seen if the Eicom group is able to acquire smaller businesses to make optimum use of its investments in technological infrastructure. If it will succeed, then its revenues will shoot up. Electric Word PLC Electric Word specialized in information processing business covering areas as diverse as education and sports. Some of the products it deals with include magazines, websites, newsletters, events and other custom reports. Financial results: Let us look at some of the financial indicators for the year ended 30th November 2006. The adjusted profit before taxation rose from 451,000 pounds to 920,000 pounds. The operating margin saw a two percent increase. The year saw a profit of 33%. All these numbers point to a healthy balance sheet with sufficient cash flow. The company has been in an acquisition spree since December 2005, assimilating 5 companies already and looking for more opportunities. These are remarkable achievements given the fact that Electric Word was started only seven years ago. It then conceived a long-term goal of creating an organization that would deal with all branches of the publishing media with a special emphasis on niche markets. Now looking back at these seven years, investors and other stakeholders can conclude that the company had indeed lived up to its own expectations. The Acquisition spree: Giving fillip to the companys progress is its recent acquisitions. Of the five companies acquired, SportBusiness Group and Incentive Plus are very significant in that they give a vital competitive advantage to Electric Word. These acquisitions were matched by organic growth as well. Let us look into some other significant numbers. Turnover for the year ended December 2006 was 10.7 million pounds, which was a rise of 72 percent to the previous years turnover. Renewable subscriptions have been the central source of revenue generation for Electric Word, amounting to nearly 50% of its total sales. The company has been successful in its endeavour to diversify its business and increase its market share. Of late, the management is drawing plans to start operations in the internet, which had been unexplored so far. A similarity could be drawn between Electric Word and EMI Records in their sluggishness in venturing into the online market. Broad range of Products & Services: Electric Words revenue growth right from its inception has been extremely healthy. For example, the profit before tax increased 104% last year, while earnings per share rose by 21pence. In a way it is difficult to categorize Electric Word. Although it is loosely called a multimedia company, its range of activities makes it much more than that. For example, its public sector activities extend across education and health services. The company also published couple dozen different newsletters on subjects as diverse as compliance responsibility, finance and provisions for special education. In addition to this, Electric Word is into book publishing and other training products. So, when compared to Eicom, Electric Word has a broader portfolio in terms of products and services offered. In spite of its steady growth, there are a few areas where the group is not performing to the optimal level. For example, the market for management information and professional development resources has been growing over the last ten years. But Electric Words clientele remains more or less stagnant. With little more focus on innovation, the company can garner a large chunk of these emerging market opportunities. Some Weaknesses: Similarly, while the business generated from the education sector rose by 2 million pounds in the last 12 months (largely as a result of the acquisition of Incentive Plus), there were other acquisition opportunities that were squandered due to indecision by the top management. So, a reassessment of the Board of Directors may be warranted during the annual general meeting, so that the growth potential of the company will not go to waste. The acquisition of Teaching Expertise was another landmark event in the history of Electric Word. According to its Board of Directors, the deal has had a synergistic effect on the business as a whole. This is so because there was much overlap between the customer bases of Teaching Expertise and the newsletter subscribers of Electric Word. The subsequent move to offer these services online further improved the integration of these related but different services. Future Prospects: With prospects for the education business looking brighter than ever, the following rationale extracted from their recent annual report displays much foresight and understanding: "The foundation of strongly-renewing subscription products is now enhanced by a series of inter-connecting products in well-defined niches. The addition of Incentive Plus enables the business to monetize access to its customer base in a way that is more appropriate and more effective for this market than through advertising revenues alone, and the development of online channels will both complement and support that development".(annual report for the year ended December 2006). Metrodome Group plc Licensing, marketing and distribution of material such as motion pictures, television series, etc in digital formats is the principal business of Metrodome Group. In other words, the groups prime markets are in the sectors of Home Entertainment, Television sales and other upcoming media technologies. Another important operation that contributes substantially to the revenue is "theatrical releases". Plans in the Pipeline: In terms of strategy, the group intends to stay ahead of competition by adopting the following plan of action for subsequent years: Increasing the number of theatrical releases per year and offering most of the productions in DVD format as well. Building a solid infrastructure for easy distribution of the productions through terrestrial and satellites channels is also on the table. Financial Bottlenecks: To consolidate its position as the market leader in releasing art house and low budget independent films, a niche market. In this regard, Metrodome is in a position similar to Eicom Plc. So, given the competitive nature of the multimedia industry, Metrodome Group seems to have got the right measure of the areas of improvement, so that the business can be sustained. Let us find out if the company has adequate financial backing to succeed in its plans. The groups gross margin percentage has been steadily increasing over the last five years, peaking to a solid 30% in the latest results. With the impending release of such titles as "Lie With Me" and "Shadowboxer", the management is bullish about the prospects for the coming year. However, during the same period, the companys overhead expenses have risen 24%. This is basically due to the aggressive recruitment drive and attractive salary packages offered to its employees during the year 2006. Measures have to be taken to curb this trend if profit margins are to be maintained. In a way the Metrodome group is in a similar position to Eicom in the area of overheads. As a result their profit after taxation figures has been dented. The latest interim report shows an inflow of 1,099,000 pounds as its operational cash flow, which is a healthy figure given the size of the corporation. Increasing number of Product Releases: The number of film releases has been steadily increasing over the last five years, culminating in six releases in the first 6 months of 2007. This implies a couple of things - that the operational efficiency of its production had improved, and the management is adept at picking the right projects. For example, some of its releases like "Days of Glory", "Away From Her" and "Water" have become popular hits in the United Kingdom and some other countries of Western Europe. A breakdown of the groups total revenue across its portfolio reveals some interesting facts. Though the products the company offers look quite varied in the first glance, nearly 80% of its total revenue is generated from its DVD business. Such a dependence on one product puts the company in risk. In other words, Electric Words diverse range of products makes for sustainable and safe model of business whereas Metrodomes does not. Given how competitive the multimedia industry is, a drastic change in a companys business model is a tough task. So, to keep its profit levels in the ascendancy, Metrodome has to concentrate on its niche DVD titles market. The management seem to have recognised this reality as a new announcement had been made to release over twenty five budget titles during the later half of this year. Some of these titles include "In2Film", "MiniMetro", "Donnie Darko" and "Human Traffic" - all of which received critical acclaim when premiered. By catering to niche markets, the business models of Metrodome and Eicom are somewhat similar. Recent moves by the Executive Team: One of the significant developments that changed the groups fortunes was the selling-off of TVLs ownership in Metrodome. This allowed more liquidity in the stock with investors bidding for Metrodomes stock in ever greater numbers. This move had also taken care of some persistent problems facing the company. For example, the TVLs sell-off had increased available funds which translated into more projects in recent months. It had also eliminated the negative effects that TVLs decisions had on Metrodomes stock. In the words of Metrodomes Chairman, "As a result of this private placing the Company has attracted new shareholders resulting in an increased number of shares in the market. At the same time we were able to discharge a significant loan and accumulated interest of 1,122,000 pounds back to TVL as part of this placing, by way of a debt for equity swap".(Chairman’s report, Annual Report 2005-2006) So the move has had many positive consequences for Metrodome. This is a unique financial advantage that Metrodome enjoys over its competitors, including Eicom and Electric Word. Pearson PLC: Pearson Plc is a media enterprise of notable repute. In their own words, their business goals are to "to educate, entertain and inform." And looking at the empirical evidence the company had certainly met its business goals. Any analysis of financial prospects without consideration to intangible values such as business goals is bound to be inaccurate. Hence, the companys stated objectives alongside its past accomplishments make it a real winner in the publishing industry. Financial performance: A glance at the companys financial performance for the last five years indicates a steady growth. The operating profit had risen from 4,019 million pounds in 2003 to 4,423 million pounds in 2006. Pearson Education, which is one of the top brands, had by itself contributed 383 million pounds. These figures translate well for the shareholders. For example, to match the growth in operating profit, the earnings per share had risen from 30.3 pounds to 40.2 pounds. This is all the more impressive when seen in the light of the dividends per share, which are a healthy 20-30 pounds per share annually. So, financial analysis shows that the condition of the company is favourable to investors. The Road Ahead: Pearson Plc sold-off Government Solutions to Veritas Capital in December of 2006 in preferred stock. With this structural realignment, the company had moved its focus on emerging opportunities in the field of education and entertainment. The management had also announced that it will inject 100 million pounds from the proceeds of the above sale into its UK Group Pension plan for the year 2007. So investors who are retired and looking for a safe and secure return on investment during their twilight years will benefit greatly by holding these shares. On top of that the board of directors have proposed a significant increase in dividend of 8.5%. This follows a trend of 15 years where the dividend dispersed had adequately compensated for the devaluation induced by inflation. Strategic advantage: Since Pearson had set itself to disseminate education and information in the broadest sense of the word, there is a lot of scope for market expansion and horizontal growth. By a mix of organic investment and acquisitions the company has built each of its businesses in a remarkable fashion. The fact that most of its operations are integrated, lends itself to efficiency in terms of "shared assets brands, processes, facilities, technology and central services". In addition to this, the company makes provisions for the fulfilment of its long term vision by investing in areas of content development, technology improvement, finding new market opportunities and overall efficiency. The Management Team: Pearson Plc. is led by proven experts in their respective fields. Glen Moreno is the Chairman, who brings with him his valuable experiences with Fidelity International and Man Group plc. Chief Executive Marjorie Scardino puts to good use her expertise in matters of law. Having had previous publishing experience from The Economist Group, she had transformed the company in the ten years since she took over this top position. In this respect, the executive team of Pearson is similar to that of EMI. Both these firms are headed by proven leaders with plenty of experience in the multimedia industry. So, all stakeholders in the company can rest assured that their investments are in safe and trustworthy hands. EMI Records: EMI Records is a reputed music production and distribution company. It is distinct from others in the music industry from the fact that it always puts the prospects of the artist ahead of the commercial return on the art. Such popular artists as Iron Maiden, Pink Floyd, Kate Bush and Robbie Williams have had a long-term business relationship with the company. To this day, it remains a dynamic and innovative label committed to recognizing and supporting fresh musical talent in Europe and America. Eicom’s business is also music based but their focus is on the distribution through television channels. Hence, Eicom and EMI records compete in different markets although they both represent the multimedia industry. The company is in a phase of transformation with the prevalence these days of downloadable music off the internet. EMI is conceiving of a fair and sustainable online business model that will return rich rewards to artists and the label. Financial Performance: An overview of the companys performance over the last five years reveals some interesting trends. The annual turnover has declined from 2,672,700 pounds in 2001 to 1,942,800 pounds in 2006. This decline is attributable to the unregulated growth of illegal downloads through the internet. This assertion is supported by the fact that other performance indicators such as Operating assets and Earnings per share have also declined proportionate to the decline in the annual turnover. The Earnings per share had plummeted form 10.1pence to 7.2 pence over the last five years. The multimedia companys revenue from music copyrights fell form 61,000 pounds to 33,200 pounds in the last five years. The companys Chairman and CEO Martin Bandier give the following rationale for the dip in profits: "Mechanical royalties, derived primarily from the sales of recorded music products, now represents less than 45% of our total publishing revenues, down from over 56% of the total five years ago. Mechanical revenues declined by 6.3% at constant currency for the year. Given the time lag in receiving royalties from collection societies, mechanical revenues were negatively affected by the prior periods decline in the global recorded music market and the phasing of receipts." (Annual Report 2005-2006). Challenges facing EMI: With the governments across the world under increasing pressure to chart policies to curb this trend, a reversal of fortunes for the music industry can be expected. Having stated that, regulating the usage of Internet brings with it unprecedented geo-political and technical challenges. It remains to be seen, if the internet could be tamed for legitimate commercial transactions. What can be done to remedy the situation? There is only one solution - EMI has to reinvent its brand to suit the changing nature of the music and multimedia industry. Looking back at some of the decisions by its management, an aversion to risk-taking is evident. But now that the conservative approach had failed to deliver financial returns, the company finds itself in a hole. To negate this predicament the company has to adopt a policy of "educated risk-taking". A similarity could be drawn between Electric Word and EMI Records in their sluggishness in venturing into the online market. Strong Fundamentals: EMIs fundamentals are quite strong. It offers a broad range of music genres (both past and present) to its consumers. Some of their prominent artists include Natasha Bedingfield, Kylie Minogue, Eminem, Jessica Simpson, Alicia Keys and Pharrell Williams. The multimedia companys marketing strategy is also strong. By continuing to concentrate on improving the overall efficiency at all levels and a more aggressive defence of copyright laws, the company can off-set some of the losses that are inevitable due to prevailing market conditions. EMI’s Social Responsibility Policy: EMI is distinct from its competitors in its special focus on Corporate Social Responsibility and Environmental Protection. Across its offices, studios, distribution centres and factories a universal compliance code is adopted to minimize the detrimental effects on the environment due to global warming and other such phenomena. The environmental impact of manufacturing is incorporated in its annual report as well. In this way, EMI tries to maintain transparency and accountability to its stated goals. This policy has already had some positive effects. For example, the Carbon-di-oxide emissions in all its facilities dropped by one thirds. Strictly in the financial sense, these successes may seem irrelevant, if not detrimental, to the bottom-line. But these days many consumers are environmentally conscious and expect high ethical standards from business corporations. So, the bottom-line will be boosted when enough consumers become aware of the superior ethical policies of EMI. References: Bellotti, V. & Rogers, Y., 1997, From Web press to Web pressure: multimedia representations and multimedia publishing, Proceedings of the SIGCHI conference on Human factors in …, 1997 - portal.acm.org Chiariglione, L., 1998, Impact of multimedia standards on multimedia industry, Proceedings of the IEEE, 1998. Drew, M.S. & Li, Z.N., 2004, Fundamentals of Multimedia, School of Computer Science Publication, Canada, 2004 EMI Records Chairman’s Address, [online], available at: , accessed on 16th October, 2007 Electric Word Corporate Website, [online], available at: , accessed on 16th October, 2007 EMI Records Annual Reports Database, [online], available at: , accessed on 16th October, 2007 Forman, D.C., 1995, The use of multimedia technology for training in business and industry, Multimedia Monitor, January 1995, Vol.1. Multimedia Induatry, Annual reports from 2001--2006. [Online]. Available at: , accessed on 16th October 2007. Stormnetmedia Online Interface, [online], available at: , accessed on 16th October, 2007. Read More