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Income Statement
3S will generate the majority of its revenue from the sale of pre-recorded music product. This includes compact discs (CD’s), cassettes, CD singles, cassette singles, vinyl albums and enhanced CD’s. For purposes of revenue forecasts, management has projected varying unit volumes for each of its projects. Sales will occur within a 15-month time frame from the release date. Based upon the intensity of 3S’s marketing plan/budget for its projects, the following unit projections will be quickly attained and surpassed.
2002 50,000 units/release
2003 70,000 units/release
2004 125,000 units/release
2005 250,000 units/release
3S will gross approximately $6.00 for each full length CD sold, and approximately $5.00 for each full-length cassette. The current retail price for CD’s and cassettes averages approximately $13.50 and $11.00, respectively. Currently, the industry is reporting five CD’s sold to each cassette.
In addition to the sales revenue generated from the full-length CD’s and cassettes, revenue will be earned from the sales of “singles.” The retail sales price for singles is $7.50, resulting in gross revenue of $5.00 per CD unit for 3S. 3S will release two to three singles from each full-length album project. Revenue projections in the financial models are based upon the following estimates of singles sales:
2002 2 Singles 20,000 units per single release
2003 4 Singles 25,000 units per single release
2004 6 Singles 50,000 units per single release
2005 8 Singles 50,000 units per single release
Additional 3S profit centers will include distribution, video revenue, merchandise revenue and concert promotion revenue. Initially representing less than 5% of the company’s revenue, the magnitude and scope of these areas will increase as 3S and its artists’ reputations increase.
Cost of Goods Sold is comprised of artist/producer royalties, mechanical royalties and product manufacturing (CD’s, cassettes).
Artist/Producer Royalties will be paid from the gross revenue figure of $6.00 for CD’s and $5.00 for cassettes. On average, the artist and producer receive a royalty percentage of 8% and 3% respectively. Royalties attributed to singles will vary depending on the volume of singles shipped. Recording artists and producers will accumulate and earn royalties for each unit sold after the project’s break-even point has been reached.
Manufacturing of CD’s and cassettes will be subcontracted. Applying discounts available with large quantity purchases, 3S will obtain a price of $1.00 per CD and $0.90 per cassette. As unit totals increase, manufacturing costs are expected to drop 10-15%.
E-Mail
me at BramigeB@hotmail.com