Music Giant Refreshes Digital Music Strategy by Understanding New Consumer Behaviors and Product Models

Background and Challenge

New and disruptive streaming music services have unsettled the music business. A major music company was evaluating the future of its digital music offering as physical sales and downloads plummeted.

As a result, the major record label enlisted L.E.K. Consulting to further understand the consumer audio listening behaviors and trends of current and potential customers. One challenge was assessing the landscape for existing and emerging digital models in order to prioritize future action.

Approach and Recommendations

L.E.K. organized a consumer survey across various demographics and U.S. locations to gain insight. The survey focused on key behaviors and psychographics to understand the broader U.S. population. Key inputs of the survey involved:

  • Historic and current music consumption
  • Key purchase drivers and inhibitors
  • Marketing access or action channels for distribution
  • Segmentation characteristics

The survey indicated that digital purchases were growing significantly, with digital streamers forming the core targeted market. To better understand the population, L.E.K. segmented customers into seven groups across all demographics: ethical downloaders, obsessed music customers, sharers, peer-to-peer copiers (pirated music), free-only streamers and traditionalists (still favor CDs).

We then analyzed these core customer groups to evaluate their spending habits and how spending was changing. The results indicated that there were new opportunities to increase conversion from digital service to paid acquisition, convert the traditionalists, monetize the free-only streamers and deal with the pirates.

Results

Equipped with specific and actionable strategic recommendations, the major media giant refreshed its global music strategy. L.E.K. also recommended it build a robust period-to-period or continuous response tracking system. The company is now able to better track trends over time, achieve economies of scale, and create the ability to evaluate customers and noncustomers at the segment level.

Local Casino Leverages Playbook to Optimize New and Existing Operations

Background and challenge

As legislation eased on non-Nevada casinos and online gambling grew, competition heated up significantly for long-standing existing regional casinos. Our client, a regional casino brand, was facing increasing competition from new casinos in the region. In the near term, the client was at risk of losing 25-30% of its revenues.

A key challenge was in identifying which casino market segments were expected to grow while staying protected from competitors. L.E.K. Consulting evaluated the current property ownership of the client to identify which regions may have growth opportunities and how they may be protected.

Approach and recommendations

L.E.K. took a two-pronged approach for improving the client’s business: optimizing existing and potential assets.

In order to identify challenges with existing assets, L.E.K. conducted in-depth discussions with management. Leveraging L.E.K. intellectual property, we were able to identify three key tools that would help the client optimize its existing business:

  • Formalize the training and development of management
  • Streamline the return-on-investment tracking of marketing efforts

Additionally, L.E.K. identified and evaluated five vectors for growth:

  • Transform the adjacent tourist area with existing land ownership
  • Expand its customer base through effective markets
  • Build casinos in new markets without existing land ownership
  • Develop a presence in the online gaming market
  • Acquire other high-growth properties

We rigorously evaluated each vector by risk level, expected return on investment and necessary upfront investments required. Then, we developed a detailed playbook of best practices across each of the tools for optimization.

Results

Armed with plans to optimize the business, the local casino successfully transformed existing operations and improved cash flow. After L.E.K. completed the project, the client successfully renovated its properties to support continuing growth in the business.

Development of Mobility-as-a-Service (MaaS) Pilots for New Zealand Transport Agency

Background and challenge 

Responding to the growing momentum for governments around the world to deliver mobility-as-a-service (MaaS) models, the New Zealand Transport Agency (NZTA) sought to pilot the world’s first free real-time mobility app for travelers to Queenstown and Auckland. 

L.E.K. Australia was engaged by NZTA to develop the strategic business case for the MaaS proof-of-concept pilots. 

The objective was to successfully demonstrate the deliverability and benefits of MaaS for consumers. The proposed pilots would help visitors plan for and navigate all their transport needs by bringing together customers and transport providers on one platform with real-time transport options. 

Approach and recommendations 

We worked with NZTA during three phases to establish the strategic context for the MaaS proposition in New Zealand. These phases included:

  • Development of the strategic business case for the national MaaS platform
  • Building of an economic business case for the pilots
  • Development of a commercial business case setting out how the pilots would work in practice and the steps to implementation

Results 

The Queenstown Choice pilot app was successfully launched in August 2017, with the Auckland RideMate app subsequently released in December that year. Both pilots were received positively for delivering a unique consumer-centric travel experience. New features are in development, and the government is considering further scaling of the New Zealand MaaS marketplace.

The project demonstrates the advisory support that L.E.K. provides governments on MaaS, including:

  • Synthesising the strategic context for a business case and advising government on effective policies to facilitate introduction
  • Quantifying significant economic benefit through best practice economic modeling and developing business cases for emerging technologies and systems
  • Progressing strategic business cases into commercial business cases and defining business model options
  • Creating actionable implementation plans that ensure the financial viability of projects

Media Localization Service Provider Seeks Playbook to Expand Footprint in US

Background and Challenge

The U.S. has long been a leading market for the development of film, TV and, more recently, over the top TV (OTT) content that is distributed to consumers globally. As a result, the U.S. is the largest market for localization services such as dubbing and subtitling. The U.S. is also a highly competitive localization market with large, global production service companies competing alongside smaller localization specialists. 
Our client saw the tremendous opportunity to grow its business in the U.S. localization market, but needed a detailed playbook to arm its sales force to navigate the tough competitive landscape. With its internal resources stretched, our client asked L.E.K. Consulting to work closely with its commercial team to create a playbook for growing its localization business in the U.S.

Approach and Recommendations

There were many challenges to developing a go-to-market playbook for the client in the U.S. content market:

  • Major film and TV studios already have long tenured and established relationships with preferred localization vendors
  • Within major studios, there are many buying and influencing points for film, TV and OTT content spanning functions such as studio/tech operations, postproduction, distribution, procurement and others
  • While OTT leaders such as Netflix and Amazon may not have all the same complexities as major studios do, they do have distinct buying processes that need to be navigated
  • Beyond the major studios and OTT providers, there is a long tail of film, TV and OTT players with their own distinct localization needs and buying decisions

L.E.K. tackled the challenge in several steps, knowing the key would be to understand buyer perspectives firsthand. To streamline and focus our efforts, we leveraged prior L.E.K. work in the production services space and augmented it with in-depth secondary research to identify key localization stakeholders at the major studios and OTT providers and develop a targeted list of high-potential smaller film studios and TV networks. We then worked with the client to prioritize a set of these companies for deep dives.

For this priority set of targets, we leveraged our extensive network of contacts in the film, TV and OTT ecosystem to interview buyers and influencers at each of the prioritized target companies. We were able to use this primary research to identify all the key internal players including their position, role, and degree of influence in the localization decision as well as details around current localization volume, procurement process and potential points of entry for our client. A key end product was a “Facebook” of key target company contacts that could arm the client’s sales force to begin developing the necessary relationships to gain traction in the U.S. market.

Results

The final result was a valuable tool for the client to accelerate its growth in the U.S. market. The client is actively working to expand its footprint in the U.S. market with the benefit of this knowledge.

Leading Video Game Publisher Expands Into eSports OTT Video Network

Background and Challenge

A leading American video game publisher needed a strategy to enter the eSports over-the-top (OTT) segment with a direct-to-consumer offering. The company had premier gaming franchises but little experience in OTT video.  

The company enlisted L.E.K. Consulting to develop the business case for its proposed OTT service and create a sound operational plan to execute.

Approach and Recommendations

L.E.K. created a market-size assessment of an eSports-focused OTT network. We used research on eSports fan profiles and behaviors to segment that market. We benchmarked OTT leaders’ strategies and revenues. We dove deep to understand competitor best practices and where others tripped up. To calibrate whether the market had the capacity for new entrants, we analyzed the current competitive landscape, including emerging players’ key investments in eSports content.

After conducting a detailed market assessment, we established how the client could successfully launch a direct-to-consumer offering. L.E.K. evaluated several proposed content ideas for the OTT product. To establish the appropriate pricing, we analyzed pricing models, tiering mechanisms and common OTT platform features. 

We worked with the client to create a realistic financial model based on L.E.K.’s analyses of services. We also outlined the ideal organizational structure for a dedicated OTT division. Finally, L.E.K. created a customized strategy to effectively gain more registered and paying consumers.  

Results

With L.E.K.’s help, the client was able to further define and quantify the eSports OTT opportunity and create a product fit for the market. The company now has a long-term financial and strategic plan for its eSports-focused OTT service. This gave the client the confidence to move forward to the next phase of launch.

US Media and Entertainment Company Pursues Growth in Three Key Segments

Background and Challenge

A digitally native media and entertainment company catering to the Gen Z audience had quickly grown to be one of the leading players. L.E.K. Consulting was brought in to develop a robust three-to-five-year business plan that would allow for a step change in growth. Specifically, the strategic business plan will focus on three growth areas: OTT, international and direct-to-consumer.

Across all growth vectors, L.E.K. was tasked with understanding the capabilities and assets required for success. L.E.K. needed to identify both the investment required to fill these gaps and how the client could best mitigate the risks. The client was also keen on understanding the overlaps and synergies across the growth areas to collectively maximize the audience value.

Approach and Recommendations

The L.E.K. team worked closely with the client throughout the project, with team members spanning the U.S. and Europe to ensure the global nature of the opportunity was fully validated. To support the development of the overarching strategic growth plan, L.E.K. had to first start with initiative-specific issues:

  • In the OTT growth segment, L.E.K. defined the client’s positioning, how it could be differentiated, and which mix of models the client should consider (AVOD vs. SVOD vs. TVOD vs. other) 
  • In the international growth segment, L.E.K. prioritized the international markets for expansion, based on relevant metrics such as scale of Gen Z digital population, and outlined the optimal business models to successfully deploy across key countries 
  • For the direct-to-consumer growth segment, we benchmarked best practices for how to best target the client’s key demographics and then outlined the vision for content and feature sets the DTC platforms should offer

With the in-depth research and analyses across all project modules, L.E.K. created a strategic three-to-five-year business plan for each growth vector that included a P&L and framework for synergies and dependencies. 

Results

The client was able to further understand what resonates with its core audience and how to better engage with them. With the help of L.E.K.’s work, the client was also able to prioritize long-term strategic initiatives appropriately — and ultimately pare back tens of millions of proposed high-risk investments. 
 

Promotional Effectiveness Analysis Helps Fashion Retailer Turn Financial Loss Into Profit

Background and Challenge

A fashion retailer asked L.E.K. Consulting to help refine its promotional strategy. The client's promotional approach at the time of engagement was highly complex, with constantly changing deals and multiple layers of discounts. This made it difficult both for customers to understand the true price of an item, and for management to track changes in customer buying behavior. As a result, management feared that they were degrading margins without driving sales growth.

Approach and Recommendations

Over a four-month period, our team developed a Promotional Playbook that outlined actionable rules for designing promotions with a specific performance goal in mind (e.g. driving traffic, driving conversion, or basket-building) across key business dimensions: 

  • Time of Year and Day of Week: when to run certain promotions based on the elasticity of customer behavior
  • In-Stores & Online: how to optimize promotions based on the different purchasing behavior of retail and ecommerce customers
  • Product Categories: which product categories to promote, considering seasonal elasticity and bundling opportunities
  • Promotion Type:  what mechanism (e.g. % off, new price, buy-one-get-one, etc.) promotions should be designed to reach a given day's performance goal
  • Customer Segment: who to target based on different consumers' elasticity to promotion types and depths

In order to inform our findings, we utilized L.E.K.’s advanced analytics capabilities to run elasticity analyses, regressions, and product category association analysis to understand the effectiveness of promotions at the SKU-level and used a business intelligence tool to visualize key output. This evidence-based approach was critical to gaining alignment across the executive and leadership team to the new strategy.

Results

The client realized significant benefit from our work, reporting sales and profit growth above analyst expectations, resulting in stock price appreciation of more than 20% upon announcement.

A Global Entertainment Company Explores Growth Opportunities in Digital Direct-to-Consumer Products

Background and Challenge

Our 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

L.E.K. Consulting was 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 L.E.K. 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.

Results

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. 
 

Sports League Explores Growth Opportunities in Digital Direct-to-Consumer Products

Background and Challenge

A major professional sports league was looking to optimize the opportunity for a direct-to-consumer (DTC) digital offering, as the digital rights to flagship video assets were coming back to the league. The avidity level of the fans guided viewing behavior and added complexity to addressing how content best fits together. The league needed to address a few key strategic issues:

  • Was the potential opportunity of a DTC offering sufficiently sizable to warrant the investment?
  • What would the impact of a DTC offering be on traditional distribution?
  • What are the pros and cons of going direct to fans vis-à-vis current distribution partners?

Underpinning the various detailed key questions was how fans — specifically the younger generations, who exhibit a higher propensity for cord cutting or not connecting in the first place — would react. Would this service ultimately represent incremental viewership, or would it cannibalize viewership across traditional platforms?

L.E.K. Consulting was engaged to help the league predict the impact; understand how to position and price a DTC offering, and how to fit it with the current portfolio; and gain insight on how to enter negotiations with current partners. 

Approach and Recommendations

We developed a multipronged consumer research program centered on choice-based simulation of the purchasing path for all fan segments, to evaluate the following:

  • Highest utility content types and high-yield content combinations
  • Optimized price levels for both revenue maximization and highest penetration levels
  • Level of risk for the traditional distribution ecosystem based on fan behavior 
  • Quantification of overall opportunity

We employed a range of tools to map stated behavior to real expected outcomes, and to validate the impact on the business. We calibrated our findings by evaluating existing products in the market to help refine consumer expectations for pricing, subscription products and market alternatives. 

Ultimately, we articulated:

  • The offering that would resonate most with the target audience
  • How this offering would change consumption habits for different fans
  • The total steady-state potential for the proposed service

Where we did find risk of cannibalization, we provided a detailed benefits analysis (e.g., revenue from the new offering would outweigh loss in rights fees) as well as opportunities to minimize the impact. 

Results

L.E.K. helped the client co-create a DTC strategy for the product. Armed with supplemental insights on the ecosystem impact, the league was able to determine this was an initiative it wanted to move forward with, and gained an unambiguous, objective view of the impact to facilitate decision-making at all levels. 
 

Keys to Building a Successful Niche Streaming Video Service

Background and Challenge

Our 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 L.E.K. Consulting 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:

  1. 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
  2. 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
  3. 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.

Results

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.
 

Subscribe to Case Study