Executive Financial Strategy

FINANCIAL STRATEGY

PRECIEVED ADDED VALUE

Revenue model, Pricing Strategy and Cost Structure

High 4. Islamic Television Project

3.

5.

6.

2.

1.

Pricing Policy 1. ‘No Frills’ 2. Low Price

Needs/Risks

6 + 7 + 8 = Likely Strategies destined for ultimate failure

3. Hybrid Low 4. Differentiation (a) Without price premium (b) With price premium 5. Focused differentiation

7.

to be segmented specific

8.

Risk of price war and low margins; need to be cost leader. Low cost base and reinvestment in High low PRICE price and differentiation. Perceived added value by user, yielding market share benefits. Perceived added value sufficient to bare price premium. Perceived added value to a particular segment, warranting price premium Higher margins if competitors do not follow; risk of loosing market share.

7. Increased price/Low Value

Only feasible in monopoly situation.

8. Low Value/Standard Price

Loss of Market share

Differentiation

6. Increased price/Standard value

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY

Likely Failures

Revenue model, Pricing Strategy and Cost Structure

FINANCIAL STRATEGY ..............................................................................................................1 Pricing Policy.................................................................................................................................1 Needs/Risks....................................................................................................................................1 ISLAMIC TELEVISION PROJECT COPYRIGHT℘2003 .......................................................................................................................................................1 PRICING STRATEGY................................................................................................................3 A. PRICE STRUCTURE..........................................................................................................................3 B. PRICE ............................................................................................................................................6 C. METHODS OF REVENUE...................................................................................................................8 D. COST ANALYSIS...................................................................................................................9 BIDDING SYSTEM...................................................................................................................10 COST STURUCTURE...............................................................................................................11 E. COSTING...............................................................................................................................12 1. BROADCASTING..............................................................................................................................12 2. PRODUCTION.................................................................................................................................13 3. OPERATIONS..................................................................................................................................14 F. EXECUTIVE SUMMARY....................................................................................................15 G. EXECUTIVE FINANCIAL SUMMARY............................................................................16

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

Pricing Strategy A. Price Structure After extensive feasibility study, suitability analysis and furthermore, research on acceptability, it could be concluded that the Pricing strategy most desirable for the needs of Islamic television project is based on Added Value and differentiation. This is illustrated in the diagram as route 4. It is the differentiation without a price premium, which Channel Islam’s pricing policy would adopt. A differentiation strategy seeks to provide products or services unique from those from the competitors in terms of dimensions widely valued by viewers. In the case of Channel Islam, we can confidently claim that we have a unique product targeted to a niche market, which has not yet been perused in the television broadcasting industry. The market demand for the product is immensely high, whilst there are no providers other than Islamic television project itself. The buyers widely and highly value the services offered by Channel Islam. The primary buyer’s being the viewers and subscribers would enjoy a dedicated service of ‘Digital Video Broadcasting’ (DVB) on both Cable and Satellite systems. Advertisers are essential customers of Channel Islam; they are the secondary form of customers. Unlike most commercial channels, Islamic television project is not largely reliant on advertising and sponsorships. The Market platform and access to the unique market segment offered by Islamic television project is greatly sought after by many Muslim and non-Muslim businesses alike. The only current media facilities available for them are via Radio, Newspapers and Magazines, however; the radio is on a seasonal and local network. The newspaper and magazines operate within specialist areas and groups. Thus, Islamic television project is the only national base medium, which caters for the Muslim market as a whole, with the option for localized promotion. This allows the company to offer a package deal, designed to cater for individual businesses needs, in terms of who they target and how. There is no dependency on a single revenue stream. The mixed revenue stream will allow Islamic television project to offer discounted prices, which are significantly lower then the market average to both Primary and Secondary buyers. Therefore, Islamic television project may successfully pursue the route four pricing strategy within the framework of ‘Differentiation’ and ‘Added Value’.

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

A. Estimated Volume and Targets i) Primary Buyers – Viewers/Subscribers Item Description

Volume/Amount

Market size

Total Muslim Population

Number of Households

Average four (4) member per household

Market Share

Percentage of Households Targeted

Exclusive Subscription

1.3%

10,000

Regular Subscription

5.3%

40,000

Total

6.6%

50,000

ii) Secondary Buyers – Advertisers and Sponsors Item Description

Market size

Muslim

Potential Buyers Corporate Business in UK Foreign Companies Small Business Organisations

Total Non-Muslim Total Number of Businesses

Corporate Business in UK Small Business

3,000 000 (million) 750,000

Volume/ Amount 20271 4672 56003 724 8168 1305 2005 8498

Obtained from Muslim Ltd Companies registered with the companies house Companies importing goods in terms of products and services to the UK Muslim Market, estimated to the bare minimum figure, derived from the Mintel. 3 Estimated from the Muslim directory, yellow pages, Thomas directory and other sources. The estimate holds the lowest figures indicated. Islamic Television Project Copyright2003 4 Only accounting for medium to large size organisations, including some Charity organisations as well as many Registration Number 4138904 commercial ones too. 5 The estimated levels of interests from the non-Muslim Corporate and small businesses 2

FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure iii) Secondary Buyers – Advertisers and Sponsors Item

Target

Description

Muslim

Non-Muslim Market Share

Muslim

Non-Muslim

Volume/ Amount

Potential Buyers Corporate Business in UK Foreign Companies Small Business Organisations

10% 4.6% 15% 7.2%

Corporate Business in UK Small Business Corporate Business in UK Foreign Companies Small Business Organisations

3% 10% 203 22 840 7

Corporate Business in UK Small Business

4 20 1095

Total

B. Price i. Primary Buyers – Viewers/Subscribers Item Quantity Price £

Revenue £

Exclusive Subscription

10,000

£115.00 For 3 year

£1,150 000

Regular Subscription

40,000

£55.00 Per Year

£2,200 000

Total

50,000

£3,350 000

International Advertising Packages – Pan European and USA (to be developed) National Advertising Packages – UK and USA

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure Local Advertising Packages – UK and USA regional segmentation

ii. Secondary Buyers – Advertisers and Sponsors

National Advertising Packages

10sec

20sec

30sec

5 spots package 10 spots package 15 spots package 20 spots package

£2,125 £4,075 £5,950 £7,750

£3,530 £6,750 £9,875 £12,865

£4,250 £8,150 £11,900 £15,500

All off-peak packages are discounted at the fixed rate of 40%

Local Advertising Packages

10sec

20sec

30sec

5 spots package 10 spots package 15 spots package 20 spots package

£1,000 £1,900 £2,763 £3,600

£1,660 £3,150 £4,585 £5,975

£2,000 £3,800 £5,525 £7,200

All off-peak packages are discounted at the fixed rate of 40%

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure iii. Secondary Buyers – Advertisers and Sponsors Item

Quantity

Price £

Revenue £

 Average spending on advertising packages  The Off-peak revenues are not included, this again shows that far greater Margin of revenues available, compared to that stated below.

National Airtime Corporate Business in UK Foreign Companies Organisations Total

203 22 7

£7,726 £7,726 £5,000*

232

Local Airtime Small Business Other Total

840 0 840 1072

Total

£1,568,387 £169,972 £35,000 £1,773,359

£3,597

*Discount

£3,021,480 £0 £3,021,480 £4,794,839

The cost of advertising packages for the consumer is lower than local or national radio advertising rates in the UK. The price comparison’s can be made through BRAD (the media publication). The packages above are inclusive prices, thus including the cost of advert production and editing, as well as transmission. In essence, the focus is providing value for money for the advertisers. Item

Subscription Sub-Total Advertising and Subscription

Item

Quantity

Revenue £

Exclusive Regular

10,000 40,000

£1,150 000 £2,200 000

National Airtime Local Airtime

50,000 232 840

£3,350 000 £1,773,359 £3,021,480

1072

£4,794,839

Sub-Total Grand Total

£8,144,839

C. Methods of Revenue Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

Subscription Standard offer 40,000 Target units at £55.00

(pa) £2,200,000

Local Airtime Small Business Rates (pa) £3,021,480

Advertising National Airtime incl. Promotional Packages (pa) £1,773,359

Total Annual Revenue

£8,144,839 (pa)

Government grant entitlement from the Ministry of Culture and European level funding for Midlands business initiatives calculated at a minimum grant levels estimated at (pa) £1,200,000. The processes of grant entitlements have exceeded the application stage and awaiting review and audits stages to complete the entitlement processes.

Extra revenue can be realised through sales of programme library (broadcasting copyrights) to existing Channel’s looking for authentic, high quality, inspirational Islamic programming, specifically to cater for those audiences for English speaking countries. Secondly, the lease of extra three channel capacity broadcasting play-out facility, if the broadcasting capabilities are fully owned and managed.

D. Cost Analysis Cost Structure Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure There are three major cost generators within Islamic television project, which may be categorized by the following activities; Broadcasting, Production and Operations.



Broadcasting

This includes all necessary components required to be able to provide end-to-end digital video broadcasting. The primary costs associated with broadcasting are the maintenance of the infrastructure and networks. However, there are various options available, which allow the costs to be varied in forms, therefore adapt it to the nature of the cash flow requirements. The key element in determining the composition of the costs in this sector depends on the nature of contracts and arrangements negotiated with the service providers. The cost generated from this activity could be defined as a fixed cost.



Production

The production cost is the most complicated cluster of costing, as it consists of multiple cost centres derived from multiple mediums. This is the most expensive segment of activities, as the processes involved may require technical expertise and external resources. The activities within this cluster may be categorized as, In-house, Outsourced and On-shelf. i. In-house productions are the programmes produced internally within the Islamic television project Ltd facilities. The types of programmes produced ‘Inhouse’ would include, News and Current Affairs, Talk shows, Documentaries and other programmes, which do not require a high level of technical expertise, nor have a long turnaround time. Relevant costing system should be used where appropriate. ii. Outsourced production will include editing, subtitling and dubbing activities, as well as production of unique and dedicated programming for CIL (Islamic television project Ltd). The outsourced activities would be operated within a bidding system, which will be used to select appropriate Production Company’s to carry out the task on the basis of the specialist area and cost efficiency. However, this still would remain the highest cost generator amongst all the three strands of activities, Therefore, reliance on this strand on activities should be minimized without compromising the needs for high quality inspirational programming.

Bidding System Most Islamic television project Ltd Productions are quoted on a fixed bid system.

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure This means that once an estimate is approved, the Production Company price is binding with 50% of the quoted budget being paid upon the job go ahead and the remaining 50% upon satisfactory completion of the film. And others where, the production company takes full responsibilities, and payments are made on transmission of the projects. As part of the Bid System, Production Companies are required provide a detailed breakdown of the estimate in line with the Production and Insurance Budget Specification guidelines agreed by the Joint Working Party between Islamic television project Ltd and the respective producers. This allows the producers to understand the pricing of the key elements behind the bid and is broken down by key cost components i.e. Unit Salaries, Equipment Costs, and Location Costs etc. iii. On-shelf productions are programmes that have already been produced and are available with copyright ownerships. These programmes will require editing, subtitling and dubbing, which will be outsourced to production companies. Majority of the On-shelf products will be purchased from the Middle East, including Iran. The types of programmes included in this category are films, dramas, cartoons, debates and other forms of informative, educational and entertaining materials within CIL protocol. Some Copyright reserves maybe purchased at a very low price, whilst others may require persuasive negotiations. However, turnaround times for these programmes may be high, as translations will be required for subtitling, and dubbing and will require even more time. Another important factor which will consume a lot of time and efforts are editing the materials to enhance quality as well as censorship controls.

 Operations The Operational activities of the company includes all managerial and organisation activities necessary to keep Islamic television project Ltd running, including the day to day activities and routines. The cost centers include costs generated from all the departments within the company, including Marketing, Sales, administration and the Creative department. The basic definition of the cost centre in relation to Islamic television project Ltd is the sum of all costs associated with operating the company successfully. There are various levels and types of costs involved here, including fixed and variable costs, Direct and Indirect costs. Even in some cases stepped fixed costs are involved here. Therefore, ‘Cost Volume Profit Relationship’ analysis will be used to audit the costs generated.

COST STURUCTURE

Islamic Television Project Registration Number 4138904

ITC – Government License

SES Astra – Satellite

Copyright2003

FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

Broadcasting Sky – EPG/m Platform NTL – Cable & Sat Uplink Play-out Center In-Housed – 60% of Production

Islamic television project

Production

Out-Sourced – 20% of Production On-Shelf – 20% of Production

Management & Organisation

Marketing & Sales

Operations Administration & Control

Financial & Mgt Accounting

E. Costing 1. Broadcasting The broadcasting costs are fixed costs as stated previously, and the costs can be associated with the start-up cost. The costing systems for Astra, Sky and NTL are based around the number of hours broadcasting and since Islamic television project will be broadcasting for 24hours, the costing rates are on a flat-rate basis. However, the cost of the ITC License is a one-off cost, which is renewed at the end of its contracted period. The costs of broadcasting may be expressed as a unit

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure per hour. Once the annual costs per item are identified, using appropriate formula the unit cost may be calculated.

Item

Price £

Cost £

 ITC is a 10 (ten) years Contract  The difficulty is in calculating a fixed burn rate, to indicate the cost of broadcasting per unit in terms of per hour broadcasting, as the control room is a one off purchases.

Broadcasting - Infrastructure ITC – DVB License Astra - Satellite Sky – Platform EPG/m NTL – Cable and Uplink

Per Annum £10,000 £360,000 £95,000 £250,000

Total Internal Resources Control Room - Equipments Control Room Switcher Storage & Archiving Omneon Video Network Flip factory - Web streaming Mics Products HD 880 Lines Cameras * 3 Control Room and other Equipments Total Total

It must be noted that financial reimbursements will be made by NTL £715,000

£100,000 £75,000 £50,000 £12,000 £110,000 £60,000 £114,000

These are one-off capital investment costs, therefore, should not be included in the burn rate. £521,000 £1,236,000

2. Production Item

Price £

Cost £

 Concessions* are expenses paid for guests and audiences participating in C I programmes.  The Copyrights and ownership of projects out-sourced are retained with Islamic television project Ltd.  Editing includes subtitling and dubbing of selected programmes.

60% Production – In-House Studio News & Views (Fixed) Studio 1 (Medium) Studio 2 (Large) Studio 3 (Extra)

Islamic Television Project Registration Number 4138904

Per Annum £15,000 £25,000 £30,000 8,000

The studio costs include fittings and fixtures, for various single and multi Copyright2003

FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure programme sets £416,000 Programmes £170,000 Production Equipments * Projects are sole Total production of a £664,000 complete programme and its series for the uses of Channel ISLAM 30% Production – Out-Sourced Projects Editing Total

£210,000 £165,000 £375,000

10% Production – On-Shelf Films Dramas Debates and Talk-shows Other

£110,000 £85,000 £60,000 £18,000

Copyright ownership is obtained for both 1st transmission and repeats. It most be noted that many programmes have diminutive (very little) interests and demands from current media £273,000 £1,312,000

Price £

Cost £

Total Total

3. Operations Item

 Cost of employees working as production crew is included in the cost of production.  Miscellaneous costs account for costs that are difficult to forecast or categorize, it also provides with a buffer zone for cost activities.

Operations - Employees Recruitment Directors Managers Coordinators/Specialists Skilled Semi-Skilled

Islamic Television Project Registration Number 4138904

Per Annum £10,000 £186,000 £88,000 £81,000 £140,000 £272,000

Total employees working full-time are 49. Part-time allowance is put a side for seasonal demands. Such as Copyright2003

FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure Ramadan. £182,000

Standard Total Operations – Assets

£959,000

Fixed Property - Lease & Deposits Fitting and Fixtures Maintenance Bills & Rates Computers and IT

£144,000 £80,000 £25,000 £22,000 £50,000 £321,000

Overheads Stationary Marketing & Promotions Miscellaneous

£12,000 £70,000 £60,000 £142,000 £463,000

Total Total

£1,422,000

F. Executive Summary i.

Grand Total for Costing Item

Price £

Cost £

Total Cost Broadcasting Production

Per Annum £1,236,000 £1,312,000

Operations

£1,422,000

Total

£3,970,000

Islamic Television Project Registration Number 4138904

Copyright2003

FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure

ii.

Burn Rate Per Hour Type

Quantity

Total Cost Rate £ £ Per unit  Looking at a flat rate, rather than distinguish a peak and off-peak rate. Monthly 12 Months £3,970,000 £330,833 Transmission Weekly 52 weeks £3,970,000 £76,346 Transmission Daily 365 days £3,970,000 £10,876 Transmission 24 Hours 8760 hours £3,970,000 £453 Transmission

G. Executive financial summary

Primary Revenue – Subscription Exclusive Subscription Regular Subscription

£1,150 000 £2,200 000

Total Subscription Revenue

£3,350 000

Cost Broadcasting Production Operation

£1,236,000 £1,312,000 £1,422,000

Total Costs

£3,970,000

Gross Profit

-£620,000

Islamic Television Project Registration Number 4138904

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FINANCIAL STRATEGY Revenue model, Pricing Strategy and Cost Structure Secondary Revenue – Advertising International Advertising Packages National Advertising Packages Local Advertising Packages

£0 £1,773,359 £3,021,480

Total Advertising Revenue

£4,794,839

Operating Profit

£4,174,839

Key Notes: 1. Islamic television project will be free to view for the first year, developing and establishing a solid foundation of customer base upon which advertisers could be enticed. 2. The second year will begin with offering of the exclusive subscription package, which will be £115.00 for 3 years. This exclusive offer will be available for the first 10,000 subscribers. This is to create a concrete customer base, as well as for strategic marketing purposes. Observe the Marketing Strategy for further details. 3. The Regular subscription will begin by the end of the exclusive offer, which will be £55.00 a year. This is £4.50 per month; this is 55% lower than any current channel subscription, even as competitive as the prices of Internet membership subscription. 4. Please study the Income & Expenditure report of Year 1,2 and 3 for financial illustration of this strategy and its implications.

Islamic Television Project Registration Number 4138904

Copyright2003