Minimum Viable Product (MVP) by Hong Kong Movie
by Hanson Cheung, Hong Kong Movie
All good product design teams are good at rapid prototyping and skills like minimum viable product (MVP) development. These are crucial skills because startups are all about survival. We need to quickly come up with products that the market can see, the market can experience so as to help up to find the product market fit as soon as possible.
For those of you who are not familiar with the startup jargons, a minimum viable product (MVP) is a concept from Lean Startup that stresses the impact of learning in new product development. Eric Ries, defined an MVP as that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.
A diagram representation will be something like this:
Product/market fit means being in a good market with a product that can satisfy that market. Many people interpret product/market fit as creating a minimum viable product that addresses and solves a problem or need that exists.
In this article, we have invited the product manager of Hong Kong Movie, Hanson Cheung, to share with us the process he goes through to come up with MVP ideas, quickly develop and launch it, and measure if this is a worthy product idea to go ahead.
A Quick Introduction of Hong Kong Movie
start from 2009
tools for people to find movie information, showtime, seat plan status
Over 3 million downloads
Monthly active users over 800k
Key features: rating, discussion about movie
In 2014, we’ve launched the app in Japan, as Eigaland
Japan version of HKM
over 1 Million download
Although Hong Kong Movie is profitable and self-sustaining with a team of over 10. But when we look at the current business model of Hong Kong Movie, we found 2 concerns: (1) over half of our revenue comes from advertising. It is an extremely high concentration of revenue sources. And (2) most advertisers are movie distributors, which makes us heavily dependent on the cinema industry cycle and also passive when it comes to the swinging movie seasons and also movie lineup.
To increase our topline, we could increase the frequency of advertising but this will hurt our user experience badly, while it still not solving the problem that our user traffic and our attractiveness still depend on the cinema industry. So it’s always our top priority to figure out how we could diversify our revenue source.
1. Ideation Phase
So we have come up 4 major directions:
1. Gaming: movie related game
This goes beyond our movie knowledge
We also don’t have the necessary know-how to publish and distribute games
Hence we quickly rule this option out
2. Movie distribution
This conflicts the interest of our existing advertising clients
Also the revenue is not stable
It requires strong sense of movie and marketing, and like how venture capitalists investing startup, following the 20/80 portfolio as most movies are losing money
This is capital intensive, high risk exposure, not fitting our mandate. Hence we also quickly rule this out as well
3. Operating our own cinema
We of course know the high investment capital due to rental, site renovation, maintenance and staffing
But what if we make a no-staff, completely automated intelligent cinema to reduce cost?
It maybe worth exploring and understanding the cost structure of operating theatres
4. VoD video on demand
In a way, we see VoD as an online cinema
It is highly related to our current business and there maybe high overlapping of our existing users’ interests
Extending to VoD may help to increase the lifetime value and stickiness of our users on HKM platform
So we’re very motivated to know how big the VoD market is in Hong Kong and how many people will purchase / rent movie online
2. Research Phase
So how big is the cinema market and how many competitors are there?
I made a quick association of the cinema box office with the total addressable market, which means the maximum cap of this market and the number of cinemas shows how intense the competition is.
I will usually look at the annual report of listed companies, which you could have a brief idea of the market and also the operating situation. Especially useful is when a company goes public in the stock market, they will file some IPO documents which introduce the company business and industry overview. These research are conducted by professional consulting firms, which usually are very costly and difficult to obtain but provide lots of insights.
Golden Harvest, MCL and Cinema City are listed companies in HK. Cinemas differ in scale which means some cinemas have more screens (house) than others. So specifically we want to find out what is the average earning per screen. By studying their annual reports, we know the average revenue for each screen per month is around $1 million. However, it took them years to attain breakeven, let alone if they will ever become profitable.
Annual Report of China 3D
So we move our research focus on to VoD.
Netflix, HMVOD (Anyplex), HBO, Now are the players of VoD market in HK. I recall that China 3D acquired HMVOD earlier, so I looked for the annual report of China 3D and found the company disclosed some details about the acquisition. And now we know the operating situation of HMVOD over that time: revenue is $3 million and operating loss is $7.2 million, the company has 12,000 users.
We could also find the news about the acquisition, which gives us more information and estimation by the company. It mentioned that when reaching 50,000 users, the business will be breakeven. So 50000 x $88 x 12= $52.8 million per year, the breakeven point is around $53 million. However it is just rough guess, the exact number should be smaller due to HMVOD providing different plan with mobile operators and we are unsure of how wide the pricing distribution is.
As a comparison study, we also use AppAnnie and Similar Web to check the usage and traffic of the app and website of HMVOD, which gives us another rough benchmark how the trend is going.
Finally, we talked with several industry experts, to understand the cost breakdown and the operation of a VoD business.
A VoD business consists of 4 pillars:
Paying license fee to movie distributor to provide content
Find laboratory to handle format conversion and subtitle, which fits for streaming
Network & streaming company to provide stream technology
HKM could be responsible for frontend distribution, maintenance, customer support, user acquisition
3. Experiment Phase
However, starting a basic VoD business would cost at least 7 to 8 figures. So we need to build a MVP to test how many people will likely purchase / rent movies through Hong Kong Movie’s VoD.
Indeed, Apple’s iTunes provides affiliate program for people who will receive commission when others purchase apps, movies or music through the mechanism of referral link. So we reckoned we could make use of the affiliate program to develop and launch our VoD.
We ended up building an Apple TV app, providing all available iTunes movie with HKM data like rating and comment.
Meanwhile, we also update the UI design of HKM mobile app to provide one additional list called ‘租戲睇’, with latest available iTunes movies. Users will be redirected to iTunes after clicking the price button in HKM.