Internal and External Environment of News Limited - Case Study Example

Executive Summary This report critically analyses both the internal and external environment of News Limited using the analytical tools: SWOT analysis and Porter’s Five Forces model. The analysis considers the changes and challenges that News Limited faces in the Newspapers and Information Services industries and how it can utilize its strengths to capture the opportunities ahead of them to deliver their products and services. Prior to the analysis, the company overview of News Limited is provided to show the businesses it is involved in; newspaper and magazine publishing, online data services, DVD and film distribution, PayTV and sports entertainment (News Corporation, 2012). SWOT analysis indicates the strengths, weaknesses in the internal environment and the opportunities and threats present in the external environment for News Limited. Porter’s five forces analysis indicate that News Limited is not badly placed in the media publishing industry. The financial analysis summarizes the company’s success and changing trend in the revenue generation over the past few years. Together with the analyses, they provide a blueprint on the strategic direction which can be effective for News Limited. Among the possible recommendations for the company are: utilization of the companies key strengths to circumvent their threats, to increase their capital base through expansion and diversification, producing differentiated products of high quality, and gaining customer loyalty. Table of contents Page Executive summary 1 Introduction 3 Company Overview 3 SWOT Analysis 4 Porter’s Five Forces 7 Financial Information 10 Recommendations 11 List of References 12 Appendices 13 Introduction News Limited is one of the largest media conglomerate companies in Australia publishing a number of metropolitan, suburban and regional newspaper titles, magazines as well as . The media publishing industry in which the company operates is highly concentrated; the top three players include News Limited, Fairfax Media Limited and APN. They account to over 87% of the total circulation, in both national and metropolitan market. There are other 36 regional daily newspaper publications in the industry supplying the rural, suburban and community market. SWOT and Porter’s five forces analysis of News Limited help to examine the external and internal environment of the company (Ferrell and Hartline 2008). Carrying out these analyses will not only assist in determining the general conditions within the media publishing industry, but also the competitive positioning of News Limited in the industry. Company Overview Since its establishment in 1923 as a publisher of The News, a daily newspaper in Adelaide, News Limited has expanded into one of the largest media conglomerate companies in Australia. Bruce (2003) describes The News as the “foundation stone” of News Limited founded by Sir Keith Murdoch and was later inherited by his son, Rupert Murdoch, following his death in 1952.The company’s primary business remain to be newspapers; it publishes a number of metropolitan, suburban and regional newspaper titles including The Australian, the country’s nation’s daily newspaper. News Limited has also developed a range of new businesses, including magazine publishing (News Magazines), online and data services (News Digital Media), DVD and film production and distribution (Fox Studios Australia), Pay TV (Foxtel), market research, music entertainment as well as sports entertainment (FoxSports Australia; National Rugby League) (News Corporation Inc. 2012). Since 1979, News Limited became wholly owned by News Corp Limited and ceased to be the principle holding company for Rupert Murdoch’s business interests, and in 2004, the company was reincorporated to the United States and started trading on the New York Stock Exchange rather than the initial trading at the Australian Stock Exchange (News Corporation Inc. 2012). The Chief Executive Officer of News Limited is currently Kim Williams who took over John Hartigan after resigning as the chairman and CEO of the company in November 2011. At the same time News Corp’s boss, Rupert Murdoch, took over the post of chairmanship. SWOT Analysis As an internal analysis instrument, this report utilizes the SWOT analysis to create a quick overview of News Limited’s strategic positioning. It will help in understanding a good fit for News Limited by maximizing the company’s strengths and opportunities and minimizing its weaknesses and threats. Table 1. SWOT analysis Location of Factor Type of Factor Favourable Unfavourable Internal Strengths Offers diversified media and entertainment businesses that include filmed entertainment, direct broadcast satellite television, cable network programming, newspapers and information services, book and magazine publishing, digital technology and services, as well as outdoor and internet activities (News Corporation 2012). Good financial performance exhibited by consistent revenue and profit growth. The company’s revenue increased by approximately 19% in fiscal year ended June 30, 2010 as compared to fiscal 2009 resulting into an increase in the operating income of the company by an approximate of 16% (News Corporation 2012a). Expansion into the international market has made the company more globalized and enabled it build strong brands that are recognized internationally attracting different categories of customer. Under the umbrella of News Corp, the company has expanded into the US, the UK, continental Europe, Asia and Latin America (News Corporation 2012). The ability to diversify and transform from the conventional media industry and develop new products that meet the changing demands of consumers. The diversification helps in filling the gap in consumer demands among various demographic groups within the marketing mix. The company’s “ability to provide the highest quality and broadest array of content to the greatest number of people, whenever, wherever and however they want it - at a reasonable price” (News Corporation 2012a, p. 10). Weaknesses The company focuses too much on the high end diversification and acquisitions in spite of the risky impact of their decisions. Lack of succession plans-the company has no clear plans on who takes over the CEO of News Corp, Murdoch. Sovereign debt pressures bring a deficit in the company and hinder its financial capacity to fund their future commitments and obligations (News Corporation 2012a). External Opportunities The company’s ability of continuously developing new generations of more advanced media services offers News Limited the opportunity to tap into more markets to distribute the outputs of their innovations in the TV, media as well as the internet industry. Technological development in the company i.e. a transformation from the conventional TV distribution to digitalization gives the company an opportunity to harness the power of technology so as to advance consumer media experience in a new manner (News Corporation 2012b). The development of new devices, e-readers and smart phones, offer News Limited tremendous opportunity that will allow consumers to access their news, sports and entertainment services. The company’s brands will have the opportunity to collaborate on e-reader, iPad and other mobile device offering and thus be able to reach more people. The acquisition of Dow Jones in December 2007 positioned the company as a leader in the information and financial news market and further enhanced the company’s ability to effectively adapt to “future challenges and opportunities within the Newspapers and Information Services segment and across the Company’s other related business segments”( News Corporation 2012a, p. 54). The company’s investment in sports will enable it to sign multi-year sports agreements of broadcasting various sports activities that will in turn result in extra income. Threats The rising popularity of digital video recorders (DVRs) poses the potential risk of reducing the advertising revenues for the company which might in turn have a negative impact on the performance of the company. The growth online video offers an alternative media for customers and thus affecting the sale of the company’s products and services. “Foreign currency exchange risks associated with the cost for producing or acquiring films and television programming abroad” (News Corporation 2012a, p.60). Porter’s 5 Forces As an update to his revolutionary1979 HBR article, Porter (2008) explains how the established rivals, savvy customers, powerful suppliers, aspiring entrant, and substitute offerings (referred to as competitive forces) can hurt a player’s prospective profits. These competitive forces can be used to analyze the industry in which News Limited operates and help in determining the strategies that the organization can use to maintain its market edge as well as competitive advantage in the industry. Table 2. Porter's Five Forces Force Impact on News Limited Threat of new entrants New entrants do not pose a great threat to the company. Entering the newspaper printing and publishing industry is extremely difficult due to the high costs involved. The risk that high marketing expenditure would not pay off deters new entrants into the market. The price wars among the incumbent companies seem unfavourable for new entry competition. Difficulty in liquidating assets, existence of numerous regulations in regard to the disposal of waste and already established customer loyalty for the existing players serves as barriers to new entrants thereby reducing the threat by these competitors on News Limited. New entrants also need to capture a great number of customers: they have to spend more on promoting and advertising their brand name and products. This high costs deters new entrants from entering into the newspaper printing and publishing industry. Bargaining power of suppliers The suppliers for the newspaper printing and publishing industry include papers, inks and journalists. There are many journalists as well as suppliers of the stationeries hence their bargaining power in the industry seem to be low. For instance, News Limited may decide to cut down jobs by having only one team of journalist for their various newspaper brands as an alternative of having many teams. Bargaining power of buyers The bargaining power of buyers is relatively low. The enactment of the Education Act of 1872 (Vic) and the Public Instruction Act of 1880 (NSW) that made education compulsory for children above six years of age led to an increase in literacy among the population. This implies that the number of potential customers for the newspapers is high and therefore lowering their bargaining power. However, this force is raised with the presence of online publishing and presence of other competitors within the industry to whom they can switch to. Threat of substitute products or service Substitute products exist in the media publishing industry more especially to the newspapers and online data services. Electronic newspapers offered by various companies are in the rise: this alternative technology (environmentally friendly) is a new source of competition to the printed newspapers offered by News Limited. Also, the rising popularity of digital video recorders (DVRs) can be seen as substitute products in the industry. They pose the potential risk of reducing the advertising revenues for the company which might in turn have a negative impact on the performance of the company. This force is therefore considered to be high. Degree of rivalry among existing competitors The media publishing industry is estimated to have high concentration. The consolidated newspaper revenue for the four largest players in the industry account for almost 76 % of the industry’s total revenue. The degree of rivalry in the industry is increasing with each player seeking to offer quality products and better services in attempts to gain competitive advantage against other competitors. Although there are numerous players in the industry raising the degree of rivalry in the market, News Limited has managed to control 70 % of circulation, in both national and metropolitan newspaper market, followed by Fairfax Media Limited which controls about 23%. Financial information News Limited’s financial information is consolidated within the financials of the larger holding, News Corporation. Despite the difficult business environment, News Corporation revenue has increased over the past three fiscal years since 2009 (see Appendix 1). Similarly, their cash and cash equivalents has increased in the past four fiscal years. The revenues for the company increased by 2% for the fiscal year that ended in June 30, 2011 as compared to the fiscal year 2010; further to a previous increase of 8% for the fiscal year ended 2010 as compared to the fiscal year ended 2009. This is primarily attributable to the revenue increase in television, cable network programming and publishing segments with increases in net affiliate, advertising revenues as well as favourable foreign exchange fluctuations (News Corporation 2012b). According to the Annual Report 2011, the operating expenses also increased by $43 million for the fiscal year ended June 30, 2011 as compared to fiscal 2010 due to higher programming costs at the Television and Cable Network Programming (News Corporation 2012b). However, the operating expenses were partially offset by lower participation costs and lower amortization of production costs at the Filmed Entertainment. Recommendations News Limited should concentrate and utilize their key strengths: diversification, good financial performance, their ability to expand and high quality and deal with their weaknesses: debt pressures, succession plans and diversification risks in a way that Katsioloudes (2006) regards as turning them to be strengths. They should formulate a succession plan, reduce their sovereign debts and consider the risks involved before implementing any expansion strategy. To circumvent the threats such as the rising popularity of DVRs, unfavourable foreign exchange fluctuations and the general weakness in the advertising industry, News Limited should consider and invest in the opportunities within the external environment. By tapping into more markets, advancing consumer media experience, collaborating with e-reader, iPad and other devices to reach more people, encouraging interactivity and enhancing their coverage, the company will be able to stand abreast in gaining competitive advantage in the industry. The company should produce quality products and services as well as adopt a unique advertising approach so as to compete favourably within this concentrated industry. Offering quality products also helps in maintaining the bargaining power of buyers low. The bargaining power of suppliers can be further reduced by creating good relationships with them. Finally, the threat of substitute goods can be resolved through customer loyalty that can be attained by the use of good customer relations and offering quality products and services. List of references Bohm, A 2009, The SWOT Analysis, GRIN Verlag, New York. Bruce, P 2003, The Murdoch Archipelago, Simon &​ Schuster, London. Ferrell, OC and Hartline MD 2008, Marketing Strategy, 4th edn, Cengage Learning, Mason, OH. Hemmatfar, M., Salehi, M. & Bayat M 2010, “Competitive advantages and strategic information system, international journal of business management, 5(7), pp. 158-169. Katsioloudes MI 2006, Strategic management: Global cultural perspectives for profit and non-profit organizations, Butterworth-Heinemann, London. News Corporation 2012a, Annual Report 2010 [online]. Available at http://www.newscorp.com/Report2010/AR2010.pdf [Accessed 02 February 2012]. News Corporation 2012b, Annual Report 2011 [online]. Available at https://materials.proxyvote.com/Approved/65248E/20110822/AR_101154/HTML2/default.htm [Accessed 02 February 2012]. News Corporation Inc. 2012, News Corporation [online]. Available at http://www.newscorp.com/ [Accessed 02 February 2012]. Porter, M 2008, “The five competitive forces that shape strategy”, Harvard Business Review Journal, pp.79-93 Appendices Appendix 1. Selected Financial Data for News Corporation 2011 The selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements and Supplementary Data" and the other financial information included elsewhere herein. For the years ended June 30, 2011(1) 2010(1) 2009(1) 2008(2) 2007(2) (in millions, except per share data)   Statement of Operations Data: Revenues $ 33,405 $ 32,778 $ 30,423 $ 32,996 $ 28,655 Income (loss) from continuing operations attributable to News Corporation stockholders   2,993   2,539   (3,378)   5,387   3,426 Net income (loss) attributable to News Corporation stockholders   2,739   2,539   (3,378)   5,387   3,426 Basic income (loss) from continuing operations attributable to News Corporation stockholders per share:(4) Class A Class B   $ 1.14   $ 0.97   $ (1.29)   $ 1.82     $ 1.14 $ 0.95 Diluted income (loss) from continuing operations attributable to News Corporation stockholders per share:(4) Class A Class B   $ 1.14   $ 0.97   $ (1.29)   $ 1.81     $ 1.14 $ 0.95 Basic income (loss) attributable to News Corporation stockholders per share:(4) Class A Class B   $ 1.04   $ 0.97   $ (1.29)   $ 1.82     $ 1.14 $ 0.95 Diluted income (loss) attributable to News Corporation stockholders per share:(4) Class A Class B   $ 1.04   $ 0.97   $ (1.29)   $ 1.81     $ 1.14 $ 0.95 Cash dividend per share:(4)(5) Class A Class B $ 0.150 $ 0.135 $ 0.120   $ 0.120 $ 0.110   $ 0.120 $ 0.100   As of June 30, 2011 2010 2009 2008 2007 (in millions)   Balance Sheet Data: Cash and cash equivalents $ 12,680 $ 8,709 $ 6,540 $ 4,662 $ 7,654 Total assets 61,980 54,384 53,121 62,308 62,343 Borrowings 15,495 13,320 14,289 13,511 12,502 (1) See Notes 2, 3, 4, 6 and 9 to the Consolidated Financial Statements of News Corporation for information with respect to significant acquisitions, disposals, changes in accounting, impairment charges, restructuring charges and other transactions during fiscal 2011, 2010 and 2009. (2) Fiscal 2008 results included the Company's acquisition of Dow Jones for consideration of approximately $5.7 billion. The consideration consisted of approximately $5.2 billion in cash, assumed net debt of $330 million and $200 million in equity instruments. In addition, fiscal 2008 results included the share exchange agreement with Liberty Media Corporation ("Liberty"). Liberty exchanged its entire interest in the Company's common stock in exchange for the Company's entire interest in The DIRECTV Group, Inc. ("DIRECTV"), three of the Company's Regional Sports Networks and approximately $625 million cash resulting in a tax-free gain of approximately $1.7 billion. (3) Fiscal 2007 results included the disposal of the Company's investment in SKY Brasil to DIRECTV resulting in a total pretax gain of $426 million of which $261 million was recognized in fiscal 2007. The remaining $165 million was realized when the Company's interest in DIRECTV was disposed of in fiscal 2008. (4) Shares of the Class A Common Stock carried rights to a greater dividend than shares of the Class B Common Stock through fiscal 2007. As such, for the periods through fiscal 2007, net income available to the Company's stockholders was allocated between shares of Class A Common Stock and Class B Common Stock. The allocation between these classes of common stock was based upon the two-class method. Subsequent to the final fiscal 2007 dividend payment, shares of Class A Common Stock ceased to carry any rights to a greater dividend than shares of Class B Common Stock. (5) The Company's Board of Directors (the "Board") currently declares an interim and final dividend each fiscal year. The final dividend is determined by the Board subsequent to the fiscal year end. The total dividend declared related to fiscal 2011 results was $0.17 per share of Class A Common Stock and Class B Common Stock. The total dividend declared related to fiscal 2010 results was $0.15 per share of Class A Common Stock and Class B Common Stock. Source: News Corporation 2012b, Annual Report 2011 Read More