Wavelength Media: Profits Down Despite Flat Revenue
Consulting
medium45 min0 submissionsMcKinsey
Scenario
Wavelength Media is a streaming business in US. The CEO has asked for help understanding a sharp fall in profitability.
Revenue moved from $1052 M to $1136 M over the past year, while operating margin fell from 19% to 15% — a drop of 4 percentage points and roughly $29 M of operating profit.
What the finance team has established so far:
- Sales volume changed by +11%
- Average realised price changed by -4%
- Input costs per unit rose 10%
- Fixed overhead rose 12%
The COO believes the problem is "the sales team discounting too aggressively". The Head of Sales believes it is "procurement failing to control input costs". The CEO wants an evidence-based answer, not an argument.
Supporting data
drivers
- volume change pct
- 11
- fixed overhead change pct
- 12
- realised price change pct
- -4
- input cost per unit change pct
- 10
profit bridge
- revenue last year m
- 1052
- revenue this year m
- 1136
- operating margin last pct
- 19
- operating margin this pct
- 15
Your task
Diagnose the profit decline and recommend a response. Provide:
- Analysis — structure the problem and isolate what actually drove the margin fall.
- Risks — what your recommendation depends on.
- Recommendation — prioritised actions with expected impact.
Show the arithmetic behind your conclusion.
Ready to move forward? Up next: Should Corveta Motors Enter Brazil?Next question
How you'll be graded
100 points, 60% to pass.
- root cause25
- recommendation25
- problem structuring25
- quantitative analysis25
Hint
Reveal suggested structure
Profit = (Price × Volume) − (Variable cost × Volume) − Fixed cost
- Decompose the change: how much of the margin fall is price, how much volume, how much unit cost, how much overhead?
- Size each driver before forming a hypothesis.
- Test the two stakeholder claims against the numbers.
- Prioritise by size of impact and speed of fix.