Good morning! Thank you for taking your valuable time today to be here. I’m Jessica, this is michael, alica, joel and we are living room consulting.
Our objective today, is for Microsoft to win the battle for the living room using Comcast Xbox Lite Device. By the end of this presentation, we’ll show you that this recommendation will generate NPV of $170 million . We will walk you through our analysis, recommendation, implementation and financials. And next, Michael will talk more about the analysis.
Thank you Alica. So you have heard our short term and long term recommendations. These are the risk involved if you follow our recommendations. Obviously it’s a new product and a new market entry. In the beginning, you will be struggling with sales, distribution channels and gaining market share in this highly competitive environment. Non-gamer consumers will be quite intimidated with the XBOX label to the product, while current xbox owner might not be interested in purchasing one.To mitigate the first risk, we suggest Microsoft to utilize comcast existing sales force to sell the product. Comcast has 20 million subscriber, use that to start strong and be competitive in the market. For non-gamer consumers, we believe that they are more familiar with Comcast brand and product, so we suggest microsoft to market this new device as a comcast product. Targeted cable tv ads, which can be done through Comcast Spotlight, will help promoting the device to the right demographics. Finally, for the last risk, we believe in gamers trust on xbox quality and brand loyalty will outweigh the risk. But in addition to that, We also suggest for Microsoft and comcast to make this device available for rental so that consumers can test it out before purchasing.RisksNew Products & Market Entrywill struggle with sales, distribution channels Mitigation: Use Comcast existing distribution channels; approach current subscribers – better offering at deal priceIntimidate Non-Gamer Consumersbecause of the Xbox label to it Mitigation: Market it as Comcast product, just like the one they have at their home now. Non-gamers are more familiar with Comcast. Targeted Ads on HuluLow interest from Xbox owners Mitigation: Customer trust in the device powered by Xbox will outweigh this risk. Gamers are more familiar with Xbox
The implementation goes from quarter 1 to year 2 and beyond.It is crucial in the first quarter to establish partnership with comcast. Once that is done, Microsoft then can introduce the service through xbox owners. Accompany the introduction with targeted ads about the new device that will launch on the third quarter. Like I mentioned earlier, we suggest microsoft to use comcast existing sales force to start strong. By quarter four, we expect to gain nation saturation and this is a great time to re-evaluate the year’s progress. Finally for year 2 and beyond, this device will be released globally starting from the countries that already have existing Cable TV partnership with Xbox, such as Canada, UK, Germany, Spain, France and Italy. Next, Joel will tell you more about the financials
UW Foster MGMT 430 Final Project: Microsoft/Comcast/Xbox
Inspiring InnovationLiving Room Consulting
Winning the battle for theliving room withComcast Xbox Lite DeviceNPV: $170,444,840.16 Analysis Implementation Recommendation Financials
Market Analysis COMCAST 22.1 M Subscribers TIME WARNER 12.5 M Subscribers COX COMM. 4.6 M Subscribers • US TV Household: 112.2 M • Cable Subscribers: 73 M • Cable TV Penetration: 58% • Annual Cable Revenues: $75 BnAnalysis Recommendation Implementation Financials
Demand Factors 5.7% 6.6% PPV & VOD EquipmentHousehold Disposable Income Rentals• Median Income: $54,929• Elasticity: 1.95• Substitutes: Satellite Services, over-the-air TV broadcast, internet- based video broadcastDigital Enhancement• Quality of Cable TV transmissions• Interactive TV• Video-On-Demand• Competition: 3D TVs, Smart TVsBundled Packages 56.8% 30.9% • Basic & Premium Basic Cable Premium Packages • Pricing Cable Packages Analysis Recommendation Implementation Financials
Short-Term RecommendationExpand upon current relationship with Comcast • ―Comcast will be the company to look to first for the communications products and services that connect people to whats important in their lives.‖Pitch a ―TV Entertainment‖ addition to broadband service. • Assist Comcast in dealing with FCC pressure to offer stand-alone broadband service. • Create a viable alternative for internet-only customers for Netflix and HULU. Analysis Recommendation Implementation Financials
Long-Term: Comcast Xbox Brand Comcast insignia with an appearance for the “powered by Xbox” marketing. Technology • Working off existing PowerPC platform. • Pared down in terms of gaming capability. • Improved to include DVR and Skype capability.User Interface • Sleek interface incorporating Windows 8 “Metro” design • Increased personalization (Recommendation Engine) and Xbox SmartGlass for Windows phone and Surface Tablet Analysis Recommendation Implementation Financials
Risks & Mitigations New Product & Market Comcast Existing Sales Entry Force• Struggle with Sales, Distribution Channels • Approach Comcast current subscribers first• Highly competitive environment and gain market share from there Intimidate Non-Gamer Targeted Cable TV Ads & Consumers Customer Satisfaction Survey• Xbox label to the product • Market it as Comcast Product as they are• Already own a set-top box more familiar with Comcast product offerings Low Interest from Xbox Xbox Quality & Comcast Owners Equipment Rental • Customer trust on Xbox quality (for gamers) will outweigh this risk • Comcast Xbox device is available for rental Analysis Recommendation Implementation Financials
Implementation Introduce ServiceEstablish through existing Xbox Launch Nation GlobalComcast owners Device Saturation ExpansionPartnership Q1 Q2 Q3 Q4 Y2 SeekContract Targeted Ads Heavy Re-evaluate alternativeExclusivity & Survey Marketing partnersBundled Increase Use Comcast SeekPricing Comcast Sales alternativeDetails Xbox R&D Channels partners Analysis Recommendation Implementation Financials
Financials: Revenue Sharing YEAR 1 Current*: $182.48 • XFINITY • Sports Package • HBO Go • Internet • Xbox Live *Lynwood, WA (Nov. 2012) YEAR 2- YEAR 5 New: $144.11* • Same offerings *Year 2 ++ with Xbox Bundle SAVINGS: $38.37*Rental Sharing: 80%, Subscription Sharing: 70% Analysis Recommendation Implementation Financials
Financials: Worst CaseNPV: $35,448,427.02 Assumptions Expenses as Percent of Total Revenue : 61% Corporate Rate Used, Year 1 : 35% Corporate Rate Used, 2-5 : 39% WACC Microsoft : 9% Analysis Recommendation Implementation Financials
Financials: Best CaseNPV: $170,444,840.16 Assumptions Expenses as Percent of Total Revenue : 61% Corporate Rate Used, Year 1 : 35% Corporate Rate Used, 2-5 : 39% WACC Microsoft : 9% Analysis Recommendation Implementation Financials
AppendixPresentation • Xbox 360 TV& Entertainment Global Footprints• Market Analysis• Demand Factors Comcast• Strategy Criteria • Why Comcast?• Short-Term Recommendation • FCC & Comcast: Stand-Alone Broadband• Long-Term: Comcast Xbox • Comcast & Verizon FiOS• Risks & Mitigations • Comcast Demand Factor: Bundled Packages• Implementation • Comcast Demand Factor: Phone Service• Financials: Best Case • Comcast Demand Factor: Phone Service• Financials: Worst Case • Comcast Demand Factor: High Speed Internet• Financials: Revenue Sharing • Comcast Demand Factor: Additional Services • Comcast Demand Factor: Digital EnhancementMarket Analysis • Cable TV Industry Lifecycle• Global Market Analysis• Market Analysis: Canada & UK Frameworks• Country Attractiveness: Weighted Ratings • SWOT Analysis• Country Attractiveness: Detailed • BCG Matrix: Microsoft Products • Market Expansion GridFinancials • Alternative Decision Matrix• Year 1 & 2 (Detailed) • Stakeholders Analysis• Year 3 - 5 (Detailed) • 5Cs Analysis• Comcast Billing Additional ResearchMicrosoft & Xbox • Leveraging Existing Technologies• Market Share: Microsoft Products • ThinkAnalytics Recommendation Engine• Xbox Existing Partners (USA) • HD Voice• Xbox Existing Partners (Global) • Targeted Cable TV Ads: Comcast Spotlight Analysis Recommendation Implementation Financials
Global Market Analysis2014: 785 Million fixed broadband connections around the world (50% ofTV households).2016: 352.4 Million individuals pay access to OTT internet TVprogramming (50% of the worldwide total of Pay-TV subscriptions:cable, satellite and IPTV combined).By 2017, Global Market for Internet TV to Reach $81.2 Billion
Market Analysis: Canada & UK CANADA U.K.Cable Subscribers 9 Million 12.8 MillionGDP per Capita $ 50,496 $ 39,604Cable Providers Shaw, Rogers, Bell & Virgin Media, Small Videotron World, WightFibreMarket Potential High HighExisting Cable TV Yes YesPartner with Microsoft?
Country Attractiveness: Weighted RatingsArgentinaBrazilSpain GDP/ Capita 4.4 2.9 8.1 Internet Penetration 6.7 3.9 6.7 ? Market Potential 8.1 7.0 8.3 Competitive Index 2.9 7.3 3.1 Total 5.8 5.2 6.7Germany 9.8 8.3 8.4 4.7 7.9France 8.7 8.0 8.9 4.3 7.6UnitedKingdom 8.9 8.4 8.4 5.1 7.8Italy 8.2 5.8 8.6 5.0 6.8 WEIGHTS MARKET POTENTIAL COMPETITIVE INDEX • GDP/Capita: 0.2 • Online Video Viewers (%) • Regulatory Restrictiveness • Internet Penetration: 0.35 • Discretionary Incomes Index • Market Potential: 0.25 • Current Cable Providers • Competitive Index: 5.0 (Available Partners)
Country Attractiveness: Detailed Online Video Users Points (10 for 100%) Regulatory Points (10 for 0)Argentina 0.99 9.9 Restrictiveness ?Brazil 0.97 9.7 Argentina 3.8 6.2Spain 0.94 9.4 Brazil 8.6 1.4Germany 0.88 8.8 Spain 2.1 7.9France 0.86 8.6 Germany 2.3 7.7United Kingdom 0.91 9.1 France 4.5 5.5Italy 0.94 9.4 United Kingdom 6.1 3.9 Italy 5 5 Discretionary Points (10 for 55000) Income Cable Providers Points (10 for 10)Argentina 29061 5.3 Argentina 2 2Brazil 16373 3.0 Brazil 6 6Spain 36143 6.6 Spain 4 4Germany 42610 7.7 Germany 7 7France 50862 9.2 France 4 4United Kingdom 39987 7.3 United Kingdom 4 4Italy 41013 7.5 Italy 5 5 GDP/Capita (PPP) Points (10 for 40000) Internet Penetration Points (10 for 100%)Argentina 17674 4.4 Argentina 67 6.7Brazil 11719 2.9 Brazil 39 3.9Spain 32424 8.1 Spain 67.2 6.7Germany 39211 9.8 Germany 83 8.3France 34993 8.7 France 79.6 8.0United Kingdom 35494 8.8 United Kingdom 83.6 8.4Italy 32928 8.2 Italy 58.4 5.8
Year 1 & 2 (Detailed)YEAR 1 ?*Current Xbox Subscribers: 40,000,000YEAR 2*Current Cable Subscribers: 22,220,000
Market Share: Microsoft ProductsSMARTPHONES TABLETSSEARCH ENGINE GAME CONSOLE
Xbox Existing Partners (USA)• Paramount • NBA Game Time • CinemaNow• ESPN • Netflix • Amazon Instant• XFINITY • NBC News Video (Comcast) • MLB.tv • Hulu Plus• VUDU • HBO GO • IGN• TODAY • FOX • SyFy• Verizon FiOS TV • GameSpot TV
Xbox Existing Partners (Global)Country PartnersAustralia ABC iView, SBS On Demand, FOXTEL, CrackleCanada UFC, VEVO, TELUS, Rogers On Demand, Netflix, Astral Media‘s Disney XD, Maple Leaf Sports & Entertainment/Real Sports , Crackle, MSN with MSNBC.comFrance AlloCiné , Canal+, MSN with MSNBC.com, MUZU.TVGermany ZDF, LOVEFiLM, Filmstarts, MUZU.TV, MSN with MSNBC.comItaly Mediaset, MUZU.TVJapan Hulu, MSN with MSNBC.comMexico Televisa, MSN with MSNBC.comPortugal Vodafone PortugalRussia VimpelComSpain Sensacine , Telefonica, GolTV, Canal+, Antena 3, RTVE, MUZU.TV, MSN with MSNBC.comUK VEVO, Screenrush, LOVEFiLM, Last.fm, Channel 4, Channel 5, BBC, blinkbox, BSkyB, Crackle, MSN with MSNBC.com , MUZU.TV
Why Comcast?Comcast is currently under Comcast is seeking ways to makepressure from the FCC to a premium for data usage.offer a stand-alone Internetservice. This may be a Comcast may seek to have thegood intermediate offering. same relationship/functionality with Microsoft that Verizon FiOS has.Comcast faces continued A relationship is currently in placepressure from Netflix and for offering Comcast‘s XFINITYHULU. video service.Comcast doesn‘t want to get Set-top box conversation has been‗Appled‘ – they‘d be initiated by Microsoft alreadyinterested in a Apple TVcompetitor
FCC & Comcast: Stand-Alone Broadband“Comcast pays $800,000 to U.S. for hidingstand-alone broadband”Conclusion: Because as part of the NBC-Universal transaction the FCC gaveComcast several conditions includingproviding and marketing a reasonably-pricedstand-alone Internet Comcast may be moreopen to On-line video content partnerships.
Comcast & Verizon FiOS Internet Subscribers 18 M 5.1 M Cable Subscribers 22 M 4.5 M Average Cable Bill $ 137.51 $ 109.99* Average Broadband Bill $ 70.00 $ 79.99*Combined with broadband
Comcast Demand Factor: Bundled PackagesAdditional Products: Triple Play Power RGU Growth
Comcast Demand Factor: Phone ServiceTop five largest residential phone company
Cable TV Industry Lifecycle MATURE ? Life Cycle Reasons • There is a high penetration of households with basic cable • Digital cable services are experiencing new growth • Bundled services are growing. These services include telephony, high- speed internet, and video services.
SWOT AnalysisSTRENGTHS WEAKNESSES Already has a foot in the living room with the Have failed considerably using the fast follower popular Xbox strategy before (Zune, Kin) Xbox Live, Gold allows users access to digitally Current living room device, Xbox, only appeals to distributed entertainment the younger gaming generation Xbox Live has the potential to become the No stand-alone set-top box or smartTV in the best, most comprehensive entertainment system product line, which are currently selling at a much in the world faster rate than gaming consoles Have proven they be successful following a fast follower strategy (Kinect) Xbox pricing ($99 with a 2 year contract to Xbox Live) is much cheaper than other consolesOPPORTUNITIES THREATS New Xfinity partnership could pave the way to a Internet connected TVs and set-top box sales Microsoft set-top box growing at a much faster rate than game console No revolutionary ―ICE‖ device has been sales introduced yet. Opportunity to change the entire Lots of competitors seeking to dominate the living living room experience up for grabs room space as well New SmartGlass App has opportunity to bridge Gaming audience could object to product being the gap between Xbox and mobile devices marketed as a family-centered device Newly acquired Skype on Xbox could make the Currently there are several cheaper set-top box console morel appealing as a set-top box options compared to Xbox, like Apple TV, Roku
BCG Matrix: Microsoft Products• Smartphones and tablets are rapidly growing; however, Windows ? Market Growth Phone Skype Windows Phone and Surface market share is still low Surface Bing• Skye and Bing has successfully $ secure some market share in the IM and Search Engine market• Xbox, Windows and Office have high market share in the Xbox entertainment and OS market Kin Windows Zune Office Market Share
Market Expansion Grid Existing Product New ProductExisting Market • Existing Xbox with current offerings • New Xbox Device • Comcast Set-Top BoxNew Market • Existing Xbox with powered by Xbox Comcast partnership • Microsoft SmartTv • Microsoft Set-Top Box
Alternative Decision Matrix Status Quo New Set-Top New Set-Top Acquire other Manufacture ? Box & Box without set-top box SmartTV Comcast Partnership manufacturer PartnershipLong Term 0 + 0 + 0InvestmentGrowth - + + + 0PotentialInnovation 0 0 + 0 0Collaboration 0 + - 0 +Customer - + + + +DemandNew market 0 + + + +EntryTotal -2 5 3 4 3
Stakeholders Analysis ?Name Role InterestsMicrosoft Company we are Company growth by advising having a new product in the growing internet TV marketComcast Microsoft‘s business Earn more profits by partner target entering into the internet TV market with a company like MicrosoftCompetitors Other companies in Earn maximum profits the internet TV market for themselves while minimizing Microsoft‘s profits
5Cs Analysis The question Microsoft faces is whether it is doing enough to gain a strong presence in the livingContext room. There are several competitors including Apple and Google, with several smart TV‘s also considered as competitors. Is the Xbox brand and console the answer to winning over the living room space? There is Apple TV, Google‘s Nexus Q, Roku, Sonos. Also several Smart TV brands like SamsungCompetitors and Sony, as smart TV‘s are expected to triple their presence in living rooms over the next 3 years. Microsoft also needs to think of cable/internet providers as competitors as well, considering they have set-top boxes in most living rooms in America. Microsoft also has to worry about Nintendo and PS3, whose console sales are quite comparable to Xbox. The highly lucrative and competitive gaming market could object to the Xbox being marketed as a family- centered device in the living room. Microsoft has a big presence in the living room already, being one of the best-selling consoles ofCustomers all time. The new Xbox Kinect attracted even more customers who favored the motion-sensing technology. But as the battle for the living room evolves, so will the customers and their needs as well. The possibility of a partnership with a cable company such as Comcast is intriguing. The idea ofCollaborators Comcast offering a Microsoft-braded set-top box could be beneficial to both companies. Microsoft‘s presence thus far in the living room has centered on its game console the Xbox 360.Company They have added several features to it, including the ability to stream content like Netflix, XFINITY, and HBO. Skype will be added as an Xbox feature in 2013. Xbox LIVE gives gamers the opportunity to interact and compete with others is an industry-leading experience. All these features are a big step towards the ―connected living room‖ for Microsoft.
Leveraging Existing Technologies• DVR Patenthttp://www.nbcnews.com/technology/ingame/patent-points-potential-dvr-feature-xbox-118127• Skype (on Xbox 2013)http://www.slashgear.com/skype-for-xbox-360-unlikely-until-2013-29230596/• XFINITY via Xbox Livehttp://xfinity.comcast.net/slideshow/news-xfinitysurprisefacts/4/• Microsoft Hardware• Cable Connectivity (FiOS)http://www.engadget.com/2011/11/29/verizon-details-live-fios-tv-service-for-xbox-360-kinect-contro/• Kinect• Windows Phone• USB• Xbox SmartGlasshttp://www.xbox.com/en-US/smartglass
ThinkAnalytics Recommendation Engine ?"Our ability to build multiple profiles per set-top box allows us to haveunique recommendations for each person in a household. Bringingtogether live TV metadata with set-top box viewing histories, combined withMediaroom TV services, delivers very compelling and richer discovery andrecommendations results for any video-enabled device." • Definition: • Market Penetration: 20% to 50% Discovery and recommendation of target audience technologies are designed to • Maturity: Early mainstream provide content listings to • Sample Vendors: Jinni; Motorola customers of online media services Mobility; Red Bee Media; Rovi; The — or, increasingly, hybrid Echo Nest; ThinkAnalytics broadcast/Internet TV services. • Benefit Rating: High
HD Voice ?―What sets Comcast apart from other players in this space is that we‘re theonly provider to combine a cloud-based voice service with vast networkreach, a well-known brand and a strong focus on providing great productswith high quality and consistency,‖ • Definition: • Market Penetration: 1% to 5% of Also known as wideband voice, HD target audience Voice‘s major advantage is the • Maturity: Emerging ability to communicate with clearer • Sample audio and have improved and more Vendors: Cisco, Ericsson, HTC, No tangible conversations over fixed kia, Polycom, Texas Instrument line, cellular networks and VoIP • Benefit Rating: Moderate
Targeted Cable TV Ads: Comcast Spotlight ROI DRIVEN Spot cable allows you to master the changing TV marketplace FEATURES MARKET FOCUSED • Geographic Targeting: specific area • Demographic Targeting: specific audiences with Ability to select the right their own individual interests networks, dayparts and • AdTag & AdCopy programs for your brand in every market – segment market and customize spots – Geographic tagging with different message ADAPTABLE • i-Guide Banners – High visibilityDeliver consumer reach and – Available to 10 M Comcast Digital Cable effective frequency Subscribers • XFINITY.com • Comcast Digital Entertainment