The majority of the viewers of TFC were women, 18-34 years old and the average r ating was

1.0. The same audience had been shifting to fashion-related programs o n other TV channels, which were both delivering higher ratings than TFC. In part icular from Exhibit 1, Lifetime Fashion Today had an average rating of 3.0 and CNN Tonight of 4.0. That said, TFC was the smallest player in fashion-specific programm ing based on the average viewer rates, while it takes the highest broadcast time . This data brought to different concerns: TFC core audience was shifting to different channels and programs; A critical number of viewers had to be acquired in order to offer a bett er defined mix to advertisers and increase revenue generated by Ad Sales; Keep or increase the average rating in order to be included in cable and satellite offer packages, in order to prevent a downgrade to non-premium packag es and consequentially a drop out of viewers; Therefore I believe the key conclusion would be attracting a better defined segm ent of potential viewers for TFC, in order to increase the rating, increase the attractiveness of the target audience for advertisers and keep the position in p remium content for cable or satellite packages.

The first option considered was to maintain a broad appeal to a cross segment of audience, including Fashionistas (the fashion devoted), Planners & Shoppers (fa shion enjoyers) and Situationalists (are interested in fashion for specific need s). This approach would maintain the same something for everyone strategy TFC adopted until then, which meant keeping the same general audience. The ratings would eve ntually increase by 20%. By adopting this strategy, the main cons would be the i ncrease of the number of viewers dropping off from TFC; the 10% drop of the Ad S ales, with CPM to $1.80; from Exhibit 2, the lowest yearly Ad Sales generated an d Net Profit of the three scenarios. The second segmentation option focused more on the Fashionistas, which was stron g in the 18-34 female demographic (61%). The pros would be that targeting to a s maller segment (15% of households) could increase the value of the audience to t he advertisers, thus bringing the average CPM to $3.50 and higher yearly Ad Sale s. On the other hand, this scenario would require investing an additional $15M p er year in programming, in order to acquire and retain the interest of this high ly profile audience. Moreover, targeting this segment would mean potentially loo sing an amount of viewers and dropping to a rating of 0.8. The third option targeted two segments, the Fashionistas and the Planners&Shoppe rs. This dual targeting option forecasted an increase of the average rating at 1 .2 with an increased CPM of $2.50 and an overall best Net Income of the three sc enarios taken into consideration (from Exhibit 5). But, this scenario would requ ire an investment in programming of $20M to ensure acquisition and retention of the valuable two segments. All three options exclude the Basic cluster, which was perceived to be less like ly to be engaged to TFC s content.

For scenario 1, the average rating would slightly increase to 1.2 from the base data, but the average CPM would remain the same at $1.80. Ad Revenue on a yearly basis would achieve $249M. The Net Income for TFC would be $94M, with a 29% of Margin.

Scenario 2 shows a lower average rating than the base of 0.8, but with a higher average CPM of $3.50, due to the highly defined target strategy target only the Fa shionistas cluster (15% of total households). Ad Revenue would be consequently h igher at $322M/year, with a Net Income of $151M and a Margin of 37%. But this sc enario requires an investment of $15M in programming, in order to attract and re tain the selected target audience. Scenario 3 forecasts an average rating of 1.2, with an average $2.50 CPM. Ad Rev enue would achieve $345M, but the investment in programming would be the highest of the three, at $20M, in order to acquire the dual segment of Fashionistas and Planner&Shoppers (together are 50% of the total households). Net Income and Mar gins would result as the highest of the three scenarios, respectively at $168M a nd 39%. According to the results of Exhibit 4 and 5 I would recommend to opt for the thi rd option, that is targeting the Fashionistas and Planner&Shoppers, for the foll owing reasons: Even though this option would require the highest programming investment to attract the dual segments ($20M), the average rating would increase at 1.2, which is the highest increase of the three options; Focusing on a well defined target audience, but not as niche as in optio n 1, the average CPM would lift to $2.50, generating a total Ad Revenue of $345M per year (Exhibit 4), which is the highest revenue generated by the three optio ns taken into consideration; Moreover, analyzing the following financial elements (Exhibit 5) 2% growth of Affiliate fees 3% growth of the Cost of Operations Ad Sales commissions at 3% of total revenue generated Marketing & Advertising spend increased by $15M as suggested by Wheeler SGA (Selling, General & Admin) cost Highest option for Cost of Programming of $20M option 3 generates the highest Net Income at $168M and the highest Margin of 39% of all the three options presented by Wheeler for TFC.