A leading on-demand internet content streaming provider (also known as Over-the-top or OTT content provider), Metflix, has entered the Indonesian market in order to expand its operations. The Indonesian market has 5 m target consumers and has no competition in the OTT segment. However, our client has not been able to make this geography profitable despite having started operations 4 years back.
The client has hired you to understand why this is happening and what the client should do next.
Suggested case structure
- Revenue & cost analysis: The interviewee should analyse revenue & cost drivers for the last 4 years to understand why the company has not been profitable in this geography
- Consumer behaviour analysis: The interviewee should try to understand the consumer, the product fit and the existing competition/substitutes for this service in this market
- Recommendation: The interviewee should then use the above company analysis and the market behaviour to form his recommendations
1. Revenue & cost analysis
Candidate would note that the revenue and costs have changed only marginally over the past 4 years
- Revenue has grown by ~13% over the 4 year period (From 1,088 m$ to 1,230 m$)
- Costs have grown by 10% over the 4 year period (From 1,741 m$ to 1,907 m$)
- Losses have been reducing over the last 3 years, but the change is marginal
The candidate should then enquire about changes in costs and revenue drivers.
If asked, the below information can be shared verbally with the interviewee:
- The cost structure of the company has remained the same over the years; i.e. the proportion of the different costs (personnel costs, content licenses, etc) has not changed
- The company charges $50 per month for the content access
- Only ~2 m consumers have subscribed to the content out of the 5 m target consumers.
- The company would require 3.5 m consumers to subscribe in order to break even
2. Consumer Behavior
Share the below information verbally with the interviewee:
- There are no other competitors in the OTT segment in Indonesia
- The 2 m consumers who subscribed to Metflix would earlier consume content from local cable TV operators
- There are 20 existing local cable TV operators in Indonesia; their subscription charges range from $20 to $25
- The consumers are satisfied with the content on the existing cable TV
- The average per capita income of the target consumers in Indonesia is about 20% lower than those of its subscribers in nearby geographies where the company operates
- The target customers are reluctant to pay a premium for the OTT segment
The candidate should point out that based on the information shared, there are two issues:
- The demand for OTT content is not clearly defined in this market, as the consumers seem to be satisfied with the existing content
- There is a pricing issue, as the consumers are unwilling to pay a premium for a product which does not have clearly defined advantages.
The candidate must come up with recommendations for the client. Some of the sample recommendations are given below. However, some candidates might give other recommendations as well, which might require further analysis on the part of the client.
- The company should evaluate lowering its prices to match the existing local TV channels
- The company should focus on segmenting content relevant for Indonesia. This could potentially reduce content license costs and thereby drive lower prices.
- The company should market the clear benefits of OTT over the existing cable networks – convenience, better quality, exclusive content (if any), 24/7 access etc
- If the above options do not work out, the company might look to exit the geography