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Development of a financial model supporting the launch and growth of a VoD service within the operations of a cable network operator.

Project goal: Assessment of the profitability of investment in the VoD service

SCOPE OF THE FINANCIAL MODEL:

Revenues:

  • Subscriptions (basic and premium packages)
  • Pay-Per-View (one-time transactions)
  • Advertising revenues (AVOD or hybrid models)

The model included the ability to separate financial results for the VoD segment from the operator’s existing business – enabling margin and investment return analysis specifically for the VoD service.

Cash burn levels and the moment when the service becomes profitable (break-even at a given ARPU and churn rate) were estimated.

Costs:

  • Content (licenses, usage-based settlement)
  • Technical costs (platform maintenance)
  • Marketing and user acquisition
  • Customer support, administration

Investments (CAPEX):

  • Technology platform (OTT)
  • Integration with existing systems
  • Launch campaigns

BUSINESS SCENARIOS

The model was designed for comparing commercial offers from various content and technology providers.

It enables assessment of:

  • the total cost of individual proposals,
  • licensing terms (fixed fee vs revenue share),
  • initial investments required (technology, integrations, launch campaigns).

Additionally, it supports decisions regarding:

  • the structure of the offer (premium, bundled packages),
  • the duration and flexibility of agreements with suppliers,
  • the potential impact on EBITDA and cash flows.
VoD Financial Model Dashboard 1

FINANCIAL MODEL – FINANCIAL DASHBOARD

The model enables assessment of:

  • Content packages – various scopes from different aggregators
  • Billing models – fixed fees / per user / revenue share
  • OTT technology platform offers – differences in implementation costs, SLA, and user support
  • Required marketing investments.

Each scenario is reflected in:

  • revenue and cost forecasts
  • investment schedule
  • cash flow and financial ratio analysis (NPV, IRR)
VoD Financial Model Dashboard 5

PRICING STRATEGIES

The model allowed testing of various pricing strategies and VoD service growth paths:

Pricing strategies and ARPU:

  • Different package price levels were defined (basic, premium, pay-per-view).
  • The model enabled assessment of how changes in ARPU affect profitability and EBITDA levels.

Growth scenarios:

  • Various scenarios were simulated:
  • Each had its own assumptions regarding customer acquisition pace, retention, churn, and acquisition costs.
  • It was possible to test the impact of marketing campaigns on user growth.
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LTV/CAC and churn analysis:

  • The long-term customer value (LTV) was calculated based on ARPU, customer lifetime, and servicing costs.
  • This was compared to customer acquisition costs (CAC) under various marketing strategies.
  • Dynamic recalculation of metrics over time was possible – e.g., after increasing churn by 5% or changing the marketing budget.

Cash flow modeling:

  • Cash flow was generated on a monthly and quarterly basis.
  • It was possible to analyze the impact of investment or campaign delays on liquidity.
  • Schedules for payments for content, integrations, and delays in customer inflows were included.

The model enabled testing of various pricing strategies and VoD service development paths:

Pricing strategies and ARPU:

  • Different package price levels were defined (basic, premium, pay-per-view).
  • The model allowed assessment of how changes in ARPU impact profitability and EBITDA levels.

Growth scenarios:

Various scenarios were simulated:

  • Each scenario had its own assumptions regarding customer acquisition rate, retention, churn, and acquisition costs.
  • It was possible to test the impact of marketing campaigns on user growth.

FINANCIAL MODEL – FINANCIAL DASHBOARD

The financial model accounted for the fact that the main licensing and technology contracts were denominated in USD and EUR. A module was built in to simulate the impact of exchange rate changes on:

  • the total costs of content providers,
  • profitability and EBITDA levels.

It was possible to dynamically change exchange rates over time (taking into account forecasts or strategic assumptions).

VoD Financial Model Dashboard 3

The model user could test any scenario, including:

  • stable exchange rate (long-term contract),
  • appreciation of the zloty (cost reduction),
  • depreciation of the zloty (risk of increased CAPEX and OPEX).

For each scenario, the model generated:

  • an update of projected cash flows,
  • changes in the project’s IRR and NPV,
  • new break-even points for each analyzed provider.

PRACTICAL APPLICATION OF THE MODEL

Cash burn levels and the moment when the service becomes profitable (break-even at a given ARPU and churn rate) were estimated.

The model was used for:

  • presenting the project to the management board and industry investors,
  • comparing 3 alternative market entry strategies,
  • developing negotiation arguments for content provider contracts,
  • planning the investment financing path – using both equity and debt financing.