MTV Networks to Launch New Country Music Magazine ...

Case Type: new business.
Consulting Firm: Mercer 1st round job interview.
Industry Coverage: mass media & communications; entertainment.

Case Interview Question #00545: Our client MTV Networks is a division of media conglomerate Viacom (NASDAQ: VIA, VIAB, short for ?Video & Audio Communications?) headquartered in New York City, New York, United States. The company oversees the operations of many music television channels and Internet brands, including the original MTV (Music Television) channel in the United States and the MTV Networks International.

As a major national music cable network in the U.S., MTV Networks recently is thinking about launching a new magazine dedicated to country music. You have been hired to help them with this initiative. Is this a good idea? What is the economics of launching this country music magazine?

Possible Answer:

Candidate: As our client is thinking about entering into country music magazine market, before we look at the economics of launching the magazine, I would like to first analyze the attractiveness of country music magazine market: its overall market size, growth, competitive landscape, consumer purchasing behavior, entry barrier and etc.

Then, if the market is attractive, I would like to look at our clients? capability to succeed in this market: where does it stand in line with the key successful factors in the magazine business? Could we create any synergy between the music cable network and the magazine business?

Then, I would use cost and benefit analysis to look at the profitability of launching the magazine business.

Finally, if all the above analysis is favorable to our client, I would look at different options of entering this business: acquire a current country magazine business, form a joint venture (JV), or start a new operation from scratch.

As we are specifically looking at the economics of launching the magazine, I would like to focus my analysis on the cost and benefit of launching this new magazine.

Interviewer: Great! Why don?t we do that?

Candidate: Let?s start with looking at the revenue of the country music magazine business. With my understanding of the business, there will be two main revenue streams: magazine subscription and advertisement. Am I right? (Note: if the candidate doesn?t know this, then prompt them for ?what you think are the two main revenue streams?? ? they should be able to develop them on the spot).

Interviewer: yes.

Candidate: Then I would like to ask whether we have any numbers on these revenues.

Interviewer: We might. But if we didn?t immediately have the number then how would you suggest our project team estimate the subscription revenue number?

Candidate: Well, we could do quick market size estimation. We could divide the market into subscribers and non-subscribers to our cable network. Let?s assume there are 100 million households in the U.S. How many subscribers do we have?

Interviewer: Well, we know that there are totally 25 million households subscribing to country music cable networks. 60% of them are subscribing to our client.

Candidate: Good. So 25 million * 60%, we have totally 15 million subscribers. Then there are 25 ? 15 = 10 million households who subscribe to other country music cable networks. Lastly, we have 75 million households who don?t subscribe to any country music cable networks.

My business common sense tells me that the conversion rate of our subscribers would be the highest as they listen to our cable network already which means that they like our collection of country music. We might be able to get some potential customers from the 75 million household who haven?t subscribed to the country music cable network yet, but my guess is that the conversion rate would be very low. Do we have any sense of these conversion rates?

Interviewer: I would like you to tell me how would you get these conversation rates?

Candidate: One way is to look at these numbers of a competitor. If these data are not available, we could do a market research using customer survey or interview.

Interviewer: Good. Let?s assume 80% of our 15 million cable network subscriber would subscribe to our country music magazine. 20% of the 10 million subscribers to other music cable network would subscribe to our country music magazine. To make our life easy, let?s forget the 75 million non-subscribers for now.

Candidate: Great, so we have totally: 15 * 80% + 10 * 20% = 14 million subscribers to our country music magazine. What is the revenue for an annual subscription?

Interviewer: One magazine costs $4 each and it will be published monthly.

Candidate: Then the subscription revenue will be: 14 * $4 * 12 months = $672 million. Now, let?s move onto the advertisement revenue. Do we have any data on this?

Interviewer: We know that advertisement revenue is about 50% of the subscription revenue.

Candidate: So advertisement revenue is 672 * 50% = $336 million. Thus total revenue is 672 + 336 = $1,008 million. Now let?s move onto the cost side. As it is magazine business, I would assume that the major cost items would be: labor, printing, distribution, marketing & sales. Do we have any data on this?

Interviewer: Well, our competitor has a 12% margin in the magazine business.

Candidate: Good. I would assume that our competitor enjoys some scale effect and operation efficiency while moving along the experience curve and thus has a higher margin than our client.

Then, our client?s margin would be 10%. With revenue of $1,008 million, the annual profit from magazine business is around $100 million. It looks pretty good so far. Let?s see how significant this means to our client?s business. How much profit our client is having right now?

Interviewer: About $500 million.

Candidate: So the magazine business will bring 20% more profit, which is pretty good. From the pure number side, the economics looks very good. However, I would like to look more at the qualitative side. As I laid out my structure at the very beginning of the case, I would like to further investigate those areas, especially competitors? possible response and customers? feedback and our client?s resources to see whether our client is able to get the $100 million profit for the proposed country music magazine business.

Interviewer: Very good! We will look at these later. Let?s just stop here for now.

Notes to Interviewer:

It is not a very complicated case about entering the new market. It would be nice if the interviewee could lay out the structure for entering the new market at the beginning of the case. However, as the interviewer is asking for economics, the focus of the case should be on benefit and cost analysis.

The interviewer is also testing the interviewees? ability to carry out a market size estimation and to hold a high level strategy discussion as well. As the interviewer, you should not be afraid to diverge from the path above. Use your own industry knowledge and experiences to push the candidate to brainstorm more. However, do use the math questions to always bring the candidate back to the case, and let them determine the final market size for the client.

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