CASE #1: THE FASHION

CHANNEL
MRK519-MMT

Travis Beitler
SN# 054 579 131
tbeitler@myseneca.ca
Professor Duncan Reith
 CASE #1: THE FASHION CHANNEL

Table of Contents
1. Using your own words, define the term business model. (A sentence or two in your own words)2
Business Model ..................................................................................................................................... 2
2. What type or types of business model does TFC follow? Support your answer! (A paragraph or
two at most) .............................................................................................................................................. 2
Advertising ............................................................................................................................................ 2
Subscription .......................................................................................................................................... 2
3. Professor Bagozzi defines Complex Exchange. Describe the exchanges in TFC business model.
(Less than a page plus a picture that illustrates the exchanges) .............................................................. 3
4. Provide a specific analysis / decomposition of TFCs business model. (A diagram with words. I will
remind you what this looks like in class during the week of September 28th). ........................................ 5
5. Assuming the case is occurring now and not in 2006/07, provide a suggestion/recommendation on
how TFC might reframe their business model using one of the four options in the McKinsey
framework. Provide a short rationale for your recommendation! (A paragraph or two at most) ......... 5
Innovating in Customer Relationships: Customer Empowerment ....................................................... 5
6. Using quantitative analysis (and only quantitative analysis) to make a recommendation on which
target position TFC should follow and why. (A sentence that explains your recommendations and
another sentence or two that interprets the data shown in the spreadsheet......................................... 6
REMINDER: Use quantitative analysis ONLY when making your recommendation. ............................... 6
Scenario 3 - Two Segments (Fashionistas Shoppers/Planners) ............................................................ 6
Exhibit 4: Ad Revenue Calculator .............................................................................................................. 7
Exhibit 5: Financials ................................................................................................................................... 7
Works Cited ............................................................................................................................................... 8
Marking Rubric .......................................................................................................................................... 9

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 CASE #1: THE FASHION CHANNEL

1. Using your own words, define the term business model. (A sentence or two in your
own words)
Business Model
A business model is how a business generates revenue in order to keep itself operating. In order
to do so, the specific business model needs to be outlined (drawn in detail) into how, and which
operations are necessary to produce said product or service.

2. What type or types of business model does TFC follow? Support your answer! (A
paragraph or two at most)
The Fashion Channel uses the following two business models:
Advertising
Subscription
Advertising
By selling CPM (cost per thousand) to advertising firms, The Fashion Channel generated $230,630,400 in
2006 (Stahl, 3). The Fashion Channel charges each firm at an average CPM of $2.00, over a period of 52
weeks, running at 2016 ad minutes per week First, she reviewed TFCs advertising revenue model. TFC
was on target to generate 230.6 million in 2006 from advertising (Stahl, 3). Their specific business
model attracts a variety of advertising firms ranging from: cosmetic companies, brand name clothing
designers, and car manufacturers (Stahl, 3). The Fashion Channel typically allows for six minutes of ad
air time between half-hour shows, 24 hours per day, 2016 minutes per week (Stahl, 3).
Subscription
The Fashion Channel generated $80,000,000 in affiliate fees fiscal year end 2006 (Stahl, 3). Their
affiliate fees are garnered through cable stations nationwide. Customers purchase a package (or
bundle) of televisions shows from their cable provider (Comcast, Time Warner, etc.), and a portion of
those affiliate fees are shared with The Fashion Channel. Negotiations with MSOs (multi-system
operators) allow The Fashion Channel to charge $1.00 per subscriber (Stahl, 4). Since The Fashion
Channel produces niche content, their MSO typically is considered to be low for industry standards
(Stahl, 4).

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 CASE #1: THE FASHION CHANNEL

3. Professor Bagozzi defines Complex Exchange. Describe the exchanges in TFC business
model. (Less than a page plus a picture that illustrates the exchanges)
The Fashion Channel Complex Model Simple Diagram

A = Viewer of Cable Station TFC (The Fashion Channel)

B = The Fashion Channel/Advertisement/Ad
C = The TFC Sales Team
D = Advertising Agency
E = Cable Company (Comcast, Time Warner, Etc.)
F = MSO (Multi System Operator)
Breakdown of the Complex Relationship
ABA
TFC provides the viewer (customer) with the programming entertainment that they desire. The
viewer also absorbs product information and advertisement in-between scheduled
programming. The viewer in turn forms a desire off the targeted ad, and contemplates
purchase of said product or service.
BCB
TFC Ad Sales Team pursues potential leads from ad-agencies (cosmetics, automobiles, etc.). The
Ad Sales Team eventually closes (in some cases doesnt) the deal, receives commission for their
work, and forwards the remaining revenue to TFC.
BFB
TFC negotiates price to be charged to cable companies with MSOs. In return, the MSO shares a
$1.00 subscription fee to provide cable networks with The Fashion Channel.
FAF
MPOs provide cable companies such as Time Warner, and Comcast, with TFCs channel. The
cable companies produce the content in a basic package. Contracts between cable companies
and MSOs are usually handled through franchise agreements.
CDC

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 CASE #1: THE FASHION CHANNEL

TFCs sales team negotiates price packaging with advertisement firms (automobile, cosmetic,
clothing designers, etc.). The price $2.00 CMP, where the advertisement firm purchases their
package (how much air-time per week, specific targeted times, etc.). In turn the advertisement
firms programming is then aired on the televisions for their time negotiated with the sales team.
DED
Cable companies such as Time Warner and Comcast, pursue contractual communication
partnerships with creative ad agencies (e.g. Cogeco and Taxi). In return, the ad agency performs
the creative work for the cable company hitting specific customer segments with their message.
EAE
The cable company provides the end customer with the basic television programming package.
This package contains the desired program (TFC) that the customer preferred. In return for the
cable companys service, the customer pays a basic cable channel subscription fee.

The Fashion Channel Complex Model Detailed Diagram

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 CASE #1: THE FASHION CHANNEL

4. Provide a specific analysis / decomposition of TFCs business model. (A diagram with

words. I will remind you what this looks like in class during the week of September 28th).

5. Assuming the case is occurring now and not in 2006/07, provide a

suggestion/recommendation on how TFC might reframe their business model using one
of the four options in the McKinsey framework. Provide a short rationale for your
recommendation! (A paragraph or two at most)
Innovating in Customer Relationships: Customer Empowerment
Empowerment through Choice and Accessibility
Instead of forcing customers to pay cable companies to watch TFC, what they could do is
provide them the opportunity to stream for service. That would avoid the flat fee of purchasing
a package of 1-100 channels (with 99 of them being disposable), and providing the customer
with the power of choice. Customer ends up saving money by purchasing the one channel they
want, and has access to it at all times. This gives them the capability of watching streaming
service through their home television, any multi-media interface at home, and on the go
(tablet/mobile phone).
Empowerment through Customization
Give customers the ability to choose which content theyre watching on TFC, and when it can be
watched. Record and provide programming weeks ahead in time, while allowing customers to
access when and where they will watch the show. Instead of the customer having to wait for
prime-time to watch their favorite segment, they can watch it while going to work or from the
comfort of their own home.

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 CASE #1: THE FASHION CHANNEL

6. Using quantitative analysis (and only quantitative analysis) to make a recommendation

on which target position TFC should follow and why. (A sentence that explains your
recommendations and another sentence or two that interprets the data shown in the
spreadsheet.
REMINDER: Use quantitative analysis ONLY when making your recommendation.
Scenario 3 - Two Segments (Fashionistas Shoppers/Planners)
Net Profit Margin - A greater percentage in margin (39%) is generated from the
Fashionistas/Shoppers/Planners category than all the others.

2006 Actual 2007 Base Scenario 1 Scenario 2 Scenario 3

Margin 30% 19% 29% 37% 39%

That means that revenue generated from both advertisement and affiliate fees, far exceeds the
expenses necessary to keep them operational. In Scenario 3 (Fashionistas/Shoppers/Planners),
Total Revenues = $310, 630, 400, Total Expenses = $216, 918, 912, and Net Income (Total
Revenue Expenses) = $93,711,488, and Profit Margin = 39% (Net Income/Total Revenue)

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 CASE #1: THE FASHION CHANNEL

MRK519 Marketing Metrics and Analysis

Case #1: The Fashion Channel (TFC)

Exhibit 4: Ad Revenue Calculator

Current 2007 Base Scenario 1 Scenario 2 Scenario 3
TV HH 110,000,000 110,000,000 110,000,000 110,000,000 110,000,000
Average Rating 1.0% 1.0% 1.2% 0.8% 1.2%
Average Viewers (Thousand) 1100 1100 1320 880 1320
Average CPM* $2.00 $1.80 $1.80 $3.50 $2.50
Average Revenue/Ad Minute** $2,200 $1,980 $2,376 $3,080 $3,300
Ad Minutes/Week 2016 2016 2016 2016 2016
Weeks/Year 52 52 52 52 52
Ad Revenue/Year $230,630,400 $207,567,360 $249,080,832 $322,882,560 $345,945,600
Incremental Programming Expense $0.00 $0.00 $15,000,000 $20,000,000

Exhibit 5: Financials
2006 Actual 2007 Base Scenario 1 Scenario 2 Scenario 3
Revenue
Ad Sales $230,630,400 $207,567,360 $249,080,832 $322,882,560 $345,945,600
Affiliate Fees $80,000,000 $81,600,000 $81,600,000 $81,600,000 $81,600,000
Total Revenue $310,630,400 $289,167,360 $330,680,832 $404,482,560 $427,545,600

Expenses
Cost of Operations $70,000,000 $72,100,000 $72,100,000 $72,100,000 $72,100,000
Cost of Programming $55,000,000 $55,000,000 $55,000,000 $70,000,000 $75,000,000
Ad Sales Commissions $6,918,912 $6,227,021 $7,472,425 $9,686,477 $10,378,368
Marketing & Advertising $45,000,000 $60,000,000 $60,000,000 $60,000,000 $60,000,000
SGA $40,000,000 $41,200,000 $41,200,000 $41,200,000 $41,200,000
Total Expense $216,918,912 $234,527,021 $235,772,425 $252,986,477 $258,678,368

Net Income $93,711,488 $54,640,339 $94,908,407 $151,496,083 $168,867,232

Margin 30% 19% 29% 37% 39%

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 CASE #1: THE FASHION CHANNEL

Works Cited
Stahl, Wendy. "The Fashion Channel." Briefcases Harvard Business School (2007): 1-12. Web. 05 Oct.
2015.

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 CASE #1: THE FASHION CHANNEL

Marking Rubric
Criteria Possible
Marks
Definition of business model /2
Business model(s) followed by TFC include supporting
information from the case, readings, lecture notes and outside /10
research where applicable
Exchanges in TFCs business model /10
Picture of exchange model used /5
Analysis / decomposition of TFCs business model with
/10
diagram
TFC business model reframe recommendation /5
Target positioning recommendation /3
Spreadsheet supporting recommendation /5
Total Marks for Case Submission /50

In-Class Quiz /10

Total Marks for The Fashion Channel /60

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