Background and Challenge
L.E.K.'s client was a media entrepreneur with a long record of achieving creative and operational success in ethnicity-centric media, largely focused on print and linear television. Observing the tectonic shifts occurring in media consumption, our client was trying to develop an ethnicity-centric streaming video venture.
While a lush ecosystem of niche streaming players (e.g., anime-focused Crunchyroll and Korean drama-focused Dramafever) has grown and prospered, the streaming business is very difficult to get right financially. Content costs have ballooned, and viewers have tremendous choice in the now-fragmented streaming space. Given the challenges, some new high-profile streaming services, including Seeso and Fullscreen (SVOD), are shutting down.
The client hired us to answer a series of critical questions:
- Who is the audience for this service, and what level of demand would they generate?
- What is the optimal product configuration (e.g., AVOD vs. SVOD, content strategy)?
- What are the economics of this business, and what type of organization should be built around it?
- What new economic plan will be successful and attract new funding?
Approach and Recommendations
Following a detailed product ideation and project alignment session with the client, we executed three core workstreams over a six-week period:
- Audience research
- Designed and fielded a bespoke consumer survey that measured audience size, avidity for various categories of ethnicity-centric content, and interest in discrete configurations of our client’s product
- Conducted extensive secondary research on the core ethnicity-centric affinity base, including socioeconomic trends, media consumption habits and specifically TV/streaming habits
- Product configuration
- Analyzed a full spectrum of ethnicity-centric video platforms, from linear TV to YouTube, to understand content strategies, best practices and product/feature gaps
- Held in-depth interviews with niche-affinity streaming video executives to understand the intricacies, tips and traps of launching and managing a highly targeted service
- Financial modeling
- Aggregated comparable services’ pricing, content spend, user metrics and financial performance to inform key financial model inputs (e.g., ramp curve, customer acquisition cost), with considerations for a service launching late in the overall streaming adoption cycle
- Assembled a detailed financial model to understand the business’s P&L under multiple adoption, content spend and product configuration scenarios
Through our detailed research and analysis, we provided business-defining recommendations:
- The service should be carefully crafted and clearly articulated for a specific affinity base that is fully invested in the culture and content
- Since traditional approaches to building content libraries and customer bases are too expensive, new partnerships with equity participation from existing content owners (cable channels, broadcasters, magazines, etc.) and marketing sponsors (MVPDs, VMVPDs, mobile operators, etc.) in exchange for use of their content/marketing platform can meaningfully defray these costs
- A hybrid AVOD/SVOD model can foster a vibrant and inclusive viewer community, and successfully bridge the gap between trial and conversion
Drawing from this body of work, we created a robust business plan document that our client utilized in managing the business and raising funds. Furthermore, we mapped out a tangible plan to launch the niche service and manage its ramp. The document included detailed plans, a work plan, and specified key hire requirements and a best-practice organization structure.
Our client now has a full understanding of the scale of the opportunity, the nature of the audience and the optimal configuration of the streaming product. With this balanced view and with our materials in hand, the CEO has raised new funds to push the venture forward.