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WINTER
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THE
FASHION
CHANNEL
The Executives
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• Jared Thomas: founder
and CEO
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• Dana Wheeler: senior vice president of
marketing
– Background in marketing packaged consumer
products and in the advertising industry
• Norm Frazier: senior vice president of
Advertising Sales
TFC Basics, Revenues
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• TFC: successful cable TV network
– Dedicated solely to fashion
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– Up-to-date and entertaining features
– Broadcast 24 hours per day, 7 days per week
• Founded in 1996 by two entrepreneurs
– Constant revenue and profit growth above industry average
since founding
– Example: 2006 forecast at $310.6 million
• Resources: $60 million for national and
affiliate advertising, promotion and public relations in
2007
– Increase of $15 million over 2006 spending
Viewers and Message
• Viewers
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– Niche network
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– Reaches 80 million U.S. households who subscribe to
cable and satellite
– Avid viewer: women between 35 and 54 (source:
demographic survey)
• TFC had no additional information about its viewers beyond
basic demographics
• Message: meant to appeal to as broad a group as
possible – “Fashion for Everyone”
– Popular 2005 series: “Look Great on Saturday Night for
Under $100”
• TFC grew without segmentation, branding, or
positioning strategies
Competition Creates New Strategy
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• Lifetime and CNN launch fashion-specific
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programming blocks
– Receive notable ratings
• June 2006: Thomas changes his tune – “It’s
time for us to build a modern brand strategy
and secure The Fashion Channel’s position as
the market leader. I want to use marketing to
lay a foundation for future growth.”
Advertising Concerns
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• Frazier warns that TFC may have to drop price per
unit of advertising by
10%
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– Due to performance issues
• To hold or increase price TFC must attract critical
mass of viewer attractive to advertisers
• Warning: TFC must still maintain overall ratings with
cable consumers and the cable affiliate distribution
network
– Risk: loss of distribution support due to disappointed
consumers
Cable Affiliate Fees
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• Cable Affiliate Fees are the second source of revenue for
TFC
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Consumers pay monthly fee for basic lineup of cable channels
– TFC on track to generate $80 million in 2006
•
– Incremental fees for premium channels and on-demand programming
– TFC is a basic channel
• Multi-system operators (MSO) sign multi-year contracts with networks for
a specified fee that the network receives for each household with the
channel
– TFC average: $1.00 per subscriber per year – fairly low for industry standards
due to niche content
– Fee does not change as viewership changes
• MSOs and affiliate carefully monitor customer satisfaction
– Threaten to drop unpopular channels due to viewer outcry
• Not much change to increase affiliate revenue due to full penetration
– Goal: maintain good equilibrium
TFC’s Advertising Revenue Model
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• 2006 advertising: on target to generate
$230.6 million
• Business model: based on a mix of male
and female viewers measured by ratings
– Percentage of television households watching on
average during measured periods
• TFC’s average rating: 1.0
– Which means that out of 110 million households
1,100,000 were watching at any point in time
Revenue Model Cont.
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• Ad Sales team sells advertising spots of 30 or 60 seconds
– 6 minutes of national ad time per half hour
– Totals 2,016 minutes in 24 hours
• U.S. consumer advertisers spent almost $20 billion on
such spots in 2006
– Fierce competition for ad dollars and revenue
• Advantage: TFC is the only 24/7 fashion programming
• Advertisers buy ratings and demographics, not
programming subjects
– Lifetime and CNN offer strong programming blocks that may
skim more viewers and ad dollars from TFC
– Fixed supply of advertising makes competition fierce
Revenue Model Cont.
02
• Ad unit prices based on several factors:
– Number of viewers (ratings)
– Audience’s characteristics (age, demographics, lifestyle)
– General competitive trends
• Formula =(Households x Ratings)/1,000 x CPM
• Prices: expressed as CPM: cost per thousand
– Price an advertiser will pay for a moment of viewing
• Networks evaluated based on ability to deliver specific
target groups – Premium CPM group:
– Men of all ages
– Women from 18-34
• Increasing targeted group can increase CPM
from 25% to 75%
Competitive Threats
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• CNN: “Delivering great numbers on men”
• Lifetime: “Taking lots of ad buys from TFC [due to]
younger female demographics”
• Alpha Research Study – Used by operators to:
– Determine how much to pay for each network
– Determine whether to include network in cable offerings
– TFC generally scored above the “midpoint”
TFC
CNN
Lifetime
Consumer Interest Awareness Perceived Value
3.8
4.1
3.7
4.3
4.6
4.1
4.5
4.5
4.4
Exhibit 1: Demographics
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GFE National Consumer Field Study
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•
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National panel of consumers
Sophisticated statistical correlation program by a well-regarded market research firm
Wheeler’s Theories
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• Not wise to target Basics cluster – least likely to be engaged with TFC
content
• TFC segmentation and positioning should be targeted at women
between 18 and 34 years of age
• Ad Sales forecasts a 10% drop in CPM to $1.80 if current audience mix
remains the same
• Option 1: Investing in broad appeal to Fashionistas, Planner &
Shoppers, and Situationalists
– Ratings boost of 20% from 1.0 to 1.2
– Might not deliver the audience needed to keep CPM the same
• Option 2: Target the Fashionistas
– Rating decrease of 20% from 1.0 to 0.8
– CPM would increase to about $3.50 (Ad Sales forecast)
– Requires an additional $15 million per year in programming
• Option 3: Target the Fashionistas and Planners & Shoppers
– Ratings increase 20% from 1.0 to 1.2
– CPM would increase to $2.50
– Requires an additional $20 million in programming
Objectives
•
•
•
•
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Strengthen competitive position
Build foundation for future growth
Secure TFC’s position as the market leader
Segmentation strategy to reach target consumers: basis of all
marketing tools
– Traditional and internet advertising
– Public relations and promotions
• Key levers to drive revenue growth
– Increased viewership (ratings)
– Increased advertising prices
– Differentiation from competitors
• Find and market to a core group willing to become loyal to TFC
– Concern: focus on fickle consumers and lose some viewers in the
process
Ad Revenue
Current
TV HH
2007 Base
Scenario 1
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Scenario 2
Scenario 3
110,000,000
110,000,000
110,000,000
110,000,000
110,000,000
1.00%
1%
1.20%
0.80%
1.20%
Average Viewers
(Thousands)
1,100
1100
1320
880
1320
Average CPM*a
$2.00
$1.80
$1.80
$3.50
$2.50
$2,200
$1,980
$2,376
$3,080
$3,300
2,016
2,016
2,016
2,016
2,016
52
52
52
52
52
$230,630,400
$207,567,360
$249,080,832
$322,882,560
$345,945,600
0
0
15,000,000
20,000,000
Average Rating
Average Revenue / Ad
Minute*b
Ad Minutes / Week
Weeks / Year
Ad Revenue / Year
Incremental
Programming
Expense
Net Income from Scenarios
Revenue
Ad Sales
Current
2007 Base
Scenario 1
05
Scenario 2
Scenario 3
$230,630,400
$207,567,360
$249,080,832
$322,882,560
$345,945,600
Affiliate Fees
$80,000,000
$81,600,000
$81,600,000
$81,600,000
$81,600,000
Total Revenue
$310,630,400
$289,167,360
$330,680,832
$404,482,560
$427,545,600
Cost of Operations
$70,000,000
$72,100,000
$72,100,000
$72,100,000
$72,100,000
Cost of Programming
$55,000,000
$55,000,000
$55,000,000
$70,000,000
$75,000,000
Ad Sales Commissions
$6,918,912
$6,227,020.80
$7,472,424.96
$9,686,476.80
$10,378,368.00
Marketing & Advertising
$45,000,000
60,000,000
60,000,000
60,000,000
60,000,000
SGA
$40,000,000
$41,200,000
$41,200,000
$41,200,000
$41,200,000
$216,918,912
$234,527,021
$235,772,425
$252,986,477
$258,678,368
$93,711,488
$54,640,339
$94,908,407
$151,496,083
$168,867,232
30%
18.90%
28.70%
37.45%
39.50%
Expenses
Total Expense
Net Income
Margin
Conclusions
• Target the Fashionistas and Planners & Shoppers
–
–
–
–
Both participate in fashion on a regular basis
The majority are females
Between 25 and 50% of each group are ages 18-34
Both stay up to date on fashion and enjoy shopping
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References
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