Crisis Management - Time Warner Cable and CBS - Research Paper Example

Time Warner Cable CBS Crisis Management Table of Contents Table of Contents 2 Background 3 Crisis and Crisis Management 4 Mission of the Company 5 Thesis Statement 6 Financial Analysis 6 SWOT Analysis 7 Leadership 9 Conflict analysis 10 Leadership of the company 10 Financial adversity for the company 11 Time management a weakness 11 Corporate politics 12 Positive policies or innovations 12 Social Responsibility 12 Ethical considerations 12 Code of conduct 13 Role of court 13 Role of government 13 Conclusion 13 Work Cited 15 Name of the Student: Name of the Professor: Course Number: Date: Background Repercussions of the conflict between Time Warner Inc and CBS Broadcasting, Inc have accentuated the role of crisis management (CM) among cable providers and content owners. In the last 50 years, plethora of scholarly works has been done to explore different mechanism for crisis management (Sheaffer, Bogler and Sarfaty 163-187). However, when face crisis, companies still feel perplexed regarding selection of proper mechanism to handle the crisis situation or develop crisis planning (Boin and McConnell 50-59). This study will shed light on crisis situation being created due to conflict between content providers and cable owners. Cable operators broadcast the media content being produced by the media corporations. Cable operators or commercial broadcast television networks ask for carriage fees while broadcasting the media content. In some cases, retransmission charges for broadcasting the media content are also decided by commercial broadcast television networking companies and media corporations through contract negotiation. Not surprisingly, overcharging of transmission fees by cable companies can not only perturb the equilibrium of the aforementioned contract but also raises disputes. In similar context, during 2nd half of 2013, Time Warner Cable and CBS Broadcasting have involved in a contract dispute. In order to broadcast media content of Time Warner Cable, CBS asked for $2 per subscriber which was $1 higher/subscriber than previous price points (Carter, “CBS Returns, Triumphant, to Cable Box”). Such abrupt increase in subscription fees would decrease profit margin for Time Warner Inc. By realizing the future loss, Time Warner Inc decided to remove CBS stations as broadcasting partner. Conflict regarding retention of the digital rights has also risen between these two players. Majority of target population for Time Warner Inc resides in cities like New York, Los Angeles and Dallas. Time Warner Inc signed contract with CBS in order to use its network and related channels (Carter, “CBS Returns, Triumphant, to Cable Box”). Entertainment program and media contents of Time Warner Inc are being broadcasted through CBS stations to cable subscribers. The study has found two major components of the crisis caused by disputes between Time Warner Inc and CBS Broadcasting. First Component of Crisis: in order to retransmit through CBS station located in New York, Los Angeles and Dallas, CBS Broadcasting was asking 100% rise in the subscription fees. Due to fear of loss, Time Warner Inc was not ready to accept such rise in subscription fees (Carter, “CBS Returns, Triumphant, to Cable Box”). As a result, dispute between two parties had started. Second Component of Crisis: CBS Broadcasting wanted to retain digital rights of its content and it has planned to sell the content to web-based distributors such as Amazon, Netflix and others. Passing the digital rights of content to web-based distributors would decrease scope for Time Warner Inc to earn revenue by selling media content. Therefore, retention of digital rights of CBS Broadcasting would negatively impact interest of Time Warner Inc. As a result, Time Warner Inc was not ready to accept the decision of CBS Broadcasting to retain the digital rights (Carter, “CBS Returns, Triumphant, to Cable Box”). Review of the literature regarding crisis management will develop theoretical background of the discussion regarding crisis situation caused by dispute between CBS Broadcasting and Time Warner Inc. Crisis and Crisis Management Crisis is being conceptualized as uncommon event characterized with high level of vagueness, uncertainty and unknown causes. Severity of crisis situation is measured in terms of its ability create threat for survival for respective company or individuals (Sayegh, Anthony and Perrewe 179-199). Probability of occurrence of crisis is perceived as low and due to vagueness surrounding crisis situation, companies face difficulties to select right crisis management (CM) mechanism. In simple words, CM can be defined as organizational procedures blended with leadership style to counter balance negative impacts of crisis situation (Regester and Larkin 41-73). CM mechanisms include variety of processes such as, 1- internal as well external communication with stakeholders (internal as well as external) and communicate the actions being taken by the company to address the crisis, 2- taking legal support to address the crisis situation, 3- conducting market research to get feedback from external stakeholders regarding process of addressing the crisis situation and 4- integrating transformational leadership styles and management actions to direct organizational actions to address crisis situation (Drew and Kendrick 19). According to Regester and Larkin (41-73), organizations with higher crisis proneness (CP) can handle crisis situation in better manner in comparison to unprepared organizations. Sheaffer and Mano-Negrin (575) defined crisis proneness (CP) as, “[. . .] a state of corporate readiness to foresee and effectively address internal or exogenous adversary circumstances with the potential to inflict a multidimensional crisis, by consciously and proactively preparing for its inevitable occurrence.” Considering conflict between Time Warner Inc and CBS Broadcasting, it can be said that both the companies need to have CP to address the crisis situation. Such crisis proneness can only be developed through right integration of leadership style. Mission of the Company Mission statements of both CBS Corporation and Time Warner Inc need to be analyzed in order to understand business objectives of both the companies. Mission statement for CBS Corporation can be briefed as, “CBS Corporation, and its divisions are committed to building an environment that values diversity throughout the corporation and in its business practices” (CBS Corporation, “Corporate Responsibility”). Decoding the mission statement reveals the fact that the company focuses on developing a creative environment diversified with different modes of entertainments and media content. For example, service portfolio of the company includes network news, network programming radio stations, content publishing, local TV, cable services and others. On the other hand, Time Warner Inc created mission statement on the basis of parameters such as creativity, customer focus, agility, team work, integrity, responsibility and diversity. Creativity- Time Warner Inc focuses on maintaining innovation and originality that encourages divergent voices and risk-taking. Customer Focus- entertainment and media contents are developed so that they can address needs of customers in effective manner. Agility- the company maintains responsive attitude to embrace change and seize new opportunities. Teamwork- Time Warner Inc encourages all the business verticals to work together in order to ensure right value proposition to customers. Integrity- the always tries to win trust of readers by upholding artistic expression and editorial independence. Diversity- the company maintains diversified range of media contents and broadest range of talents to ensure diversity. Responsibility- Time Warner Inc follows stringent corporate governance norms and implements best practices of corporate social responsibility (CSR) to serve public interest (Time Warner, “Company”). Thesis Statement Considering the dispute between Time Warner Inc and CBS Broadcasting, it can be said that cable companies and content owners are getting increasingly exposed to problems such as threat from web-based distributors, excessive price volatility regarding retransmitting or subscription of media contents. Content owners have the advantage of accessing broadband connections while cable owners have the advantage of strong partnership with advertisers. In such context, analyze the conflict between Time Warner Inc and CBS Broadcasting will be prime objective of this research paper. In order to address such research objectives, the study will analyze CEO’s leadership style of both the companies and actions took by leaders of both the companies to address the conflict. Impact of the crisis situation on both companies will also be addressed by this study. From global perspective, dispute between Time Warner Inc and CBS Broadcasting are mere representation of problems faced by media and broadcasting companies located in different parts of the world. Therefore, adjusted version of findings of this study can be applied to other global companies specializes in cable networking and media content distribution (CBS Corporation, “Corporate Responsibility”). Financial Analysis CBS is a multinational multimillion dollar business that has emerged as a dominant player in the American market. The compensation of Moonve, CEO of the company was close to $62.2 in 2012. The following table shows the key financial performance of the company in the past three years. Table 1: Key Financial Figures of CBS   2010-12 2011-12 2012-12 2013-12 Gross Margin 36.09 41.26 43.45 42.34 Operating Margin 12.92 17.75 21.17 21.32 Net Margin % 5.15 9.16 11.17 12.29 Return on Invested Capital % 6.61 9.98 11.47 13.08 (Source: “CBS Corp Class CBS”) It can be seen from the above table that the company has been able to maintain a consistent rise in the level of gross profits over the past three years. The company had witnessed its peak in the period of 2012-12. Operating margin of the company had risen considerably as well during the chosen period. This implies that though the operating expenditure of the company has increased over the year yet the level of revenues has also been rising consistently. This can be seen from the rise in the net margin of the company from 2010-2013. The rate of increase has declined though compared to the previous years. From the above financial figures it can be argued that the feud between CBS Broadcasting and TWC has been unable to show considerable effects on the financial performance of CBS. The study will address the case from perspective of CBS Broadcasting. Therefore, before analyzing the conflict, financial analysis and SWOT analysis of CBS Broadcasting needs to be done in order to develop functional background of further discussion. SWOT Analysis Table 1: SWOT Analysis of CBS Broadcasting Strength Weakness CBS Broadcasting has diversified portfolio of programs and media content that can cater demand of wide range of audiences. The company has strong market leadership and CBS Broadcasting maintains human capital base of more than 20,000 talented employees. Most of the popular programs and TV shows are being broadcasted through CBS. USA centric focus has restricted global presence and revenue earning opportunity for the company. Financial performance of the company hampered due to increase in operating costs and increased cost of value chain operation. Opportunity Threat The company can increase revenue margins by increasing subscription/customer fees. The company can expand its service offerings by entering in new media sectors such as live shows, “mob-isodes”, pod casts and others. Exchange rate fluctuations and economic slowdown can hamper financial performances of the company. Demand for TV broadcasting is decreasing due to rise of web based distributors such as Amazon, Netflix, Apple, YouTube, TiVo, Joost and others. (Source: Datamonitor, “CBS Corporation”) Leadership Robert, Munz, and Bommer (845-858) pointed out that organizational leaders need to adopt transformational leadership style during crisis situation. Transformational Leaders develop visions and encourage potential followers to realize the vision. Transformational leaders empower employees to take responsibilities during contingent situation and put greater effort so that the conflict gets resolved (Robert, Munz, and Bommer 845-858). Transformational leaders have the responsibility of creating a better work environment by helping the subordinates to look beyond their own personal interest and integrate their personal goals with the goals of the organization. Transformational leaders are able to superimpose their characteristics along with their vision in helping subordinates achieve their goals (Rubin, Munz and Bommer 845-850). In CBS Broadcasting, Leslie Moonves works as chairman of the company while Nina Tassler works as president CBS Entertainment. These two people failed to execute transformational leadership style to handle the conflict with Time Warner Inc. CBS insisted doubling of its retransmission fees for the subscribers in New York, Dallas and Los Angeles (Auletta, “CBS, Time Warner Cable, and the Disruption of TV”). After confidential agreement with CBS, Time Warner Inc agreed to most of the demand of the former company but such greedy demand of CBS Broadcasting has increased monthly cable bills of customers. Customer did not welcome the decision of CBS Broadcasting and public image of the company has maligned (Auletta, “CBS, Time Warner Cable, and the Disruption of TV”). In such context, Leslie Moonves and Nina Tassler failed to take decisive steps to improve public image of CBS Broadcasting. By increasing retransmission fees, CBS Broadcasting showed its incapability to compete with web based distributors such as Amazon, Netflix, Apple, YouTube, TiVo, Joost and others. As the company is failing to compete with web based distributors, CBS Broadcasting is trying to survive by increasing retransmission fees that can be termed as cost burden for customers. Therefore, leadership style of CBS Broadcasting’s CEO’s was a detriment (Auletta, “CBS, Time Warner Cable, and the Disruption of TV”). Conflict analysis Leadership of the company The conflict between CBS Broadcasting and Time Warner Inc. had received wide social coverage. From the moment of crisis both the parties had begun to express their own side of the story in public forum. The approach taken by both the companies had been negative publicity against each other provoking customer to take side with each one of them. CBS had presented its view on the public forum and vindicated the reason for which the subscriber fees were hiked in the first place. Time Warner’s management had used the scope of media to communicate key information that it was ready to air CBS networks on a-la-carte basis after four days of dispute. This proposal was immediately rejected by Leslie Moonves who had refused to go into any negotiation with Time Warner. Advertisements were used by both companies to present their own stance (McGrath, “Feud With CBS Hit Time Warner Cable Profit And Subscribers”). The actions of CBS Broadcasting shows that there was no role for public apology from the side of the company which could be attributed to high levels of corporate greed. CBS Broadcasting had blamed Time Warner that the later was preventing the former to enter into contracts with new cable distributors. Time Warner in turn had retaliated by declaring none of its contracts supports monopoly status as was alleged by CBS. The decisions taken by Time Warner were on ad-hoc basis and the actions of CBS can be best described as stubborn. There was no involvement of any crisis management team and the companies did not show any cooperation with one another. This reflects that the style of leadership exhibited by CBS CEO was not transformational. Transformational leadership is characterized by a leadership style where leaders show openness in resolving conflicts (Zhang, Cao and Tjosvold 1589). Transformational leaders play a significant role in intellectual simulation of the employees and listening to their problems to find a solution. Dougherty (1992) had pointed out that once the immediate needs are taken care of it is necessary for the organization to notify the affected public through a crisis management team (Dougherty 18). Coombs (2007) had pointed out that best way to deal with the aftermath of the crisis is to maintain positive relationships with the stakeholders by informing stakeholders regarding the progress made in the case and the probable impacts on them (Coombs 66). CBS never took any responsibility of its abrupt fee hike neither did it apologize to the customers for the inconvenience caused. Time Warner Inc. on the other hand was facing public lawsuits as the customers had complained that they had to pay subscription even during the blackout. Finally, there was no effort to conduct market research about the crisis situation that could have improved the plight for CBS. Customers were treated as mere puppets in the hands of both the giants and they were not involved in any market research study. The public image of both the companies was tarnished badly during the feud. The audience was left as bystanders and no communication was made to them about the time from which they can get their CBS network back. The specific disadvantage was for Time Warner Cable because the customers had to face rude calls when they called the TWC helpline and had to wait long on lines. The negative image of TWC was accentuated by equipment malfunctioning and other previous hikes in subscription. CBS on the other hand had a positive image of providing popular entertainment (McGrath, “Feud With CBS Hit Time Warner Cable Profit And Subscribers”). Financial adversity for the company The existing literature points out those crisis managers have the role of minimizing reputational and financial losses. Crisis management was not devised effectively by CBS or TWC yet there was not much financial losses recorded. In the report published in the first quarter of 2013 it was revealed that there was a loss of 306,000 of its 11.7 million customers. The revenue of TWC was $5.52 billion while the targeted budget was $5.54 billion. Losing subscribers had negatively impacted TWC by an estimated value of $15 million customer credit issued during the blackout. The management had later responded by According to projections from analysts CBS was expected to lose $400,000 per day (Shonk, “The CBS – Time Warner Cable Dispute: Making a Bad BATNA Even Worse”). This was attributable to the lost from ads and retransmission. It was however assured to the investors that they would not come under any pressure as the fall of stock price expected from this crisis would be less than a penny. The management had strong belief on the customers that they would continue to be loyal to them and not the distributer. Time management a weakness The issue of time was a leading factor that had led to the hasty decision in settlement of the feud. The approaching football season and the extended Labour Day weekend had created a situation which could not be undermined by CBS or TWC. The deal between CBS and Verizon FiOS had provided the opportunity to CBS management to attain the same cost it had with TWC. This in turn had provided CBS with a PR victory. Moonves had later disclosed in a memo to its employees informing them that CBS has finally got its required compensation. Corporate politics Corporate politics had undermined the decision making process as CBS had been rigid in its decision about implementing fee hike. Negotiations did not provide any fruitful outcomes during the beginning of the feud. The decisions were taken impulsively without judging the consequences. For instance, after there was an abrupt offer made by TWC to include the a-la-carte package without forming a crisis management team or a spokesperson. Researchers had pointed out that media spokesperson and pre-gathered information about the organization is required for proficient management of crisis situation (Fassin and Gosselin, 170). Desire to improve profits on the part of CBS could be cited as the main factor that had driven its decision of fee hike despite the fact that it is one of the dominant players in the existing market. Positive policies or innovations The outcome from the conflict was winning of CBS and loss of TWC. This victory cannot be treated as beneficial as winning the battle by CBS would translate itself into a higher price for the customers in future. Additionally, the public dispute had revealed that content providers had an upper hand than distributers. This is necessarily bad because not only this provides content owners to dictate the market forces in the future but also all the other cable operators know that TWC was worse off even after putting up a fair fight. This sends a gloomy message to the viewers as well because the probability of subscription fees hike in the future is very high now given the fact that digital content owners are the ultimate factors in deciding market rates. Social Responsibility Ethical considerations Researchers had pointed out that crisis management can be related to ethical considerations in four different phases namely pre-crisis, crisis, recovery and learning. Virtue ethics and leadership are critical aspects that need to be followed by organizations to steer them from the crisis (Christensen, Fimreite and Lægreid 21). According to researchers ethical considerations in crisis management involves identification of ethical problems faced by members of an organization, lawyers involved in the case and counsels when any unfortunate events occur. There are certain aspects that have been described by researchers that need to be followed for adhering to ethical considerations like collaborating and coordinating with external sources, accepting uncertainty and maintaining partnerships with public (Fassin and Gosselin, 170). Code of conduct From the case of CBS Broadcasting and TWC it appears that there was no breach of statutory laws which created the crisis. It has been a simple case of a demand of rise of subscription fees and an appeal to maintain digital rights. The FCC had remained out of the legal battle as the case was simply one between two multinational companies and FCC was of the view that market forces will best decide the outcome of the event. Role of court The settlement was carried out of court especially after TWC had begun to face the heat of loss of subscribers and CBS signing a deal with Verizon. Problems increased for TWC when customers began to file lawsuits against TWC. Customers had complained regarding the “breach of contract” and “unfair business practices” followed by CBS. This implies that the value and integrity of TWC came under the radar of breach of ethics. No crime was however committed during the conflict and out of court settlement between the companies had kept the federal government out of the scenario. Role of government The government had deliberately remained out of the hassle and provided autonomy to the individual organizations. FCC Chairman Mignon Clyburn had threatened both the companies that stern action should be taken if no solution was reached soon (Shonk, “The CBS – Time Warner Cable Dispute: Making a Bad BATNA Even Worse”). The market forces were allowed to decide about the final result. Conclusion The crisis management issues of CBS Broadcasting and TWC had revealed few interesting insights about the problem. According to researcher’s best crisis management policies can be accomplished by following a set of pre-structured policies that involves proper communication with stakeholders, taking legal steps, conducting market research and exhibiting transformational leadership. The real life actions of CBS Broadcasting or TWC have however diverged from the path established in traditional wisdom. This is because the companies had raged war against each other by propagating negative publicity against each other. There was no consultation with the external stakeholders or market research regarding the crisis situation. Additionally, the customers were completely left unaware of the situation and they found their subscription denied to CBS networks. The CEO of CBS did not exhibit transformational leadership style by involving employees and other stakeholders in the decision-making process. The wrath of the customers however loomed large for TWC and suits were filed against it on account of breach of business ethics. The impasse was removed when TWC began to lose its subscribers and the football season was nearing. TWC agreed to the subscription hike and the digital content was retained with CBS as well. The outcome of this decision cannot be treated as beneficial both from the point of view of customers as well as the point of view of TWC. This is because other cable distributers had understood that content owners like CBS were in a better position to dictate future market prices and TWC was penalised for fighting a fair battle. Work Cited “CBS Corp Class CBS.” Morning Star. Morningstar, 2014. Web. 2 August. 2014. Auletta, Ken. “CBS, Time Warner Cable, and the Disruption of TV.” New Yorker. The New Yorker, 19 August. 2013. Web. 1 August. 2014. Boin, Arjen, and Allan McConnell. Preparing for critical infrastructure breakdowns: the limits of crisis management and the need for resilience. Journal of Contingencies and Crisis Management 15.1 (2007): 50-59. Print. Carter, Bill. “CBS Returns, Triumphant, to Cable Box.” The New York Times. The New York Times Company, 2 September. 2013. Web. 1 August. 2014. CBS Corporation. “Corporate Responsibility.” CBS Corporation. CBS Corporation and CBS Broadcasting Inc, 2014. Web. 1 August. 2014. Christensen, Tom, Anne Lise Fimreite and Per Lægreid. Crisis Management: The Perceptions of Citizens and Civil Servants in Norway. Administration & Society (2011): 19-31. Print. Coombs, Timothy.W. Ongoing Crisis Communication: Planning, Managing, and Responding. Thousand Oaks : Sage Publications, Inc, 2007. Print. Datamonitor. “CBS Corporation.” Ebscohost. EBSCO Publishing, July. 2011. Web. 1 August. 2014. Dougherty, Devon.Crisis Communications: What Every Executive Needs to Know. New York: Walker Publishing Company, 1992. Print. Drew, Stephen AW, and Terry Kendrick. Risk management: the five pillars of corporate governance. Journal of general management 31.2 (2005): 19. Print. Fassin, Yves and Derrick Gosselin. The collapse of a European bank in the financial crisis: an analysis from stakeholder and ethical perspectives. Journal of business ethics 102.2 (2011): 169-191. Print. McGrath, Maggie. “Feud With CBS Hit Time Warner Cable Profit And Subscribers.” Forbes. Forbes, 31 October. 2013. Web. 2 August. 2014. Regester, Michael, and Judy Larkin. Risk issues and crisis management in public relations: A casebook of best practice. London: Kogan Page Publishers, 2008. Print. Rubin, Robert S., David C. Munz, and William H. Bommer. Leading from within: The effects of emotion recognition and personality on transformational leadership behavior. Academy of Management Journal 48.5 (2005): 845-858. Print. Sayegh, Lisa, William P. Anthony, and Pamela L. Perrewe. Managerial decision-making under crisis: The role of emotion in an intuitive decision process. Human Resource Management Review 14.2 (2004): 179-199. Print. Sheaffer, Zachary, and Rita Mano‐Negrin. Executives Orientations as Indicators of Crisis Management Policies and Practices. Journal of Management Studies 40.2 (2003): 573-606. Print. Sheaffer, Zachary, Ronit Bogler, and Samuel Sarfaty. Leadership attributes, masculinity and risk taking as predictors of crisis proneness. Gender in Management: An International Journal 26.2 (2011): 163-187. Print. Shonk, Katie. “The CBS – Time Warner Cable Dispute: Making a Bad BATNA Even Worse.” Harvard Business School. The President and Fellows of Harvard College, 19 November. 2013. Web. 2 August. 2014. Time Warner. “Company.” TimeWarner. Time Warner, 2014. Web. 1 August. 2014. Zhang, Xin‐an, Qing Cao and Dean Tjosvold. Linking transformational leadership and team performance: a conflict management approach. Journal of Management Studies 48.7 (2011): 1586-1611. Print. Read More