01

WINTER

THE
FASHION
CHANNEL
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The Executives01

WINTER

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, Revenues01

WINTER

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 Message01

Viewers

WINTER

Niche network
Reaches 80 million U.S. households who
subscribe to cable and satellite
Avid viewer: women between 35 and 54
(source: demographic survey)

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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

01

Competition Creates New Strategy

WINTER

Lifetime and CNN launch fashionspecific programming

blocks
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Receive notable ratings

June 2006: Thomas changes his tune

Its time for us to build a modern
brand strategy and secure The Fashion
Channels position as the market
leader. I want to use marketing to lay
a foundation for future growth.

Advertising Concerns
01

WINTER

Frazier warns that TFC may have to drop

price per unit ofTemplate
advertising by 10%
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 Fees01

WINTER

Cable Affiliate Fees are the second source of

revenue for TFC

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TFC on track to generate $80 million in 2006

Consumers pay monthly fee for basic lineup of cable

channels

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

02

TFCs Advertising Revenue Model

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

TFCs 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.

02
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)
Audiences 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 Threats03
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
Consumer
Awarene Perceived
TFC generally scored above the midpoint

TFC
CNN

Lifetim
e

Interest
3.8
4.3
4.5

ss
4.1
4.6

Value
3.7
4.1

4.5

4.4

Exhibit 1: Demographics
03

03

GFE National Consumer Field Study

National panel of consumers

Sophisticated statistical correlation program by a well-regarded
market research firm

Wheelers Theories03
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

Objectives04

Strengthen competitive position

Build foundation for future growth
Secure TFCs 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 Revenue05

Current

TV HH

110,000,00
0

110,000,000

110,000,000

110,000,000

110,000,000

1.00%

1%

1.20%

0.80%

1.20%

1,100

1100

1320

880

1320

Average Rating
Average Viewers
(Thousands)
Average CPM*a
Average
Revenue / Ad
Minute*b

2007 Base

Scenario 1

Scenario 2

Scenario 3

$2.00

$1.80

$1.80

$3.50

$2.50

$2,200

$1,980

$2,376

$3,080

$3,300

Ad Minutes /
Week

2,016

2,016

2,016

2,016

2,016

Weeks / Year

52

52

52

52

52

Ad Revenue / Year

$230,630,4
00

$207,567,36
0

$249,080,83
2

$322,882,56
0

$345,945,60
0

Incremental
Programming
Expense

15,000,000

20,000,000

Net Income from Scenarios

05
Revenue

Current

2007 Base

Scenario 1

Scenario 2

Scenario 3

Ad Sales

$230,630,4
00

$207,567,360

$249,080,832

$322,882,560

$345,945,600

Affiliate Fees

$80,000,00
0

$81,600,000

$81,600,000

$81,600,000

$81,600,000

Total Revenue

$310,630,4
00

$289,167,360

$330,680,832

$404,482,560

$427,545,600

Expenses

Cost of Operations

$70,000,00
0

$72,100,000

$72,100,000

$72,100,000

$72,100,000

Cost of
Programming

$55,000,00
0

$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

$10,378,368.0
0

60,000,000

60,000,000

60,000,000

60,000,000

Marketing &
Advertising

$45,000,00
0

SGA

$40,000,00
0

$41,200,000

$41,200,000

$41,200,000

$41,200,000

Total Expense

$216,918,9
12

$234,527,021

$235,772,425

$252,986,477

$258,678,368

Net Income

$93,711,48
8

$54,640,339

$94,908,407

$151,496,083

$168,867,232

Margin

30%

18.90%

28.70%

37.45%

39.50%

Conclusions05
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

References

05

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