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Medium Profitability Deal Making Financial Analysis

Oriental Media

#Media & Entertainment
ProHub Comment

This case tests the candidate's ability to diagnose a profitability issue using a profit tree, recognize that revenue stagnation (not cost increases) is the core problem, and then evaluate a strategic partnership opportunity using both breakeven and NPV analysis. The case progresses logically from diagnosis to deal structuring to financial evaluation, requiring both analytical rigor and strategic judgment.

Estimated Time 25 minutes
Difficulty Medium
Source HKUST
10 / 100

Our client is Oriental Media (OM) Corporation, an entertainment media group in Mainland China. In its most recent financial year, OM has a stable revenue of RMB 50 billion, however it has experienced a 20% drop in profits. The client is concerned that this trend would continue into the current year and has engaged our firm to help chart a path back to future growth.

Goal (to be asked by candidate): The client would like to diagnose the root cause of the drop in profits and identify ways to remedy the problem.

Clarifying Information

  1. Business: Oriental Media is in the business of TV media production. OM produces Chinese language serial dramas, infographics, and variety shows for sales and distribution to TV stations in China and Int’l.
  2. Revenue, Cost of sales (COS), and Profits: COS increased by 5% in the past year, in line with industry expectations, but sales revenue has flat-lined. Net profit decreased 20% in the past year.
  3. Sales & Marketing (S&M), and Admin. Exp.: In the past year, OM authorized a 10% increase in S&M budget and implemented a cost-cutting strategy that successfully kept admin. costs at the same level.
  4. Competition: Due to competition from online content (i.e. BiliBili & iQiyi), peers of OM have all reported lower profits in the past year.
Mock Interview
Interviewer

Our client is Oriental Media (OM) Corporation, an entertainment media group in Mainland China. In its most recent financial year, OM has a stable revenue of RMB 50 billion, however it has experienced a 20% drop in profits. The client is concerned that this trend would continue into the current year and has engaged our firm to help chart a path back to future growth. Goal (to be asked by candidate): The client would like to diagnose the root cause of the drop in profits and identify ways to remedy the problem.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Oriental Media faces a 20% profit decline despite stable revenues due to rising costs and competitive pressure from online platforms. After diagnosing the root cause, candidates must evaluate whether to partner with ABC.co or build their own online platform, ultimately recommending partnership based on a 10-year breakeven period and zero NPV for the build option.

Key Insights:

  1. Use profit-tree framework to isolate that revenue stagnation is the core issue, not cost increases
  2. When evaluating partnership vs. build decisions, apply both breakeven and NPV analysis to reach the same conclusion
  3. Consider strategic optionality: partnering allows downside protection while preserving the option to build independently later
  4. Qualitative factors (cannibalization risk, content appropriateness, speed to market) should supplement financial analysis