final paper cima
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CIMAGlobalBusinessChallenge2010-2011
CIMA2010-2011
This report is prepared by Team: NewBee Consulting
From: Shanghai JiaoTong University
Team member
Team leader: Liu Junjie 13916984777 [email protected]
Team member 1:Xue Yibin 13818049615 [email protected]
Team member 2:Nong Yuxin 13524712121 [email protected]
Team member 3:Zhou Wei 15021657161 [email protected]
NewBeeConsultingTeam
VYPCONSULTINGTHECASESTUDYCONCERNINGCERTAINISSUESABOUTVYP
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Dear Mr. Steve Voddil and John Young
It is a privilege for us to present the revised copy of the NewBee business plan.
After studying every detail of your case and scenario, we got an overview of your
companys financial situation, marketing strategy, and organization structure, profit
figure, customer growth etc. We immediately throw ourselves into the analysis of certain
cases. After 2 weeks hard working and discussion, we finally get the clear image of
VYP, and present our analysis and recommendations in the following report.
In the report, we analyze the advantages and disadvantages of three proposals that
your board has given in detail, according to which we give our recommendations on
each proposal. We also mentioned some important details that VYP has to pay attention
to. It is set up according to the present situation of VYP.
Consequently, we have fullest confidence in this plan, which we think could help your
business head forward to the destination of success. So once again, thank you for your
attention to this project and we are truly grateful to have gone through this experience.
Best wishes,
NewBee consultant group
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Contents
A. IntroductionB. Terms of Reference
C. Prioritization of Key Issues
D. Analysis and recommendations of Issues
I. ETN Proposal
i. Analysis
ii. Recommendations and Perspective
II. GTN Proposal
i. Analysis
ii. Recommendations and Perspective
III. The Chinese CNN Proposal
i. Analysis
ii. Recommendations and Perspective
IV. Other Issues
i. Analysis
ii. Recommendations
V. Ethical Issues
i. Analysis
ii. Recommendations
E. Conclusions
F. Appendixes
I. Appendix 1 -- SWOT Analysis of VYP
II. Appendix2 -- Extracts from VYPs statement of comprehensive income
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A. Introduction
Recently the UK Broadcasting Authority has relaxed the application of TV
broadcasting regulation that all legal entities can apply for TV license in UK and the
major European communities. Despite the fact that there is no special requirements to
the application, it is expected only a few applications will express interest, due to the
heavy capital investment and the uniqueness of business, that ultimately only very few
potential candidates are able to get into the final assessment process.
V and Y Productions (VYP) is an independent TV production company established in
2003. VYP was facing the chance to enter the TV operation industry, and three
proposals, ETN (Entertainment Television Network), GTN (Global Television Network)
and the Chinese CNN, has been discussed through three board meeting.
As an independent business consultant team and a qualified member of CIMA, we
are honored to give our analysis and recommendations to the new development of VYP.
Using the SWOT analysis (Appendix1) of the whole company, we will have a clear
image of the situation of VYP.
B. Terms of Reference
As a consultant to the VYP, our team is required to analyze and give
recommendations on the issues which VYP must address. In the following report, our
team priorities and analyzes the issues facing VYP and makes our recommendations.
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C. Prioritization of Key Issues
Considering VYP presently got three proposals to be determined. We prioritize
issues as follows. The ETN proposal comes first, because it deemed to be the most
important and easy-handled proposal for VYP to be operated as an independent TV
operator. And it seems to bring VYP great profits in the near future. The GTN plan is the
second one to consider, since it will be marketed as bundle with ETN, which means
both channels share the same audience, but it acquires more origin costs. The last
proposal, the Chinese CNN, could be seen as a replacement of GTN in the international
market, especially in the Asian Market. Some other issues and ethical issues should
also be taken into consideration and is shown in the latter part of our report.
D. Analysis and recommendations of Issues
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I. ETN proposal
i. ANALYSIS
a. BCG MATRIX
According to the analysis of margins by program genre, we get the BCG matrix as
follow.
About cash cow -- we can see clearly that entertainment and scripted comedy are
VYPs cash cowthey have high market share and they both can bring big cash flow
into the company, while we can see in the case that these two genres are mature. So
with high market share and low expected growth rate, we can classify them as cash cow.
Now with the companys goal of being an independent TV operator, they should make
full use of these mature resources.
About stars documentaries and international sales are already making a great profit
now, while concerning about the history of the company, we can still have faith in their
CASH COW
(Comedy and
entertainment)
STARS
(International
sale and
documentaries
QUESTION
MARKS
(Drama and
news)
DOGS
Gro
wthRate
High
Low
MarketshareLowHigh
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growth rate. So they are certainly put into stars. As for stars, we highly recommended
that the company should put more money into them and we believe that with proper
management, they can get the company a good return.
About question marks from the information we have now, we suppose drama and
news are going to grow rapidly. But the company still cannot be too optimistic, drama
and news need a lot of operating costs and we are not sure they can get a good pay-
back within a short time. So we suggest that the company should keep an eye on these
two genre and make separate accounts to control cost and risk.
About dogs the company is growing right now so there are no dogs in short period of
time.
b. Ansoffs Matrix
Market penetration(selling successful programs to other
TV broadcast companies)
Product development(operating the company as an
independent TV operator)
Market development
(broadcasting VYPs good-reputation
programs on their own TV channel,
such as drama series, general
entertainment and documentaries)
Diversification
(broadcasting special programs on
their own TV channel , such as
entertainment news, drama series,
general entertainment, music video
and on-line TV marketing )
Ansoffs
matrix
NewproductsCurrentproductsCu
rrentmarkets
N
ewmarkets
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From the Ansoffs matrix, we
have a different view to
observe VYPs operation.
VYP should try their best to
make their operation and
programs distinctive. VYP can seize this opportunity to develop their own TV operator
and make new programs. In their positive atmosphere, the team can come up with new
ideas and make them come true. They can never forget their innovation or it will look
like any other TV operator. The other companies can be impelling competitors if VYP
loses this opportunity.
c. Financing part
According to VYPs current finance statements and the predicted income of ETN, we
can assume that it will be balanced during the first two years. Without the pressure of
returning debt the first two years, the company could focus on their brand-building. So
from the third year the company can make profit and begin to pay off the debt. And we
get this VYPs statement of comprehensive income based on the related information
from the financial year ended March 2010.
Assumptions:
1. The percentage of subscription fee, advertising fee and on-line marketing revenue is
30%,60% and 10%.
2. Indies make up to 80% of the total programs
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3. Indies cost 10% more than those homemade programs.
4. The cost is based on 2009 statement and we assume that every kind of programs
count the same percentage as in 2009.
5. The growth rate of ETN is expected to be 20%.
Related calculations:
About revenue
item calculation result
Subscription fee 150,000*50*12 90million
Advertising fee 90,000,000/0.3*0.6 180million
On-line marketing
revenue
90,000,000/0.3*0.1 30million
Total revenue 90+180+30 300million
About costs
Regular cash expenditures: 12million
Total hours of homemade program: 6h*365d*0.2*52/60*4/7=216.9
Total hours of indies program: 6h*365d*0.8*52/60*4/7=867.66
The detailed process is as follow:
Indies
cost
perhour
Homemade
cost per
hour
hours of
homemade
hours
of
indies
homemade
costs
( 000)
indie
costs
( 000)
Total
costs
( 000)
documentaries 184.1 165.69 65.09 260.37 10,785 47,934 58,719
drama 426.3 383.67 28.61 114.45 10,978 48,789 59,767
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comedy 251.4 226.26 74.03 296.13 16,751 74,448 91,199
entertainment 122.9 110.61 49.18 196.71 5,439 24,175 29,615
total/average 216.91 867.66 43,952 195,346 239,299
Total cost of making programs: 239.30million
Total operating cost: 251.30million
Finance cost: From the third year, VYP Company should pay back their debt
10.33million per year.
ii. Recommendations and Perspective
Advantages and disadvantages
Advantages 1. ETN has a high growth rate (20%).2. ETN focus on what the company is good at, so it has a
lower risk compared to the other proposals.3. This proposal has more complete information and
figures.4. The capital expenditure is small compared to the other
two proposals.
Disadvantages 1. The resource of financing is simplex. It only relies ondebt and it can be a huge burden for the company when
the situation is not as good as we hoped.2. The company may grow too fast during the first few
years and the management may face some difficulties.3. With too much debt to pay, the currency may be not
enough and this can result in big financial problems.
Recommendations 1. About the percentage of different source ofprograms
For the first few years, the company is short of
equipment, staff and capital, so we suggest that VYP
should buy most of their programs from indies, in the
statement before we assume it to be 80% of the totalprograms. In this way ETN can have enough programs
and have enough time to update the equipment. After
an amount of time, ETN will grow to a channel with
reputation and enough cash flow. That is the time when
they can make more of their own programs.
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2. About financingAccording to the analysis above, we can see clearly that
ETNs biggest weakness is the lack of money which
results in a series of problems like hiring people and
buying equipment. To solve it, we suggest that VYP
search for more ways of financing, like investment trust,
angel-investor, venture-investment or get listed on
FTSE. And we recommend that VYP should sell some
of their shares to the staff, in this way can they feel
more recognized and attributive.
3. About human resourceBecause of this opportunity, VYP may expand rapidly in
the next few years. This may cause a lot of
management problems like lack of HRs and other
managers. We highly suggest that VYP should hiremore HR and accountants to keep up with the changing
of company structure. The managers should also keep
an eye on their own team members; encourage them to
do more for the whole team.
4. About test-runTV operator is a whole new role for VYP, so we suggest
that they should do surveys before they run the channel.
And when they are prepared they should run a test-run
and make more analysis based on the information fromit. The company can find more problems and get more
experience from the test-run.
Perspective ETNs subscription fees will be expected to grow at arate of 20% per annum from an estimated start of
150,000 households from the third year. ETN will not
expect to achieve significant growth in both advertising
and subscription revenue in the first two years. But
during that time ETN would broadcast some good-
quality programs to gain reputation. In the coming fewyears, ETN will be developed to a basic channel which
has a larger advertising and subscription market.
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II. GTN Proposal (the more aggressive plan proposed by Steve)
i. ANALYSIS
First of all, we NewBee Consulting team has done a feasibility analysis of the GTN
proposal to see every aspect of this proposal, trying to figure out whether this proposal
is feasible in the near future.
FeasibilityAnalysisoftheProposal
A. Preface,Historicalbackground,thedescriptionoftheproposal
1. CurrentbusinessstatusThererealreadytwomagnatesinthebusiness,the
BBCandtheCNN.
2. DescriptionoftheproposalTheproposalismoreaggressive,somewhatlike
todevelopasecondchannelinadditiontotheETNchannel,theGTN
channel,inshortforGlobalTelevisionNetwork,whichwillpositiona
neutralpointofview.Itwillbea24hoursnewschanneloperatedlikeBBC
orCNN.
3. AdvantageoftheproposalMostofthecurrentexistingnewschannels
broadcastfromawesternpointofview,whereasVYPsgoingtodofroma
neutralpointofview.
4. NewproductlistThenewproductdifferentfromthepreviousETN
proposalisthenewschannel(GTN).
5. Advantage&DisadvantagesofVYPseeAppendix1(theSWOTanalysisof
VYP)
B. Management
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1. VYPhas60staffcurrently,including44professionals&technicalin
programproducingand16humanresources/accountants.
2. DuetotheplannedexpansionofVYP,avarietyoftechnicalaswellas
managerialstaffshouldberecruited.
3. DuetotheplannedexpansionofVYP,avarietyofequipmentshouldbe
investedin,including6editingsuites,onecomputergraphicroom,
satelliteroom,broadcastingsoftware,asmallstudioplusaseriesof
broadcastingequipment.
C. Marketing
1. Targetmarket:Localmarket(theBritainmarket)
2. PricingStrategy:Thesubscriptionfeeforthetwotie-inchannelswillbe
setatGBP75perhousehold,inhopethatthesetwochannelscanmarket
bettertogetherthanisolated.
D. FinancialStatus
1. Initialcost:GBP10million(forequipmentsandhardwareinvested)
2. Operatingcost:additionalGBP1millionpermonth(besidestheGBP1
millionpermonthfortheentertainmentchannel)
3. Loans:additionalshorttermloanofGBP20million,principlepayable
inthreeyearstime,interestat12%perannum,whichwethinkcanbe
repaidbyGBP8.33millionannuallyforthreeyears.
4. Tax:anincometaxattherateof30%
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Secondly, we will show a 3C Analysis on the GTN proposal, to illustrate the
characteristics of the proposal from three different aspects
ii. Recommendations and Perspective
From the two models above, we NEWBEE consulting team has concluded the
advantages and disadvantages of this proposal. Also well give our recommendations
as well.
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Advantage 1. The GTN channel can be sold as a bundle with the ETNchannel, which can promote the popularity and reputationof VYP.
2. The news channel is broadcasted in a fresh new point ofview, which is likely to be a unique selling point.
3. The target market is quite extended while the number ofcompetitors is relatively small.
Disadvantage 1. VYP lacks the experience in the news broadcasting business.2. The initial investment is too big for VYP to keep its cash flow
stable, and it may results in a huge pressure in the company.3. The data collected is somehow insufficient, which makes the
future development of the proposal uncertain.Recommendations 1. We highly recommend postponing this GTN proposal. This
proposal can only be put into practice when the entertainmentchannel goes in to its maturity and when VYP has enoughcash flow.
2. We also recommend VYP to seek different channels offinancing in order to get abundant funding (about the details offinancing please see the Recommendation part of the ETN
proposal)Perspective We NEWBEE consulting team dont feel promising about this
GTN proposal. We can just say that if VYPs got effective
financing for this GTN proposal, it can be developed and get
mature in three years; otherwise we dont think this GTN channel
can be put into practice.
III. The Chinese CNN proposed by Tom
i. ANALYSIS
Just as Toms prediction, the Chinese CNN really has some strong points, such as its
innovative perspective to broadcast the news and vast potential news market; while this
proposal still has its unique weak points, which may bring about a total failure to the
whole project if not well controlled. In order to get a comprehensive knowledge of this
project and advance our sincere and elaborate recommendation, we use three
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consulting tools to analyze the Chinese CNN, including SWOT Analysis, PEST Analysis
and ADL Matrix. More details are as follows:
1. SWOT Analysis for the Chinese CNN projectStrength Weakness
1. Innovative perspective2. Specific direction---
news3. Rich human resource4. Small initial investment5. Good future planning6. Good cooperation
relationship with othermedia companies
1. Shortage of capital2. Narrow revenue
streams3. Lack of senior TV
operations personnel4. Unfamiliar Chinese
Market5. Low initial company
popularity
Opportunities SO WO
1. Chinas reform andopening up
2. Pay TV becomesmore acceptable inChina
3. Rapid developmentof network in China
4. Media market enjoysa strong vitality inChina
1. With active marketresearch, adaptChinese CNN to mediaenvironment as soonas possible
2. With rich humanresource, expandrevenue sources
3. Try to find a uniquedevelopment model forChinese CNN
1. Cooperate withChinese governmentto increase marketshare
2. Recruit excellent localstaff to promote newsmarket
3. Search for additionalinvestment to developChinese CNN
Threat ST WT
1. Complex mediaenvironment inChina, difficult toadapt
2. Fierce competitionfrom Chinese TV,even monopoly
3. Weak copyrightprotectionmechanism for newsin China
1. Adhere to the Orientalview to broadcast news
2. Actively organizecharitable activities toenhance ChineseCNNs image
3. Establish feedbackmechanism to meetaudiences news needs
1. Increase source ofnews to cater varioustastes
2. More cooperation withlocal mediacompanies
3. Focus on copyrightprotection
From this SWOT Analysis, we can get a better understanding of Chinese CNN in China.
And this diagram can help VYP make more informed decision. But there are still some
urgent aspects which we cannot find out from SWOT, so we use PEST Analysis to
supplement our analysis.
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2. PEST Analysis for the Chinese CNN project
PoliticalFactors
We should firstly acquire standard business license andother relevant certificates.
In China, copyright protection becomes more and moreimportant, which can help media companies develop.Chinese government holds a friendlier attitude to foreignmedia than that in ten years ago.
EconomicalFactors
With Global Financial Crisis fading, media market in Chinaenjoys a quick recovery.In China, the media market has been mostly dominated bystate-owned television stations, such as CCTV.Modes of news transmission go into diversification, includingTV station, network and radio.
SocioculturalFactors
With more and more people interested in global news, VYPcan enjoy a large number of audiences.With Engel coefficient reduced in China, more and more
people can afford pay TV.In China, reform and opening up arouses Chinese interest toknow the world. While news broadcasting is an importantmethods for information exchange.Chinese have enjoyed a great improvement of educationlevel, which will promote the development of media industry.
TechnologicalFactors
The development of information technology will absolutelyfacilitate the news transmission.Since network becomes easily accessible for Chinese, a few
people may be willing to pay for a TV station.With the constant improvement of copyright protection going,media companies can enjoy a safer and more comfortableenvironment.
According to the PEST Analysis, we can find more knowledge about Chinese media
industry. Considering these four factors, we can draft more suitable strategy for Chinese
CNN. After SWOT and PEST Analysis, we have got a relatively comprehensive
understanding of Chinese CNN as well as Chinese media environment. So we put
forward the third method ------ ADL Matrix to show our prediction for Chinese CNN.
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3. ADL Matrix for the Chinese CNN project
More details for this ADL Matrix:
During Embryonic Age, since Chinese CNN has small scale, and lacks of capital,
Chinese CNN develops at a slow speed, and covers a small market share. Whats more,
as a newcomer, Chinese CNN is unfamiliar with China media market as well as Chinese
audience, so this company may encounter some difficulty, and its life-cycle is a little
lower than natural development during this stage.
When the media industry steps into Growth Age, the whole market enjoys a booming
development, including Chinese CNN. At this time, Chinese CNN gradually enter the
normal operation of tract, and it has established a certain reputation in media market, so
Chinese CNN gets a rapid development both in company size and in company strength.
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As a result, its life-cycle shows a faster development than natural development during
this stage.
After the media industry enters Mature Age, the whole market goes into a stable period.
And more and more competitors hinder the further development of Chinese CNN, so
Chinese CNN should seek changes in marketing as well as corporate strategy. If well
changed, Chinese CNN can find a distinct differentiated competition strategy. At this
stage, its life-cycle takes on a slow growth.
Finally, when media industry goes into Aging age, the whole market environment has
become worse and worse for companies and TV stations to live in, Chinese CNN needs
to conduct more profound changes and seek for new market in order to pursue further
development. But as far as we are concerned, the media market will not enter into its
Aging age in a short term. So Chinese CNN continues a slow growth in its life-cycle.
ii. Recommendations and Perspective
From three professional analyses, we can conclude the following summarily diagram. In
this diagram, we make a summary from four aspects, which is as follows:
Advantages 1. When compared with the other two proposals, theChinese CNN needs the least initial investment,which will alleviate the economical pressure for thecompany.
2. Since the location of Chinese CNN is China, it willhave a huge potential market, which may lead to a
bright future for Chinese CNN.3. Chinese CNN has a rich human resource, and some
media conglomerates in Hong Kong and Taiwan areeager to co-operate with Chinese CNN.
4. Chinese government has changed its attitude toforeign media, from resistant to friendly, so ChineseCNN can seize the chance to rapidly occupy themedia market in China.
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Disadvantages 1. Since Chinese CNN specializes in news report, thestation revenue has narrow streams.
2. Though Chinese CNN has rich human resource, it still isunfamiliar with Chinese media market and environment.
3. In China, the media market has been mostly dominated
by state-owned television stations, such as CCTV. SoChinese CNN has to compete with these mediamagnates.
4. Chinese CNN suffers from shortage of capital, which willabsolutely inhibit its development in China.
Recommendations 1. Since Chinese CNN lacks of enough capital, thecompany should broaden the sources of funding.Chinese CNN can get funding through Venture Capital,and company also can raise money within company.
2. Chinese CNN should actively cooperate with local TV
stations, which can not only promote early developmentof the Chinese CNN, but also reduce unnecessarycompetition.
3. Chinese CNN can conduct some market researches tounderstand what Chinese people are interested in news,and then decide what news should be given extraemphasis.
4. In order to expand the Chinese CNN visibility andinfluence, Chinese CNN can organize some publicactivities with communities and schools.
Perspective If Chinese CNN can accept our analysis and follow ourrecommendations, then make wise decisions when facing
with difficulties. Chinese CNN is very likely to succeed, and
become a foreign media leader in China. If everything goes
well, just as Tom said, this business model can then apply
to other bigger communities like French speaking nations or
Spanish speaking nations. Finally, VYP will become a news
media leader in the world.
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IV. Other Issues
1. Getting listed in FTSE.
In that way, VYP can get enough money to satisfy their wildest dream and money
wont be their problem of expansion.
2. Expansion of the company.
VYP should hire more employees involved in HR, finance, administration and
contract handling work. With the professional part, VYP should hire some
experienced programme-making people to train the young staff.
3. Cooperating with websites.
VYP should sell some of their programmes to the website such as youtube. VYP can
gain much reputation through this and they should expect too much net income from
this.
V. Ethical Issues
1. Charity and Community work
We strongly recommend VYP to insist in doing charity and community work,
because it could be a message VYP delivered to the whole society that VYP has
made great dominant to it. The actions could be another good way to gain more
audience.
2. Public good advertisement
VYP could broadcast some public good advertisement in the channels.
3. Wellbeing of staff
Facing the quick expansion, VYP also need to focus on the wellbeing of staff. That
will provide staff a better mood to work in the company.
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E. Conclusion
After the analysis and recommendations of three channels, our team suggests that VYP
operate just ETN at the moment. When ETN have stable income in the future, the
second channel could be operated then. Of the two news channels, we recommend the
Chinese CNN instead of GTN, because it has a bigger future market.
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Appendix 1 SWOT Analysis of VYP
INTERNAL
EXTERNAL
STRENGTHS
1.Richexperienceinthe
industryandhighreputation
throughaudiences2.Costsavingprogramsof
variousgenrecanbemade
byVYPoroutsourced
3.Positiveatmosphere,
stronghumanresourceand
teamspirit
4.Thoroughinternal
managementandencourage
system
5.Experienceininternational
markets
WEAKNESS
1.Shortageinfundsand
equipments
2.Lackofexperienceandstaffasanindependent
TVoperator
3.Insufficientdata
supportforthefuture
andthemarket
(advertisingrevenues
andsoon)
4.Limitsinoutputof
programsthatcannot
meettheneedofa
channel.
OPPORTUNITIES
1.ApplicationforTV
licensewasrelaxed
2.Gettingmoreshare
oftheinternational
market
3.Fewcompetitorsof
thesameentering
period4.Strengtheningbrand
effectafterexpansion
SO
1.Takingadvantageof
experienceandreputationin
programmakingtoexpand
2.Usinggoodhuman
resource(Tomandhisteam)
tofurtherdevelopthe
internationalmarkets
3.Thediversityofincome(includingincomefromboth
program-makingand
channels)
WO
1.Expandingtomeetthe
needsofmoreprograms
2.Optimizingthe
managementtoadapt
theexpansionofVYP
3.Raisingfundsby
differentways(for
example,privateequityfund)forexpansion
THREATS
1.Facingthestrong
competitionfromthe
formerchannels
2.falitohireadequate
qualifiedstaffs
3.Fewaudience,leadingtolowprofits
4.Notchangingwith
thetimes
5.Thefutureofthe
wholeindustrynot
predictable
ST
1.Appealingtomore
excellentstaffbythepositive
atmosphereandstrongteam
spirit
2.Advertisingthoseprograms
thathadhighreputationtoensuretheaudience
3.Gettingmoreroomto
developthroughthe
internationalmarkets(avoid
domesticcompetition)
WT
1.Enhancingthe
accountingdepartment
tobettercontrolthe
operatingcost
2.Doingmarketresearch
togetclearimageofthefutureoftheindustry
3.Learningadvanced
operationmodelfrom
thosesuccessful
channels
-
7/27/2019 Final Paper CIMA
24/24
Appendix 2
Extracts from VYPs statement of comprehensive income
(from 2013 to 2015)
2010
( 000)2013
( 000)2014
(000)2015
( 000)sales revenue 28,610 300,000 360,000 432,000
operating costs 25,228 251,300 301,560 361,872
operating profit 3,382 48,700 58,440 70,128
finance cost(net) 133 10,330 0 10,330
tax expense(effective tax rate is 30%) 975 11,511 17,532 17,939
profit for the period 2,274 26,859 40,908 41,859
From our prediction above, we can have the faith that VYPs TV will run very well and
gain great profit for the whole company. And it is a feasible plan considering the
companys ability now.