Distinguishing between Concentration and Competition - Assignment Example

1. Executive Summary Dynamism is trademark of business. An organisation is continuously subjected to various internal and external factors which compel it to keep adjusting in order to sustain. Similarly the journey of NewsCorp is also full of various strategic changes. This assignment has endeavoured to analyse NewsCopr from various perspectives which includes industry analysis; internal and external company analysis highlighting its strengths, weaknesses, opportunities and treats; the analysis of its key segments of viewers across geographies and services offerings; competitor analysis. The assignment has also laid down some recommendations on the future strategies that NewsCorp can adopt based on the analysis carried out. 2. Introduction 2.1. Case Study Overview The NewsCorp was a family business which started in 1923 in Australia, under the leadership of Keith Murdoch. When Rupert Murdoch, took over the business, he established two national magazines, the only national newspaper in Australia and some 20 plus provincial news dailies, within a period of 30 years. These achievements gave the company a strong base to venture out as a global media conglomerate. The given case study puts forward opportunity to observe and analyse the business strategy or logic of a global media conglomerate from various perspectives. From one perspective the business logic of NewsCorp’ strategic development has been considered from the viewpoint of prospective value adding roles in reaction to the changes occurring in the ambience in which the company has been performing especially the response to the technological or political changes. Second perspective is here is in consideration of the outlook, principles and consequential plan of the top management running the business. It is to be emphasized that in case of NewsCorp, the governing persona of Rupert Murdoch has overwhelmingly influenced the NewsCorp’s strategic development. This analysis has covered a number of issues in exploring Corporate Strategy vis-a-vis the industry, company, consumer and competitive scenario. The recommendations based on the analysis have been provided based on three aspects. The first and foremost is regarding building up the corporate level strategies taking into account the environmental context within which the company has to operate. The second is to emphasize how corporate level principles, ambition and approach of a leading personality influenced these strategies. The last is to consider the friction that played between the objective perspective on corporate strategies and the subjective approach indicated by some of the Murdoch’s decisions. One can draw many lessons from this case. However, one of the prominent one is that the corporate head or the top management can satisfy a range of business logics for the business operations, but not all of these can be considered as rational business logic or in the best interests of the company. 3. Analysis 3.1. Industry Analysis The Industry Analysis focuses on Porters Five Forces Model, which “includes the threat of new entrants, the relative power of suppliers to the industry, the relative power of buyers (customers) from the industry, and the existence of substitutes.” (Hubbard, et. al. 2008) These forces are summarised in relation to global media industry and the market within which it operates. The threat of new entrants integrating into the industry is low. The analysis revealed certain barriers do currently protect industry players to a certain extent. The advantage of current firms utilising economies of scale as well as their respective brand identities does dissuade new entrants, thus protecting current market share. However the service differentiation is no longer sustainable and capital requirements are manageable, meaning a new business could potentially enter the market and attempt to erode current profit margins. Taking a holistic view, the industry seems to be in growth phase of its life cycle. However, the growth is not uniform across the globe. It varies from one market to other. For an example, the emerging market like India and China has immense potential for this industry which is witnessing double digit growth rates i.e. around 10%. At the same time, the Western Europe has developed into a matured market having the growth rate of hardly 3-4%. When discussing the bargaining power of suppliers (for this industry these are the services support firms) it must be understood this is a variable and relative measure. A supplier’s bargaining power is usually determined by its market position, its relationship and worth to the relevant services provider, and how important the support services is to the services provision. Therefore it is a variable factor determined by individual circumstances. Although a uniform conclusion cannot be determined suppliers are in fact universally strong in regards to their bargaining power. The compatibility issue makes a supplier very specific to a firm. This increases the dependence of the firm on its supplier. But at the same time since the industry is knowledge specific, the chances of vertical integration by the supplier is very feeble. Bargaining power of buyers (for this industry, it is the client base) is quite high. If the service is sufficiently differentiated to be a unique item, buyers have little ability to affect the profitability of such services, assuming it has something they want and are willing to pay for. If however similar services can be attained elsewhere then bargaining power of buyer’s increases exponentially. This is becoming evident in the light of the fact that differentiations are no more sustainable. As a matter of fact, the possibility of backward integration is also negligible as the industry is knowledge intensive. The growing power of substitutes is the most defined threat when it comes to current firms’ long-term survival. Because there is a vast array of readily available, cheap, convenient, and in many cases superior substitute for these services, the industry in question must continue to differentiate their services from that of such substitutes. It should be noted the power of substitutes depends on how one defines the industry. The substitutes are abundant for products and services of general use but are very restricted for specific one. The final of Porters five forces that must be considered is the intensity of industry rivalry. Rivalry is high and this environment can be attributed to continued industry growth, but the fact that companies compete within same market segments meaning the individual share is diminishing. The low exit barrier also aids to this. From the Industry Analysis undertaken for this industry, one can conclude that the continued survival and profitability of an industry are conducive but challenging for sustained industry growth. Items Issue Analysis New Entrants Economies of Scale: Reluctance of new players supports it. Services Differences: Services differentiation is no longer sustainable. Brand Identity: Brand identity becomes more important and sustainable. Expected Realisation: More prominent. Impact Ranking: Low Industry Rivalry (Competitors) Industry Growth Rate: Rapid because in increasing market size. But Individual share is diminishing. Brand Identity: Frequent Attempts to tarnish rival’s brand identity. Switching Costs: Switching cost is low for consumers. Exit Barriers: Exit barrier is low for firms due to less capital and more intellectual intensive nature of industry. Impact Ranking: High Suppliers Differentiation of Inputs: High as supplier is specific to firms. Switching Costs of Suppliers: High as compatibility issue is concerned.. Presence of Substitute Inputs: Immense because of ongoing technological breakthrough. Threat of Forward Integration: Very less as it is highly knowledge intensive. Impact Ranking: Moderately High Buyers Switching Costs of Buyers: Low as abundant availability of options. Buyer Concentration (relative to industry): company wise it is very fragmented. But is overall high relative to industry per se. Buyer Profitability: Greatest among all stakeholders as market is majorly price sensitive. Threat of Backward Integration: Almost difficult being highly knowledge and capital intensive. Impact Ranking: High Substitutes Relative Substitutes: Abundant for general purpose but scares for specific applications. Switching Costs: Very low as because of abundant options available. Buyer Propensity to Substitute: Very high as buyer is the real gainer of the improved situation. Impact Ranking: High Table 1: Porter Five Forces Analysis for Global Media Industry 3.2. Company Analysis (SWOT) News Corporation has a diversified media and entertainment business. This being a great advantage for the company as on account of being diversified across various vertical in the industry, NewsCorp is able to cope with a downturn in any particular vertical. A SWOT analysis as under represents various factors impacting the company’s operations. The strength and the weaknesses have been analysed based on the internal impacting factors whereas the opportunities and treats have been analysed based on the external environment in which the company is operating. Location of Factors Favourable Factors Unfavourable Factors Internal Strengths Diversified media and entertainment business Consistent revenue and profit growth Strong library content Weaknesses Lack of succession plan External Opportunities Acquisition of Dow Jones Increasing newspaper and broadcasting market Growth of HDTV market Multi-year sports rights agreements Threats Rising popularity of DVRs (Digital Video Recorders) Economic slowdown in US Regulatory risks Table 2: SWOT Analysis for NewsCorp 3.3. Customer Analysis Starting from inception, over period of time, NewsCorp has gradually become a highly diversified media company. From its initial Australian print-media base the company undertook geographic diversification via print-media acquisitions in the UK and the USA. The NewsCorp has grown through expanding its operations into new geographical regions like Asia, Latin America, US and UK etc. It has also grown across the verticals which included newspaper business and went on to global broadcasting television. For example they expanded from a primary movie channel to Sky Sports channel; this had the amazing result of more than a million new subscribers in a time frame of less than six weeks. The reason for their success was because they had identified a new market and immediately established themselves in it. It always had a core vision to provide as many consumers as possible with the highest quality content through the most convenient distribution channels, which motivated the company throughout their business history. The various offerings to various customer base spread across different geographical locations have been enumerated in the table below. This indicates the preferred services and offerings to its different customer base spread across the globe. UK & Europe Asia Japan Latin America Australia & New Zealand Broadcasting, Cable/ Satellite TV BSkyB Stream Balkan News Corp. STAR TV Channel [V] Phoenix Satellite TV ESPN STARSports Vijay TV Viva Cinema Zee Telefilms Space Shower Networks Taiwan Cable Systems Hathway Cable and Datacom SKY PerfecTV! News B’casting Japan JSky Sports Sky Movies Nihon Eiga Satellite B’casting Cine Canal Sky Latin American DTH Platforms * Mexico- Innova * Brazil – NetSat * Sky Multi- County Partners FOXTEL Fox Sports Aust. Sky Network TV Movie Production & Distribution Fox Studios Baja Canal Fox Telecine Other Interests NDS Broad system The Wireless Group Sky Radio Radio 538 News Outdoor Group Beijing PDN Xinren Information Technology 21CN Cybernet Crop UTV Software Comm Digiwave Infrastructure Yesky.com News Interactive Festival Records Newspoll Table 3: Key Offerings and Services across in the customer-centric geographies 3.4. Competitor’s Analysis NewsCorp has grown a vertically and horizontally integrated global media operation. It derives its revenues from every part of the value chain in which it operates. However, being integrated vertically as well horizontally, it also faces stiff completion from various players in the global media industry. However, the prominent competition is coming from the similar media conglomerates that are also integrated across. The table below give a financial standing of the company vis-a-vis its competitors. Competitors Market Cap Sales Operational Income Net Income Walt Disney $68,950 $36,289 $5,297 $3,306 News Corp $44,989 $30,926 $2,801 $3,349 Time Warner $36,129 $25,785 $4,545 $2,468 Viacom $21,026 $13,619 $2,904 $1,611 Table 4: Competitors Financial Comparison (Source: http: //library.morningstar.com/, retrieved Jan 25th 2012) While analysing the competitors, it is evident that Time Warner like News Corp has some challenges on account of underperforming divisions or verticals. On the contrary, though Disney’s broader base of business segments lead to higher revenue, its net earnings are not proportionately strong. However, Disney enjoys the largest market cap possibly on account of big brand value. Viacom compares favourably in a number of measures but it is much smaller in size than other players. All the prominent competitors have reoriented themselves as corporate entities through mergers and acquisitions. The table below enumerated the offerings differentiators across various verticals of operations. The comparative popularity of these offerings are indicative of the competitive advantages that they score over the others. Competitors Film Studio TV Network Pay TV Platform Pay Networks/ Channels Walt Disney Disney ABC - Disney Channel ESPN History Channel E! Entertainment News Corp Fox Filmed Entertainment Fox TV DirecTV Fox News Fox Kids Fox Sports Fox Movies FX National Geographic Time Warner Warner Bros WB Network Time Warner Cable HBO Cinemax TW Sports CNN Comedy Central TBS TNT TCM Cartoon Channel Viacom Paramount CBS UPN Viacom Cable MTV Nickelodeon Nick at Nite CMT TV Land TNN VH1 Showtime Comedy Channel Table 5: Differentiating Key platforms of various competitors 4. Recommendations 4.1. Content/software Related 4.1.1. Globalisation aspects One of the important and vital aspects impacting the growth of global media industry has been globalisation. Globalisation has affected the industry as a whole and NewsCorp in particular from political, cultural, technological and commercial perspective. But in order to further expand the sustainable business across the globe, NewsCorp need to look out for joint-venture partners rather than mere takeovers and acquisitions. As the globalisation is not about bringing new culture to a place but at core it is adoption of local flavours. However, in that case NewsCorp’s ability to create a coherent global strategy in such culturally diverse areas will be severely tested. 4.1.2. Market Fragmentation Aspects: NewsCorp need to create offerings that will facilitate it to obtain and retain a distinguishing position in the multi-channel television industry. This is more vital in the regions where NewsCorp has not been controlling the distribution rights. Simultaneously, it would be very important for the company to establish its control over distribution rights, which would be vital for increasing revenues. 4.2. Succession issue This has been a very debatable and contentious issue which has even been flagged up in the international arena. Moreover, this issue is important considering the role that Rupert Murdoch plays in the company. If the business logic of NewsCorp is associated with comprehension of Rupert’s personal media vision then it is likely that no succession effort would be fruitful. However, being a multinational company having various stakeholders a proper succession plan need to be put in place to focus on sustainable growth and amicable development. It is likely that NewsCorp under any other successor may become a very different entity than what has been built by Rupert Murdoch. 5. Conclusion This paper has sought to undertake two broad activities. First, it has explored the company as well as the industry in which the company has been operating so as to analyse various aspects of its existence and growth strategy. Secondly, it has tried to put forward some recommendations, which have been based on the analysis carried out. The recommendations primarily focus on the changes that need to be brought in the company from the perspective of globalisation and the market fragmentation. Another important and contentious issue that has been incorporated while putting forward the recommendation is that of succession planning. 6. References Anand, B. & Attea, K., 2002, ‘News Corporation’, Harvard Business School Case, 19 June. Compaine, Benjamin (2000) ‘Distinguishing between Concentration and Competition’, in B. M. Compaine and D. Gomery Who Owns the Media? Competition and Concentration in the Mass Media Industry. Mahwah, NJ: Lawrence Erlbaum Associates, pp. 537-581. Crainer, S., 1999, Business the Rupert Murdoch Way, Capstone Publishing. Grover, R. & Lowry, T., 2004, ‘Rupert’s world’, BusinessWeek, 26 January. Hagerty, W., 1999, ‘Interview with Rupert Murdoch’, British Journalism Review, 10(4). http: //library.morningstar.com/, retrieved Jan 25th 2012 http://finance.yahoo.com, sufed on 26th Januray 2012. Hubbard, Thomas N. (2008). Viewpoint: Empirical Research on Firms’ Boundaries. In: Canadian Journal of Economics. Vol. 41, Iss. 2, p. 341-359 Lashinsky, A., 2004, ‘Murdoch’s air war’, Fortune, 150(11), 13 December: 55–61. Mohl, B., 2005, ‘A marriage of convenience’, Boston Globe, 9 January. Murdoch, R., 2004, ‘News Corp.’, www.hollywoodreporter.com, 22 June. ‘SEC asks DirecTV to explain transactions’, Washington Post Online, www.washingtonpost.com, 23 January, 2005. Read More