An analysis of the T4 Case study November 2010

Every six months CIMA gives us an opportunity to make a detailed study of a new industry, which we may not bother about otherwise. Over the years there have been many interesting industries that TOPCIMA candidates have been exposed to. How many of us would take the trouble to think of the background activities of a coffee shop and their struggles to survive competition, while we relax sipping our favourite Cappuccino or Mochaccino? Or the workings of a electricity generating and distributing company that provides our power requirements whether for our domestic, office/factory needs or even on the highway for street lighting and traffic signals? Or how the luxury leisure boat industry works? Or indeed the challenges faced by an outsourcing company? It is all there with TOPCIMA and much more. The latest case study provides insight into another fascinating industry - TV productions whether it is news or drama or a cartoon or a documentary that we so interestedly watch, never giving a thought to how they appear on our TV screens. Never mind if it is called the idiot box. It still gives us great entertainment and keeps us in touch with the world through the latest news and documentaries. When the TV is switched on the pictures we receive are sent to us by TV broadcast companies through terrestrial channels and satellite channels. If we give this a quick thought, Terrestrial television is a mode of television broadcasting that typically use radio waves to reach our TV through transmitting and receiving antennas.

Satellite television on the other hand is transmission through a communications satellite and received in our living rooms through a satellite dish or decoder unit.
Then there are free-to-air channels and channels that we have to pay for, depending on the TV broadcasting station. Broadcasting companies like BBC, CNN etc dont levy a fee on the viewing public. There are many other commercial TV broadcasting companies who levy a fee to watch their programmes. Our case study is about V and Y Productions (VYP) which supplies TV broadcasting companies with various TV programs which they have been commissioned to produce. The successes of TV production companies depend on their ability to consistently produce high quality, interesting programs that appeal to different types of audiences in the long term. VYP has achieved a significant growth (39%) in revenue from 2009 to 2010. They have a market share of 1.4% of the commissioned TV programmes in the UK which is seen to be good enough to place them within the top 20 companies making TV programmes in the UK. We are told in page 2 that the total value of commissioned programmes in the UK was (over) 2.0 billion in 2008. It appears that the market, two years later is somewhat stagnant and worth only 1,950m (27.3 1.4%) in terms of revenue in fact a slight drop. VYPs revenue can be further analysed:

Programme genre Documentaries Scripted comedy Entertainment

Revenue '000 Change (over 2009) Value '000 31.03.10 31.03.09 % 6,700 6,900 (200) -3.0% 10,410 9,840 570 5.8% 3,380 2,970 410 13.8% 20,490 19,710 780 4.0% 6,820 6,820 27,310 19,710 7,600 38.6%

This reveals that the revenues from the production of documentaries has seen a 3% drop from the previous year while Scripted comedy and Entertainment show increases of 5.8% and 13.8% respectively. Considering the reduction in commissioning revenues (due to the current economic environment) VYP seems to have been able to record a reasonable increase in its market share.

This is clearly seen from the information available (Pg 11) on the reductions in commissioned revenue per hour for documentary programmes: 2010 36.4 programme hours @ 184,100 Total revenue 2009 32.1 programme hours @ 215,000 Total revenue This shows an increase of 4.3 programme hours (13.4%) in 2010. 6,700,000 6,900,000

Specific mention has been made (pg 6) that Broadcasting companies have identified a renewed interest from viewers for documentary programmes in Peak viewing time. VYP has gained some new commissions for documentary programmes because of its experience in this genre of TV programmes. The profitability according to programme genre is as follows:

Programme genre Documentaries Scripted comedy Entertainment Internati ona l s a les Drama s eries

31.03.10 Operating Profit '000 660 985 407 2,052 810 2,862 520 3,382

% 32.2% 48.0% 19.8% 100.0%

31.03.09 Operating Profit '000 694 1005 300 1,999 505 2,504 0 2,504

% 34.7% 50.3% 15.0% 100.0%

Despite the hard work and creativity that is necessary to make a TV production VYPs core activity, the above analysis indicates that International sales is a major contributor to overall profitability. Much of the credit is due to Tom Harrison who is generously compensated with a performance related bonus of 5% of all contracted international sales revenues. The current years increased operating profit (878,000 or 35.1%) over last year is attributable mainly to the profit generated from Drama series and increased International sales. It is clear from the above table that the operating profit from the core activities has increased by only 53,000 (2.7%). This is in contrast to the increase in profit from International sales of 305,000 (60.4%). Under the direction of the Joint Managing Directors, the programme directors ideas and abilities seem to be very effective. Sara Mills too is probably responsible for this happy position with her understanding of the requirements of the TV broadcasting companies and the viewing public. The importance of the role Sara Mills plays at VYP is emphatically recognised by both Steve Voddil and John Young. So it is surprising that Sara Mills has had to take the initiative to seek to become a shareholder of VYP. It has only been in the last year that VYP obtained commissions to produce drama series. The drama series has generated a very attractive average revenue per hour of 426,300 per hour which is over 230% of the average revenue per hour of 186,133 {(184.1 + 251.4 + 122.9) / 3} of the other three genre. However, the profit margin is about 2% less than that generated by documentaries (9.9% 7.6% App.4) and scripted comedy (9.5% - 7.6% App.4) and 4.4% less than that generated by Entertainment (12.0% - 7.6% App.4). This, to some extent would be understandable given that VYP is new to the production of drama programmes. The TV broadcast companies appear to have set a standard for the costs that a TV production company should incur by assuming a profit of around 10% on commissioned revenue. The fact the TV production companies work around this would mean that this is acceptable and a likely industry norm. If this is so, VYP does not appear to be very efficient at cost control. This could be partly attributable to John Youngs self knowledge that he is not very good at managing budgets. This probably is not a good sign as cost control is a discipline that must originate at the top and cascade down the line.

If 90% is an acceptable benchmark for costs it is only in the Entertainment category of TV productions that effective cost control is implemented.

Programme genre Documentaries Drama Series Scripted comedy Entertainment

Cost of production % 90.1 92.4 90.5 88.0

The genre that is of most concern (with regard to cost excesses) is Drama series productions where costs exceeded expectations by 2.4% (162.000). It is explained that profit margins fell to 9.4% as a direct result of lower commissioning revenues (page 12). It is interesting to note that there are 14 Programme Directors who, between them they have produced 18 different types of programmes consisting of 197 individual programmes. The process Program Director originates idea for a new production The idea is developed in consultation with either MD Developed idea is presented to monthly VYP commissioning committee Finalise workable format for a programme Prepare detailed proposal format with assistance from Sara Mills Market the production idea to a broadcast company Prepare detailed budget Once the commission has been received, the program producer would join the team. He looks after the following areas: Planning the work and resources required Arranging for all of the bookings of outsourced people and outsourced facilities, such as studios and VT crews Manage the programme budget with assistance from Janet Blacks finance staff.

The programme costing system and its link to the accounting system appears to be operating efficiently, though very clearly cost controls by some programme producers are weak. The counter argument of some TV broadcast companies that the quality of the programmes can be allowed to go below par because the viewing public will not necessarily notice the difference in programme quality would raise some ethical issues, particularly if VYP supports this stance. The two MDs too see the need to produce programmes to tighter programme budgets while at the same time emphasizing the need to work even harder to secure contracts for new commissioned programmes as well as to secure commissions for returning series of programmes. The programme directors argument that not all of the emphasis should be on cost effectiveness, as VYP needs to maintain its reputation for delivering high quality programmes is very valid indeed. Having said that, the program producers should be made to ensure that there are no cost over runs and that forecasts (to completion) they make are accurate. As a private company Steve Voddil and John Young are using their initiative to indulge in some type of CSR activities. VYP has donated approximately 3.6% (128,000 3,510,000) of operating profits to selected charities. They have also successfully initiated programmes to encourage young persons to study to join the industry. VYP is, of necessity, highly dependent for its past, present and future successes, to its efficient team of Programme Directors and production staff to produce high quality programmes. So it is necessary to ensure that they are well looked after. This seems to be happening effectively particularly with regard to the production staff.

One area of concern could be Sara Mills who plays an important role as Head of Programme Commissioning. She does not consider that her skills are being fully recognised and rewarded. It is possible that Steve Voddil and John Young have placed greater emphasis on ensuring that the production staff are well looked after and maybe considered the rest of the staff not that important to the success of VYP. Sara Mills approaching the MDs re participation in the companys success could possibly have prompted the two MDs to consider whether a few more of the senior employees should become shareholders in VYP. The above is an analysis of the case study for the T4 examinations in September and November 2010, which it is hoped would assist the T4 candidates in their preparations for the exam. Good Luck !

Harold Srilal Perera Professional Progress Institute FZ-LLC Dubai - UAE