Page 1 - CIMA SCS Workbook August 2018 - Day 2 Suggested Solutions

Day 2 Suggested Solutions

CIMA AUGUST 2018 – STRATEGIC CASE STUDY

CHAPTER EIGHT

EXERCISE 1

Briefing Paper

To: Den Rice, CFO
From: Senior Manager
Subject: Move to digital

These briefing notes will address the factors to consider before deciding to switch purely to digital
content, and then look at the subject of possible resistance to such a move.

Factors to consider in switching to purely digital content

There are many factors that need to be taken into account before arriving at a decision on moving
purely to digital content. Some factors will have a positive impact, whilst others may be negative –
they will be considered under those two separate headings.

Positive factors

The most compelling factor in moving purely to digital and ceasing to print hard copy newsprint is
that this is the trend in the world of newspaper publishing today. All traditional publishers would
appear to have suffered a decline in recent years in sales of printed newspapers, and also a
decline in the associated advertising revenues, as advertisers prefer to spend their budget on
alternative (digital) platforms where their message will be seen by the target audience. FNG is no
exception; our revenues and profits have fallen sharply over the last 5 years, and, whilst there has
been growth in digital advertising revenues, this has not been enough to offset the decline
elsewhere. Sadly, there is no indication that this decline will slow down and reverse in the future.

Newer media organisations, such as IND plc, have started life with a digital business model, and
would appear to be enjoying success. The fact that this company has successfully floated recently
would indicate that the investing community is optimistic about its future.

It should also be noted that digital platforms are of greater appeal to those with advertising
needs. FNG needs to have a much greater digital platform to satisfy those needs, which points
towards more investment in such areas.

Thirdly, FNG will be able to save significant costs through a switch to digital. At the moment our
business model consists largely of fixed costs – journalists, print factory costs and the salaries of
those who work there. A switch to digital would mean that our two print factories could be
closed, resulting in significant cost savings. There may also be benefits in reducing the number of
journalists employed by the company, as 1 journalist could write articles for more than 1 digital
title (although this may also be the case for our current printed versions); further analysis would
be required in this area to determine precise staffing requirements.

A further factor to consider is the reaction of the FNG shareholders. Given that the return they
have enjoyed has been reducing significantly over the last 5 years, it is likely that they are looking

60 KAPLAN PUBLISHING