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Time Warner is the third largest conglomerate behind News Corporation and Walt Disney (Dinger, 1998). Since it is an operational company, Time Warner has several strengths. In 2010, Time Warner compiled a strong financial performance. This portrayed their ability to meet their business and operational expansion goals. The revenue amounted to $26,888 million in the 2010 fiscal year. This was a 6% increase in comparison with 2009 fiscal year. The company also improved all its profitability ratios and return on equity. The second strength is that Time Warner owns several market-leading brands such as Times Inc., Turner Broadcasting System Inc., Home Box office Inc., and Warner Bros. These business units carry other brands such as Sports Illustrated, TNT, CNN, People, New Line Cinema and Time. The other strength is that the company has diversified media operations that enable it to handle a large customer base. These operations have featured programs and channels that increase their growth.
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However, Time Warner has some weaknesses that hinder its goal realization. The company operates in the US, but its products are retailed in Germany, UK, Japan, Canada and France. Despite its diverse retail channels in various foreign countries, 71% of their revenue is derived from the US region. The company’s financial health is available for the US economy. This increases business risk while restricting its ability to expand. The other weakness is the company’s ongoing litigation. Bancorp filed an antitrust case against the company’s subsidiary Cable news network in 2010. The settlement of these litigations damaged the reputation of the company.
There are several opportunities presented to Time Warner. Their corporate strategy emphasizes on acquisition, corporate actions and mergers that keep them focused on core business. The company has the ability to perceive strategic alliances as part of its growth strategy. They signed a long-term contract with TV Everywhere. This agreement provided Comcast cable subscribers with connections to networks such as CNN, TBS, TNT, and truTV, HLN, Cartoon Network, Turner Classic Movies and Adult Swim. Such agreements enhance the strength of Time Warner’s market position. The second opportunity presented to Time Warner was the growing focus on e-commerce. This is predicted to promote the company in terms of growth through their websites such as CNNMoney.com, CNN.com, PGATour.com, and PGA.com. In addition, the scope of the Direct Broadcast Satellite market is another opportunity for Time Warner. In 2012, spending in DBS market is expected to rise to $1.18 million. The market will see significant company revenue increases.
Threats are inevitable. Despite the positive outlook of Time Warner, the intensified market competition in the media services and entertainment industry is wanted. It faces stiff competition from the internet and entertainment providers as well as regional and global distributors. Another threat is the rising piracy issues. Failure to curb piracy could lead to a decrease in revenues since it affects sales and exploit their content. The stringent regulatory environments, as well as the declining DVD sales, are other types of threats. Complying with new regulations generates additional costs while the declining DVD sales have impacts on the bottom line.
Porter’s Five Forces
To analyze the market positioning and competitive ability of Time Warner, it is vital to apply the Porter’s five forces model. The nature of a healthy competition in a given industry depends on five forces. They include threat of new entrants, competitive rivalry, and threat of substitutes, bargaining power of buyers and bargaining power of suppliers. The strongest force subjected to the company is the rivalry among existing firms. Companies in the industry do not compete directly for end-customers, but for viewing figures that determine advertising revenue for commercial partners. The size of competitors promotes strong rivalry within the industry. This is because large firms influence the pricing strategy in the market. They might decide to lower their prices as long as it meets their costs at the expense of other players in the industry.
The threat of new entrants is weak as far as Time Warner is concerned. Companies striving to join this industry are faced by entry barriers due to limited license availability in various countries. However, this threat is higher in platforms of cable and satellite broadcasting since there is a relatively higher channel capacity. Also, the platforms charge low revenues on advertising and viewing figures. This mitigates the major part of the threat. Firms are able to meet the set costs of advertising and viewing figures thereby entering the market successfully. New entrants affect the pricing strategy. They also lead to vigorous advertising and promotions, which is done by all industry players. This is perceived as a way of securing a portion of the market share.
The threat of substitutes and the bargaining power of suppliers as well as buyers can be described as moderate. It is evident that there are other sources of entertainment such as PCs, movies and video games. These are potential substitutes for the Cable and Broadcasting industry. The suppliers of cable and broadcasting industry have power that depends on the existence of quality content. Production companies are major suppliers to broadcasters. The power of supplier depends on the shopping items. With regard to the bargaining power of buyers, companies obtain their revenues through various channels. The primary buyers are the advertiser buying screen-time and the consumers paying their subscriptions. Advertisers are required to display preferences through the viewing of figures. However, advertisement fees form the largest part of broadcasters’ revenue. This keeps the buyer’s bargaining power at a moderate level.