Page 10 - SCS May 2018 - Day 1 Suggested Solutions

CIMA MAY 2018 – STRATEGIC CASE STUDY

The Remuneration committee should be made up of at least three, or in the case of a smaller
company two, independent non-executive directors. In addition the company chair may also be a
member of, but not chair, the committee if he or she was considered independent on
appointment as chair. For Couchweb it would most likely be made up of three NEDs, so in theory
it could exist.

The Nomination committee is usually expected to have a majority of NEDs, so again could feasibly
be in existence at Couchweb.

As there are only three NEDs they are likely to be on all the committees, which would give them
significant power and a significant workload.
Overall

The biggest concern would be around the number of NEDs, the financial background of the NEDs
and the make-up of the compulsory committees. Also of concern would be a potential lack of
skills/experience in content creation, IT and HR.

EXERCISE 2 – RISKS

Attracting and retaining subscribers
Couchweb’s main source of revenue is from member subscriptions. Member growth is therefore
key to revenue growth; they must continually attract members to offset any cancellations and
grow their revenue.

Fixed cost nature
The nature of the costs will be fairly fixed as contracts for content are long term (usually 5 to 10
years) - this could limit the flexibility of the organisation and could also lead to profitability and
liquidity issues.

Change in market tastes/demands
As with any consumer market, making sure that the content remains relevant and appealing to a
wide demographic is vital. The market place they operate in is dynamic not just in terms of
content but also consumption. If they do not keep up to date on both they could lose customers.

Manage growth
Couchweb has over 80 million members at present (M$11,771.1m streaming revenue divided by
M$12 per month for 12 months) who in theory could all access content at a similar time (on
average 60 million people view each season of Tumbling Down). As they continue to grow these
figures should increase and their services need to be able to reliably handle the forecast growth in
members, features and available content.
International operations
The nature of Couchweb means that they are subject to economic, political and regulatory risks in
a variety of countries. Adverse economic movements could lead to a decrease in members,
political instability could lead to regulatory changes and prevent Couchweb from operating in
certain countries. All of these could adversely impact the revenue of Couchweb. With differing
content in each country allowing subscribers access to the wrong content could create issues for
Couchweb.

46 KAPLAN PUBLISHING