Crackle Growth Acceleration Strategy Recommendations for the International Expansion (Early Draft – Pre-Financial Analysis)
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Crackle Growth Acceleration Strategy Recommendations for the International Expansion (Early Draft – Pre-financial Analysis) IBSG SP Media & Entertainment Practice June 2011 DRAFT Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 1 DRAFT Contents . Executive Summary . Country Attractiveness and Prioritization . Offerings – By Waves and Countries . Operational Considerations . Financial Outcomes . Next Steps . Appendix Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 2 DRAFT Executive Summary . Based on Country Attractiveness and Ease of Entry, Sony Crackle should consider international expansion in three “waves” — Wave 1: Expand in these regions / countries near-term (~ 1 year) to take advantage of existing large markets, with relative ease of entry — English-speaking (UK, Canada, Australia, New Zealand, Ireland, Sweden, Denmark, Norway, Netherlands) — German-speaking (Germany / Austria) — Spanish-speaking LatAm (Mexico, Argentina, Colombia, Chile, Venezuela) — Brazil — Wave 2: Expand in medium term (~ 2-3 years) to take advantage of existing large markets, which are more complex and requires greater focus — Countries: Japan and South Korea — Wave 3: Monitor these markets, further evaluating attractiveness over next 1-2 years — Countries: Russia, India, Italy, France / Belgium, China . Country excluded: Spain – relatively small market, requiring local content Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 3 DRAFT Contents . Executive Summary . Country Attractiveness and Prioritization . Offerings – By Waves and Countries . Operational Considerations . Financial Outcomes . Next Steps . Appendix Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 4 DRAFWeT further prioritized companies identified in Phase 3, through a set of qualitative and quantitative assessments Initial Ranking Fine Assessment Final Ranking 12000 English speaking countries include UK, Top Nine Countries/ Canada, Scandinavia, Netherlands, 10000 Regions without the Australia, NZ, Ireland US . Key Market Analysis (61% of WW Market) 8000 Spanish language countries include Spain, Argentina, Mexico, Venezuela, Chile (quant) 6000 Mobile • BB adoption/quality/use Display 4000 Countries included for Strategic fit • Device adoption 2000 Countries excluded for lack of Strategic fit • Online advertising 0 (detail) • Online paid content *Source: PWC, IBSG Analysis . Competitive Analysis LINGUISTIC (qual.) Final Ranked List CONSIDERAT 1 • . English-speaking: UK, Canada, ONS Consumer's behaviors Australia, New Zealand, Ireland, Working List • Local Providers analysis Sweden, Denmark, Norway, Netherlands . English Speaking: UK, Canada, Australia, NZ, . Entry Hypothesis . German-speaking: Germany, Ireland Austria . Other English Speaking: Netherlands, Denmark, • Potential content offer . Spanish-speaking LatAm Finland, Iceland, Norway, Sweden • Leverageable SPE's (Mexico, Argentina, Colombia, . German Speaking: Germany, Austria, Chile, Venezuela) Switzerland assets . Brazil . Spanish Speaking: Spain, all Spanish LatAm • Partnerships/affiliations . Japan . Portuguese Speaking: Brazil, Portugal . South Korea . French Speaking: France, Belgium • Specific considerations . French-speaking: France, . China Belgium . Japan . Business Case . Russia, India, Italy, China . South Korea (Countries dropped: Spain, . India 2 • Investments to enter 3 Finland, Iceland, Portugal, . Italy each country Switzerland) . Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 5 Russia (New countries added) • EBIT impact to Crackle . Overal strategic fit DRAFTCountries with common language and shared culture were combined into groups – to be served by a common product Approach Three natural country groupings were defined so that each group may be served by a common Crackle offering Natural Groupings English Language German Language French Language UK, Canada, Australia, NZ, Germany, Austria France, Belgium Nordic Countries • Common language • Common language • Large percentage of 18-44 • Shared political border • Shared political border segment in Nordic countries is English-speaking • No content licensing issues • No content licensing issues • • • High GDP (PPP) per capita Localization needed Localization needed (dubbing or subtitling) (dubbing or subtitling) • No content licensing issues • Some localization needed, but no dubbing or subtitling Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 6 DRAFT Prioritization methodology Country attractiveness is judged on two categories: Country Prioritization Matrix 1. INTERNET PROPENSITY Broadband s s Penetration e n e Broadband Quality v i t c Online Video a r Consumption t t A y r t n u 2. ADVERTISING AFFINITY o C Overall Advertising Spend Online Advertising Spend Ease of Deployment Ease of deployment is judged on three categories: 1. MACRO ECONOMIC 2. OPERATIONS 3. CONTENT Regulatory Local SPE Local Content Environment Operations Requirements Localization Competition Cost of Local Content Requirements Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 7 AFT DR Country attractiveness is based on infrastructure availability, online video consumption and ad spend Regions / Broadband Broadband Online video Overall Online Ranking Country Population Quality consume/capita advertising advertising* UK, Canada, Australia, NZ, Ire, Sweden, 5 4 5 5 5 5 (4.8) Denmark, Norway, NL Japan 4 5 5 5 5 5 (4.8) South Korea 3 5 5 2 3 4 (3.6) Germany, Austria 4 4 4 4 4 4 (4.0) France, Belgium 3 4 4 3 3 3 (3.4) Italy 2 3 2 3 3 3 (2.6) Spain 2 3 2 2 2 2 (2.2) China 5 3 3 4 4 4 (3.8) India 3 2 3 2 2 2 (2.4) Russia 3 4 4 2 2 3 (3.0) Spanish-speaking LatAm 3 2 3 2 1 2 (2.2) Brazil 3 2 3 2 1 2 (2.2) Source: IDC 2010, PWC 2011, Screen Digest 2011, IBSG analysis * Online advertising not including search Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 8 DRAFEaseT of deployment depends on factors including local content, localization, affordability, competitive and regulatory barriers Local Regions / Limited Local content Low Regulatory SPE conent Ranking Country localization affordability competition barriers* Operations need* UK, Canada, Australia, NZ, Ire, Sweden, 5 5 5 1 5 5 4 (4.3) Denmark, Norway, NL Japan 1 1 3 3 3 5 2 (2.7) South Korea 1 2 4 4 3 3 3 (2.8) Germany, Austria 3 4 3 3 3 5 4 (3.5) France, Belgium 3 2 3 3 2 2 2 (2.5) Italy 3 3 3 4 3 3 3 (3.3) Spain 3 3 4 4 3 5 4 (3.7) China 1 4 4 4 1 1 2 (2.5) India 3 2 4 3 3 5 3 (3.3) Russia 3 4 4 4 2 3 3 (3.3) Spanish-speaking LatAm 3 3 4 4 2 5 3 (3.4) Brazil 2 2 4 4 1 5 3 (3.0) Source: PWC 2009, IBSG analysis * Rating: 5= No barriers, 1= High barriers Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 9 DRAFT There are three distinct approaches that could be followed to develop a phased international rollout strategy . Objective: to enable Crackle to become the most recognizable, profitable ad-supported movie brand . Profitability driven by both revenues and costs . Potential launch priority criteria —Attractiveness —Deployment ease —Portfolio approach . Guiding principles and constraints —Need to rapidly grow revenue and achieve profitability in 2-3 years —Leverage resources: content, operational, brand and TV networks for low cost / high impact marketing opportunities —Opportunity to take advantage of underserved markets —Finite scaling resources . Portfolio approach best addresses objectives and constraints Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 10 DRAFEnglish-speaking,T German-speaking, Spanish-speaking LatAm and Brazil are the Wave 1 deployment candidates High English- Japan speaking Wave 2 Germany / Austria China South Korea Attractiveness Wave 1 France / Belgium Russia Wave 3 Italy Spanish-speaking India LatAm Spain Brazil - Low Low Deployment Ease High Source: IBSG analysis Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions Group 11 DRAFT A phased rollout will help Crackle expand by prioritizing market entry, managing risks whilst maximizing market opportunity Wave Country / Region Rationale English-speaking Ease of deployment, very high market potential Germany / Austria 1 Spanish-speaking LatAm Ease of deployment Brazil Japan High market potential, although needing focus 2 South Korea Significant requirement for local content and mobile focus Take advantage of underserved market which is relatively easy to enter Russia from product perspective Opportunity to take advantage of underserved market and relatively India easy deployment Relatively easy deployment and underserved market, although smaller 3 Italy opportunity Relatively difficult deployment due to regulatory requirements including France / Belgium content China Challenging deployment due to regulatory barriers and competition NO Spain Relatively small market requiring local content Cisco IBSG © 2011 Cisco and/or its affiliates. All rights reserved. Cisco Confidential Internet Business Solutions