Current Events - DirecTV

DirecTV May Lose Fox Cable Channels In Contract Fight

Question: What are some current events in your industry? What is the impact of these events on the industry?

Summary: There is a possibility that DirecTV will lose the rights to broadcast Fox regional sports networks as well as some cable channels (including FX and National Geographic) this November due to a contract-renewal dispute. These disputes are becoming more and more commonplace due to the rising levels of competition within the television industry. Network owners are able to set higher prices, because there are more companies that want to enter contracts. Furthermore, traditional distributors are seeing a decrease in the expected growth of subscriptions due to newer venues for media such as Netflix and Hulu.

Fox broadcast network and Fox news will remain untouched until the end of the year and end January, respectively. Part of the problem in the current negotiations is that News Corp. (which owns Fox) wants to bundle these services to the regional sports networks, which will allow them to ask for a higher price - as much as a 40% increase on the side of consumers.

Analysis: This article is very rich in some major concepts of media and business:

1) High competition allows for high prices.

2) The entrance of online media into the market has created significant problems for traditional media.

Because of the higher competition, network providers are seeing the opportunity to increase their revenues by demanding higher prices from their customers. Since the products they are selling have very high brand loyalty (such as Fox news or Fox regional sports), they have a lot of leverage over service providers to extract the price that they want - especially since for these providers giving up a network means loosing customers to their competitors that choose to pay the new, higher, price.

However, now the competitors are not all equal. Traditional service providers face the challenge of competing against online media. Companies such as Netflix and Hulu (as well as possibly YouTube and Amazon in the near future) do not have the same amount of costs as do the traditional service providers since they do not need as much physical presence. This allows them to increase their profit margins or to keep the price of their products lower than that of traditional broadcasters while buying access to networks at the price demanded.

Question: What non-US companies are key players in the industry?

Summary: The most global media company in the world is a German based corporation named "Bertelsmann AG".

Bertelsmann is an incredibly broad media company, providing not just radio and television (through its subsidiary RTL), but also newspapers and magazines (through its subsidiary Gruner + Jahr, the largest magazine publisher in Europe), and books (through its subsidiary Random House). It operates Direct Group Bertelsmann, which operates "media clubs, bookstores, online activities, publishing imprints and distribution companies in over 16 countries." It also operates an outsourcing service provider called Arvato, a subsidiary largely distinct from its other, more media-centered subsidiaries.

The company employs over 100,000 people in 50 countries worldwide, making it "the worlds most international media company".

RTL, the company's radio and television subsidiary, accounts for 35% of its revenue, is the largest source of income, partially the product of a plan to expand its television services internationally. RTL now provides services in 11 countries, including production companies in the United States.

Analysis: Bertelsmann is the most international media company, true, but it is certainly not the largest media company in the world. It still has a long ways to go before it catches up to the likes of Disney, which is currently the largest media conglomerate in the world, or even AT&T, the largest telecommunications provider in terms of revenue ($124 Billion vs. Bertelsmann's $15 billion).

What kind of opportunity does it have to expand? While breaking a company like Disney or AT&T off its throne, especially here in the US, is far too much to hope for anytime soon, Bertelsmann does have a great ability to take advantage of new, important markets, which could make it a much larger conglomerate - primarily, digital media. It owns the largest book publisher in the world, Random House. As the digital media slowly but surely eats away at the publishing profits, an entrance into e-books could save some of the lost revenue. Owning Random House also gives it a tremendous jumping point with material to publish, and a large market familiar with the name. It could also enter the digital movie streaming service; Netflix is scheduled to begin offering its services in two European countries in the first quarter of 2012. By establishing itself as a homegrown competitor, Bertelsmann could provide a successful service in Europe.

Sources: http://www.bertelsmann.com/bertelsmann_corp/wms41//customers/bmcorp/pdf/Annual_Report_2008_final.pdf

http://www.bertelsmann.com/

http://mashable.com/2011/07/15/netflix-europe-2012-report/

The Global Media Giants

Question: Which companies in your industry are most global? What has been the key to their success in other countries?

Summary: Five major "Global Media Giants" exist in our media industry as of today. Those five giants are "Time Warner (1997 sales: $24 billion), Disney ($22 billion), Bertelsmann ($15 billion), Viacom ($13 billion), and Rupert Murdoch's News Corporation ($11 billion)." The two golden rules those companies have followed in order to achieve success are the following:

1) "Get bigger so you dominate markets and your competition can't buy you out. "

2) "Have interests in numerous media industries, such as film production, book publishing, music, TV channels and networks, retail stores, amusement parks, magazines, newspapers and the like...firms that do not have conglomerated media holdings simply cannot compete in this market. "

Analysis: At a first glance those two rules might seem simple enough to follow, but the key queiostions are - how do you "get bigger"? And how can you obtain and keep "conglomerated media holdings" afloat? There are answers to those questions - of course there are - but not a single one out of tose five companies is going to "spill the beans" and reveal all of its secrets.

What I found interesting, however, was that all of these companies started becoming what we now call "media giants"around the same time (1990s) - Time Warner (1992), Disney (1995), Bertelsmann (1994), Viacom (1994), and Rupert Murdoch's News Corporation (1995).
That made me wonder whether it's even possible for the other, newer, companies to reach that same level those five giants have reached, or possibly even overthrow them sometime in the near future...

Sources:http://www.fair.org/index.php?page=1406

Netflix: The Most Global Industry (In The Americas)

Articles in this blog post:

“Netflix Expands to Latin America Countries”

“Netflix to Stream Films and TV Abroad”

“Netflix Launches in Canada”

Question: Which company in your industry is most global? What has been the key to their success in other countries?

Article Summary:

Starting on September 5 this year, Netflix began selling subscriptions to their online video streaming service in various nations in Latin America, starting with Brazil and expanding to 43 nations in Latin America, including Mexico, Argentina, and islands in the Caribbean. This service, which costs about $9 a month, only includes unlimited streaming and offers popular shows and movies in English, Spanish, and Portuguese.

This venture into the global market is not the first time Netflix left the United States in order to attract more customers. Last year in September Netflix made their first foreign venture by setting up their unlimited streaming service for use in Canada, though they did not invest in letting Canadians order unlimited DVDs by mail, which was included in all US Netflix subscriptions. For the most part this venture has paid off, as Netflix announced recently that it had gotten one million Canadian subscribers in less than a year since the company expanded there. However, there have been no further announcements of whether Netflix wants to make streaming available in any further countries.

My Analysis:

The interesting trend in the field of media distribution is that, while several companies are faring well in the United States even with the recession, little progress has been made towards creating a multinational corporation. In England, which is very similar to the US in regards to language, wealth, and hobbies, popular companies like Comcast and DirecTV are unheard of, despite being giants in the industry here. As such, Netflix’s transition into countries outside the United States is welcome – while it still is limited to the Americas, it shows a significant effort to increase their viewer base, make more money, and give people in those countries a greater consumer surplus.

Netflix has been hailed several times for being innovative in the industry and growing at a substantial rate. With the transition of going from being in one country to two to almost 50 in the course of a couple years, and the good report of one million customers when being in Canada for only a year, Netflix is once again showing its potential as a major contender in the form of media distribution. The key to this success is that they have a product relatively easy to produce – after all, most movies and shows already exist on Netflix, not many changes are needed to show them in another country – and incredibly easy method of distribution compared to tangible goods since everything is online. While the change from being in the Americas to overseas would require a big investment, I feel that Netflix has the potential to become a truly global corporation on par with the likes of McDonalds for being able to efficiently produce a relatively cheap but valued good.

Outsourcing and Overseas Manufacturing

QUESTION
Do players in your industry manufacture overseas? What aspects of their operations do they outsource?


SUMMARY
In the media industry (particularly for media providers), it is near impossible to "manufacture overseas," as the companies usually provide services rather than products. For example, Netflix recently began offering its services to customers in Canada and Latin America, but all services are provided by Americans in the United States. On the other hand, Verizon is a good example of a media company that outsources to other nations in "Europe/Middle East/Africa, Asia/Pacific, and Latin America." But Verizon outsources its customer service, not its production. In short, different media companies choose to operate solely in the US or all over the world depending on the types of services they provide.

OPINION
For some companies, it is profitable to outsource operations such as customer service. (This is why there's often a foreign employee on the other end when you call your cable provider for help in the middle of the night.) Having customer service employees in different parts of the world also ensures that the proper language and time zones are represented--meaning more customers can receive help.
Verizon, self-described "global leader in communications," has buildings in different countries so that its customers can always reach a representative when there's an issue. Netflix does not provide this service because it operates mainly within the US, and its services are very different (Netflix doesn't do phone/internet/wireless).
Some companies would benefit from establishing overseas bases but other would not. Traditional providers like Time Warner, Comcast, and Verizon would stand to benefit from outsourcing customer service. Other companies, such as Netflix, Redbox, and Hulu, don't need to outsource because they provide a service that isn't usually consider a necessity (whereas television/cable is crucial to most people's comfort). In other words, online media providers don't need to manufacture abroad/outsource, but more traditional media distributors oftentimes do to help the bottom line.

SOURCES
http://www22.verizon.com/jobs/whoweare_vzbglobal.html
http://ir.netflix.com/#
http://www.webosroundup.com/wp-content/uploads/2011/04/verizon-world-phones.png

Global Media

France Telecom, Deutsche Telecom Launch Joint Purchasing Venture

Question:

What non-US companies are key players in the industry?

Summary:

France Telecom and Deutsche Telekom announced on Friday a new joint venture called Buyin through which they hope to save millions of euros per year on purchases of telecoms, network, and software equipment. The companies have previously worked together in U.K on a joint venture called Everything Everywhere. Buyin will start operation in Paris and Bonn this Monday (Oct 17, 2011). This plan was first announced in March and is predicted to save at least 3 billion euros by 2015, in part due to partnerships with competitors in the market.

Analysis:

Global involvement by media broadcasters differs greatly. For example, according to its website, Comcast provides service exclusively in the United States. This is a trend followed by many cable companies. DirecTV has a slightly wider geographical range, offering service to the US and latin america. Newspapers/journals, such as the Wall Street Journal and the Economist have a global presence despite being focused and associated primarily with one location. This difference may be in due to the difference in purposes that they serve - the latter category deals in large part with affairs that concern businesspeople around the world, while cable is targeted more to people within a specific geographic region.

The two telecommunications companies dealt with in this article likewise have a huge global presence. As mentioned, while they are based in France and Germany, respectively, they have worked on a project in the U.K.. The two are some of the largest telecommunications companies in the world. France Telecom services countries in Europe, Africa, and the Middle East, while Deutsche has a world-wide presence. T-mobile, a name most Americans are familiar with, is owned by this German media company. Since telecommunications is meant to make communication easier across the world, it makes sense that the large players would be strong internationally. This distribution of globality supports the idea that its the purpose of a specific branch of media that influences whether many companies within it deal internationally and to what extent.

Note: All information was found on the official sites of the companies mentioned.

Differentiation in the Media Industry

Question:

How do companies in this industry differentiate themselves from one another?

Note: 

This post is essentially exactly what I wrote for my section of the draft paper. It's about how different media providers market their services/products (specifically how they choose to price them).

Summary*:

This article sums up Netflix's new marketing move: dividing online streaming and DVD sales into two separate services, each for $8 instead of the 2-for-1 package for $10. Customers, shareholders, and stockholders were not happy. Netflix stock dropped after the announcement, and the vast majority of Wall Street Journal readers said in an online poll that the marketing move will harm the company.

The most intriguing quotation in the article came from Wedbush Securities analyst Michael Pachter: "...streaming-only customers are more profitable to Netflix than its DVD customers. But he believes that state of affairs won't last as studios charge Netflix more for the digital licensing deals it relies on. 'On the DVD side the studios have zero ability to raise price. [...] On the streaming side, the studios have 100% leverage.'"

Opinion:

There are many companies that offer similar services to those of Netflix. I will describe their differences here (in almost identical language to the opening paragraph of my Marketing section draft).

Since Netflix, Inc. was founded in 1997, companies in the media distribution industry have all been following its example by offering easy DVD rental delivery to their customers. The fad today is to offer online streaming of movies and television programming for a monthly or yearly fee. Netflix was the first to do this, charging $10 per month for both services—DVDs and streaming. Blockbuster caught on—too little, too late—and began offering the same delivery service in 2004, also for $10 per month.

Redbox, founded in 2002, lets customers rent movies from kiosks in supermarkets and drugstores and return them in any convenient kiosk for as little as $1 per DVD. Websites, such as Amazon.com (e-commerce) and Hulu.com (online streaming) have also caught onto this trend: In 2011 Amazon launched Amazon Instant Video to customers already paying the Amazon Prime fee, and Hulu introduced Hulu Plus for $8 per month, to offer more services and maintain a higher profit margin.

Sources:

http://www.amazon.com/gp/help/customer/display.html/ref=hp_3757_wipiv?nodeId=200572880

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/09/blockbuster-files-for chapter-11-bankruptcy-sets-plan-to-reorganize.html

http://www.hulu.com/plus

ttp://ir.netflix.com/

http://www.redbox.com/history

https://www.blockbuster.com/signup/m/plan

http://www.theklaus.com/images/portfolio/editorial_cartoons/Netflix_Defeats_Blockbuster.jpg

*http://online.wsj.com/article/SB10001424053111903374004576581000189433470.html