Background and Challenge
L.E.K. Consulting's client, a global entertainment company and leading purveyor of live content worldwide through its signature TV properties and live events, was struggling with flat revenues, declining net profits and a stagnant stock price.
The company had publicly announced many months prior that it was considering the launch of a premium network, but had not advanced the initiative. Investors and fans were getting restless waiting for the company to follow through or announce a change in direction.
Approach and Recommendations
We were brought on to help the client navigate the decision to redirect and launch the service as an over-the-top (OTT), direct-to-consumer offering. We provided end-to-end support to launch the OTT service, including a detailed study of U.S. and 20+ international markets. Key strategic issues that we advised on included fan-base sizing and segmentation, concept testing, content strategy, pricing and promotion strategy, and the international rollout strategy.
As a first step, we segmented our client’s audience based on avidity with the client’s content. We then cross-tabbed this with online video engagement to identify the highest potential target segments and validated demand versus alternative distribution.
We applied proprietary tools to adjust survey results into realistic expectations for service take-up by different audience segments. The work illustrated the importance of putting premium content on the platform to drive adoption and gave the client the confidence to self-disrupt and cannibalize a major business line with the promise of greater value capture through the DTC model.
To increase the client’s chance of success, we documented potential barriers facing would-be subscribers and how the client could address them. We tested the reaction of audiences to the OTT service concept with different contract lengths, cancellation policies and advertising load. We also employed a conjoint analysis to identify the revenue-maximizing price point for our client. The consumer research and conjoint analysis enabled us to model different financial scenarios for the new service to inform the client’s long-term planning and communication with its board of directors.
Following U.S. launch of the service, the client focused on growing it internationally. To support their international expansion strategy for the new service, we developed a multifactor market profile model to rank the 50 largest international markets and allow us to judge countries’ attractiveness to our client with an apples-to-apples scoring system. After scoring the long list of countries, we winnowed our list down to approximately 20 countries, and teams in our local market offices executed deep in-country research, including consumer surveys, analysis of media market dynamics and local competitor interviews. We validated the international launch of the OTT service and, to maximize value, helped the client make trade-offs among alternative distribution and partnership models in specific markets. The in-market research had benefits for other lines of business in that market, such as informing local TV rights negotiations.
With this comprehensive strategy, our client was able to rapidly execute a compelling subscription OTT video platform in the United States, which was shortly followed by launches in multiple international markets. We led them to take a huge risk with their business with the confidence that it was the right thing and the new business would be materially more valuable than the old. The platform launch was touted by the media as transformational in nature, both domestically and internationally.
In the first year after launch of the new OTT service, the client has added over a million paying subscribers, representing a $120M+ run rate and one of the fastest-growing OTT subscription platforms ever. The successful launch of the platform enabled our client to dramatically increase revenue, profitability and market cap in a short span of time.