Pixels, Performance and Profits. Accenture.


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Pixels, Performance and Profits. Why CFOs in the broadcasting
industry need to build a new model
of performance management for a
multi-platform, digital world.

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Pixels, Performance and Profits. Accenture.

  1. 1. Pixels,performanceand profitsWhy CFOs in the broadcastingindustry need to build a new modelof performance management for amulti-platform, digital world
  2. 2. Table of ContentsExecutive Summary 3The Broadcasting industry context: after 4the crisis, a new crisisBroadcasting moving forward: what is 7changing and putting the future at risk?The CFO role in Broadcasting 10transformation: the hill climb to HighPerformanceRethinking the Broadcasting Performance 15Management frameworkConclusion 262
  3. 3. Executive SummaryThe complexity of the TV development of portfolio andindustry is increasing and profitability analysis overthe competitive landscape all the meaningful businesschanging rapidly. Models dimensions, enabling CFOs tofor traditional performance evolve and assume a key rolemanagement in broadcasting in the core Editorial Planningare no longer suitable to and Execution process. Whilefight the ongoing erosion rethinking the P&L dashboard,of margins in an evolving CFOs should reshape theirmultiplatform world. While skills and organizationsbusinesses are shaping new in order to build strongstrategies and customer value capabilities to understandpropositions to stay relevant, and create innovativeremain competitive, profitable KPIs that can explain theand attractive to investors, dynamics underlying theCFOs are being asked to full exploitation and ROIidentify the new value levers. enhancement of every singleTheir role has never been one of the broadcaster’smore challenging. commercial and industrial assets and resources.CFOs seeking to act asbusiness partners in The first step of the journeytransformation will have is to set up a brand newto quickly understand performance managementand overcome the limits framework. This needs toof traditional models and address all the complexities ofrethink their performance the broadcasting value chainmanagement capabilities. through three separate butFirst of all they will have integrated models, and deliverto start from scratch to the high visibility required todefine a new approach to drive effective business andP&L, building a Profitability editorial decisions.Model around the TV Product.The centrality of productshould be the basis for the3
  4. 4. The Broadcasting industrycontext: after the crisis, anew crisisPartial recovery–but worse to The recovery of the • Analyzing 2007-2011 advertising spend (see figure 2) shows thecome? Broadcasting industry recovery to be cyclical ratherBroadcasters have not fully recovered from the 2008-2009 crisis than structural, ie the bounce infrom the impact of the financial crisis was only partial owing to advertising after the recession (TVand ensuing recession. As shown investors’ growing concern Advertising increased 18 percent fromin figure 1 below, broadcasters’ 2009 to 2011), and the increase of about future growth TV advertising share relative to otherenterprise values remain below their2007 levels. The reason? Investors The January 2011 edition of the media like print (TV share on totalcontinue to have doubts about the Broadcasting industry Shareholder spending increased 2 percent fromsustainability of broadcast business Value Analysis, uses trends in 2009 to 2011).models in the light of a volatile enterprise value (the sum of current • The data suggests a progressiveand fast-changing market. While and future value) to investigate the loss of confidence by analysts andadvertising revenues have recovered, factors underlying investors’ trust in investors in the sustainability ofthe projection of broadcasters’ future the broadcasting industry. It reveals current broadcasting business models.value is significantly lower today that some key issues: This is further demonstrated by theit was in 2007. The macroeconomic • The broadcasting industry has current vs future value analysis (seeclimate is set to deteriorate. If, as experienced a strong but only partial figure 1): the bounce in the sector’smany including the IMF predict, the recovery. In fact at the beginning enterprise value in 2010 was entirelyglobal economy contracts in the next of 2011, enterprise value was still due to the recovery in the value of12 months, spending on advertising around 15 percent below 2007 pre- current operations, while future value,will be hit. recession levels (see figure 1). measuring expectations of growth, was at the beginning of 2011 down by 44 percent compared to 2007.Figure 1: Enterprise Value: FY 2007-20102007 $226bn $140 $862008 $143bn $131 $122009 $180bn $117 $632010 $189bn $141 $48 Current value Future valueNotes:1. Enterprise value = Sum of Market Capitalization and Net Debt (Total debt less total cash)2. Current value = Sum of Present value of current operations a based on NOPAT divided by the WACC, NOPAT taken from latest period3. Future value = Sum of Enterprise value less current value. Sky Italia is a private company and hence not included inSource: S&P Accenture analysis4
  5. 5. Stepping into a new The macroeconomic forecast provided by the World Economic Outlook (seemacroeconomic downturn: figure 3) indicates that mature andincomes from traditional TV advanced economies are expectedadvertising are under to experience low rates of growthattack, again. or recession, and this slowdown will likely result in a collapse of spending on advertising.Figure 2: Net global advertising spend: FY 2007-20112007 258.8 153.1 (37%)2008 255.5 155.1 (38%)2009 222.0 143.3 (39%)2010 231.1 159.5 (41%)2011 242.6 169.1 (41%) Rest of Media TV (value and %)Source: 2011 Advertising forecast by MagnaGlobalFigure 3: Global GDP growth (percent; quarter over quarter, annualized) Emerging and 12 developing economies 10 8 World 6 4 2 0 -2 -4 -6 Advanced economies -8 -10 2007 08 09 10 11 12 13Source: IMF staff estimates (World Economic Outlook - update released in January, 2012)5
  6. 6. Figure 4: Average video consumption in EU (minutes per viewer per day) 275 265 266 258 33 31 236 ~237 20 35 ~219 ~217~211 ~206 24 +12 +23 +17 +6 +9211 223 219 242 217 234 206 212 237 2462005 2010 2005 2010 2005 2010 2005 2010 2005 2010 Germany UK Spain France Italy 2010 Online video 2010 linear TV 2005 linear TV2005 Online video data estimated to be marginal so not included into figureSource: Accenture analysis of e-Media Institute data, 20116
  7. 7. Broadcasting moving forward:what is changing and puttingthe future at risk?Industry in transition: new 1. TV business’s economies of scale 2. Advertising budgets are movingcompetitors, new consumers continue to come under attack onlineMore people are spending more Volume data from the e-Media No longer a distant threat, in sometime watching more video content. Institute highlights how video markets advertising budgets are nowHowever, encouraging as this consumption in the EU, in minutes larger for online than for traditionalmight sound, a detailed review viewed daily per capita, is increasing media. In the UK for example, internetof how consumers are watching on average by more than 19 percent advertising in 2011 exceeded allreveals considerable fragmentation (see figure 4). other categories including linear TVof habits across a wide variety of and print (see figure 6). Advertisers Increasing audience fragmentation are also looking for greater insightplatforms. That fragmentation makes is progressively compromisingit increasingly hard for traditional about the returns on their spend, and the ability of TV businesses to more targeted messages for specificlinear TV broadcasters to achieve the generate economies of scale andeconomies of scale demanded by their audiences, further undermining remain relevant. Despite increasing traditional broadcast mass traditional business models. consumption of linear TV, the ratio market models.The difficult macroeconomic context between TV advertising spendingis increasing pressure on traditional and GDP is falling in all advancedbroadcasting business models. economies (see figure 5). Growth is not expected to recover to There are two main reasons behind historical levels.the perceived loss of growth potentialand value creation:Figure 5: Traditional TV advertising spend as a percentage of GDP1.40%1.30%1.20%1.10%1.00%0.90%0.80%0.70%0.60%0.50%0.40% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010e 2012e 2014e France Germany Italy Spain UK USSource: Global Markets Research-European TV Sector, September 2010, Deutsche Bank AG/London7
  8. 8. Figure 6: Spending on advertising in UK (Jan-Jun’08 vs Jan-Jun’11; £ bln) 1st Half 2008 Internet 1,67 Internet 2,23 Television 1,95 Television 2,15 Press 3,04 Press 2,07 Direct mail 1,00 Direct mail 0,83 Other 1,27 Other 0,99 Source: Internet Advertising Bureau H1-2011 Online Adspend Study Users are driving the change: entrants are shifting the terms of the broadcasters to not only define a new traditional debate between pay and free business strategy and value proposition the new digital consumer TV models and are instead developing to consumers, but also develop an Changing consumer habits are new, more complex approaches that effective operating model grounded in responsible for driving major shifts in exploit the possibilities of an online and an understanding of the value creation the market. The new digital consumer on demand environment. And they are processes and built on insightful is looking for personalized, on-demand enjoying considerable success. Netflix, performance management. and interactive content. As they shift for example generated an increase in total shareholder returns of 240 percent Accordingly, in this paper Accenture how, where and when they consume in the year to January 2011 (see figure 7). investigates how broadcasters should content they are opening doors to look to evolve their performance digitally native players with the cash and In the face of these challenges, management in the face of an experience to make significant in-roads remaining competitive, profitable increasingly complex and challenging to broadcasters’ markets. These new and attractive to investors requires business scenario. Figure 7: Total return to shareholders (6/2008-1/2011) 6.0 Netflix, 5.92 5.0 4.0TRS Monthly Values CBS, 3.61 Sun TV, 3.07 3.0 ITV, 2.83 TWC, 2.75 RTL, 2.71 Antena 3, 2.22 DirecTV, 1.93 2.0 TIF1, 1.84 Dish TV, 1.80 BSkyB, 1.62 Comcast, 1.61 Televisa, 1.49 1.0 Nippon, 1.45 Mediaset, 1.41 Canal Plus, 1.33 Tokyo Br, 0.91 0.0 Jan ‘0 9 Mar ‘0 9 Apr ‘0 9 May ‘0 9 Jun ‘0 9 Aug ‘0 9 Sep ‘0 9 Oct ‘0 9 Nov ‘0 9 Dec ‘0 9 Jan ‘1 0 Apr ‘1 0 May ‘1 0 Jun ‘1 0 Aug ‘1 0 Sep ‘1 0 Oct ‘1 0 Nov ‘1 0 Dec ‘1 0 Jan ‘1 1 Jul ‘09 Jul ‘10 Feb ‘09 Feb ‘10 Mar ‘10 Pay TV Segment Free-to-Air Segment Source: S&P, Accenture analysis 8
  9. 9. The role of OTT-TV inbroadcasting transformationAccording to the Accenture The availability of OTT-TV traditional TV through theVideo-over-Internet platforms is lowering the adoption of successfulConsumer Survey 2012, barriers to entry in the multiplatform strategies.overall time spent on video is broadcasting market and, Interactivity and ease ofprogressively spreading across fueled by the worldwide communication - throughinternet connected devices: expected increase of internet for example social media92 percent of consumers connected devices (see figure platforms - can drive word-of all ages and across all 8), is making the audiovisual of-mouth recommendationsgeographies around the world market extremely attractive that can foster the popularitynow watch video over for new players like content of broadcasters’ linear TVthe internet. producers, cloud based and content as never before. streaming video providers,One of the most relevant Achieving this transformation telcos, content producersenabling technologies requires a deep review of the and device manufacturers, allfostering this trend is the performance model (in terms challenging to increase theirspread of Over-The-Top TV of its dimensions, KPI, logical share of revenues along theservices, providing a number cost allocation) in order to be value chain.of additional attractive able to monitor performancefeatures such as catch-up TV However, despite the scale of generated by new strategiesand video on demand. this threat, it also represents and business models. a major opportunity forFigure 8: Evolution of connectable devices installed bases in the world (2011 - 2015) - Mln Units20112012 Smartphones PC2013 Home Console Digital STB DVR2014 TV set Media tablets2015 0 1000 2000 3000 4000 5000Source: Digital Home Market Database, IDATE, Sept 20119
  10. 10. The CFO role in Broadcastingtransformation: the hill climbto High PerformanceCFOs will play a key role in A quick look at the past: in line with, revenue trends (ie a top-transforming broadcasters’ strategies down approach). supporting audienceand value propositions. They will bein charge of supporting and driving maximization Traditional Performancethe business to develop a detailed In the past, the broadcasting Management facing theunderstanding of new value creationdynamics. The main challenge they industry’s sustained revenues and Margin collapse: the risk of a strong profitability arose from high Catch-22are expected to face is to strengthen barriers to entry and the absencetheir performance management of open content delivery platforms. The outlook today is very different. Incapabilities, focusing on the relevant Enhancing audience and market share the context of falling revenues andsuccess factors, value levers and was the most important performance high operating costs, broadcasters arestrategic assets in both current and driver. Performance management looking to prevent margin erosion.future broadcasting environments. was consistent with this goal, Performance management shouldAs the industry becomes more and accordingly focused on broad therefore be enabling businesscomplex, so, too, do the parameters measurement of the broadcaster’s decisions to enhance profitability.of performance management. Put performance, such as market share, However, the persistence ofsimply, the traditional models of the brand awareness and audience. traditional approaches means manypast founded in the relative simplicity broadcasters lack the capabilities At the same time the limited they need to do that. There are threeof the mass audience are no longer pressure on margins led to relativelyable to support effective performance main areas in which the nature of unsophisticated operational and performance management needs management in the emerging and capital expenditure control, withincreasingly complex multiplatform to change: budgets predominantly driven by, andworld (see figure 9).Figure 9: Broadcasting imperatives and performance management focusIndustry Achieve Highcontext Performance incomplexity a multi-platformHigh environment Prevent the margin erosionMedium Maximise audienceLow and market share Past Present Future tPerformance • Audience • P&L by nature • Products performancemanagement • Market share • Dynamics of the main • Multiplatform strategy • Brand awareness business effectivenessfocus • Content costs • Efficiency/ROI of assets10
  11. 11. Figure 10: The Broadcasting Value ChainMain Actors • Authors • Rights managers • Channel managers • Technology officers • Commercial DirectorsInvolved • Executive Producers • Content Managers • Emission responsibles • Network operators • Area Managers • Content Buyers • ..... • Quality controllers • IT responsibles • Dealers/Agents • ..... • ..... • ..... • ..... Production & Library Packaging Acquisition & Setup Delivery Sales Management Staff & Support Processes • Self produced, acquired or commissioned program • Channel/Schedule • TIme Slot (e.g. prime Product time, day time....) • TV genre (e.g. drama, news, sport, documentaries,..) • Service (linear vs not linear) • ..... • ..... • Subscription • .....1. Traditional performance The lack of a common product cost/revenue line item in the P&L)management does not breakdown definition has arisen from the for controlling profitability. Thisprofitability using a commonly different objectives of departments clearly prevents a detailed analysis ofunderstood product dimension involved in the value chain. For profitability by product. example, channels and editorialBroadcasters are not culturally teams are normally measured 2. Economies of scale mask thefamiliar with a product profitability against a program’s audience (not need for attention to content’sapproach, and organizations lack necessarily a measure of revenues), and assets’ ROIa common understanding of the while production teams are typicallymeaning of TV product. A typical measured against cost of production Traditional broadcast business modelsbroadcaster’s value chain (see figure per unit and advertising departments dictate that larger audiences led10) will variously define product as on overall revenue streams. to greater revenues that in turna program (self produced, acquired delivered higher profits. Naturallyor commissioned), a TV genre (eg This situation, (aside from resulting enough, focusing on the largestdrama, news, sport, documentaries), a in suboptimal decisions across each market share meant little attentionchannel/schedule, service (linear and area), has led traditional performance was paid to the profitability ofnot linear) or a time slot (eg prime- management to rely on mono- individual items of content. Today,time, day-time…). dimensional models (typically the11
  12. 12. with margins to protect, broadcasters industry, generating a further lack 1. Provide a clear and detailed vieware very limited in the levers they of coordination between scheduling, of product profitability. Broadcasterscan pull to influence the efficiency operational planning, procurement should adopt a portfolio approach toof a specific production or an and content production processes. profitability. They will need to targetacquired right. This lack of focus in tactical and strategic business andperformance management is now 3. Models are predominantly editorial decisions at the level ofcritical. And there are two main areas focused only on dimensions that single products and items of content.that need to be addressed: are relevant for the traditional From a performance management main business perspective, this means thatRights procurement and broadcasters’ models and processesmanagement: the need to increase Most broadcasters have maintained will be required to fully explain theROI from acquired rights is frustrated unchanging business models (ie costs, revenues and investmentsby the absence of strategic advertising-based linear TV or of each item in the portfolio ofplanning models that are capable subscription-based pay TV) and with products/contents and clearlyof driving procurement activities linear TV as the only way to deliver highlight its ROI and contribution totoward the need to compose content to their customers. overall profitability.schedule effectiveness (ie coherencebetween contract values and Performance management practices in 2. Support maximization ofexpected revenues) and a forward- this context are now being challenged broadcasters’ assets and efficiencylooking approach (ie availability by a rapidly changing and increasingly of investments. Broadcasters willof the appropriate content on the multiplatform broadcasting environment. be required to define targeted andcorresponding platforms). The absence of the performance appropriate cost enhancement management capabilities needed programs, without compromising theirRights management processes are ability to attract audience and remainalso likely to be poorly supported, to make detailed business decisions about specific products may lead relevant in the market. In order toparticularly where performance effectively support this, performancemanagement is not structured to to a catch-22 whereby cutting investment generally in content management will be required to bemonitor key metrics such as the more focused on the identificationcorrect exploitation of available production and rights acquisition leads to a decline in quality output of all the areas of inefficiency thatrights, in terms of frequency and can be recovered, rather than on theplacement within the schedule, and and a further contraction of audience and revenues. The lack of granular extent of each cost and investmentthe appropriate sizing/turn-rate of the line item within the P&L.rights inventory. analysis to support decision making leads to traditional P&L approaches, The CFO’s role in the future shouldContent production: where whereas the focus needs to be on the be to fully understand and monitorbroadcasters have adopted an performance of specific content. all the dynamics of the broadcaster’soperating model with internal content operating leverage, spreading a newproduction facilities, performance The future of Performance culture of resources optimizationmanagement faces an additional issue. Management: supporting to all levels of the organization,In these cases CFOs are now required the achievement of High encouraging the full exploitation of assets and efficient capital allocation.to address the endemic misalignment Performance Business in abetween production capacity needs multiplatform environment 3. Understand the futureand available internal capacity multiplatform broadcasting business.caused by seasonal swings in Performance management is going to Performance management shoulddemand. This results in huge costs to have to do more than prevent margin provide an accurate and near-realacquire additional external capacity erosion. It will also be required time control of the effectiveness ofin peaks during high season, and to support broadcasters to shape platforms used by broadcasters tounderutilization of in-house assets their business strategies and value deliver content (eg linear and non-during the low. propositions to remain relevant and linear) and the revenue streams help achieve high performance in the they generate.The effects of this endemic future multiplatform environment.inefficiency can also be made worseby the limited diffusion of structured In Accenture’s view, performanceproduct lifecycle management models management needs to be shaped byand processes within the broadcasting three main objectives:12
  13. 13. The lack of a ROI focusedapproach: the case of TVProductionA deep dive into the TV procurement of external capacity the total cost of the content, withContent Production highlights in high season and underutilization no rewards for the use of internal in low season. Only advanced capacity. Both these conditionsjust how hard the challenge production planning capabilities often result in an uncontrolledof Performance Management could help to demolish this belief acquisition of external services,is to keep Broadcasters costs by the timely quantification of even in the presence of internalunder control potential savings achievable, for spare capacity. example, through:In order to support ROI, C. The appropriate level ofmanage the costs of - The increase of production resources required for content techniques’ flexibility (eg moving production is not easy to define,production assets and facilities addressing simultaneity as during budgeting processes allimprove the use of resources of production in peak periods) the characteristics of TV products(eg studios, editing/cutting are not clearly identified. Thefacilities, executive producers, - The identification of alternative exclusive attention of traditional operational planning scenarios (egENG/EFP crews, etc), performance management on Made To Stock production the difference between actualperformance management of contents). and budgeted costs may result inwill be required to manage B. Where there is not a strong planned needs that are structurallyseveral complexities (see higher than actual. In fact, focus on costs, it is highlyfigure 11): producers are required to budget probable that the transfer price forA. Broadcasters tend to view internal resources and assets will costs by project, consequentlythe inefficiency arising from exceed the market price. On the during the budgeting phase theyseasonality of audiences as other hand, incentives to executive tend to overestimate costs in orderinevitable, and this results in producers are typically linked to to create unstated contingency.Figure 11: Potential issues in production assets and resources exploitationCapacity ACost(£) B Acquired Capacity Capacity not required in budgeting phase Capacity required inInternal budgeting phase butavailable not used Inefficiencycapacity C Capacity used for TV programs realization t13
  14. 14. 14
  15. 15. Rethinking the BroadcastingPerformance ManagementframeworkA performance management 1. A profitability model: to strategic assets used to conceive,framework represents the conceptual explain the dynamics underlying the procure/produce and deliver contentdesign of controlling objectives, broadcaster’s profitability, showing over multiple channels and platforms.dimensions of analysis, KPIs and the correlation between revenues andmanagement reporting that CFOs costs over an unambiguously defined TV The profitability model represents theshould adopt in order to provide product and other dimensions relevant link between the revenue streams,the most effective representation to business and editorial decisions; the commercial assets model and theof business performance and to industrial assets model, linking bothunderstand the key levers to 2. A revenue and commercial assets revenues and costs and pinpointinggenerate value. model: enabling rapid and effective cost allocation rules that are able control of each revenue stream’s to provide different sets of marginIn Accenture’s view, a single commercial margin and of the main indicators for the company P&L.performance management model KPIs underlying sales and customercannot address all the complexities of management processes; The following sections explain howthe entire broadcasters’ value chain. in Accenture’s view broadcastersInstead, Accenture believes three 3. An industrial assets model: a set of should address e the two most criticalspecific models should co-exist within ad hoc models, each built to focus on areas: the profitability model and thean integrated framework (see figure 12) the metrics measuring the efficiency industrial assets model. and effectiveness of each of the BroadcastingFigure 12: the Broadcasting Performance Management Framework value chain Sales 2. Revenue streams and Revenue Marketing “Commercial Assets’ recognition cRM 1. Profitability model ... model Delivery Transmission Start and support Scheduling Packaging processes Channel Channel Channel and setup 1 2 3 3. “Industrial Assets” model Library Warehouse management (library) Production Rights Production and acquisition News Film Sports Fiction Entertainment15
  16. 16. 1. The profitability model dimensions (eg channel, genre, time to different choices (eg channel, slot). This in turn will allow CFOs to genre, time slot, pay TV bundles,Business and editorial decisions in run product portfolio analysis that linear and non-linear services).broadcasting traditionally follow a can drive decisions grounded inbudget driven approach. Estimated considerations of profitability and the The Profitability Model itself isrevenues/audience drive the top-down centrality of individual TV products not exhaustive of all the businessdefinition of the total target amount (see figure 14). dynamics, but receives inputs fromof costs and investments to be the Commercial Assets Model and theallocated to the industrial dimensions With this approach the CFO will be Industrial Assets Model, respectively(eg library, production facility). able to play a central role, providing focused on the effectiveness ofSubsequently, this target total the inputs required to perform commercial processes and levers toamount of costs and investments is editorial planning and execution improve operational efficiency.the main element driving editorial processes effectively. Obtaining a reliable and significantplanning activities, with little visibility The design of an effective profitability valorization of product portfolioof the levers controlling underlying model requires the unambiguous analysis and of the profitability modelperformance (see figure 13). definition of both the TV product management reporting views willTraditional performance management and the set of additional controls require the definition of a detailedmodels do not allow CFOs to drive this and entities that together provide an Allocation Model.process, but typically only to coordinate integrated and consistent breakdowntop-down planning activities and build of overall performance. Definition of the Allocation Model:company P&L budget as an output of shared and clear rules This paper does not intend to provideeditorial decisions. The allocation model represents the a unique understanding of TVIn order to support the editorial Product or define a representation set of rules that should be definedplanning process effectively, CFOs of profitability that applies to all to allocate revenues and operationalshould define a profitability model broadcasters. In fact, even if in many and capital expenditures on thebuild around TV Product profitability ways the program can be considered TV product and on other identifiedand enabling performance analysis the true TV product, the business dimensions of analysis, enablingover all the relevant business models of each broadcaster can lead control of profitability and ROI.Figure 13: Traditional high-level process for editorial planning and execution Strategic Planning Audience/ Top-down costs Editorial Company P&L Company P&L Revenue and investments Execution monitoring and planning planning planning budgeting forecastingThe CFO role: Process Owner Involved Not Involved16
  17. 17. In Accenture’s view, CFOs that have understood and shared at all levels ofalready adopted multi-dimensional the organization.profitability models should nowconsider a revision of allocation models • The costing model should rely onaccording to the following guidelines: quantitative and measurable drivers, thus allocation procedures should• In order to provide a product as much as possible use timelyprofitability KPI that clearly reflects information from corporate andvalue levers under the control of operational systems (eg time-sheets,content/channel managers, the resource scheduling systems, etc).allocation of internal assets andresources should rely on standard/ The representation on the next pagetarget unit transfer prices, rather outlines for illustrative purposesthan actual average unit costs. In the main elements of a Free to Airfact, the allocation on the basis of broadcaster. (see Figure 15).average unit costs could result inoverestimating or underestimating thetotal cost of the product• TV product cost evaluation is nottypically associated with a fixed billof materials but allocation rules,unitary costs and business logicshould be based on assumptions.In order to verify that everyoneinvolved takes decisions based onthe consideration of profitability, thebusiness logic should be defined, andrevised as needed, in order to be fullyFigure14: Innovative high-level process for editorial planning and execution Strategic Planning New New Products/ Product Editorial Products company P&L portfolio profitability Company P&L Execution planning budgeting monitoring & analysis budgeting forecastingThe CFO role: Process Owner Involved Not Involved17
  18. 18. Revenues and sales costs: the model Rights investments: while the cost of and delivery network should rule the allocation of revenues rights are typically associated with a management processes.and selling costs from commercial single item of content, investment indimensions (ie the bundle of advertising rights usually refers to the licensing A similar criteria to that defined forwindows) to the specific advertising of multiple runs of the same content editorial and production structureswindows that are placed in over specific platforms. The impact can be followed to allocate the costseach program. on the P&L typically does not refer to of content playout activities and the run’s actual utilization but rather technologies. That means using theCosts of editorial and production to depreciation according to local and program’s duration, multiplied by thestructures: management reporting international accounting standards. standard/target hourly price of assetsviews of the costs of editorial and Since performance and revenues are and resources required for playout.production are typically structured generated by each run within theby organizational department. That is The costs of network management schedule, Accenture’s recommendation processes can be similarly allocated,largely owing to the need to assign is to define a rule that can associateorganizational responsibilities for using the hourly standard/target price every single run with a standard cost, of the bandwidth required for signalbudgets. Enabling a product-driven view weighted on the basis of the ability ofof profitability and ROI requires a new broadcasting (eg cost per Mbit/h). the run to generate revenues throughapproach. Costs should be allocated to advertising (ie the first run could Channel, content management andeach editorial and production structure represent 50 percent of the right’s staff costs: once product profitabilityin line with the consumption of specific value, the second 20 percent, third 15 has been calculated using content-assets and resources and these should percent and so on). Using this approach specific costs, it should then be possiblebe priced at the standard hourly rate for to evaluate the cost of both used to calculate the total, high-leveleach asset and resource. and unused runs, beyond providing a profitability of each channel and familyAllocating cost with a target/standard meaningful managerial representation of content by calculating the sum of allhourly cost enables both the timely of the breakdown of a right’s entire potential channel/content managementallocation of costs for each item of profitability (ie its ROI), can also reveal costs (eg including salary of channelcontent and the identification of the the cost of library underutilization. managers/content area managers).costs of unallocated structures, due to the Technology costs: Technology costs General and administrative overheadsvariance between quantities (eg difference and investments for a FTA TV business and staff costs are not meaningful forbetween needs and availability) and price primarily covers playout (eg the the control of profitability for specific(eg difference between the standard/ technology operating centers’ schedule channels or content. They should onlytarget and average actual price of each assembly and quality control activities) be taken into account when monitoringasset and resource). the broadcaster’s entire P&L.Figure 15: Example of Allocation model for Free-to-air business Commercial Advertising Detailed profitability Broadcasters profitabilityP&L offering window Program Time Slot Channel Genre Broadcaster Revenue Commercial Adv. Window Program offering 1st 1st margin Commercial Selling costs margin margin Program direct costs Program Time slot Channel Genre Bradcaster costs margin margin margin margin Editorial and Utlilization x STD cost production costs Weighted single Run STD cost Rights Utlilization x STD cost Technology Costs Channel Driver based allocationmanagement costs Driver based allocation Content areamanagement costs Staff costs Legend Direct Attribution Cost Allocation18
  19. 19. 19
  20. 20. 2. Industrial Assets Model exploitation of all the industrial Structural quantity variances: the assets, from editorial factors to cost of under/overcapacity that canThe design of high-level management delivery networks. be identified during the planningreporting views and allocation phase, defined as the differencemodels enables deeper control of To achieve this second main objective between the cost of total availablethe broadcaster’s performance and Accenture recommends defining capacity (eg hours/days of productionbetter support for high performance a set of specific performance facilities, available bandwidth, librarybusiness and editorial decisions. But management models. Each of them rights runs available) and the costit only partially addresses the need to should be tailored to the quantitative of saturation expected according tomaximize the overall profitability and economic dynamics underlying budget capacity needs (eg productionand ROI. operational and capital expenditure planning, schedule planning,). on each asset, thereby overcomingIn fact, as shown in figure 16, the the traditional attitude to controlling Operational quantity variance: theProfitability Model is focused on the internal processes according to cost of under/overcapacity that can“portfolio analysis view” of industrial organizational responsibilities. be monitored within content andassets costs and investments, ie the services production processes, definedrepresentation of the contribution of CFOs should focus on understanding as the difference between the costeach asset and resource to TV product the cost of under/over-utilization of of saturation expected according toperformance, obtained through PxQ- each asset and resource, that cannot budgeted capacity needs and the costbased allocation models. be effectively and fully explained of actual utilization of internal assets simply through traditional price/ and resources.Beyond supporting the definition quantity variance analysis models. Inof the appropriate products mix, Accenture’s view, the breakdown of Price variance: defined as the totalbroadcast performance management the budget vs actual variance of PxQ cost of the difference between budgetwill be required to achieve another values should therefore be analyzed unit costs and actual unit costs ofmain objective: supporting efficient across the following dimensions (see internal assets and resources.capital allocation and the full figure 17):Figure 16: Industrial assets model framework Profitability model Editorial Factors Product 1 Artists Product 2 Production plants Allocation model Product 3 Rights management .... Delivery network and technologies Price variance “Structural” quantity Under/over utilization variance (efficiency/inefficiency) Quantity variance “Operational” quantity variance20
  21. 21. Each one of these metrics could serve • Set the operational quantity economic/operational measures butas objectives for those involved in the variance, together with process with respect to potential impacts onsupply chain and their ability to drive productivity, as a target for executive finance and capital demands.performance, since they should allow producers and channel/serviceCFOs to: managers (ie those responsible for Accordingly, each industrial asset product realization), in order to drive control model will have to provide• Correctly identify, through the appropriate use of both internal and an integrated view of investment,structural quantity variance, the cost external assets and resources. cash payouts and profitability forof under/overutilization that should each economic dimension. Thesebe used to set targets for C-suite • Identify in the price variance the will have to be integrated by theirand Content Area Heads’ that will most effective target for rights consumption of working capital anddrive strategic planning towards managers, heads of production cash requirements.enhancing the use of internal assets facilities and CTOs (ie thoseand resources and reducing the need responsible for each industrial asset),for external capacity. in order to drive asset management towards process excellence regardless• Avoid distortions and inefficiencies of the level of utilization (ie(eg lower productivity, higher fulfillment of capacity needs at thequantities of resources charged to lowest price).contents/products) that, in the case ofinternal overcapacity, could be caused The increasing difficulty of accessingby setting the overall saturation finance and the relative increaseas the same unique target for all in the cost of capital means it isthose involved in content/services important to evaluate performance ofrealization. industrial assets not only in terms ofFigure 17: Price/Quantity variance Budget Actual Price variance “Structural” “Structural” quantity quantity variance variance “Operational” quantity variance Asset budget Cost of Cost of Asset actual cost capacity utilization cost needs (I.E cost allocated on contents/ products)21
  22. 22. In addition to this common objective, Rights management modelthe performance management modelsof other industrial assets consist of: A rights management model should be setup to control procurement,Editorial and artists costs model library management and exploitation activities for movies, series,The objective of the editorial and documentaries and other contentartists model is to monitor editorial licensed from third parties. Thedepartments’ costs and investments model should be focused on both(eg content area managers, executive library right-sizing/working capitalproducers, etc), with particular focus and metrics explaining the properon the definition and implementation utilization within the schedule (egof contractual agreements and full ROI, procurement prices aligned withexploitation of both internal and industry benchmarks, etc)external artists and professionals withinthe content production processes. Delivery network and technologies modelProduction studios model The objective of the delivery networkThe main objective of the production and technologies model is to controlfacilities model is to monitor the the costs, investments and level ofcosts and investment associated with utilization of all technical facilities,both internal and external production assets and resources involved in theassets (eg stages, studios, cutting/ processes required to deliver contentediting facilities, etc) and resources to the final consumer (eg. schedule(eg directors, ENG/EFP crews, grips, assembly, payout quality control, liveetc) and explain the dynamics connections, delivery network andunderlying under/over-utilization. technical infrastructures management).22
  23. 23. Assets and resources efficiency:performance management keyquestionsEditorial department and • Is the purchasing of external Delivery network andartists model services and capacity consistent technologies model with the level of productivity of• Are the values of contractual internal resources and assets and • What’s the utilization levelagreements with artists aligned with target prices? and the eventual spare capacityconsistent with the performance cost of the contents deliveryrequirements planned for self- • What’s the ratio between the infrastructure?produced contents? average purchasing price of external capacity and the average • Is the balance between the cost• What’s the level of effective hourly cost of the internal assets of technologies and the workloadusage of the artistic resources? and resources? capacity involved in assembling, releasing, quality control,• What’s the relationship between • What is the ROI of investments warehouse management andunit cost and total average in the production process in terms broadcasting processes coherentcost of the available/delivered of increased efficiency? with the available technologyperformance of artistic resources? equipment? Rights management model• Are the artistic resources • Is the return on investments,efficiently employed within the • Is the purchasing price of each in terms of efficiency of theschedule (eg single performance right consistent with industry technologic processes, of thecost vs standard cost of a certain benchmarks for the corresponding infrastructure evolution in linechannel/time slot)? content rating? with expectations?Production studios model • Is the rights library, and the • Is the effort required for delivery corresponding impacts on the consistent with to economic/• What’s the average hourly cost working capital, correctly sized? strategic relevance of the contents?of self-produced content? • What’s the cost of library • What’s the ROI of innovation/• Is the available internal capacity underutilization, in terms both automation initiatives in terms ofcorrectly sized in comparison to of unused runs at the end of the process efficiency?demand for self-produced content licensed period and the difference(eg HC/workload analysis of between actual utilizationproduction personnel, etc)? (ie estimated on the basis of managerial criteria) and income• Does the operational planning of statement depreciation?the production correctly addressthe demand seasonal periodicity? • Are the rights correctly used within the schedule, in terms of• Is the actual level of utilization runs by channel/time slot?of internal capacity in line withforecasted needs? • Is the expected ROI of the rights coherent with the effective profitability and the ability to attract audience/contacts?23
  24. 24. 24
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  26. 26. ConclusionIn light of the emerging business contextoutlined in the first chapters of this paper, CFOsare now being asked to support and drive theongoing transformation of business strategy andvalue proposition to consumers, by deployinga deep and accurate understanding of the newdynamics of value creation. Unfortunately,the limited complexity, sustained growth andstrong profitability that were hallmarks ofthe broadcasting industry in the past, did notdrive the need for sophisticated performancemanagement models. Their limitations are nowbeing exposed.So, how should CFOs reshape their performancemanagement capabilities in order to enablethe evolution of their role within the ongoingbroadcasting industry transformation?26
  27. 27. Accenture’s view is and depth of control, but broadcast value chain can use will be able to enhance their to manage their performancethat CFOs should role, making consideration of and set individuallybuild a brand profitability a core element appropriate targets, each onenew performance of editorial planning and aligned to overall companymanagement execution process. objectives. This model should provide clear definitionsframework, enabling 2. Reveal all the levers and parameters that canthe achievement of underlying the efficiency and be fully understood and ROI of assets and resourcesthree key success shared at all levels of the At the same time as organization in order to drivefactors. delivering an accurate adoption and engagement.1. Develop and leverage on understanding of It should provide target-product portfolio analysis broadcasters’ profitability, oriented KPIs and be based onto effectively drive editorial CFOs will also have to focus quantitative and measurabledecisions on improving their ability to drivers within allocation identify all the opportunities rules, enabling all relevantThe absence of detailed to enhance the efficiency personnel to achieve a clearvisibility of profitability and ROI of internal assets and distinct understandingdynamics is no longer and resources. CFOs will of their contribution to bothacceptable. Sub-optimal therefore be required to build revenues, the full cost of theunderstanding of these a set of controlling models, product and the effectivenessdynamics can result in poor each one focused on the of asset procurement andand costly decisions about business dimensions and KPIs management processes.content and rights cost- measuring the cost of under/cutting, further eroding over-utilization of everyalready pressured margins. In specific asset and revealingorder to prevent this catch- the underlying dynamics that22, CFOs should now: drive its performance.- unambiguously define 3. Foster the establishment ofthe meaning of TV product a new organizational mindsetaccording to their business with reliable, fully understoodmodel and peculiarities of and widely adopted modelstheir market context. Establishing a new mindset- build a profitability model for all those involved inaround this TV product and making profitability orientedall the meaningful business decisions will require CFOsdimensions, enabling the to design from scratchdevelopment of detailed new models that actorsproduct portfolio analysis. responsible for the broadBy doing so, CFOs will not range of products andonly increase the accuracy processes involved in the27
  28. 28. About Accenture About Accenture Media & Authors:Accenture is a global management Entertainment Industry Group Francesco Venturiniconsulting, technology services and Accenture’s Media & Entertainment Global Broadcast Leadoutsourcing company, with more than industry practice works with the world’s francesco.venturini@accenture.com246,000 people serving clients in largest and most innovative mediamore than 120 countries. Combining content enterprises in an increasingly Francesco Venturini is the globalunparalleled experience, comprehensive complex digital environment. broadcast lead within the Media andcapabilities across all industries and Entertainment (M&E) business practice We help clients in one of the world’sbusiness functions, and extensive research of Accenture’s Communications, Media & most dynamic industries find newon the world’s most successful companies, Technology (CMT) industry group. ways to engage the digital consumer,Accenture collaborates with clients to A broadcasting trendsetter with more seamlessly distribute digital assets viahelp them become high-performance than 15 years industry experience, a multi-platform digital supply chain,businesses and governments. The company Francesco is known for shaping optimize global operations and generategenerated net revenues of US$25.5 billion transformational strategies enabling new revenues. Our deep industryfor the fiscal year ended Aug. 31, 2011. Its major broadcasters to compete more knowledge, dedicated innovationhome page is www.accenture.com. effectively in the fast changing landscape centers and Global Delivery Network enable us to invest in forward-looking in the multiplatform digital era. From assets, solutions and services that help content creation to distribution, he helps our clients drive profitable growth and clients develop strategies for digitally deliver high performance. convergent products and services. A Communications, Media & Technology industry stalwart with strong financial acumen, he has been instrumental in shaping cutting-edge financial deals within the media industry. Significant contributions from: Matteo Pagliardi matteo.pagliardi@accenture.com Andrea Cimini andrea.cimini@accenture.comCopyright © 2012 Accenture This document is produced by consultants atAll rights reserved. Accenture as general guidance. It is not intended to provide specific advice on your circumstances.Accenture, its logo, and If you require advice or further details on anyHigh Performance Delivered matters referred to, please contact your Accentureare trademarks of Accenture. representative.