UW Foster MGMT 430 Final Project: Microsoft/Comcast/Xbox

Inspiring InnovationLiving Room Consulting

Winning the battle for the living room with Comcast Xbox Lite Device

NPV: $170,444,840.16Analysis

Recommendation

Implementation

Financials

Market Analysis

Analysis Recommendation Implementation Financials

COMCAST22.1 M Subscribers

TIME WARNER12.5 M Subscribers

COX COMM.4.6 M Subscribers

• US TV Household: 112.2 M

• Cable Subscribers: 73 M

• Cable TV Penetration: 58%

• Annual Cable Revenues: $75 Bn

Demand Factors


Household Disposable Income• Median Income: $54,929• Elasticity: 1.95• Substitutes: Satellite

Services, over-the-air TV broadcast, internet-based video broadcast

Digital Enhancement• Quality of Cable TV

transmissions• Interactive TV• Video-On-Demand• Competition: 3D TVs, Smart

TVsBundled Packages• Basic & Premium• Pricing

5.7%PPV & VOD

30.9%Premium Cable Packages

6.6%Equipment Rentals

56.8%Basic Cable Packages

Strategy Criteria


Existing Synergy

Growth Potential

Personalized Entertainme

nt

Capital Expenditure

Short-Term Recommendation


Expand upon current relationship with Comcast• “Comcast will be the company to look to first for the communications

products and services that connect people to what's important in their lives.”

Pitch a “TV Entertainment” addition to broadband service.• Assist Comcast in dealing with FCC pressure to offer stand-alone broadband

service.• Create a viable alternative for internet-only customers for Netflix and HULU.

Long-Term: Comcast Xbox


Brand

Technology

User Interface

Comcast insignia with an appearance for the “powered by Xbox” marketing.

• Working off existing PowerPC platform.• Pared down in terms of gaming capability.• Improved to include DVR and Skype capability.

• Sleek interface incorporating Windows 8 “Metro” design• Increased personalization (Recommendation Engine) and Xbox

SmartGlass for Windows phone and Surface Tablet

Risks & Mitigations


Intimidate Non-Gamer Consumers

New Product & Market Entry

Low Interest from Xbox Owners

• Struggle with Sales, Distribution Channels• Highly competitive environment

• Xbox label to the product• Already own a set-top box

Comcast Existing Sales Force• Approach Comcast current subscribers

first and gain market share from there

Targeted Cable TV Ads & Customer Satisfaction Survey• Market it as Comcast Product as they are

more familiar with Comcast product offerings

Xbox Quality & Comcast Equipment Rental• Customer trust on Xbox quality (for

gamers) will outweigh this risk• Comcast Xbox device is available for

rental

Implementation


Establish Comcast Partnership

Q1 Q2 Q3 Q4 Y2Contract Exclusivity

Bundled Pricing Details

Introduce Service through existing Xbox owners

Targeted Ads & Survey

Increase Comcast Xbox R&D

Launch Device

Heavy Marketing

Nation Saturation

Re-evaluate

Seek alternative partners

Global Expansion

Seek alternative partners

Use Comcast Sales Channels

Financials: Revenue Sharing


Current*: $182.48

New: $144.11*

• XFINITY• Sports Package• HBO Go• Internet• Xbox Live*Lynwood, WA (Nov. 2012)

• Same offerings*Year 2 ++ with Xbox Bundle

YEAR 1

YEAR 2- YEAR 5

SAVINGS: $38.37

*Rental Sharing: 80%, Subscription Sharing: 70%

Financials: Worst Case


NPV: $35,448,427.02

Expenses as Percent of Total Revenue : 61%Corporate Rate Used, Year 1 : 35%Corporate Rate Used, 2-5 : 39%WACC Microsoft : 9%

Assumptions

Financials: Best Case


NPV: $170,444,840.16

Expenses as Percent of Total Revenue : 61%Corporate Rate Used, Year 1 : 35%Corporate Rate Used, 2-5 : 39%WACC Microsoft : 9%

Assumptions

THANK YOULiving Room Consulting

AppendixPresentation• Market Analysis• Demand Factors• Strategy Criteria• Short-Term Recommendation• Long-Term: Comcast Xbox • Risks & Mitigations• Implementation• Financials: Best Case • Financials: Worst Case• Financials: Revenue Sharing

Market Analysis• Global Market Analysis• Market Analysis: Canada & UK• Country Attractiveness: Weighted Ratings• Country Attractiveness: Detailed

Financials• Year 1 & 2 (Detailed)• Year 3 - 5 (Detailed)• Comcast Billing

Microsoft & Xbox• Market Share: Microsoft Products• Xbox Existing Partners (USA)• Xbox Existing Partners (Global)

• Xbox 360 TV& Entertainment Global Footprints

Comcast• Why Comcast?• FCC & Comcast: Stand-Alone Broadband• Comcast & Verizon FiOS• Comcast Demand Factor: Bundled Packages• Comcast Demand Factor: Phone Service• Comcast Demand Factor: Phone Service• Comcast Demand Factor: High Speed Internet• Comcast Demand Factor: Additional Services• Comcast Demand Factor: Digital Enhancement• Cable TV Industry Lifecycle

Frameworks• SWOT Analysis• BCG Matrix: Microsoft Products• Market Expansion Grid • Alternative Decision Matrix• Stakeholders Analysis• 5Cs Analysis

Additional Research• Leveraging Existing Technologies• ThinkAnalytics Recommendation Engine• HD Voice• Targeted Cable TV Ads: Comcast Spotlight


Global Market Analysis

2014: 785 Million fixed broadband connections around the world (50% of TV households).

By 2017, Global Market for Internet TV to Reach $81.2 Billion

2016: 352.4 Million individuals pay access to OTT internet TV programming (50% of the worldwide total of Pay-TV subscriptions: cable, satellite and IPTV combined).

Market Analysis: Canada & UK

CANADA U.K.Cable Subscribers 9 Million 12.8 Million

GDP per Capita $ 50,496 $ 39,604

Cable Providers Shaw, Rogers, Bell & Videotron

Virgin Media, Small World, WightFibre

Market Potential High High

Existing Cable TV Partner with Microsoft?

Yes Yes

Country Attractiveness: Weighted Ratings

? GDP/

CapitaInternet

PenetrationMarket

PotentialCompetitive

Index TotalArgentina 4.4 6.7 8.1 2.9 5.8Brazil 2.9 3.9 7.0 7.3 5.2Spain 8.1 6.7 8.3 3.1 6.7Germany 9.8 8.3 8.4 4.7 7.9France 8.7 8.0 8.9 4.3 7.6United Kingdom 8.9 8.4 8.4 5.1 7.8Italy 8.2 5.8 8.6 5.0 6.8

WEIGHTS• GDP/Capita: 0.2• Internet Penetration: 0.35• Market Potential: 0.25• Competitive Index: 5.0

MARKET POTENTIAL• Online Video Viewers

(%)• Discretionary Incomes

COMPETITIVE INDEX• Regulatory

Restrictiveness Index• Current Cable

Providers (Available Partners)

Country Attractiveness: Detailed

?Online Video Users Points (10 for 100%)

Argentina 0.99 9.9Brazil 0.97 9.7Spain 0.94 9.4Germany 0.88 8.8France 0.86 8.6United Kingdom 0.91 9.1Italy 0.94 9.4

Discretionary Income

Points (10 for 55000)

Argentina 29061 5.3Brazil 16373 3.0Spain 36143 6.6Germany 42610 7.7France 50862 9.2United Kingdom 39987 7.3Italy 41013 7.5

GDP/Capita (PPP) Points (10 for 40000)Argentina 17674 4.4Brazil 11719 2.9Spain 32424 8.1Germany 39211 9.8France 34993 8.7United Kingdom 35494 8.8Italy 32928 8.2

Regulatory Restrictiveness

Points (10 for 0)

Argentina 3.8 6.2Brazil 8.6 1.4Spain 2.1 7.9Germany 2.3 7.7France 4.5 5.5United Kingdom 6.1 3.9Italy 5 5

Cable Providers Points (10 for 10)Argentina 2 2Brazil 6 6Spain 4 4Germany 7 7France 4 4United Kingdom 4 4Italy 5 5

Internet Penetration Points (10 for 100%)Argentina 67 6.7Brazil 39 3.9Spain 67.2 6.7Germany 83 8.3France 79.6 8.0United Kingdom 83.6 8.4Italy 58.4 5.8

Year 1 & 2 (Detailed)

?

YEAR 2

*Current Cable Subscribers: 22,220,000

YEAR 1

*Current Xbox Subscribers: 40,000,000

Year 3 - 5 (Detailed)

?YEAR 3


YEAR 4


YEAR 5


Comcast Billing

?

Market Share: Microsoft Products

SMARTPHONES TABLETS

SEARCH ENGINE

GAME CONSOLE

Xbox Existing Partners (USA)

• Paramount• ESPN• XFINITY

(Comcast)• VUDU• TODAY• Verizon FiOS TV

• NBA Game Time• Netflix• NBC News• MLB.tv• HBO GO• FOX• GameSpot TV

• CinemaNow• Amazon Instant

Video• Hulu Plus• IGN• SyFy

Xbox Existing Partners (Global)

Country Partners

Australia ABC iView, SBS On Demand, FOXTEL, Crackle

Canada UFC, VEVO, TELUS, Rogers On Demand, Netflix, Astral Media’s Disney XD, Maple Leaf Sports & Entertainment/Real Sports , Crackle, MSN with MSNBC.com

France AlloCiné , Canal+, MSN with MSNBC.com, MUZU.TV

Germany ZDF, LOVEFiLM, Filmstarts, MUZU.TV, MSN with MSNBC.com

Italy Mediaset, MUZU.TV

Japan Hulu, MSN with MSNBC.com

Mexico Televisa, MSN with MSNBC.com

Portugal Vodafone Portugal

Russia VimpelCom

Spain Sensacine , Telefonica, GolTV, Canal+, Antena 3, RTVE, MUZU.TV, MSN with MSNBC.com

UK VEVO, Screenrush, LOVEFiLM, Last.fm, Channel 4, Channel 5, BBC, blinkbox, BSkyB, Crackle, MSN with MSNBC.com , MUZU.TV

Xbox 360 TV& Entertainment Global Footprints

Why Comcast?

Comcast is currently under pressure from the FCC to offer a stand-alone Internet service. This may be a good intermediate offering.

Comcast may seek to have the same relationship/functionality with Microsoft that Verizon FiOS has.A relationship is currently in place for offering Comcast’s XFINITY video service.

Comcast faces continued pressure from Netflix and HULU.

Comcast is seeking ways to make a premium for data usage.

Set-top box conversation has been initiated by Microsoft already

Comcast doesn’t want to get ‘Appled’ – they’d be interested in a Apple TV competitor

FCC & Comcast: Stand-Alone Broadband

“Comcast pays $800,000 to U.S. for hiding stand-alone broadband”

Conclusion: Because as part of the NBC-Universal transaction the FCC gave Comcast several conditions including providing and marketing a reasonably-priced stand-alone Internet Comcast may be more open to On-line video content partnerships.

Comcast & Verizon FiOS

Internet Subscribers 18 M 5.1 M

Cable Subscribers 22 M 4.5 M

Average Cable Bill $ 137.51 $ 109.99*

Average Broadband Bill

$ 70.00 $ 79.99

*Combined with broadband

Comcast Demand Factor: Bundled Packages

Additional Products: Triple Play Power RGU Growth

Comcast Demand Factor: Phone Service

Top five largest residential phone company

Comcast Demand Factor: High Speed Internet

Comcast Demand Factor: Additional Services

Revenue by Product and Total Average Revenue per Basic Subscriber

Comcast Demand Factor: Digital Enhancement

Cable TV Industry Lifecycle

?MATURE

Life Cycle Reasons

• There is a high penetration of households with basic cable

• Digital cable services are experiencing new growth

• Bundled services are growing. These services include telephony, high-speed internet, and video services.

SWOT Analysis

OPPORTUNITIES

WEAKNESSES

THREATS

STRENGTHS Already has a foot in the living room with

the popular Xbox Xbox Live, Gold allows users access to

digitally distributed entertainment Xbox Live has the potential to become the

best, most comprehensive entertainment system in the world

Have proven they be successful following a fast follower strategy (Kinect)

Xbox pricing ($99 with a 2 year contract to Xbox Live) is much cheaper than other consoles

Have failed considerably using the fast follower strategy before (Zune, Kin)

Current living room device, Xbox, only appeals to the younger gaming generation

No stand-alone set-top box or smartTV in the product line, which are currently selling at a much faster rate than gaming consoles

New Xfinity partnership could pave the way to a Microsoft set-top box

No revolutionary “ICE” device has been introduced yet. Opportunity to change the entire living room experience up for grabs

New SmartGlass App has opportunity to bridge the gap between Xbox and mobile devices

Newly acquired Skype on Xbox could make the console morel appealing as a set-top box

Internet connected TVs and set-top box sales growing at a much faster rate than game console sales

Lots of competitors seeking to dominate the living room space as well

Gaming audience could object to product being marketed as a family-centered device

Currently there are several cheaper set-top box options compared to Xbox, like Apple TV, Roku

BCG Matrix: Microsoft Products

Mark

et

Gro

wth

Market Share

KinZune

SkypeBing

XboxWindowsOffice

Windows PhoneSurface

?

$

• Smartphones and tablets are rapidly growing; however, Windows Phone and Surface market share is still low

• Skye and Bing has successfully secure some market share in the IM and Search Engine market

• Xbox, Windows and Office have high market share in the entertainment and OS market

Market Expansion Grid

Existing Product New Product

Existing Market

• Existing Xbox with current offerings • New Xbox Device

New

Market

• Existing Xbox with Comcast partnership

• Comcast Set-Top Box powered by Xbox

• Microsoft SmartTv• Microsoft Set-Top Box

Alternative Decision Matrix

?Status Quo

New Set-Top Box &

Comcast Partnership

New Set-Top Box without Partnership

Acquire other set-top box

manufacturer

Manufacture SmartTV

Long Term Investment

0 + 0 + 0

Growth Potential

- + + + 0

Innovation 0 0 + 0 0

Collaboration

0 + - 0 +

Customer Demand

- + + + +

New market Entry

0 + + + +

Total -2 5 3 4 3

Stakeholders Analysis

?Name Role Interests

Microsoft Company we are advising

Company growth by having a new product in the growing internet TV market

Comcast Microsoft’s business partner target

Earn more profits by entering into the internet TV market with a company like Microsoft

Competitors Other companies in the internet TV market

Earn maximum profits for themselves while minimizing Microsoft’s profits

5Cs Analysis

Context The question Microsoft faces is whether it is doing enough to gain a strong presence in the living room. There are several competitors including Apple and Google, with several smart TV’s also considered as competitors. Is the Xbox brand and console the answer to winning over the living room space?

Competitors There is Apple TV, Google’s Nexus Q, Roku, Sonos. Also several Smart TV brands like Samsung and Sony, as smart TV’s are expected to triple their presence in living rooms over the next 3 years. Microsoft also needs to think of cable/internet providers as competitors as well, considering they have set-top boxes in most living rooms in America. Microsoft also has to worry about Nintendo and PS3, whose console sales are quite comparable to Xbox. The highly lucrative and competitive gaming market could object to the Xbox being marketed as a family-centered device in the living room.

Customers Microsoft has a big presence in the living room already, being one of the best-selling consoles of all time. The new Xbox Kinect attracted even more customers who favored the motion-sensing technology. But as the battle for the living room evolves, so will the customers and their needs as well.

Collaborators

The possibility of a partnership with a cable company such as Comcast is intriguing. The idea of Comcast offering a Microsoft-braded set-top box could be beneficial to both companies.

Company Microsoft’s presence thus far in the living room has centered on its game console the Xbox 360. They have added several features to it, including the ability to stream content like Netflix, XFINITY, and HBO. Skype will be added as an Xbox feature in 2013. Xbox LIVE gives gamers the opportunity to interact and compete with others is an industry-leading experience. All these features are a big step towards the “connected living room” for Microsoft.

Leveraging Existing Technologies

• DVR Patent http://www.nbcnews.com/technology/ingame/patent-points-potential-dvr-feature-xbox-118127

• Skype (on Xbox 2013)http://www.slashgear.com/skype-for-xbox-360-unlikely-until-2013-29230596/

• XFINITY via Xbox Livehttp://xfinity.comcast.net/slideshow/news-xfinitysurprisefacts/4/

• Microsoft Hardware• Cable Connectivity (FiOS)http://www.engadget.com/2011/11/29/verizon-details-live-fios-tv-service-for-xbox-360-kinect-contro/

• Kinect• Windows Phone• USB• Xbox SmartGlasshttp://www.xbox.com/en-US/smartglass

ThinkAnalytics Recommendation Engine

?

• Definition: Discovery and recommendation technologies are designed to provide content listings to customers of online media services — or, increasingly, hybrid broadcast/Internet TV services.

• Benefit Rating: High

• Market Penetration: 20% to 50% of target audience

• Maturity: Early mainstream• Sample Vendors: Jinni;

Motorola Mobility; Red Bee Media; Rovi; The Echo Nest; ThinkAnalytics

"Our ability to build multiple profiles per set-top box allows us to have unique recommendations for each person in a household. Bringing together live TV metadata with set-top box viewing histories, combined with Mediaroom TV services, delivers very compelling and richer discovery and recommendations results for any video-enabled device."

HD Voice

?

• Definition: Also known as wideband voice, HD Voice’s major advantage is the ability to communicate with clearer audio and have improved and more tangible conversations over fixed line, cellular networks and VoIP

• Benefit Rating: Moderate

• Market Penetration: 1% to 5% of target audience

• Maturity: Emerging• Sample Vendors: Cisco,

Ericsson, HTC, Nokia, Polycom, Texas Instrument

“What sets Comcast apart from other players in this space is that we’re the only provider to combine a cloud-based voice service with vast network reach, a well-known brand and a strong focus on providing great products with high quality and consistency,”

Targeted Cable TV Ads: Comcast Spotlight

• Geographic Targeting: specific area• Demographic Targeting: specific

audiences with their own individual interests• AdTag & AdCopy

– segment market and customize spots– Geographic tagging with different

message• i-Guide Banners

– High visibility– Available to 10 M Comcast Digital Cable

Subscribers• XFINITY.com• Comcast Digital Entertainment

MARKET FOCUSED

ADAPTABLE

ROI DRIVEN

FEATURES

Spot cable allows you to master the changing TV

marketplace

Ability to select the right networks, dayparts and

programs for your brand in every market

Deliver consumer reach and effective frequency

UW Foster MGMT 430 Final Project: Microsoft/Comcast/Xbox

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