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&Innovation was engaged to help a leading African mobile network operator (MNO) group and 
global telecommunications equip...
COMPETING WITH PIRACY 
PG 2 of 4 
Like in most of Sub-Saharan Africa, there is no formal retail and distribution structure...
COMPETING WITH PIRACY 
Our research indicates that prices for DVDs range from KSh 25 to KSh 100, as indicated below. Most ...
Copyright: &Innovation Consulting [PTY] Ltd, 2014 
Kenyan Pirated DVD Consumer User Journey 
Positive 
Neutral 
Selection ...
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Competing With Piracy - Can Video On Demand Beat Pirated Content?

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As bandwidth speeds improve in Sub-Saharan Africa, video on demand becomes a reality. A big hurdle is the consumers willingness to pay for content, at a price point that US Studios find agreeable. The rampant use of pirated content, and the lack of understanding that it is illegal (or concern that it is), has created a strong black market of DVD stores, who only sell pirated material to their customers.

While doing a client project in Kenya, we were intrigued by this question and undertook some in-market research to establish the size, behaviour and user experience associated with retail piracy.

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Competing With Piracy - Can Video On Demand Beat Pirated Content?

  1. 1. &Innovation was engaged to help a leading African mobile network operator (MNO) group and global telecommunications equipment manufacturer to develop business models that would enable the MNO to strengthen its position in the anticipated boom in mobile data and video consumption over the next five years. Our research, aimed at understanding what Kenyan consumers’ video consumption needs are, how these needs are currently met, and how an MNO could successfully compete in this space, revealed that pirated copies of DVDs are the primary means of video content consumption in larger cities. Further research, involving several DVD sellers across Nairobi as well as some of their customers, gave us useful insight into existing value chains, possible substitutes for a potential Video On Demand (VOD) offering from an MNO, and the value of the video market in Kenya. A human-centred design approach – where an empathetic understanding of the real context, needs, wants and fears of customers serves as the point of departure for any product or service design – helped us to understand the unique perception of value the Kenyan consumer attached to their existing video consumption experiences. It also helped us to determine what value they would attach to something as intangible as a different viewing experience and, accordingly, how to design and price a new and innovative product. In this market, where piracy is not seen as illegal activity, the value of the product had to be found in the overall delivery experience. Market Research Insights Paper 21 August 2014 COMPETING WITH PIRACY PG 1 of 4 Market Research Insights Paper 21 August 2014 Understanding and redefining consumer perception of value in developing markets Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014
  2. 2. COMPETING WITH PIRACY PG 2 of 4 Like in most of Sub-Saharan Africa, there is no formal retail and distribution structure for DVDs into the Kenyan consumer market. The market has therefore developed so that piracy is seen as the norm for acquiring movie titles. The bulk of the pirated DVD retailers are in markets and in informal trading stalls along the street, especially on Moi Avenue and River Road, and in Ngara Market in Nairobi. While there are more formal DVD shops in shopping malls, these also only sell pirated video content. Our research showed that, while there is a sense that selling DVDs on the street is illegal, it is considered illegal not because the goods are pirated but because of where and how the goods are sold, and that more formal stores are regarded as legitimate. It appears from our research that there are as many as 350 formal and informal DVD shops in Nairobi. A shop typically consists of its existing stock plus “original” or master copies on hard disk, a PC with multiple DVD burners, and a colour copier/printer. These shops openly advertise their goods for sale, so there appears to be no sense that the owners see anything illegal about their activity, nor does there seem to be any active policing in this regard. As buying pirated material is so cheap, there is no movie rental market of any significance in Kenya. This meant that, apart from DTH (satellite) TV and a small number of DTT connections, buying pirate DVDs is the primary means of consuming video content, and the only real experience that is comparable to a VOD service. Our research indicates that international TV series and big Hollywood blockbusters are the most popular forms of content at these stores. TV series, however, are more popular than movies. The quality of DVD copies varies substantially (and DVDs are priced accordingly), from poor quality - videos taken in cinema with poor sound - to excellent quality. If a title is not available on a DVD, the stall owner will often have the movie or TV series available on a hard drive or computer in the stall and burn a DVD for the consumer and print a colour copy of the cover, if needed. More frequent customers use external hard drives to download content from the seller, at a discount. Background Rent versus Buy Type of Content and Quality Compiled by: &Innovation Consulting [Pty] Ltd Market Research Insights Paper 21 August 2014 Copyright: &Innovation Consulting [Pty] Ltd, 2014
  3. 3. COMPETING WITH PIRACY Our research indicates that prices for DVDs range from KSh 25 to KSh 100, as indicated below. Most stores have bundle offerings to promote the purchase of multiple copies; normally providing six for the price of five (20% discount). The pricing of piracy makes it virtually impossible for any competitive service that would have to respect and protect intellectual property rights to gain a competitive advantage by competing on price. But what do consumers “get” for that low price? Looking at it more holistically, it became clear that the question at the heart of the problem was: What value do consumers attach to their buying and viewing experience, and what would the value be of an improved experience - would that value be enough to overcome the “hurdle” of a higher price point? Speaking to real consumers helped us to develop a value proposition that would meet their needs, deliver on their desires and address most of their fears. We were able to establish a price range that would be palatable to the consumer. Rather than rely on assumptions, we were also able to test and iterate the value proposition with the input from consumers. Based on the volume of sales reported from vendors, and the average price of the DVDs, the commercial piracy market size is conservatively estimated at around KSh 43 million per month (approximately US$430 000/month). Establishing a reliable estimate of the size and value of the pirate DVD market enabled us to develop a business plan, based on the tested value proposition and other market research and insights, to test the viability and main profitability levers of the new business model. PG 3 of 4 Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014 Pricing and Sales Volume Total Monthly Sales Volume (Ksh) Copyright: &Innovation Consulting [PTY] Ltd, 2014 35 to 100 550,200 25 to 100 348,600 371,000 348,600 550,200 40 to 100 371,000 Price Range (KSh) Monthly Sales (KSh) Latest Release TV Series Blockbuster Commercial Piracy Market Size Market Research Insights Paper 21 August 2014
  4. 4. Copyright: &Innovation Consulting [PTY] Ltd, 2014 Kenyan Pirated DVD Consumer User Journey Positive Neutral Selection Price & Quality Playback Negative Travel Availability Travel Discounts Time Cost Transportation Time Cost Transportation Recommends new movies/series Doesn’t have what I want Can negotiate price Unsure of quality Higher price for Not readily available. better quality Must wait for DVD to be burnt COMPETING WITH PIRACY Our qualitative and quantitative research allowed us to gain insights into the experience of users of the most prominent incumbent product, namely pirated video content. The user journey below illustrated where our client’s proposed new VOD offering would be able to compete. The key lessons we learnt from this were that: It’s not just about price Because of the low price and ubiquity of pirated video content, it became clear that a new VOD business model that had to protect (or even promote) intellectual property rights could not compete on price alone. Any new competing value proposition would have to overcome the price hurdle by delivering other points of value that the client could offer (in this case by virtue of the nature of its existing business). It’s about value Understanding the need for dependable quality, plus the desire for a personal viewing experience (i.e. being able to watch on my own device, on my own time) provide strong value propositions and differentiation points more powerful than price.. Apart from the insights into the nature and size of the video content piracy market in Kenya, our consumer-centric approach enabled us to build a Video On Demand business model, supported by an accompanying business plan, based on real world insights. PG 4 of 4 WHO WE ARE WHAT WE DO We are a strategic innovation consultancy firm based in Cape Town, South Africa focusing on Technology, Media and Telecoms sectors in Sub Saharan Africa. We guide our clients in their applied strategic innovation – based on creative ideas and real world insights gained through human centred design processes and other methodologies. For more information, please visit: 72 Loop Street, Cape Town, 8001 Key lessons Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014 DVD doesn’t work Can’t watch TV being used by another person Poor quality Market Research Insights Paper 21 August 2014

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