Phillip Covell - August 22, 2021

 

How do you write a £218M budget that will contain 2.7M data points across 130 interlinked spreadsheets, working remotely between London and Singapore, long before remote-working becomes a trend? We began with a blank sheet of paper or rather spreadsheet.

 

While there are many books on newsroom journalism, there are none that we could find on structuring and budgeting TV channels and news networks.

 

This paper, addresses the budget for AVTN (Aviation Television News) and NewsNet247 Version 04 (VS.04) the 2018/19 and final proposal for the Network. This is intended as a general overview, and not a forensic analysis, or we would be here for days. You’re welcome to read more in the full proposal, though the accounts are expressed in consolidated form.

 

The proposal, budgets and projections owe much to my years of knowledge and experience working in Film & TV, and Kinny Cheng’s knowledge and experience of Aviation, Journalism and Telecoms. Together we took this proposal to some of the largest VC’s, Corporate, TMT and Sovereign Wealth funds in the world!

 

Special mention should also be made for the >100 collaborators and >200 companies and institutions that supported the project in some way, whether it was in an advisory capacity, providing information or quoting for services and equipment – We are most grateful for their support and confidence in AVTN | NewsNet247.

 

So, let's get to it!

 

Revenues

 

Revenues were calculated based on, a conservative estimate of likely conversion to audience as a percentage of household reach by regional or national platform, with a modelled non-linear growth curve being employed, which was completely adjustable to enable us to model different scenarios. Revenue expectations were calculated separately for Satellite, Cable, IPTV, OTT, AVOD, SVOD, websites, Apps and IP Radio platform capabilities and were based on household reach data provided by platforms and satellite companies for 88 separate regions or nations. The household reach data was then applied to a regional or national low to peak viewing calculation with consideration of the Network’s content being news orientated. Advertising CPT/CPM’s were based on regional rates. Revenues and budgets were then stress-tested for profitability against a variety of operational scenarios. The projections reflect our view on the market in Winter 2017/18, and I have no doubt that we would have adjusted expectations to reflect increased take-up of OTT, AVOD and SVOD over Linear TV today.

Budget Considerations

 

Detailed budgets were calculated for construction, pre-launch and four years of transmission, from which Consolidated Accounts Projections were prepared for inclusion in the Proposal. From these budgets it was possible to project: expenditure schedules for the UK, US, Singapore and EU; taxation projections in all locations; bank interest; overdraft; depreciation and finance leases et cetera.

 

For the benefit of readers who are not knowledgeable in the nuances of finance, there is a specific difference between the terms ‘projected’ and ‘forecast’ and they are not interchangeable. A forecast relates to a assumptions reflecting on conditions that a business expects to exist and the course of action reasonably expected to occur. Whereas a projection relates to hypothetical circumstances and expectations, however reasonable they may be considered. AVTN | NewsNet247’s financials were proposed on the basis of projections.

 

Preparation of Projections & Accounts

 

Preparation of the projections and accounts for presentation were made on the basis of the following considerations, consistent with standard practices, so I will refrain from detailing them, as they can be found in the Proposal.

 

Accounting Policies • Basis of Preparation • Future & Operational Financial Reports • Basis of Consolidation • Turnover • Stock • Revenues • Inter-Platform Invoicing • Finance Leases • Goodwill • Shareholding • Use of Proceeds from the Initial Investment • Growth Program • Future Acquisitions & Diversification • Information about the shareholding • Capital Reorganisation • Dividend Policy • Inflation • Asset Management • Equipment Assets • Depreciation Policies • Financing of Equipment Assets • Overdrafts & Lines of Credit • Taxation • Deferred Taxation • Net Operating Losses (NOL) • VAT & Sales Tax (For all Regions) • Vat calculations in the EU/UK • Unrecoverable VAT & Sales Tax • Corporate Governance.

 

Budget Considerations at a Glance

 

The following list details the elements that have been considered during the budgeting process, after which I will comment and break each one down in terms of key elements as far as is reasonable.

 

Satellite, Cable & IPTV Transmission • Satellite, Cable & IPTV Platform Charges • OTT Services & Encoding • OTT & App Development (Multi-platform) • Production Budgets — News • Production Budgets — Features • Production Budgets — Events • Production Budgets — Guest Appearances • Marketing Budget • News Wire Services (three Industry leading services) • Newsroom Software • Weather Services • Translation Services • Broadcast Studio Systems • Broadcast Equipment (PSC) • Broadcast Data Storage • Edit Suites • Robotic Studio Systems • Video Walls • Radio Studio Equipment (for Audio-only feed) • IP News Gathering Capabilities • Backup Generators • Computers • Software • IT Networks & Telecoms Hardware • Telecommunications (Landlines/Phones/Tablets) • MPLS & Data Services • Office Equipment • Contact Centre • InfoSec • Licences (Fixed & Profit Based Costs) • AVMSD (Audiovisual Media Services Directive) • The “Fake News” Phenomena • Performing Rights Fees & Licence Contingencies • Compliance — Consultation & Training • Training — Production • Training — Aviation • Training — Health & Safety • Studio Design & Construction • Fixtures, Fittings & Construction • Coffee Shop (Revenue Neutral/Profitable) • Air-Conditioning • Furnishings • Offices — Main (Rent; calculated by sq. ft. per Location) • Offices — Service Charges • Offices — Taxes & Rates • Offices — Temporary (Construction phase) • Offices — Contingencies • Energy • Security & Fire Systems • Security & Front Desk Contracts (Personnel) • Personnel • Personnel — Additional Annual Contingency) • Personnel — Employment Packages • Personnel — Recruitment Fees • Health Care (UK) • Health Care (EU) Health Care • (US) Health Care • (SG) Pensions (UK) • Pensions (EU) • Pensions (US) 401(K) • Scheme Pensions (SG) • Social Security (UK) / NIC • Social Security (EU) • Social Security (US) inc. Medicare • Social Security (SG) • Taxation (UK, EU, US, SG) • VAT (UK/EU); GST (SG); Sales Tax (US) • UK Apprentice Levy • Brexit • The European Union (EU) • Treaty of the Functioning of the EU (TFEU) • EU Competition Law • Working Capital & Miscellaneous Expenditure • Consultancy Fees • Accountancy Fees (External) • Accounting Systems • Legal Department Budget • Insurance — Global Policy (1.5% of Network Budget) • Insurance Premium Tax • Bank Charges & Commissions • Exceptional Items • (Funding & Development Costs) • Brokers’ Fees • Inflation (3.5%) • Growth (6.49%; Industry average measure)

 

E&OE

 

The Budget Tiers

 

There are three budget tiers, high, middle or low, for each funding option within the proposal.

 

The following table illustrates the cost of each Budget Tier:

 

• Fully-funded including projected broker’s fees for an IPO or ICO.

 

• Reduction of costs by the introduction of 100% leasing for the equipment assets. We were also offered the option to lease our design, construction, fixtures and fittings costs, though chose not to.

 

• Full costs without broker’s fees or leasing, in the event of stand-alone investment.

 

• Excluding fees, though retaining leasing.

 

• The FAANG stocks option.

 

All Options required additional Credit Facilities of £20m, though this was seen as entirely precautionary, and use of these facilities was not foreseen in our projections. Investment of at least 25% (up to 75% of the US subsidiary) was sought from the US in order to satisfy FCC licensing requirements.

 

The FAANG Stocks Option

 

The FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks option was developed exclusively with investment by a major global technology corporation in mind, and required the parent company to be in position to deliver a sizeable distribution network, and prospective audience reach by household of not less than 4.43 million watching audience globally per week. Therefore, while these options contained a budget for encoding and OTT distribution, they did not include any allocation to servicing Direct-to-Home satellite (DTH), Cable or IPTV distribution networks.

 

The Master Spreadsheets

 

A master spreadsheet was prepared for each funding ‘Tier’ of the Proposal. The master spreadsheet was capable of calculating all budget inputs, to produce a full set of consolidated accounts, with the option to turn on/off any and all elements, and notably in relationship to the funding tiers, the requirement for broker’s fees. The master spreadsheet also calculated the leasing option simultaneously to the fully funded option as a separate set of accounts. Assets were treated independently for depreciation with individual calculations and timed as per the point of planned purchase within the budget for each year.

 

The Master spreadsheet interlinked with 130 individual spreadsheets, calculating one or more key areas of the construction and operational framework for the Network. Master costs are represented by some 90 major budget areas, across the four regional locations, with VAT and Sales Taxes accounted for on a regional basis. Each main budget area is fed by either a dedicated spreadsheet or table of calculations as required. Not all regional budgets are equal, either as a result of personnel, equipment or production capabilities, allocation, or exchange rate, so it was not a simple case of dividing a total budget or multiplying a regional budget by a factor of four. If for purposes of a particular budget scenario, budgets for an entire location were turned off, then all related calculations in subsidiary budgets were also turned off, and in certain cases redirected.

 

The Deficit & Surplus Model was a highly important spreadsheet tracking all revenues, expenditure, VAT and Sales Tax accounts as well as calculating interest earned on bank accounts or payable on overdrafts as they related to each other in monthly intervals for each year, and ultimately determined the total funding requirement for the Network.

 

Cross-checks were another important feature of all the spreadsheets, comparing calculations on the primary Master Spreadsheet and Master Personnel spreadsheet and their subsidiary area specific calculations. If an error occurred or balance disagreed on a cross-check, it could be relatively easily traced and identified.

 

The Master Personnel spreadsheet will be dealt with in greater detail later, though I will highlight that this spreadsheet was the master calculator for salaries, network obligations for employment tax, pensions and any budget area or factor that depended on an input on the number, seniority or salary of personnel, space and equipment allocations, among others, and is the largest of the spreadsheets with 143,000 datapoints.

 

Formulas, jokingly referred to as the ‘IF, AND, OR, SUM,’ were plentiful throughout the spreadsheets and carried out a myriad of functions. The most complex were generally those that calculated employment packages, bonuses and tax, or in the case of repatriation of funds, the allocation of deductions and allowances. In the case of tax, there were often various tax brackets to trigger. First of all though, the sum had to ask the question, ‘Is this a profit?” Below is one such formula:

 

=-IF(AND((L25+M25+N25)<-K20,(L25+M25+N25)<0,K20>0,K20>5000000),((5000000+(K20-5000000)*0.5)),IF(AND((L25+M25+N25)<-K20,(L25+M25+N25)<0,K20>0,K20<4999999),K20,IF(AND((L25+M25+N25)>-K20,(L25+M25+N25)<0,K20>0),-(L25+M25+N25),IF((L25+M25+N25)>0,0,IF(K20<0,0)))))

 

A further complexity was scheduling the build-up to the launch of personnel, the increasing expenditure in construction, equipment purchases and their timings, the ramp up of pre-production, production and rehearsals. All were back-timed from launch with monthly or even weekly precision, and with consideration to manufacturers’ and recruitment lead times, and training schedules.

 

In planning for operational years, we were playing out what-ifs and scenarios as if the Network was running, and using real-events to stress test our planned budgets and capabilities. Major un-planned events such as an air-accident had both the potential to increase interest in Network content, but were equally as capable of burning through budget and resources at a rate of knots, as I was only too aware from coverage of world events that I was familiar with in other organisations.

 

Satellite, Cable & IPTV Transmission

 

The Network intended to secure C-Band and Ku-Band transponder service and bandwidth for Satellite, Cable and IPTV head-end distribution with a number of key Satellite Distribution Services. By VS.04 it had been decided that UHD offerings would be via OTT services. Bandwidth was budgeted across a total of 28 satellites. Service to Cable and IPTV head-ends, and for the purposes of distribution for up-link to Ku-Band satellites would utilise C-Band, while regional DTH (Direct-to-Home) platforms would be supplied via Ku-Band service.

 

In addition to channel distribution services, both permanent and temporary links between locations and studios, and land-links between studios and Satellite stations would be a requirement, and this was accounted for within the MPLS/Data budget; and within the production budgets in incidental cost allocations. Mobile uplink equipment was to be rented on an ad-hoc basis and was also accounted for in production budgets. With the rise of streaming, even at the time this budget was calculated, we foresaw significant changes occurring in how we achieved distribution in the future. Special thanks go to Mike Chandler and the team at SES, and also Eutelsat, Intelsat, Optus and Telenor.

Budget was £5.43M pre-launch and in advance fees, and £21.71M per annum by contract for the period.

 

Satellite, Cable & IPTV Platform Charges

 

The leading Platforms for each region were to be pursued with a target of achieving a global reach of 541 million homes, via up to 126 platform providers. Terms for Cable Network access varied wildly between regions in a market that remains in flux today. Access in the US alone, varied from situations where a platform would pay to carry content from a channel, to where they paid nothing; while in other markets platforms charged for carriage, and such variation was considered in the budgeting process. We effectively assumed we would have to pay our way, and allocated as much budget as possible with a view to leveraging our way onto platforms. In the event of issues associated with US cable platform access, the Network saw a deal with the leading IPTV services providers as an alternative to achieving similar audience reach possible through cable service and a bonus in the event that few or no issues were experienced in market entry.

 

Budget was £2.43M pre-launch, £10.24M in TX1 rising to £11.35M in TX4.

 

OTT Services & Encoding

 

Quotes for this element were obtained from a variety of service providers, including the market leader. Encoding costs were calculated on a per minute basis for all OTT options and languages against audience projections for pre-launch and TX1 through TX4. Budget allocation was for projected audience, and obviously if the audience exceeded that estimate, then both costs and revenues would also increase. Estimates were based on 2017 intelligence, and I am sure that our projections for OTT take-up would be considerably higher today against Linear TV output.

Budget allocation was £670K pre-launch, £2.6M in TX1 rising to £3.0M in TX4.

 

OTT & App Development (Multi-platform)

 

Discussions were initiated with a number of companies, and estimates arrived at for the Network’s requirements.

 

Budget allocation was £1.2M for development, with a £120K contingency in TX1 rising to £258K in TX4.

 

Production Budgets — News

 

Production budgets were divided into four principle areas: News, Features, Events and Guest Appearances.

While we could have allocated the cost of personnel, infrastructure and real estate to production budgets, we chose to separate these. As a result Production budgets for news reflect the costs of location news gathering with Studio production being the effective consequence of having facilities and personnel to operate them.

Costs were allocated for freelance camera and sound crews, equipment, satellite links, permits, transport, airline tickets, hotels and miscellaneous costs.

 

The overall pre-launch production budget was £912K.

 

Budget allocation for News Gathering was £21.9M in TX1 rising in 10% increments to £29.15M in TX4.

 

Production Budgets — Features

 

Allocation was made for a total of 5 special one hour ‘Features’ programmes per week.

 

Budget was £14.04M in TX 1 rising in 10% increments to £18.88M in TX4.

 

Production Budgets — Events

 

We were particularly proud of this element and capability. Attendance of Air Shows, Events and Expos was budgeted for, either in the general news gathering budget, Features budget, or as part of AVTN’s flagship coverage programme. Special significance was given to attendance of Events that are seen as important for increased advertising revenues and in terms of marketing value. Flagship event attendance was specifically allocated to the following international commercial air shows: Dubai, Farnborough, Paris, Singapore.

 

The budget included provision for a 15m ×15m two-storey pavilion structure, including marketing and studio facilities. It was the expectation that this would deliver key display, interview and specialist coverage options, with the potential ability to sell highlights to other networks. Planned air display coverage would have been cutting edge in nature, and the marketing benefits of such a presence were seen as significant.

 

Budgets were based on costs typically associated with the use of outsourced Outside Broadcast (OB) facilities, crews and up-links. However, due to ongoing developments in broadcast equipment technology, the potential for the Network to build either its own OB facility upon funding (most likely as a fly-away system package) within existing budgets was under consideration. It should be noted that if a wholly owned or leased system were to be built, the Network would have sought a partnership with a facilities company to utilise the asset outside of its own requirements; and such a move would have effected levels of assets owned or held, as well as depreciation projections, while also creating a further revenue stream, justifying the cost outlay. The benefits of such a move would, however, significantly outweigh any negative elements.

 

In light of the tragic events of the 2015 Shoreham Air Show (UK), where I was in attendance, it was felt that it was important to emphasise that the onus of the Dubai, Farnborough, Paris and Singapore events was on the Sale of commercial aircraft, defence systems, associated equipment and services. While flight displays are a part of these events, the teams responsible for their flight operations represent the highest industry standards on both their trade and public display days. Air Show attendance worldwide was expected to grow at the time and to continue to exceed Football/Soccer attendance in the UK. However, post publication of the VS.04 proposal it was announced that the public days for Farnborough would cease. This would have reduced costs for event coverage, but likely revenues also.

 

Budget for air show coverage was as follows:

 

Singapore £1.2M

Farnborough £1.08M

Paris £1.13M

Dubai £1.1M

 

Production Budgets — Guest Appearances

 

While it was expected that the vast majority of guests appearing on the Network would be available free-of-charge, there was also a budget allocation for specific expert appearances.

 

Budget allocation was £1.46M in TX1 rising to £1.95M in TX4.

 

Marketing Budget

 

Considerable budget was planned for Marketing, headed by a Chief Marketing & Sales Officer (CMSO) and supported by a team of 14.

 

Marketing budgets were £3M Pre-launch, £12M in TX1 rising to £20M in TX4.

 

News Wire Services

 

Comprehensive contracts for text and video newswire, sport, financial, archive and photo services were planned for with AP, AFP and Reuters with contingencies for ad-hoc services. Ticker services were to be supplied by Reuters. Special thanks go to everyone at the respective agencies who supported and assisted the Network.

Newswire budgets pre-launch were £1.42M, £4.80M in TX 1 rising to £5.30M in TX4.

 

Newsroom Software

 

Quotes were obtained from Octopus Newsroom and AP for their ENPS system. While no firm decision had been made on supplier for newsroom software, the budget allocation in VS.04 is for ENPS. Special thanks go to Gabriel Janko at Octopus and Paddy Payne and his team at AP’s ENPS. Software allocation to personnel was made via the personnel master spreadsheet feeding a total volume multiplier for licences to the budget.

 

Budget allocation pre-launch was £223K, £301K in TX1 rising to £383K in TX4.

 

Weather Services

 

Weather reports were to be compiled by an in-house team of 8 meteorologists for Aviation and other applicable service offerings budgeted for in personnel. Discussions were held with the Met. Office and The Weather Company for services.

 

Budget allocation was £173K pre-launch including equipment, with a £130K contract rate for four years.

 

Translation Services

 

While we planned for a diverse multi-national and multi-lingual array of personnel, it was still considered necessary to budget for translation services.

 

Budget pre-launch was £74K, £892K in TX1 rising to £991K in TX4.

 

Broadcast Studio Systems

 

A considerable amount of my own experience gained throughout my career in Film & TV and the contacts I’ve made over many years went into budgeting this area. A number of options were considered and budgeted for during the  lifecycle of the various proposals. We started out with a budget based heavily on the Sony F55 Live solution, before moving on to consideration of Sony HDC-4300 cameras and Grass Valley solutions too. The ARRI Amira Live solution came too late for the VS.04 proposal, but would certainly have been under consideration today. Canon and Fuji studio broadcast lenses were both considered.

 

Overall the budget for studio systems included Camera heads, Lenses, Camera Control Units, IP Modules, Processors, Master Controls, Viewfinders (for non-Pedestal Operations), Monitoring, Switchers, IP Switches, Servers, Workstations, Control Devices, Storage Systems, Encoders, Playout Systems, estimated cabling requirements, and contingencies. Pedestals and Video Walls were budgeted separately. Special thanks to Chris Luff, Andy Ford, Sony, Grass Valley, Canon, Fujinon, Mellanox, Blackmagic, Rohde & Schwartz and Ross, among many others for their help with this budget element.

 

Budget allocation was £12.4M with a contingency of £800K per year from TX2 through TX4.

 

Lighting

 

The lighting budget took into consideration DMX control consoles, dimmer racks, panel and Fresnel based lights, monitoring and cable runs and lighting grids. Special thanks to the sales teams at ARRI, Litepanels, Desisti, Jose Maria Noriega and Fluotec for their input in budgeting this area.

 

Budget allocation was £1.77M in construction

 

Audio

 

In terms of studio audio, we budgeted everything from IP mixing desks to lapel mics. Cable runs were based on an estimate of studio size. Riedel quoted for a complete talkback solution throughout each location based on projected requirements. Special thanks to John Terry and the teams at Wheatstone, Calrec and Riedel for all their help and advice.

 

Budget for audio in construction was £2.24M inclusive of contingencies.

 

System Integration

 

The Network had the option to either: (i) Appoint experienced Systems Integration companies to oversee the provision and installation of Broadcast, IT and Telecommunication technologies, with one supplier having overall responsibility, with a number of companies being considered, but questions hanging over the availability of specific companies; or (ii) Recruit an experienced System Integration Team of its own, achieving further cost savings and flexibility for the project. At that time this approach had proven an extremely efficient methodology, in a $150m project, and was our favoured route.

 

Budget for a systems integration team was allocated at £3.28M

 

Broadcast Equipment (PSC)

 

The Network intended to maintain a small volume of its own mobile camera equipment, primarily set up for PSC single-user operation. News crews, inclusive of their equipment were largely to be outsourced from specialist industry agencies around the world, to reduce personnel obligations and ensure flexibility and mobility of news gathering assets; this was accounted for within the production budgets. Budgets were based on Sony Cameras with appropriate accessories and sound kit. The cost of memory cards was allocated to stock.

 

Budget pre-launch was £800K, with a further £800K allocated in TX2 rising to £856K in TX4.

 

Memory Card Stock was budgeted at £25K pre-launch, £35K in TX1 rising to £55K in TX4.

 

Broadcast Data Storage

 

Special mention should go to Marc Risby and his team at Boxer Systems, and also to Ian Marcroft, Dell and Qumulo for their input on planning for the Network’s data storage.

 

Budget was £5.1M in construction, with contingency of £1.6M in TX2 rising to £1.7M in TX4.

 

Edit Suites

 

While most Network computers were to be capable of editing and equipped with Final Cut Pro X, 4 high specification Apple Pro, Avid equipped, edit suites were allocated per location. A Kinetta portable film scanner was also planned for each location. Particularly for AVTN, archive work relating to historic films of Aircraft was envisioned as a requirement.

 

Budget was £1M in construction, with contingency of £200K in TX1 rising to £214K in TX4.

 

Robotic Pedestals & Studio Systems

 

Quotes for a number of premium Robotic Pedestal, Pan and Tilt systems were acquired from Vinten and Ross Video. The most expensive option was used in order that there was adequate budget for this area, and in full knowledge that discounts and lower cost solutions provided an element of manoeuvrability should it later be required.

Budget for the element was £2.9M in the construction phase.

 

Video Walls

 

Specification was for a 40ft x 10ft video wall for the main studio in each location. Total Network budget for this element was £1.8M including installation by teams at each location. Scheduling also took account for a 6-8 week lead time. Special thanks to Barco for their help with this element.

 

Radio Studio Equipment

 

IP Radio was added following an introduction by John Terrey and Wheatstone to an expert on radio automation at IBC. Largely the strategy was to edit the TV studio sound feed down into useable audio segments with additional content specifically created for the radio feed. An element of the journalism team were allocated to dual TV/Radio duties. Budget for Studio equipment was £800K in construction. No specific contingency was made for Radio, and any future requirement would come from overall contingencies from TX2 to TX4.

 

IP News Gathering Capabilities

 

The IP News gathering capabilities were a small element based on a number of integrated PTZ (Pan-Tilt-Zoom) camera kits that could be shipped and set up anywhere required to capture an interview at a known quality.

 

Budget was £97.2K with a contingency of circa £20K in TX2 – TX4.

 

Backup Generators

 

Quotations were sourced from companies familiar with the requirements of backup generators for the broadcast industry with budget allocation also given to rental of space in the basements of our locations for their installation and cost for cabling between them and the appropriate location in the building in which we were to operate. Total budget allocation for Network construction was £1.06M, Allocation was also made for an annual maintenance contract tied to internal inflation calculations.

 

Computers

 

The specification for computers, laptops, tablets and mobile phones was for Apple products. Vs.04 called for 286 Mac Book Pros, 249 27” iMacs to the highest specification with RAM upgrades, Blackmagic adaptors enabling editing capabilities and G-tech 10TB drives aside of network and cloud data storage. Quotations and significant corporate discounts were achieved by dealing direct with Apple Europe.

 

Initial allocation was £1.9M with additional equipment budgeted at £141K from TX2 rising to £152K in TX4.

 

Software

 

Microsoft Office was specified on all computers and tablets, with Final Cut Pro X (FCPX) specified on most computers. Pro Tools, Logic Pro X and Avid Media Composer were specified for special applications. IT network and Infosec software requirements were also included. Additional allocations and licence renewal costs were accounted for and co-ordinated with personnel contingencies for subsequent years. The only element of software budgeted separately was Newsroom software.

 

Pre-launch budget was £967K, contingencies and renewals were £139K in TX1 rising to £285K by TX4.

 

IT Networks & Telecoms Hardware

 

The IT network, VOIP and Legacy Landline hardware were specified together by leading providers, including: items such as servers, controllers and accessories, base cards, trunk cards, licence keys, endpoints, headsets, with cable runs estimated using the mock plan applying a grid system. Consultancy elements included: project management, design and program configuration, pre-staging and system licencing, installation, configuration and programming, handset distribution, voicemail configuration, auto call queue programming, training, support and services in each location, with annual maintenance contracts. A bonus of budgeting this area, was the invite to a luncheon at the top of the London Gherkin.

 

Construction budget was £1.53M, contingencies/service contracts were £153K in TX1 rising to £170K in TX4.

 

Telecommunications (Landlines/Phones/Tablets)

 

This element of the budget excluded the data network, and telecommunications hardware, budgeted separately.

VOIP/Landline charges were calculated based on a multiple of estimated call volumes, with the personnel multiplier allocated and fed from the Master Personnel spreadsheet.

 

Mobile phones were calculated in each location based on the iPhone X 256gb and iPad Pro 10.5” 64gb units. Upfronts, and international calls were estimated and multiplied by allocated volumes from the Master Personnel spreadsheet and Insurance added. Contingencies for additional personnel were added in TX2 through TX4.

 

Total budgets were for £918.5K in Construction, £1.24M in TX1 rising to £1.41M in TX4.

 

MPLS

 

MPLS (Multiprotocol Label Switching) cable services were budgeted with Amsterdam as the hub as follows: London to Amsterdam, Amsterdam to New York and Singapore. No Trans-Pacific routing was budgeted due to the prohibitive expense.

 

Budget was £266.5K pre-launch, £533K in TX1 rising to £596K in TX4.

 

Office Equipment

 

The most basic of budgets for office necessities like Copiers and Scanners. Stationary, Ink and sundries were seen as coming out of miscellaneous expenditure. Budget was £45.5K in construction, with an annual contingency of approximately £6K.

 

Contact Centre

 

The need for a call-centre had been identified very early on while developing the original proposal. Locations considered were: Chester (UK), Dublin (Ireland) and Tallinn (Estonia), though Ireland had a slight upper hand as it is already well-known as a call-centre provider, and had a young multi-national workforce.

 

Planning was for a Contact-Centre Director, Centre Managers, Team Leaders and Multi-Lingual Operators totalling 87, working in shifts. The Centre was budgeted from two perspectives (a) from standard cost estimate formulas for the Contact-Centre industry and (b) on a real-estate, equipment, and personnel basis.

 

Salary considerations were calculated separately to the main Personnel considerations and included in the whole sum for call-centre costs as it was still un-decided whether this element would be sub-contracted, though the reason for costing the facility had been a lack of interest from the major contact-centre suppliers in a low-yield operation with a multi-lingual personnel requirement.

 

Considerations included: Real-estate, Personnel, Calls per person (P/hr and P/day), shift length, Operators per shift, Call durations (based on industry data), Tax, Pensions, Equipment, Furnishings, Software, Telecom’s.

 

Costs were projected at £1.1M in Construction and pre-launch, £2.67M in TX1 rising to £2.96M in TX4.

 

InfoSec

 

Budgets in this area fell in to two categories (a) security and firewall software for the office and broadcast networks and (b) the personnel that would operate, supervise the systems, and analyse the threat, with adequate allocation for a CISO (Chief Information and Security Officer) and requisite supporting team, located across each region. The former was accounted for within the IT network and software budgets, and the latter within personnel budgets. Special thanks to Andor and Deborah Demarteau at Shamrock Infosec.

 

AVMSD (Audiovisual Media Services Directive)

 

The AVMSD governs European coordination of National legislation on every aspect of audiovisual media distribution, from Broadcasting to On-demand and OTT services. The UK left the AVMSD and the umbrella of benefits it presents for UK corporations distributing content into the EU with no negotiated agreement.

 

In order to maintain the ability to Broadcast freely within the EU, the Network was required by the Member-State of its choice to establish a corporate, editorial, personnel and production structure to satisfy that Member-State’s end-to-end requirements for a Broadcasting corporation and content provider. While attitudes to the interpretation of the AVMSD tend to vary from State to State, overall interpretation is consistent and based on plain text reading of the Directive. While there are a number of rules that may apply to licensing in a particular jurisdiction, none existed that caused particular concern to the Network or its operations.

 

Of Key importance to any Network structure were:

 

• Quotas for European Production
• The principle of ‘Country of Origin’
• Location of Editorial Control
• Regulation of Advertising Slots.

 

Quotas are currently under threat of change in detriment to English language content, as a direct result of Brexit.

 

Country of Origin

 

The AVMSD sets the base level and criteria by which productions qualify as European from a regulatory perspective – The Country of Origin. The current requirements are for 50% European works as a Broadcaster and for carriage of 30% for on-demand platforms. Individual Member-States may impose higher requirements, providing that there is adherence to EU Competition Law and the TFEU (Treaty on the Functioning of the European Union). As the majority of the Network’s on-demand (VOD) assets will be the product of previously broadcast content the ability to meet the quota was envisioned. Qualifying criteria includes Corporate and Production Location(s), Post-Production, and Nationality of Personnel. The centralisation of Video Editing and VOD/SVOD distribution was being considered to increase the ease with which compliance was met.

 

Location of Editorial Control

 

It was expected that the Network could satisfactorily demonstrate that there was substantive Editorial control and a decision-making structure existent within its EU operations. The Network intended to establish European operations as a full subsidiary with its own Regional Board. Key Positions within the Network in Europe were planned with the appointment of : Chief of European Operations & Bureau; Director of European Compliance; Director of European News & Programming; Director of European News Operations; in addition to the standard regional distribution of Editorial and Production personnel.

 

The “Fake News” Phenomena

 

The event and proliferation of the ‘Fake News’ phenomenon, with the potential issue of the Network being wrongly labelled as a source of ‘Fake News’ by a biased political operative was seen as presenting a threat to reputation and subsequently audience and revenues, particularly in the first year of Transmission. Marketing power was identified as a key factor in the Network’s ability to counter such unfavourable attention, and resulted in a significant increase in both the Marketing and Legal Budgets.

 

Licences (Fixed & Profit Based Costs)

 

Licence terms and costs for all broadcasting locations were budgeted for, including fixed and variable costs as laid out in the Proposal.

 

Fixed costs were budgeted at £480K per annum.

 

Profit based charges were projected of £745K in TX2 rising to £963K in TX4.

 

Performing Rights Fees & Licence Contingencies

 

The Network was responsible for reaching agreement with those owning copyright or performing rights to any of the material which it proposed to broadcast via any Channel it may own.

 

Any music broadcast in the UK must be licensed by PRS for Music, prsformusic.com. Commercial sound recordings must be licensed from Phonographic Performance Limited (PPL), ppluk.com. The playing of music originating outside the UK remains subject to copyright or performing rights licensing. Copyright or performing rights conditions were to be adhered to for each subsequent territory from which the Network broadcasted from. Significant funds were allocated as an allowance within licence contingencies appropriate to each budget Tier. The UK’s PRS were extremely helpful in progressing this area, and were capable of acting as a liaison for most territories. Despite this, the US remained a special case, requiring appropriate funding also allocated. Special thanks to Louise Baldwin and the team at PRS.

 

Budgets were allocated as follows £437K pre-launch, £1.75M in TX 1 rising to £1.94M in TX4.

 

Training

 

From project inception, significant thought was given to the issue of delivering Media training to Aviation personnel and Aviation training to Media personnel in order to ensure consistently high standards. AVTN intended to deliver this via a mix of group media training sessions, online and App based training within the operational budget. Discussions were under way with a supplier to leading aircraft manufacturers, who were able to deliver a comprehensive course of easily accessed and re-accessible Aviation training. The system, already included Health and Safety requirements, and was easily adapted to fulfil Film & TV specific elements.

 

The training system the Network intended to use for Aviation was modular, and its creators were able to adapt it for other corporate applications. Regulatory and Media orientated materials could be integrated into newly commissioned modules within the online/App based system at a cost effective price. Other Media training was to be commissioned and delivered by manufacturers and specialists as required.

 

A team of contracted broadcast regulation experts was planned, in order to deliver regulatory support and training for TV and Radio services and were already primed to contribute materials for the online/App based system. A full team of operational compliance personnel were budgeted for in shift patterns in the Master Personnel spreadsheet (See Personnel).

 

Training budgets were as follows:

 

Aviation + Health & Safety Training (Online/App Based)

 

Budget was £50K for a fully compliant and customised system.

 

Media Production Training

 

Budget was £189K pre-launch, £10K in TX1 rising to £11K in TX4.

 

Broadcast Compliance Consultation & Training

 

£197K pre-launch, with contingencies of £10K in TX2 rising to £11K in TX4.

 

Studio Design & Construction

 

Office and studio design consultants advised on costs and planning for this element, based on our own notional mock plan of a 20,000ft facility. The budget for office and studio design was £800K. The budget for construction of the studio space excluded broadcast equipment and systems integration which was budgeted separately, it did however, include the cost of an audience seating area.

 

Budget allocation was £1.52M in Construction.

 

Fixtures, Fittings & Construction

 

Fixtures and fittings in the Studios were budgeted on the basis of £50 per Sq. Ft. Fixtures and fittings in the general offices were calculated based on a number of factors dependent on the nature of quotes, such as Sq. Metre and Sq. Feet, the number of personnel, offices and the mock plan of a 20,000 Sq. Ft studio and office facility. In New York a landlord rebate for office decoration was applied at $55 per Sq. Ft.

 

Budget calculations to a variety of specifications were based on: Glass Partitions (3m x 1m), Raised Floor (Office), Raised Floor (Foyer/Coffee Shop), Raised Floor (Studio), MER/SER (PM), Fixtures & Fittings, Doors, Walls, Lighting, Ceiling, Tiling (Granite/Marble), Carpet, Wiring, Sockets, Installation, Fire Ratings and Contingencies. This budget did not include the Coffee Shop, Air-Conditioning or Furnishings each budgeted separately. The mock plan was used to calculate the likely number of doors or walls and Sq. Metres required.

 

Total budget in construction was £7.45M.

 

Coffee Shop (Revenue Neutral/Profitable)

 

The coffee shop was budgeted with the advice of a contact from a major high street chain. Each location was budgeted to have a Manager and 3 Baristas.

 

Construction and initial operation was budgeted at £492K, with an annual operating budget of £328K thereafter.

 

Air-Conditioning

 

The heat generated by broadcast studio facilities is notoriously associated with the need for substantial amounts of air-conditioning. The Network planned to apply the best in design, most eco-friendly and energy saving approach to this issue. Energy saving LED lighting was to be used throughout the Studios to reduce the burden of air-conditioning. The application of a fully robotic studio pedestal system would remove people from the studio floor, saving the generation of 400-500 BTU per person per hour, or an approximate total of 2,000 to 2,500 BTU per hour. With LED technology having moved at a pace in the last 10 years, Studios utilising LEDs are now achieving a reduction in energy use up to 90%.

 

Installation budget was £2.1M across all locations, with a contingency of £105K in TX1 rising to £116.5K in TX4.

 

Furnishings

 

Furnishings were calculated in a separate spreadsheet by volume based personnel allocations, after consideration of hot-desking. Additional allocation was budgeted for personnel contingencies in operational years. Allocation was calculated as follows:

 

• General Personnel - Aeron Chair, Desk, Bookcase/Cupboard, Under Desk Storage, Table Lamp £1450.
• Executives £3000 to equip their office.
• Senior Executives £5000 to equip their office.
• Reception £10,000 per location
• Boardroom £24,000 per location
• Green Room £3000 per location
• VIP Lounge/Interview Studio £10,000
• Meeting Rooms £3000

 

Total budget in construction was £1.15M, with contingencies of £45K in TX2  rising to £48.2K in TX4.

 

Office and Studio Facilities

 

It was the intention of the Network to operate its administrative, production and studio functions from the same combined space. This was seen as enabling personnel levels to be minimised by the combination of certain administrative functions with content and broadcasting responsibilities. Management was to be within easy access of the day-to-day functions of the Network, improving access and information flow. The preferred option was to lease space within the financial centres of our chosen cities. Office space was planned in the City of London, Amsterdam CBD, Singapore CBD, and In New York we were offered prime floor space in the New World Trade Centre.

 

The required allocations for the number of square feet (sq. ft.) were made on a floating calculation proportional to the number of employees and allotted facilities varying with each budget tier. Following initial enquiries, advice and discussions with real estate agents, adequate allocation of budget was made for lease, rates and service charges as appropriate. Special thanks go to Colin Fitzgerald at Knight Frank for his assistance.

 

City of London:

 

Rent: c. £60 per sq. ft.

Service change: £10 per sq. ft. (in addition to rent).

10 year lease, break at 5.

21-24 months’ rent free – sometimes lower if a break has been included at year 5.

Rent review at the 5thyear.

Landlord pays vendors agent – 10% rent PA.

Purchaser pays acquiring agent – 10% rent PA.

 

New York:

 

Rent: c. £57 per sq. ft. per year gross.

We were advised that we would also be charged for the sq. ft. area of lift shafts and stair wells.

Service Charge: Part included in the rent with additional $5-10/sf/year electricity/operating expenses.

10 year lease.

Fixed rental increases every 5 years.

6-12 months’ rent free.

£30-45 per sq. ft. per year tenant improvement allowance.

The landlord pays all commission fees

 

Amsterdam:

 

Rent: £31 per sq. ft.

Service charge: 40 euros per annum per sq. m.

5 year lease, or 10 year lease with 5 year break

6-12 months’ rent free could be negotiated – but this is very locational dependent

Rent reviews are annual and CPI index linked

Landlord pays vendors agent – 15% rent PA (excluding incentives)

Purchaser pays acquiring agent – 15% rent PA (excluding incentives)

 

Singapore:

 

Rent: £52 per sq. ft.

Service charge: £1.20 per sq. ft. per month (included within rent)

5 year lease with option to renew – lease will include rent cap mechanism on the renewal.

Rent holidays are uncommon – but up to 3 months achievable for this kind of space

Landlord pays all fees for new tenants, these are typically 1 – 1.5 months’ rent for purchase/vending agent

 

Budgets were £1.92M pre-launch, accounting for rent free periods, £3.94M in TX1 rising to £4.98M in TX4.

 

Offices — Service Charges

 

Service charges were calculated based on local rates and variables and amounted to:

 

£461.5K in construction, and stood at £616K for the remaining period.

 

Offices — Taxes & Rates

 

Taxes and Rates on real estate were calculated separately as required with allocation of:

 

£614.3K in construction, £819K in TX1 rising to £912K in TX4.

 

Offices — Temporary (Construction phase)

 

Temporary office space during the construction phase was based on a floating calculation of sq. ft. allocation, number of personnel required and the number of months they would work prior to the new facilities being accessible. Administrative office space was planned for earliest access while Production and Studio space was still under construction. Budget allocation was £434.5K.

 

Offices — Contingencies

 

Contingencies were made based on 20% of real estate budgets with consideration to rent free periods.

 

Budget was set at £385.3K in construction, £788.5K in TX1 rising to £997K in TX4.

 

Energy

 

If it used energy, there was an energy calculation for it. The standard average energy footprint per sq. metre for offices was used as a base footprint for each location, on top of which the various key elements of the Network’s consumption were added – Studio, Edit Suites, Computers, Air-conditioning etc. In the studios, galleries and engineering spaces the power consumption of the video wall, every camera, pedestal, switcher, light, control console, data store, rack, monitor etc was known, based on our equipment specifications. The master spreadsheet for personnel adjusted power consumption calculations by volume of personnel automatically.

 

Budget in construction was £406K in construction, £810K in TX1 rising to £903K in TX4.

 

Security & Fire Systems

 

We worked with G4S security and fire systems to identify the Network’s requirements in each location. The mock facilities plan aided them in the identification of the most likely and appropriate systems requirements, in enhancement of any existing building systems. They also able to provide security personnel, including foyer staff that were trained in security within the contract.

 

Systems costs were £210K, with a contingency of £42K in TX1 rising to £46.8K in TX1.

 

The annual contract came in at £444K in construction, £887K in TX1 £990K in TX4.

 

Personnel

 

The Personnel Master Spreadsheet allocates personnel at every level and to all departments. It was also the point at which it was determined whether personnel were Administrative or Sales & Operations.

 

Further allocation criteria controlled from this spreadsheet were:

 

Assignment to UK, EU, SG and US budgets and requirements for Corporate and Executive Status, Media Training, Aviation Training, Compliance Training, Office Furniture, Mobile Phones, Tablets, Landlines, iMac’s, MacBook Pros, FCPX, and Newswire Access were also determined in this spreadsheet, and largely this was done using Excel Formulas. The budget for recruitment was also allocated here, and in the pre-launch phase scheduled on a monthly basis. Budget for Temporary Office allocation pre-launch was also calculated here based on status and recruitment scheduling. The total tally for each area provided the value for volume calculations in other budget areas, updating automatically. Mobile phone distribution, service level and dare I say, ‘bling factor,’ were assigned by corporate status.

 

Allocation to the Board and Senior Executives extended to a Non-Executive Chairman, 4 Non-Executive Directors, Chief Executive Officer (Founder), Chief Financial Officer, Chief Counsel, Chief Infosec & Security Officer, Chief Human Resources Officer, Chief Regulatory Officer, Chief of Operations for Bureaus (EU, Singapore, US), with these roles assigned as Administrative. The roles of Chief Marketing & Sales Officer, Chief Technology Officer (Founder). Chief of Programming, News Director/Editor-in-Chief and Chief Engineer roles were assigned to Sales & Operations.

Administrative personnel also included a team of Deputy and Associate General Counsel; accounts managers and bookkeepers; Personal Assistants to the Senior Executives; and a Regulatory Compliance team including Directors of Health & Safety, Broadcast Compliance and EU Compliance.

 

For the purpose of splitting Administrative roles in the P&L, Sales & Operations status was allocated to the majority of roles. Operations included Director of Programming, Assistant News Editor, Director of News Operations, News Assignment Desk chief, Digital Editor, and due to the need to maintain editorial control within the EU, a Director and Assistant Director of European News & Programming, as well as a Director of European Operations. 28 Editor/Host positions were allocated by region and specialism, supported by a further 20 Journalists working across TV and Radio.

 

The Production Team across all regions and programming included allocation for a team of Executive Producers, Producer/Directors, and Associate Producers and floor managers working across TV and Radio totalling 98. A further team of 16 Analysts would feed Production with relevant Financial and Market Analysis. Shift patterns, allocations and budgets for 146 Production Crew included: Camera & Studio Operations Co-ordinators, Video Editors, Video Engineers, Gallery Operatives, Audio and Assistant Engineers (TV and Radio), Camera Supervisors, Make-Up and Hairstylists. The Art & Graphics Department comprised of a permanent team of 8 with overall Editor.

 

The Marketing & Sales Department was supported by a Regional Director, Regional Sales Executive and Junior Sales Executive, plus a Content Marketing Liaison and Market Analyst. Social Media was to be headed by a Department Director, Regional Co-ordinators and Associates. IT/Infosec included a 16 strong team of IT/Infosec and Developers.

 

Salaries were budgeted above the mean average at approximately 80% of the maximum known market rate, making the Network an above average employer. An advantage of a follow the sun broadcasting strategy with multiple bases of operation is that it minimises overtime in theory, as the occurrence of people working obscure hours is decreased. Overtime was subsequently a consideration of Production budgets. A percentage split calculation allocated personnel salaries proportionally to Administration or Sales & Operations as appropriate throughout the budgeting process.

 

The Total Team planned at Launch was 454 personnel, with 131 in London, 104 in the EU, 109 in New York and 110 in Singapore.

 

The Budget for Basic Pay was £10.46M pre-launch, £21.73M in TX1 rising to £24.69M in TX4.

 

Employment Packages & Bonuses

 

Employment Packages and Bonuses for senior staff and executives were assigned by formulas based on corporate status, level of basic pay and percentage of salary. Package increases were in-line with increased turnover profitability and inflation. In the case of annual bonuses for general staff, these were allocated at 1 month’s salary.

Bonus calculations excluded contracted dividend entitlements, as the final nature of dividend awards could not be predicted with any certainty, and so were included within the general dividend statement. Bonuses were treated as a deferable item, in recognition of contracts that may award them for successfully meeting deadlines, especially in launch, but payable based on profitability, and available funds, subsequently they were entered as a line-item in the P&L.

 

Employment packages were £581.5K pre-launch, £834.8K in TX1 rising to £3.16M in TX4.

 

Bonuses were £1.7M at launch and £3.11M in TX1 deferred to Q2 TX2, £3.25M in TX2 rising to £3.4M in TX4.

 

Personnel — Annual Contingency

 

An annual contingency for additional personnel was allocated from TX2 through TX4 as a multiple of the combined average salary, National insurance and pension contributions.

 

Personnel contingency for TX2 was £1.02M rising to £1.04M in TX4.

 

Personnel — Recruitment Fees

 

The pre-launch recruitment budget was calculated by extracting the roles from the personnel roster that the Network expected it may need to contract recruiters to hire. Contingencies were budgeted from TX2 to TX4.

 

The pre-launch budget was £1.5M, and contingencies were £438K in TX2 rising to £470K in TX4.

 

Health Care

 

Possibly one of the hardest elements to budget, because health Insurers do not like estimating costs based on the projected well-being of people they can’t yet identify or review the medical histories of. However, BUPA eventually understood what we were trying to achieve in budgeting this area. Purely for the purposes of budgeting this area, an estimation of the most likely age range of personnel was made (10 year range), which was by no means fixed or prejudicial, but made purely to aid insurers in providing budget estimates. Costs for a global policy excluding the US were estimated, with the US estimated separately at nearly double the cost.

 

Budget pre-launch was £565.5K, £1.51M in TX1 rising to £1.65M in TX4.

 

Pensions

 

UK employer pensions contributions were calculated at the maximum rate and in accordance to standard practice and guidance. EU, Singapore and US (401K) employer contributions were calculated at 6% of salary.

 

Pre-launch budget allocation was £408.3K, £1.03M in TX1 rising to £1.16M in TX4.

 

National Insurance & Social Security

 

Employer’s National Insurance and Social Security contributions were calculated in accordance with the applicable tax rates and brackets appropriate to the UK, Netherlands, Singapore and US.

 

Pre-launch budget allocation was £1.11M, £1.47M in TX1 rising to £2.57M in TX4.

 

Taxation of the Company

 

i.                United Kingdom

 

The Company was liable to United Kingdom corporation tax at a rate (depending on the level of its profits for each accounting period) of 19 percent. Planned reductions in the rate were viewed cautiously and not applied forward during planning, and have since not materialised for a number of reasons including COVID-19. Dividends were to be paid out of profits on which the Company had already or was due to pay tax. Repatriated or overseas earnings were taxable at the same rate with a deduction allowance against tax already paid overseas, adding an additional level of complexity in tax calculations within the VS.04 proposal.

 

ii.               The Netherlands

 

The Netherlands were used as the basis for EU accounts prepared in this proposal. Corporation Tax in the Netherlands was calculated at 20% on the first €200,000, and 25% thereafter.

 

iii.              The United States

 

A flat rate of 21% Federal Corporation Tax applied.

 

iv.             New York City

 

The Company’s tax liability was calculated at the rate of 8.85% of New York Net income.

 

v.              Singapore

 

The standard corporate tax rate was 17%. However, 75% of the first SGD 10,000 of chargeable income and 50% of the next SGD 290,000 of chargeable income were exempt.

 

vi.             Ireland

 

No accounts were prepared on the basis of the Corporation tax rate levied in the Rep. of Ireland. However, on the basis that some operations may have been located there in the future, the current rate at that time was 12.5%.

 

vii.            Estonia

 

No accounts were prepared on the basis of the Corporation tax rate levied in the Rep. of Estonia. However, yet again on the basis that some operations may be located there in the future, the current rate was 21%.

 

No Tax was payable pre-launch or in TX1.

 

Tax was payable in TX2 of £3.53M rising to £20.71M in TX3 and £28.01M in TX4.

 

VAT (UK/EU); GST (SG); Sales Tax (US)

 

VAT & Sales Tax Rates that were current were:

 

UK 20%

Netherlands 21%

Singapore 7%

Estonia 20%

Ireland 23%

NYC 8.875%

 

VAT Liabilities were calculated for the UK, EU, and Singapore at the following rates and for the declared reasons during modelling.

 

UK                               20% in Tier #1

 

23% in Tier #2 & 3 representative of the highest likely rate (Ireland), allowing for UK Corporate Structure and spending to be interchangeable with EU structure, in the event that it was necessary to locate the HQ in the EU. This purposefully caused a higher liability in cash-flow modelling and stress tests.

 

EU                                21% in Tier #1 for The Netherlands

 

23% in Tier #2 & 3 representative of the highest likely rate (Ireland), allowing for EU Corporate Structure and spending to be interchangeable with UK or Ireland.

 

SG                               7% was the current rate of GST(VAT) in Singapore.

 

However, it was expected to rise to 9% at some point between 2021 and 2025, though the rate currently remains unchanged.

 

Unrecoverable VAT

 

An allocation to unrecoverable VAT, due to restrictions on deductions; disallowed amounts; and petty cash receipts which do not specify the VAT rate applied or satisfy the criteria for reclamation, was calculated at 5% of liabilities to which this may apply in each jurisdiction (Production Budgets and Miscellaneous costs etc).

 

Total unrecoverable VAT and Sales Tax was projected as £1.61M in Construction, £2.03M in TX1 rising to £2.93M in TX4.

 

UK Apprentice Levy

 

The UK Apprentice Levy is applied on companies or charities with an annual pay roll exceeding £3M and is charged at 0.5% of UK payroll. The Network’s exposure to the Levy was reduced as a result of operating from multiple bases in other nations.

 

Budget allocation was £6.5K pre-launch, £19.6K in TX1 rising to £24.7K in TX4,

 

Brexit

 

Following the Referendum on the UK’s Membership of the European Union (EU) the UK left the EU and Customs Union. Notwithstanding any favourable interim transition period, or subsequent Treaties, it was necessary for the Network to create a corporate structure within the EU that satisfied all the legal, regulatory, statutory and employment requirements in order that it may operate within the EU. The remaining 27 EU Member-States collectively represented the Network’s largest market.

 

Key to the Network’s business plan were the following:

 

• Freedom of movement of Personnel and Goods
• A multi-national/multi-lingual workforce
• Customs Union – VAT and Duty/Carnet free movement of Goods and Services
• AVMSD (Audiovisual Media Services Directive) Broadcast & Content Distribution

 

The addition of considerations for the EU were as a direct effect of Brexit, accounting for £26.3M of the Network’s construction budget, and £42.5M in year one of transmission increasing to £52.3M by year 4 of transmission. In order to keep production costs down, production allocation did not increase in Europe with the addition of a fourth base of operations and was split between London and Amsterdam. It is also worth noting that we continued to look at options where editing, websites and OTT platforms were centralised and located along with our call-centre in either Ireland or Estonia in an effort to reduce costs further, and also due to the high cost of real-estate in Amsterdam.

 

The European Union (EU)

 

As a result of Brexit and the UK becoming a third-nation in relation to the EU, it became necessary to consider all business between the Network, its non-EU subsidiaries and any EU subsidiaries with greater scrutiny in the budgetary stages, and this was reflected in a great many aspects of the budgets. One significant effect observed was in the increased fluctuation of exchange rates with the Euro.

 

Treaty of the Functioning of the EU (TFEU)

 

The Treaty of the Functioning of the EU was a constant reference document during Network development. It informed numerous considerations for legal budgets, and preparation for Brexit planning.

 

EU Competition Law

 

I was already very familiar with EU Competition Law as the result of my involvement in a previous project, however Brexit resulted in a need to highlight to investors that the relationship between the UK and EU had changed in respect of this area of law and as it related to the Network.

 

Working Capital & Miscellaneous Expenditure

 

A budget for foreseeable minor expenditure, executive travel not covered within operational or production budgets and the unforeseen.

 

Budget was for £2.4M pre-launch, reducing to £2M in TX1 rising again with inflation to £2.22M in TX4.

 

Consultancy Fees

 

A budget for a variety of consultants was set at £1.2M per year from the outset, rising to £1.33M by TX4.

 

Accountancy Fees (External)

 

Budget for the retention of accountants was calculated with guidance based on 0.8% of annual costs per year.

 

Budget allocation was £713K pre-launch, £1.25M in TX1 rising to £1.57M in TX4

 

Accounting Systems

 

Budgets for the accounting system were based on the cost of software and bespoke integration for the Network’s requirements.

 

Installation was quoted at £160K, with a maintenance package of approximately £20K per year.

 

Legal Department Budget

 

An in-house Chief General Counsel was planned for, with a level of experience and knowledge based on overall corporate requirements, while more specialist requirements were to be outsourced as and when they arose. A substantial departmental budget was allocated within the budgets of every proposal Tier for internal and external expenditure in this area. The legal budget was expected to cover: Licensing applications; Director and Personnel Visas as applicable to the requirements of each jurisdiction; Personnel and Supplier contracts; and potentially regulatory issues or spurious litigation from broadcasting activities. Increases were made to the budget to reflect potential implications as a result any issues arising as a result of Brexit or the ‘Fake News’ phenomenon.

 

The Budget for the construction period was £800K, £1M in TX1 rising to £1.1K in TX4.

 

Insurance — Global Policy

 

Insurance for News Channels runs on average between 0.9% to 1.5% of turnover, dependent on the nature and status of threat to its personnel. Insurance was budgeted at approximately 1.5% in the budget Tiers.

 

Costs in the Construction period were projected at £690K, and £1.94M in TX1 rising to 2.43M by TX4.

 

Insurance Premium Tax

 

UK insurance premium tax was calculated on all UK based insurances at the rate of 6%, equating to:

 

£41.4K in construction, £116K in TX1, rising to £150K by TX4.

 

Bank Charges & Commissions

 

Charges and commissions were calculated on the basis of an estimated 0.5% of the operational budget.

 

These represented £451K in the construction period, £641K in TX 1 rising to £773K in TX4.

 

Exceptional Items (Funding & Development Costs)

 

The exceptional items in the Budget Tiers represented research and development costs.

 

Exceptional items at the point of publication totalled £747.1K, increasing further during the last funding round.

 

Brokers’ Fees

 

Broker’s fees for an IPO or ICO were calculated with allocation up to 12% of budget. Note that, the fee rates we were quoted have since increased to approximately 20%, based on some recent high-profile deals.

Potential fees for Tier #1 in the fully funded option were projected at £26.16M.

 

Inflation

 

Inflation of 3.5% was introduced to all costs and salaries of a repetitive nature from the second full year of transmission. (Note for 2024: How times hve changed!)

 

Growth

 

In order to project the Network’s potential for growth, analysis of competitors was completed, with consideration and adjustment made to account for unusual growth as the result of service or product launches. The resulting average growth rate identified after conservative adjustment was 6.49%.

 

Leasing

 

I have left the discussion about leasing until now, as it is only relevant to funding options where leasing was considered. As previously discussed the master spreadsheet calculated the leasing option simultaneously to the fully-funded option as a separate set of accounts.

 

Likely lease scenarios were fully calculated internally so that rates could be adjusted with the latest intelligence from our advisors in the Equipment Leasing Sector. Similarly to depreciation, leasing calculations were timed as per the point of planned purchase within the budget for each year. In order to calculate the leases, the relevant assets are deducted from the master costs spreadsheet, and then calculated as leases over either 36 or 48 months depending on the asset type. The use of leasing reduced the cost of asset purchases by approximately 80% in the construction phase, though in the long-term interest increases overall spend.

 

Tier1 Lease payments were £6.5M pre-launch, £13.1M in TX1, £14.5M in TX2, £13.8M in TX3 and £8.6M in TX4.

 

Illustrative Financial Projections

 

The Illustrative Financial projections were calculated and presented in the following format with specific notes and complete with relevant financial charts and tables as follows:

 

Introduction • Trading Year • Basis of preparation and Principal Assumptions • Network Budgets • Group P&L • Regional P&L • Balance Sheets • Group Cash Flow Statements • EBITDA • Deficit & Surplus Models • Monthly Operational Costs • Notes to the Financial Projections • 1. Turnover • 2. Group Cost of Sales • 3. Exceptional Items • 4. Profit on Ordinary Activities before Taxation • Staff • Payroll • Directors’ Emoluments • Directors’ Bonuses • 5. Taxation • 6. Dividends • 7. Fixed Assets • 8. Depreciation • 9. Group Assets • 10. Net Book Values • 11. Debtors • 12. Creditors Amounts Falling Due within the Trading Year •13. Creditors: Amounts Falling due After the Trading Year • 14. Deferred Tax • 15. Share Capital (Including consideration of the likely nature of shareholding) • 16. Retained Profit for the Financial Period • 17. Reconciliation of Movements in Shareholders’ Funds • 18. Net Cash Inflow from Operating Activities • 19. Analysis of Changes in Financing • 20.  Analysis of Changes in Cash and Cash Equivalents • 21. Acquisitions • 22. Capital Commitments and Contingent Liabilities • 23. Lease Commitments • 24. Contingencies for Project Research and Development • 25. Overseas Capital Repatriation • 26. Adjustment for Overseas Cash • 27. Deferred Bonuses • Unaudited Management Accounts (Statement)

 

Additional Information

 

Additional declarations, statements and explanations were made about the nature of the business as follows:

 

1. The Company • 2. Share Capital • 3. Subsidiaries • 4. Memorandum and Articles of Association • 5. Interest of Directors and Others • 6. Material Contracts • 7. Taxation • 8. Capital • 9. Litigation • 10. General Statement • 11. Documents.

 

Glossary

 

The Glossary included terms relating to: Business • Television Channels • Broadcasting • Aviation • Government Bodies & Regulators • Securities, Stocks & Exchanges • Geographical References • Other.

 

Project Thanks & Attributions

 

Disclaimer of Risk Factors

 

Intellectual Property & Contacts

 

In Conclusion

 

As a result of the conservative approach to both budgets and revenues, in conjunction with careful attention to cashflow in the Deficit & Surplus calculations, predicted and informed the financial requirements for every tier and option presented for funding as represented in the final Proposal. Thanks for taking the time to read this.

 

 

Errors & Omissions Excepted

 

The End