Page 10 - SCS May 2018 - Day 1 Tasks

CIMA MAY 2018 – STRATEGIC CASE STUDY

to watch Couchweb content is access to the web. Couchweb does not show adverts on its
platform.

Subscribers are attracted by the low monthly fee and the fact that there is no ongoing
commitment – they can cancel their monthly payment at any time. This means that the catalogue
of content is critical – the company must make sure that it is offering programmes/movies that
viewers want to see. This means constant significant investment in content, both bought-in and
produced in-house. Profit is dependent on having a high number of subscribers.
The company’s mission statement is “Always entertaining”, which would allow for diversification
into other areas of content e.g. sport or music.
Advantage comes from being a large player in the industry. There is a constant threat of new
entrants to the market, operators who can introduce new technology, and so investment in R&D
is required. Two competitors are mentioned, HomeVideo (for which summary financial
statements are provided) and MovieMaster, but Couchweb is bigger than both of these and so
can afford to spend more on buying and making content for its catalogue.
In return for the monthly fee, a subscriber can watch Couchweb content on as many as 3 devices
simultaneously. There does not appear to be a tiered (basic/mid-range/superior) pricing structure.

Additional revenue comes from selling the content it produces on DVD after it has been released
for viewing via the web; however, this only makes up 11% of total revenue.

In line with the recent social phenomenon of ‘binge-watching’, Couchweb will sometimes release
a whole series at once, instead of the more traditional approach of one episode per week. A
decision needs to be taken on which is the best approach. A good reason for the traditional
episode per week is that discussion of the story line can take place in the Press, which builds up
interest and can attract new subscribers.
Mention is made of 2 programmes that are extremely popular, ‘Tumbling Down’, which is now in
th
rd
its 8 series; and ‘The Politics Game’, now in its 3 series and which has recently won awards.
Anything that adversely affects these (and other) programmes, such as a scandal involving the
main star, is likely to be damaging.
Couchweb buys some of its product under licence from production companies. Such deals give
Couchweb exclusive access to broadcast that content for a set period of time, usually 5 to 10
years. It also commissions work to be made by certain production companies, and particular
mention is made of Pinto Studios, Majik Media and Ronsteel Productions, all of which have made
a significant contribution to Couchweb’s catalogue of TV programmes and movies. There are also
a large number of small independent production companies that produce very high quality
content.
The company is currently structured in a functional way; this may have to change if a significant
acquisition is made.

Shareholders are likely to have been pleased with the company’s performance, as the share price
has grown by an estimated 700% over the last 5 years. Accounts for the last 2 years show good
growth in both revenues and profits, and the balance sheet appears to be healthy. The company
has almost $2 billion of cash, but there is a constant need to invest heavily in both content and
technology.
An interesting difference between the fictional business Couchweb and the real world Netflix is
that Couchweb does not offer the facility to download and then watch content offline; the viewer
must be able to stream in order to watch. This can cause problems for viewers on the move.

6 KAPLAN PUBLISHING