&Innovation was engaged to help a leading African mobile network operator (MNO) group and

global telecommunications equipment manufacturer to develop business models that would

enable the MNO to strengthen its position in the anticipated boom in mobile data and video

consumption over the next five years.

Our research, aimed at understanding what Kenyan consumers’ video consumption needs

are, how these needs are currently met, and how an MNO could successfully compete in

this space, revealed that pirated copies of DVDs are the primary means of video content

consumption in larger cities. Further research, involving several DVD sellers across Nairobi

as well as some of their customers, gave us useful insight into existing value chains, possible

substitutes for a potential Video On Demand (VOD) offering from an MNO, and the value of the

video market in Kenya.

A human-centred design approach – where an empathetic understanding of the real context,

needs, wants and fears of customers serves as the point of departure for any product or

service design – helped us to understand the unique perception of value the Kenyan consumer

attached to their existing video consumption experiences. It also helped us to determine what

value they would attach to something as intangible as a different viewing experience and,

accordingly, how to design and price a new and innovative product.

In this market, where piracy is not seen as illegal activity, the value of the product had to be

found in the overall delivery experience.

Market Research Insights Paper 21 August 2014

COMPETING WITH PIRACY

PG 1 of 4 Market Research Insights Paper 21 August 2014

Understanding and redefining consumer perception of value in developing markets

Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014

COMPETING WITH PIRACY

PG 2 of 4

Like in most of Sub-Saharan Africa, there is no formal retail and distribution structure for DVDs

into the Kenyan consumer market. The market has therefore developed so that piracy is seen

as the norm for acquiring movie titles.

The bulk of the pirated DVD retailers are in markets

and in informal trading stalls along the street, especially

on Moi Avenue and River Road, and in Ngara Market

in Nairobi.

While there are more formal DVD shops in shopping

malls, these also only sell pirated video content.

Our research showed that, while there is a sense that

selling DVDs on the street is illegal, it is considered

illegal not because the goods are pirated but because

of where and how the goods are sold, and that more

formal stores are regarded as legitimate.

It appears from our research that there are as many as 350 formal and informal DVD shops in Nairobi. A shop

typically consists of its existing stock plus “original” or master copies on hard disk, a PC with multiple DVD burners,

and a colour copier/printer. These shops openly advertise their goods for sale, so there appears to be no sense that

the owners see anything illegal about their activity, nor does there seem to be any active policing in this regard.

As buying pirated material is so cheap, there is no movie rental market of any significance in Kenya. This meant

that, apart from DTH (satellite) TV and a small number of DTT connections, buying pirate DVDs is the primary

means of consuming video content, and the only real experience that is comparable to a VOD service.

Our research indicates that international TV series and big Hollywood blockbusters are the

most popular forms of content at these stores. TV series, however, are more popular than movies.

The quality of DVD copies varies substantially (and DVDs are priced accordingly), from poor quality - videos taken

in cinema with poor sound - to excellent quality. If a title is not available on a DVD, the stall owner will often have

the movie or TV series available on a hard drive or computer in the stall and burn a DVD for the consumer and print

a colour copy of the cover, if needed. More frequent customers use external hard drives to download content from

the seller, at a discount.

Background

Rent versus Buy

Type of Content and Quality

Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014Market Research Insights Paper 21 August 2014

COMPETING WITH PIRACY

Our research indicates that prices for DVDs range from KSh 25 to KSh 100, as indicated below. Most stores have

bundle offerings to promote the purchase of multiple copies; normally providing six for the price of five

(20% discount).

The pricing of piracy makes it virtually impossible for any competitive service that would have to respect and protect

intellectual property rights to gain a competitive advantage by competing on price.

But what do consumers “get” for that low price? Looking at it more holistically, it became clear that the question

at the heart of the problem was: What value do consumers attach to their buying and viewing

experience, and what would the value be of an improved experience - would that value be

enough to overcome the “hurdle” of a higher price point?

Speaking to real consumers helped us to develop a value proposition that would meet their needs, deliver on their

desires and address most of their fears. We were able to establish a price range that would be palatable to the

consumer. Rather than rely on assumptions, we were also able to test and iterate the value proposition with the

input from consumers.

Based on the volume of sales reported from vendors, and the average price of the DVDs, the commercial piracy

market size is conservatively estimated at around KSh 43 million per month (approximately US$430 000/month).

Establishing a reliable estimate of the size and value of the pirate DVD market enabled us to develop a business

plan, based on the tested value proposition and other market research and insights, to test the viability and main

profitability levers of the new business model.

PG 3 of 4 Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014

Pricing and Sales Volume

Total Monthly Sales Volume (Ksh)

Copyright: &Innovation Consulting [PTY] Ltd, 2014

35 to 100 550,200

25 to 100 348,600

371,000

348,600

550,20040 to 100 371,000

Monthly Sales (KSh)Price Range (KSh)

Latest Release

TV Series

Blockbuster

Commercial Piracy Market Size

Market Research Insights Paper 21 August 2014

Copyright: &Innovation Consulting [PTY] Ltd, 2014

Kenyan Pirated DVD Consumer User Journey

Positive

Neutral

Selection Price & Quality Playback

Negative

Travel Availability Travel

Discounts

Time

Cost

Transportation

Time

Cost

Transportation

Recommends new movies/series

Doesn’t have what I want

Can negotiate price

Unsure of quality

Higher price for better qualityNot readily available.

Must wait for DVD to be burnt

COMPETING WITH PIRACY

Our qualitative and quantitative research allowed us to gain insights into the experience of users of the most

prominent incumbent product, namely pirated video content. The user journey below illustrated where our client’s

proposed new VOD offering would be able to compete.

The key lessons we learnt from this were that:

It’s not just about price

Because of the low price and ubiquity of pirated video content, it became clear that a new VOD business model that

had to protect (or even promote) intellectual property rights could not compete on price alone. Any new competing

value proposition would have to overcome the price hurdle by delivering other points of value that the client could

offer (in this case by virtue of the nature of its existing business).

It’s about value

Understanding the need for dependable quality, plus the desire for a personal viewing experience (i.e. being able

to watch on my own device, on my own time) provide strong value propositions and differentiation points more

powerful than price..

Apart from the insights into the nature and size of the video content piracy market in Kenya, our consumer-centric

approach enabled us to build a Video On Demand business model, supported by an accompanying business plan,

based on real world insights.

PG 4 of 4

WHO WE ARE WHAT WE DO

We are a strategic innovation consultancy firm based in Cape Town, South Africa focusing on Technology, Media and Telecoms sectors in Sub Saharan Africa. We guide our clients in their applied strategic innovation – based on creative ideas and real world insights gained through human centred design processes and other methodologies.

For more information, please visit: 72 Loop Street, Cape Town, 8001

Key lessons

Compiled by: &Innovation Consulting [Pty] Ltd Copyright: &Innovation Consulting [Pty] Ltd, 2014

DVD doesn’t work

Can’t watch TV being used by

another person

Poor quality

Market Research Insights Paper 21 August 2014