British Sky Broadcastings Strategy - Case Study Example

Running head: SKY’S STRATEGY British Sky Broadcasting’s Strategy Table of Contents Executive Summary 1 Introduction 2 SWOT Analysis 3 Executive Summary This paper evaluates the current strategy by British Sky Broadcasting (Sky) with the intention of identifying whether the strategy will be appropriate in future. Using four tests suggested by Rumelt (2003), the paper analyses Sky’s strategy for goal consistency, identification of the critical issues, competence and workability. The paper’s analysis determines that indeed, Sky’s strategy is consistent and that they have separated the important and the not so important issues in the business. The analysis section further reveals that Sky’s strategies are competent in that the sub-problems that arise from the strategies are solvable. An example of competence is given by identifying that advertising costs are a sub-problem created by the strategy that strives to increase subscription numbers while retaining existing subscribers. The costs ‘sub-problem’ is solvable because Sky can source the same from its profit revenues. The paper further determines that Sky’s strategy can pass the workability tests. It is further argued that the implementation of the strategy will be critical in determining whether the approaches will work. Notably, Sky has already shown how effective its strategy implementation is by embracing Subscription Video-on-Demand to complement its pay-TV business approach. The paper concludes by noting that while Sky’s strategy may work in the short term, there is no guarantee that the same will work in the long run. The paper therefore suggests that Sky should remain attentive to changes in the business environment, so that if need be, the television service provider can adjust its strategy accordingly. Introduction British Sky Broadcasting (Sky) is facing increased competition and new technological challenges in the broadcasting sector. Consequently, the company has adopted a strategy that has a twofold approach to deal with the situation. On one hand, the company is seeking to increase new subscriptions in order to increase its market share. On the other hand, the company is seeking to enhance its retention of existing subscribers. To accomplish its strategy, Sky has been spending more on advertising as it tries to retain its market share. In an attempt to remain relevant, the company has adopted new business models which have the capacity to grow its business in future (Case Study, 2015). Further, Sky has had to spend more money, which is dedicated towards retaining “its rights to broadcast premier league matches” (Case Study, 2015, p. 3). The rights have been described as a jewel in Sky’s business, meaning that they are an important aspect of the company’s media content. Analysis Sky’s strategy may work for the company in the short term, but it is not clear if it can be effective in the long run. According to Boulton (2001), analysing a strategy enables a person to assess the “effectiveness and efficiency with which a firm’s business strategy meets the requirements of its competitive marketplace” (para. 24). A good analysis, according to Boulton (2001), requires one to define the strategy which a firm operates in, and also define the firm’s strategy. Using a SWOT (“Strengths, Weaknesses, Opportunities and Threats”) analysis, Boulton (2001) suggests that one can then determine the critical issues that a firm should address. The strengths and weaknesses of a SWOT analysis provide an understanding of a firm’s internal capabilities and resources, while the opportunities and threats reveal the external factors that the firm can take advantage of or avoid in order to prosper in its operation areas (Downey, 2007). SWOT Analysis Strengths As an incumbent in the industry, Sky has first-mover advantages Sky is open to new business models and is hence flexible to new opportunities in the industry Sky has an existing infrastructure, which puts it in a better competitive position Sky already has market dominance and a loyal customer base especially for its sports channels Weaknesses Sky’s geographic concentration in the UK only means that its reach is limited Opportunities Newer business models are coming up, and Sky can take them up to improve its competitiveness Sky can embrace innovations in the industry in order to reach more customers and expand it Sky can also sign new carriage agreements with complementary channels (Research & Markets, 2012). Threats A liberal market has opened up the TV service provision market to more competitors The liberalisation of the market also means that Sky is now exposed to non-traditional competitors Bundling of TV, Internet and telephone services is becoming a new trend in consumer behaviour (Saville-Rossiter, 2010). With the SWOT analysis results above in mind, this paper will apply a strategy evaluation method proposed by Rumelt (2003). Rumelt (2003) suggests that “a proposed strategy must pass: (1) the goal consistency test, (2) the frame test, (3) the competence test, and (4) the workability tests” (p.199). In reference to the ‘goal consistency test’, Rumelt (2003) argues that the policies, goals and objectives of a firm need to be consistent towards the attainment of a strategy. In this regard, one would argue that by spending more in advertising, embracing newer business models, and committing more money in order to retain the sports channels, which draw more audience to the TV channel, Sky is being consistent and could therefore, easily pass the goal consistency test. The frame test as suggested by Rumelt (2003) is meant to separate the critical issues from the not so important problems. Using this test enables a person to determine whether indeed the strategy is targeting the right issues. In Sky’s context, for example, competition is certainly the right issue. Seemingly, a strategy that targets increasing subscriptions and enhance the retention of existing subscribers indeed works on the right issues. However, one would argue that perhaps the Sky team should have added the production of programmes or content that is appealing to their targeted audience as an aspect of their strategy. The foregoing suggestion is informed by the key findings by Erickson Consumer Lab (2012). The findings indicate that while consumers are not abandoning traditional (subscription) TV, the modern consumer is also demanding the “TV anytime and anywhere” channels (Erickson Consumer Lab, 2012, p. 3). Additionally, consumer loyalty is not guaranteed by a firm’s attempts to hook viewers through selling them subscription. Rather, viewers are more loyal if good content keeps them hooked to specific channels. Having suggested the foregoing, it is important to note that the frame test is hard to administer because there are no specific theories of what is important or not important to a firm (Rumelt, 2003). If a firm like Sky then chooses specific strategies as being important, an independent analyst cannot refute the same especially considering that the analyst may not be privy to all the information that Sky considered when developing its strategy. The next test as suggested by Rumelt (2003) is the competency test, which suggests that a strategy must “result in solvable sub-problems” (p. 200). In Sky’s context for example, the strategy of increasing subscriptions means that the TV service provider needs to advertise more. Advertisements cost money, and as such, the strategy creates a problem related to raising money for advertising. From the case study, it is rather obvious that raising money is a solvable problem, since all Sky had to do is get the money from its revenues. Getting advertising money from the firm’s revenues ate into its profits, but it is arguably not a bigger problem like losing the firm’s market share to competitors. Once all the above tests have been passed, Rumelt (2003) suggests that the strategy must pass the workability test. This test simply seeks to find out if the strategy will work (Rumelt, 2003, p. 202). Arguably, the answers to whether a strategy will work or not are not easy to attain. First, it is important to acknowledge that what Sky’s competitors may have similar strategies. However, it is the implementation of the strategy that may differentiate those who succeed and those who fail. Spending more money in retaining the broadcast rights to premier league matches is one approach that Sky is intending to implement its strategy. Arguably, this may work in the long run because as Burnett (2014) indicates, specialisation gives an individual firm a market advantage. As an incumbent pay-TV player, Sky also has an inherent market advantage because die-hard football lovers know that the channels to watch their favourite teams are on Sky. By embracing newer business models, Sky is also enhancing its chances of attaining tangible competitive advantage. Initially, Sky’s business model was subscription. It has been suggested that the pay-TV model is coming apart, hence the need to embrace new business models (“The future of pay-television”, 2011). By embracing new business models (for example, the pay-as-you-go model or the advertising model as indicated by Gleeson, 2012), Sky will be able to give consumers more flexibility while expanding its revenue earning avenues. As evidence that Sky is committed to its strategy and that the strategy is indeed working, a report done by Deloitte (2012) reveals that the company had already launched Subscription Video-on-Demand (SVOD). From the SWOT analysis and the analysis herein, it appears that SKY is managing its threats well. However, the case study has not indicated whether Sky is addressing its major weakness, which is related to its limited geographical reach. Conclusion Sky’s strategy may appear simple, but it arguably captures the essence of pay-TV, which is increasing subscription and enhancing the retention of existing customers. Through advertising, Sky will create more knowledge about its offers to consumers. As well, embracing new business models opens it up for new sources of revenue. Additionally, Sky has realised that its sports channels have a large audience and is therefore willing to pay the necessary price in order to retain them. Although it is difficult to tell how effective the strategy will be going forward, it is somewhat evident that the strategy is working. In future, Sky’s competitors may adopt strategies that will be more effective. Sky may therefore need to adjust its strategy accordingly to reflect new market dynamics. Presently however, the strategies that are in use are arguably effective and hence there is no immediate need to change them. References Boulton, W. (2001). Strategic analysis model. Retrieved March 11, 2015, from http://www.auburn.edu/~boultwr/html/strategic_analysis_model.htm Burnett, T. (2014). The impact of service bundling on consumer switching behaviour: Evidence from UK communications market. Centre for Market and Public Organization, Working Paper 14/321, 1-49. Deloitte. (2014). Television’s business model fit for a digital world. White Paper, 1-32. Downey, J. (2007). Strategic analysis tools. Chartered Institute of Management Accountants, 34, 1-16. Erickson Consumer Lab. (2012). TV and video: An analysis of evolving consumer habits. Retrieved March 11, 2015, from http://www.ericsson.com/res/docs/2012/consumerlab/tv_video_consumerlab_report.pdf Gleeson, A. (2012). Examples of well-known business models. Retrieved March11, 2015, from http://articles.bplans.co.uk/starting-a-business/examples-of-well-known-business-models/1040\ Research & Markets. (2012). British Sky Broadcasting group plc: SWOT analysis and company profile. Research & Markets Report, 1-4. Rumelt, R. P. (2003). Evaluation of strategy: theory and models. Strategy Evaluation, 3(1), 196-217. Saville-Rossiter, B. (2010). Consumer switching and bundling. A report commissioned by Ofcom. St. Albans, UK. The future of pay-television: Breaking the box (2011, August 20). The Economist. Retrieved from http://www.economist.com/node/21526367 Read More