The News Corporation (TNC) Strategy - Case Study Example

The News Corporation (TNC) Strategy Table of Contents I. Introduction ………………………………………………………………… 3 II. Strategic Position of TNC in 2004 ……………………………………… 4 a. SWOT Analysis: TNC …………………………………………. 4 a. Strength ………………………………………………….. 4 b. Weaknesses …………………………………………….. 5 c. Opportunity ………………………………………………. 5 d. Threat ……………………………………………………... 6 III. Rationale and Motivation behind TNC’s Strategy of Diversifying into Satellite Broadcasting ……………………………….. 7 IV. Advantages and Disadvantages of Acquisition……………………….. 9 V. Recommended Strategic Plan for TNC from 2004 Onwards …….... 10 VI. Conclusion ………………………………………………………………... 10 Appendix I – Past Five Years Financial Highlights (in US$ in millions) …… 12 Appendix II – Past Five Years Operating Income by Industry Segment (in US$ in millions) …………………………. 13 Appendix III – SWOT Analysis: The News Corporation (TNC) ……………… 14 References ……………………………………………………………………… 15 - 17 Introduction The News Corporation (TNC) was established since the early 1950s. In 1958, a lot of critiques were questioning the company’s capability to run both newspapers and TV broadcasting under one corporation. (News Corporation, 2008) Despite the tight competition in the global commercial media market, the total annual revenues of the company has reached as much as $28.6 million in 2007 as compared to $25.3 million in 2006. (Murdoch, 2007: 37) As one of the largest and most diversified entertainment company, TNC offers a wide-range of services related to filmed entertainment, television, cable network programming, direct broadcast satellite television, magazines and inserts, news papers, book publishing and other services such as advertising business, internet activities under the Fox Interactive Media (FIM), and content providers for NDS which supply digital pay-television services to global markets. (Murdoch, 2007: 39 - 40) For this study, the researcher will discuss the strategic position of TNC in 2004 which significantly contributes to the current success of the business. In line with analyzing TNC’s strategic position, the researcher will use SWOT analysis (Hill & Westbrook, 1997) to evaluate TNC’s Strength, Weaknesses, Opportunities, and Threats involved in the business. The researcher will also discuss the rationale and motivation behind TNC’s strategy to diversifying the company into satellite broadcasting as well as highlighting the advantages and disadvantages of its past acquisitions as a method of expanding the business. Prior to the conclusion, the researcher will recommend a strategic development plan for TNC starting 2004 onwards. Strategic Position of TNC in 2004 Since 2004, TNC has made a major strategic move on improving and expanding its satellite distribution platform. The main goal for this major decision is to enable the company to become the first and the world’s largest media corporation that uses digital technology. In the process of expanding its satellite infrastructure, the company acquired both DIRECTV and Sky Italia. SWOT Analysis: TNC Strength The strength of TNC includes a strong dedication and commitment from its top management and employees towards its corporate vision. (Murdoch, 2004: 4) Having a strong organizational culture or a collective attitudes, experiences, beliefs and values shared by group of people within an organization enables TNC’s top executives to easily implement necessary changes that could make the company competitive in the global market. In the process, organizational values could develop into an organizational norm, guidelines or expectations that are prescribe as an appropriate and accepted behaviour of employees in a specific situation. (Hill & Jones, 2001) TNC’s top executives’ ability to foresee the future preferences of its customers enable the company to be the top priority of most audiences. According to Rupert Murdoch –the chief executive officer of TNC, effectively providing their valued customers with a high quality service and a wide-range of choices is one of the key ingredients behind the success of the company. (Murdoch, 2004: 4) The managers’ ability to establsh international strength in terms of having a strong technical media expertise and human resources all over the world also contributes to the profitability of TNC. (Murdoch, 2003: 8) Weaknesses The TNC management is focusing too much on the development of its satellite broadcasting. The top management fails to give more attention to the increasing net loss on the profitability of its other services. Other TNC’s services such as: (1) the NDS Group Plc or the ‘NDS’ 1; (2) the News Outdoor Group also known as the ‘News Outdoor’2; and (3) the Fox Interactive Media or ‘FIM’3 is continuously incurring an increasing negative operating income between the periods of 2003 to 2007. (See Appendix II – Past Five Years Operating Income by Industry Segment on page 13) Opportunities: Opportunities for TNC should focus on the development of its technology and human resources. The decision of the company to focus on successfully delivering short-term results as well as building a long-term value of investing in satellite broadcasting creates a huge opportunity in terms of economic success of the business. In line with the continuously increasing profitability of the business between the years 2003 to 2007, the continuous development of ‘Direct Broadcast Satellite Television’ through the acquisitions of DIRECTV and Sky Italia shows a significant increase in the global demand for digital satellite services. (See Appendix I – Past Five Years Financial Highlights on page 12; Appendix II – Past Five Years Operating Income by Industry Segment on page13) TNC should also continuously invest on research and development (R&D) group to enable the company to strengthen its digital technology in order to compete with the frequency of other digital satellite broadcasting stations. Continuously expanding its digital facilities via acquisitions will enable TNC serve a bigger portion of the global market rather than focusing on the U.S. market alone. Threats Anything that could result to a sudden decrease in TNC’s revenue and profitability, such as the competition in the market caused by new competitive media operators or government intervention by suddenly increasing the taxes on communications services, is a great threat for the company. Considering the huge amount of investment the company has spent on acquiring both the DIRECTV and Sky Italia, the company cannot afford not to make enough profit to pay back its debt. Among the superior global participants in the digital public broadcasting services include: (1) BBC in UK; (2) Nippon Hoso Kyokai (NHK) in Japan; (3) the Elliniki Radiofonia Tileorasi (ERT) in Greece; (4) Radio Telefis Eireann (RTE) and TG4 in Ireland4; and (5) Radio Televisione Italia (RAI) in Italy. BBC and ITV entered into a joint venture as ‘Freesat’ to offer Digital Terrestrial Television (DTT) services to the public. As of 2007, Freesat aims to target as much as 27% of the global market shares. (Guardian.co.uk, 2007) Back in December 2003, terrestrial digital broadcasting was launched in Kanto, Chukyo, and Kinki. As of December 2005, NHK expanded its DTT services in Tohoku region, Tochigi and Gunma Prefectures. According to NHK, “the degress of frequency congestion in Japan is approximately 50 times more than the United States’.” (HiQ, 2006) Although ERT is only a small player that serves 8% of the global market shares (Cheng, 2000), the amendment on Law 2328 in 1999 shows the strong support of the European Commission regulation DGXIII on the Ministry of Press and the Mass Media. In line with this matter, ERT launched its first DTT in January 2006. (Digitag, 2006) RTE is also planning to establish its own DTT services since the Act of the Oireachtas requires the local broadcasting networks to establish its own DTT upon broadcasting free-to-air channels and pay-tier multiplexes. (Oireachtas, 2007) Particularly the RTE project will be financed by the State. (Lowe, 2006) Similar to RTE, RAI in Italy is also required to upgrade its systems from analogue to digital under the Italian Law 66/2001. (RAI, 2006) In 2008, the U.S. economy is facing a serious economic slowdown. (Walsh, 2008) Considering that 76% of TNC’s revenue comes directly from U.S., there is a possibility that the company could experience a sudden decline in revenue in years to come. (Murdoch, 2003: 4) In case the U.S. economy fails to stabilize soon, there is a strong possibility that the number of U.S.-based advertisers could decrease accordingly. (See SWOT Analysis: The News Corporation on page 14) Rationale and Motivation behind TNC’s Strategy of Diversifying into Satellite Broadcasting Electronic technology has been constantly changing over the years. Today, the technological trend is slowly shifting from the use of cable to satellite broadcasting. For TNC to maintain its position as the largest entertaining company that uses the most advanced technology; there is a strong need for the company to invest in expanding its current satellite networks. In the process of technological transformation, TNC is slowly shifting from a traditional media company into a major global digital player. (Murdoch, 2006: 4) Aside from TNC’s existing BSkyB and Foxtel in Australia, the company invested as much as US$6.8 billion on DIRECTV. (Murdoch, 2004: 76The process of TNC’s acquisition on 34% interest of Hughes Electronics, now re-named as The DIRECTV Group, was completed in 2004. (Murdoch, 2004: 5) TNC’s main purpose on investing in DIRECTV is to increase the capacity of the company’s global satellite pay-TV platform. In the process, the company could serve as much as 30 million worldwide subscribers from its 13 million subscribers as of 2004. The numer of DIRECTV subscribers aggressively increased to13.7 million in 2005 and additional 850,000 in 2006. (Murdoch, 2006: 8; 2005: 7) Aside from TNC’s investment on DIRECTV, the company also established Sky Italia be merging its Stream platform with its former competitor the Telepiu. (Murdoch, 2003: 9) In 2005, the company acquired 20% of Telecom Italia’s share in SKY Italia making SKY Italia fully owned by NTC. (Murdoch, 2005: 5) Through Sky Italia, the company was able to develop and create more than 2 and 3.3 million subscribers in Italy as of 2003 and 2005 respectively. (Murdoch, 2003: 9; 2005, 7) In 2007, the total number of Sky Italia subscribers is roughly more than 4 million. (Murdoch, 2007: 24) The significant increase in the trend of Sky Italia subscribers alone reflects a promising market for digital satellite business in the long run. The combination of DIRECTV and Sky Italia will strengthen the long-term satellit distribution platforms of TNC. Basically, building the world’s largest distribution platform will enable the company to have a better control over its other competitors throughout the world market by enabling the entire business group under The News Corporations to enjoy the benefits and more savings from the operational costs attached with the concept of economies of scale. In the process, TNC could easily increase the size of its constantly growing subscription bases in exchange with providing its loyal customers with a digital-quality pictures straight to their home TV at a much lesser costs. (Murdoch, 2004: 6) Advantages and Disadvantages of Acquisitions One of the advantages of acquisitions5 is the immediate growth on the part of the buyer. When a company decides to expand its business operations through acquisitions, the company is able to gain the benefits of having better economies of scale in order to meet the market demand. A few years after TNC acquired DIRECTV and Sky Italia, TNC’s Direct Broadcast Satellite Television started to earn increasing revenues since 2006. (See Appendix II – Past Five Years Operating Income by Industry Segment on page 13) Economies of scale is necessary in the profitability strategy of the company since it will enable them to save more money in line with the fixed operational cost. By doing so, TNC will be able to render its services at a much affordable market price. In the process of acquiring a prospective company, TNC is expected to earn more profit since the acquisition of the satellite infrastructure could make the company more competitive in the global market. (Gugler & Mueller, 2003) Considering the tight competition in the global market today, acquisitions as a strategy for growth enables TNC acquire new assets and technology necessary to improve its products and services within the shortest possible time. Despite the promise of good profitability attached with acquisitions, not all companies that acquire another existing company will be able to experience a benefit in terms of profitability. Basically, the cultural differences between the companies are common factors that could trigger serious management problems. Based on a survey study, approximately 83% of the responders agree that entering into a merger and acquisition could become unsuccessful when it comes to generating business benefits related to the shareholder value. (Kelly, Cook, & Spitzer, 1999) Recommended Strategic Plan for TNC from 2004 Onwards TNC should focus on developing and strengthening its Digital Terrestrial Television through acquisitions of existing companies that has already established its own DTT. By expanding its technological infrastructure, TNC will be able to maintain its existing customers and eventually expand into the global markets. Another strategy on strengthening its technical capabilities is to maintain a competitive research and development (R&D) group. Conclusion TNC’s investment on satellite broadcasting is a good strategy to keep the company ahead with the latest media technology. Through acquiring a company that has a ready DTT infrastructure, TNC could easily expand its digital network needed in expanding its existing domestic and international markets. In line with the huge debt attached with the acquisitions, TNC management should maintain the company’s profitability by staying alert on potential external factors that could negatively affect its annual revenues. *** End *** Appendix I – Past Five Years Financial Highlights (in US$ in millions) 2007 2006 2005 2004 2003 Total Revenues 28,655 25,327 23,859 20,802 17,380 Operating Income 4,452 3,868 3,564 2,931 2,380 Net Income 3,426 2,314 2,128 1,533 822 Basic Earnings Per Share Class A 1.14 0.92 0.74 0.58 0.33 Class B 0.95 0.77 0.62 0.49 0.28 Source: TNC – Annual Report 2003 – 2007. Appendix II – Past Five Years Operating Income by Industry Segment (in US$ in millions) 2007 2006 2005 2004 2003 Filmed Entertainment 1,225 1,092 1,058 905 641 Television 962 1,032 952 950 851 Cable Network Programming 1,092 864 702 488 430 Direct Broadcast Satellite Television 221 39 (173) (277) (68) Magazines and Inserts 335 307 298 271 256 Newspapers 653 517 740 565 400 Book Publishing 159 167 164 157 133 Others (193) (150) (177) (128) (111) Source: TNC – Annual Report 2003 – 2007. Appendix III – SWOT Analysis: The News Corporation (TNC) Strength Weaknesses Opportunities Threats Dedicated and committed employees to corporate vision. (Murdoch, 2004: 4) TNC’s top management fails to give more attention to the increasing net loss on the profitability of its other services Focus on delivering short-term results as well as building a long-term value of investing in satellite broadcasting. Other media operators start to enter into mergers and acquisitions to become one big competitor of TNC. i.e. BBC in UK, NHK in Japan, RAI in Italy, ERT in Greece. Effectively provides valued customers with quality service and choice. (Murdoch, 2004: 4) Continuous investment on R&D to compete with the frequency of other digital broadcasting stations. Radio Telefis Eireann (RTE) in Ireland and Elliniki Radiofonia Tileorasi (RAI) in Greece proposed a plan to establish digital terrestrial television. (Moynes, 1999) Strong ability to establish international strength in terms of having a strong expertise and resources around the world. (Murdoch, 2003: 8) Continuously expand its digital facilities via acquisitions. Digital frequency congestion in Japan is approximately 50 times more than the United States. (HiQ, 2006) Ability of management to foresee the future preferences of its customers. Freesat aims to target as much as 27% of the global market shares in 2007. 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