21st Century Fox

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Information that should be shared with the interviewee:

• The post-production services division is comprised of four parts:
  • Restoration of old movies for preservation
  • Production for cinemas
  • Production for home entertainment
  • Production of daily material (e.g. talk shows) for ongoing production
• It is common to outsource these functions, but as the internal rates are comparable to the market rates there is no monetary benefit from outsourcing. Therefore this is NOT an option.
• The SG&A costs have been stable and are shared equally among the services. The costs seem to be consistent with the rest of the industry.

Ask the interviewer for an overview of the services and market trends.

Quality of service

The quality of the provided service is crucial for the company.
This applies especially to the restoration of old movies, but also for the production for theatres and home entertainment.

Speed of service

Regarding the daily production (e.g. talk shows) it is important to provide fast service.

Price of service

Especially in regards to the production for cinema the price is important as the post-production makes up a big part of the total costs and the total revenue is not sure yet.
However, for the restoration of old movies, daily production, and production for homes plays a minor role as it is possible to estimate sales connected with the product. The past success is already known and there is already an audience.
In addition, these segments have normally lower total costs and post-production is less complex.

Expand

Offer additional services in order to increase the quality of the company’s products.

Marketing (increase revenues)

Increase the brand awareness of the company’s products by advertising and promotion. Compare the company’s actions in this field with the competitor’s.

Lower costs (operations, etc.)

Reduce the costs and therefore the price of the price-sensitive business segments. E.g. by reducing the employees or improving the efficiency of the production (more material per time).

Close/Sell

Sell or close unprofitable business units in order to reduce overall costs (SG&A) and therefore the prices of the other products.

• Gross margins
• Market trends
• Risks (possible competition responses)
• Ease of implementation of solutions
• Nature of business (core vs. non-core)
• Percentage of revenues vs. total revenues

The profitability of each division can be calculated by looking at the gross profit margin of each one.

• Restoration seems to have a pretty high margin. Therefore this division should be kept and expanded.
• The division of “Production for cinemas” should be kept, as it has still a pretty good margin, but should not be expanded.
• The division of “Master for homes” should be closed or sold, if we would only consider the margin.
  However, this division is generating a vast share of the company’s total revenues and 50% of the number of jobs in the last quarter. Therefore options should be explored to increase profitability.
• The daily production should be closed as the margin is negative and in the last quarter, only 5 products have been sold. The running costs are by far higher than the revenue generated.

• There are many possible solutions, but the recommendations should be grounded in reasonable conclusions.
• During the decision process the following values have to be kept in mind by the interviewee:
  • Gross profit margin
  • Contribution to total revenues
  • Nature of service (core/non-core)
  • Ease of implementation/risk
• The division “Restoration” should be kept and expanded, as it provides a pretty good margin.
• The division “Production for cinemas” should also be kept, but not expanded.
• The division “Production for homes” has to be improved.
  • Distributing the SG&A costs differently among the divisions.
  • Trying to lower the costs in this division.
  • Increase the prices for the services of this division.
• The division “Dailies” should be sold or closed as the margin is negative and the number of jobs represents just 5% of the company’s total volume.

Possible solutions:

• The decision could lead to a total loss.
• Competitors could start offering bundles for lower prices and therefore customers could start switching to our competitors.
• This would not only affect the closed/sold business divisions, as the customers would buy bundles and therefore would not need other services provided by different business divisions of the company.
• The closing/selling of the division could affect the motivation of employees working at other divisions and as a result, would lead to a decline in working morale and therefore in lower profits.
• The closing/selling could provide bad publicity for the company, leading to lower sales and therefore lower profits.

More questions to be added by you, interviewer!

At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).