As bandwidth speeds improve in Sub-Saharan Africa, video on demand becomes a reality. A big hurdle is the consumers willingness to pay for content, at a price point that US Studios find agreeable. The rampant use of pirated content, and the lack of understanding that it is illegal (or concern that it is), has created a strong black market of DVD stores, who only sell pirated material to their customers. While doing a client project in Kenya, we were intrigued by this question and undertook some in-market research to establish the size, behaviour and user experience associated with retail piracy.

1. &Innovation was engaged to help a leading African mobile network operator (MNO) group and
global telecommunications equipment manufacturer to develop business models that would
enable the MNO to strengthen its position in the anticipated boom in mobile data and video
consumption over the next five years.
Our research, aimed at understanding what Kenyan consumers’ video consumption needs
are, how these needs are currently met, and how an MNO could successfully compete in
this space, revealed that pirated copies of DVDs are the primary means of video content
consumption in larger cities. Further research, involving several DVD sellers across Nairobi
as well as some of their customers, gave us useful insight into existing value chains, possible
substitutes for a potential Video On Demand (VOD) offering from an MNO, and the value of the
video market in Kenya.
A human-centred design approach – where an empathetic understanding of the real context,
needs, wants and fears of customers serves as the point of departure for any product or
service design – helped us to understand the unique perception of value the Kenyan consumer
attached to their existing video consumption experiences. It also helped us to determine what
value they would attach to something as intangible as a different viewing experience and,
accordingly, how to design and price a new and innovative product.
In this market, where piracy is not seen as illegal activity, the value of the product had to be
found in the overall delivery experience.
Market Research Insights Paper 21 August 2014 COMPETING
WITH PIRACY
PG 1 of 4 Market Research Insights Paper 21 August 2014
Understanding and redefining
consumer perception of value
in developing markets
Compiled by: &Innovation Consulting [Pty] Ltd
Copyright: &Innovation Consulting [Pty] Ltd, 2014

2. COMPETING WITH PIRACY
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Like in most of Sub-Saharan Africa, there is no formal retail and distribution structure for DVDs
into the Kenyan consumer market. The market has therefore developed so that piracy is seen
as the norm for acquiring movie titles.
The bulk of the pirated DVD retailers are in markets
and in informal trading stalls along the street, especially
on Moi Avenue and River Road, and in Ngara Market
in Nairobi.
While there are more formal DVD shops in shopping
malls, these also only sell pirated video content.
Our research showed that, while there is a sense that
selling DVDs on the street is illegal, it is considered
illegal not because the goods are pirated but because
of where and how the goods are sold, and that more
formal stores are regarded as legitimate.
It appears from our research that there are as many as 350 formal and informal DVD shops in Nairobi. A shop
typically consists of its existing stock plus “original” or master copies on hard disk, a PC with multiple DVD burners,
and a colour copier/printer. These shops openly advertise their goods for sale, so there appears to be no sense that
the owners see anything illegal about their activity, nor does there seem to be any active policing in this regard.
As buying pirated material is so cheap, there is no movie rental market of any significance in Kenya. This meant
that, apart from DTH (satellite) TV and a small number of DTT connections, buying pirate DVDs is the primary
means of consuming video content, and the only real experience that is comparable to a VOD service.
Our research indicates that international TV series and big Hollywood blockbusters are the
most popular forms of content at these stores. TV series, however, are more popular than movies.
The quality of DVD copies varies substantially (and DVDs are priced accordingly), from poor quality - videos taken
in cinema with poor sound - to excellent quality. If a title is not available on a DVD, the stall owner will often have
the movie or TV series available on a hard drive or computer in the stall and burn a DVD for the consumer and print
a colour copy of the cover, if needed. More frequent customers use external hard drives to download content from
the seller, at a discount.
Background
Rent versus Buy
Type of Content and Quality
Compiled by: &Innovation Consulting [Pty] Ltd
Market Research Insights Paper 21 August 2014 Copyright: &Innovation Consulting [Pty] Ltd, 2014

3. COMPETING WITH PIRACY
Our research indicates that prices for DVDs range from KSh 25 to KSh 100, as indicated below. Most stores have
bundle offerings to promote the purchase of multiple copies; normally providing six for the price of five
(20% discount).
The pricing of piracy makes it virtually impossible for any competitive service that would have to respect and protect
intellectual property rights to gain a competitive advantage by competing on price.
But what do consumers “get” for that low price? Looking at it more holistically, it became clear that the question
at the heart of the problem was: What value do consumers attach to their buying and viewing
experience, and what would the value be of an improved experience - would that value be
enough to overcome the “hurdle” of a higher price point?
Speaking to real consumers helped us to develop a value proposition that would meet their needs, deliver on their
desires and address most of their fears. We were able to establish a price range that would be palatable to the
consumer. Rather than rely on assumptions, we were also able to test and iterate the value proposition with the
input from consumers.
Based on the volume of sales reported from vendors, and the average price of the DVDs, the commercial piracy
market size is conservatively estimated at around KSh 43 million per month (approximately US$430 000/month).
Establishing a reliable estimate of the size and value of the pirate DVD market enabled us to develop a business
plan, based on the tested value proposition and other market research and insights, to test the viability and main
profitability levers of the new business model.
PG 3 of 4 Compiled by: &Innovation Consulting [Pty] Ltd
Copyright: &Innovation Consulting [Pty] Ltd, 2014
Pricing and Sales Volume
Total Monthly Sales Volume (Ksh)
Copyright: &Innovation Consulting [PTY] Ltd, 2014
35 to 100 550,200
25 to 100 348,600
371,000
348,600
550,200
40 to 100 371,000
Price Range (KSh) Monthly Sales (KSh)
Latest Release
TV Series
Blockbuster
Commercial Piracy Market Size
Market Research Insights Paper 21 August 2014

4. Copyright: &Innovation Consulting [PTY] Ltd, 2014
Kenyan Pirated DVD Consumer User Journey
Positive
Neutral
Selection Price & Quality Playback
Negative
Travel Availability Travel
Discounts
Time
Cost
Transportation
Time
Cost
Transportation
Recommends
new movies/series
Doesn’t have
what I want
Can negotiate price
Unsure of quality
Higher price for
Not readily available. better quality
Must wait for DVD
to be burnt
COMPETING WITH PIRACY
Our qualitative and quantitative research allowed us to gain insights into the experience of users of the most
prominent incumbent product, namely pirated video content. The user journey below illustrated where our client’s
proposed new VOD offering would be able to compete.
The key lessons we learnt from this were that:
It’s not just about price
Because of the low price and ubiquity of pirated video content, it became clear that a new VOD business model that
had to protect (or even promote) intellectual property rights could not compete on price alone. Any new competing
value proposition would have to overcome the price hurdle by delivering other points of value that the client could
offer (in this case by virtue of the nature of its existing business).
It’s about value
Understanding the need for dependable quality, plus the desire for a personal viewing experience (i.e. being able
to watch on my own device, on my own time) provide strong value propositions and differentiation points more
powerful than price..
Apart from the insights into the nature and size of the video content piracy market in Kenya, our consumer-centric
approach enabled us to build a Video On Demand business model, supported by an accompanying business plan,
based on real world insights.
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WHO WE ARE
WHAT WE DO
We are a strategic innovation consultancy firm based in Cape Town, South Africa focusing on
Technology, Media and Telecoms sectors in Sub Saharan Africa. We guide our clients in their
applied strategic innovation – based on creative ideas and real world insights gained through
human centred design processes and other methodologies.
For more information, please visit: 72 Loop Street, Cape Town, 8001
Key lessons
Compiled by: &Innovation Consulting [Pty] Ltd
Copyright: &Innovation Consulting [Pty] Ltd, 2014
DVD doesn’t work
Can’t watch
TV being used by
another person
Poor quality
Market Research Insights Paper 21 August 2014