Online DVD Rental Market in Australia: Marketing Plan

Market Sizing and Methodology

After completing a thorough analysis of the DVD rental market in Australia, it is clear that there is no single, sound methodology in place industry-wide for sizing this market. In fact, a correlation emerges showing that the less disciplined and rigorous the market sizing methodology, the larger the resulting market estimate. Anecdotally-based market forecasts on industry websites — including AustrailaDVDRentalGuide.com (2007), which postulates that Australian DVD rental figures (both online and offline) can be extrapolated from those of the UK and other countries — illustrate this problem clearly. Greater discipline and precision are needed in sizing the Australian online DVD rental market.

While many sources have quantified the market as small and nascent, the most rigorous methodology found during this research was developed by Colman (2006) of CCZ Equities Research. His approach defines the CCZ Base Model, which is based on household penetration of online DVD services and also accounts for subscriber growth, DVDs sent, and DVD titles available. Under this model, Quickflix — the leading online DVD rental service in Australia — generated approximately 8,000 subscribers in 2006.

Extrapolating this figure as the basis for market size, and taking into account the role of Telstra as a company capable of investing in and growing the market for online DVD rentals in Australia, yields a market estimate of between 14,000 and 16,000 subscribers in 2007. This forecast also aligns with the QuickFlix Business Prospectus (2006), which takes a top-down approach to defining the market and further validates the dynamic that looser methodologies produce inflated estimates. Triangulating the methodologies reviewed during this research, the market appears to be between 14,000 and 16,000 subscribers in Australia in 2007, growing at a rate of 3% to 5% per year. The factors contributing to this growth rate are discussed in the trends section below.

The economic climate and the current nascent nature of this industry, while growing slowly today, point to significant expansion in the 2009–2010 timeframe due to the following factors:

Current Trends and Market Developments

The Australian cable TV market and subscription entertainment services are known for low churn. This is a major advantage in the development of an entirely new online DVD rental service, as churn is a customer dynamic that forces many companies to overspend on customer retention and acquisition.

Industry Competitiveness and Venture Assessment

Any new venture must aggressively pursue best practices in order fulfillment and order management. The order management process is critical to building a sustainable and agile customer service function, as demonstrated by the experience of Netflix during its years of growth. For a new venture to succeed, it must focus on creating a highly integrated back-end series of processes to fulfill the right DVD to the right customer on the right order. Columbus (2002), in discussing system integration, explains the economics of integration as it relates to customer-facing systems — systems identical in scope to those required by this new venture.

A strong orientation toward attracting, retaining, and rewarding customers for their loyalty is equally essential. Netflix attributes much of its success to its ability to quickly track customers' preferences and needs. For the new venture to succeed, it will also need to aggressively pursue a thoroughly defined Customer Relationship Management (CRM) strategy at the enterprise level. There are many definitions of CRM and its components; one of the most authoritative comes from the Gartner Group. Gartner (2001) defined a series of eight building blocks for CRM based on the principle that, for CRM to be successful, it must be treated as a strategy encompassing all areas of a company — not an isolated or siloed initiative.

Managing the DVD library and its exponential growth is a critical success factor for any new venture, and a budget of $1,250,000 is sufficient to develop and implement an Enterprise Content Management (ECM) system. Like the CRM practices discussed above, this system is central to the development of the entire venture.

What further accelerates the need for content management strategies is the chaotic nature of uncoordinated content environments. Before an ECM system is implemented, a typical organization's content management structure is fragmented — employees must rely on a disorganized network of information sources to complete their tasks. Having a synchronized, highly organized content management system will, over time, save enormous effort in locating data and information. This will be critical for the company as it works to acquire and retain customers, since the ECM system will need to integrate with the CRM system to deliver the required competitive advantage (Columbus and Murphy, 2002).

When an ECM system is put into place and made the foundation of customer management strategies, an entirely different structure for content creation, organization, syndication, and use comes into play. This significantly reduces "knowledge walkouts" by creating a solid framework for organizing institutional knowledge. Once a stable framework for content is established, stability and order follow across all customer management functions.