Nautica | Round 1

You have studied the media and entertainment industry of  Narnia and identified that you can enter into content distribution through Cable (like Hathway ) and Direct-to-Home( like TataSky). To enter into content distribution, one needs to invest in infrastructure and technology ( like installing towers, laying down cables, satellite transponders to broadcast DTH signals). The amount invested will determine your coverage area and that in turn will determine the maximum number of customers that you can serve. You will also have to pay license fees to content agregators (like HBO,ESPN,etc.). A certain segment of your target customers expect better quality content and are willing to pay a premium for it. You also need to invest in marketing and promotions that will help you in building your brand. Your market research has shown that customers in certain areas have a tendency to use products that are better marketed. Apart from this investments, you will also incur an operating expense ( like service and maintenance of infrastructure, wages of customer service professionals,etc). You also need to decide about your pricing strategy.

You have observed how customers from different backgrounds have different priorities. For example some customers expect better quality content, some prefer a low priced product while others expect a better customer service experience.

Your market research has also given following data

Table 1

	Urban	Rural
Household Density (in numbers/sq.km)	800	400
Target Area (in sq.km)	87500	200000
Capex Required for covering 1sqkm.	960000 AU	400000 AU

Table 2

	Urban	Rural
Percentage of Households willing to use cable	43	75
Percentage of households willing to use DTH	57	25

Expected Growth Rate of number of target customers in percentage per annum

	Urban	Rural
Cable	3	6
DTH	6	4

Note 1) For your company each household is a single customer

         2) AU stands for Accounting Units

         3) It is assumed that CapEx required for covering an area of one sqkm is same for Cable and DTH companies.   

One of the market in which your company operates is similar to that of Narnia. In that market, the operating cost is about 10-15 percent of the total cost for Cable companies and is about 10-12 percent for DTH companies. For example, if the cost of providing Cable or DTH service is 100 A.U per customer per month, then the Operating expense would be around 10-15 AU per customer per month. This cost is same in both urban and rural area.The average profit margin is around 23-25 percent for Cable companies and 25-27 percent for DTH companies.

You have a budget of 2000 Crore AU to invest for the entire period. You would not be given any capital in the further rounds. However, you would be allowed to invest the profits earned in round 1 and the unutilized capital from round 1 in the further rounds. Invest judiciously as you may need capital to invest in new technologies in the future. You can also decide to not to enter a particular segment (like Cable-Rural, Cable-Urban, DTH-Rural or DTH-Urban). In such case you should enter the Capital Expenditure amount as zero for the corresponding segment. The unutilized money would be kept in a bank and will earn a simple interest of 5 percent per annum.

It is assumed that the investments in infrastructure and technology, License fee, marketing and promotions would have a useful life of ten years with zero residual value. Round 2 will begin at the end of third year. The winner would be declared after the third round on the basis of total profits earned.

Total Profits = Profits earned through operations + Interest earned on the money deposited in the bank

We will share the inputs required for the first round within 10-15 mins in a separate post.

NOTE:  The initial capital that you have is 2000 Crores AU( i.e 20,000,000,000 AU).
and the  required inputs are in AU.

Keep following this blog for more details!

Stay tuned and happy gaming!