Thursday, 28 October 2010

Degrees of freedom for subsidiary businesses

I've talked to several large US technology companies over the last couple of months about their product and go-to-market strategies in Europe. The common theme running through these discussions has been how to maximise the effectiveness of their regional operations. This is a complex question to answer as it covers all aspects of the business, from broad brush strategy down to staff incentivisation. It's also very possible that there's no best practice that applies to all companies in a sector.

What struck me, however, is that there's a dearth of methodologies for establishing the correct strategy for subsidiary businesses. To that end, I've started developing such a methodology. The first component in my view is defining the dimensions that promote or restrict freedom of action for a subsidiary company. These aren't hugely different from the dimensions of any business at the macro level - I see them as freedom to act on:
  1. Brand and marketing strategy
  2. Portfolio strategy
  3. Product development
  4. Go-to-market strategy
  5. Organisation structure
  6. Operating processes & systems

1-4 represent strategic degrees of freedom, 5 & 6 are executional degrees of freedom. In the picture below, I've used the framework to compare the typical subsidiary strategies of three companies:

This is interesting and fun, but I see the most value being in comparing the success of different regional operations in an enterprise with their freedom of action against the degrees of freedom. That'll mean interviewing heads of regional operations and getting into the financials in some detail. My next step, therefore, is to refine my strawman scoring system with some colleagues who are expert in this area before going out and finding a guinea pig.

While I'm doing that, any thoughts on the categorisation would be greatly appreciated - I reckon this could be an interesting area of study in FY11.

Monday, 4 October 2010

Why I think NBCU are right to turn Apple down

Jeff Zucker has been getting some press for saying NBCU are unlikely to go into Apple's scheme to rent popular TV shows for 99c an episode (link). Personally I think he's right to keep out of it.

Why? I'm increasingly of the opinion that even premium TV is somewhat commoditised. How much would you pay for your favourite show? And how much for your 10th favourite or your 20th? Besides live, I think the answer would be pretty much the same for 1, 10, 20...

And therein lies the issue. NBCU makes a lot of money selling its channels into the bouquet packages of cable networks. If it enables customers to buy a la carte then it risks the cable networks reducing the price they will pay for those bouquets. And that would be bad, because even if Apple TV really takes off and gets massive penetration in the home, replacing the lost bouquet, NBCU's revenues would become rather variable.

A la carte is fine if you're guaranteed to have success after success, but it seems unlikely that enough hedging of programs can be done to replace what is effectively a constant revenue stream from the networks. Yes, if NBCU persistently fails to produce hits, then the networks could turn around and negotiate prices down, but that seems highly unlikely. Or at least less risky than poking them by supporting a model that threatens the networks' core business (through cord cutting).

In my opinion Zucker is right to wait and see - I don't see an obvious first mover advantage in this case.

Friday, 1 October 2010

HBO's strategy in Central Europe

Linda Jensen had some interesting things to say at IBC about HBO's strategy in Central Europe, which I thought were worth noting down.

HBO's biggest CEE markets are Romania and Poland. Initially they just brought US content over into Europe, but now they’re making country specific versions of US formats e.g. In Deriva – a Romanian version of ‘In Treatment’. This corresponds to the strategy of many premium content producers – use great local content as a hook into imported fare

An interesting characteristic of the business is that they have certain freedom to develop their own technology and product lines. They're launching HBO Go shortly – a broadband OTT product developed in-house, before the joint venture was bought out by HBO. This seems to fit with Linda's world view on content: “a subscribe once, use anywhere” model that is day and date independent and her view is that Europe is underdeveloped vs. US in online:
  • eSell thru’: $580M US vs. $67M EU
  • Online VOD: $100M US vs. $20M EU
  • Spend per home on TV: $1035 US vs. $332 EU

That said, the reality of the world right now is that “the content industry of the near future is dependent on maintaining the business model of the past for as long as possible”. This is a global issue and there are additional challenges in her markets:

  • In Central Europe, credit card penetration is between 5% and 25%, depending on the market (vs. 80% in the UK, 60% in France)
  • Piracy is rife, although traditional platform subscriptions are up 6-fold in 5 years, demonstrating demand for premium content at a fair price

To summarise her view on the key factors if premium is to survive and thrive:

  • Strong brand
  • Investment in original content production
  • Ability to be on multiple platforms to extend reach, avoid disintermediation
  • Ensure no straying into models that turn analogue dollars into digital cents
  • Remaining local – key to selling premium

I was very impressed by Linda and the HBO strategy. She talked practically about how to make money in content and the real prospects for - and challenges of - digital. My belief remains that digital will increasingly become a significant part of the media mix, however it is not a 10 minute apocalypse - the change will be gradual enough to enable savvy organisations to respond in a timely and successful manner.