TV Asahi Theatrical Productions TV Asahi Theatrical Productions

Presents The Tony® Award-Winning

K enj i

Kenji Sudo Kenji Sudo Yasu Kata Yasu Kata Hidedata Nishimura Hidedata Nishimura

Written and Produced by Robin L. M. Cheung

TV Asahi

Executiive Summary Execut ve Summary
Kenji (Drama, 1996)
Starring Kenji Sudo Yasu Kata Hidedata Nishimura

Written and Produced by Robin L. M. Cheung Originally the brainchild of Hidedata Nishimura, TV Asahi Theatrical Productions, Inc. was established to produce Broadway-style musicals with the intention of bringing blockbuster hits back to Japan. Established in 1982, its Vice President, Kenji Sudo has managed to grow the business to returning profits of $1.5 million on revenues of $15 million by 1993. This was accomplished by producing such Tony® Award-winning musicals as “Guys and Dolls” and “The Secret Garden.” Now that Nishimura has retired from the business, Kenji has found himself without management support. As his contract precariously hangs in the balance, TV Asahi seems to pay little attention to Kenji’s initiatives. Further, when his only connection to Japan, Yasu Kata, plans to retire, he discovers his far-away parent company has no plans to replace the departing Japanese Vice President. With his only connection to Japan and his only executive sponsor gone, can Kenji save his company—and his job?

Perhaps TV Asahi’s focus on digital broadcasting, Kenji can muster financial support from his Japanese superiors. Enticing them with the lucrative returns of Pay-Per-View™ subscriptions to Broadway smash hit musicals, Kenji can ensure returns more than adequate given this risky proposition. While Kenji’s risky New York escapades currently return only 6.2% on investment— a measly 0.2 percentage points above the company’s overall ROE—incorporating Pay-Per-View into his business model could help boost that number several times over.

TV Asahi

Background Background
Originally conceived November 1, 1957, TV Asahi began operations under the name Nippon Educational Television Co., Ltd., on February 1, 1959. In the forty intervening years, this small educational broadcaster has become one of the main content providers in Japan, reaching over 97% of Japanese households. With a corporate objective of becoming Japan’s “top total content provider,” TV Asahi faces a myriad opportunities at the dawn of digital convergence. With the recent insurgence of digital “pay-per-view” broadcast models, TV Asahi has radically restructured its information content, providing “entertainment-only” broadcasts during the late evenings and seeking high-profile and –return investments. Established in 1982, TV Asahi Theatrical Productions was the sacred cow of TV Asahi’s number two man, Hidedata Nishimura. Spawned by his fondness of western-style musicals and a hunch that this format would prove popular to the Japanese, TV Asahi Theatrical Productions (TP) was shared the mandate of its parent division, the Special Events Division (SED), of enhancing TV Asahi’s image through event sponsorship. The SED had engaged in such diverse activities as media content publishing, art exhibitions, and popular music shows, such as the mega rock festival, Summer Sonic 2000, featuring over 30 rock and pop performers. Through the strong leadership and networking of TP’s New York Vice President, Kenji Sudo, TV Asahi brought such Tony® Award-winning Broadway musicals as “Dreamgirls” and “Guys and Dolls” to Japan. With 1995 profits of $1.5 million on revenues of $15 million, TP was a minor player in the TV Asahi Group, which realized net sales of over ¥225 billion in 2001 ($1.7 billion US).

The Problem The Problem
Due to Japanese mandatory retirement regulations, Nishimura left the company in 1996, leaving Kenji without a strong confederate on the “inside” in the parent company. Sudo had been living in the US for 30 years and worked in TV Asahi’s New York location for 20. It was clear that his operations were distinct and alienated from headquarters in Japan. In fact, his only connection to head office was to have his musical contracts vetted. It was already apparent that without Nishimura’s strong push, TP was in danger of losing financial support; Kenji’s Japan counterpart, Yasu Kata, faced mandatory retirement and the parent had no plans to replace him. By this time, Kenji had developed strong contacts in the close-knit theatrical circles and had even been inducted as a voting member for the Tony® Awards. TV Asahi executives seemed not to share Nishimura’s fondness for western musicals and did not understand western showbusiness. While Disney Corporation continued to invest heavily in Broadway theatres and other Japanese broadcasters ramped up their theatrical involvement, it seemed imminent that Kenji’s efforts and accomplishments would fall to the wayside. Clearly, TV Asahi would have to make a strategic decision about the future of its TP unit.

TV Asahi

Company Strategy
TV Asahi endeavours to become Japan’s top “total content provider,” leveraging digital terrestrial, satellite, and broadband technologies to take on the top Japanese broadcasters head-to-head. The cover of its FY2001 Annual Report has only three bold words: “Building Shareholder Value.” These three words epitomize TV Asahi’s goal of maximizing shareholder returns through seeking high-profile, high-return investments with relatively low risk. Nadler and Tushman (1997) proposed a managerial decision-making model which considers such external factors as environment and resources as well as internal factors, such as organizational structure and culture to select alternatives congruent with the organization.

There’s No Business Like Show Business… e There’s No Business Like Show Busines s…
Cliques Abound
Indeed, TV Asahi Theatrical Productions faces unique challenges. The show business culture is largely based on cliques and being on the “inside.” Over the years, Kenji had worked his way up to having excellent rapport with theatre owners and directors. He was even inducted to be a voting member of the Tony® Awards. This gave Kenji unique competencies in bringing western musicals to Japan; however, his office comprised Kenji and his assistant. No further successors have been trained or introduced to this clique. Without Kenji, TP has nothing.

Meagre 6.2% average Return on Investment in FY93
Fundamental to every introductory finance course, the concept of risk and return is emblazoned on every MBA’s report: risk and return should be positively correlated; that is, high-risk investments should yield high returns in compensation. The dramatic theatre business has proven itself to be diametrically opposite to this. The risk of producing any single show is high—disdainful critics can shut down a show in less than a week. Yet the returns have been meagre given this level of risk. Given an average cost of $8 million to bring a show to Japan, the three shows Kenji brought to Japan in 1993 cost an estimated $24 million. Returning profits of only $1.5 million, this represents a return on investment (ROI) of 6.2%. Given the company’s overall FY2001 return on equity of 5.99%, this low return for such high risk is unacceptable.

Research Japanese Viewer Preferences
Given TP’s mandate of increasing TV Asahi’s awareness through theatrical events, it would be best for TP to ascertain quantitatively the nature of TV Asahi’s viewer preferences. TP was Nishimura’s “Sacred Cow,” spawned by his own fondness for western musicals. This preference may not be shared by the Japanese populace enough to warrant producing musicals. Sporting events and rock/pop music have proven to be huge successes for TV Asahi in the past. The US Open golf tournaments and FINA World Swimming Championships 2001 returned an impressive 40.6% audience rating. And FY2001 investments in the Summer Sonic 2000 rock festival and other major popular events with broad appeal brought returns of ¥12 billion.

TV Asahi

Focus on Wireless Content
With the industry’s shift from conventional content to broadband and wireless content, TV Asahi has decided to pursue digital terrestrial and satellite content aggressively. One of the major problems with signing contracts to televise a theatrical production has been that the opportunity cost has been high given decreased demand for in-person performances after a televised musical. This opportunity cost could be mitigated by televising musicals as a “payper-view” event.

Alternatiives t Alternatives
It is evident that in light of the departure of its President and Japanese Vice President, TP will undergo significant changes. Kenji can either be in the driver’s seat or riding shotgun; whatever the case, with his two main Japanese contacts gone and his contract up for renewal, his future—and the future of TP—now precariously rest in the hands of his Japanese superiors. Of particular importance in considering each alternative was their impact on shareholder value, subscriber base, and on TV Asahi’s contribution to Japanese cultural nourishment. The options available are as follows:

Do Nothing
TV Asahi could renew Kenji’s contract and deal with the issue next year. Kenji’s performance has brought meagre returns given the level of risk associated with theatrical production. Although renewing Kenji’s contract as-is would provide little marginal benefit to shareholders, it would provide some visibility to increase subscribers. Given TV Asahi’s emphasis on the educational-entertainment (Edu-tainment) segment, Broadway musicals are likely to appeal to this viewer segment. Allowing Kenji to continue bringing Broadway musicals to Japan would continue to “give back” to society. Producing western musicals, however, remains a risky business. With only 20% of all projects expected to turn a profit, the overall expected monetary value of all projects is expected to be negative. This would provide little benefit to shareholder value.

Cancel Theatrical Productions Inc.
TV Asahi faces high risk investments with no risk premium on returns by producing Broadway musicals. Taking into account expected monetary values based on a stochastic model, this translates into negative net present value, or an internal rate of return lower than its base ROE or even long-term riskfree securities. By canceling TP, TV Asahi could reassign Kenji to pursue lower risk, higher return investments, such as pop stars or mainstream music groups having wider appeal than Broadway musicals. Given that Kenji has proven himself an able salesman and businessman, it is likely he would make a significant positive contribution to shareholder value if he were reassigned to higher profile, higher return projects. His relationships in the Broadway musical business would be considered a sunk cost. This has the drawback, however, of a long lead-time for Kenji to break into the new show business.

Increase Funding to TP
Kenji currently enjoys 100% approval on his propositions in spite of his meagre returns. Increasing funding to TP could increase the number of Broadway musicals brought to Japan, resulting in a major “giving back to Japan” factor; however, it would have little impact on shareholder value, since the expected returns would be only on par with current ROE, with no risk premium. In fact, shareholders could view this to have a negative impact.

TV Asahi

Switch Focus to London’s West End (UK)
Kenji is currently based in New York and focuses on Broadway musicals, he could transfer to UK. Alternatively, TV Asahi could create a new spin-off in UK run in parallel with TP. This, however, is not likely given the lack of management buy-in and the relatively low returns and high risk of these investments. It would increase the “give back” factor, but provide little marginal shareholder returns and subscriber increase.

Increase Funding For Pay-Per-View Projects
Pay-per-view has become a proven formula in the digital terrestrial and satellite broadcast industry. TV Asahi is aggressively pursuing the satellite and terrestrial digital market. If Kenji can convince management that he will bring Broadway musicals to Pay-Per-View™, it will garner management buy-in. Pay-per-view will increase shareholder value significantly, since unlike traditional broadcast television, each viewer pays a fee for each performance. This would significantly increase cultural enrichment, since it would make available Broadway musicals to a large population while at the same time increasing TV Asahi awareness through its production of live performances.

Multicriteria Decision Matrix Multicriteria Decision Matrix
TV Asahi should consider not only the most important criteria in deciding what action to take, but also the relative importance of each criterion. Based on the FY2001 Annual Report, the top three most important criteria were identified to be (in decreasing order) a. Increasing shareholder value; b. Increasing subscriber base; and c. Contribution to Japanese society. These primary objectives were given weights from 1 to 3. Criterion Increase Shareholder Value Increase subscriber base Contribution to society Relative Weight Rationale As a publicly-traded company, TV Asahi’s main goals should be to maximize return on shareholder value; that is, it should undertake projects with the highest returns on investment possible. Key to the broadcasting business is maximizing exposure to gain visibility and attract advertising spots. Unique to the Japanese culture, firms are expected not to undertake projects that dishonour or bring shame to Japan; further, they are expected to pursue projects to nurture cultural enrichment.

3 2 1

Given these criteria, the various alternatives were evaluated systematically on a scale from 1 to 10 (detailed in Appendix II): Shareholder Subscriber Base Contribution to Alternative Overall Score Value (3) (2) Society (1) Do Nothing 2 3 5 22 Cancel TP 5 3 3 21 Increase Funding 2 4 7 24 Switch to UK 2 3 5 22 Pay-Per-View 7 6 6 39 Contingent Plan

TV Asahi

Recommendatiions Recommendat ons
Aggressively Pursue Pay Per View™ Deals
It is clear that the most preferred course of action is to increase funding to TP contingent upon offering Broadway musicals as a Pay-Per-View service. This is further congruent with TV Asahi’s strong plans to launch satellite and digital terrestrial services and become Japan’s foremost total content provider. TV Asahi should measure return on investment for the year. If return on investment is not dramatically above the overall TV Asahi ROE, the TP program should be abandoned and its resources reassigned to higher visibility, higher return projects.

Actiion Pllan Act on P an
Garner Management Buy-In
Kenji must realize that his lack of proactive schmoozing with top Japanese executives over his 20-year career has earned him complacency. Now that Nishimura has retired, there is no Japanese top executive to champion the program. Kenji must now convince TV Asahi to continue to fund his program by outlining the tremendous gains to be had by leveraging the digital network and pay-per-view technology to earn huge returns. Kenji must formulate this plan and draw up pro forma income statements for this proposal immediately. Since he only staffs a single assistant, this could be accomplished at low cost with an MBA intern.

TV Asahi


Enviironment/Resources/Hiiistory Env ronment/Resources/H s tory Environment/Resources/H story Reaches 97% of Japanese households - Top four Japanese broadcaster Theatre society very cliquish - Possible deregulation - Total FY2001 revenues of ¥225 bn Total FY2001 assets of ¥308 bn Sttrategy Strategy S rategy Clear differentiation of target lineup by time - One-year “producer/director” contracts Focus on informative entertainment - Before-the-hour start times (get a jump) Employ mid-career personnel - Acquire rights to sporting events Organiizatiionall Cullture Organ zat ona Cu ture Organizational Culture Ethnocentric Originally conservative, now pursuing poignant content “Old boy’s network” culture at home office in Japan Formall Organiizatiion Forma Organ zat on Formal Organization Arrangements Arrangements Arrangements - Network of 26 affiliated stations - Committed to sports events and popular music publishing (high revenues, high exposure) - “Giving back” to Japan



Competenciies Competenc es Competencies - Kenji a voting member of Tony® Awards - Satellite and digital technologies - Content management Tasks Tasks Tasks Committed to “Building Shareholder Value” (Annual Report, 2001) Seek and provide total content to viewers


Outputs/Objjectiives Outputs/Obje ct ves Outputs/Ob ectives Defend strong domestic position Seek high-profile, high-return investments with positive NPV and relatively lower risks

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