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MM5010 Strategic Decision Making and Negotiation WHCI (BUYER) NEGOTIATION STRATEGY MOMS.

COM

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Case Synopsis
Kim Taylor, GM of WCHI Independent television station located in Chicago Subsidiary of MULTIMED Inc (operates newspapers, magazines, film/video company)

Problem Get the best price and terms for moms.com WHCI rank 5th among all stations audience position has eroded because of lack of new product
ISSUES HOLLYVILLE Inc released Moms.com Ranking in the top 10 each week with 20 rating and 30 share in a prime time 24-54 years old women (45% audience & strong demographic) Prime time slot i.e. 6pm Advertising revenue is calculated based on demographic number Competition WILL (no 3rd, 10% market share, target young men) WXYZ (the smallest station, has financial problem) WWIN (market leader, currently has strong 6pm show

BARGAINING ZONE Moms.com License Fees


Buyers Aspiration Price $30,000 Buyers Reservation Price $60,000

WCHI (BUYER)

Z O PA

HV(SELLER)

Sellers Reservation Price $35,000

Sellers Aspiration Price $70,000

$35,000 $ $60,000

BARGAINING ZONE Moms.com


Runs/Day
Buyers Aspiration Price 8 Runs/Day Buyers Reservation Price 6 Runs/Day

Z O PA

WCHI (BUYER) HV(SELLER)

Sellers Reservation Price 8 Runs/Day

Sellers Aspiration Price 4 Runs/Day

6 Runs/Day 8

BARGAINING ZONE Moms.com


Terms of Payment
Buyers Aspiration Price 6 terms (5 years) Buyers Reservation Price 0 term

WCHI (BUYER)

HV(SELLER)

Z O PA
Sellers Aspiration Price 0 term

Sellers Reservation Price 4 terms (3 years)

0 terms of payment 4

BARGAINING ZONE
Juniors
Buyers Aspiration Price <$20,000 Buyers Reservation Price $20,000

BUYER

Z O PA

SELLER

Sellers Reservation Price $10,000

Sellers Aspiration Price >$10,000

$10,000 $ $20,000

CONTRACT INTEREST
a. b. c. DEAL possibilities: NO DEAL, take BUYER BATNA with NET Revenue USD 3,000,000 DEAL Moms.com only DEAL Moms.com with Junior

ADVERTISING BUYER main revenue stream. Program Rate & Runs per Day affect net revenue from advertising. BUYER INTEREST Minimize License Fee Moms.com Minimize License Fee Junior Maximize Program Runs/Day Maximize Term Payment SELLER INTEREST Maximize License Fee Moms.com Maximize License Fee Junior Minimize Program Runs/Day Minimize Term Payment Maximize Program Rate

ALTERNATIVES DEAL
BUYER ALTERNATIVE DEAL SELLER ALTERNATIVE DEAL

Revenue from other programs if NO DEAL of Moms.com i.e. USD 3,000,000


Revenue if NO DEAL of Junior i.e. USD 0

Revenue from other programs if NO DEAL of Moms.com with WCHI i.e. USD 2,500,000
Revenue if NO DEAL of Junior with WCHI i.e. USD 1,000,000 (USD 10,000 x 100 episodes) Total NO DEAL = USD 3,500,000

Total of NO DEAL = USD 3,000,000

TOTAL REVENUE NO DEAL BOTH PARTY i.e. USD 6,500,000

If DEAL, both BUYER & SELLER would make revenue synergy > USD 6,500,000
Net Revenue BUYER > USD 3,000,000 Net Revenue SELLER > USD 3,500,000

#1 SENSITIVITY ANALYSIS of BUYER


RUNS & TERMS of PAYMENT
Alternativ Runs/Episo es de #1 3 #2 4 #3 5 6 #4 7 #5 8 #6 8 #7 8 #8 8 #9 8 #10 Year 0
50% 60% 70% 80% 90% 70% 40% 50% 98% 50%

RUNS PER EPISODE ADJUSTMENT


Year 3
0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 20% 15% 10% 5% 2.5% 10% 0% 0% 0% 25%

Payment Terms Year 1 Year 2


30% 25% 20% 15% 7.5% 20% 60% 50% 2% 25%

Alternative Runs/Epi Adjustment Rev Adjustment Rev Junior** s sode Moms.com* $(2,400,000) $(861,905) #1 3 $(1,600,000) $(574,603) #2 4 $(800,000) $(287,302) #3 5 6 $0 $0 #4 7 $800,000 $287,302 #5 8 $1,600,000 $574,603 #6 8 $1,600,000 $574,603 #7 8 $1,600,000 $574,603 #8 8 $1,600,000 $574,603 #9 8 $1,600,000 $574,603 #10 * Based on Case ** Calculation in next slide

MOMS.COM LICENSE with JUNIOR PROGRAM


LICENSE FEE SENSITIVITY ANALYSIS ALTERNATIVES Moms.com License Fee #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 Moms.com Moms.com Moms.com Moms.com Moms.com Moms.com Moms.com Moms.com Moms.com Moms.com $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $60,000 $60,000 $60,000 $60,000 $15,700 $15,700 $15,700 $15,700 $15,700

Key = Competitive Price compare to Runs/Day


Junior License Fee $10,000 $11,000 $12,000 $13,000 $14,000

#2 SENSITIVITY ANALYSIS of BUYER


Moms.com Net Revenue Calculation
Rating 2-3 3-4 4-5 5-6 6-7 Likelihood 20% 50% 10% 10% 10% Total Net Revenue* 7,000,000 8,000,000 9,000,000 10,000,000 11,000,000 Sub Total 1,400,000 4,000,000 900,000 1,000,000 1,100,000 USD 8,400,000
** Assumption based on fact that Junior has lower rating In buyer case

Junior Net Revenue Calculation based on above table


Rating 2-3 3-4 4-5 5-6 6-7 Likelihood** 65% 20% 10% 5% 0% Total Net Revenue 2,833,333 * 3,166,667 3,500,000 3,833,333 4,166,667 Sub Total 1,841,667 633,333 350,000 191,667 USD 3,016,667

*Net Revenue Calculated using Approximation as follow: = (RP License Fee Junior/ RP License Fee Moms.com) x Net Revenue Moms.com = (20,000/60,000) * 7,000,000

Moms. Com & Junior Revenue Summary

MOMS.COM JUNIOR

EXPECTED REVENUE 8,400,000 3,016,667

ASUMSI RUNS/EPISODE ADJUSTMENT NOTE 800,000 Per Run for more 1 run IF > 6 run/day 287,301*** Per Run for more 1 run IF > 6 run/day

***Adjustment Price Calculated using Approximation as follow: = (RP License Fee Junior/ RP License Fee Moms.com) x Adjustment Price Moms.com = (20,000/60,000) * 800,000

#3 SENSITIVITY ANALYSIS of BUYER


PAYOFF TABLE WCHI(BUYER) & HOLYVILLE(SELLER) in USD*
Outcome Hollyville Revenue Hollyville Net Value WCHI Revenue WCHI Net Value Revenue HV+WCHI SYNERGY Sort Rank

No Deal 3,500,000 Moms.com with Junior Alternative #1 with Junior 4,861,250 Alternative #2 with Junior 5,208,083 Alternative #3 with Junior 5,587,917 Alternative #4 with Junior 6,000,750 Alternative #5 with Junior 6,420,708 Alternative #6 with Junior 6,371,417 Alternative #7 with Junior 6,030,767 Alternative #8 with Junior 6,182,167 Alternative #9 with Junior 6,908,887 Alternative #10 with Junior 5,898,292 Moms.com without Junior (SKIPPED)

3,000,000

6,500,000

USD

1,361,250 1,708,083 2,087,917 2,500,750 2,920,708 2,871,417 2,530,767 2,682,167 3,408,887 2,398,292

3,969,762 4,135,262 4,857,365 5,469,167 5,690,218 6,324,070 6,475,470 6,399,770 6,036,410 6,589,020

969,762 1,135,262 1,857,365 2,469,167 2,690,218 3,324,070 3,475,470 3,399,770 3,036,410 3,589,020

8,831,012 9,343,345 10,445,282 11,469,917 12,110,927 12,695,487 12,506,237 12,581,937 12,945,297 12,487,312

2,331,012 2,843,345 3,945,282 4,969,917 5,610,927 6,195,487 6,006,237 6,081,937 6,445,297 5,987,312

10 9 8 7 6 2 4 3 1 5

* Calculation example in next slide

Skipped DEAL Moms.com without Junior


BUYER have good calculation for Expected NET Revenue from Junior as described previously and SELLER offer competitive license price

DEAL FOR ALTERNATIVE #9


HAS MAX REVENUE BOTH WCHI & HV WCHI (BUYER) Revenue = USD 6,036,410 > USD 3,000,000 HV(SELLER) Revenue = USD 6,908,887 > USD 3,500,000

#4 SENSITIVITY ANALYSIS of BUYER


CALCULATION EXAMPLE
FINANCIAL SENSITIVITY ANALYSIS a. Licensing Fee per eipsode Moms.com Junior Runs/Episode b. Payment Terms Moms.com Year 0 Year 1 Year 2 Year 3

#9
$60,000 $15,700 8 Deal 98% 2% 0% 0%

KEY: Max Runs = Max Revenue from Adv


Total License Fee $6,000,000 $1,570,000 Payment Expected Revenue $8,400,000 $3,016,667 Saving Cost (%) 0% 10% 20% 30% Saving Cost ($) $0 $15,140 $0 $0 $15,140 $1,600,000 $3,591,270

$7,418,600 $151,400 $$Total Saving Cost Runs/Episode Adjustment Other Pieces of the Agreement (Junior)

NET REVENUE
Value of Alternative Deal

$6,036,410
$3,000,000

NET VALUE OF BERGAINING AGREEMENT

$3,036,410

NEGOTIATION DEAL
BUYER WORKSHEET AGREEMENT
NEGOTIATION AGREEMENT WORKSHEET (ALTERNATIVE#7 BUYER) 1 Expected Revenue from Moms.com Runs/Episode adjustment If 4 subtract $ 1.600.000 from value If 5 subtract $ 800.000 from value If 6 make no adjustment If 7 add $ 800.000 to value If 8 add $ 1.600.000 to value Net value of the show 2 Licensing Fee Fee/Episode x 100 episodes Moms.com Fee/Episode x 100 episodes Moms.com Total Licensing Fee Payment Savings Payment in year 0*0.00 Payment in year 1*0.10 Payment in year 2*0.20 Payment in year 3*0.30 Payment in year 4*0.40 Payment in year 5*0.50 Total payment savings 4 5 6 7 8 Net Licensing fee of Moms.com Other terms of the agreement specify: Junior Program Net Programming Revenue of the deal Value of the Alternative deal Net Value of the bargaining agreement 8,400,000 1,600,000

10,000,000

6,000,000 1,570,000 7,570,000

0 15,140 0 0

15,140 7,554,860 3,591,270 (+)

6,036,410(1)-(4)+(5) 3,000,000 3,036,410 (6)-(7)

ATTACHMENT - CALCULATION FOR Mom.com ONLY


PAYOFF TABLE WCHI(BUYER) & HOLYVILLE(SELLER) in USD

Moms.com without Junior (SKIPPED) Alternative #1 with Junior Alternative #2 with Junior Alternative #3 with Junior Alternative #4 with Junior Alternative #5 with Junior Alternative #6 with Junior

Hollyville Revenue

Hollyville Net Value

WCHI Revenue

WCHI Net Value

Revenue HV+WCHI

SYNERGY

4,260,000 1,760,000 4,545,000 2,045,000 4,891,250 2,391,250 5,237,500 2,737,500 5,583,750 3,083,750 5,845,625 3,345,625

2,262,500 2,545,000 2,792,500 3,040,000 3,287,500 3,581,250

(237,500) 45,000 292,500 540,000 787,500 1,081,250

6,522,500 7,090,000

Rp22,500 Rp590,000

7,683,750 Rp1,183,750 8,277,500 Rp1,777,500 8,871,250 Rp2,371,250 9,426,875 Rp2,926,875