OTT Firm

I: The client is a media company that wants to enter the online space. Develop a business case for them.

C: [Reiterates the case for clarity]. Can I know a few details about the client? Where are they based out of, and what are their current offerings?

I: The client is a typical Indian TV media house. Can you think of a few offerings they might be having?

C: Sure. Mainly, Indian TV media houses are present in the entertainment space or the non-entertainment sector. Within the entertainment sector, they can cater specifically to movies, soaps, music, sports, kids’ channels (cartoons) or a mix of them. In non-entertainment space, they can cater to news or education. All the above can be subdivided according to regional languages as well.

I: Alright, our client provides a mix of services in the entertainment sector currently – movies, soaps and a few cartoons.

C: What is the client’s market share? Is there a particular reason for venturing into the online mode currently?

I: They are one of the major players in the country with a trusted consumer base & enjoying 30% market share. They expect an exponential growth in the online space & wants a piece of the pie as early as possible.

C: How’s the competitive scenario in the online space? Is the client planning to enter the online space with the current product mix?

I: Consider the current competition in the online space with Netflix, Amazon Prime and Hotstar as the major players. Our client is planning to enter with only movies and some popular TV series – only in some underserved regional languages.

C: Sure, I shall start with analyzing the attractiveness of entering the online space.

I: [interrupts in between] Let’s consider that we have analyzed the online market already & found it to be attractive and identified 100000 customers as early adopters. What else would you consider to develop this business case?

C: I would consider the financial viability of entering this business for our client. I shall start with identifying the major cost drivers & arrive at the price point through breakeven analysis.

I: Sure, let’s do that. Let’s now look at the costs.

C: These are the major costs associated with entering the online space: production costs, customer acquisition, IT infrastructure development and salary expenses. Do you think I am missing out on any major levers?

I: No, this seems good. IT development and salary expenses will be sunk costs and we don’t need to consider those for analysis. Let’s focus on the content costs & online advertising. What data do you need to go ahead?

C: Cost for movies = No. of movies released per year * Production/licensing cost per movie

Cost for TV series = No. of series released per year * no. of episodes per series * Production/licensing cost per episode

Marketing cost = No. of clicks * cost/click

I: The client plans to release 1 movie/ month, each with a production cost of 8 Mn INR. Each episode of TV series will be released monthly. A total of 3 series are in consideration currently, each episode having a production cost of Rs 8L. The client expects a 1% conversion rate from online ads with each click costing 1 Re.

C: Total annual cost comes out to be ~ 135 Mn INR. In order to break even, the client needs to charge at least INR 1350 in case of an annual subscription model.

I: Alright, so what is your suggestion? Does it make financial sense for the client to invest?

C: May I know if our client would be leaving the current business completely to enter the online space?

I: Good question. No, they are currently considering this as a supplement to their current business.

C: Thanks for that information. An annual subscription fee of INR 1350 is competitive enough, considering INR 1000 for Amazon Prime and INR 1500 for Hotstar currently. Compared to these platforms, the client is releasing fewer titles with the advantage of them being regional in nature. Hence, I shall suggest the client to enter the online space with this subscription fee.

Since this service is supplementary to the current business, we can also explore whether the client is willing to have a longer breakeven period. If so, they can charge a lower annual fee in the short term. While building acceptability among consumers, the client should also focus on acquiring more market share through targeted marketing & proper positioning of the service.

I: We can close the case here. Have a good day!