Case

Metflix

Difficulty: Intermediate

Topics:

Case prompt

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.

Detailed solution

Paragraphs highlighted in orange indicate hints for you on how to guide the interviewee through the case.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Suggested case structure

Key question: Why is the segment not profitable?

Brainstorm with the candidate on the possible approach. If required prompt him to follow the below case structure.

The candidate should go through the following steps:

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

The interviewee should enquire about the past 4-year performance to analyze the reason for losses. The candidate should ideally look at the revenue and cost drivers and understand whether any of those have changed.

Share Exhibit 1 with the candidate to give him the financial performance of the past 4 years

Exhibit 1

Brainstorm with the interviewee on what he is reading from the data.

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

Key insight

There is no major change in the cost base. Market potential is there (5 m), but the company has been unable to increase its subscriber base significantly. Since the cost base is mostly fixed, an increase in subscribers would translate itself into an higher bottom line.

2. Consumer Behavior

Prompt the interviewee to list out potential factors that would drive the slow subscriber growth. Brainstorm/ challenge him to think about the different issues, before sharing additional information with him.

The candidate must probe into the market related factors like consumer behavior and competition in order to understand why the company is unable to increase its subscriber base.

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.

3. Recommendation

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

Brainstorm with the candidate to see how he would have dealt with market entry & product pricing if he had been hired 4 years back.

Exhibits

Exhibit 1

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