Negotiations and Strategies - PowerPoint Presentation Example

Negotiations and Strategies Greetings! Our negotiations with Fox Entertainment Group are well underway to put The Neighborhood into one of Fox television network. Fox have submitted their offer to us and we have given them our counter-offer. At this point, Fox have asked for some time to study our counter-offer which is also a good time for us to review our position. At the outset, let us remind ourselves of our main objectives in this negotiation which are: 1. To get The Neighborhood into one of News Corporation’s television network 2. To retain significant creative control and liberty over the production thereof 3. To retain total freedom of all necessary decisions included but not limited to the cast selection, crew members, cutting and editing 4. To maximize promotion, exposure and support for The Neighborhood 5. To acquire more budget for the production of the show in order to improve its quality 6. To earn a reasonable profit from the sale of the license 7. To a reasonable percentage share on revenues stemming form syndication, licensed products, advertising and product placement II. Status of News Corporation News Corporation is one of the outstanding performers in the industry. Increase in revenue is attributed to three major components like the Filmed Entertainment Segment, the Cable Network programming and the Television segment. During the fiscal year 2005, it has a revenue from $23.9 billion which is $3.1 billion higher than the 2004 revenue of 20.8 billion. Due to this increase, News Corporation is currently liquid with an estimated cash flow of approximately $2.4 billion. Analysts believe that the cash flow of operations will increase to $3 billion within the next 2 years. This cash flow allows News Corporation to have greater flexibility to invest in capital-oriented projects as well as to prepare for the upcoming challenges it might face. On the downside, News Corporation has a large outstanding debt amounting to $11 billion. It is speculated that inflation of interest rates would increase its debt and cause a negative impact on its operating income. However, history tells us that the company was able to survive the largest bankruptcy restructuring in history when it suffered major setbacks in the 1990s. Not only did it survived the restructuring, it also bounced back to generate a 315% increase in its net profits in the mid-90s. III. Current Status of the Negotiation Fox Entertainment Group has offered us the following in terms of control on creativity and production of the show: 1. The company is prepared to put full media power behind this program and its marketing campaign 2. Willing to give significant creative control and liberty (illustrated in the Simpons, Married with Children and the likes) 3. To give creative control regarding this project, with the stipulation that we reserve the right of refusal, which we will only exercise in extreme cases. 4. Under the license permit, the creative team of the Neighborhood obtains the total freedom of all necessary decisions included but not limited to the cast selection, crewmembers, cutting and editing. They also offered the following financial terms: 1. Offer 25% of gross revenues stemming form syndication, licensed products, advertising and product placement. 2. Purchase the license to the program for the next 5 years with exclusive distribution rights within the United States. 3. We will commit to buying the first six episode of the show (at roughly $10,000.00 licensing fee each) with the option to pick-up whole season – another six episodes – at our discretion. 4. Offered production cost at $400,000.00 5. Offered the use of equipments (camera, microphone etc.) for the project 6. Fox Entertainment Group would then have the option of ordering a new season each year at our description 7. At the end of the licensing period, the Fox Entertainment Group holds the rights to first bidding on any new licensing agreement and to match any offer for the license. However, Fox Entertainment Group wanted alterations on the program format as follows: 1. To direct the theme of Neighborhood to sports and have it shown on Fox Sports Network 2. Focus of the show will be only high school athletes in the inner city (chronicles the ups and downs of the lives of inner city youth) Although we found most of the terms offered to be acceptable, we disagree on the following points and have made a counter-offer as follows: 1. We believe that the production cost estimate of $400,000.00 is too low and should be increased to $600,000.00 to achieve better quality 2. We find the licensing fee is too low but would compromise if the Fox would increase share in gross revenue for syndication, licensed products, advertising and product placement from 25% to 35% 3. Term of 5 years for license is too long would agree to 3 years IV. Creative Issues At this point in the negotiation, we would like to discuss further the creative issues involving the format of the show. We feel uncomfortable with Fox Entertainment’s proposal to change the format of the show to suit their Fox Sports Network programming. The fact that the is no clear showing that the focus on the lives of purely high school athletes in the inner city might prove to be quite limiting on our part. Furthermore, there are no current bases that will give us some ideas of whether or not such change would prove to be profitable. The current format of the neighborhood is analogues to the plot of Laguna Beach: The Real orange County, which is gathering huge following at the moment. To recall, Laguna Beach revolves around the lives of upper class teenagers in Laguna Beach while our The Neighborhood is a reality series about the lives of South Central teenagers. According to Nielsen Media Research, in the week of August 7, 2005, it is estimated that 1.31 million viewers in the adults 18-34 category watched Laguna Beach. As reality shows depend on how the viewers relate to the characters of the show, the Neighborhood has the potential to match or even surpass the figures gathered by Laguna Beach. A point to establish the salability of The Neighborhood is the claim made by Gayle Klinger, an independent television producer who produced a television pilot called “Anything’s possible”, that several Hollywood television executives have showed interest in buying his show. “Anything’s Possible” is also analogues to The Neighborhood since it portrays the accomplishments and hardships undergone by notable celebrities in their teenager years. Once this point is established in the minds of the buyers, this could increase the market value of The Neighborhood. Note that in the two shows mentioned, the plot is flowing and not focused on one segment as what have been proposed by Fox Entertainment for The Neighborhood. A single focus on the lives of high school athletes in the inner city might prove to be fatal on the ratings for The Neighborhood. V. Negotiation Approach In the course of the negotiation, it is very important to see the perspectives of both parties up front. Thus, an integrative bargaining approach is highly desired. This strategy should allow both parties to feel benefited at the end of the negotiations process. Let us now look into our current position and conduct and inventory of the things we are willing to compromise and those, which we feel to be non-negotiable. 4.1 Creative Aspect As stated earlier, the plot of The Neighborhood is already quite universal and has earned a good reputation of being such. Although the history of For Entertainment Group gives us clear picture that shows like the American Idol which is focused solely on people aspiring to be singers is getting the big bucks, this is not comparable to the Neighborhood since the format of American Idol is a reality contest not a docu-drama like The Neighborhood. Viewer’s participation is not a factor in The Neighborhood unlike in the American Idol where you get to vote for your favorite singer. Therefore, we feel it is best for The Neighborhood to be true to its genre and maintain its plot as it is. Altering the plot, which is already well established among its viewers as of the present, would affect the following of the program and it might become difficult to get them back considering the fact that we made quite a big shift. However, since Fox Entertainment is very insistent in their bid to change the format of the show, upon showing us good demographics to back-up their position to change the format of the show, maybe we can find some ways to accommodate such request. The intent of the show was never inclined towards sports alone although as a compromise, we could include in one of its episodes or a whole season, a story on inner city high school athletes. From there, we can gauge if such theme is indeed workable. If not, then we go back to the old plot of the show and stick with it. It is highly recommended at this point that a thorough discussion and study on this aspect should be conducted jointly between our company and Fox Entertainment in order to come up with a solution, which is acceptable to both parties. 4.2 Cost of Production The cost of production is non-negotiable at $600,000.00. Although Fox Entertainment have been doing well with low budget shows, the offer of $400,000.00 is really too low and to pursue such amount will lead to a diminished standard of the show. We therefore recommend that we not cut on cost further but recover such cost in terms of returns. It is not advisable to let the quality of the show suffer for it will lead to losses. Furthermore, the amount of $600,000.00 is already quite low in the industry as Cyber College (2005) have estimated that cost of production of America’s Next Top Model have reached millions of dollars already. Pre-production cost alone is already estimated at $800,000.00 which already way up the cost we are asking. We should always remember that the company that we are dealing with is very liquid at the moment. It has a huge cash flow for operations and our request for $600,000.00 production budget is only very minimal considering the amount of the total cash flow. We know for a fact that the company can well afford to give us more budgets as long as we can justify it with good quality production. It is therefore recommended that we should not enter into compromise when it comes to the cost of production. We should maintain a strong position at $600,000.00. 4.3 Licensing Issue The issue on the term of the licensing agreement is still negotiable. Fox Entertainment has asked for a 5-year term, which is quite long and may proved to be at the disadvantage of our company. Our counter offer had been for 3 years. However, we can negotiate this and bring down the terms to 4 years as a compromise. On the license fee issue, we maintain our position that $10,000.00 per episode is too low but will accept such offer if the share in gross revenue for syndication, licensed products, advertising and product placement be increased from 25% to 35%. At the moment, this should be the firm stand of our company and will only yield later in the negotiation if the 35% proved to be a long shot for both parties. There are two options, which should be presented one after the other has failed. a. First option would be for a tiered sharing where both parties will agree on a certain ceiling amount which if reached already and surpassed, Fox Entertainment would give an additional percentage on the excess amount. For instance, from 0-2 million revenue, Fox Entertainment will give 30% share and in excess of 2 million, Fox Entertainment will already give 35% share to Demanton Company. b. Second option would be to allow for 30% share in the first two years and increase to 35% in the succeeding years. At any rate, a compromise should not be lower than 30% share in gross revenue for syndication, licensed products, advertising and product placement. Other than that is already unacceptable to us. We cannot afford to loss further grounds since we know that the shares in gross revenue for syndication, licensed products, advertising and product placement will be quite substantial considering the extent of the marketing and promotions network of News Corporation. We should always keep in mind our objectives when we negotiate this contract. VI. Next Steps Since offer and counter offer have been submitted, it is high time for both parties to sit in the negotiation table and discuss the terms of the contract face-to-face. Since Fox Entertainment appears to be really interested in The Neighborhood series, it should be fairly interesting to discuss the terms with them. Read More