CINETIK  S.R.O. August 2003
THE OPPORTUNITY <ul><li>Expansion of a new movie rental company to capture the new market </li></ul><ul><li>Investment nee...
Important notice This document is confidential and is made available strictly on the understanding that its contents will ...
INDEX <ul><li>Executive Summary </li></ul><ul><li>The Concept </li></ul><ul><li>The Market </li></ul><ul><li>The Current S...
EXECUTIVE SUMMARY <ul><li>Concept </li></ul><ul><li>CINETIK creates a personalized video store for each client </li></ul><...
THE CONCEPT <ul><li>Traditional rental concept: pay-per-rental </li></ul><ul><li>New rental concept: subscription with fla...
Simple and convenient selection <ul><li>On-line database with wealth of additional information </li></ul><ul><li>Recommend...
Instant recommendations <ul><li>Proprietary software CineLogic! analyzes client behavior and recommends movies to other cl...
Simple and convenient delivery <ul><li>Client gets movies directly into his/her mail box </li></ul><ul><li>Client returns ...
The vision <ul><li>STEP 1 </li></ul><ul><li>The largest video rental store in the Czech Republic </li></ul><ul><li>The lar...
THE MARKET <ul><li>Czech republic basic facts: </li></ul><ul><ul><li>3 777 TV equipped households in the Czech Republic (C...
Market size: Scenario I. <ul><li>The worst case scenario assumptions: </li></ul><ul><li>DVD player sales growth from 60 th...
Market size: Scenario II. <ul><li>The best case scenario assumptions: </li></ul><ul><li>DVD player sales growth from 60 th...
Competition <ul><li>Pay-TV channels (e.g. HBO) </li></ul><ul><ul><li>CINETIK distinction: the clients can actively decide ...
Customer segmentation <ul><li>CINETIK customers: </li></ul><ul><ul><li>Reckless/Lazy Viewers </li></ul></ul><ul><ul><li>Av...
THE CURRENT STATUS <ul><li>Cinetik s.r.o. established in January 2003 </li></ul><ul><li>Operational history of 6 months </...
Subscriber behavior
THE PLAN <ul><li>Cinetik has done one year of market research and testing: </li></ul><ul><ul><li>STAGE 1: Market research,...
Pricing strategy <ul><li>Key questions </li></ul><ul><ul><li>Flat rate model versus pay-per-rental </li></ul></ul><ul><ul>...
Marketing <ul><li>Key marketing tools: </li></ul><ul><li>Money-back guarantee </li></ul><ul><li>Affiliate marketing </li><...
Technology <ul><li>Proprietary “CineLogic!” system launched in mid-August 2003 </li></ul><ul><li>Windows platform, MS SQL ...
Fulfillment and Inventory purchase <ul><li>Fulfillment </li></ul><ul><ul><li>Current system: software support to streamlin...
THE FINANCIALS <ul><li>Key assumptions of the business plan: </li></ul><ul><li>Percentage of lost/damaged/stolen DVDs bell...
Projections
Cost sensitivity: subscribers and rentals
Planned allocation of raised funds <ul><li>Highlights </li></ul><ul><li>Major investment - DVD library purchase (60%)  </l...
Preliminary marketing budget (2004) <ul><li>Total preliminary marketing budget in 2004: 10 Mio CZK </li></ul><ul><li>Budge...
THE NEXT STEPS <ul><li>Total financing required in this round:  1,5  Mio EUR to expand client base to 20 thousand subscrib...
Further growth: other CEE markets <ul><li>Expansion to other CEE markets: Slovakia, Poland, Hungary, Slovenia, Croatia </l...
Contacts <ul><li>Pavel Bořkovec </li></ul><ul><li>E:  pavel . borkovec @ cinetik . cz </li></ul><ul><li>T: 603 265 754 </l...
appendix i: The people <ul><li>Patrick Zandl </li></ul><ul><ul><li>Co-founder of Cinetik s.r.o. Patrick belongs among the ...
appendix ii: Leisure industry in the USA
appendix iii: Subscription plans - price comparison
appendix iv: Netflix cost structure
appendix v: Selected articles – Wal-Mart
appendix vi: Selected articles – Cinetik, Chip
appendix vii: Selected articles – Cinetik, Lidove noviny
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Cinetik 2003 business plan

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Cinetik 2003 business plan

  1. 1. CINETIK S.R.O. August 2003
  2. 2. THE OPPORTUNITY <ul><li>Expansion of a new movie rental company to capture the new market </li></ul><ul><li>Investment needed: 1,5 Mio EUR to cover Czech republic </li></ul><ul><li>Exit strategy: sale to a strategic investor in 2007-2010 </li></ul><ul><li>Expected sales value: 2x yearly revenues </li></ul><ul><li>Potential buyers: </li></ul><ul><ul><li>content providers or movie distributors </li></ul></ul><ul><ul><li>cable TVs </li></ul></ul><ul><ul><li>foreign companies using the same concept expanding to new markets </li></ul></ul><ul><ul><li>Telcos interested to enter the VoD business </li></ul></ul>
  3. 3. Important notice This document is confidential and is made available strictly on the understanding that its contents will not be disclosed or discussed with any third parties except for the professional advisors of the addressee of this document. The recipient will keep this document and all information supplied or given to it or its advisors and/or agents safe and secure in order to prevent any unauthorized access to it. This document and all the above mentioned information is proprietary to Cinetik s.r.o. and the recipient has no right to it except those explicitly stated in this notice. The recipient will use this document and all information supplied only in connection with the proposed transaction.
  4. 4. INDEX <ul><li>Executive Summary </li></ul><ul><li>The Concept </li></ul><ul><li>The Market </li></ul><ul><li>The Current Status </li></ul><ul><li>The Plan </li></ul><ul><li>The Financials </li></ul><ul><li>The Next Steps </li></ul>
  5. 5. EXECUTIVE SUMMARY <ul><li>Concept </li></ul><ul><li>CINETIK creates a personalized video store for each client </li></ul><ul><li>Simple and convenient ordering with home delivery </li></ul><ul><li>Subscription-based business model (unique in the Czech republic ) </li></ul><ul><li>Market </li></ul><ul><li>Cinetik is the only DVD subscription service in the Czech republic </li></ul><ul><li>Market size in 2007: 700 Mio CZK (22 Mio EUR) (estimated by Cinetik) </li></ul><ul><li>Financials </li></ul><ul><li>Cinetik seeks to raise 1,5 million EUR to fund primarily DVD library purchase (60%) and marketing campaign to increase the number of subscribers </li></ul><ul><li>Projected revenues in 2007: 118 Mio CZK (3,7 Mio EUR) </li></ul><ul><li>People </li></ul><ul><li>Cinetik is managed and currently fully owned by Pavel Bořkovec, Patrick Zandl and Michal Bláha who have more than 6 years of entrepreneurial experience and have built successful businesses before </li></ul>
  6. 6. THE CONCEPT <ul><li>Traditional rental concept: pay-per-rental </li></ul><ul><li>New rental concept: subscription with flat rate payments </li></ul><ul><li>New in the Czech republic, well-known in USA (Netflix, Wal-mart), Ireland (DVDrentals), Germany (Netleih) and other countries </li></ul><ul><li>Key advantages for customers: </li></ul><ul><ul><li>Simple and convenient selection of movies </li></ul></ul><ul><ul><li>Instant recommendations </li></ul></ul><ul><ul><li>Simple and convenient delivery </li></ul></ul><ul><li>CINETIK creates „a personalized video store“ for each client </li></ul><ul><li>The concept is a combination of: </li></ul><ul><ul><li>Internet catalog (client interface) </li></ul></ul><ul><ul><ul><ul><li>+ </li></ul></ul></ul></ul><ul><ul><li>Subscription model (business model) </li></ul></ul><ul><ul><ul><ul><li>+ </li></ul></ul></ul></ul><ul><ul><li>Traditional mail (distribution channel) </li></ul></ul><ul><ul><li> = </li></ul></ul><ul><ul><li>“ Perfect CLICK-AND-MORTAR business” </li></ul></ul>
  7. 7. Simple and convenient selection <ul><li>On-line database with wealth of additional information </li></ul><ul><li>Recommendation of movies based on customer preferences </li></ul><ul><li>Easy browsing </li></ul><ul><li>Time & cost savings </li></ul><ul><li>E-mail newsletter informing about new releases </li></ul>
  8. 8. Instant recommendations <ul><li>Proprietary software CineLogic! analyzes client behavior and recommends movies to other clients with similar preferences </li></ul><ul><li>Personalization allows to create a personalized video rental store for each client </li></ul>
  9. 9. Simple and convenient delivery <ul><li>Client gets movies directly into his/her mail box </li></ul><ul><li>Client returns the movie by simply dropping it into the nearest mail box </li></ul><ul><li>Mail is a proven, cheap and convenient distribution channel with the largest number of distribution points all over the country </li></ul>
  10. 10. The vision <ul><li>STEP 1 </li></ul><ul><li>The largest video rental store in the Czech Republic </li></ul><ul><li>The largest selection of movies </li></ul><ul><li>The largest number of subscribers </li></ul><ul><li>STEP 2 </li></ul><ul><li>Expanding to other CEE countries </li></ul><ul><li>STEP 3 </li></ul><ul><li>Getting ready for the Video-on-Demand (VoD) business </li></ul><ul><li>DVD technology might become obsolete in approximately one decade </li></ul><ul><li>CINETIK will embrace new VoD technology ASAP to offer its clients alternative delivery channel </li></ul><ul><li>Existing and stable customer base and knowledge of client usage patterns will be an important competitive advantage in introducing VoD </li></ul>THE VISION CINETIK is a digital entertainment distribution company that provides a unique channel for entertainment producers
  11. 11. THE MARKET <ul><li>Czech republic basic facts: </li></ul><ul><ul><li>3 777 TV equipped households in the Czech Republic (CSU) </li></ul></ul><ul><ul><li>In 2001 DVD penetration: 19,9% (754 ths.) of all households (TNS Factum) </li></ul></ul><ul><li>Potential customers: all DVD equipped households with either Internet (currently 1-2 million users) or WAP access (virtually all 8 million cell phone users) </li></ul><ul><li>Current penetration of the “rent-by-mail” services in the USA: approximately 2-3% of all DVD enabled households; up to 5% in several metropolitan areas and new companies are entering the market (Wal-mart) </li></ul><ul><li>CINETIK estimates the current potential market size to 3% of all DVD equipped households </li></ul>
  12. 12. Market size: Scenario I. <ul><li>The worst case scenario assumptions: </li></ul><ul><li>DVD player sales growth from 60 thousand in 2002 to 250 thousand in 2004 </li></ul><ul><li>Market share of CINETIK (first-mover advantage) would reach 30% </li></ul>
  13. 13. Market size: Scenario II. <ul><li>The best case scenario assumptions: </li></ul><ul><li>DVD player sales growth from 60 thousand in 2002 to 250 thousand in 2004 will further accelerate to 350 thousand DVD players sold in 2007 </li></ul><ul><li>Market share of CINETIK (first-mover advantage) would reach 50% </li></ul>
  14. 14. Competition <ul><li>Pay-TV channels (e.g. HBO) </li></ul><ul><ul><li>CINETIK distinction: the clients can actively decide WHICH MOVIES they want to see and at WHAT TIME for comparable price (HBO subscription: 278 CZK/8,7 EUR). </li></ul></ul><ul><ul><li>Pay-TV shows substantially older movies (time span from movie theater introduction 5 years); CINETIK can offer those movies 6 months after movie theaters </li></ul></ul><ul><li>Traditional video rental businesses </li></ul><ul><ul><li>CINETIK distinction: the clients can easily choose and rent movies over the Internet without the necessity to drive in the store and browse endless shelves </li></ul></ul><ul><ul><li>Traditional video rental stores rent mostly current “blockbusters” while CINETIK recommends older movies clients like </li></ul></ul><ul><li>Other on-line video rentals </li></ul><ul><ul><li>Several stores using traditional rental model with Internet ordering and messenger delivery. These rentals are limited to local markets and the messenger delivery is expensive to operate (example: www. videopro . cz ) </li></ul></ul><ul><ul><li>CINETIK distinction: the ONLY rental store with subscription model in the Czech republic offering the first-movers advantage; the client can keep the DVD as long as needed </li></ul></ul>
  15. 15. Customer segmentation <ul><li>CINETIK customers: </li></ul><ul><ul><li>Reckless/Lazy Viewers </li></ul></ul><ul><ul><li>Avid/Frequent Viewers </li></ul></ul>
  16. 16. THE CURRENT STATUS <ul><li>Cinetik s.r.o. established in January 2003 </li></ul><ul><li>Operational history of 6 months </li></ul><ul><li>4 127 shipments from April 4, 2003 until July 31, 2003 </li></ul><ul><li>Lost/damaged disc percentage: approximately 2% (3% estimate used in pricing models) </li></ul>
  17. 17. Subscriber behavior
  18. 18. THE PLAN <ul><li>Cinetik has done one year of market research and testing: </li></ul><ul><ul><li>STAGE 1: Market research, users preferences (August to December 2002) </li></ul></ul><ul><ul><li>STAGE 2: Traditional video rental business (January to May 2003) </li></ul></ul><ul><ul><li>STAGE 3: Logistics and mail reliability test (Spring 2003) </li></ul></ul><ul><ul><li>STAGE 4: Experimental operation (April 2003 until today) </li></ul></ul><ul><li>The plan </li></ul><ul><ul><li>Pricing strategy </li></ul></ul><ul><ul><li>Marketing </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Fulfillment and Inventory purchase </li></ul></ul>
  19. 19. Pricing strategy <ul><li>Key questions </li></ul><ul><ul><li>Flat rate model versus pay-per-rental </li></ul></ul><ul><ul><li>Flat rate model perceived as superior to pay-per-rental by our customers (see Customer segmentation) </li></ul></ul><ul><ul><li>Variable costs and fixed cost </li></ul></ul><ul><ul><li>Allocation of fixed costs </li></ul></ul><ul><li>Our strategy: </li></ul><ul><ul><li>CINETIK offers flat rate subscription model </li></ul></ul><ul><ul><li>Price must always cover variable costs </li></ul></ul><ul><ul><li>CINETIK plans to absorb losses stemming from partially non-allocated fixed costs to enable faster customer base growth in the next 2 years </li></ul></ul><ul><li>Our current subscription plans </li></ul><ul><ul><li>EKONOM: maximum 2 DVDs out with a limit of 4 shipments monthly; 350 CZK (10,80 EUR) </li></ul></ul><ul><ul><li>STANDARD: maximum 3 DVDs out with no limit of shipments; 550 CZK (17 EUR) during 3-month testing period (to verify subscriber behavior and our cost model) </li></ul></ul>
  20. 20. Marketing <ul><li>Key marketing tools: </li></ul><ul><li>Money-back guarantee </li></ul><ul><li>Affiliate marketing </li></ul><ul><li>Word-of-mouth </li></ul><ul><li>Alliances with DVD vendors </li></ul><ul><li>Advertising </li></ul><ul><ul><li>Movie theatres </li></ul></ul><ul><ul><li>On-line advertising </li></ul></ul><ul><ul><li>Selected print media </li></ul></ul><ul><li>CINETIK current customers acquisition cost: 250 CZK (8 EUR) per subscriber (on-line advertising) </li></ul><ul><li>CINETIK estimates customer acquisition costs will rise to 500 CZK (16 EUR) per subscriber due to increased competition </li></ul>
  21. 21. Technology <ul><li>Proprietary “CineLogic!” system launched in mid-August 2003 </li></ul><ul><li>Windows platform, MS SQL as a database engine </li></ul><ul><li>Dedicated server </li></ul><ul><li>CRM </li></ul><ul><li>WAP access available in IV.Q 2003 </li></ul>
  22. 22. Fulfillment and Inventory purchase <ul><li>Fulfillment </li></ul><ul><ul><li>Current system: software support to streamline the process; shipments are manually packaged and franked </li></ul></ul><ul><ul><li>The plan: packaging machine with franking machine </li></ul></ul><ul><li>Inventory purchase </li></ul><ul><ul><li>Specialized software used to predict demand for each title based on the content of rental queues of individual subscribers and to optimize inventory purchase and utilization </li></ul></ul><ul><ul><li>Algorithm is based on past subscriber behavior and quality of predictions increases with the amount of available data </li></ul></ul>
  23. 23. THE FINANCIALS <ul><li>Key assumptions of the business plan: </li></ul><ul><li>Percentage of lost/damaged/stolen DVDs bellow 3% - up to 6% of all shipments can be lost/damaged/stolen (current percentage 2-2,5%) </li></ul><ul><li>Postage per shipment 12 CZK </li></ul><ul><li>Average purchasing price of a DVD: 800 CZK (including VAT) </li></ul><ul><li>CINETIK estimated subscriber churn: 15% (yearly retention rate 85%) </li></ul><ul><li>Key cost drivers: </li></ul><ul><li>Postage </li></ul><ul><li>DVD purchase price </li></ul><ul><li>Taxes: </li></ul><ul><li>Appropriate tax planning techniques will be used when necessary </li></ul><ul><li>Note: Detailed projections available. </li></ul>
  24. 24. Projections
  25. 25. Cost sensitivity: subscribers and rentals
  26. 26. Planned allocation of raised funds <ul><li>Highlights </li></ul><ul><li>Major investment - DVD library purchase (60%) </li></ul><ul><li>Marketing (10%) </li></ul><ul><li>Contingency fund (10%) </li></ul>
  27. 27. Preliminary marketing budget (2004) <ul><li>Total preliminary marketing budget in 2004: 10 Mio CZK </li></ul><ul><li>Budget break-down subject to revision after advertising agency appointment </li></ul>
  28. 28. THE NEXT STEPS <ul><li>Total financing required in this round: 1,5 Mio EUR to expand client base to 20 thousand subscribers in 3 years </li></ul><ul><li>Second round of financing in Y 2004-6 to provide for expansion on other Central European markets </li></ul>
  29. 29. Further growth: other CEE markets <ul><li>Expansion to other CEE markets: Slovakia, Poland, Hungary, Slovenia, Croatia </li></ul><ul><li>Markets with more than 60 million people </li></ul><ul><li>Re-use of the technology, marketing and pricing tactics and user statistics </li></ul><ul><li>Separate fund-raising campaign planned in 2004-200 6 </li></ul>
  30. 30. Contacts <ul><li>Pavel Bořkovec </li></ul><ul><li>E: pavel . borkovec @ cinetik . cz </li></ul><ul><li>T: 603 265 754 </li></ul><ul><li>Patrick Zandl </li></ul><ul><li>E: patrick . zandl @ cinetik . cz </li></ul><ul><li>T: 603 428 971 </li></ul>
  31. 31. appendix i: The people <ul><li>Patrick Zandl </li></ul><ul><ul><li>Co-founder of Cinetik s.r.o. Patrick belongs among the most renown personalities of the Czech Internet business. He was a co-founder of Mobil server, s.r.o. (later Mobil Media a.s.), technical news company, which was in the beginning of 2001 acquired by MAFRA, a.s. (publisher of the largest Czech nation-wide newspaper). </li></ul></ul><ul><ul><li>Patrick is responsible for sales, marketing and PR. </li></ul></ul><ul><li>Pavel Bořkovec </li></ul><ul><ul><li>Co-founder of Cinetik s.r.o. Pavel joined the team of Mobil server, s.r.o. in January 2000 as a CEO. He managed the company consolidation and its sale to the strategic investor. </li></ul></ul><ul><ul><li>Pavel is responsible for financial management and strategy planning. </li></ul></ul><ul><li>Michal Bláha </li></ul><ul><ul><li>Michal Bláha is a co-founder and member of the board of one of the three largest Czech Internet portals – Atlas.cz. Michal joined the team of Cinetik in May 2003 and he is responsible for the development and maintenance of the CineLogic! System. </li></ul></ul>
  32. 32. appendix ii: Leisure industry in the USA
  33. 33. appendix iii: Subscription plans - price comparison
  34. 34. appendix iv: Netflix cost structure
  35. 35. appendix v: Selected articles – Wal-Mart
  36. 36. appendix vi: Selected articles – Cinetik, Chip
  37. 37. appendix vii: Selected articles – Cinetik, Lidove noviny

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