Problem Definition
Your client is Granite Peak Partners, a mid-market private equity fund with $8B in assets under management and a media-focused vertical. They are evaluating the acquisition of ScreenStream, a streaming platform with 14 million subscribers and $900M in annual revenue. ScreenStream has built a reputation for high-quality original drama, winning three major industry awards in the past two years, but the company is burning $200M per year in cash.
The streaming industry is undergoing a structural shift. After years of growth-at-all-costs spending, major players are cutting content budgets by 15-20% and raising subscription prices. Several smaller platforms have already been absorbed through mergers. ScreenStream's management believes the company cannot survive independently and is seeking a buyer. The asking price is $3.2 billion.
Granite Peak believes there is an opportunity to combine ScreenStream's content library of 1,800 hours (including 400 hours of award-winning originals) with a distribution partner that already reaches 40 million subscribers. The thesis is that scale and cost synergies could turn ScreenStream profitable within 18-24 months. Should Granite Peak acquire ScreenStream at the proposed $3.2B valuation, and if so, under what conditions?
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If asked, please share that:
- Granite Peak's target IRR is 20%+ over a 5-year hold period
- The distribution partner is a large cable/broadband company looking to bundle streaming into its offering
- ScreenStream has $400M in outstanding debt at 7.5% interest
- Three content licensing agreements (representing 35% of the licensed library) expire within 18 months
- ScreenStream's ad-supported tier launched 14 months ago and is growing at 30% year-over-year
- The company has 1,200 employees, with roughly 40% in content production
Exhibit 1Streaming Industry Revenue and Subscriber Trends
| Year | Global Streaming Revenue ($B) | Global Subscribers (M) | Avg. ARPU ($/month) | YoY Content Spend Growth | Industry Avg. Monthly Churn |
|---|---|---|---|---|---|
| 2021 | 72 | 1,120 | 5.35 | +28% | 3.1% |
| 2022 | 88 | 1,340 | 5.47 | +22% | 3.4% |
| 2023 | 101 | 1,480 | 5.69 | +12% | 3.8% |
| 2024 | 110 | 1,560 | 5.88 | +4% | 3.5% |
| 2025 | 118 | 1,610 | 6.11 | -8% | 3.2% |
Key trends: Revenue growth is decelerating, subscriber growth is plateauing, ARPU is rising through price increases, and content spend is contracting for the first time.
Source: ScreenStream case file
Question 1Structuring
Before making this investment decision, what key questions would you want answered? Please organize your thinking into a structured framework.
Hint · Structuring
Build 3–4 branches that are specific to this client and question, not a generic framework. Check they don't overlap and together cover the problem.
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- Share the high-level numbers if asked: $900M revenue, 14M subscribers, $200M annual cash burn, $3.2B asking price
- The PE firm has a 5-year hold period target
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I would organize my analysis around four pillars:
A. Standalone Business Health
- What is the current revenue trajectory -- are subscribers growing, flat, or declining?
- What is the unit economics per subscriber (ARPU vs. content cost per sub vs. CAC)?
- Why is churn at 4.2% versus the industry average of 3.5%, and is it improving?
- How sustainable is the ad revenue growth, and what is the ad CPM trend?
B. Content Asset Valuation
- What is the viewing concentration -- do the 3 award-winning series drive a disproportionate share of engagement?
- How much of the 1,400 hours of licensed content is at risk of non-renewal?
- What is the replacement cost of the original content library (400 hours)?
- Are there sequel or franchise opportunities in the existing original IP?
C. Synergy Feasibility
- What conversion rate is realistic from the distribution partner's 40M subscribers?
- Can content spend actually be reduced by $150M without accelerating churn?
- What are the integration costs and timeline for combining platforms?
- Are there revenue synergies beyond subscriber growth (e.g., bundled advertising)?
D. Valuation and Returns
- At $3.2B, what EBITDA multiple is implied on a pro forma basis?
- What exit multiple is reasonable in 5 years given industry consolidation trends?
- What is the downside scenario -- if synergies achieve only 50%, does the math still work?
- How does the $400M existing debt affect the capital structure and returns?
What the interviewer is looking forShow guidanceHide guidance
A strong candidate will go beyond a generic M&A framework and tailor their structure to the streaming industry. Look for recognition that this is both a valuation question and a strategic transformation question. Excellent candidates will identify that the investment thesis rests on two bets: content IP value retention and distribution scale economics.
Push back if the candidate presents only financial due diligence without addressing the content and subscriber dynamics that drive streaming valuations. Prompt: "You have mentioned financials -- what about the product itself?"
Question 2Numeracy
Please review Exhibit 2. If Granite Peak can reduce content spend by $150M and achieve $80M in distribution synergies, what is the implied pro forma EBITDA? At the $3.2B asking price, does the valuation make sense relative to comparable transactions?
Hint · Numeracy
Write the formula before you plug in numbers, keep units and zeros explicit, and sanity-check the order of magnitude at the end.
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- Share Exhibit 2 (ScreenStream P&L)
- Comparable transactions for profitable streaming platforms have ranged from 8x to 17x EV/EBITDA
- The implied EV/Revenue multiple at the asking price is 3.6x
- If asked about the nature of synergies: the $150M content reduction comes from eliminating overlapping licensed content with the distribution partner; the $80M comes from shared technology infrastructure and reduced customer acquisition costs
Exhibit 2ScreenStream Profit & Loss Summary (FY 2025, $M)
| Line Item | Amount ($M) | % of Revenue |
|---|---|---|
| Subscription Revenue | 720 | 80.0% |
| Advertising Revenue | 180 | 20.0% |
| Total Revenue | 900 | 100.0% |
| Content Amortization | (560) | 62.2% |
| Gross Profit | 340 | 37.8% |
| Technology & Platform | (115) | 12.8% |
| Sales & Marketing | (150) | 16.7% |
| General & Administrative | (85) | 9.4% |
| EBITDA | (10) | (1.1%) |
| Non-Content D&A | (30) | 3.3% |
| Content Cash Spend vs. Amortization | (120) | 13.3% |
| Interest Expense on Debt | (40) | 4.4% |
| Free Cash Flow | (200) | (22.2%) |
Note: Content cash spend exceeds amortization by $120M due to front-loaded investment in new original series. Interest expense reflects $400M outstanding debt at 7.5%.
Source: ScreenStream case file
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Step 1: Identify current EBITDA from Exhibit 2
- Current EBITDA = ($10M), i.e., the company is slightly EBITDA-negative
Step 2: Apply synergies
- Content spend reduction: +$150M
- Distribution and platform synergies: +$80M
- Total synergies: $230M
Step 3: Calculate pro forma EBITDA
- Pro forma EBITDA = ($10M) + $230M = $220M
Step 4: Calculate implied EV/EBITDA
- Implied multiple = $3,200M / $220M = 14.5x
Step 5: Benchmark against comparables
- Comparable range: 8x - 17x EV/EBITDA for profitable streamers
- 14.5x sits in the upper quartile of the range
- This means the deal is priced to near-perfection on synergy execution
Step 6: Sensitivity analysis
- If only 75% of synergies are realized ($173M): EBITDA = $163M, multiple = 19.6x -- above comparable range
- If only 50% of synergies are realized ($115M): EBITDA = $105M, multiple = 30.5x -- well above range
- Breakeven multiple at 17x ceiling: required EBITDA = $188M, meaning at least 86% of synergies must be achieved
Conclusion: The deal is viable at full synergy realization but leaves very little margin for error. The PE firm should either negotiate the price down to $2.4B-$2.8B (implying 11-13x on full synergies) or structure the deal with earnout provisions tied to synergy milestones.
What the interviewer is looking forShow guidanceHide guidance
The candidate should work through the math step by step. A good candidate will calculate the pro forma EBITDA and the implied multiple. A strong candidate will also note that the multiple sits at the high end of the comparable range and flag what that implies about execution risk. An excellent candidate will test downside scenarios unprompted.
If the candidate gets stuck, point them to the EBITDA line in the P&L and ask: "What happens to that number when you apply the synergies?"
Question 3Judgement & Insights
Please review Exhibit 3. Based on the churn cohort data, what is the biggest risk to Granite Peak's investment thesis?
Hint · Judgement & Insights
Read the exhibit title, axes and units first. Lead with the ‘so what’, then back it with one or two numbers.
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- Share Exhibit 3 (Churn Cohort Analysis)
- If asked: the $150M content spend reduction would primarily come from cutting licensed content budgets, not original production
- The distribution partner's subscriber base skews toward general entertainment and sports viewers
Exhibit 3Churn Cohort Analysis by Content Genre Preference
| Subscriber Cohort | % of Total Subscribers | Subscribers (M) | Monthly Churn Rate | Avg. Viewing Hours/Month | Primary Content Consumed |
|---|---|---|---|---|---|
| Drama Originals | 22% | 3.08 | 2.1% | 18.5 | Award-winning original drama series |
| Thriller/Crime Originals | 14% | 1.96 | 2.8% | 15.2 | Original thriller and crime series |
| Licensed Films | 28% | 3.92 | 5.4% | 9.1 | Licensed studio film catalog |
| Licensed TV Library | 24% | 3.36 | 5.8% | 7.8 | Licensed third-party TV series |
| Sports & Live Events | 12% | 1.68 | 4.9% | 11.3 | Live sports and event programming |
| Platform Average | 100% | 14.00 | 4.2% | 11.8 |
Note: Cohorts defined by plurality of viewing hours in trailing 90 days. A subscriber is assigned to the cohort representing their most-watched genre.
Source: ScreenStream case file
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The biggest risk is a churn-synergy paradox: the cost savings depend on cutting the content that retains the majority of subscribers.
Key observations from Exhibit 3:
-
Original content viewers are sticky but small. Drama originals (22% of subs) and thriller originals (14%) together represent only 36% of subscribers but have the lowest churn (2.1% and 2.8%). These are the subscribers the investment thesis assumes will stay.
-
Licensed content viewers are the majority but volatile. Licensed films (28%) and licensed TV (24%) represent 52% of subscribers with churn rates of 5.4% and 5.8% -- well above the platform average of 4.2%.
-
The synergy plan targets the wrong cohort. The $150M content reduction focuses on licensed content, which is exactly what keeps 7.3 million subscribers on the platform. Even modest content reductions in this category could push churn from 5.4% to 7%+.
Quantifying the risk:
- Licensed content cohort: 7.3M subscribers at ~$4.30 ARPU/month
- If monthly churn increases by 2 percentage points (from ~5.6% blended to ~7.6%): incremental monthly losses of ~146,000 subscribers
- Annual subscriber loss: ~1.4M additional churned subscribers
- Lost revenue: 1.4M x $4.30 x 12 = ~$72M annually
- This erodes 48% of the $150M content synergy
Strategic implication: The PE firm cannot simply cut licensed content spend and assume subscriber numbers hold. They need a content transition strategy -- replacing licensed content with lower-cost originals or securing long-term licensing deals before cutting. Without this, the synergy math falls apart.
What the interviewer is looking forShow guidanceHide guidance
The key insight is that 52% of ScreenStream's subscribers are in the licensed content cohorts (Licensed Films 28% + Licensed TV Library 24%), and these cohorts have the highest churn rates (5.4% and 5.8% monthly). The investment thesis assumes cutting content spend on licensed content while retaining subscribers -- but the data shows these subscribers are already the least loyal and most likely to leave.
A strong candidate will connect the dots: cutting licensed content to save $150M will disproportionately affect the 52% of subscribers who watch that content, potentially accelerating churn among a group that already churns at 1.5-2x the rate of original content viewers.
An excellent candidate will quantify the risk: if churn among licensed content cohorts increases by even 2 percentage points (to 7.4% and 7.8%), the subscriber loss would be roughly 1.4M annually, costing approximately $72M in lost subscription revenue -- eroding nearly half the content synergy savings.
Question 4Synthesis
Given everything we have discussed, should Granite Peak acquire ScreenStream? Please provide your recommendation and the conditions under which you would proceed.
Hint · Synthesis
Answer first: the recommendation, two or three reasons with numbers, then risks and next steps.
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- If the candidate asks: Granite Peak has done 3 prior media deals, all with operational improvement theses
- The distribution partner has expressed interest in a revenue-share model rather than outright merger
- Two competing PE firms have expressed preliminary interest in ScreenStream
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Recommendation: Conditionally acquire, but renegotiate terms.
ScreenStream has genuine strategic value -- the original content IP is defensible, the ad-supported tier is growing, and the industry is consolidating in a way that favors scaled platforms. However, the current terms are too rich given the execution risks.
I would proceed under three conditions:
1. Price reduction to $2.5B-$2.8B
- At $2.6B and full synergies ($220M EBITDA), the implied multiple is 11.8x -- mid-range of comparables
- This provides a margin of safety if only 70% of synergies materialize (multiple would be 16.7x, still within range)
2. Structured earnout on synergy milestones
- 70% of the price paid at close ($1.8B-$2.0B)
- Remaining 30% tied to achieving EBITDA targets at 12-month and 24-month marks
- This aligns seller incentives with the synergy execution the deal depends on
3. Secure the distribution partnership before closing
- The entire thesis depends on the distribution partner's 40M-subscriber base
- A binding term sheet with the distribution partner must be a condition precedent to closing
- Preferred structure: exclusive content licensing agreement with minimum subscriber guarantees rather than a full merger, reducing integration complexity
Additional value creation levers:
- Accelerate the ad-supported tier (growing 30% YoY) to shift revenue mix and reduce per-subscriber content cost
- Invest selectively in 2-3 new original series to build on the award-winning franchise strength
- Renegotiate the three expiring license agreements (35% of licensed library) at lower rates, using the threat of non-renewal as leverage
Exit thesis: In 5 years, a profitable ScreenStream with 20M+ subscribers and $300M+ EBITDA could exit at 12-14x, generating $3.6B-$4.2B in enterprise value -- a strong return on a $2.6B entry.
Contributed by CaseDrill practice community
What the interviewer is looking forShow guidanceHide guidance
There is no single right answer. A strong candidate will give a clear recommendation with conditions, not a hedge. Look for a structured closing that ties together valuation, synergy risk, and strategic upside. Excellent candidates will propose creative deal structures that mitigate the risks identified in earlier questions.