STRATEGIC BUSINESS PLANOverview
February 2016
NICK KERRInformation 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 GILLESPIEAccounting
Experienced with technology startups and venture capital
2nd place winner of Google Fiber Case Competition
Ranked 5th nationally in Spikeball
BRADEN ANDRUSAccounting
BRADY CHAMBERSAccounting
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
AGENDA
1 EXECUTIVE SUMMARY
2 CASE BACKGROUND
3 STRATEGY SUMMARY
4 XFINITY X1 EXPANSION
5 SUMMARY & CONCLUSION
Problem Overview
Our Methodology
Strategy Overview
Targeting Demographics
X1 Online LiteX1 OnlineExpand original X1Implementation
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.
CASE BACKGROUND
A QUICK LOOK: COMCAST’S CURRENT SITUATION
A quick look at
41 million subscribers
4.9billion dollars in revenue
6%
19
Annual growth rate
2014 Emmy Awards
Emerging Competition
21.7 40% $1.56million subscribers of Comcast customers
use HBObillion 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
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
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
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
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:
STRATEGY SUMMARY
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
• 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
X1 ONLINE LITE
Millenials
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 NBCOn 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
“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.
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 BComcast TV
Revenue
Potential loss to HBO now:
X1 ONLINE
Generation X
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
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.
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
EXPANDING XFINITY X1
Baby Boomers
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
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.
OVERALL X1 EXPANSION - RISKS
RISKS SOLUTIONS
1. Cannibalization of salesCustomers 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 fadConsumers following the trend of internet may end up reverting back to cable TV subscriptions
1. Targeted bundlingWith effectively targeted bundles, we estimate a 15% increase in customers across all demographic segments
2. Advertising adaptationOnline ads increase as video ads decrease to compensate for potentially lost revenue
3. OwnershipAs 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
NEXT STEPS
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
X1 revenue - $20.00 + $70.00Variable costs (monthly)● $16.00 - TV channels● $5.00 - support costsContribution margin - $69.00Fixed costs ● $2,000,000 - development● $3,000,000 - monthlyAssumed 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 - $6.23Fixed costs● $1,000,000 - development● $200,000 - monthlyAssumed market share - 15%
Yearly Profit - $744M(29% of sales revenue)
Additional revenue - $1.2BAssumed 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
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.
QUESTIONS
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
END OF APPENDIX
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