Business Planning and Business Models • Bok

Fakultät für BetriebswirtschaftMunich School of ManagementWorkshopAnwendungssysteme der Medienbranche(Business Case Simulation for New Media Investments)Summer Term 2007Munich, 02.05.2007Business Case Simulation for New Media InvestmentsAgenda• Administration• Bok: interactiveTV• Bok: Business Planning and Business Models• Bok: Specifics of New Media Investments• Requirements for the Term Paper1

Business Case Simulation for New Media InvestmentsExpected use of BoKDescriptionof theBody ofKnowledge (BoK)Solving practical issues byusing the BoKExplanation ofcircumstances by using theBoKExtend the BOK Objectives and Key Learnings of the Seminar2Business Case Simulation for New Media InvestmentsObjectives and Key Learnings of the Seminar• Conceptional examination with selected aspects of management in media businesses.• Break down of an abstract problem of a model.• Additional analysis with simulation models.• Acquisition of basic principles of scientific working which are necessary for writing a diplomathesis.• Practice of teamwork in case studies.3

Business Case Simulation for New Media InvestmentsAgenda• Administration• Bok: interactiveTV• Bok: Business Planning and Business Models• Bok: Specifics of New Media Investments• Requirements for the Term Paper6Business Case Simulation for New Media InvestmentsDefinition Interactivity, Interactivity on TVThe level of interactivity describes the dimension in which in a processof the exchange of information each new information is influenced bythe former process of exchange of information.Source: Rafaeli (1997)The level of interactivity describes the possibility of the viewer tocontrol his/her individual program. Interactivity enables the viewer toinfluence the running program and to individualize it within a particularframework.Source: Bornemann (2004)7

Business Case Simulation for New Media InvestmentsLevels of InteractivityLevelDescriptionFeedbackChannelnecessaryCluster of interactive media productsLevel 0Switch on/off, changeprogramNoLevel 1Level 2Choice of time and mediaby the userAdditional informationNoYes„on-demand“call of storedcontentLevel 3Level 4Level 5Individual demand ofcontent, passive userguidanceCommunicative, pathdependentinteractionUser generated contentYesYesYesIntegration ofthe user intothe progressof the actionExchange ofuser generatedcontentSource: see Schrape (1995)8Business Case Simulation for New Media InvestmentsForms of interactiveTV• (linear TV)• Continuous flow of program• Possibility to switch on and off or to change the program• parallel TV:• Supplier uses several channels to broadcast synchronised channels• Viewer can choose between these channels• Examples: Change of perspectives or commentator• additive TV:• Demand of data in parallel to the television picture• Examples: One-way-services like teletext, EPGs• on-demand TV:• Flexible demand of stored content, „lean-back“ viewer• Handling of transactions without media disruptions• Examples: interactive advertising, teleshopping without media disruptions• communicative TV:• Dialog-services, „lean-forward“ viewer• Examples: interactive games, chat-rooms, quiz, games, bettingSource: Bornemann (2004)9

Business Case Simulation for New Media InvestmentsExamples for iTV-Applications< > = BlätternO = In den WarenkorbO = LineupO = Mehr InformationenO = Optionen anzeigen14Business Case Simulation for New Media InvestmentsAgenda• Administration• Bok: interactiveTV• Bok: Business Planning and Business Models• Bok: Specifics of New Media Investments• Requirements for the Term Paper15

Business Case Simulation for New Media InvestmentsA Promising Idea Should Meet 4 CharacteristicsExplicit CustomerValueSufficiently SizedMarketFeasibility &ProfitabilitySatisfactory Levelof InnovationSource: MBPW Handbuch p. 918Business Case Simulation for New Media InvestmentsExplicit Customer ValueExplicit CustomerValueSufficient SalesMarket SizeFeasibility &ProfitabilitySatisfactory Levelof Innovation19

Business Case Simulation for New Media InvestmentsCustomer Value Has 3 DimensionsTimeQualityCostCustomer value can beexpressed in EUR: willingnessto pay for the productCustomer value is•An important parameter to estimate the upper price ceiling•The first hurdle for your Idea to estimate demands•A proof of concept of the business model20Business Case Simulation for New Media InvestmentsSufficient Sales Market SizeExplicit CustomerValueSufficient SalesMarket SizeFeasibility &ProfitabilitySatisfactory Levelof Innovation21

Business Case Simulation for New Media InvestmentsPorter’s 5 Forces Offer a Framework to Assess Market Forces5 forces to analyze micro environment:PEST analysis of macro environment:EnvironmentLegends and colors are helpfulto label the different forces andindicate the assessment of therespective force, e.g.° assessment+ good for the industry- negative for the industryPoliticalEconomicSocialTechnological26Business Case Simulation for New Media InvestmentsFeasibility & ProfitabilityExplicit CustomerValueSufficient SalesMarket SizeFeasibility &ProfitabilitySatisfactory Levelof Innovation27

Business Case Simulation for New Media InvestmentsFeasibility has 4 DimensionsTechnicalFeasibilityIs the product practicable?FeasibilityLegalFeasibilityMarket-sidedFeasibilityIs the product legal?Are any property rights infringed?Is there a competing standard?How do competitors react?Economic feasibilityis the 5th dimensionwhich is addressedin terms of customervalue and marketattractiveness(potential sales)SocialFeasibilityIs the product socially accepted?Only if feasibility can be answered with YES on all Dimension, it is worth to move on!28Business Case Simulation for New Media Investments2 Strategies to Reach Differential Returns and create a Profitable Business2 viable strategies to align the businessCustomer lifetime value as measure forprofitabilityRevenue/Customer25 Euro35 Euro40 Euro45 Euro10 Eurot 0 t 1 t 2 t 3 t 4time15 Euro 25 Euro 25 Euro 25 Euro 25 EuroCost/Customer• Product design or technologyadvantage• Operating efficiencies• Scale economies• Product differentiation• Product/channel mix• Niche position29

Business Case Simulation for New Media InvestmentsSatisfactory Level of InnovationExplicit CustomerValueSufficient SalesMarket SizeFeasibility &ProfitabilitySatisfactory Levelof Innovation30Business Case Simulation for New Media InvestmentsHow to Acquire Innovation AnnuitiesIs the idea really new / unique?Level ofInnovationIf „yes“Can others easily copy it?If „yes“Is it possible to trademark my idea?Own use in new products / processesMethods to turnIdeas into CashExclusion of others from the useLicensing / exchange / sale (direct returns from transfers)Free transfers (indirect returns)31

Business Case Simulation for New Media InvestmentsSpecifics of the ProductsContentContentMediumMediumConventionalMedia ProductsDigitalMedia Products36Business Case Simulation for New Media InvestmentsCase: Holtzbrinck and studiVZIn 2007, Holtzbrinck, a leading publisher in Germany (Handelsblatt, Zeit), buys for 85 million EurostudiVz, a community plattform for students. studiVZ has 1 million user (students and graduates) 300.000 groups of interest in Germany, France, Poland, Spain and Italy. Directly payment of 50 million for the founders Additional payment of 35 millions depends on expected developments Other competitors bit higher, but Holtzbrinck was member of the supervisory board.Objectives of Holtzbrinck: Turnaround with studiVZ Similar success like the U.S. equivalent “Facebook” – 50$ million sales Synergies with the student guide of the weekly journal “Zeit“, the journal “Zeit Campus“ and thecorresponding online-plattform.37

Business Case Simulation for New Media InvestmentsCase: Holtzbrinck and studiVZ – Problems with the Acquisition Profitability – How to earn money with students? Management mistakes (studiVZ) Problems with the IT-infrastructure Attacks of hacking Problems with privacy policies Reputation loss Amount of synergies are fuzzy38Business Case Simulation for New Media InvestmentsInstrumentsInstruments for Profitability Analysis of Information SystemsClassic ProceduresNewer ProceduresOne- and littledimensionalProceduresMultidimensionalProceduresStaticProceduresDynamicProceduresEspeciallyvalue orientedSelection of thebest alternativeComparative CostMethodProfit ComparisonMethodNPV Method“Annuitäten”-MethodValueanalysisUtilityanalysisFunctional ChainAnalysisHedonic-WageApproachAverage ReturnMethodInternal Rate ofReturn MethodKey-Data MethodAmortisationMethodTotal Cost ofOwnershipSource: Gehra 200539

Business Case Simulation for New Media InvestmentsPresent ValueThe most commonly applied model of the time value of money is compound interest. To acompany which who has the opportunity to invest an amount of money C for t years at a rate ofinterest of i compounded annually, the present value of the receipt of C, t years in the future, is:C t = C(1 + i) -t = C /(1+i) tDepending on your case, think about using continuous compounding interest!40Business Case Simulation for New Media InvestmentsOther concept to review new media investments – Portfolio MethodValue losspoints1100suport for the obejctive:Improvement of the content supplychain0-5012M 11M 22303M 1-25 50Mio. €support for the objective:Higher rentability of the establishedjournals/ cross media sales3Value raise13202quality increasequalityreductionlegend:The diameter of a cricle shows thetotal cost of a projectThe figure in the circle shows theestimated risk of the investmentproject:0: low; 1: medium; 2: high; 3:highlyM marks projects, which arerequisited41

Business Case Simulation for New Media InvestmentsOther concept to review new media investmentsrisk benfits strategy fit business process fit• project period• Project volume• available resources• profitability• period of use• customerorientation• orientation oncompetitors• internal integration• requirements• dimensions ofproblems• dependency• non measurablebenefits• synergies• potentialdevelopments• process orientation• afficiency of theackquisiton• Objectives andresonsibilities42Business Case Simulation for New Media InvestmentsOther concept to review new media investmentslowproject-portfoliosourrounding-portfoliohighriskACBstrategyfitBAhighlowbenefitshighconsolidationClowlowhighbusiness process fitaggregated-portfoliohighBprofitabilityCAlowlowfithigh43

Business Case Simulation for New Media InvestmentsCosts- Measuring and estimation of costs is difficult- Problem: New technologies or content could be inappropriate to existing systems or informationsystem/ content allocation infrastructure- The adaptation would cause more cost than expected- Opportunity Costs: For example WAP is a standard which a lot of publishing companies use formobile user.What would happen, if the standard wouldn´t be as established as actually planned? Or a newstandard would be developed and your company has decided to invest in the wrong standard?- Uncertainty of the future technological development could waste a lot of money and couldcause companies to declare bankruptcyHD-DVD vs. BlueRay?44Business Case Simulation for New Media InvestmentsBenefits- Internal problems: Exact measures or estimations of synergies are impossible. Internalprocesses are to complicated to imagine the structure alignment of the introduction of newtechnologies.- External problems:- Especially the estimation of customers behavior and the user acceptance of new productsor content is very difficult.- Other companies are able to adopt your business model Think about unique solutions, which are difficult to adopt, e. g. Apple.- Otherwise: Establishing a proprietary standard or a brand leads to competitive advantage, e. g.Adobe PDF, Focus Online and Focus TV.45

Business Case Simulation for New Media InvestmentsSpecifics of New Media Investments - Conclusions- Use the different approaches carefully!- Think also about future costs and benefits- Refine your approach by risk-adjustments- Do not underestimate the cost or overestimate the benefits!!!( New Economy?) Use Simulation for getting a better impression on the impact of any critical success factor ofyour business model extension46Business Case Simulation for New Media InvestmentsAgenda• Administration• Introduction: interactiveTV• Introduction: Business Planning and Business Models• Specifics of New Media Investments• Requirements for the Term Paper47

Business Case Simulation for New Media InvestmentsRequirements for the Term Paper (1)Through iTV-technologies new content and revenue models for companies of the televisionsector become possible.In the term paper the case of an existing teleshopping company has to be analyzed which istesting selected possibilities of a related diversification of offerings.In phase I economically and technically sensible alternatives are presented and a first profitabilityanalysis is conducted.In phase II the profitability analysis of a selected alternative is further examined by means ofsimulation models and the result of phase I is specified.Finally the results and the argumentation are summed up in a recommended course of action.48Business Case Simulation for New Media InvestmentsRequirements for the Term Paper (1)• The case is examined by four groups with 3 students each. Each group takes one form ofoffering:• Education-TV (Edutainment)• Music-TV• Travel-TV• Videogame-TV• Sport-TV• The result has to be presented in a 25-page paper. It is absolutely necessary that the requiredformalities (see website) are considered.• The table of contents has to be cleared with the assistant within 14 days.49

Business Case Simulation for New Media InvestmentsExample – Bonus-Points-System of TeleshoppingCost- andSupplymodelProduction ModelReturn- anddistributionmodelService-offering ModelPartial OfferSupplierDeliveryPaymentTaskTask……Task……•…Partial Offer•…Partial Offer•…Integrated Product /Service OffersDeliveryPaymentCustomerSource: Wirtz, B.W. (2005): Medien- und Internetmanagement50Business Case Simulation for New Media InvestmentsExample „Project: Bonus-Points“Beschreibung t0 t1 t2KOSTEN• A teleshopper plans to give a 10€voucher to each purchaser inDecember throughout the next years,thereby hoping to stimulate additional(Christmas-) purchases.• Questions• How likely is it that a positive NPVis achieved ?• How many customers have to takepart at the program in order toachieve a positive NPV ?• …Fixe KostenIT-Anpassung € 50.000,00 € - €-Marketing&Promotion € 50.000,00 € 30.000,00 € 30.000,00Projekt-Controlling € 10.000,00 € 7.000,00 €7.000,00Fixe Kosten 110.000 € 37.000 € 37.000 €Variable KostenDruck & Porto € 36.000 € 39.000 €41.400Sachbearbeiter (Service) € 6.000 € 6.000 €7.500Gutscheinwert € 540.000 € 585.000 €621.000ErstkaufKosten der Warenabgabe € 360.000 € 390.000 €414.000Kosten des Wareneinkaufs € 1.680.000 € 1.820.000 € 1.932.000ZweitkaufKosten der Warenabgabe € 324.000 € 351.000 €372.600Kosten des Wareneinkaufs € 1.512.000 € 1.638.000 € 1.738.800NeukundenKosten der Warenabgabe € 75.000 € 60.000 €45.000Kosten des Wareneinkaufs € 350.000 € 280.000 €210.000Variable Kosten 4.883.000 € 5.169.000 € 5.382.300 €ERLÖSEParameter / Assumptions t0 t1 t2Gutschein-Wert € 10,00Anreizwirkung bei Altkunden Teilnehmende Kunden 60.000 65.000 69.000Erlöse bei erstem Kauf Neukunden € pro Periode 2.400.000 € 2.600.000 5.000 € 4.000 2.760.000 3.000Erlöse bei zweitem KaufAktivierte € Kunden Erstkauf 2.160.000 € 2.340.000 40% € 2.484.000Aktivierung Zweitkauf/Einlösung 90%Neukunden-Käufe Porto und € umgelegte Druckkosten 500.000 € € 400.000 0,60 €300.000Beschwerdequote 15%Erlöse Beschwerden je Mitarbeiter 5.060.000 € 5.340.000 2.500 € 5.544.000 €Monatslohn Mitarbeiter € 1.500,00Ergebnis Durchschnittlicher Bestellwert 67.000 € € 134.000 100 € 124.700 €Einkaufspreis in % vom Bestellwert 70%Durchschnittliche Transaktionskosten € 1551

Business Case Simulation for New Media InvestmentsExample – A ResultWith a Likelihood of 63% the Project has positive NPV (Net PresentValue).52Business Case Simulation for New Media InvestmentsTable of Contents• Phase I (Paper)• Basics/Object of Investigation (short)- market overview- present business model + classification- new technology + classification-…• Expansion of the Business Model-conception- hypotheses about rentability and critical factors• Rough Specification of the Profitability Analysis- costs/benefits- exogene assumptions- questions for simulation model / basis for decisions• Phase II (Presentation)• Specification of the Model• Presentation of the Model and Recommended Course of ActionLieferantenLieferungVergütungLeistungserstellungsmodellAufgabeAufgabe……Aufgabe……LeistungsangebotsmodellErlös- undDistributionsmodellTeilleistungsangebot•…Teilleistungsangebot•…Integriertes Produkt-/DienstleistungsangebotTeilleistungsangebot•…Kosten- undBeschaffungsmodellLieferungErlöseBeschreibung t0 t1 t2KOSTENFixe KostenIT-Anpassung 50.000,00€ - €€ -€ 30.000,00Marketing&Promotion 50.000,00€ 30.000,00 €€ 7.000,00Projekt-Controlling 10.000,00€ 7.000,00 €37.000 €Fixe Kosten 110.000 € 37.000 €Variable KostenDruck & Porto 36.00039.00041.400€ €€€ 7.500Sachbearbeiter (Service) 6.000€ 6.000 €€ 621.000Gutscheinwert 540.000€ 585.000 €ErstkaufKosten der Warenabgabe 360.000€ 390.000 €€ 414.000€ 1.932.000Kosten des Wareneinkaufs 1.680.000€ 1.820.000 €ZweitkaufKosten der Warenabgabe 324.000€ 351.000 €€ 372.600€ 1.738.800Kosten des Wareneinkaufs 1.512.000€ 1.638.000 €NeukundenKosten der Warenabgabe 75.000€ 60.000 €€ 45.000€ 210.000Kosten des Wareneinkaufs 350.000€ 280.000 €5.382.300 €Variable Kosten 4.883.000 € 5.169.000 €ERLÖSEAnreizwirkung bei AltkundenErlöse bei erstem Kauf 2.400.0002.600.0002.760.000€ €€€ 2.484.000Erlöse bei zweitem Kauf 2.160.000€ 2.340.000 €€ 300.000Neukunden-Käufe 500.000€ 400.000 €5.544.000 €Erlöse 5.060.000 € 5.340.000 €Ergebnis 67.000 € 134.000 € 124.700 €Kunden53

Business Case Simulation for New Media InvestmentsLiterature• Hilbers/Wilde (2005): Geschäftsmodell Teleshopping - Wertschöpfung, Erfolgsfaktoren undHerausforderungen, in: Zeitschrift für Medienwirtschaft, 2/2005, S. 67-73.• Wirtz, B. (2005): Medien- und Internetmanagement, 4. Auflage, Wiesbaden.• zu Salm, C. (2004):Zaubermaschine interaktives Fernsehen?, Wiesbaden.• Handbuch: Münchner Business Plan Wettbewerb: „Der optimale Businessplan“http://de.mbpw.de/media.php?id=559• Brugger, R. (2005): Der IT Business Case, Berlin.• Perridon/ Steiner (2007): Finanzwirtschaft der Unternehmung, 14. Auflage.• Alternativ: Brealey/ Myers (2005): Principles of Corporate Finance, 8. Auflage.• Fahrmeir/ Künstler/ Pigeot/ Tutz (2002): Statistik. Der Weg zur Datenanalyse.• Handbücher zu Christal Ball sind im Internet verfügbar54