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Shashank Kothari || Management Development Institute, Gurgaon.
TimeWarner Inc.
EXECUTIVE SUMMARY
Last weekend, I was watching the Oscar winning movie, The Spotlight. The movie showcased the
power of good old journalism, and how strong media was imperative for a functional society. It got me
thinking how entertainment, media, literature etc. affect our society. They are the true reflection of our
social development and social mentality. This brings us to one of the biggest player in the
entertainment and media industry, TimeWarner Inc. The report is all about the company and the
industry thereof. It aims to analyse the company and the industry it functions in using multiple
frameworks, and provide a conclusion in accordance with the research.
The report starts with a rough background of the company and the industry, followed by an exhaustive
description of the company, its various operational divisions, its stated strategies and its revenue
models. This is followed by an industry analysis, using frameworks like PEST Analysis and Tetra Threat
Framework. Post this internal and external analysis; we do a competitive analysis for two of its
staunchest rivals, The Walt Disney Co., 21st Century Fox.
Post all the analysis, we conclude the report with few key takeaways and conclusions that we get out of
all our analysis.
CONTENTS
Executive Summary ..................................................................................................................................................................... 1
1) Background ......................................................................................................................................................................... 4
2) Company profile .................................................................................................................................................................. 4
2.1) Company History .............................................................................................................................................................. 1
2.2) Tuner ................................................................................................................................................................................ 1
2.2.1) Sports ........................................................................................................................................................................ 2
2.2.2) Entertainment ............................................................................................................................................................ 2
2.2.3) Kids ........................................................................................................................................................................... 3
2.2.4) News ......................................................................................................................................................................... 3
2.3) HBO .................................................................................................................................................................................. 3
2.4) Warner Bros...................................................................................................................................................................... 4
3) Industry Analysis ................................................................................................................................................................. 5
3.1) Trends .............................................................................................................................................................................. 6
Changes in the Consumer Behavior .................................................................................................................................... 6
3.2) PEST Analysis .................................................................................................................................................................. 7
Political ................................................................................................................................................................................ 7
Economic ............................................................................................................................................................................. 7
Social ................................................................................................................................................................................... 7
Technological ...................................................................................................................................................................... 7
3.3) Tetra Threat Framework ................................................................................................................................................... 8
Added Value ........................................................................................................................................................................ 8
Appropriated Value .............................................................................................................................................................. 8
4) Competitor Analysis ............................................................................................................................................................. 8
The Walt Disney Co. ................................................................................................................................................................ 8
Background ......................................................................................................................................................................... 8
Strategy ............................................................................................................................................................................... 8
21st Century Fox ...................................................................................................................................................................... 9
Background ......................................................................................................................................................................... 9
5) Financial Analysis ................................................................................................................................................................ 9
6) Conclusion ......................................................................................................................................................................... 10
7) Exhibits .............................................................................................................................................................................. 12
Exhibit 1 ............................................................................................................................................................................. 12
Exhibit 2 ............................................................................................................................................................................. 13
Exhibit 3 ............................................................................................................................................................................. 13
Exhibit 4 ............................................................................................................................................................................. 14
Exhibit 5 ............................................................................................................................................................................. 15
8) References ........................................................................................................................................................................ 16
This manuscript pertains to the strategic analysis of the TimeWarner Inc. which constitutes of
various entertainment media such as movies, sports, news etc. The document would analyze
the industry, followed by appraising various strategic steps taken by the company.
STRATEGIC ANALYSIS
TIMEWARNER INC.
STRATEGIC ANALYSIS
TimeWarner Inc.
1) BACKGROUND
The entertainment industry is one of the most
important and one of the most competitive
industries. The importance of the industry cannot
be overstated at all; especially in the world we
live in. not only is the information relevant, but the
mere fact that an average Earthling is hooked to
media 24x7 is enough testament to the raison
d’etre of the entertainment industry. It is not just
the information that is in itself so important, but
the fact that it is being provided to such a large
number of people all at once. Time Warner is in a
business to build, influence and propagate
culture, bring forth social, political and economic
factors and bring people closer together.
The entertainment industry has played a major
part in shrinking the world. The world as a village
now seems to be interlinked in more than one
way; that is precisely why the industry is so
dynamic and robust at the same time. The
requirements and demands of people for
entertainment keep varying daily, if not hourly!
The players always need to be at the top of their
game. While the prime function of an
entertainment and media giant such as the Time
Warner Inc. is to provide high quality content
across the spectrum of median they pursue, there
are a lot of factors which determine the content
that on air. There are a lot of social and political
factors affecting these companies, especially for
their news divisions, such as the CNN, Fox News
or Times Now, down here closer to home. It is not
difficult to understand and appreciate the
dynamics of this industry and gauge the number
of ways in which the industry is affected by, and
affects the world around us.
2) COMPANY PROFILE
Time Warner is a global leader in the media and
entertainment industry. It has its branches spread
across the television and film networks and
boasts of a very high brand equity. It offers, with
success, high quality content in all the spheres of
FROM THE MANAGEMENT
Time Warner has a rich history of both extraordinary creativity and business-model innovation, and 2014 was another great year for both, which led to strong financial performance and returns for our
shareholders. We also lead our industries by harnessing technology to create products and services to reach and entertain audiences in new ways all over the world and deepen their engagement with the brands, stories and experiences they love. Through our "Content Everywhere" initiatives, we seek to give consumers access to our high-quality content across platforms and devices and on demand. Our digital products and services reinforce our industry-leading brands and storytelling capabilities.
-Jeff Bewkes Chairman, TWI
its operations, which are vary disparate but for all
reasons and purposes, conjoint.
2014 was a signature year for them. They spun
off their publishing business to completely focus
of production and dissemination of visual content
for a variety of audiences and with varied
interests.1
So what are the various routes through which
they distribute their content? And what type of
content do these verticals air?
To answer all the questions we need to
understand a little more about
the company.
2.1) Company
History
Time Warner was formed in
1990 as an effect of a merger
between Time Inc. and
Warner Communication. It
acquired Turner Broadcasting
in 1996 and thus was
manifested one of the world’s
largest media conglomerate
in the leagues of The Walt Disney Company. The
company in general holds assets which
retrospectively belonged to Warner
Communications and HBO (a Time Inc.’s
subsidiary up until the merger). Among its assets
are:
New Line Cinema,
HBO,
CNN,
DC Comics,
Cartoon Network Studios,
Turner Broadcasting Systems,
The CW Television Network,
Warner Bros.,
Boomerang,
1 TWX Annual Report, 2014
Adult Swim,
Warner Bros. Animation,
Hanna-Barbera,
Esporte Interativo,
Castle Rock Entertainment and
Warner Bros. Interactive Entertainment
Some of the other
major divisions of the co. include Warner Books,
AOL, Warner Music Group
The company operates under three Operating
Divisions, namely: HBO, Turner Broadcasting
Systems and Warner Bros. To understand the
company in its entirety, it
is requisite to understand
these divisions in depth
and understand the
functioning of these
divisions.
2.2) Tuner
Turner Broadcasting Inc.
owns and operates a fairly
wide portfolio of television
network pertaining to the
fields of entertainment
(prime time and reality shows), sports, kids and
news programs on both the Television and online
platforms such as CNN.com. Turner operates
upwards of 160 channels globally including the
very well-known channels such as TNT, TBS,
Adult Swim, truTV, Turner Classic Movies, Turner
Sports, The Cartoon Network Studios,
Boomerang, CNN and HLN2.
It’s a global network with a reach of more than
200 countries3, which is pretty exhaustive. The
reach and the portfolio both increase the scope of
profits and of losses. Such a wide audience
requires a wide variety of shows and content,
which caters to their personal tastes; even so
Turner is increasing its scale and is bent towards
2 turner.com
3 TWX Annual Report, 2014
The company operates under three
Operating Divisions, namely: HBO,
Turner Broadcasting Systems and
Warner Bros. To understand the
company in its entirety, it is
requisite to understand these
divisions in depth.
strengthening its competitive position throughout
the globe, possibly through various ventures with
local players, partnerships and acquisitions. It is
also going for strategic launches to cater to the
diverse viewers. This helps the division to
compile data for a region and thus provide them
with content that is more to their liking. Turner
provides its services through various modes such
as cable system operators, satellite service
distributors etc. The services reach the viewers
through Television and/or through online
streaming.
Turner owns and operates an exhaustive digital
network. Turner’s CNN is a leading digital news
provider, and Turner’s Bleacher Report is the
second largest digital sports destination in the
world (based on the number of visitors). Other of
Turner’s websites include tntdrama.com
TBS.com, cartoonnetwork.com, NBA.com,
NCAA.com (which provides live streaming of
videos of games) etc.
2.2.1) SPORTS Turner is an award winning sports’ content
provider which functions through various
channels such as TNT, TBS and truTV networks
and its digital presence. The revenue comes in
through the advertisements, affiliate fees, ratings
and other promotional activities. Turner is
licensed to broadcast NBA games till the year
2024-25, MLB till 2021, PGA till 2019. Its flagship
sports channel is NBA TV, which is owned by the
NBA and operated by Turner. It is an
advertisement supported channel that features
continually, NBA exhibition matches and related
programs. Turner has made for itself a big market
by tapping into the two most favorite games of
their domestic audiences, i.e. Basketball and
Golf. Their online presence is strong and gives
them an upper hand over their competition.
The major competition for the sports segment per
se is from ESPN (owned by The Walt Disney
Company majorly), Fox Sports (owned by Fox
Entertainment Group) and NBC Sports (owned by
Comcast).
Internationally, there are a huge number of
regional players which cut into the market share.
Mostly, TBS hold partnerships with local players
or holds a fully owned channel such as the
Esporte Interativo in Brazil. The international
presence for the sports segment is not too
soothing for Turner and could be an opportunity
for them to further increase scale and reach.
2.2.2) ENTERTAINMENT For domestic entertainment, the network provides
an array of offerings, including original series,
acquired series, movies, reality programs etc.
Turner’s TNT and TBS are two of the top five
prime time channels among the target audience
of the age group 18-49 in the USA4.
Turner is also investing heftily in creating original
programs for TNT, TBS and truTV, particularly to
woo younger audiences. The prime reason to
invest highly in producing original content is the
revenue flows from licensing opportunities across
the globe.
TNT focuses on drama and is advancing its
consortium of offerings such as Transporter: The
Series; Murder in the First; Cold Justice etc. Its
syndicated series include Castle, which is on air
in India on Star Worlds, owned by the Star Group.
TBS focuses primarily on comedies such as The
Big Bang Theory (on air in India on Star World);
Family Guy (likewise) etc. Its original series
include The King of Nerds.
Adult Swim provides late night and evening
programs for youngster on the Cartoon Network
such as Black Jesus.
truTv is specially organized to suit the tastes of
young audiences. Its tagline is “Way More Fun” In
India, truTV shows such as Impractical Jokers;
4 TWX Annual Report, 2014
The Carbonaro Effect air on Comedy Central, a
Viacom 18 owned channel.
Also many of the movies and series are
showcased on WB and HBO channels in India.
Thus it has partnered with local players and
provides in silo programs too.
This clear differentiation amongst the channels
provides great opportunities for Turner to cash in
on subscriptions and on advertisements,
particularly for the products made for the target
audience.
2.2.3) KIDS Turner broadcasts kids’ cartoon, animated and
live action shows via its two flagship channels,
The Cartoon Network and Boomerang. Cartoon
Network shows original and
syndicate cartoon series
such as Teen Titans Go!,
whereas Boomerang shows
classic Warner Bros. and
Hanna-Barbera cartoons
such as The Flintstones;
The Jetsons etc. This part
of Turner’s business is
strategically a very
important part for the group
as it is the leading kids’ entertainment provider in
almost all the regions it operates in. Turner’s kids
networks outside the U.S. include Cartoon
Network, Boomerang and Tooncast in Latin
America; BOING, Boomerang, Cartoon Network
and Cartoonito in Europe and the Middle East;
and Boomerang, Cartoon Network, POGO and
Toonami in Asia.
2.2.4) NEWS CNN is its flagship news channel with a number
of variants for both the domestic and international
markets. It operates around 40 news bureaus, 31
of which are outside the USA5. CNN is a global
leader in political coverage and for information
dissemination. The group makes its prime
5 TWX Annual Report, 2014
business to act as an unbiased storyteller in all
the spheres of human life, social, economic,
political and cultural. However there have been
significant controversies of CNN being biased
against the Republican Party in the USA. CNN
has joint ventures with partners to enter into other
regions, such as the CNN-IBN (jointly owned by
TV18) JV to get into India and CNN Indonesia,
co-owned by Trans Media. It is a leading news
channel across the world.
In 1995, CNN introduced CNN.com which has
now become the leading digital news platform.
This quick adaptation surely gave CNN an early
mover’s advantage as it was the first to envisage
a trend of online, real time reporting.6
2.3) HBO
Home Box Office, fondly
called HBO operates an
ultra-premium television
service HBO and Cinemax.
Its basic objective is to
provide premium television
services across the globe.
HBO’s original series are
often path-breaking, award winning series which
click instantly with the youth. The series are
critically acclaimed both for their stories and for
their essence. These series include the likes of
Game of Thrones, True Detective, Band of
Brothers etc. The quality of programs and the
sheer diversity of them is what differentiates HBO
from its competition such as FX Entertainment,
MGM etc. HBO constantly works on developing
intense and good quality content for its viewers.
HBO and Cinemax more often than not also show
famous feature films, and it forms a significant
portion of its program offerings, more so across
the globe. It has long term licenses with Warner
Bros., Twentieth Century Fox and other major
6 turner.com
HBO’s original series are often
path-breaking, award winning
series which click instantly with the
youth. The series are critically
acclaimed both for their stories and
for their essence.
motion picture production companies. Home Box
Office generates revenues principally from
providing its programming to domestic affiliates
under long-term arrangements that provide for
annual service fee increases and have fees that
are generally related to the number of the
affiliates’ subscribers who subscribe to the HBO
and Cinemax services.
In April last year, HBO launched HBO NOW, a
premium stand-alone service for the USA to
target families that don’t subscribe to HBO.
2.4) Warner Bros.
WB is the largest television and film studio in the
world by revenues. Its businesses consist
principally of the production, distribution and
licensing of television programming and feature
films and the distribution of digital and physical
home entertainment products, as well as the
production and distribution of videogames and
consumer product and brand licensing.
In 2014, the WB’s film making division generated
upwards of $4 billion for the 6th straight year! It
has been consistently ranked in the top for the
production of both television series and feature
films. The focus for WB now is to increase the
digital sales and rental of its programs and
services.
WB also encompasses the DC Comics (producer
of the legendary avatars of Batman, Superman,
Justice League and all its members), other
characters such as the Looney Tunes, including
the iconic Bugs Bunny, Scooby-Doo, Tom &
Jerry. These cash cows still bring in a lot of
royalty and licensing fee for the WB and the Time
Warner Inc. These branches also share major
marketing and infrastructural costs which further
reduces the fixed cost to the company, and as it
is well noticed now-a-days, crossovers between
these divisions is far too common, and extremely
fortuitous. WB has created an incredibly effective,
recognizable, global franchise from these
characters including movies like Batman Trilogy,
The Lord of the Rings Series, Harry Potter Series
etc. There are a number of movies lined up for
the years 2016-17 including Superman vs
Batman, the much awaited action thriller.
WB is the producer for a number of legendary
characters, plots and stories including but not
limited to the ones mentioned above. It has
produced iconic television shows such as The Big
Bang Theory, Supernatural, The Voice, The Ellen
DeGeneres Show, Gotham etc. These television
shows have definitely changed the way TV is
perceived and has definitely increased
acceptance of TV as the prime source of
entertainment in every household. Not only has
this, because of the high quality of its shows, WB
earned double revenue on each series by
licensing it out to other parties once it has been
aired on its channel. This enables it to generate
revenues for years and years after the completion
of a series, thus it is very sustainable. Then it also
earns revenues from the sale of digital or physical
copies of the series or movies post its completion.
WB also produces award winning movies which
follow the same pattern of revenue generation as
its television series, and the movies are of a level
similar, if not higher, the series in terms of the
quality of the content. Many of their movies are
Oscar winners such as the very recent Mad Max:
Fury Road.
WB also earns through its videogames segment.
Some of its most popular games are again based
on the characters that it has produced over the
last 100 illustrious years, such as the The Dark
Knight: Arkham Asylum.
Though the issues of piracy are very real and
very strong, the division has shown a sustainable
growth and has increased its revenues due to the
high quality of the content and due to the sheer
plethora of offerings that they provide.
It also holds operating interests in various JVs
such as The CW, which is a JV between Warner
Bros. and CBS Network.
3) INDUSTRY ANALYSIS
There are numerous RISKS for the Time Warner
Inc, namely:
Changes in the Technology:
Changes in technology are a very important
factor that needs to be considered by the
management. The advent of internet and TIVO,
both have had an important impact on the
revenue and cost streams of the entertainment
and media companies. The firms need to stay
ahead of the market and anticipate these
changes to maintain their competitive
advantages.
Time Warner has always been ahead of the
curve, In 1995, CNN was a pioneer in launching a
digital platform for news; in 1996, Warner Bros.
was one of the firsts to launch DVDs; in 1999,
HBO became the spearhead of HD television.
The company must maintain its innovative and
forward looking strategies if it must sustain.
Popularity of the content:
The company has always been on the top of all
the requirements of its audience and has
therefore led a successful life thus far.
Notwithstanding this, the fickle nature of
consumer demands does post a serious threat to
the industry.
Failure to renew agreements on favorable
terms, or at all:
The renewal of current agreements on favorable
terms is the only way to sustain in the business.
TWI has long term agreement with big players
such the NBA, and thus is a little secure in its
blanket of safety. Also the high quality content by
HBO and Warner Bros. ensures that TWI doesn’t
face such problems.
Consumer Behaviors:
Because this industry works so closely upon the
customer demands, any drastic and sudden
change in viewership patterns may lead to huge
losses. There is no direct way to counter this, but
still Media companies have some contingencies
maintained for such an event.
Political and social issues:
Various countries like China have strict political
rules regarding the information that can be
shared with the public. Information giant such as
Google have had an on off relation with China.
TimeWarner Inc. or other such companies can
never easily survive in such scenarios. Moreover
increasing social acceptance of piracy, especially
in India is growing concern for the median
houses.
Even so there are numerous risks, there still are a
lot of OPPORTUNITIES for the company under
consideration:
World demography:
It is particularly true for TimeWarner, because it
specifically targets young and vibrant audiences.
With the world population getting younger, it
would be a boon for the company to produce the
shows, well which it has been producing of late!
Digitization:
While many would say that this is a threat to the
company, it is not true. Digitization results in
faster and cheaper dispersion of information,
which means wider reach and lower costs. It is
not the internet which works against the
company, but the illegal piracy that is harming it.
Also new lean and fast networks like Netflix and
ABC are taking advantage of the internet
penetration to increase their viewership.
TimeWarner can definitely play this card, way
better.
Global Culture:
The fact that the culture all over the world is
diverging helps the media houses insofar as now
they have to research less into production and
can use a generic media for countries across the
globe.
3.1) Trends
For the entertainment industry, visual content
forms the major chunk of monetary inflows, about
$420 billion per annum in subscriptions and
advertisements 7 .The industry has been
predominantly dynamic and fast paced. It has
never been truer of the industry as it is today.
Rapid technological changes and shifting
customer demands have had a huge impact on
the industry, forcing players to change their
revenue models, their expansion plans, and their
overall strategy.
One of the most important factors to consider
here is that the industry is highly consumer
driven. The demand’s price elasticity for these
companies is very high. This is mainly because of
two factors, a) high level of close competition,
and b) frequently changing demands, fads and
prominent.
For any top level manager in the media industry,
the sole competence, or now the bare minimum,
is to be ready to change radically, and
pragmatically. No more is it about developing
content solely to garner viewership of a large
audience and then earning advertisement
revenue. Now the getting is to gather fans, who
are ardent followers of their series, programs,
movies or franchises.
It is important to create a universe around these
franchises/series/movies. With multiple channels
available now to the industry and the consumer, it
7 Entertainment & Media Industry, 2016, PwC
is imperative for the media houses to utilize all
the resources without giving one more attention
than it is required.
The fact as stated above is one of the most
important factors that is driving the growth of
smaller players. It is because these companies
still are able to build value with programs that
strike a chord with the audience. A perfect
example is Breaking Bad, by ABC network. The
program was rejected by almost all the top
networks, but when ABC accepted and aired it, it
changed the course of history. Breaking Bad is
one of the most critically and financially
acclaimed series of all time, with IMDb rankings
among the top 5 year after year.
CHANGES IN THE CONSUMER BEHAVIOR The hitherto prominent model of subscription
channels is getting old and archaic. The fact that
almost all series and movies are available online
for free further accentuates this fact. The users
have increasingly moved away from
subscriptions. According to a PwC report, more
people are shifting towards OTT (Over-the-top),
streaming videos online and disregarding the
traditional subscription channels8.
Now the question arises whether the firms should
embrace the internet or fight it.
The Big Question: Strategy for the Internet
Of late, there have been instances where the
industry has fought back the internet, but more or
less, their response has been dismal at best. The
companies have started providing Television
Subscription options across all the devices to
increase the reach and adoption of the traditional
model. But the response has been disappointing
and the effort was lackluster. Another tactic used
by the companies was to sell their content to
streaming services such as Netflix and Hulu.
Their advertisement model is also very close to
failing as services like TIVO have come up which
8 Refer Exhibit 2
removes ads from the programs. The consumers
have been receptive to ad free viewing of content,
which comes as no shock. These technological
and consumer sided changes have disrupted the
older revenue models for the company. All the
strategies that have been followed, as of yet, fuel
into the reach of internet.
My personal opinion is to embrace this change.
The internet can be a very useful ally for the
media houses as has been mentioned repeatedly
in this report. Using the internet judiciously and
prudently will be one of the most important
differentiator in this market. Internet is the way to
go to earn and sustained in todays’ ecosystem,
which is far too complicated, comprehensive and
competitive for traditional approaches. BCG’s
report 9 on Digital trends suggests that the
structure of revenues for entertainment industries
has been changing, with traditional streams
forming a lower part now than before, and digital
revenue streams growing10.
In a report, BCG writes that people contact the
most with mobile phones11; therefore, one more
point that needs to be kept in mind is that mobile
apps have become a pre requisite today if a
company wants quick market penetration.
Facebook earns 80 percent of its revenues from
mobile, up from 69 percent from an year before.
The companies need make their presence felt on
such mobile applications which would constantly
communicate with the customer.
3.2) PEST Analysis
The PEST analysis is a tool which is used to
access the environment, particularly the political,
economic, social and technological environment,
for a given business. The analysis is widely used
to appraise the industry and understand how
major factors affect it.
9 Digital Business Build, Media & Entertainment, BCG
10 Refer Exhibit 3
11 Refer Exhibit 4
POLITICAL
The political factors affecting this business are
immense. The impact of political situation
prevalent in any given region is extremely huge.
Another point to keep in mind is that the company
is also in the business to gauge all the political
changes, and it becomes very difficult for the
reporters to work in environments of political
instability, such as in Africa or Afghanistan, or
political restrictions such as in China and Korea.
ECONOMIC
With increasing per capita incomes in the world,
more people would now have access to television
and thus the target base increases. The simple
fact still remains the same her, with more
economic activity, this industry booms too.
People start visiting the movie theatres more, as
was seen in Delhi in the past decade. One more
thing that should be kept in mind is the fact that
even when the economy is slow, it is quite
possible that the television divisions, particularly
the news channels would still boom.
SOCIAL
The increasing acceptance of piracy and torrents
has increased the risk for the median houses very
much. But social changes such as more freedom
to women, and the culture of binge watching has
had a positive impact on the industry. Moreover
people make an outing of movie dates and thus
see movies as an option of all round
entertainment.
TECHNOLOGICAL
The recent advent of internet has changed the
whole ball game altogether. Providing digital
content has become a sine quo non for the
existence of all media houses. Real time news
updates have on the one hand increased the cost
for the company, whereas going paper free has
reduced the cost burden for the company. It thus
becomes imperative for the company to stay
updated on all technological advancements.
3.3) Tetra Threat Framework
This framework is used to understand a firm’s
sustainable competitive advantage, and first of all
if it has one.
Let us apply the framework on TimeWarner.
ADDED VALUE
Threat of Imitation
The threat of imitation facing TimeWarner is very
low. Most of its content is unique and
copyrighted/trademarked. The company is in a
prime position with respect to its content, which is
unique to it and has been associated with it for a
long time.
Threat of Substitution
Although there is a lot of competition for the kind
of content that the company publishes, there is no
substitute for the same.
APPROPRIATED VALUE
Threat of Slack
The company is extremely efficient and the
release of almost all its programs and movies has
been timely. The most important for the group is
to maintain efficiency and dynamism in its media
and sports segment, which it does beautifully.
Therefore, although there are threats of slack
existing in the industry the operations of the
company are designed so as to reduce them. For
starters, all three divisions work separately and
autonomously, which gives them more than
enough leeway to conduct their operations in
ways that fits them best. Secondly the company
has enough resources to train and motivate its
employees to get the best out of them.
Threat of Holdup
The company maintains an impeccable image of
serving the best of content to its viewers. The
definition of the best content is affected hugely by
the timing of its release, and thus the company is
abundantly gifted to ensure continuous
production of its programs.
4) COMPETITOR ANALYSIS
The Walt Disney Co.
BACKGROUND The Walt Disney co. is the biggest media
conglomerate in the world and is the prime
competitor for TimeWarner Inc. The company has
an unparalleled reputation and brand because of
its time less characters such as the Mickey
Mouse, The Donald duck and the likes. The
Disney owns a number of channels such as the
ABC network for drama, the Disney channel for
Kids, ESPN for sports, etc. The company has
differentiated itself with its experience centers
such as the Disneyland, which is tagged as the
“World’s Happiest Place”. The company is the
biggest threat to TimeWarner Inc. notwithstanding
the fact that it is also one of the oldest players in
the business. Even so Disney, under its multiple
brands has a huge turnover and market share,
TWX, a relatively young company has given it a
run for its money. There is a lot of demand for
good content and TimeWarner has been
delivering it time and again.
STRATEGY
The mission of The Walt Disney Company is to
be one of the world’s leading producers and
providers of entertainment and information. Using
our portfolio of brands to differentiate our content,
services and consumer products, we seek to
develop the most creative, innovative and
profitable entertainment experiences and related
products in the world.12
The company has branded itself as a feel good
Inc., and has been known to produce heart
12
www.thewaltdisneycompany.com
touching, soulful content. The company maintains
a Disney Lab to work on new and better content
and this R&D department has been applauded
world over for producing top rated content.
The company acquired Pixar in 2006 and has
produced superb movies such as the Oscar
winning Wall-E, Ratatouille etc. This was one of
the most important strategic move by the
company.
The company has maintained its brand image
and has been working on content to keep its top
position from newer, faster players like the
TimeWarner Inc. It will still take a lot of time for
these new players to reach the iconic level of
Walt Disney’s content, but if any company comes
close to doing it, is TimeWarner Inc.
21st
Century Fox
BACKGROUND The company has three major divisions, the
Cable Network, The Filmed Entertainment and
The Television. The first division includes
networks like STAR, Fox Network Group, Fox
Business Network, Fox News Channel etc. The
second division includes the Twentieth Century
Fox Film, and finally, the third division contains
Fox Sports and Fox broadcasting Company to
state a few of its asset. Like the other big
entertainment companies, this company too owns
a comprehensive set of assets with diverse
interests and content.
The company bought the STAR network from its
Hong Kong based owners to capture the Asian
markets and has done well to do so. The
company has been producing the longest running
cartoon series in the world, The Simpsons which
has earned numerous accolades from the
viewers and the industry alike. It recently
launched few of the best drama series currently,
American Horror Stories, Fargo etc. which again
have done quite well critically and financially.
The company has done well by producing content
for varied platforms such as the National
Geographic Channel, Fx, Fox News etc. and has
become one of the most formidable forces in the
industry.
5) FINANCIAL ANALYSIS
This section aims to look at the historical
performances of TMX and its competition, while
understanding its future prospects.
When we look at the data from the past 10 years,
operating income has been stable for the majority
of the decade, sans the single biggest loss
recorded year ended Dec, 2008, primary reasons
for which were the underperforming arms of AOL,
Time Inc. To quote the New York Times, “AOL
and Time Inc. have been twin encumbrances for
some time; before Wednesday, Time Warner had
already taken more than $100 billion in write-
downs to reflect the steady erosion of value at
AOL. The corporate narrative that is Time Warner
recalls the film “Groundhog Day” — an endless
loop of the same story, over and over.”13
The blame could also be put on the declining
world economy in the wake of the subprime crisis.
The company has performed quiet well on the
market, its share price increasing 39% over the
past year. The company has paid constant
dividends of $0.75 over the years and had
announced dividends six times in the past one
and a half years. The return on equity of TMX is
upwards of 20%, far higher than that of
CMCSA14.
The company is constantly generating profits
from all the businesses, except the publishing
arm, which has since been shut down.
13
http://www.nytimes.com/2009/01/08/business/media/08warner.html?_r=0 14
Refer Exhibit 5
$(20,000.00)
$(15,000.00)
$(10,000.00)
$(5,000.00)
$-
$5,000.00
$10,000.00
$15,000.00
Dec,2005
Dec,2006
Dec,2007
Dec,2008
Dec,2009
Dec,2010
Dec,2011
Dec,2012
Dec,2013
Dec,2014
Axis
Tit
le
Axis Title
Operating Profits
The DPS has been increasing and is highest
among its closest competitors15.
TMX’s market cap is a little less than $61 billion,
as against the $150 billion CMCSA. But Time
Warner outweighs Comcast in all other
parameters. TMX’s PEG Ratio is 2.5 as opposed
to CMCSA’s 1.3. This clearly depicts that Time
Warner is set for an explosive growth in the
future. Notwithstanding the tremendous failure of
the AOL and Time Inc. acquisition, the future
prospects still seem strong when we hear of the
upcoming $79B Charter-Time Warner Cable
Deal.
“The Federal Communications Commission has
voted to approve Charter Communications' $79
billion acquisition of Time Warner Cable
and Bright House Networks, an expected move
that clears the way for the companies to integrate
their assets to create the world’s second largest
cable TV andInternet provider, the FCC
announced Friday.”16
15
Refer Exhibit 1 16
http://www.usatoday.com/story/money/2016/05/06/fcc-approves-79b-charter-time-warner-cable-merger/84036184/
The company has set the stage for explosive
growth and all is currently going right with the
company’s franchises.
However Comcast is certainly a bigger company
than Time Warner, but the latter is a faster and
more agile company of the two.17
The Beta calculated for both the companies,
using data available of Yahoo Finance, from the
January of 2015 is 0.65 for TMX; and 0.75 for
CMCSA. Thus again we can see that Time
Warner is more stable than its counterpart.
The recent development of the Charter-Time
Warner deal has resulted in Comcast slashing its
subscription charges. This means that TMX again
has the upper hand here and CMCSA is just
reacting to the strategy of the former. Thus future
growth for Time Warner is expected to be steady
and fast.
6) CONCLUSION
TimeWarner is still young and hungry. In the short
span of 30 odd years, the company has
17
Refer Exhibit 5
becoming one of the most formidable units in the
entertainment industry. The company still has a
long way to go before it rests. It is as of yet giving
companies like the Walt Disney a run for its
money. The high quality content and the vibrant,
youthful feel of their franchise help building the
brand image. All of its brands enjoy a very high
equity and are among the top players in their
respective fields.
Much like The Walt Disney Co., TimeWarner has
Global Median Group which focuses on
customer insights by studying data, and
consequently uses it to market its services, and to
produce content in line with the demands.
It is imperative that the company consolidates on
its online digital business and the offline
business. Mastering both these fields is the only
sure shot way of making it big in current scenario.
The company has been doing great form the past
decades. It has formed various strategic
partnerships such as the partnership between
HBO and DISH NETWORK to provide the DISH
users access to extended HBO services. The
Turner Broadcasting Systems has been able to
crack deals with the NCAA for exclusive rights to
air its matches, thus reposing its sustainable
advantages.
Recently the company got together with the CBS
Network to launch the CW channel which again
was a huge success. Such JVs only bring
strategic advantage to the company and reinforce
its strengths.
The company still has a long way to go!
COMPANY STRATEGY
Several years ago, we set out a strategy
to become the world’s leading video
content company. Put simply, our goals
are to be the preferred home for the
best talent and ideas, to create engaging
and valuable content that we share with
consumers across technological
frontiers and geographic boundaries,
and to be financially disciplined in
everything we do in order to deliver
returns to our shareholders.
Our strategy has four main components:
Use our industry leading scale and brands to increase investments in the best storytelling.
Harness technology and develop new business models to increase the value of our content to consumers and distributors and drive growth for our businesses.
Increase our presence in the most attractive international territories to take advantage of the growing demand for our content worldwide.
Optimize our operating and capital efficiency to provide attractive returns to our shareholders.
7) EXHIBITS
EXHIBIT 1 TimeWarner Inc.
In Millions Revenue Operating Income Net Income Dividend/Share
2012 25,325 5,498 2,922 1.04
2013 26,461 6,268 3,691 1.15
2014 27,359 5,975 3,827 1.27
The Walt Disney Company
In Millions Revenue Operating Income Net Income Dividend/Share
2012 34,625 8,863 6,173 0.60
2013 37,280 9,450 6,636 0.75
2014 40,246 11,540 8,004 0.86
Comcast
In Millions Revenue Operating Income Net Income Dividend/Share
2012 55,842 10,721 4,160 0.45
2013 62,570 12,179 6,203 0.65
2014 64,657 13,563 6,816 0.78
21st Century Fox
In Millions Revenue Operating Income Net Income Dividend/Share
2012 25,051 3,176 1,179 0.18
2013 27,675 6,820 7,097 0.17
2014 31,867 3,785 4,514 0.25
EXHIBIT 2
Source: PwC, 2016 Entertainment & Media Industry Trends
EXHIBIT 3
Source: Digital Business Build, Media & Entertainment BCG
10%
3%
14%
73%
Consumers shift away from traditional viwership patterns
Unsubscribed from pay-TVservices in the past year
Have never subscribed to pay-TVservices
Scaled back the size of their pay-TV package in the past year
Pay-TV subscribers who did notscale back in the past year
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Shifts of Revenues from Traditional to Digital
Traditional
Digital
EXHIBIT 4
Source: Touchpoint Analysis, Media & Entertainment, BCG
EXHIBIT 5
Particulars TMX CMCSA
Market Cap (intraday): $60.69B $149.08B
Enterprise Value (May 8,
2016): $81.80B $200.23B
Trailing P/E (ttm, intraday): 33.1 18.96
Forward P/E (fye Dec 31,
2017): 26.03 15.71
PEG Ratio (5 yr expected): 2.58 1.38
Price/Sales (ttm): 2.54 2
Price/Book (mrq): 6.69 2.85
Return on Assets (ttm): 5.70% 6.22%
Return on Equity (ttm): 21.67% 15.39%
Total Cash (mrq): $1.17B $2.40B
Total Cash Per Share (mrq): 4.13 0.98
Beta 0.65 0.75
Source: www.finance.yahoo.com
8) REFERENCES
www.timewarner.com
www.turner.com
www.warnerbros.com
www.hbo.com
www.thewaltdisneycompany.com
TimeWarner Inc.(TWX) Annual Report, 2014
The Walt Disney Co, Annual Report, 2014
Comcast, Annual Report, 2014
21st Century Fox Annual Report 2014
Touch point Analysis, Media & Entertainment, BCG
http://www.bcg.com/expertise/industries/media-entertainment/touchpoint-analysis.aspx
Digital Business Build, Media & Entertainment, BCG
http://www.bcg.com/expertise/industries/media-entertainment/digital-business-build.aspx
Entertainment & Media Industry Trends, 2016, PwC
http://www.strategyand.pwc.com/perspectives/2016-entertainment-media-industry-trends
List of assets owned by TimeWarner Inc.:
https://en.wikipedia.org/wiki/List_of_assets_owned_by_Time_Warner
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