Chapter 6
Strategy and Competition in the Multichannel Media Industry
As a relatively newer challenger to traditional media incumbents such as print and broadcast media, multichannel media firms or multichannel video programming distribution (MVPD) services dramatically altered not only the competitive dynamics in the television industry but also audi- ences’ viewing behavior since the 1980s. The MVPD market continues to evolve and remain a powerful contender as technological advances brought forth the Internet, digitization, broadband, and interactivity. Adopting the strategic framework proposed in chapter 2, this chapter first examines the economic, technological, political, and sociocultural changes that have influenced the MVPD industry and continue to discuss the fac- tors that have affected the competitive dynamics of the MVPD market. Be- cause cable television and DBS services comprise more than 96% of all MVPD subscriptions in the United States (Standard & Poor’s, 2004), this chapter focuses on addressing these two multichannel video media.
CHANGES IN THE GENERAL ENVIRONMENT
As discussed in the previous chapter, elements in the broader context of a society influence the operations of industries and the firms within them. Although the general environmental trends are the same for all media industries, their impacts on individual markets are different. In this context, the major environmental developments and their implications to the MVPD sector are presented next.
Economic Changes
The growth of a global economy has substantially contributed to the market potential of MVPD services. The interconnectedness of different
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economies, including freer flow of products and the establishment of mechanisms enabling that flow, encourages multinational corporations to invest in communications infrastructures in various countries. The development of network capacities helped establish multichannel media services. The subsequent programming needs then fueled the interna- tional expansion of many MVPD firms. The relatively low interest rates during various time periods between the 1980s and 2000s also fostered a favorable environment for mergers and acquisitions. The M&A activi- ties consolidated many smaller systems into large multiple system op- erators (MSOs), which significantly changed the competitive dynamics of the industry. The relatively robust growth of the U.S. economy from 1980 to 2000 also increased consumers’ disposable income, making MVPD and many of its auxiliary services more affordable. In addition, the increase in consumer spending translated to advertising revenue growth for the cablecasters, which more than tripled over the last 10 years (Standard & Poor’s, 2004).
Technological Changes
Technological advances in the last two decades have fundamentally shaped today’s MVPD market. In fact, technologies underlie the very existence of DBS and cable television and drive the types of MVPD ser- vices that might be available in the future. From addressable converters that catapulted premium services like HBO and optical fibers and com- pression that stimulated the development of new channels to the more recent broadband and digital communication technologies that facili- tate the arrival of better audiovisual quality, more content options, fast data transmissions, and interactivity, technological changes have con- stantly brought forth new business opportunities for MVPD firms. The essentiality of technology in this market also means that there is more strategic heterogeneity among MVPD services. That is, because of the product diversity enabled by technologies, there is more room for stra- tegic competition and differentiation among the MVPD firms. In addi- tion, many of the same technologies have also altered their broadcast counterpart’s conventional capabilities, making the broadcasters more competitive (e.g., HDTV and multicasting).
Political Changes
The Telecommunications Act of 1996 and the recent, more relaxed regu- latory environment has also impacted the MVPD market by fostering an environment for group ownership and technological development. Spe- cifically, the deregulatory climate facilitated the formation of large MSOs, which are able to improve operational efficiency through cluster- ing strategies; have better access to resources such as programming through their increasing corporate relationships with cable networks
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(i.e., vertical integration); and explore potential digital, interactive, and even telephone services via their improving broadband platform. Similar to the effect on broadcasters, the opening of media borders and commer- cialization made possible by the global political changes toward privat- ization and commercialization of media systems also led to the option of global diversification and the increase of programming demands and thus the expansion potential for MVPD firms such as cable networks.
Sociocultural and Demographic Changes
A number of developments in this area have influenced the MVPD mar- ket. The growing income disparity between different socioeconomic au- dience segments discussed earlier has elevated the competitiveness of MVPD firms, which are experienced in market segmentation strategies. More women in the workforce as well as increasing workplace diversity also point to the importance of programming content and scheduling flexibility, which are more feasible in a multichannel setting. The busy lifestyle of today’s families makes more valuable the benefits of on-de- mand services provided by cable and DBS services. Finally, the fast growth of two demographic groups—the Hispanic and African Ameri- can markets—has contributed to the value and development of Span- ish-language and African American–focused programming channels. Besides the established specialty brands such as Univision and Black En- tertainment Television (BET), mainstream networks like ESPN and HBO have extended their brands to include ESPN Deportes and the HBO La- tino channel to target these specific audience segments.
CHANGES IN MULTICHANNEL MEDIA INDUSTRIES
To describe the nature and state of competition in the MVPD industry, we again follow the framework depicted in chapter 5 with a review of five fac- tors that shape the competitive dynamics of a market: bargaining power of suppliers, bargaining power of buyers, threat of substitute products, threat of new market entrants, and rivalry among competing firms.
Bargaining Power of Supplier
In the context of the MVPD market, suppliers are the producers/suppli- ers that make available the MVPD contents like local origination and community access information, audio programming, electronic pro- gram guides, news, weather, sports, original programming, retransmitted broadcast signals, and syndicated, recycled program- ming. From this perspective, the main suppliers include information and audio services (e.g., TV Guide and XM), television syndicators (e.g., WB syndication), studio and independent producers (e.g., Universal Studio), cable networks and systems that produce original contents such as news, weather, public affairs, and sports (e.g., ESPN and CNN), and broadcast television stations. Because the audio and information
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Chan-Olmsted, S. M. (2005). Competitive strategy for media firms : Strategic and brand management in changing media markets. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2019-03-14 15:41:20.