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You should make recommendations where appropriate. Read all the information provided before you begin Note: Today’s date is 31 March 2012. ©The Chartered Institute of Management Accountants Page 2 . Prepare a report that prioritises analyses and evaluates the issues facing the board of VYP. You should write your report as at this date.CIMA Global Business Challenge 2012 Scenario You are the consultant to VYP an independent TV production company.
Preliminary enquiries have indicated that all but one of the main actors is available. on which the board would like your analysis and opinion: Re-commissioned drama series Following the successful launch of a drama series last year the BBC announced last week that it wishes to re-commission a second series. ©The Chartered Institute of Management Accountants Page 3 . VYP have always struggled to realise the savings considered likely when a series is repeated. The programme was unusually well received by the viewing public. John Strong. The programme last year revolved around a group of four rowers preparing for the rowing world championships held in 2011. She has said that it is about time that VYP exploded the myth that re-commissioned programmes are significantly cheaper to make and should take this up with the BBC. It covered the ups and downs of life as a rower and dealt with the pressures on relationships the training created. Strong from the pre-existing contract with GGG to allow him to take part in second series of the drama. Les Fisher believes that when it comes to personal service contracts anything is possible and is interested to hear what might be done to release Mr. The series will take 4 months to plan and shoot. one of the original rowers in the team. Finance Director has indicated that in her experience VYP would be lucky to make more than 5% operating margin on this project (after allowing for some modest cost savings associated with re-commissioned programmes). Proposal to expand into corporate advertising videos An old friend at Zubinos Coffee Shops Ltd has approached Steve Voddil with a request to help him promote his chain of coffee shops. The coffee shop industry has expanded considerably in the last ten years but more recently the business has been coming under increased competitive pressure. The market is now saturated with specialist coffee shops and margins are being squeezed as Zubinos reduces prices and suffers higher costs partly due to ever increasing oil prices (affecting delivery and raw material costs).A variety of issues have arisen. The BBC have offered the new series at the 2011 prices less 10% arguing that the sets have been built and many of the normal teething problems had been resolved last time. The drama series is scheduled to be shown in the 8 weeks from 1st April 2013 to coincide with the rowing world championships in June of that year. is already contracted for the next 10 months on other projects with GGG. another TV production company. Janet Black. The new drama series will be a long one giving £5m of revenue to VYP (after the 10% discount mentioned above).
000 Note 1 Note 2 1. the UK broadcaster is keen to proceed with the first series of a new children’s programme called Sammy Squirrel making use of puppetry.800 and a 60% chance that the costs will be £4. He thinks that there is a 40% chance that the cost will be £2. “The market for corporate videos is huge and growing. He has prepared cost and revenue data for the first video but has indicated that once this has been done. Steve is particularly interested in how you will treat notes 1 and 2 and whether your treatment raises any issues or reservations in your recommendations. up to 15% of the costs might be saved for subsequent attempts as VYP gains experience. Zubinos may well be interested in subsequent videos if the first one goes well. For every £1 spent on studio hire the film crew will cost £1. Steve Voddil requires a financial assessment and a wider discussion as to the viability of the strategic change of direction. ©The Chartered Institute of Management Accountants Page 4 .200 1.800 per video. Fee negotiation for new children’s programme Following the success of a pilot programme. it’s about time we exploited our skill set better” he said.20. Note 2: Using past cost analysis it has been noted that the film crew cost varies in line with the cost of studio hire.The idea is for VYP to produce a corporate advertising video. which will be shown on local independent TV. Description Revenue Studio hire Actors Film crew Scripting Music £ 17.000 5. The negotiations have gone well as the broadcaster thinks the likelihood of success is good given the rave reviews from critics and pilot programme viewers (children and parents) alike. It has also been suggested that more modern media channels might be appropriate (You Tube for example) and Steve Voddil is interested in your opinion on this idea.500 Note 1: Steve is unsure how much actors will cost as much depends on the skill level needed and availability. indeed Steve thinks that this could be an exciting development exposing VYP to a new market for its services.
Equally the margin gained from outsourced merchandised sales is variable but a typical rate would be around 25%.The broadcaster has accepted that this is a new area for VYP but is confident in its ability to produce the programme. It also wants some research done to give an indication of likely merchandise sales levels.” The level of merchandising sales is very difficult to predict and will be heavily dependent on the level of publicity the programme gets and how well-liked it is by the viewers. This should be based on the Teletubbies a successful puppet based TV programme of the late 1990’s. He also wants you to indicate the likely risks VYP exposes itself to should it venture into selling merchandise. which is considered to be generous. manufacture. If this offer is accepted the merchandising rights will remain with the broadcaster. merchandising would simply be added to the list. If the broadcaster decides not to re-commission future programmes the sales of merchandise will most likely collapse. It is also dependent on exposure.000 per hour for the programmes. which will occupy 54 minutes broadcasting each with advertising taking up the other 6 minutes within an hour of television time. The broadcaster has offered to fund 20 programmes. sales and marketing as well as distribution. In this case 60% of the merchandising margin would be payable back to the broadcaster in the form of a royalty. After discussions with other production companies that are known to VYP senior management it is thought that the fee from the broadcaster would drop by 35% in order for VYP to gain a 40% share of the merchandising margin. Merchandising would involve a range of tasks including design. John Young accepts VYP has little skill in many of these areas but states “VYP outsources all sorts of tasks already. VYP is considering whether to accept a lower fee in return for the right to sell the merchandise itself. The sale of puppets and other items based on Sammy Squirrel would carry good margins and the prospect of future sales. John Young thinks this should be enough evidence for you to be able to give a clear recommendation resulting from an assessment of the proposal on fees. ©The Chartered Institute of Management Accountants Page 5 . VYP feels that it is sensible to consider only the first year of potential merchandising sales in the first instance and wants to know what the breakeven level of sales would be when compared to the fee of £350. The area of contract contention surrounds the ownership of merchandising rights.000 per hour excluding any merchandising income. The broadcaster has offered £350.
The programme attempts to explain why the financial crisis of 2008 happened. He has asked the programme producer for suggestions on what can be done. it’s too late to go back now and ask for more – VYP do not do that”. ©The Chartered Institute of Management Accountants Page 6 . VYP’s latest documentary is now forecast to make a loss. The investigation phase of the programme took longer than anticipated and involved repeated interviews. He said “we have agreed a fee. as the programme director required further clarification on a large number of inconsistencies in the evidence gathered. Steve Voddil is unhappy that a loss is to be made but has ruled out any renegotiation of the fee.“Banks – friend or foe?” – A new documentary by VYP Having been budgeted to make a healthy margin.
She added. actors are expensive and set builders are cheap. Recently. We must build the sets ready for a decent days worth of filming.000. “The use of graphics and other CGI techniques are essential to display to nonfinancially aware viewers the reasons why the crisis happened – if our viewers do not understand then we have failed”.The programme producer is suggesting the following steps to achieve a breakeven position: 1. VYP had little time to set up the studio before filming began and so the set builders started work at 11pm the previous day to get the set ready. The programme director (Sarah Runner) is furious at these suggestions.000. it’s just economics!” ©The Chartered Institute of Management Accountants Page 7 . Accident at studio VYP hires studios when they are needed. No more interviews. Expensive computer graphics interface (CGI) usage will be cut back. The set builders worked with limited breaks until 10am the next morning eating and drinking on the go. a studio was needed at short notice. An award winner of the past. VYP routinely asks the set builders to work long and often anti-social hours. VYP must produce the programme based on the evidence it has to date. “The world has the right to know the truth.30am one of the builders fell off a gantry and broke his arm. The profit motive should be put to one side just this once” she said. Sarah sees this work as important and potentially worthy of an award. At 9. Steve has asked for an assessment of the two solutions put forward. This compares with a forecast margin of £32. 2. The gantry was properly built and was safe for use. The accident was put down to a lack of concentration and tiredness. It has been estimated that if the programme were produced including more interviews as needed and the full use of CGI then the loss would be in the region of £30. One of VYPs leading producers says “Look.000 on forecast revenue of £290. due in part to poor planning.
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