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Bain Case Competition

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Final - Comcast
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Bain Case Competition

  1. 1. STRATEGIC BUSINESS PLAN Overview February 2016
  2. 2. NICK KERR Information Systems Experienced with helping lead small businesses, such as ōEvent and Prodigix Software 2nd place winner of Google Fiber Case Competition Enjoys reading, music, and weightlifting JIMMY GILLESPIE Accounting Experienced with technology startups and venture capital 2nd place winner of Google Fiber Case Competition Ranked 5th nationally in Spikeball BRADEN ANDRUS Accounting BRADY CHAMBERS Accounting Experienced with market research, teaching and entrepreneurship 4th grade district chess tournament champions Aspiring Consultant Experienced with product startups such as Innovation Catalyst Incoming intern at technology startup, Lucidchart Wiffle ball junkie MEET OUR TEAM
  3. 3. AGENDA 1EXECUTIVE SUMMARY 2CASE BACKGROUND 3STRATEGY SUMMARY 4XFINITY X1 EXPANSION 5SUMMARY & CONCLUSION Problem Overview Our Methodology Strategy Overview Targeting Demographics X1 Online Lite X1 Online Expand original X1 Implementation
  4. 4. EXECUTIVE SUMMARY THE PROBLEM OUR SOLUTION Demographic Shift - The data shows that the younger generation (18-35) prefers Internet-enabled content and shows less interest in traditional Cable Television setups. People under the age of 34 watch 20 hours less traditional TV than people above the age of 50, on average. Also, the preference for watching traditional TV is 28% lower for the younger generation. This shift in demographic preferences poses a significant threat to Comcast’s traditional business model. Industry Trends - The rapidly rising popularity of streaming services such as Netflix, Hulu, and Amazon Instant Video have opened the door to other non-traditional modes. Recently, HBO and CBS both announced the availability of all their content directly via streaming. These trends are driving customers away from Comcast’s traditional cable TV packages. Declining Profitability - Cable TV and Broadcast Television are Comcast’s worst-performing business sector, with Broadcast TV showing a rapid decline in revenues. In addition, Comcast’s costs are rising at twice the rate of the revenues from subscriptions in their Cable TV business. XFINITY X1 Online Lite - We recommend that Comcast develop and release an online expansion of their popular X1 Entertainment Operating System. This will be a pared-down, simplified version targeted specifically towards those who do not have any Comcast cable or internet packages. XFINITY X1 Online will compete with other online streaming services, increase market penetration, and establish brand loyalty among the younger generations. XFINITY X1 Online - Similar to XFINITY X1 Online Lite, Online is targeted for customers who prefer to subscribe only to Comcast internet packages without cable TV. X1 Online will give customers the same streaming capabilities, but with added features such as more live content, 4K streaming, and recording capabilities. The goal of XFINITY X1 Online is to encourage those who prefer to “cut the cord” (cancel their cable subscritption) to stay within the Comcast ecosystem of entertainment. This also takes advantage of deeper market penetration within the internet industry. Expanding the current X1 - X1 as it stands has been a huge revenue driver for Comcast. We recommend continuing to expand the product in its current format to the more established generations (35- 55+); this can be accomplished through promotions, referral programs, advertising, bundle deals, and additional tutorials and support.
  6. 6. A QUICK LOOK: COMCAST’S CURRENT SITUATION A quick look at 41 million subscribers 4.9 billion dollars in revenue 6% 19 Annual growth rate 2014 Emmy Awards Emerging Competition 21.7 40% $1.56 million subscribers of Comcast customers use HBO billion current revenue attributable to HBO subscribers Richard Plepler, CEO of HBO, announces HBO Now in partnership with Apple. This will allow consumers to stream HBO directly without needing a cable subscription. 2015
  7. 7. People under the age of 34 watch about 20 hours less per week of traditional TV than people above the age of 50; the preference of watching only traditional TV has dropped by 28% between these generations Demographic Shift The popularity of streaming services is causing content providers, such as HBO, to offer their product independently of a cable subscription Industry Trends From 2006 to 2014, programming costs grew at an annual rate of 9.3% while revenues grew at only 4.9% Declining Profitability THE PROBLEM: KEY FACTORS THE PROBLEM: Traditional cable TV, Comcast’s largest driver of revenue, is threatened
  8. 8. THE PROBLEM: SUPPORTING DATA Market penetration in Cable TV has steadily declined, diminishing by 6% from 2009 to 2013 Cable TV is Comcast’s slowest area of revenue growth, and Broadcast Networks are experiencing a rapid revenue decline With each generation, preferences are shifting more and more towards an Internet-centric entertainment package
  9. 9. THE OPPORTUNITY: INTERNET While the Cable TV industry appears to be in turmoil, there is a bright side: the Internet is growing, and Comcast is poised to grow in this sector. The market for internet service is huge. At $223 billion, it’s nearly 30% larger than even the Broadcast and Cable TV market ($173 billion). MARKET SIZE Comcast owns a considerable portion of the massive internet market, with 38% market penetration as of 2013. MARKET PENETRATION In addition to already controlling a sizeable portion of the internet market, Comcast’s market penetration and revenue rates in this sector have grown steadily. In 2013, internet was Comcast’s fastest growing sector with $10.3 billion in revenues and 8.3% revenue growth. COMPANY GROWTH Consumer trend data indicate that the market for internet service will continue to grow, and Comcast will be poised to grow along with it. Nearly half of the younger generation (34 or younger) typically view entertainment on an Internet-enabled device, such as a laptop, tablet, or smartphone. CONSUMER TRENDS
  10. 10. OUR METHODOLOGY Understand the Problem In order to create valid solutions to help Comcast, we first needed to make sure we completely understood the problem. By analyzing the case and breaking the problem into three key factors (demographic shift, industry trends, and declining profitability), we were able to better discriminate between effective and ineffective solution ideas. Identify Opportunities Create Solutions In addition to addressing the key factors of the problem, our solution also needed to take advantage of the opportunities available to Comcast. By identifying the biggest opportunity available to Comcast--their position in the Internet industry--we were able to further expand our list of requirements for a successful solution. By combining our analysis of the problem with the areas of opportunity we identified, we compiled a set of specific criteria to measure each possible solution. We then held several brainstorming sessions to identify as many solutions as possible -- eventually settling on the solution that best met our criteria. Address demographic shift Ride industry trends Improve profitability Use internet opportunity CRITERIA:
  12. 12. OUR STRATEGY Effectively Target All Customer Demographics Take Advantage of Trends X1 Online Lite X1 Online Expansion of current X1 Increase Comcast Profitability Profitability Demographic Shifts Industry Trends STRATEGY FOUNDATION- The objective of our strategy is to (a) address the problems identified, (b) increase the profitability of Comcast, and (c) position the company to be a market leader in the future EFFECTIVE TARGETING- Different demographics have different preferences and need a product specifically catered to their needs MAKE THE TREND WORK FOR YOU- Comcast needs to make the most of the trends rather than fight the change X1 EXPANSION- The product that has done so well for Comcasat needs to be expanded to meet the needs of Comcast’s current and potential subscribers
  13. 13. • Ages 35 - 55 • Average TV per week: 40 hours • 29% typically watch TV series using the internet • “Swing group” GOAL FOR SEGMENT • Get innovators to use X1 Online and then convert to current X1 package • Ages 18 - 34 • Average TV per week: 24 hours • 45% typically watch TV series using the internet • “Hate group” GOAL FOR SEGMENT • Use internet trend in Comcast’s favor and penetrate with X1 Online Lite bundle • Ages 55+ • Average TV per week: 48 hours • 17% typically watch TV series using the internet • “Love group” GOAL FOR SEGMENT • Increase the quantity who upgrade to the current X1 cable package Generation X Baby BoomersMillenials CUSTOMER SEGMENTS
  14. 14. X1 ONLINE LITE Millenials
  15. 15. X1 ONLINE LITE - OVERVIEW Xfinity X1 Online Lite WHAT? WHY? $20 Standalone Package Streaming capabilities for this content for anyone with an internet connection Internet TV Large library of TV shows and movies from HBO and NBC On Demand Library HBO subscription in order to recapture lost revenue, NBC and Hulu because of Comcast’s ownership Hulu, NBC, and HBO The number of pay TV subscribers has decreased 5 years in a row for a total decline of 3 million subscribers Pay TV trend With more people “cutting the cord’, Comcast can generate revenue from these customers Revenue Comcast must either innovate or lose out on an entire generation of customers Millenials Younger Demographic, Increased Competition
  16. 16. “Content lovers” Diversity “Binge watchers” On Demand “Mobile fanatics” Accessibility XFINITY X1 Online Lite doesn’t require any other Comcast subscription to operate, making it lightweight and simple to adopt. In addition, the $20 price tag places X1 Online Lite in a position to compete for the coveted Millenial market. “Penny pinchers” Low Price $ X1 ONLINE LITE - FEATURES Provide a simplified extension of the X1 Entertainment Operating System to Millenials and streaming lovers. X1 Online Lite will feature a simple and diverse live content selection: NBC, HBO, Hulu content, and limited live sports. In addition to this live content selection, Online Lite will offer archived versions of popular TV shows from these channels, as well as new movies for rent. The extensive archived content selection will appeal directly to those who prefer to “dive in” to a series, watching several episodes in rapid succession. This feature will enable X1 Online Lite to compete directly with other streaming services such as Netflix. Requiring only an Internet connection, X1 Online Lite will be available from any device, anywhere, any time. The users will be able to start a show on their television sets, and resume where they left off on their smartphones or tablets.
  17. 17. Recapture HBO Revenue: 40% of Comcast customers have HBO included in their package. If Comcast were to lose these customers to HBO Now, they would lose $15 from each of these customers, resulting in 1.56 Billion dollar decrease in revenue. 1 Enter a New Market: 17% of 18-34 year olds don’t watch traditional TV. Providing a cheap alternative reaches this demographic, giving them the opportunity to satisfy all of their demands at a cheaper price. 2 Build Brand Loyalty: As the younger demographic starts looking for more expensive options, Comcast will provide accessible alternatives that will transition these X1 Online Lite customers into X1 Online and X1 buyers 3 X1 ONLINE LITE - BENEFITS 7.62% $1.56 B Comcast TV Revenue Potential loss to HBO now:
  18. 18. X1 ONLINE Generation X
  19. 19. X1 ONLINE - OVERVIEW Xfinity X1 Online WHAT? WHY? $20 Online TV Package for Comcast internet users Option to record shows in cloud-based storage Recording Capability Offering a cheap internet TV option as part of the internet package will increase number of Comcast internet subscribers Internet Industry Revenue Comcast will stay ahead of competitors and be the best option for those who want to “cut the cord” Increase Customer Base Take advantage of trends Using only home internet, subscribers can stream in 4K 4K Streaming With a product to rival HBO Now and Netflix, Comcast will be able to generate large amounts of revenue HBO subscription to recapture lost revenue, NBC and Hulu because of Comcast’s ownership; CBS & Fox for more content Hulu, NBC, HBO, CBS, and Fox Streaming capabilities for this content for anyone with on a Comcast internet connection Internet TV
  20. 20. X1 ONLINE - FEATURES “Perfection seekers” 4K quality “Couch critics” Movies “Show hoppers” Convenience XFINITY X1 Online will offer all of the same content as the Lite version, with additional available content from a few other popular channels and a more extensive sports selection. “Television conoisseurs” More channels Incentivize X1-Online-Lite-lovers to purchase an internet package to receive these additional benefits. The additional content offered by X1 Online will be coupled with incredible video quality. Selected content will be available to stream in full 4K quality, provided that the user has subscribed to a Comcast internet package that supplies sufficient speed. The user will receive access to an extensive video library of thousands of archived movies available for viewing on-demand. In addition, X1 Online will offer a greater selection of new movies for rent compared to X1 Lite. X1 Online subscribers can let go of their fear of missing new live content. With X1 Online, subscribers can record up to two live shows at a time, ensuring that they never have to get behind.
  21. 21. Converts limited-version users: The quality of the Online version is far superior to the Lite version, yet the price is smaller. The savings will draw customers to purchase internet with Comcast in order to use the full version. 1 Enhances internet industry market share: The internet industry is $60 Billion bigger than the Pay TV industry. As internet TV popularity grows, so will X1 Online and Comcast Internet revenues. 2 Lays foundation for the future of TV viewing: Whether “cutting the cord” happens or not, Comcast will be prepared with a large market influence in both Internet and cable TV service. Infrastructure will be in place to expand into wherever the market demands. 3 1 1 X1 ONLINE - BENEFITS asdf $ 250 Revenue in Billions $ 150 $ 50 Internet Industry Pay TV Industry
  22. 22. EXPANDING XFINITY X1 Baby Boomers
  23. 23. EXPANDING THE EXISTING PLATFORM X1 $ X1 Entertainment Platform: Current Benefits and Impact 5 million subscribers 20% more video-on-demand purchases $7.5 billion estimated revenue from X1 customers 20% less voluntary churn due to effective targeting
  24. 24. EXPANDING THE EXISTING PLATFORM PROMOTIONS ADVERTISING & AWARENESS Comcast currently bundles X1 with triple-play packages. Expanding to allow X1 with certain double-play packages will expand X1’s market penetration. BUNDLING REFERRAL PROGRAMS TUTORIALS & SUPPORT SUGGESTIONS FOR EXPANSION We believe that Comcast should take advantage of the existing X1 Entertainment System platform by expanding the market penetration among the more established generations (35-55+). Below, we outline some high-level strategies that can achieve this aim. These strategies have been used in several industries and have generally proven to be effective. Customers who convert from X1 Online will receive a discounted price during their first 6 months of the X1 triple- or double- play packages. Comcast should use their current On Demand and other products to advertise for X1. Small, unobtrusive popups or short 15- second ads would be effective. Comcast should offer extensive online and in-app tutorials for X1. These tutorials will increase customer retention by enabling them to take advantage of all of X1’s features. Comcast customers will receive a significantly discounted month for each customer they refer to the X1 bundles. Each referral must be active for 3 months before the discount takes effect.
  25. 25. OVERALL X1 EXPANSION - RISKS RISKS SOLUTIONS 1. Cannibalization of sales Customers settling with X1 Online without buying premium options 2. Loss of advertising revenue CPM for online TV is about ½ of traditional Cable TV 3. Feasibility Suggested strategy may not be entirely feasible 4. Cord cutting ends up only a fad Consumers following the trend of internet may end up reverting back to cable TV subscriptions 1. Targeted bundling With effectively targeted bundles, we estimate a 15% increase in customers across all demographic segments 2. Advertising adaptation Online ads increase as video ads decrease to compensate for potentially lost revenue 3. Ownership As part-owners of Hulu and owners of NBC, Comcast will be able to offer a discounted price for a Hulu subscription, and the HBO subscription will be similar to the current setup 4. Continuous improvement of pay TV Development of the current pay TV should continue
  26. 26. NEXT STEPS
  27. 27. Enjoy the benefits of market penetration and prepare for the next demographic trend ENJOY Launch X1 Online bundles across other selected markets LAUNCH Begin development of X1 Online Lite and X1 Online and determine bundle details DEVELOPMENT HBO partnered with Apple and announced their standalone product HBO NOW Review outcomes of new programs and make necessary adjustments for future expansion EVALUATE Launch pilot program of X1 Online Lite and X1 Online; emphasis on targeting younger demographic PILOT PROGRAM NEXT STEPS - TIMELINE March 2015 Today August 2016 March 2017 August 2018 March 2019
  28. 28. X1 revenue - $20.00 + $70.00 Variable costs (monthly) ● $16.00 - TV channels ● $5.00 - support costs Contribution margin - $69.00 Fixed costs ● $2,000,000 - development ● $3,000,000 - monthly Assumed market share - 15% Yearly Profit - $3.1B (28% of sales revenue) Monthly revenue - $20.00 Variable costs (monthly) ● $7.77 - HBO ● $6.00 - Hulu* Contribution margin - $6.23 Fixed costs ● $1,000,000 - development ● $200,000 - monthly Assumed market share - 15% Yearly Profit - $744M (29% of sales revenue) Additional revenue - $1.2B Assumed penetration +20% Additional costs ● $12.5M - referral program *assuming 25% customers take advantage 1 month/year ● $830M - other additional marketing costs Yearly Profit - $360M (30% of sales revenue) X1 Online Lite PROFITABILITY ESTIMATES X1 Online Original X1 *Comcast’s current operating income is 25.8% of revenue
  29. 29. Liz is a college student. She doesn’t have a lot of money but loves watching Game of Thrones and Silicon Valley. When deciding which service to use, X1 Online Lite was a clear winner. X1 Online Lite Leaving school to start her new job, Liz was debating which internet to get in her new apartment. Because of the cheap $15 bundle offered by Comcast, she chose the X1 Online bundle. X1 Online Image Several years down the road, Liz decided to upgrade to more channels. Because she was an X1 Online subscriber, she was offered a discounted upgrade to the X1 cable package when she moved into her first home. She didn’t hesitate and is now enjoying all of the benefits of the X1 package. X1 SUMMARY WALKTHROUGH Meet Liz Liz loved her X1 experience and told her neighbor all about it. He signed up too and Liz got her discounted month of TV. She is now a loyal customer and continues watching her favorite shows.
  30. 30. QUESTIONS
  31. 31. APPENDIX - MARKET SIZE FOR X1 ONLINE Demographic Est. Population Percent that watch TV through Internet Market Share Number customers Millenials 75,000,000 45% 15% 5,062,500 Gen X 75,000,000 29% 15% 3,262,500 Baby Boomers 75,000,000 17% 15% 1,912,500 Total 10,237,500