JOINT VENTURES
IN THE
CABLE AND VIDEOTEX INDUSTRIES
by
THOMAS P. CARUSO
B.S.
University of Pittsburgh
(1974)
Ph.D. University of Minnesota
(1979)
and
MARK R. HARSCH
B.A.
Swarthmore College
(1978)
Submitted to the Sloan School of Management
in Partial Fulfillment of
the Requirements of the Degree of
Master of Science in Management
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
May 1984
0
Thomas P.
Caruso and Mark R.
Harsch
L90
The author hereby grants to MIT permission to reproduce and to
copies of this thesis docJmpnt in whole or in part.
distribute
Signatures of the Authors:
Sloan School of Management
May 15, 1984
Certified by:
Edward B. Roberts
I.'
0 esis Supervisor
Accepted by:
MASSACHUSETT SiS7iTUTE
OF TECHNOLOGY
Jeffrey A. Barks
Director of the Master's Program
JUN 2 6 1984
ARCHIVES
LIBRARIES
PAGE
1
JOINT VENTURES
IN THE
CABLE AND VIDEOTEX INDUSTRIES
by
THOMAS P.
CARUSO
AND
MARK HARSCH
Submitted to the Sloan School of Management
on May 11, 1984
fulfillment of the requirements
in partial
for the Degree of
Master of Science in Management
ABSTRACT
After
a thorough analysis of
joint
ventures
in
the cable
industry, we have determined
both the
reasons
that
these joint
ventures were formed and the
characteristics of
successful
joint
ventures.
The
results were then applied to an analysis of the joint
ventures in the videotex industry and we developed recommendations to
the management
of these and future joint ventures that might improve
their chances of being successful.
This analysis was performed by completing a literature
search
of
venturing
strategies, joint
venture
theory, the cable and videotex
industries, as well as the joint ventures in each of these industries.
Telephone and personal interviews were then conducted with key persons
involved in joint ventures
in
both
industries.
We combined
this
information to piece
together the motivations,
contributions and
structure of nineteen cable joint ventures and
seven videotex
joint
ventures.
The thesis
is divided into three
sections.
The first
section
summarizes
the findings of the literature review about joint ventures
and the alternatives to joint ventures.
The second section focuses on
the cable industry.
It reviews the history, structure and
technology
of the
industry,
knowledge
of which is necessary to understand the
motivations for joint venture formation. We describe the motivations,
contributions, structures and results of each of the programming and
franchising joint ventures.
This section concludes with a detailed
analysis of joint venture motivations and critical
success factors in
the cable industry.
The final section repeats this structure of
analysis for the videotex industry.
After a discussion of the
structure
of
the
videotex
industry,
contributions of each of the partners in
conclusion
recommends
steps
these
PAGE
we present
joint
2
the motivations and
various joint ventures.
The
ventures should follow to
insure success.
We found
that gaining complementary
skills,
speeding market
introduction
of product, reducing uncertainty of project completion
and gaining market power are all
important
motivations
for
forming
joint
ventures
in the
service
industries that we studied. This
parallels the motivations that
researchers
have discovered
in
the
manufacturing industries.
We also found
four success factors for
joint ventures:
complementary skills, complementary company cultures,
non-conflicting goals and clear agreement on management control.
The
videotex joint ventures between the national system operators, such as
Videotex
America and Viewdata Corporation of America, and local newspaper companies best meet these criteria.
PAGE
3
ACKNOWLEDGEMENTS
This thesis would have been impossible without the cooperation of
thank Ed
a number of people. On the academic side we would like to
us both with the guidance and
our advisor, for providing
Roberts,
resources we needed in order to see this project to its completion.
The following persons in the cable and videotex industries were
to take the time to talk with us at length about their
kind enough
company's joint venture experiences:
Sam Berkman
Vernon Cain
Judy Carroll
David Fluhrer
Laurie Goodman
Jack Healy
Tony Herrling
Irving Kahn
Richard Loftus
James Mills
George O'Hanasian
Robert Sachs
Sherrill Sanderson
Robert Sullivan
Alan Spoon
Maurice Sprumont
Lloyd Werner
AT & T
Keycom Electronic Publishing
Warner Amex Cable Communications
Viacom
HBO
ABC Video Services
ABC Video Services
Formerly with TelePrompTer
Formerly with Scripps Howard
Formerly with The Entertainment Channel
Group W Cable
Continental Cablevision
WASEC
Cablevision
Washington Post
Infomart
Group W Satellite
I.
We also want to thank David Allen, Lynn Wickwire, Jay Borden,
Trumpowski, Wes Kussmaul and Edward Diamond for their help and advice.
Finally, and most importantly, we want to thank Leslie and Kathy for
seemingly endless
showing patience and understanding throughout this
ordeal.
PAGE
4
Table of Contents
ABSTRACT...........................................................2
1
.....
......
INTRODUCTION.................................
1.1 Purpose..................................
2
3
...........................
8
1.2 Methods..................................
1.3 Organization.............................
VENTURING STRATEGIES.........................
2.1 Internal Venture Strategy................
2.2 Strategic Alliances......................
JOINT VENTURE THEORY.........................
3.1 General Comments.........................
....
10
....
12
. ..13
....
16
....
24
....
24
....
25
....
26
....
27
....
29
3.2 Patterns Across Industries...............
4
5
3.3 Example: Chemical Industry Joint Ventures
3.4 Classification of Joint Ventures.........
3.5 Motivation for Forming a Joint Venture...
3.6 Antitrust Issues.........................
3.7 The Evolution of a Joint Venture......... .
3.8 Conclusion to Joint Venture Theory Chapter
CABLE INDUSTRY INTRODUCTION.........
4.1 Origination of Cable Television.
4.2 Industry Structure..............
CABLE SYSTEM OPERATORS..............
5.1 Barriers to Entry...............
5.2 Existing Rivalry................
5.3 Substitutes.....................
5.4 Buyer Power.....................
....
...
5.6 Conclusion......................
CABLE PROGRAMMING SERVICES..........
6.1 Types of Programming............
6.2 Barriers to Entry............... . .. .. .. .. .. .. . .
6.3 Existing Rivalry................ ...............
6.4 Substitutes..................... . .. .. .. . ... .. . .
6.5 Buyer Power.....................
6.6 Supplier Power..................
6.7 Conclusion......................
7
. . ..
. ..
..
..
......
0. .. 0. ...
0....
CABLE TECHNOLOGY....................
7.1 The Direct Effects of Technological Change.....
8
7.2 The Indirect Effects of Technological Change...
CABLE JOINT VENTURES...............................
8.1 Programming Joint Ventures.....................
8.2 Franchise Joint Ventures.......................
8.3 Conclusions....................................
PAGE
5
35
...37
.... 42
....
44
....
44
....
46
....
48
....
51
....
59
....
5.5 Supplier Power..................
6
7
7
60
....
61
....
61
....
63
..
64
.... 64
67
....
... 74
.... 75
....
76
....
78
....
79
....
80
...
81
.... 88
s... 92
..
95
... 115
... 125
9
10
11
12
VIDEOTEX INDUSTRY INTRODUCTION..............................136
9.1 History and Definition of Videotex......................136
9.2 The Components of the Videotex Industry.................143
VIDEOTEX INDUSTRY STRUCTURE.................................148
10.1 Barriers to Entry......................................149
10.2 Existing Rivalry.......................................152
10.3 Substitutes............................................155
10.4 Buyer Power............................................155
10.5 Supplier Power.........................................157
10.6 The Future Structure of the Videotex Industry..........157
VIDEOTEX JOINT VENTURES.....................................159
CONCLUSIONS.................................................176
12.1 Justifications for Cable and Videotex Industry
Comparison.............................................176
12.2 Recommendations for operating videotex joint ventures..183
12.3 Summary................................................190
FOOTNOTES........................................................192
BIBLIOGRAPHY.....................................................202
PERSONAL INTERVIEWS..............................................211
PHONE INTERVIEWS.................................................213
PAGE
6
I
INTRODUCTION
1.1 PURPOSE
The videotex industry in the United States today is on the
of
After years of field
becoming a major business.
in
launched
Florida in the fall of 1983.
and market
trials
surveys the first videotex system with color graphics
brink
capability
was
At least two more services
will be launched regionally in 1984 with national
rollouts
occurring
in 1985 and 1986.
the
A distinguishing feature of
casual
observers,
formed joint
venturing
is
ventures.
strategy
the
relative
to
noticeable
even
proportion of competitors that have
high
a
Since
industry,
to
joint
venture
is
not
common
some of the alternatives, a natural
question to ask is why it is so prevalent in this industry.
PAGE
a
7
Scholarly literature on joint ventures is concerned
manufacturing
industries
and
it
was
not
mainly
with
clear how applicable the
research was to a service industry such as the videotex industry.
central purpose of this thesis, therefore,
understanding
of
why
videotex
determine the elements that
partnership.
In
the
are
firms
is
to
enter
necessary
provide
joint
to
a
The
better
ventures and to
a
insure
successful
course of addressing these concerns the thesis
will also help to determine the extent to
which
the
existing
joint
venture literature applies to service industries.
The relevance of these issues is evidenced by
the
standing-room
only audience attending a seminar about joint ventures at the Videotex
'84
meeting in April.
Well over half of the executives in attendance
indicated that their companies were involved in, or
entering,
joint ventures.
issues of this thesis:
What
considering
were
Their main concerns focused on the central
are
the
reasons
that
a
firm
should
consider a joint venture and what are the determinants of a successful
joint venture.
1.2 METHODS
Although the central motivation for this project is
the
videotex
two-fold.
by
industry, our hypotheses were formed by researching the
joint venture activity in the cable industry.
are
provided
First,
the
The
reasons
for
this
cable industry has been in existence for
PAGE
8
over thirty years and provides a rich body of
videotex
industry.
Many
data
relative
to
the
ventures have had time to run their
joint
been
course and in many instances the principal players have
willing
to candidly discuss even the ones that were not successful.
between
Secondly, the fact that there are many similarities
industries
makes
to draw conclusions from the study of
possible
it
joint venture formation in the cable industry that are
the
videotex industry.
applicable
the body of the thesis.
The information was collected in a variety of ways.
consisted
of
magazines and books.
joint
to
The relevant similarities and dissimilarities
between the industries are discussed in
research
the
initial
literature review of journals,
extensive
an
The
The majority of the information on the
specific
ventures was acquired through telephone or personal interviews.
The interviews were supplemented,
where
necessary,
information
with
from printed sources.
Whenever possible, all the
interviewed.
Since
this
partners
other partner in the venture.
dissolved due to
differences
a
joint
venture
were
not possible in every case, there are
was
instances where one partner has supplied
the
of
the
information
concerning
In the cases where the partnership
in
opinion
PAGE
9
exclusively relied on.
no
one
source
has
been
A final point concerning methodology is that the
here are not a random sample.
discussed
joint
ventures
We do however, feel strongly
that they are representative of the joint ventures now present in
the
cable and videotex industries.
1.3 ORGANIZATION
The thesis is organized into three main sections which
in
turn,
theory,
the
industry
cable
and
Chapter 2 opens the theory section with a
strategies
venturing
available
the
brief
to a firm.
consider,
videotex industry.
review
of
all
the
This provides the reader
with an understanding of how a joint venture strategy compares to
the
choices available to a manager who is considering a new venture
other
Once joint venture strategy is placed in context, Chapter 3
strategy.
explores joint venture literature in depth.
Using the previous two chapters as a foundation, the thesis moves
into the research sections.
discussion
of
Chapter 4 provides a brief history and
the overall structure of the cable industry.
of
5-7 then go on to present an analysis
of the cable industry.
structure
the
forces
7
focuses
Chapters
affecting
the
Chapter 5 concentrates on the cable
system operators while Chapter 6 is concerned with cable
Chapter
a
programmers.
on the effect that changing technology has had on
the entire industry.
PAGE
10
Chapter
8
contributions
details
and
selected
motivations
the
joint
ventures.
The
of each partner are listed along with
the structure of each partnership.
and
cable
Each joint
venture
is
evaluated
chapter concludes with a summary of the motivations that led
firms to form joint ventures and the elements that seem to be
crucial
for success.
The
final
drawing
section
parallels
investigates
with the cable industry.
of the videotex industry.
forces
affecting
the
the
Chapter
industry,
10
thus
videotex
industry
while
Chapter 9 is an overview
focuses
on
the
competitive
laying the groundwork for the
discussion of videotex joint ventures in Chapter 11.
Chapter 12 completes the thesis by framing a list
that
should
industry.
be
met
of
conditions
before entering a joint venture in the videotex
We have concluded that out of all the elements that must be
considered four of
the
most
crucial
are
the
issues
of
control,
conflicting company cultures, similar goals and complementary skills.
PAGE
11
2
VENTURING STRATEGIES
Roberts' suggests that when corporations find themselves squeezed
by the stockholder's desire for growth of revenue and earnings and the
saturation of their traditional product markets,
introduce
new
products
to
new
products
with
either
seek
to
Companies can
or new markets.
existing
develop and commercialize these
must
they
internal
venture strategies or with strategic alliances.
Each venturing strategy will fit particular needs, abilities
personnel
--
at any one moment.
what Roberts
2
The use of various venturing strategies
calls venture merging and melding --
diversity of financing mechanisms.
individual
venturing
techniques
of
least
at
benefits of these strategies
literature
about
allows a greater
A strategy that uses all of
increase
will
success in new product commercialization.
persistence
and
In any
the
case,
these
likelihood
a
of
long-term
five to seven years is required before the
can
be
clear.
Before
reviewing
the
joint ventures, we will briefly examine these other
venturing strategies.
The knowledge of these attributes is
PAGE
12
necessary
in
a
study of joint ventures since a firm usually decides on a joint
venture only after deciding that the alternatives are less
be
successful.
Also,
likely
to
many cases, a firm's reasons for deciding
in
against the alternatives affect its expectations for the joint venture
results.
2.1 Internal Venture Strategy
Berg
al. 3
et
companies
with
hypothesizes
that
diversified
companies
and
a high capability for internal transfer of technology
have a greater ability to be successful at one of the
four
types
of
internal venture strategies:
o
R & D Strategy
Independent Business Unit Strategy
New Venture Division Strategy
Venture Spinoff Strategy
O
O
O
2.1.1 R & D Strategy
corporations
Most
and
research
department
process
is
and
choose
development
established
product
to
support
To
strategy.
with
complete
innovation.
Ties
strategies,
such
products
with
a
implement this strategy, a
responsibility
for
both
between this department and
Companies that are good at R
product management or marketing vary.
D
their
&
as some consumer product companies, like Procter
PAGE
13
and Gamble, or pharmaceutical companies, like
have
learned
companies
with
radically
and
Merck,
a
This strategy has its limitations since it
different
choose
revenues in
Lilly
to build close relationships between product management
and the R & D departments.
works best
Eli
this
products
strategy
particular
product
for
as
a
existing
means
market.
markets.
of
If
Thus,
maintaining sales
a
company
desires
different products for existing or new markets, it must use
one of the other internal or "external" venturing strategies.
2.1.2 Independent Business Unit Strategy
Given this name by the inventor, IBM,
Unit
the
Independent
Business
(IBU) strategy is used to develop products that fail to fit with
the "mainframe"
commercialize
of mind.
IBM utilized
this
the IBM Personal Computer.
technique to
develop
and
Such products are developed
differently than and separately from products developed by the typical
R & D mechanisms within a company.
knowledge
of
IBM's
successful
strategy will may make the IBU as
The
implementation
common
future.
PAGE
business
14
as
the
communities
of
SBU
this
in
common
venturing
the
near
2.1.3 New Venture Division Strategy
Fast 4 defines a new venture division as:
unit whose primary functions are (1)
organizational
"...an
the investigation of potential new
opportunities,
development of business plans for new ventures and
the
(2)
business
(3) the management of the early commercialization
these
of
ventures."
were
These
organizations
70's.
Commonly named
Ralston
Purina,
3M
the
are
examples
and
popular
quite
DuPont.
in the late 60's and early
new
venture
Laboratories.
D
the
probably
largest
These divisions usually are formed to coexist with R
strategies, companies must be
upper
&
However, the literature suggests that
this strategy has had mixed, if not poor results.
from
of
division in history in an effort use the talents at Bell
strategies within a company.
support
divisions
More recently, the new AT & T has
committed approximately $200 million a year to
new
venture
careful
management
to
levels,
obtain
In developing these
strong,
particularly
when
venture division is started as a major new strategy component
long-term
the new
of
the
if
AT & T's
political situation changes, the survival of the new venture
division
company's
overall
corporate
strategy.
For
example,
at its initial high level of investment will be difficult.
PAGE
15
2.1.4 Venture Spin-Off Strategy
the
Unlike
internal
IBU
venturing
strategy,
some
companies
spin-off separate entities when a by-product of R & D does not fit the
Spin-off strategy is
mainstream of the company's product development.
to
used
attract
outside investment, to gain marketing and operating
experience in a new product market, and to keep internal entrepreneurs
from leaving the corporate umbrella. 5
2.2 Strategic Alliances
Strategic
alliances
the
involve
purpose
of
agreements
developing
between
two
or
and commercializing new
companies
with
products.
A thorough literature search, revealed the following
alternative
strategic
alliances
for
commercializing
new
Licensing Strategy
Venture Capital Strategy
Venture Nurturing Strategy
Contractual (Cooperative) Venture Strategy
Joint Development Strategy
Joint Venture Strategy
Merger and Acquisition Strategy
PAGE
16
seven
products
6 7 8
listed in order of increasing closeness of the relationship , , :
O
O
0
O
O
O
0
more
2.2.1 Licensing Strategy
Among the seven
agreement
inter-firm
venturing
mechanisms,
a
licensing
requires the least contact with another company.
Licensing
agreements require one party, usually a corporation to develop, market
and pay royalties to a second party.
The only control exerted by
the
second party on the first party are outlined in performance clauses in
the
license
agreement.
This
venturing
manufacturing and pharmaceutical
selling
prescription
drug
in
method is quite common for
In
companies.
the
U.S.,
fact,
the
largest
was licensed by
TAGAMET,
SmithKline Beckman from a foreign pharmaceutical company.
Hlavacek et al. 9 write that licensing is the best strategy when a
product is early in its
loses
company
development
be
an
the
founding
all control over the rate of market exploitation after
licensing the product to another company.
might
However,
cycle.
If
the
founding
company
important factor to getting the product to market, then
companies should seriously consider other venture strategies that keep
the founders more involved.
PAGE
17
2.2.2 Venture Capital Strategy
A company has a venture capital strategy when
involved
in
the
management
does
not
get
companies in which it invests.
the
of
it
Companies such as DuPont, Exxon, General Electric and Singer have
this
tried
all
strategy, but rarely does it have a significant impact on
corporate growth.
2.2.3 Venture Nurturing Strategy
This strategy involves a capital investment
accompanied
with
assistance.
managerial
More
recent
investments
by
another
company
Robertslo cites the Cabot
Corporation as an example of a company that tried
failed.
in
this
but
approach
IBM in Rolm, and by AT & T in
Olivetti might be construed as venture nurturing relationships.
These
relationships look similar to joint ventures and have been mistakingly
called joint ventures,
formalize
the
but
no
separate
Many
relationship.
entity
is
established
to
of the advantages of mergers and
acquisitions can be obtained with the use of venture nurturing without
their disadvantageous effects on
flexibility.
Also,
this
strategy
seems effective in testing out potential acquisition candidates and in
11
obtaining a "window" on new technologies.
PAGE
18
2.2.4 Contractual (Cooperative) Venture Strategy
This venture
a
between
buyer
strategy
supplier
and
a
involves
close
developmental
effort
which usually involves an agreement.
This strategy varies from the joint venture strategy in two ways:
o
No equity participation.
o
No separate entity established.
Instead, the suppliers gain
becomes
familiar
time
suppliers
and
suppliers
it
in
The buyer gets the supplier's expertise
are
actually
recent
Instrument's
ventures
contractual
investment
in
between
developed
relationships
Many
buyer.
makes an investment for equity in the
GI,
rival
solution of a problem, and maintains a long-term flexibility over
other sources. 1 2
Inc.
on
with the buyer's needs while the cooperative effort
rids the product of bugs.
the
lead
gives
GI
and
in which the supplier
For
General
example,
United Satellite Communications,
was accompanied with a contractual agreement
which
buyers
between
USCI
and
exclusive rights to supply the direct broadcast
satellite earth station equipment to USCI customers.13 As with venture
nurturing arrangements, these contractual strategies
kicker are improperly called joint ventures.
can
make
a
profit
with
an
equity
Since the venturing firm
through product sale even if the investment goes
bankrupt, such venture capital investments have been quite popular.
PAGE
19
2.2.5 Joint Development Strategy
Joint development strategies involve
that
projects
one-shot
for
associations
are more unstructured than contractual ventures.
Berg
et al.14 gives the example of Rockwell subsidiary Atomic International
(AI) and its relationship with a public
AI
effort,
completed
R
in
utility
1972.
In
this
& D that applied engineering and production
expertise, gained while working on compact engine technology, to steam
generation of electricity.
The relationship
stimulated
the
commercialization
strategies
are
effective
producer-customer
for
to
public
arrangements
informal
cooperative
large
utility
Joint development
of the product.
various
relationships
a
with
from
research
projects.
2.2.6 Joint Venture Strategies
For the purpose of this thesis, we have defined joint ventures as
a contractual arrangement between two or more
parties
separate entity in which each party receives equity.
must
be
more
than
simply
stock
agreements.
that
PAGE
20
a
These agreements
They must include a
business plan and a description of the tangible and intangible
that each partner will offer to the new entity.
forms
assets
that
negotiations
complicated
These arrangements require
strategy fits with both partners' strengths and weaknesses,
the
as well as
two important functions:
has
vertical
integration.
expenditures,
commercialization of new
(sometimes
of
and
scale
expected
conflicting
partners,
of
goals
possibilities and problems arising from splitting
project
from
firm's operations.
a
rapid
returns
However, executives are
more aware of the disadvantages of joint ventures, including
procedures,
this
capital
economies,
increased
called reduced risk).
improperly
that
reduced
include
production
products,
suggests
acquisition of technology and
advantages
Other
achievement
al. 15
et
Berg
objectives.
their
strategy
over
insure
to
the
joint
disputes
antitrust
venture
Thus, the majority of executives
consider forming a joint venture as a last resort.16
According
alternative
to
theory,
venturing
joint
strategies,
ventures
should
especially
complementary strengths and weaknesses.
when
In fact, the
dominate
the
partners
have
cable
industry
may be one of the first industries to use joint ventures as the status
quo for developing new products.
PAGE
21
2.2.7 Merger and Acquisition Strategy
the
Merger and acquisition strategies involve the combination of
This can come about
assets of one company with the assets of another.
by
an
agreement by both parties to merge or by one company acquiring
the assets of another through either a friendly or a hostile takeover.
Recently,
and acquisition strategies have been quite popular.
merger
with
happy
been
however, stockholders have not always
high,
were
ratios
P/E
when
In the past, especially in the sixties
management's
decisions to acquire a company.
The
major
ventures, is fit.
solved
by
the
problem
with
strategy,
this
of
that
like
The problems of a particular company are not easily
management
Unlike joint ventures, these
of another.
can
strategies usually result in a loss of important managers who
of
importance in the acquired small company.
to grow, are also lost upon acquisition.
have
amassed
of
conglomeration
a
unrelated
becoming candidates of leveraged buyout opportunities.
Warner Communications, Inc.
the
pieces
of
WCI
more
Inc.,
IT
&
other
many
companies
businesses
For
are
example,
fought off Rupert Murdoch, who considered
valuable
than
Alternatively,many companies are selling off
Time,
and
Thus, mergers or
acquisitions frequently fail to meet expectations and
-that
be
Other advantages of the
small company, such as flexibility, entrepreneurial spirit
incentives
joint
the sum of these pieces.
unrelated
businesses
7
-
T and Gulf and Western have taken steps to reduce
PAGE
22
their unnecessary assets.
We can
mergers
are
or
acquisitions
learn
from
appropriate
between the companies are clear.
these
only
when
companies
the synergies
Even then, an alternative
alliance might be more successful at tapping those synergies.
PAGE
23
that
strategic
3
JOINT VENTURE THEORY
3.1 General Comments
Before 1972, few companies seemed interested in
joint
ventures.
An active new issues market probably caused this disinterest.
1971,
the
capital
also
created
interest
less
price/earnings ratios downward.
less
capital
in
markets,
forcing
strategies
looking
secondary
With acquisition
In 1979,
Joint ventures attracted much renewed interest.
gains
market,
a search for new mechanisms of corporate investment
attractive,
began.
was boosted from 25 to 35% by the Tax
This not only discouraged the new issues
Reform Act of 1969.
but
tax
gains
Then in
tax
was
number
again
of
decreased,
joint
but
ventures,
instead
their
the
of seeing a
number
rapidly
decrease in
the
increased.
The biotechnology and communications industries have been
a focus of this joint venture activity.
PAGE
24
As will be
discussed
below,
changes
in
the Justice Department's policies on antitrust violations
has been one major force
strategies.18
venture
Also,
mechanisms,
driving
acceptance
the
of
joint
venture
corporations become more familiar with joint
as
they
become
more
interested
in
finding
new
opportunities to use their skills in joint ventures.
3.2 Patterns Across Industries
Joint
ventures
characterized
quite
industries where
create
to
more
occur
often
in
industries
by barriers to entry, rapid growth and relatively large
R & D expenditures.
description
seem
barriers
The
cable
videotex
industries
fit
this
Joint ventures are less likely to occur in
well.
differentiation
product
to
and
entry,
and
brand
identification
such as the consumer product and ethical
pharmaceutical industries.
To show this Berg et al.19 has used a parameter called intensity,
which equals the number of joint venture participations in an industry
divided by the number of firms in that industry, and
equals
the
number
of
joint ventures.
industries are positively correlated
entry
barriers
with
activity,
which
These parameters for several
parameters
which
measure
(industry concentration, average size of firm), R & D
investment (R & D intensity, average capital expenditure) and industry
growth.
PAGE
25
3.3 Example:
Chemical Industry Joint Ventures
body
A significant
of
abundance
literature
of
ventures
joint
in
has
accumulated
the
about
Much about
the chemical industry.
industry.
joint ventures can be learned from this rather well studied
However, we caution that each industry has unique characteristics that
joint
govern
venture pattern and that the conclusions drawn from any
one of these industries may not be applicable across industries.
The major reasons firms in the chemical industry enter into joint
ventures is to acquire skills
and
know-how
(intellectual
property:
These
patents/technology) or to decrease the uncertainty of supplies.
form
firms
joint
Typically
80% of the time.
companies.
ventures with two equal partners (50:50) more than
These
these
are
joint
ventures
between
two
alliances were usually dissolved through a buy-out
where one partner purchases the interest of the other
They
partner.
20
tend to be terminated only after a few years of operation.
Joint ventures with four or more partners seem to be most
and
3
partner
joint
ventures seem to be least stable.
splits have been more stable than 50:50 splits.
the
stable
Also, 51:49
The average
size
of
investment in these joint ventures ranged from $1 million to $100
million.
Joint ventures started with more than an $11 million capital
commitment lasted the longest. 2 1
PAGE
26
3.4 Classification of Joint Ventures
Berg et al. 22 classifies joint ventures in four broad
catagories
(examples of each given in Table 2):
O
Construction and Land Development
0
R & D/Exploration
Production/Mining (and Initial Processing)
Marketing/Distribution
o
o
3.4.1 Construction and Land Development Joint Ventures
mainly
These joint ventures are formed
reasons.
Berg et al.
23
for
financial
and
tax
believes that technology transfer is usually a
minor aspect of construction and land development joint ventures.
3.4.2 R & D/Exploration Joint Ventures
Union Carbide best described the reasons for entering R & D joint
ventures:
"...to get there sooner with less risk."
Corporations also
form exploration joint ventures to decrease their risk
their
investment
success.
by
increasing
diversification and by increasing the likelihood of
This technique has been called "risk pooling."
24
joint venture commonly has three or more parents.
PAGE
27
This type of
3.4.3 Production/Mining
(and Initial Processing) Joint Ventures
Production and mining joint ventures similarly may be due to risk
This diversification may be necessary when a project
diversification.
has scale indivisibilities.
Furthermore, these joint
ventures
bring
25
together a firm with the resources and a firm with the technology.
3.4.4 Marketing/Distribution Joint Ventures
These joint ventures
the
these joint ventures also involves a
transfer.
These
most
because
interesting
joint
ventures
large
of
component
technology
can be further subdivided into two
large/large and small/large joint ventures.
categories:
Large/large joint ventures combine the strengths of two
forces.
major
they
Motivation for
than merely risk diversification.
more
much
involve
seem
or
more
For instance, chemical and manufacturing companies may
combine their expertise in a joint venture.
technologically
Small/large joint ventures combine the
small
company
with
-the marketing force of the large company.
These
et
al. 2 6
are probably the most common of all joint
writes
that
ventures.
about
advanced
ventures.
Berg
57.9% of all joint ventures are small/large joint
This interest in large-small combinations reflects the fact
that a large percentage of all
technological
PAGE
28
innovation
comes
from
small companies.
3.5 Motivation for Forming a Joint Venture
When executives from various industries were asked
to
give
the
they decided to form joint ventures with other firms, Berg et
reasons
al. 2 7 recorded one of seven reasons:
O
o
To use a patent held by a partner.
o
To gain production scale economies.
O
To gain market and distribution scale economies.
O
O
O
To penetrate a market rapidly.
To jointly specify performance characteristics.
To circumvent financial constraints.
To use the partner's technological expertise.
More generally, the literature points to four major reasons for
ventures:
to
reduce
joint
uncertainty, to increase innovation and market
power, to benefit from idiosyncracies in tax and corporate law, and to
increase financial flexibility.
3.5.1
Reduce Uncertainty.
The major reason firms participate in joint ventures seems to
to
reduce
manager-controlled
firms
stockholder-controlled
ways:
This
uncertainty.
form
firms.
28
is
verified
more
They
can
joint
by
the
fact
ventures
be
that
than
reduce uncertainty in two
increase diversification or decrease the uncertainty of project
PAGE
29
completion.
Joint ventures allow firms to diversify, i.e.
more
among
investments
Managers
projects.
spread
their
believe
that
to
value
diversification reduces uncertainty and should increase the
the
firm;
unsystematic
in
variation
synchronization
diversification
this
however,
only
in
lower
(out
returns
investment
their
of
Since portfolio managers can
returns).
market
with
results
of
more easily diversify this unsystematic portion of the return variance
actually
have
little
diversification may
be
on
effect
perceived
security
as
a
should
diversification
venture
by buying a variety of stocks, joint
price.
reason
for
Thus,
although
forming
joint
ventures, it may not be an accurate assessment of the benefits of this
venturing strategy.
The questionaire of Berg et al.
also
29
revealed
that
joint
ventures
reduce the uncertainty of technological completion of a project.
This effect could also reduce the unsystematic portion of the variance
in the expected investment return.
increase
the
expectation
of
But in as much as
success,
and
joint
therefore, increase the
expected investment returns, through the combination of two
skills,
they
increase
ventures
necessary
the value of the partner's securities.
joint ventures may be formed to
increase
completion.
PAGE
30
the
certainty
of
Thus,
project
3.5.2 Increased Market Power.
By increasing innovation
firms,
By increasing their market
their
competition.
in
they
power,
profitability
the
concern for
investment
combining
forces
with
other
ventures can increase the market power of the partners.
joint
increase
by
and
and
become
a market leader with less
Bachman 30 ,31
because
that
suggests
is long-term, joint ventures may
knowledge
technical
prices,
higher
charge
can
reduce the barriers to innovation created by long-term risk.
If
the
increase
ventures
joint
parent's
market
power,
the
Thus,
an
improvement in market power would significantly increase the value
of
value
expected
of
investment
the
increases.
return
the parent's securities.
Berg et al. 3 2 suggest that joint ventures are formed to
market
power
industries
preexisting
by
with
showing that joint ventures seem to be prominent in
high
entry
barriers,
channels,
distribution
scale economies.
increase
However,
joint
such
large
ventures
as
industries
capital
are
not
with
requirements and
important
when
barriers to entry are brand identity or product differentiation.
An increase in innovation can create the
power.
Consider
that
the
first
company
33
usually has the highest market share.
PAGE
31
improvement
to
in
market
market a new product
Berg et al. 3 4 give several arguments supporting the
ventures
joint
says that joint ventures get the best of both the large and the
small
the high revenues of the large parent and the low development
parent:
of
costs
that
Their economic argument
increase innovation.
should
notion
the
The
parent.
small
company
attributes results in higher revenue than if either
the
develop
these cash flow
of
combination
were
to
Thus, they conclude
product independently of the other.
that joint ventures should stimulate innovation.
that
Berg et al. 35 also discuss ten other arguments that suggest
ventures
joint
or
overlapping
1.
Joint
Joint
2.
technologies;
related
talent;
managerial
effective
more
enable
supplies of raw materials for
provide
duplicative
economies;
of
of
4.
new
a
6.
product;
R & D;
10.
wide
9.
R
&
D;
8.
Joint
Joint
7.
Joint
outlets
sales
ensure
3.
scarce
and
specialized
a means for achieving economies of scale;
stimulate industry
some
use
ventures
Joint
5.
supply
ventures
Joint ventures make possible the sharing of business risks;
ventures
combine
ventures
to a firm entering a new market;
assistance
technical
necessary
innovation:
increase
or
ventures
Joint ventures
avoid
ventures
some
Joint ventures provide a means of R & D scale
Joint ventures reduce fixed R &
D
costs.
Although
these may not stimulate innovation, such as effects on scale
economies, they make it seem likely that joint
the innovative skills of the parents.
PAGE
32
ventures
do
increase
3.5.3 Benefits from Idiosyncracies in Tax and Corporate Law.
Berg et al.
formed
36
also list some reasons that joint ventures
take advantage of loopholes in tax and corporate law.
to
of the joint venture as a method for off-book financing
accepted
widely
as
a
seems
can
debt
issue
for
the
the
50:50
reason
joint
with
joint
the
are popular;
ventures
ventures would require one partner
methods
Use
to
joint
without having the debt affect the parent's balance sheet.
be
be
be
reason that corporations form joint ventures.
For example, a corporation
to
may
to
which
venture,
This seems
51:49 joint
accounting
consolidation
use
would
venture
obviate
the
tax
at
the
advantages.
from
Since royalties
income
corporate
licensing.
tax
agreements
licensing
rate,
tax
law
favors
are
joint
taxed
ventures
over
Joint ventures give the technical contributor depreciation
tax shields to offset
the
dividend
tax
rate.
Furthermore,
joint
ventures are taxed at the capital gains tax for realized returns.
Other advantages the law
limited
liability
for
the
provides
joint
ventures
include
the
holders of the joint ventures equity and
transfer pricing advantages where profit is not taxable.
In addition,
the Reagan Administration has recently introduced a bill
in
that
Congress
may give antitrust immunity to corporations participating in R &
D joint ventures.
PAGE
33
3.5.4 Increased Financial Flexibility.
In actuality, joint
are
ventures
a
useful
of
way
obtaining
external sources of financing for investment projects.
Joint ventures
to
invest in debt
-allow
and
banks
institutional
other
investors
The alternative
secured by the joint venture's cash flows and assets.
costs,
transactions
and
equity
current
debt
associated
with
senior
from
debt
clearly related to the specific investment
As
venture.
from
flows
cash
a joint
the
hand,
other
On the
subsequently, requires a high return.
flows
the
Also,
holders.
methods are quite complicated to estimate and,
financing
alternative
financing may be limited by the
of
amount
the
higher
having
Besides
financing methods have numerous limitations.
cash
venture are quite
objectives
of
joint
the
a result, at some point in the financial structure of a
corporation, joint venture debt costs less than subordinated debt
these
and
cheaper,
joint
venture
Also consider the financing of the vertical-child
joint
venture
corporations
naturally
choose
the
strategy.
by
a
small and a large parent.
Here,
the large parent is
the products supplied by the joint venture child.
This
a
large
buyer of
parent
is more than willing to finance a project for a product that it needs,
while
the
small parent gets the best financing terms available for a
planned project.
The creative financing provided by a
strategy increases the availability of capital.
PAGE
34
joint
venture
3.6 Antitrust Issues
A large part of the literature about joint
whether
joint
are
ventures
ventures
administration, antitrust has been a major deterant to
of
joint ventures.
the
last
the
formation
For instance, in an industry where joint ventures
are common, DuPont has consistently
avoided
forming
joint
the Justice Department might react negatively.
because
with
until
Up
anticompetitive.
deals
ventures
We raise five
major issues here:
o
Vertical issues.
O
o
Horizontal issues.
Profitability issues.
o
Innovation issues.
o
Legislation issues.
Vertical joint ventures are anticompetitive
when
the
joint
venture
denies vital inputs to competitors when market foreclosure occurs to a
joint
venture's
supplier
to
Furthermore,
competitors
upstream
or
parents
when
(also
the
joint venture is a major
3).
collusion;
increases
Fusfeld 3 7 clearly showed that complex linkages resulting
from joint ventures in the iron and steel
industries
cause
could
a
decrease in competition.
Joint ventures between parents that sell
markets,
called
horizontal
joint
products
ventures occurs when the markets overlap.
showed that
industry
concentration
PAGE
same
ventures, may be anticompetitive.
Brodley 3 8 noted that the most broad application of
joint
the
to
increases
35
antitrust
law
to
Pfeffer and Nowack 3 9
with
the
number
of
This suggests that joint ventures between
joint ventures.
horizontal
parents with
overlapping
is
markets
However,
anticompetitive.
a
different measure of the number of horizontal joint ventures
slightly
showed that only a few joint
ventures
are
actually
formed
between
companies with overlapping markets. 4 0
joint
intensity
venture
suggest
joint
that
Berg et al. 4 1 showed that
anticompetitive.
joint
would
and
profitability
A correlation between an industry's high
ventures
its
were
horizontal
parent-parent
ventures do increase with the profitability of an industry, but
that non-horizontal joint ventures are associated with a low
industry
profitability.
As
mentioned
innovation
in
an
earlier,
industry.
joint
ventures
may
actually
For instance, Berg et al. 42 showed that
high joint venture activity was associated with high R & D
As Berg et al.
43
intensity.
have written, "Joint ventures may increase the number
of independent and viable centers of initiative
evidence
increase
suggests
in
the economy."
This
that although under some conditions joint ventures
have an anticompetitive effect, the large majority of
may actually increase competition in an industry.
PAGE
36
joint
ventures
3.7 The Evolution of a Joint Venture
The majority of
written
small and a large
with
about
joint
venture
evolution
is
the marketing and distribution joint venture between a
about
context
literature
a
company. 4 4
discussion
We
will
discuss
this
literature
of how all joint ventures evolve.
in
Joint
ventures commonly evolve through five phases:
o
Initiation.
Courtship.
Negotiations.
Success or failure.
Dissolution.
O
o
O
O
3.7.1 Initiation.
In this phase, a company chooses a new product venture,
examines
alternative new venturing strategies to commercialize the product, and
a potential joint venture partner.
chooses
Questions a large company
a
would ask concerning a potential joint venture with
small
include:
o
Is the new product venture appropriate considering
the company's strengths and weaknesses?
o
Which is the most appropriate venturing strategy?
o
O
Which small company is appropriate?
Does the company need an interaction with this
small company?
O
How could the company get what it needs from the
small company with minimum legal and financial
exposure?
PAGE
37
company
The small company must consider other issues including:
o Does the large company have a respected reputation?
o Does the company need the financial resources to
perfect and exploit a new product?
o Is the large company hungary for the new product?
Both partners should be asking:
O
Does the large company have the appropriate
marketing channels and experience for the new
product?
O
Does one company have strengths where the other has weaknesses?
3.7.2 Courtship.
Once the potential partners recognize a
for
cooperation,
technical
and
disclosures.
the
The
issues.
companies
Participants
plan
and
They must
and
worked out before
agree
then
contingencies for possible dissolution.
the parents must disclose specific mutual expectations
contributions
give
must
The
benefits.
sitting
full
must reach an agreement about what each
company's technology can or can not do.
business
opportunity
should allow lengthy exploration of
companies
commercial
specialized
down
to
more
PAGE
38
a
Finally,
respective
completely these issues are
negotiations,
likelihood of a marraige.
of
on
the
greater
the
3.7.3 Negotiations.
agreement,
In making an
end-user groups.
The specific responsibilities
or losses must be planned in the agreement.
of
each
performance reviews should be
machinery
must
party
performance
Furthermore,
Periodic
are necessary if no separate corporation is formed.
clauses
is
mission
Accounting procedures and distribution of profit
be delineated.
policy
of
definition
precise
This includes stating the markets, geographic regions and
necessary.
also
a
should
be
in
established
the
include provisions for dissolution of the joint
and
a
the agreement should
Also,
provided.
agreement
To
venture.
insure
the success of these negotiations, the future joint venture management
team should be involved.
considered
Several types of costs must be
For
instance, participants should consider transaction costs, such as
legal costs and the costs of due diligence.
different
capital
associated
should
Participants
use
contributions to make adjustments for inequalities
Participants
in technical contribution.
costs
negotiations.
during
consider
also
should
the
with strategic presentation of information and loss
of control.
With respect to small and large company joint ventures, the small
company must
negotiation
realize
phase
that
will
a
prodding
actually
slow
large
39
through
the
The large company
progress.
usually begins to wonder why the small company is
PAGE
company
in
such
a
hurry.
The
company
small
gain leverage by bluffing the large company
must
that it may lose the investment
to
opportunity
a
competitor.
The
company should also follow up the joint venture negotiations by
small
immediately expanding their marketing plans as
To
agreement.
should initiate
meetings
with
speed
this
additional
marketing
joint
was
expansion,
venture
outlined
in
the
the small company
Frequent
relationships.
top management of both companies will also improve the
chance of a successful joint venture.
3.7.4 Success or failure.
the
The literature suggests that several factors affect
of
a
Bachman 4 5 found that in the chemical industry,
venture.
joint
three factors
affected
technologies,
economies
the
joint
venture
of
scale
and
combination of specialized know-how.
risk
Hlavacek
success:
to
through the
et
gives
a partner realizes a poor fit;
contribution;
four
the small partner
joint
unsuccessful.
one company
oversells
and the technology and marketing skills of the two
companies do not match adequately.
that
al.46
keep up its financial investment on an equal basis with the
large company;
its
complementary
reduction
reasons that 50:50 small/large joint ventures fail:
fails
success
ventures
based
The literature clearly
emphacizes
solely on financial arrangements will be
Adequate planning may be the number one prerequisite of
PAGE
40
lasting and successful joint venture relationships.
"impedence
Another problem mentioned frequently is an
mismatch"
problem.47 These problems arise from differences among the partners in
value
or culture.
These problems can be seen most prevalently in the
large/small joint venture, but probably affect other joint ventures as
well.
For instance, while large companies see small
"fly-by-night,"
shoestring
operations,
the
small
companies
as
a
company sees the
large company as sluggish in its decision making.
3.7.5 Dissolution.
Greater than a third of all joint ventures are terminate in
than
three
years.4
These
terminations
are for one or more of six
reasons: 49,50
0
Antitrust proceedings initiated against the parents.
0
0
0
Depressed prices for the joint venture's product.
Technical obsolescence of the new product.
Liquidation of a coparent.
0
O
0
One partner with better use for its capital.
Joint venture large enough to become independent.
Risk reduction no longer needed.
PAGE
41
less
3.8 Conclusion to Joint Venture Theory Chapter
This chapter has outlined the numerous
issues
that
firm when it considers undertaking a joint venture.
confront
a
Seven points have
been considered:
o
The types of industries most likely to have a high rate of
joint venture activity.
The economical functions of joint ventures.
The structural factors that lead to a stable joint venture.
A general joint venture classification scheme.
Motivations for forming joint ventures.
Joint venture evolution.
Elements crucial to joint venture success.
O
O
o
O
o
O
While
this
all
of
these
issues are relevant to joint venture formation,
concentrates on isolating
thesis
motivations
the
areas
of
the
elements
We feel that these are
that successful joint ventures have in common.
currently
and
concern to prospective joint ventuare
most
partners in the cable and videotex industries.
According to theory, firms are motivated to form
in
joint
ventures
rapid growth industries with high barriers to entry including high
capital
costs.
uncovered
are
The
motivations
specific
aquisition
increased expected returns,
of
skills,
risk
that
reduction
have
researchers
of supplier power,
scale
diversification,
economies,
attainment of capital and rapid market entry.
Likewise, researchers have found that the factors
success
in
complementary
joint
ventures
technologies
include
and
for
presence of economies of scale,
the
reduction
specialized knowledge.
PAGE
necessary
42
of
risk
through
The thesis now shifts from theory to practice
joint
venture
activity
in
the
cable
and
Throughout the remainder of the thesis we will be
this
chapter
to
compare
joint
venture
occurring in these industries.
PAGE
43
in
examining
videotex
the
industries.
referring
back
to
theory to what is actually
4
CABLE INDUSTRY INTRODUCTION
After a brief examination of the history
entire
cable
investigated.
industry,
the
and
structure
of
the
dominant forces in the industry will be
The information is presented using Porter's framework.
4.1 Origination of Cable Television
The cable industry got its start in
1950s
when
people in
the
country
metropolitan
was
areas
and
early
being introduced to television.
While
were
the
being
late
1940s
entertained
by
talented
performers such as Milton Berle and Bob Hope many rural Americans were
denied
this
pleasure
televisison signals.
instances not
simply
because of an inability to receive undistorted
The reason for the lack of reception was in many
distance
as
many
impedance of the signals by uneven terrain.
PAGE
44
people
believed,
but
the
areas
The earliest systems were built in mountainous
considerable
distance
Parsons, the owner
to
reception
of
the
from
a
local
residents
radio
of
station,
Astoria,
mountainous area, 125 miles from Seattle.
on
a
For example, L.E.
stations.
broadcast
located
brought
Oregon,
television
in
located
Parsons set up
an
a
antenna
the roof of an eight story building and, by running wires from the
clear
antenna to his set, was able to receive
produced
pictures
by
signals emanating from Seattle's KRSC-TV.
Community acceptance was immediate and Parsons had his hands full
cable.
connecting television sets to his master antenna using coaxial
According to Parsons, lines were strung from "house to house through a
city
has some pretty large blocks--we'd come to
Astoria
block.. .and
the street, then we would set up a little radiating antenna
of
our
with
one
amplifiers feeding it and pick it up on the other side of the
We'd run all around town
street and continue for another block.
this
way. "51
Initially, Parsons did not have many of the problems and concerns
that
have
plagued
the
industry
immediately concerned him.
KRSC-TV.
Franchising,
years.
he
was
For example, the television station
rebroadcasting
saw
Parsons'
competition but as a way to increase their
Parsons
the
and access to programming were not among the troubles that
regulation
signal
over
was
given
written
permission
cable
audience.
45
As
a
not as
result,
to rebroadcast the signal of
Furthermore, there were no FCC regulations to
PAGE
service
whose
comply
with.
In fact, Parsons' system touched off an internal FCC debate concerning
the
went unresolved for almost
Parsons
had
over the cable industry.
jurisdiction
commission's
cable
later
over
later
Only
was
was
operators
he
cable
run
to
allowed by Astoria's town council
restriction.
Another
years.
fifteen
made
to
This debate
that
advantage
that at first he was
virtually
free
of
apply for a
officially
franchise.
following
In the years immediately
the
initial
builds,
cable
systems, many of them owned by multiple system operators (MSOs), began
to
proliferate
and
with
this
proliferation
came
protests
from
and
fees
broadcasters, government regulation, franchise requirements
and
eventually a demand for more from a cable system than the ability
with
along
factors
Each of these
to transmit broadcast stations clearly.
more sophisticated technology helped to shape the development of
the cable industry.
4.2 Industry Structure
Michael
In his book, Competitive Strategy,
"industry
structure
has
a
influence
strong
competitive rules of the game as well as
available
to the firm."
52
the
activity
that
in
argues
determining
strategies
that
the
potentially
There is no doubt that the structure of the
cable industry has played a central role in
venture
Porter
the
abundance
of
joint
is taking place--a strategy so prevalent that
PAGE
46
one
described
analyst
it
of
hallmark
the
"practically
as
capitalization structures among cable programmers." 5 3 As will be shown
in
later
the
thesis,
joint
ventures
are
also common among cable
operators.
In its present state the industry as we define it, is composed of
(This study
two sets of players--each comprising a separate industry.
joint
cable
in
active
These
ventures.)
not
are
does not include equipment suppliers since these firms
two actors are the cable
system operators who install the cable and manage the system
programming
cable
entertainment.
are
service
providers
which
very
supply
and
the
the bulk of the
companies
There is a great deal of overlap since some
vertically integrated, being involved with both operating systems
and programming, while some parent firms have
each
of
separate
subsidiaries,
Both groups
which is involved in one facet of the industry.
are
of firms will be treated in this thesis since they
both
heavily
involved in joint venture activity and to ignore one in a study of the
cable
industry
would be equivalent to doing research on baseball and
focusing only on the
players.
owners
and
the
stadiums
while
ignoring
the
The term, "cable television industry" as used in this thesis
will refer to both system operators and cable programmers.
In the
analyzed
following
using
two
chapters,
the
cable
industry
Porter's five basic competitive forces.
will
This process
is done for both system operators and cable programmers since many
the characteristics of the forces are not the same for the two.
PAGE
47
be
of
5
CABLE SYSTEM OPERATORS
A belief that is commonly held within the industry is that it
to have more than one cable system in the same geographic
inefficient
Therefore, although cable operators are not explicitly
region.
awarding
the
contracts,
exclusive
of
franchise
the
guarantees a local monopoly for the life of the franchise
potential
is
rewards
have
resulted
given
virtually
The
term.
in fierce competition among system
operators for franchises and sometimes
shockingly
high
requirements
established by local franchising commissions.
The number of franchises still available however,
small
passed
is
relatively
since presently over 62% of the television homes in America are
by
consequence,
cable
the
with
this
number
rise and, at the beginning
subscribed
to cable.
over the years.
of
of
steadily
figure
increasing.54
As
a
basic cable subscribers has been on the
30%
1983,
of
all
television
homes
Table 5.1 shows the amount of cable penetration
Table 5.2 lists the top 25 system operators ranked in
order of subscribers.
PAGE
48
* Best copy/text quality available.
TABLE 5.1
CABLE SUBSCRIBERS
Basic Cable Service: 1970-1983
? cabie
Peeent
ZuPenetratZonIot
1971'
59, 32t,00
6C,775,000
19?7.
62,969,000
65,244,00
1971:
i F7 I
66, 575,C00
19a2
68,771,C0.0
70 , 573, 0-0
71,556,000
73,307,000
73,901, 00C
75,193.00
w
77,254
1983
83,A62,600
Is76
157
Source:
$1,4496,500
4,500,000
2 , Lso
2,639
2,841
5,300,000
2,991
7,300,000
6,700,000
6,000,000
3, 50
3.681
9,800,000
11.2
13-1
10,80,00
11,900,000
3,875
16 .L
17.7
3 ,a5
16100,000 0
3 475
18,300,000
21,000,000.
25,00,00
825
5,60
National Cable Television Association
PAGE
7..
6.7
9.5
49
ag .0
23.7
2..
30..0
*Best copy/text quality available.
TABLE 5.2 TOP 25 SYSTEM OPERATORS
Im
1.
3.
-,Im
oea
rtr
Tele-Con uivatin
!nc.. (?C)*
American Televi:ted ar.: Co~~am
Grea Ca:1e
,5>000
ications (ATC)
2, 380,000
iI 917,OO
1, 400,000 (9/63)
Cox Caake Cocn,.ir on- s
: Cor.urmttid
5. earner Amex
1. Sterer CM~e Caste4cstin
7. Tifes Mirror co:e Television
8.
.CeroVision, NWkChannels,
eC'hC=!e2i (IncIUde*
9. Viaee: Cation:enc
1 350.OC
1, 315,000
Vsion)
Continemtal aevsr.
11.. Unit-ed Catle e'ey son Corporation
Inc.
15r- Za:-ens ComPur. ettir
est"ems
13. Torsca:
TeIcC
e Ccrporation
12.
Cablev$.Mon syatemz Development
15.
eroe-Ct-uI cat ar.s
22.
17. -Capiul Clties Cable "-c.
Cabiesyate= Corporation
UA (Unltead Arti4st)
cna
19. Cc:c&at Cat ec~Lrncati
20. General Eectric cablevision
.ne nterca'ble Inc.
21.
23.
~w'omeo e
25.
7 t -
Daniel: I
Source:
(9/83)
(9/63)
(9/83)
696,00D
(9/83)
601,000
566,929
467 ,073
375,295
360s,000
356,224
335 ,900
National Cable Television Association
PAGE
50
(6/83)
320,000
318, 000
277,964
256 ,3
2 . *LO
.23,0
r? ''1
r
(9/53)
131,.300
240,000
atins
Asociates :n.
(9/83)
8.5,311
769,609
696,561
(7/83)
a
Dennis Liebowitz,
several
homes
cable.55 As
a
result,
the
bidding
dissipating
and
attention
that have been granted.
that
within
the country will be passed by
in
the
predicts
analyst
industry
of
85%
years
cable
wars
for
new
are
franchises
focusing on developing the franchises
is
These are important facts to keep in mind
as
the competitive forces affecting the industry are examined.
5.1 Barriers to Entry
5.1.1 Government Policy
has
systems
Federal Regulation--The development.of cable
Initially,
and flowed in direct correlation with the regulatory tide.
the
industry,
promulgated
cable
Communications
Federal
but
a
this
number
changed
Commission
in
the
(FCC)
early
ebbed
virtually ignored the
when
1960's
the
FCC
of rules that severely curtailed the growth of
systems for a decade.
The FCC began to relax
its
restrictions
in the early 1970's, and today the bulk of the restrictions that cable
operators
face
are
imposed by local authorities when franchises are
awarded.
PAGE
51
For many years the FCC's regulatory policies were guided
desire
to
insure
localized
regionalized television
television
stations
where
television
smaller
in
operated
service
communities
larger
by
the
as
opposed
to
were
served
by
metropolitan
areas.
The
Commission believed that "as many communities as possible should
have
the
opportunity
of
enjoying
the advantages that derive from having
local outlets that will be responsive to local needs."
that
The FCC
felt
the importation of distant signals--defined as signals that most
viewers in an area would not be
antenna--by
cable
favor
the
a
to
receive
threat
to
with
the
of
an
ordinary
stated policy of
The thinking was that viewers
programming
stations' programming.
able
was
systems
supporting local stations.
to
56
would
tend
imported channels over the local
the
Local stations
then
would
lose
advertising
support and go out of business.
This philosophy led to the FCC ruling in the Carter Mountain case
of 1962 denying a Wyoming cable operator the right to transmit distant
signals via microwave.
In
1963,
opening
the
FCC
the
door
for
regulating system operators.
the
to
courts
establish
In 1966,
the
FCC
upheld
this
ruling,
rules and procedures
ruled
that
distant
signals could not be imported into the top 100 markets unless approved
at
In 1968, this rule was strengthened and since the
an FCC hearing.
main value of a cable
clearer
reception
but
system
in
most
metropolitan
areas
was
not
additional stations, cable system development
remained frozen between 1968 and 1972.57
PAGE
52
In 1972, new rules were agreed upon which allowed the carriage of
a limited number of distant signals into metropolitan areas and, as
result, cable systems began to be built at a rapid rate.
FCC
the
lifted
distant
signal restrictions.
rule,
blackout
prohibits
In 1980, the
This means that "only
three rules remain for the commission to administer.
sports
a
The
the
first,
cable system from importing the
a
signal of a station broadcasting a local home game if the event is not
broadcasters
against
cable importation of their network programming;
and the
broadcast locally;
simultaneous
the
protects
rule
second
third rule requires all cable systems to carry the
signals
of
local
stations. ,58
Local regulation--The standards that a cable operator must meet, along
with
the
services
locality to locality.
the FCC.)
and
local
monopoly,
and
provided
the
rates to be charged vary from
(There is, however, a rate ceiling
franchise
the
authorities realized the value of a local cable
requirements
increased
in
local
authorities
obligations after being granted a franchise.
the
number
and
in
cost.
some operators have promised more than they can deliver
and have had to renegotiate with
in
by
Over the years, as the competition for franchises increased
Subsequently,
been
imposed
news
frequently
because
several of its large urban franchises.
PAGE
53
to
lower
their
Warner Amex has recently
of this type of trouble with
local
Some of the key factors that
cable
consider
commissions
when awarding a franchise are: 5 9
o
The franchise fee an operator is willing to pay
O
O
The reputation of the operator
The financial and technical capabilities of the operator
o
Whether local investors will be allowed to participate
the
in
venture
Concessions to franchising authorities
Services provided
O
O
last
The
interactive
set
rate,
two
services,
fees
for
such
include
items
providing
certain
considerations
for
programming
providing
as
basic
the
each tier of service and the setting aside of a
certain number of public access channels.
Operators have gone to what many believe to be
franchises.
One
example
is
Boston where "among other oddities
in
Cablevision agreed to offer bonds to city residents so they can
in
the system's potential.
win
to
excesses
share
Every Bostonian will be able to buy up to
25 $1000 bonds bearing a guaranteed rate of return of 16%.1"60
A bill sponsored by Senator Barry Goldwater is
in
being
considered
the Senate which attempts to eliminate the haphazard establishment
of requirements.
It proposes federal standards and administration
of
both new franchise awards and refranchising agreements.
Copyright
liability--For
years
a
debate
raged
over whether cable
operators had to pay program producers copyright fees for the programs
shown on their systems.
cable
operators
to
pay
In 1976,
legislation
was
passed
requiring
a certain percentage of their revenues to a
PAGE
54
Copyright Royalty Tribunal which then distributes them to the
Payments totalled $25.5 million in 1981, which averages
programmers.
out to about 1% of operators' non-pay revenues. 6 1 Rules were
requiring
adopted
various
recently
to pay up to 3.75% of gross revenues to
operators
the tribunal.
5.1.2
Product Differentiation
Product differentiation plays an
role
important
two
in
ways.
First, in order to win a franchise a system operator must convince the
local
franchising commission that his operation is best suited to the
needs of the locality.
based
Attempts are
made
to
service
differentiate
on the criteria listed earlier in the local regulation section.
If an operator cannot prove that he is
concerning
some,
superior
to
competition
his
if not all, of these points then he has little hope
of winning franchises and the right to reap the benefits
of
a
local
monopoly.
The second aspect of product differentiation concerns the selling
of the service to individual subscribers once the franchise
won
and
the cable laid.
has
been
Despite having a local monopoly, the system
operator meeds to employ a trained sales force to make consumers aware
of the differences
services,
between
cable
services
and
other
leisure-time
most notably broadcast television which viewers receive for
PAGE
55
"free."
of
With the cost to install a system increasing, the
must
subscribers
remain
Salesmen,
high.
percentage
door to door,
going
practice selling techniques designed to differentiate their product in
the
the customers' eyes with
goal
ultimate
as
being,
one
system
operator's sales manager put it, "to increase the customer's perceived
value
of
Cablevision." 6 2
This
increased in importance
has
aspect
the
recently as the emphasis has turned toward increasing
number
of
cable subscribers in existing franchises.
5.1.3 Economies of Scale
Porter defines economies of scale as "declines in unit costs of a
product (or operation or function that goes into producing a
product)
as the absolute volume per period increases." 6 3 Economies of scale are
The fixed costs
certainly evident in the operation of a cable system.
of
installing and operating a system comprise a large percentage of a
system's cost when compared to the variable costs of
servicing
an
additional
hooking
up
and
Therefore, the per unit cost of
customer.
providing cable service drops as the number of subscribers increases.
System operators such as American
(ATC)
where
are
they
strategy.
attempting
own
This
to
smaller
involves
Television
and
Communication
take advantage of scale economies in areas
systems
the
through
a
contiguous
franchise
acquisition of separate franchises in
PAGE
56
neighboring localities so that the benefits accruing from economies of
scale in functions such as marketing, sales and
installation
can
be
realized.
5.1.4 Capital Requirements
The cost per mile to construct a new cable system
to
estimated
be $19,935 in 1982.64 Costs vary depending mainly on the franchise
requirements and the location of the franchise.
at
was
least
In the
cities
where
some of the cable must be laid underground, costs can be as
high as $250,000 a mile versus $10,000 a mile in
suburban
and
rural
areas where cable is strung on telephone poles. 6 5
For example,
million
to
the
Pittsburgh
construct,
and
franchise
are
considered,
Warner
Amex
$80
the Sacramento franchise weighed in at a
cost of approximately $200 million. 6 6 When
costs
cost
ever-increasing
marketing
it is easy to see that an operator of a large
metropolitan franchise must have
large
financial
resources
at
his
with
the
disposal.
The large amount of capital required,
existence
of
economies
of
concentration in the industry.
accounted
for
scale
In
have
1969,
in
combination
accounted
the
top
for
eight
just over a quarter of all subscribers.
figure had risen to almost 43% as shown in Table 5.3.
PAGE
57
increasing
companies
In 1982, that
Table 5.3 Concentration of Ownership in Cable TV Industry.
(Subscribers to Top 8 Companies as percent of Total Subscribers)
PERCENT
25.1
27.4
30.4
35.4
36.9
36.9
36.5
34.6
33.4
33.8
37.8
38.8
42.9
42.8
YEAR
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
Source:
National Cable Television Association
5.1.5 Switching Costs
Once a system operator has obtained a franchise he has a definite
advantage over his competitors when it is time to renew the franchise.
This is due to the switching costs involved with having a new operator
install a new
franchising
Although
system.
authorities
costs are associated with
infeasible
to do so.
In
in
there
would
be
no
cost
to
the
the financial sense, other, non-monetary
changing
fact,
system
operators
"franchise renewal
most common means of refranchising
PAGE
[since it] ...
58
that
make
it
has been by far the
is not
only
simpler,
faster
and
cheaper than comparative bidding but also is less fraught
with legal perils for a city." 6
7
As far as the individual consumer is concerned, he usually has no
other cable service
to
switch
to.
he
If
wants
to
cable
watch
programming he must subscribe to the local system.
5.2 Existing Rivalry
The intense rivalry exhibited between
has
died
increased.
down
as
operators
It was noted previously that over 85% of the country
available,
acquiring
measures
franchises
the proportion of the country wired for cable has
be passed by cable in the next several years.
still
for
and/or
most
operators
trading
for
are
existing
will
With few new franchises
achieving
growth by
revenue
franchises
and
by
taking
to increase revenues per subscriber and penetration rates in
existing systems.
Thus, the rivalry that was so evident in
wars
of
the
franchise
bidding
past years is becoming less apparent as operators attempt to
maximize the revenues of the systems that they currently own.
PAGE
59
5.3 Substitutes
Thirty
broadcasting
ago,
years
industry.
cable's
competition
main
a number of years, with the help of FCC
For
able to keep the expansion of cable systems in check, but that is
no longer the case.
in
industry
broadcasting
the
regulations constraining cable operators,
was
the
from
came
Cable operators now face new
the form of subscription television
services (MDS),
master
antenna
direct
rivals
(STV), multipoint distribution
and
(DBS),
systems
broadcasting
competitive
satellite
television (SMATV).These competitors threaten to take
away current or potential cable subscribers by providing them with the
same programming or
types
of
programming
but
using
communication
technologies that circumvent the cable systems.
Some of these subscribers are
cable is not likely to ever appear.
recently
become
available,
service that they initially
in
extremely
rural
areas
where
However, in areas whe're cable has
customers tend to stick with the type of
purchased
even
though
cable
generally
offers more services at a lower price.
The competitive technologies also pose a potential threat as
as
programming
costs
are concerned.
far
Prices for programming will be
driven up as the demand for it from competing technologies increases.
PAGE
60
5.4 Buyer Power
As has been mentioned earlier, the local
a
has
franchising
commission
large amount of bargaining power when bids are solicited for a
new franchise.
This
power
is
severely
in
limited
refranchising
decisions by the high switching costs which are present.
Although the maximum fee that a cable operator can be charged
5%
of
annual
revenues,
franchising
local
authorities
is
still take
advantage of their favorable situation by extracting large concessions
from operators.
Of course, this is becoming less of a problem as
the
number of available franchises diminishes.
power
The individual subscriber has little bargaining
franchise
has
once
the
If he wants to receive cable television
been awarded.
reception then he will have to use the franchised operator.
5.5 Supplier Power
System operators deal with two
equipment
suppliers
suppliers provide
amplifiers.
high
and
principal
programming
cable
such
necessities
as
of
suppliers:
suppliers.
Equipment
groups
cable,
coaxial
converters,
At the present time, with the number of new builds not as
as in recent years, the demand for their product is not as great
as the supply so, as a
result,
are
they
operators.
PAGE
61
not
a
threat
to
system
Cable programmers also provide a service
system
that
is
essential
to
since they provide the bulk of the product that the
operators
cable system distributes.
Showtime/The Movie Channel
As a result, these services such as HBO and
have
considerable
leverage
over
system
operators.
System operators realize how crucial the control
is
and
some
themselves.
have
taken
appropriate
For example, Time,
Inc.,
programming
in order to protect
measures
which
of
ATC,
owns
the
second
multiple system operator, also owns HBO, the largest supplier
largest
of pay cable programming.
Showtime/The
Movie
Channel,
the
second
pay cable programmer is jointly owned by three companies with
largest
extensive cable system holdings.
The current attitude, however, is generally one of cooperation as
both system operators and programming services
attempt
work
together
is a promotional campaign initiated by Music Television (MTV).
encouraging
system
operators
with
free
and
radio
an
One example of this
to increase pay and basic subscriptions.
providing
in
MTV is
newspaper
ads
customers to subscribe to their cable system so that they
can receive MTV.
MTV also provides operators
6
cost to be given away free to new subscribers.
PAGE
62
with
8
MTV
T-shirts
at
5.6 Conclusion
The
system
characterized
capital
by
operator
its
requirements,
decreasing--government
portion
high
of
barriers
scale
the
of
industry
cable
is
entry in the form of large
economies
and
numerous--though
The environment is an extremely
regulations.
competitive one during the bidding process and even when the franchise
is secured
the
system
operator
must
deal
with
suppliers
programmers) who are many times in a position of power.
make
system
(cable
These factors
operators likely candidates to be joint venture partners
according to the theory developed in the previous chapter.
PAGE
63
6
CABLE PROGRAMMING
This chapter examines the
After
a
brief
discussion
forces
affecting
cable
programmers.
of the various types of cable programming
channels, Porter's framework is again used to examine the structure of
this industry.
6.1 Types of Programming
Besides
locally
originated
there
programming
are
four
main
categories of programming shown on cable systems:
1)Distant
channels--These
are usually normal broadcast channels that
originate far enough away so that the majority of homes in the viewing
area cannot receive them with a normal antenna.
will
The
cable
operator
receive them via microwave transmission and retransmit them over
cable as part of the basic service.
Distant channels have become less
important as the number of pay channels
channels
has increased.
and
specialized
programming
Also, operators have decreased the number of
PAGE
64
distant channels
they
the
since
carried
have
of
end
when
1982
copyright payments went up significantly.
2)Superstations--these
broadcast stations that also send
normal
are
their programming to cable operators via
are
offered
satellite.
stations
These
as part of the basic service and operators are charged a
Ted Turner's WTBS in
few cents per subscriber per month.
Atlanta
is
the most well known of these stations.
3)Pay
industry in one form or
1975,
September,
when
had been considered by the
television
programming--Pay
cable
for
another
it
was
programming via satellite that the concept turned the
profitability.
until
not
Office (HBO) first transmitted its
Box
Home
but
years
corner
towards
HBO and its competitors offer a combination of movies
$10.
and special entertainment to viewers for a monthly fee averaging
This
is
in
addition
to
fee
the
for
paid
basic service.
Cable
operators split the fee with the programming service.
4)Advertising-supported programming channels--These
channels
to a targeted audience with specific programming.
cater
ESPN--a
virtually
programming
all-sports
targeted
to
network
women.
and
Lifetime
usually
Examples are
which
airs
Most of these channels charge cable
free
to
the
and
viewer as part of the basic package.
The majority are also advertiser
PAGE
65
are
offered
operators a few cents per subscriber
with
supported
selling
service
the
time
to national advertisers.
Advertisers are slowly coming to the realization that cable ads are
buy.
good
As
these channels are given Nielsen ratings (a
of
more
minimum of 12.5 million subscribers is needed to get
advertising
meter)
a
should
revenues
on
the
Nielsen
The
substantially.
increase
winning over of advertisers is crucial to the success of most of these
channels.
The operator earns revenues by selling two or
local
advertising time per hour.
minutes
three
of
Some operators also earn additional
revenues by charging an extra fee for these channels instead of making
them available
sometimes
as
of
part
prevented
from
the
basic
following
package.
this
operator
The
strategy
to
due
is
local
franchise agreements.
All of these programming services, with the exception of
available
channels,
are
usually
operators
via
satellite.
Table
distant
nationally and are beamed to cable
6.1
shows
the
increase
in
pay
subscribers in the last decade.
With this information in mind it is now
the
competitive
forces
appropriate
to
examine
at work in the programming side of the cable
industry.
PAGE
66
*Best copy/text quality available.
TABLE 6.1
CABLE SUBSCRIBERS
Paty Cable Service: 1973-1982
Far Cat-le
Urta
rrcer.t of
!Ys~tC
0.469
rert-trt.on
170
,029
5.732
SI?
3,072
3
,975
,
SOURCE:
'i
-,
PCy
$7.85
23.6
22.3
25.3
35 .0
37-87
$7.92
41.3
9.
50.6
68.8
76.4
42.0
F:Cg-rcs f!c: Faus ;..r.
:..I.
Pcrcent Zf
of Per-ration er
11.1
10.6
12.2
1.
127-9
27.9
37.6
t64
162
.:/31/77
bith
4..2
:d.80
$9.02
:9.56
rr:;;;;:I ag
.1t:%.
National Cable Television Association
6.2 Barriers to Entry
6.2.1 Government Policy
As is the case with the cable operators, there is
of
deregulation surrounding the cable programmers.
an
atmosphere
Several years ago
the restrictions dictating the age of 'movies that could
be
shown
channels
on
an
cable
were
lifted
putting
the
pay
cable
competitive footing with the broadcast networks in terms of
for movie rights.
PAGE
67
on
equal
competing
Program regulation on a local level is concerned mostly with
suitability
of
Nudity is commonplace on some
some of the offerings.
of these channels which raises questions of censorship.
seems
principle
to
the
guiding
The
that since subscribers have a choice of what
be
to
they want to see, they do not have
pay
for
channels
any
whose
programming they find objectionable.
Cable programmers have had several encounters
Department disallowed a
studios
and
supplied
The
exclusively
Justice
competition
programming
Getty Oil.
to compete with HBO.
the
formed
to
Satellite
by
four
that
industry.
the
studios
Entertainment
A
this
would
similar
Corporation
Channel, an HBO competitor.
PAGE
would
be
for 9 months after their release.
Premiere
ruled
by
produced
severely
argument
discourage three studios from going into a joint venture
Amex
Justice
1980, the Justice
In
venture
joint
the
This new venture, named Premiere, was formed
The films
Department
in
violations.
Antitrust
concerning
Department
with
68
(WASEC)
was
with
hamper
used
to
Warner
to run The Movie
6.2.2 Product Differentiation
Pay Cable--Much effort is expended by the cable services to
both
the
system
operators and the public aware of the uniqueness of
their particular service.
HBO has a loyal customer base that must
multipay, where system operators offer more than one
and
subscribers;
packaging
services
helped HBO's rivals overcome resistance.
paying
together
to
a discount have
balk
Still, many people
at
additional sum to purchase a service that they perceive to
an
head
service
pay
at
be essentially the same as what they currently have.
the
be
The concepts of
in order for a competitor to be successful.
overcome
make
Weinblatt,
Mike
of Showtime/The Movie Channel, stated in a recent interview
that his services needed to increase brand awareness in
order
to
be
69
able to successfully compete with HBO.
a
A campaign to differentiate a product in the face of
market
leader
is
very
expensive
and
It is also
consuming.
time
dominant
particularly risky since this type of venture has no salvage value
if
70
entry fails.
Advertising-supported
advertising supported channels are trying to
customer
channels
pay
channels
are
to appeal to a broad cross-section of the American public,
attempting
and
the
channels--Whereas
brand
awareness
loyalty within certain segments of the population.
strive
advertising
create
to
interest
locate
a
segment
large
enough
to
The
attract
and then to create brand awareness and consumer
PAGE
69
This
loyalty within that segment so it is protected from competition.
In
is the same strategy used by radio stations and magazines.
fact,
one industry employee decribed these channels as being video magazines
71
due to their similarity in marketing strategy.
6.2.3 Economies of Scale
There is no doubt that economies of scale pose a crucial
to
cable
costs are attributed primarily
The programmers'
operators.
barrier
to purchasing or producing entertainment and marketing their services.
large
Since most of the costs are fixed, a
required
to
a
make
base
is
with approximately 12.5 million
HBO,
profit.
subscriber
subscribers, has a profit margin of 20-25% but they are the exception.
Showtime,
before its
merger with
had
Channel,
Movie
The
almost
5
million subscribers and was barely breaking even.
The advertising supported channels
also
was
despite
being
on
the
brink
carried
on
many
subscribers
For example, The Weather
since their revenue per subscriber is lower.
Channel
need
of closing operations at the end of 1983
systems
with
subscribers.
PAGE
70
a
total
of
10
million
6.2.4 Capital Requirements
The amount of money required to start a programming
it
John Lack, of WASEC
or advertising supported is not. trivial.
pay
estimated over a year ago that starting a new pay service "would
hundreds
millions
of
of dollars."
since programming costs have shot up
72
be
channel,
cost
That is probably a low estimate
in
the
months
recent
the
as
demand for quality programming has exceeded the supply.
Examples of high programming fees abound in the recent history of
the industry.
semi-exclusive
In December, 1983, Showtime/The Movie
agreement
with
Paramount
to
be
Channel
a
the only pay cable
the
Industry sources report
network to air the studio's films.
made
cost
of the arrangement to be in excess of $500 million.
go
This is the latest step in a bidding war that in 1983 saw HBO
on
a talent buying spree which "bid up the price of talent to a level
(Showtime] could not afford." 7
that
of
number
artists
3
During
spree
this
HBO
paid
a
over $1 million in advance in order to secure the
rights to air their concerts.
is
Besides programming costs, initial capital
also
needed
for
transmission equipment, administrative and marketing expenses and this
outlay does nothing to insure immediate success.
Herb
Granath, president of ABC Video warns that "anybody getting into
this
large
capital
business will have to endure years of losses." 74 .
operator
This means that the
of a cable channel not only has to provide a large amount of
PAGE
71
*Best copy/text quality available.
to
capital but must also be willing and able
wait
an
for
extended
period of time to see a positive return on the investment.
6.2.5 Access to Distribution Channels
Another barrier which plays an important role in the industry
a
ability
programmer's
programming.
to
have
a
system
operator
his
system.
6.2 -shows the number of systems grouped by channel capacity.
TABLE 6.2
CHANNEL CAPACITY
Systems & Subscribers: By Channel
Capacity
cha.z1
Not
Avalable
.&W&
Source:
its
The operator is constrained in the number of programming
services he can offer by the channel capacity of
0- 6
7 - 12
1-21
22 - 35
36 - 53
carry
is
Percent Cf
52
1,933
1,193
1,
503
117
IRE.
0.89
33.32
20.51
27.-8
8.65
3.22
21,370
3,883,028
4,48,067
13,257,853
4,137,727
1997,468
6.22
0.07
13.36
15.79
-15.62
1424
6.87
4.0
5,816
29,060,756
National Cable Television Association
PAGE
72
Table
A further constraint is that
must
operators
system
the
carry
three networks and up to three independent stations as mandated by the
Also,
FCC.
local
less
than
stipulate
a certain number of public
This means that an operator with a
access channels.
of
agreements
21
channels--a
group
representing
produce
the
most
This
revenues.
is
30%
almost
subscribers--has to choose the programming services which he
will
capacity
system
of
believes
a tough sell for a new
programming service with an unproven product.
The situation is improving since many franchises are currently or
will soon be rebuilt with larger channel capacity.
Most
of
the
new
systems have a 36+ channel capacity.
6.2.6 Switching Costs
The good news for new pay cable
costs
to the subscriber are low.
competitors
is
with
switching
A phone call to the system operator
will result in a free service call to change services.
systems
that
In
the
newer
addressable converters, the system operator can flick a
switch and "make the change from service to service in
PAGE
73
60 seconds."
75
6.3 Existing Rivalry
The competitive situation among programmers is best summed up
by
Bill Daniels of Daniels and Associates which is one of the top 25 MSOs
in
He states that "with few exceptions, the place where
the country.
you make your dough in the cable business is being a
Today
HBO
is
making
operator.
cable
a tremendous amount of money but it took a big
risk.. .Software is so competitive.
It's
not
way
that
as
a
local
operator.
In very few instances do you have two cable systems in the
same area.
We're not faced
software programmers."
the
with
problems
competitive
of
the
76
The competition, which was always fierce, has
increased
due
to
the fact that, after years of rapid growth, during which entrants were
attracted
1983.
despite
barriers, the industry slowed a bit in
formidable
The increased competition took several forms.
was highlighted by the bidding war mentioned
earlier
In pay cable, it
as
programming
channels scurried to secure exclusive rights to product.
The competition among advertising channels varies from segment to
segment depending on
attempting
size
segment
to divide it up.
in
the
Satellite
the
number
Network
(CNN).
by
competitors
Faced
with
a
new
News Channel (SNC), Turner established
CNN2 which had a headline format similar to SNC.
responded
of
One particularly vicious battle involved
Ted Turner, owner of Cable News
competitor
and
All
three
networks
offering all-night news shows, so in the space of a few
PAGE
74
offering
months, the customer was faced with not one but six services
extensive
or
continuous
addition, some local news shows
In
news.
increased their length from one to two hours.
The
was
result
that
simply were not enough subscribers or advertising dollars to go
there
around and the inevitable shakeout
occurred.
the
of
Two
networks
dropped their shows and Turner bought out SNC for $25 million.
6.4 Substitutes
is
It
from
obvious
the
that
example
channel
news
network
channels are powerful substitutes in the competition for
broadcasting
viewers and advertising dollars.
channels
The networks also serve as substitutes to pay cable
the
of
eyes
the
firms
who own the rights to the movies and sports
packages that both groups bid for.
with
CBS and NBC have been
negotiating
several movie studios about getting theatrical films before they
go on pay television.
cable
in
channels
The enmity that the networks feel for
goes
well-known
vanish.
beyond
the
deal.
business
competitor." 7 7
a
weakening
pay
is exemplified by NBC Entertainment President Brandon
value
Tartikoff who recently stated that "at some point, the
endeavor
the
If
By
broadcast
the
doing
networks
in
the
this we'd be
can
offer
movies before pay cable, a key advantage of pay cable will
It could also mean
a
return
of
dollars that have begun to trickle to cable.
PAGE
75
some
of
the
advertising
Broadcast
allows
a
is
most
the
video cassette.s and a new
called
service
to
Telefirst
cable
Movie
which
subscriber with a VCR to tape a film transmitted over a VHF
channel overnight, are all substitutes for
sporting
threat
obvious
at the present but it is by no means the only one.
programmers
theaters,
television
cultural
and
events
Live
programming.
cable
are also substitutes for the viewer's
time and attention as are other leisure activities.
hard
The presence of such a large amount of substitutes makes it
for
a programming service to attain the level of subscribers it needs
Realizing this, some programmers are
investigating
to transmit their product to customers.
The following
to show a profit.
other
methods
section explains this further.
6.5 Buyer Power
The
buying
power
of
MSOs
will
slip
if
the
cable
system
It
is
conceivable that a cable programming service will sell its product
to
substitutes
mentioned
in
Chapter
5
gain
in
popularity.
operators
of DBS and SMATV systems in the future in order to increase
revenues.
If this
happens
then
the
diminish.
PAGE
76
MSOs'
bargaining
power
will
The operators' bargaining power is currently handicapped
fact
that
cable
programming
is
Most metropolitan subscribers
franchises.
to
crucial
the
success of their
the
sign
by
on
because
of
the
If
programming that is offered with either the basic or pay services.
services
these
are
not
offered
then
the
single
most
important
attribute of a cable system for many people no longer exists.
The advent of multipay--the practice of offering
more
than
one
the
subscriber
pay service--increased operator revenues, although it
reduced their power over pay cable programmers.
result
The
is
that
pay services are less often denied access to an operator's system.
of
The increasing number of systems with a large amount
channel
capacity means that operators can carry more services which bodes well
for
many
of
the advertising supported channels.
It also means that
operators have less room to squeeze programmers for favorable rates or
more ad time to sell.
This is not to say that the operators are totally at the mercy of
the programming services.
Some of the larger MSOs
leverage given the number of subscribers they service.
banded
into
programmers.
strengthen
groups
to
Some MSOs have
negotiate favorable rates with the pay cable
Another measure that
their
considerable
have
position
is
system
secure
to
programming as was mentioned earlier.
PAGE
operators
77
their
have
own
taken
to
sources
of
6.6 Supplier Power
The major suppliers to the programming services are film studios,
independent producers, syndicators and owners of sports teams.
suppliers
hold
a
These
large amount of power over programmers for several
reasons:
O
There are other industries besides the cable industry which
provide these suppliers with sizeable revenues.
O
The suppliers' products are crucial to the programmers'
business.
o
Some of the suppliers pose a credible-threat of forward
integration.
O
The demand for the product eclipses the supply.
Programming services, especially pay cable programmers, have attempted
to alter this balance of power by forming alliances with
which
give
products.
them
exclusive
Many pay cable and
the
studios
pay cable rights to some of the studios'
advertising
channels
have
their
production studios to supply some of their programming needs.
PAGE
78
own
6.7 Conclusion
Until recently, cable programming has been a high growth industry
that attracted a large number of entrants.
failures
and,
with
Now there have been a
few
the bloom off the rose, a potential entrant must
soberly consider how wise it is to invest in an industry characterized
by high scale economies in marketing and administration, rapid
and
the
service.
need
for
a sizeable amount of capital in order to launch a
A capital outlay of any size is a risky bet in
competitive
industry,
this
As
operating in
is
an
the
highly
(the competition comes from direct competitors
and readily available substitutes) that is still experiencing
pains.
change
case
with
environment
system
that
is
ventures.
PAGE
79
operators,
conducive
these
to
growing
firms are
forming
joint
7
CABLE TECHNOLOGY
As mentioned in the last chapter, cable technology
the
satisfy
demand
of
those
individuals
broadcast television signals because they
by
surrounded
signal's origin.
irregular
who
lived
could
in
an
developed
not
area
to
receive
either
terrain or located a long distance from the
To complete the link between the program originators
operators
and the television viewers, system
like
L.
E.
Parsons
high gain receiving antennas at points where an undistorted
installed
broadcast signal could be
amplified
received,
and
relayed
to
the
community.
The changing technology of this link has played a central role in
the development of the cable industry.
A cable analyst nicely
summed
up
the
effect that technology has had when he stated that "necessity
is
the
mother
invention.
With
is racing ahead of demand.
technology
7
the time."
of
8
PAGE
80
cable
and
its
competitors,
Something new is happening all
The cable industry is affected either directly or
that
technology
changes
by
the link between program originator and the
directly
The cable industry is affected
home user of video services.
a new technology decreases the cost or increases the services of
when
industry
cable
industry
by
technology
change
Technological
cable signal transmission.
the
indirectly
when
improves
it
affects
indirectly
the position of a competitor
different
transmission
between program provider and the home user.
Each of these
decreasing
costs
the
of
a
categories will be discussed in turn.
7.1 The Direct Effects of Technological Change
Technology affects the link directly by improving two types of
transmission technologies:
signal
from origination to cable system operator,
and from headend to subscriber.
7.1.1 Technological Change--From Origin to Cable System Operator
After
the
cable
operators
established
receivers, amplifiers and retransmitters
the link that made them the
of
broadcast
signals,
important new technologies affected cable system operators:
and satellite transmission technologies.
PAGE
81
two
microwave
of
undistorted television broadcast signals from distances of several
The television signals were transmitted via
hundred miles.
to
transmission
the
In the late 1950s microwave technology allowed
system operator's headend (central receiving and distribution
the
site) where the microwave signal
Microwave
signal.
carriage
was
separated
allowed
from
broadcast
the
result
was
added
be
variety for cable subscribers.
be
Up until microwave
remained
markets
only
and
began
channel
cable
introduced,
those geographical areas with poor reception.
broadcasting,
markets began shrinking.
were
technologies
These markets were usually small an'd as
licenses
that
channels
by cable owners dramatically increased the demand
received
for cable.
received.
The resulting
improvement in cable service quality and the number of
could
broadcast
signals to be seen,
distortion-free, in areas where they would not normally
The
microwave
more
even
were
stations
granted
the larger medium size city
With the introduction of microwave, a twelve
system became feasible and the large urban markets,
three broadcast channels became interested in
with their
cable.
Regulation in the mid 1960s that restricted cable distribution of
distant signals slowed the progress of this continual
cable
more tempting to the urban markets.
occurred:
Home
Box
Office
programming service, announced that it
satellite
make
It was not until 1975 when
deregulation of the industry had begun that a breakthrough
transmission
to
drive
would
(HBO),
beam
in
signal
a first run movie
its
signals
via
to system operators nationwide who would pick up the signal
PAGE
82
HBO until that time had been
using an earthstation.
pay
regional
a
cable network transmitting its programming by microwave and videotape.
HBO's decision to use satellite technology to transmit programming had
ramifications
dramatically
"altered
the
both
within,
the
reduced
business
and
costs
outside
of,
the industry since it
programming
of
It
distribution.
plans of cable TV system operators, equipment
the
manufacturers, communications common-carriers,
arts,
performing
79
sports promoters and private investors."
HBO's decision,
of
licensing
in
with
the
FCC's
today,
of
course,
the
cable
is
Table
using
them.
satellite
varied
market
programming channels transmitting via satellite.
7.1 lists the various satellites along with the services
Thus,
and
approval
small diameter earth stations, paved the way
low-cost,
for other services to emerge and
flooded
with
conjunction
distribution of cable programming resulted in a more
service
offering
than
was
available
to
a
cable
subscriber.
The introduction of satellites also created a new
for
programming
services
since
the
entry
acquisition--through
barrier
rent
or
purchase--of satellite transponders became necessary in order to reach
subscribers.
After the first transponders were utilized on SATCOM IV,
was established.
buy
a
A resulting problem was that cable operators had
second earth station directed towards the new satellite.
created headaches for programming services such as
The
83
This
Entertainment
Channel which found itself on a poorly utilized satellite system.
PAGE
to
*Best copy/text quality available.
TABLE 7.1
CABLE SATELLITE LINKS
iia.a.
Satellite lineup
en
Satcom IB-R (RCA Armericorn)
Transponder
AP
seas ca::e ...............................................................
A sa f-.e -e-.'w ne.......................................................
SoO-KVw+
6 Eft, L41tenrn 41s .: ..............................................
C-sp f
Car-Lc .
.........
........
.................
..... .......... . ..............
....
. .
.
.........................................................
....e...
.
.'c
-
..
16
. ............................
..........................
... .. ..........
.
C.........
- .
set..,
........ ..
.......................
..................................-..
.......
..............................................................
* *.................................
.........
A
............................
ak..... s....
. ...
4
...........
I*L
Av-
tNfl
se"J
-
u...d**
...
& '1~w3Maos
~gm
si
...
Transponder
...................
D........
............
w: c ....
...............
............
.......... .y
.e-.So. ....................................
ttws
Westar
V (Western
Union)
Transponder
!D6
1.
................................................................
. ..
A,- . o.s-eU94.-o-.f- 6.............
. . . ........
.
. . ....
.
5X,
ro ....e....1 ...........
c...........
6D.1
17
5...
c-
&.asr
AT
..
............................
-..-.
-. '"
..............
.s:.
.... ...........................
.L.................
suz...
N -*:.
..e ...
Sa ,
-..................
s
: ...... 2
... .
,,
I
............................................
.....
,..
IV (Westemn Uruon)
Westar
,
5-
Gw. s. . ....
osen
La.,e-*.-
64.A-
woo:
............
.............................
36
Comstar
Lda:l 4~ .w%A w-X Oes
..... c...
.. C
.
&-RU4'n.-;
6.aV
....
; ...e.......................
................................. 16
.. ....... ....
e .<. ...
.... .............
................ ......
- . . . - ... ...........
.. ......... ........................
.......
. a.
....
.......................................
.......................
.
katOna- C-ws.an heiwo
Psety, yne.igs,
....
I
.
t8
.
.........................................
-LDaM ..........................
I
Eh.. .........................................................
ES
.n
:- .....................................
..... ......................
Ek-q
....................................
. .......................
.......................
..
F e r a . . ............................................
.
cs
3
....... 19
.
. .............................................
6
..............................................
.................. .... ....... .................... 2 )
.. 2C
...........................................................
c fn e . Ads
-Sphe
.................
Ga.n ie.wre.
-tawa
C8% Ca . % -k
care eas %o..
i
sw i E"n.na-
os.n Sp
r
.....
f s . ...........................................
a Go
... &................................................................
.
.....
.
...
.......
. ............
60'
E
6
. .... ...
sS. OS
..............................................
...................................................
..............62
s:-~
......
a.. %
fa.
.
.
.
.....
-
-............
(WsAr&Tn/GT)
w 'D1e..
..o ...............
(ge
........
..
%.........
Transponder
..................
.
Trans.nde....
r
.f l%.
.eS
.
..
. .
.
'".k'.U
. "?. g ..-...
.................................
c.
n...........
.....2
.. ---...............
.Wvt.
"iW
.
. 7V.
1
371.2;1.
.%4...................6
.ls
haV-S.
accs'.';
? & 'Cix22
" ---"-...
" " " ...
-"....
.....
- "lqw-' -o .C.......................................
.
Stvt
bV.
O-
.4tIo. .
kvv
.
.j............
..................
wr Cc ! ........ ...............................
X
.,
SatI A4::% a. t . - o i*...............
..........................-- - - -- - - -.
nS % -
z;
S. . C
'TN*~
ek..........
:................
. e...............................
;.... ....................
2
............................................................
Lp:CDCNfs
6
7,?.
. .......................
It* S-ew
1A
..................
k....................................
................................
Ct &.%..o.
. n..
... ... ..........
.... ...
. .... ...U
~c.s . ..............................................................
Satcom
1.a o
..
IV (RCA Amenicom)
Transponder
...............................................................
Source:
Gaaa oreny
6
Cablevision, March 5, 1984
PAGE
84
narme
an&ateninses ionoeng
a sHg.c
-
nesworanupoe
T
r'
.-
7.1.2 Technological Change--From Headend to Subscriber
The
improvement in this retransmission technology has been the
major
types
improvement in transmission quality, the ability to deliver new
of
technologies,
the
programming.
Some
changed
provide
variety
to
"The
unsatisfactory.
a
of
with
weather.. .Another annoying
of
kinds
different
the
of
residents
television."
80
[in
house
first
the
the rest of the neighbors'
effectively
were
line--they
twin-lead
sets went off right down the
this
of
characteristics
turned off their set at 9:00 P.M.,
without
distribution
of the earliest systems were wired with twin lead
drawback.. .was that if the
system]
programming
the
capacity
increased
wire which was very
cable
with
as
and,
services
two-way
The use of coaxial cable solved these problems
to allow reception of a higher quality picture.
Coaxial cable had the
allowed
which
an
cable
had
a
12
are
cable
communities
U.S.
capacity
since
each
When the
services.
were
being
video
developed,
These systems
requires
channel
6 megahertz of bandwidth. 8 1 Today, over 50 channels can
be fit on cable with bandwidth
operators
of
bandwidth
increased
with a 72 megahertz bandwidth was used.
channel
approximately
of
advantage
variety
increased
franchises for many small
coaxial
added
exceeding
300
megahertz
and
system
sometimes doubling that capacity by laying dual cable.
The system operators' ability to carry more channels
growing number of services that are being offered.
PAGE
85
complements
the
Technological changes in the transmission of
the
to
operator
subscriber
have
the creation of
stimulated
also
cable
from
signal
dynamic, interactive services in which the subscriber can participate.
Since 1972, most
and
transactions
receives.
in
have
Some
have
some
control
the
he
programming
the
the
(WACC)
Warner Amex Cable Communications'
Qube service in their Columbus, Ohio system
for
of
systems actually allow the subscriber to participate
For example,
the program.
vote
(two-way)
interactive
installed
Interactive cable provides the potential for a subscriber to
cable. 82
make
builds
new
has
boxing
had
The votes are
winning boxer in their estimation.
tabulated and shown on the screen.
Besides
the
allowing
viewers
to
viewer
participate in programming, interactive cable opens up the possibility
of supplying transactional services like shopping and banking at home.
services
These
will be provided more frequently as the percentage of
systems with interactive capabilities grows larger.
Addressability has also surfaced as one of the key
issues
in
the
Homes equipped with
history of the industry.
recent
technological
addressable converters can be controlled individually from the
operator's
headend.
This allows
system
the operator to offer multiple tiers
of pay programming and two way services without making a service
each
time
a
addressability
pay-per-view
subscriber
allows a
events.
changes
his
services.
More importantly,
simple method to provide homes with one
Since
pay-per-view
is
expected
86
time,
to increase
dramatically in the next decade cable operators are equipping
PAGE
call
with
a
technology which allows them to easily control the flow of programming
into individual homes.
According to Irving Kahn--the former
who
has
been
called "a
president
by
laser
technology
will
Glass fiber
Also, the cost of the
glass fiber will be much less costly than coaxial cable.
other advantages to laser technology;
between
presently only being laid
problem
up
holding
signals
Considering
that
investment
they will
competition
in
be
listed
Apparently,
only
the
broader acceptance of laser technology is the
a
the
for
the
Kahn
however, fiber cables are
headends.
high cost of the equipment required to
traditional
cables
allow bandwidths more that 20 times
larger than the widest bandwidth coaxial cable.
many
TelePrompTer
visionary of the industry"--laser technology
will cause the next major change in the industry.
used
of
cable
convert
television
industry
from
reception
has
a
laser
of
back
to
the signal.
dollar
multibillion
traditional transmission technologies, we suspect that
sluggish
might
in
stimulate
accepting
laser
technology.
more
rapid
adoption
a
technology that would give the cable industry a clear
Only
of this novel
advantage
other links between program originators and the home video user.
PAGE
87
the
over
7.2 The Indirect Effects of Technological Change
While
the
technology important to the cable industry improved, other
technologies developed to make the link between the program originator
and the home video service user.
are
subscription
television
The four major types of
(SMATV).
Following
distribution systems
(DBS), and satellite master antenna
(MDS), direct broadcasting systems
television
microwave
(STV),
competitors
a
is
description
of
technologies
involved in transmitting the signals for each system.
MDS--As
cable operators began using microwave to transmit and receive
long-distance programming, competitors
transmit
programming
developed
the
directly to television viewers.
technology
Programming is
MDS is
transmitted in this system via line-of-site microwave signals.
a 5-8 channel system
the
FCC
determines
(as with other
the
amount
airwave
communications
methods,
of bandwidth allocated to MDS) that
until recently was targeted at hotels and
that
to
apartment
buildings.
Now
smaller, less expensive antennas have been developed, it is also
being marketed to single family homes.
PAGE
88
of
MATV/SMATV--MATV and SMATV technologies developed as a result
the
buying power of large apartment buildings who originally obviated
the cable operator by having a
could
to
use
their
which
antenna
master
clear network broadcasting signals.
receive
tenants
An SMATV
system is simply an extension of this concept with an earth station of
to
used
satellites
as
technology is the same
received
programming
by
that
by
used
and
satellite
subscribers hooked into the
systems
has
building
by
technology
small,
been
the
cable
economies
consequence,
Because the market for these
known as private cable.
also
a
As
programming is limited to one apartment complex.
is
with
The difference is that the cable distribution of the
system by cable.
SMATV
industry
cable
the
same
the
In essence, the
system operators.
to
transmit
from
programming
receive
the type cable operators use to
this
with
competes
industry
scale and by offering special
of
interactive services that these small SMATV systems may not offer.
STV--With the development of addressable converters, broadcasting
to
companies have tried to develop STV technology
The
operator.
broadcast
signal
STV
they
transmission.
upon
an
that
technology
addressable
converter
unscrambled
with
subscriber.
The use of addressable converters
pay-per-view
programming
must
signal
is
which
cable
scrambles the
developed
This
the
bypass
allows
then
be
given to the
STV
to
offer
as well as continuous programming where the
subscriber pays a monthly fee.
As
PAGE
with
89
most
of
the
other
cable
substitutes,
offers a limited number of channels (usually one to
STV
three) and therefore has had little effect on the cable industry.
the
DBS--A more recent development allowed low cost reception of
from
signals
individuals instead of cable
only
offers
3
to
6
earth
by
satellites
stations
This
operators.
of
channels
the
number
of
programming,
to
channels
rented
but in the future,
are
expected
to
cable
with
competitive
be
by
presently
technology
technological improvements of this young technology
increase
or
owned
technologies.
This competition was
transmission
used
not
years
present
the mu band
since
ago,
(4-6 MHz) which could only be received
by large earth stations costing a
minimum
of
$2000.
many
However,
launched satellites have transponders that are substantially
recently
more powerful, and they operate off a higher frequency,
(14-16
satellite
MHz).
stations that
individually
two
These
cost
$300
characteristics
or
less.83
allow
Besides
ku
the
band
reception by earth
the
drop
in
price,
owned earth stations are becoming more common due to the
FCC's deregulation of receive-only earth stations.
Although capital costs can be forbidding--for example, the
DBS
service
(offered
first
by USCI) has required more than a $200 million
investment over three years--dozens of companies have applied for
licenses
from
the FCC.
DBS
Of the technologies that threaten cable, DBS
may be the only one with a chance of having
PAGE
90
a
major
impact
on
the
cable
industry.
In the future, the interactive service capabilities
of cable may be the only services available on cable but not available
on DBS;
services
however, the other communications companies
available.
This
threat
from
DBS
PAGE
91
make
these
and the communications
companies may stimulate the cable industry's use of
in the near future.
may
laser
technology
8
CABLE JOINT VENTURES
order
in
industry
television
outlined
chapters
preceding
The
to
the
provide
of
nature
cable
the
reader with a basic
the
understanding of the forces affecting the structure of
the
industry.
This chapter presents a detailed accounting of the joint ventures that
were
studied.
For
each
joint
venture, the motivations, goals and
Each section concludes with an evaluation which
structure are listed.
for
sums up how well the operation was running and offers reason
specific
results.
chapter
The
concludes
with
of the
summary
a
elements that all or most of these joint ventures share
the
compares
and
these findings with the theory developed in chapter 3.
As was stated in the Introduction, material on each of the
ventures
was
collected through phone and personal interviews as well
as through the literature.
provided
further
by
joint
the
reference
Where
background
information
has
been
person or persons listed in the acknowledgements no
has
been
provided.
However,
instance, a source is cited in the usual way.
PAGE
92
in
every
other
Table 8. 1
CABLE JOINT VENTURES.
JOINT VENTURE
Disney Channel
PARENTS
DESCRIPTION
Disney
Pay Channel
Group W Satellite
Satellite News Channel
ARTS and
Entertainment
ABC Video
Group W Satellite
Hearst
ABC Video
Ad Supported
News
Ad Supported
Cultural Programming
Rockefeller Center TV
Lifetime
Hearst
ABC Video
Viacom
SportsChannel
Cablevision
Washington Post
Ad Supported
Health and
Women's Topics
Pay Channel--Sports
Playboy Channel
Playboy
Cablevision
Pay Channel
Adult Programming
Spotlight
Cablevision
Storer
Cox
Pay Channel
TCI
Times-Mirror
Showtime-The
Movie Channel
Tri Star
Warner Amex
Warner Communications
Warner Amex
Viacom
Pay Channel
HBO
Columbia Pictures
CBS
Film Studio
Warner Communications
American Express
MSO and
Programmer
Theta Cable
Manhattan CATV
Hughes Aircraft
TelePrompTer
Franchises
N.Y. and L.A.
Group W Cable
Franchises
Group W Cable
Local Investors
Franchises
Warner Amex Cable
WACC
Local Investors
Franchises
Franchises
PAGE
93
Table 8.1 CABLE JOINT VENTURES (continued).
DESCRIPTION
PARENTS
JOINT VENTURE
Continental Cable-
vision Franchises
Franchises
Continental Cablevision
Local Investors (Chicago)
Competing System
Operator (Springfield)
Cablevision
Cablevision
Franchises
Scripps-Howard
Chicago
and Springfield
Franchises
Connecticut
and California
The joint ventures have been divided into two
related
and
which will be
programming related.
discussed
in
this
types:
franchise
Table 8.1 lists the joint ventures
chapter.
The
programming
joint
ventures are listed first followed by the franchise joint ventures.
PAGE
94
PROGRAMMING JOINT VENTURES
THE DISNEY CHANNEL
This was a joint venture between The Disney Corporation and Group
It was formed in 1981 and was dissolved in the
W Satellite.
1982.
the
fall
of
Both companies were considering establishing a pay channel when
chairmen
of
the
Golfers'
Professional
two
parent
Association
corporations
function.
discussed
Soon
it
at a
that
after
discussion, formal negotiations were entered into and an agreement was
reached.
CONTRIBUTIONS--Disney
provided
the largest film library for children
in existence and also provided a name that is synonymous with
children's
Satellite
entertainment.
was
to
provide
Under
the
the terms of the agreement Group W
sales
satellite transponders and the uplinking.
PAGE
quality
95
and
marketing
support,
the
MOTIVATIONS--Disney wanted to provide quality programming while at the
same time using the channel as a promotional vehicle for Epcot.
W
Satellite
children.
parents
wanted
a channel that would be socially stimulating for
Lloyd Werner of Group W termed
could
be
a
"safe
haven"
where
4
STRUCTURE--Each partner had 50% equity
The
it
sure that their children were not being exposed to
programming with questionable content. 8
Channel.
Group
Board
participation
in
the
Disney
of Directors had 2 Disney representatives and 2
Group W representatives so neither group had absolute control.
EVALUATION--The Disney Channel is now wholly
Jimerro,
owned
Disney.
Jim
president of the Walt Disney Telecommunications unit, blames
the dissolution
on
Disney's
lack
of
control.
conclusion that we had to have creative control.
control
by
was the main [reason for the breakup]
"We
came
to
the
I think the creative
in both programming and
marketing. "5
Lloyd
marketing
Werner
says
issues
and
that
disagreements
then
spilled
programming and pricing strategies.
supposedly
agreed
to
in
the
over
Many of
contract
arose
into
96
issues
these
issues
over
concerning
had
been
Since control was divided
evenly there was no one party to decide matters.
PAGE
first
but one or the other of the
parties would raise objections nonetheless.
was cited by Werner as a major factor in
at
the
This lack of control
failure
of
the
joint
86
venture to endure.
ways
and
cultures
blames
also
Werner
dissolution
the
of doing business.
He used Group W's partnership
with ABC Video in the Satellite News Channel
the
in
firms
corporate
differing
on
as
example- of
an
two
same business (broadcasting) having similar methods of
Disney, on
doing business.
other
the
hand,
a
was
business
show
and was used to handling business deals in a manner different
company
87
than Group W was accustomed to.
The
agreement
channel
because
failed
ultimately
there
clear
no
was
on who controlled the venture and because Disney eventually
felt that they could distribute the product effectively on their own.
SATELLITE NEWS CHANNEL
The Satellite News Channel
Satellite
and
(SNC) was a joint venture of
ABC Video Services.
Group
W
It was announced in August, 1981,
launched in June, 1982 and was bought out by Ted Turner in the fall of
1983.
SNC offered 24 hour live news 365 days a year.
Group W Satellite first contacted ABC in
deal
for use of ABC's international news footage.
then brought up the possibility
of
a
evolved from that point.
PAGE
97
joint
to
order
negotiate
a
ABC Video Services
venture
and
the
deal
W
CONTRIBUTIONS--Group
the
provided
local
facility,
news
news-gathering expertise, sales and marketing expertise, the satellite
and
transponders
the
ABC
skills.
engineering
contributed
Video
footage and enough cash to equal the value of Group W's
international
contributions.
MOTIVATIONS--Both partners wanted to
provide
the
on
a
its
own
to
which
set
had
been
prepared
to
The joint
operate
the
aside only half of the capital for the
It also provided Group W with the international
project.
would
that
channel
best news coverage available to the consumer.
venture allowed Group W,
service
produce
footage
it
starting
an
needed.
According to industry sources, ABC was
channel before it learned of Group W's plans.
all-news
motivated in part by the belief that
more
than
two
but
situation.
firm's
advertising
ABC Video was
could
not
support
By forming a joint venture with
cable news channels.
Group W, ABC was not only able to
possess
considering
gain
abilities
that
it
did
not
was also able to avoid a potentially harmful competitive
Furthermore,
motivations
for
Jack Healy
of
ABC
Video
states
that
his
entering any joint venture are to share risk
88
and to enter the market sooner than it would on its own.
PAGE
98
However,
STRUCTURE--Each partner had 50% equity in the joint venture.
Group W had 3 of 5 representatives on the Board so it had
the
operation.
Lloyd
of
control
Werner of Group W says that his company would
Video
not agree to the joint venture.otherwise and ABC
the
accepted
arrangement.89
channel
EVALUATION--The
itself
is
longer in existence but both
no
partners insist that this is a result of several business factors that
are totally unrelated to the ability of the
The
partners
to
along.
get
reasons for the sellout to Turner were the increased number
main
in
of competitors
the
market
and
segment
the
failure
to
reach
projected levels of advertising revenues.
Although both partners suffered minor losses on SNC it was not
failure
as
a joint venture since both partners feel that as a result
of combining strengths superb news programming was made
the
public.
a
available
to
The partners were able to work together effectively for
several reasons.
The roles of both partners were
clearly
delineated
beforehand and it was obvious that Group W, with a majority control of
the
Board had the legal power to take charge.
The result was that no
It
important question was endlessly debated or left unresolved.
helped
also
that the two companies were both in the broadcasting business.
They understood each
other
and
were
familiar
with
how
each
business which meant that communication was relatively smooth.
PAGE
99
did
ARTS AND ENTERTAINMENT CHANNEL
This is a
upbeat
programming
entertainment.
channel
The
that
service
venture between Hearst and ABC
specializes
in
cultural,
was initially formed as a joint
Video
Services.
Rockefeller
Center
Television joined the partnership in 1983.
CONTRIBUTIONS--After
a
mission it was to create
concluded
that
of research ABC created ABC Video whose
year
what
be
a
the
It was felt
Channel.
ABC
had
that
a
channel
cultural
good start since that kind of programming would be least
offensive to ABC's broadcast affiliates.
purchasing
ARTS
cable programming channel would fit in nicely with
a
the strengths of the network.
would
became
European
with
ABC Video was involved
footage to use on the channel when Hearst, which
was already partners with ABC Video in the Daytime service, approached
with
the
idea
of
making
the
project
a
joint
venture.
contributed its skills as a publisher of women's magazines.
valuable
This is a
asset since the target audience for this type of programming
is similar to the audience for a specialty magazine in that
segment
Hearst
of
the
total
programming service,
Rockefeller
population.
formerly
The
Entertainment
rights to BBC programming.
PAGE
100
it
is
a
brought a low cost
Channel,
and
the
in
feeling
MOTIVATIONS--ABC's
Hearst would complement
its
entering
and
strengths
joint venture was that
the
span
time
the
between
90
startup and profitability would be shortened.
Another reason for the initial ARTS partnership between ABC Video
Video.
and Hearst Corporation was given by Tony Herrling of ABC
The
two companies had agreed to produce Daytime as a joint venture and the
was that a large portion of the costs involved in running two
feeling
combined.
As
cut
be
different programming services could
the
if
services
were
result, Hearst became a partner with ABC in ARTS as
a
well as Daytime and both services
the
had
administrative
same
and
91
marketing staffs.
STRUCTURE--The
Arts and Entertainment Channel is run by a 9 man Board
with each company having 3 representatives.
ABC Video and Hearst vote
in a block so they essentially run the show.
EVALUATION--Jack Healy of ABC Video likens a joint
married
The fact that Hearst is a
private
being
corporation
ABC is publicly traded causes some difficulty according to Healy.
For example, Hearst measures its performance according
while ABC is more concerned about earnings per share.
is
to
to several wives in that no matter how hard you try there are
going to be problems.
and
venture
that
people
at
ABC
are
used
to
paying
management at Hearst is not accustomed to this.
PAGE
101
to
cash
flow
Another example
bonuses
whereas the
Since they vote in
a
block there are times when compromises must be made.
Healy feels that the joint venture will succeed
fact
that
the
minor
are
differences
each
because
and
of
because
9
contributes some skills that make the partnership stronger.
the
partner
2
LIFETIME
This
joint
entertainment
venture
for
women
produces
a
specializing
channel
and health fanatics.
in
The founding partners
In the fall of 1983 Viacom
were ABC Video and the Hearst Corporation.
entertainment Services joined the partnership.
The channel started as Daytime in 1982
1984
and
became
The channel
with the addition of Viacom's Cable Health Network.
has never broken even but costs have always been at
or
in
Lifetime
below
budget
and advertising revenue is increasing so the outlook is brightening.
CONTRIBUTIONS--ABC
Video
for daytime audiences.
providing
information
brought experience in producing programming
The Hearst Corporation
targeted
at
women.
brought
expertise
Viacom brought the Cable
Health Network and its associated programming, additional
time
and
subscribers.
contribution since the
more
The
additional
subscribers
appealing it is to advertisers.
PAGE
102
a
in
subscribers
service
has,
transponder
are
the
a
key
more
goal
overriding
MOTIVATIONS--The
words, is "to make Lifetime a core
subscriber." 9
basic
3
Another
the
partners
in Jack Healy's
service
required
to
of
prime
motive
for
ABC
maintain
Video
a
is the
opportunity to spread the risk.
The motivation for becoming partners with
Cable
Health
greater
was
that
the
Network was aimed at the same audience that Daytime was
Combining the services meant an increase in viewers
directed to.
a
Viacom
appeal
for
combined service is
Finally, the cost to operate a
advertisers.
less
than
the
and
cost
of
running
separate
two
services.
is
STRUCTURE--As
the case in the Arts and Entertainment Channel, ABC
Video and the Hearst Corporation each have 3 of 9 seats on
and
vote
a
as
Viacom,
block.
however insisted on a long list of
exceptions which require an unanimous vote.
budget
approval,
approval
Board
the
These exceptions
include
of any shift from the present programming
format and pricing strategy approval.
EVALUATION--The joint venture appears to be running smoothly
apparent
rifts
between
partners.
both
no
The fact that ABC and Hearst have
been partners for a while helps as does the fact that Viacom
Video
with
and
ABC
have roots in broadcasting (Viacom was spun off from CBS)
and tend to have the same way of thinking.
PAGE
103
SPORTSCHANNEL
In 1983 the Washington Post paid Cablevision $20 million to get a
50% ownership of
a
SportsChannel,
regional
pay
service
featuring
sports programming.
CONTRIBUTIONS--Before
the Washington Post approached Cablevision, the
MSO was operating the service on a low budget.
The
Washington
Post
brought $20 million of much needed capital as well as expertise in the
publishing
and
information
business.
Cablevision
established service as well as programming, marketing
provided
and
the
management
skills.
MOTIVATIONS--The
Washington
enter the cable industry.
Post
wanted
a vehicle through which to
It felt that a joint venture with a company
with considerable cable expertise would provide
investment.*
Cablevision
was
happy
skills.
PAGE
104
to
get
the
both
best
return
on
the cash and the
STRUCTURE--Each partner has 50% of the equity in
Both
year.
a
after
smoothly
EVALUATION--This joint venture is operating
venture.
joint
this
partners cite the importance of bringing complementary skills to
the table.
Alan
of
Spoon,
the
Washington
Post
that
feels
this
increases the chances for success. 9 4
THE PLAYBOY CHANNEL
The Playboy Channel, an erotic pay channel was
between
Cablevision,
an
MSO,
after
two
venture
joint
The association was
and Playboy Inc.
started with a handshake and was
a
years
without
a
legal
agreement being signed.
CONTRIBUTIONS--Playboy's
main contribution to the arrangement was its
name and its programming expertise.
Cablevision
provided
the
sales
and marketing expertise.
MOTIVATIONS--Bob
Sullivan,
the
chief
financial
Cablevision, says that the goals of the two firms
not
were
officer
for
"similar
but
congruent." 9 5 By this he means that while both partners wanted to
produce a service that was known for
partner
had
a
slightly
its
quality
programming,
each
different definition of what quality meant.
PAGE
105
to
Both firms sought
have
input
considerable
in
the
programming
decisions and a final agreement on this issue was never reached.
was
STRUCTURE--There
formal structure agreed to since an
any
never
agreement establishing the joint venture was never signed.
EVALUATION--In Sullivan's words, "after two years of operation without
a signed contract [the result]
they'd
a
decision
Playboy
where
said
their way and they'd let Cablevision market it to
it
produce
was
affiliates.. .The decision was to go down the road side by side instead
of together." 9 6
issue
The central
control.
The
in
firms
two
this
had
instance
differing
was
one
of
programming
on what constituted
views
acceptable programming on an erotic channel and even though they spent
years attempting to come to an agreement concerning
found
it
to
be
an
impossible task.
companies' philosophies concerning
this
issue
they
This is an indicator that the
programming
were
far
apart
and
deeply rooted.
Their present agreement, where Cablevision has no
responsibility
for the editorial content, is going very well according to Sullivan.
PAGE
106
SPOTLIGHT
Spotlight was a pay service designed to compete with Cinemax, The
Movie Channel, HBO and Showtime.
It was initiated by Times-Mirror and
in December, 1981, a joint venture was formed
and four other MSOs:
CONTRIBUTIONS--Each
to
Times-Mirror
Cox, Cablevision, TCI and Storer.
partner contributed cash and subscribers
cases Spotlight replaced the pay cable
offered
involving
service
was
that
(in many
originally
of cable systems owned by one of Spotlight's
subscribers
partners) to the venture.
MOTIVATIONS--The purpose of this joint venture was
costs 9
middleman
to
eliminate
and to combat some of the power held by HBO. 9 8 The
7
partners felt that "Spotlight could start saving money by
affiliate
relations
or
owners
hold
contribution
line."
99
and
their
marketing
hands.
costs--no
More
subscribers.
eliminating
need to market to the
importantly,
there's
the
the pay services make to their corporate parents' bottom
The partners hoped to keep that profit
STRUCTURE--The
the
equity
contribution
Cablevision,
varied
for themselves.
with
the
number
of
for example, had a 10% share of the joint
venture.
PAGE
107
EVALUATION--Cablevision left the joint venture after less than a
in
and
1984
early
the
rest
year
of the partnership was dissolved with
Showtime/The Movie Channel gaining the Spotlight subscribers.
Bob Sullivan of Cablevision points to lack of control as the main
problem.
lead." 1 0 0
the
took
one
"Everyone has to agree who's running the store [but] no
Sullivan
out
pointed
all five
although
that
the
partners had the same broad goals for the venture--taking some of
HBO--they had other firm-specific goals which conflicted.
power
from
As
result,
a
"getting
all
five
MSOs
to
talk
Jack Kent Cooke, the president of Spotlight,
concurs
subscribers
potential
the partners."
low
is
a
10 2
typical pattern for joint ventures.
you think is a good idea and then
constituent
viewpoints."
number
and the differing commercial objectives of
Sullivan is not surprised at the end result since
this
this
with
part, stating that the demise was due to an inability
in
to "sustain acceptable profitability given its relatively
of
other
10
[was] almost an impossibility." '
intelligently
assessment,
each
to
units.
10 3
You
get
you
tend
to
he
says
that
"You start with what
break
up
into
the
a lot of chiefs and a lot of different
Since Spotlight did not have a designated leader
with
the power to make decisions on conflicts the joint venture dissolved.
PAGE
108
SHOWTIME-THE MOVIE CHANNEL
Showtime was a pay service formed in 1977 by Viacom in an
to
compete
with
with
HBO.
TelePrompTer
TelePrompTer).
For a number of years it was a joint venture
and
Group
then
for
Group
W
(after
the
acquisition
For a number
a partner or partners.
of
months
Viacom
was
The
the
the
justice
Finally,
disapproval of the. venture on antitrust grounds.
in the fall of 1983, Showtime, the second largest pay
with
in
A potential deal with a number of
movie studios fell through in the summer of 1983 because
department
of
W sold its share of Showtime to Viacom in 1982
citing control issues.
market
effort
channel
merged
Movie Channel, the third largest pay service to make Warner
Communication Inc., Warner Amex and Viacom joint venture partners.
CONTRIBUTIONS--In this joint venture the partners
than
cash to the table.
more
Viacom
brought
a
channel
approximately 4.7 million present subscribers and differentiated
programming.
Warner and Warner Amex brought an all-movie service
approximately
2
million
strength in movie production
Viacom
much
Both Warner Amex and Viacom are MSOs so they
both brought outlets for the pay service.
with
brought
brought
syndication
subscribers.
as
owners
Warner
of
Communications
Warner
Bros.
and
had
Studios.
expertise, rapidly becoming an important
skill since shows produced for pay cable are now being syndicated
presentation on broadcast stations.
PAGE
109
for
MOTIVATIONS--According to Dave Fluhrer of Viacom, his company wanted a
partner
for
it has "always been interested in joint
since
Showtime
risk
spread
ventures because you
around
and
share
resources." 1 0 4
Fluhrer states that the additional advantages to all three firms are:
O
Economies of scale--combining the staffs of the two services
saved an estimated $15-20 million, because now that one
organization takes care of all the administration and
marketing.
O
Resources of the new partners.
O
Larger subscriber base.
O
Partnership is now more attractive to the investment
community--soon after the merger was announced it obtained
a $150 million line
of credit which was not secured by the
parent companies.
The goal of the new firm is simply to compete successfully with HBO.
STRUCTURE--The
Communications,
Communications
equity
31%,
and
is divided up as follows:
and
Warner
Warner
Amex
Amex,
19%.
However,
if
Warner
vote in a block, this joint venture
would perform much like a 50/50 joint venture.
PAGE
Viacom, 50%, Warner
110
EVALUATION--The merger resulted in two services that can now be easily
marketed as a package to produce formidable competition for the highly
popular pay package of HBO and Cinemax, which are both owned by
Inc.
As
strategy.
a
Time,
business idea it appears to be a very viable competitive
Whether or not the partners can work together remains to be
seen.
TRI STAR
This joint venture between
production
company.
was
It
HBO,
CBS
announced
Columbia
and
in
1982
and
is
to
a
film
date has
distributed one movie and produced and distributed another.
CONTRIBUTIONS--Each partner
specific
contributed
1/3
of
the
capital.
The
strengths of the partners were HBO's pay television markets,
CBS's television distribution capabilities and
Columbia's
production
expertise and theater distribution experience.
firm
MOTIVATIONS--Each
particular market.
explaining
her
wanted a guaranteed supply of product for its
Laurie
firm's
Goodman
reasons
of
HBO
was
very
specific
for entering the joint venture.
in
HBO
went into the venture at a time when film costs were escalating and it
was felt that it was better to take a long term,
PAGE
111
up-front
risk
with
Tri
Star than to be entirely dependent on the vagaries of the market.
The intent was to gain some control of the supply of
less
subject
to
losses
and
product
be
when film prices shot up due to a
incurred
dearth of quality product. 10 5
STRUCTURE--Each company has 1/3 representation on the Board.
EVALUATION--The firms had
experience
had
with
dealing
other
each
before so the opportunity was there to sound each other out before the
deal
upon.
agreed
was
date,
To
the
joint venture appears to be
working.
WARNER AMEX
This is arguably the
was
It
country.
Communications $175
operations.
Cable,
an
known
best
formed
million
in
cable
joint
venture
in
the
1979 when American Express paid Warner
for
50%
ownership
of
Warner's
cable
The company is composed of two subsidiaries:
Warner Amex
and
Warner Amex
MSO
responsible
for
cable
franchises
Satellite Entertainment Corporation which produces cable programming.
PAGE
112
CONTRIBUTIONS--Warner provided its extensive cable
1979
in
largest
fifth
the
was
Although
considerable expertise in franchise operations.
no
they
had
Warner
had
Thus,
country.
the
in
which
network
direct cable programming expertise they had a number of people who
had considerable experience in radio and television production.
American Express contributed cash--lots of it.
that
true
had marketing and credit expertise
certainly
Express
American
While it is
(the latter is useful for transactional services done through Qube) it
extent.
were
attributes
does not seem that these
called
upon
to
a
large
fact, one Warner Amex employee, when asked what American
In
Express brought to the joint venture besides cash, replied,
don't
"I
know." iOG
Cablevision's Bob Sullivan, who was with
American
Express
when
the joint venture was completed, claims that "American Express brought
07
nothing to the party except money...they brought no management."1
Express
MOTIVATIONS--American
wanted
to
enter
because it had a desire to enter a growth industry
the
mature
involved
insurance
with
interactive
American
Express'
American
the
had
and
services.
cable industry
to
counterbalance
Cable was appealing because it was
communications
with
synergies
industry.
the
potential
current
Express
sought
provide
to
businesses
a
partner
through
with
experience in the business and felt that Warner provided the best fit.
Warner's
immediate
goal
at the time of the agreement was to acquire
PAGE
113
capital so that it could compete for new franchises.
STRUCTURE--Each partner has a 50% equity position and 50%
the
joint
venture.
control
of
Each shareholder has first refusal rights in the
event that the other shareholder desires to sell its stock.
EVALUATION--Warner Amex is still in existence after
severe
franchise
five
years
difficulties and rumors of a dissolution.
$47 million and that this
A recent
net
loss
figure increased to $91 million in
1983.
Business Week article reported that Warner Amex's 1982
amid
was
108
Like a number of other companies, Warner Amex became embroiled in
the recent franchise bidding wars and agreed to
in order to secure the franchise.
provisions
expensive
When interest rates shot up in 1980
and 1981, construction financing costs increased and Warner Amex found
itself in difficulty.
Other companies were faced with the same problems and Warner Amex
It happens that this is another case
has fared more poorly than most.
In
of uncertain control.
according
to
Sullivan
nobody did anything.
inmates
ran
the
the
"they
years
early
were
50/50
of
the
joint
venture,
partners which means that
They were so courteous to each other.. .that
responsible financially."1
No one who was
No one exercised control.
asylum.
09
The implication is
that
the
if
Warner
had
taken the lead at the inception, then the joint venture quite possibly
could have avoided some of its poor franchise decisions.
PAGE
114
FRANCHISE JOINT VENTURES
TELEPROMPTER-HUGHES FRANCHISE JOINT VENTURES
In 1966, TelePrompTer, a leading MSO, and Hughes Aircraft
two
formed
joint ventures to capture cable franchises in Los Angeles and New
Theta Cable was the L.A.
York.
equity position.
joint venture and Hughes
had
a
51%
TelePrompTer had 51% of the equity in Manhattan CATV
Corporation.
CONTRIBUTIONS--In
to the deal.
each case TelePrompTer brought management expertise
Hughes brought technical expertise as well as money.
when
fact, management at TelePrompTer first met the Hughes team
needed
a
microwave
hookup
In
they
to transmit programming from building to
1 10
building in Manhattan, eliminating the need to go underground.
In L.A.
franchise and
the Hughes reputation was very important in securing the
in
New
York,
Kahn
believes
that
reputation led to the winning of that franchise.
PAGE
115
the
TelePrompTer
MOTIVATIONS--The
Hughes had a bigger stake in
franchises.
being
a
immediate goal of the partners was to secure the two
joint
venture
indicate since it also owned
would
partner
simply
than
projects
the
600,000 shares of TelePrompTer.*
STRUCTURE--As was mentioned
earlier,
Hughes
had
and 49% of the New York franchise.
franchise
of
51%
L.A.
the
In both cases, however,
"TelePrompTer managed and ran the systems.""'
Irving Kahn, the chairman of TelePrompTer at the time, stated
a
interview
recent
that
in
was not much of a formal structure.
there
Management of both parents were comfortable with each other and it was
be
agreed that TelePrompTer would
regardless
of
equity
wanted
control
participation.
participation this way because the
city
in
They
franchising
of
operations
daily
arranged
the
authorities
equity
in
each
the company they were familiar with to have the majority
interest.112
EVALUATION--These joint
through
several
operating
in
one
form
or
another,
changes of TelePrompTer's management until 1981 when
TelePrompTer bought Hughes out.
were
lasted
ventures
at
For much of that time the
franchises
a loss as a result of high construction costs and
lower than estimated subscriber revenues.
PAGE
116
GROUP W CABLE FRANCHISE JOINT VENTURES
In 1981, Westinghouse Broadcasting and Cable
company
The
is
.Westinghouse
Corporation,
whose
parent
bought TelePrompTer whose
York
holdings included the Los Angeles and New
Co.,
discussed
franchises
This purchase made Group W Cable the third largest MSO in the
above.
country.
Group W Cable owns approximately 140 systems,
which
are
joint
ventures
less
than
5%
of
according to George O'Hanasian of Group W
Cable.
CONTRIBUTIONS--In
makes,
ventures
of the franchise joint
all
that
Group
W
supplies the management expertise and the bulk of the cash.
it
The local investor or investors supplies the political clout
that
is
sometimes necessary to win a franchise.
MOTIVATIONS--Group
W
Cable's
is to win the franchise and as a
goal
result it will enter into a joint venture with
"that
will
increase the probability of winning."
in an earlier chapter that competition
fierce.
The
a
idea
is
to
get
local
for
a
local
1 13
franchise
117
if
was mentioned
is
usually
support so that the franchise
committee looks most favorably on your application.
PAGE
It
investor
Local investors are motivated by the potential
to
make
a
nice
profit for a minimal investment.
STRUCTURE--This
varies
equity for Group W
percentage
but
Cable
the predominating figure seems to be 80%
and
20%
equity
for
allows maximum accounting benefits.
instances manages the system and
is
in
the
partner.
This
Group W Cable, in all
complete
control
of
daily
operations.
EVALUATION--Group
W
as a last resort.
The
influence
they
enters a joint venture with local investors only
have
local
in
partners'
getting
the
value
franchise
Despite this, the joint ventures run smoothly.
to
lies
This
mainly
in
the
for Group W Cable.
is
attributable
the fact that the partners do not have conflicting goals.
Group W
wants to win a franchise and then manage it so that long run profit is
maximized.
local
Group W has legal control of the venture and it is in
investors'
best
interest
to
interfere as little as possible
since Group W has the management expertise.
PAGE
118
the
WARNER AMEX CABLE FRANCHISE JOINT VENTURES
Warner Amex Cable is the subsidiary of Warner Amex
cable
system
operator.
the
multiple
It controls approximately 125 systems, over
95% of which are wholly-owned.
CONTRIBUTIONS--Like Group W, Warner Amex Cable
investor
looks
for
local
the
Warner Amex Cable
to provide help in obtaining a franchise.
provides management expertise and a good investment.
MOTIVATIONS--The primary motivation is to win the
Amex
entered
joint
ventures
with
Warner
franchise.
local partners in Cincinnati and
Pittsburgh because the message from the cities and the
of
strategies
the competition dictated that this would be the best course to take.
STRUCTURE--Warner Amex Cable has an 80% equity share in the Pittsburgh
system
with
the
remaining
20% going to minority organizations.
Cincinnati, the minority partnerships went to civic groups.
In
In
both
cases, Warner Amex Cable was in charge of managing the system.
EVALUATION--Warner Amex Cable has been in the headlines lately because
it
has had financial difficulties with new builds in their large city
franchises.
The difficulties do not appear to be a result in any
of squabbles with the minority partners.
PAGE
119
way
Warner Amex Cable has never joint ventured with another
it
is
considering
MSO
doing just that with Viacom in Milwaukee.
but
Viacom
owns operating franchises in the suburbs and Warner Amex Cable has the
right to wire the city of Milwaukee.
difficulties,
the costs.
specific
agreed
Warner
Amex
Viacom would
to
cable
upon,
would
to
its
financial
Cable is seeking a partner to help defray
provide
operations
also
However, due
capital
in
provide
and
Milwaukee.
management
expertise
The joint venture, if
considerable
administrative
and
marketing cost savings since one staff would take the place of two.
CONTINENTAL CABLEVISION FRANCHISE JOINT VENTURES
Continental Cablevision is the country's tenth largest
approximately 75 systems and 696,000 subscribers.
MSO
with
Like the other MSOs
that have been discussed, Continental Cablevision has entered very few
joint
ventures
but
in
recent years it has entered into a few joint
ventures in large franchises.
discussed
here
Two of these
joint
ventures
will
be
and will be treated separately since the partners for
each venture are considerably different.
PAGE
120
Springfield
In 1981, Continental Cablevision won the Springfield franchise of
60,000 homes as an equal
partner
with
a
group
consisting
of
the
Tribune, Scripps-Howard, and a private investor.
CONTRIBUTIONS--This
joint
venture
came
about after the Springfield
franchise committee rejected all of the first round
invited rebids.
that
they
and
Continental Cablevision and the other group both felt
were the two leading contenders for the bid and that their
chances of winning would be excellent if
bid.
applications
they
submitted
a
combined
So, besides each group contributing half of the cash, they gave
each other a sense that together they were
stronger
than
they
were
apart as far as winning the franchise was concerned.
MOTIVATIONS--As
in
to win the franchise.
better
most of the franchise joint ventures the goal was
Each partner felt that
part
of
the
pie
was
than no pie at all and that combining forces would enable them
to win the pie.
STRUCTURE--Initially, equity was 50% each and the
evenly between the two groups.
Board
was
divided
Currently, after the selling of stock,
Continental Cablevision has 70% of the equity.
PAGE
121
Continental Cablevision has always had the management contract to
operate the system and the Board has been comfortable
control
the
daily
operations.
in
letting
it
Out of all the partners Continental
Cablevision clearly had the most management expertise.
EVALUATION--No crisis has come up in the three years of operation.
is clear that
Continental
Cablevision
has
control
of
this
It
joint
venture.
Chicago
In early 1984, Continental Cablevision won one of Chicago's
franchise
areas
in
a
joint
venture
with
a
group
of
five
minority
businessmen.
CONTRIBUTIONS--The franchise committee made it clear that they
wanted
minorities represented so the minority group satisfied that criterion.
They
also
brought
considerable
reputation to a cable venture
Continental
Cablevision
business
whose
brings
franchise
its
partnership.
PAGE
acumen
122
system
and
area
is
an excellent
63%
expertise
black.
to
the
MOTIVATIONS--Once again, the
motivation
for
the
joint
venture
on
Continental Cablevision's part was to win the franchise.
STRUCTURE--Each
group
has
a
50%
Cablevision will manage the system
always
controlled
by
Continental
share of the equity.
but
some
Continental
subcommittees
Cablevision.
are
not
This could lead to
confusion in the future.
EVALUATION--Since this joint venture has just been
is
no past history to judge it on.
two partners have separate
Cablevision
has
the
and
there
It is likely to succeed since the
complementary
management
consummated
expertise
strengths--Continental
and
the local group has
extensive knowledge of how business is conducted in the community.
CABLEVISION FRANCHISE JOINT VENTURES
Cablevision owns less than ten systems but one of them,
Island,
on
Long
is the second largest system in the country with over 200,000
subscribers.
Scripps-Howard
It
has
in
entered
three
franchise
locations:
Connecticut and Sacramento, California.
PAGE
123
joint
Fairfield
ventures
and
with
Bridgeport,
CONTRIBUTIONS--Scripps-Howard brings
publishing
a
expertise as well as capital.
and
background
journalistic
Cablevision provides system
expertise in both installation and management.
MOTIVATIONS--Unlike the previous franchise joint
that
have
discussed, Cablevision's primary motivation for taking a partner
been
is
ventures
not
to
secure
franchise,
the
that
although
is
certainly
a
consideration, but to be able to have the finances to build it when it
is won.
the
cable
an alternative way of delivering its information.
These
Scripps-Howard, like many publishers is interested in
business
as
joint ventures provide Scripps-Howard with an entry into the
without
the
responsibility
of
industry
managing a business it knows nothing
about.
STRUCTURE--The
complicated
as
structure
far
as
of
the
equity
joint
is
are
ventures
concerned.
The plan allows for
Scripps-Howard to receive virtually all of the tax benefits
with
the
stipulation
joint ventures.
extremely
at
first
that these savings are to be reinvested in the
Eventually,
the
two
partners.
PAGE
124
firms
will
be
50/50
equity
As far
concerned
as
Bob
control
of
of
operations
the
franchises
is
states that it is written into the contracts
Sullivan
president
of
is
Cablevision)
the
general
that Chuck
Dolan
partner.
In other words, both partners have agreed that Cablevision
114
(the
the
is running the show.
partners appear to be happy with the relationship as
EVALUATION--Both
is evidenced by the fact that they are now
together.
Bob
Although
states
Sullivan
in
three
joint
ventures
that Cablevision does not
"want a partner with just deep pockets that brings nothing other
money
to
largest
the
party,"
contribution.
Scripps-Howard's
1 15
It
publishing
it
than
appears that money is Scripps-Howard's
will
be
expertise
interesting
is
put
to
to
observe
how
use in the joint
venture.
Regardless of whether or not cash was the primary motivation
making
the
deal,
the
key
for
element to remember about this series of
joint ventures is that Cablevision is in control.
PAGE
125
CONCLUSION
Before summarizing the
typify
a
what we mean by successful.
the
for new products, a firm's
environment
venture
a
a
account
in the dynamic business environments which are common
that
fact
Initially, we had planned to designate
This definition does not, however, take into
original goals.
that
motivations
success if it had achieved or was achieving its
a
as
venture
joint
and
joint venture, it is necessary to define
cable
successful
elements
crucial
because
it
change
often
it
Hence,
changes.
failure
goals
as
not
did
achieve
term a joint
to
unreasonable
is
competitive
the
goals
that
were
established given assumptions that no longer were accurate.
Taking this into consideration, our definition
joint
is
venture
one
of
a
successful
in which the partners had a harmonius working
relationship with their final goals being achieved or one the road
achievement.
Put
another way, a joint venture that did not meet its
initial goals is still a success in a joint
the
failure
to
to
meet
venture
relationship
if
the goals was caused by incorrect planning and
assumptions and not by any problems with the relationship itself.
Given
this
definition,
Table
8.2
successful and unsuccessful joint ventures.
PAGE
126
lists
our
evaluations
of
Table 8. 2
CABLE JOINT VENTURE EVALUATION.
TOO EARLY TO TELL
SUCCESSFUL
ARTS and Entertainment
Disney Channel
Cont. Cablevision--Chicago
PlayboyChannel
ARTS
Cablevision
UNSUCCESSFUL
Continental Cable-
Lifetime
Spotlight
vision--Springfield
Daytime
Group W Cable Franchises
Showtime-TMC
SportsChannel
Satellite News Channel
TelePrompTer-Hughes
Tri Star
PAGE
127
Warner Amex
MOTIVATIONS
Table
activity
8.3
lists
the
various
motivations
for
joint
venture
given by the joint venture partners covered in this chapter.
Numerous reasons were given for entering programming
joint
ventures.
Four motivating factors were cited most often:
O
O
O
To gain the skills needed to successfully compete
Allow quicker entry into the market
Spread risk
Gain market power
o
System operators,
ventures
for
on
the
other
hand,
tended
a much smaller variety of reasons.
to
form
joint
Joint ventures with
other than local partners were made not only to improve the chances of
winning the franchise but also for complementary skills and capital.
CRITICAL SUCCESS FACTORS
We
have
interviewing
determined
the
from
individuals
studying
involved
these
joint
ventures
and
in putting them together and
running them that four conditions are vital in order for joint venture
partners
to
relationship.
have
an
optimal
chance
These are:
O
Complementary skills
O
O
0
Complementary company cultures
Non-conflicting goals
Clear control
PAGE
128
of
an
effective
working
Table 8. 3
CABLE JOINT VENTURE MOTIVATIONS.
JOINT VENTURE
Disney Channel
Satellite News
Channel
PARENTS
Disney
MOTIVATIONS
Marketing Expertise
Group W Satellite
Access to Film Library
ABC Video
Group W Satellite
Complementary Skills
Reduce Competition
Increase Market Power
Quicker Market Entry
Reduce Capital Outlay
Share Risk
ARTS and
Entertainment
Lifetime
Hearst
Economies of Scale
ABC Video
Rockefeller Center TV
Complementary Skills
Quicker Market Entry
Share Risk
Hearst
Viacom
ABC Video
Complementary Skills
Economies of Scale
Increase Market Power
Share Risk
Cablevision
Washington Post
Complementary Skills
Playboy Channel.
Playboy
Cablevision
Complementary Skills
Spotlight
Cablevision
Storer
Cox
TCI
Times-Mirror
SportsChannel
Showtime-The
Movie Channel
Warner Communications
Warner Amex
Viacom
Cash
Market Power
Share Risk
Economies of Scale
Market Power
Subscribers
Cash
Tri Star
Warner Amex
HBO
Columbia Pictures
CBS
Complementary Skills
Market Power
Warner
Communications
American Express
Complementary Skills
PAGE
129
Cash
Table
8.3 CABLE JOINT VENTURE MOTIVATIONS
(continued).
JOINT VENTURE
PARENTS
Theta Cable
Manhattan CATV
Hughes Aircraft
TelePrompTer
Cash
Win Franchise
Group W Cable
Franchises
Group W Cable
Local Investors
Win Franchise
Warner Amex Cable
Franchises
WACC
Local Investors
Win Franchise
Continental Cablevision Franchises
Continental Cablevision
Local Investors (Chicago)
Competing System
Operator (Springfield)
Cablevision
Scripps-Howard
Cablevision
Franchises
Complementary
MOTIVATIONS
Skills--In
all
of
the
Win Franchise
Local Expertise
Comp. Skills
Complementary Skills
Cash
joint ventures that we termed
successful each partner contributed at least one skill central to
business success of the joint venture that no other partner had.
served
to
the
This
make the partners dependent on one another, and fostered a
spirit of teamwork, since the partners realized, quite well, that they
could not achieve business success on their own.
Also, in cases where
one partner believed that it could do its partner's specialty
it set the stage for conflict and an ineffective relationship.
PAGE
130
better,
Complementary
Company
Cultures--Anyone
country has probably spent some
that
beliefs
are
time
from
different
who
getting
those
in
a foreign
visited
has
to
used
customs
Some people,
America.
others
especially those who have traveled before, adjust quicker than
while
and
never can accept the fact that there are suitable ways of
some
doing things other than what they are used to.
they
Joint venture partners encounter much the same problem when
enter
a
partnership.
It
is crucial that joint venture partners be
able to work together harmoniously.
In order
to
conflicting corporate cultures must be reconciled.
necessary
do
possibly
that,
This is especially
in joint ventures where control is not clearly in the hands
of one of the parents.
We concluded from our research
likely
succeed
to
the
more
that
that
the
joint
same
language.
The
were
more
parents had in common.
example, Group W and ABC are both broadcasting
the
ventures
and
companies
For
talked
result was minimal communications problems
between the parents.
On the other hand, the Group W, Disney partnership
fell
due in large part to a failure to communicate effectively.
people
were
through
The Disney
movie producers, not broadcasters and the two groups did
business in different ways that were never reconciled.
PAGE
131
This is not
different
to
say
businesses
that
a
joint
will not be successful.
The key
working well as did Daytime and ARTS.
partners
other
in
all
before
prospective
of
and
venture
between
firms
in
Tri Star appears to be
element
is
that
the
these joint ventures had either dealt with each
thus
partners
were
or
familiar
had
with
recognized
the
this
habits
of
their
issue as a potential
problem and have taken steps to adapt.
We
have
cultures
concluded
that
companies
with
different
corporate
can work effectively as joint venture partners but that they
have an uphill battle in front of them.
when the firms have done business
before
The problem is eased somewhat
and
it
causes
the
least
trouble when the attitudes of the potential partners are similar.
Non-conflicting
Goals--In
all
of
the
joint
ventures
successful, the partners had goals which, even if not
not
conflict.
This
is
not
would
to
agree
did
surprising since it does not make much
that is detrimental to your goals.
the partners
were
identical,
sense to enter an arrangement with a partner that wants to
goal
that
loosely
achieve
a
A common occurrence was that
worded
objectives
and
then
discover when the work started, either that the true objectives of the
separate
partners were not similar or that they disagreed on the best
way to achieve the goals.
overcome
when
one
of
These disagreements were more likely to
the
be
partners had the power to make the final
decision.
PAGE
132
Clear Control--The ingredient that emerged time and again as being the
most useful factor in determining
the issue of control.
involved
one
the
the
success
of
a
In
all
of
venture
In all of the successful cases except
(Tri Star) there is no doubt about which partner
operation.
joint
the
has
control
of
joint ventures that we have termed
failures there has been considerable doubt over which partner had
the
final say in certain decisions.
We therefore feel that it is paramount for the control issues
to
be decided entirely to the satisfaction of both parties before a joint
venture
Whenever possible, one party should be
is signed.
agreement
We
given the right to have the final word in all decisions.
that
firms
many
are
reluctant
realize
give away that power but in our
to
sample the joint ventures that have lasted have been those
where
one
partner was in control.
COMPARISON WITH THEORY
For the most part, our findings
motivations
and
regarding
the
We have seen that the
growth
reasons
structure
cable industry matches the profile given in the literature of
an industry which is prone to forming joint ventures
high
venture
joint
success factors coincided with joint venture studies
done concerning manufacturing firms.
of
cable
industry
mentioned
with
the
several
most
PAGE
high
frequently
133
since
it
entry barriers.
for
entering
is
a
The four
joint
ventures--complementary
skills,
risk spreading, quicker market entry
and attainment of market power--were all listed as reasons for forming
joint ventures in the literature.
We have concluded that, just as the literature maintains,
necessary
to
have
complementary
skills,
and
it
is
an "impedance match"
between the cultures of the partners if a joint venture is to
have
a
good chance of becoming a viable entity.
Our research on the cable industry has also led
two
success
factors
that
get
us
to
identify
little emphasis in the joint venture
literature--non-conflicting goals and the control
issue.
These
are
very closely related since we found that where goals conflicted and no
one
party
world.
a
had
total
control, the partnership was not long for this
When it has been agreed that one partner is in charge that
sign
that
the
partner conceding the control feels that the first
partner's goals are fairly well in line with
that
most
is
successful
its
own.
Our
finding
ventures are ones where one partner is clearly
established as the controlling partner, coincides quite well with
the
finding cited in chapter 3 that chemical company joint ventures of two
partners are more stable when the equity split is 51/49.
Finally, although joint venture types have not been emphasized in
this thesis, it is interesting to note that the joint ventures
by
system
general
operators
to
win
franchises
types--market/distribution,
production/mining,
and
formed
do not fit any of the four
R&D
exploration,
construction/land development--covered in the
PAGE
134
literature.
We have classified
these
political joint ventures.
PAGE
135
franchise
joint
ventures
as
9
VIDEOTEX INDUSTRY INTRODUCTION
9.1 History and Definition of Videotex
In reality, no videotex system has "full
Only
a
system
service"
that provides text, graphics, video and audio two-way
communication will truly be able to offer the complete
five
general
types
of
videotex
transaction processing, messaging,
services
(see
capabilities.
Table
9.1).
services:
of
the
information retrieval,
computational
However,
range
and
telemonitoring
four quite different types of
videotex systems have developed for particular industries that provide
one or more of these services:
O
The Cable Industry
O
The Personal Computer Industry
O
The Financial Industry
O
The European, Japanese and Canadian Governments
The economics of videotex predicts that these systems will
be
compatible.
Many
ultimately
signs of the emergence of this single standard
have begun surfacing.
PAGE
136
Table 9.1.
VIDEOTEX SERVICES.
11 6
DESCRIPTION
TYPE OF SERVICE
NAME OF SERVICE
Information Retrieval
Electronic publishing
Electronic newspapers,
newsletters, magazines
encyclopedias, books, etc.
Library/reference service
Specialty database access,
electronic catalog.
Community services
Community, transit/travel,
government, housing,
shopping information.
Health services
Medical, first aid,
poison control hotline
information.
Entertainment services
Electronic jukebox, Ondemand TV, electronic
entertainment hotlines.
Foreign language services
Foreign language translations of information,
captioning of TV programs.
Directory services
Open or closed systems for
providing listings of
employees, buildings,
stores, hours of service,
telephone numbers.
Education services
Course listings, computer
assisted instruction,
special services for home
.bound students, supplemental materials for
education TV programs,
do-it-yourself training,
literacy training.
Advertising services
Electronic yellow pages,
Supplement to TV ad.,
classified advertising,
display advertising
PAGE
137
Table 9.1 VIDEOTEX SERVICES
(continued)
TYPE OF SERVICE
NAME OF SERVICE
TRANSACTIONAL
Financial services
Electronic checkbook,
funds transfer, credit
cards, stock and bond
trading, etc.
Sales transactions
Electronic catalogs that
allow purchase of items.
Entertainment transactions
On-line gambling,
electronic box office.
Electronic Mail
Point-to-point or pointto many messaging.
Conferencing
Textual real-time
communications.
Referenda
Citizen input to gov't
Closed user group services
Consumer action groups,
special interest groups,
business organizaticns,
communicate in private
part of system.
Game services
Video games downloaded
to home computers.
Computing services
For additional computing
power.
Information storage
Private files.
Telework
Text editing, file maintenance, data entry and
analysis as extension to
the office.
Home security
Remote fire sensors and
burglar alarms for police
and fire protection.
Health and saftey monitors
Assist in at-home care
with ECG, blood pressure
remote readings.
Energy management
Control and regulation of
household and business
energy use.
Meter
reading.
MESSAGING
COMPUTING
TELENONITORING
PAGE
DESCRIPTION
138
9.1.1 The Cable Industry
Two way communication of textual and
services,
videotex
called
back
mentioned
was
visionary cable equipment suppliers such as
in
also
sixties by
the
Instrument,
General
who
about the future uses of cable in their annual reports. 117
speculated
subsidiary,
In 1972, a Warner Communications Inc.
have
information
graphics
the
performed
experiment
first
may
services
in
This experiment involved linking up
collaboration with Mitre Corp.
a
Reston, Virginia to a computerized cable system through
in
community
videotex
in
Cable
Warner
which home users could receive many forms of the typical five videotex
computing
information retrieval, transactional, messaging,
services:
and telemonitoring.118
The recession of 1974 - 1975 caused Warner Cable to abandon
project
until
1977
when
they established a complete, fully working
model videotex system in Columbus, Ohio called QUBE.
of
system
this
franchises.
was
this
The
development
clearly a strategy to win the large urban cable
In an attempt
add
to
credibility
to
these
franchise
that would cost hundreds of millions in capital investment,
proposals
Warner joined forces with a financial power, American Express, to form
Warner Amex Cable Communications
won
such
urban
franchises
Pittsburgh. 1 1 9 Furthermore,
develop
(WACC) in 1979.
as
they
Manhattan,
forced
competitive videotex systems.
PAGE
139
the
As
Dallas,
other
a
result,
Milwaukee
major
MSOs
WACC
and
to
The competition for franchises
forced acknowledgement of a truely powerful technology, videotex.
9.1.2 The Personal Computer Industry
Still another form of videotex
microcomputer
grows.
owners
is
News/Retrieval
other videotex systems.
onto
by
and the Dow Jones
which provide many of the same services as
For example, a
microcomputer
can
user
pay
debts
to manage an investment portfolio or the home
through
an
bank;
on-line
converse with others using the system.
must
of
log
an information utility to get the news, a special food recipe or
a stock quote;
to
-
owned
like The Source,
Compuserve, owned by H & R Block;
Service
number
These curious and industrious users log
into the so called information utilities Reader's Digest;
the
as
emerging
be
textual
compatible
or
budget;
to send messages and
However, since these
services
with the various home computers, they only offer
(ASCII) two-way services.
12 0
This has limited
the
acceptance
of these services because the price is carried completely by the user.
PAGE
140
9.1.3 The Financial Industry
service
Another approach to videotex has been taken by financial
as a way to reduce the costs of completing transactions and
companies
participated
in
have
Sears
Thus, retail companies such as
of providing information.
numerous videotex trials 1 2 1 and the major banks have
developed some 175 to 200 automated teller machine networks across the
country
or
have
computers.122
five
general
The
home
through
services
banking
home
offered
home banking services often offer many more of the
of
types
videotex
services
than
transaction
just
However, once again these services allow two-way
processing services.
communication of only textual information.
9.1.4 The European, Japanese and Canadian Governments
Meanwhile, videotex in other developed nations
since
look,
different
text
videotex
in
1980
a
terminals
been
have
commitment
full
on
a
strongly
graphics
to
full
graphics
when they decided not only to develop a commercial
videotex system, now known as the Antiope
videotex
taken
system was offered by British Telecom in 1979.123
Also, the government of France made
videotex
services
PRESTEL, the largest and oldest
government-supported.
and
these
has
in
public
System,
but
also
to
use
places to give the public access to a
PAGE
141
Japan's
1990-124
by
France
complete electronic phone directory for
telephone and telegraph company also introduced a graphics and
public
system.
PRESTEL
125
the
to
similar
was
that
80s
early
textual graphic system in the
Canada has developed and begun marketing a higher
resolution graphics and text videotex system known as Telidon.126
in
The Canadians state-of-the-art
given
in
National
the
these
of
important
Standards
Level
Presentation
moves
Institute's
Corporation
and
one of the top ten cable MSOs,
Infomart,
major
a
videotex
been
The
standard.
most
standard was the American
a
approve
to
Protocol
a
of
emergence
acceptance
of
North
the
American
Standard, a modification of the Telidon
by
endorsed
standard offered by AT & T and
Electronics
has
approval by numerous vendors in the United States, which
broad
may result
services
videotex
National Cash Register.
Times Mirror
software
videotex
like
companies
127
joined
has
Digital
Furthermore,
forces
with
developer in Canada, to begin
offering full graphics and textual two-way services in the Los Angeles
area.
will
At least three other services
be
of 1984.
joint
offering
NAPLPS
full
offered in particular American geographic markets by the end
To top this off, IBM, Sears and
venture
CBS
recently
being
offered;
several years.
will
be
128
announced
a
develop and market a videotex system which will be
to
fully compatible, and possibly more advanced than the
now
videotex
systems
however, their system will not be available for
Since three out of five of these
provided
NAPLPS
by
joint
ventures,
PAGE
142
we
will
videotex
services
concentrate
our
discussions around NAPLPS videotex services which offer full text
and
graphics.
9.2 The Components of the Videotex Industry
The videotex
industry
is
usually
as
described
three
having
components:
O
O
O
The Information Supplier
The System Operator
The Communications Network Supplier
components
These
industry:
to
similar
the three components of the cable
the program supplier (the information
system
(the
are
operator), and the satellite company
network supplier).
provider),
the
MSO
(the communications
Although we will be focusing our discussion on the
videotex system operator, a thorough discussion of these components is
necessary to understand the reason that most
of
the
full
text
and
graphics videotex system operators are joint ventures.
9.2.1 The Information Supplier
The information supplier
usable
supplies
form
this
distribution.
(i.e.
gathers
database
to
collects
and
the
and
assembles
data
into
a
and
then
operator
for
processes
information)
videotex
system
Information suppliers should be recognized as suppliers
PAGE
143
to
the
videotex
communications network supplier.
service
uses
defined
by
upstream
a
two-way
information provider;
for
videotex
systems
of the system operator and the
composed
industry,
Since
connections
to
communication
every
user
distribute
system),
videotex
a
information
every
user
(as
is
an
however, the first and most important suppliers
are
information
already
networks, like the cable or newspaper networks.
suppliers for other
To enter the videotex
information supplier business these organizations
putting
of
have
simply
begun
their information into an electronic database compatible with
videotex systems.
These include four types of organizations:
o
o
o
Publishing companies
Service organizations
Advertisers
o
Special-interest organizations
9.2.1.1 Publishing Companies
journals,
These companies provide newspapers, magazines,
videotapes,
records,
computer
software and movies.
their information either through direct
stands,
mailorder
houses,
and
book,
channels
such
books,
They distribute
as
newspaper
record and computer stores or
through more indirect channels such as movie theaters, television,
radio.
Videotex
or
to these companies is simply another direct channel
for distribution of their information.
PAGE
144
9.2.1.2 Service Organizations
Service organizations provide financial,
wholesale
retail,
other transactional services, as well as consulting services.
these
services require the distribution of information.
consider a financial service company that provides
salesmen
with
company
reports,
economic or market statistics.
make
its
and
Each of
For example,
customers
or
stock quotes, investment advice and
Each transaction that these
companies
also involves supplying information to buyers and suppliers in a
two-way communication setting.
as
videotex
Therefore, service
organizations
see
a means of reducing their information distribution costs
to remain competitive.
9.2.1.3 Advertisers
Advertisers provide information about their products to potential
customers.
and
With the implementation of graphics into videotex
systems
as the number of users of videotex systems increases, advertisers
can directly benefit from distributing their
videotex
systems.
In
fact,
product
information
on
advertisers will be willing to pay for
their use of the system to defray the cost of
while increasing the number of users.
PAGE
145
the
videotex
services
9.2.1.4 Special-Interest Organizations
These organizations provide information to their
form
of
newsletters,
other information
information
to
journals,
providers,
videotex
books, etc.
meetings,
special-interest
in
members
the
As with the
organizations
supply
systems to reduce the costs of distributing
their information.
9.2.2 The System Operator
as
The system operator manages the videotex services
channel
for
provide
information
the
by
access
buyers
two-way
These system operators access
information distribution.
and store the databases generated
a
to
suppliers
information
these
databases.
Thus, the
system operator is interested in how the information is received
the
information
how
suppliers,
it
is
stored
and
and
from
accessed
for
between
the
transmission, and how information buyers are billed.
acts
Because the system operator
information
supplier
and
the
as
information
a
middleman
buyer,
the relationship
between information supplier and the system operator is quite complex.
Expertise in the service and publishing industries may
close relationships with information suppliers.
and
communications
orientation
PAGE
improve
these
Furthermore, computer
is essential for the videotex system
146
operator since these technologies pervade every strategy affecting the
operations of the connection between information supplier and buyer.
9.2.3 The Communication Network Supplier
The communications network supplier transmits the electronic form
of information from information supplier to system operator
operator to information buyer.
systems
television, packet switched or switched telephone,
radio,
multipoint
The cost of two-way
satellite.
and
television
communication
technologies;
telephone
or
systems,
distribution
from
The network supplied can be a
combination of seven different communications technologies:
FM
and
is
broadcast
television,
cable
direct
lowest
therefore,
broadcast
for
these
cable
two
communication network technologies have received the widest acceptance
for use in videotex systems.
At the moment, one of the major costs of videotex systems is
cost
means
of
sending
that
industry
and
the
its
evolution
effect
immensely important to
Thus,
through communications networks.
information
the
of
on
deregulation
communication
growth
of
in
the
the
This
communications
cost structures will be
videotex
systems
operators.
close relationships between the communications network provider
and the system operator will increase the likelihood of
videotex system.
PAGE
147
a
successful
10
VIDEOTEX INDUSTRY STRUCTURE
used
Since we
describe
the
competitive
Porter's
of
structure
to
using
technique.
same
this
the cable industry is maturing, the videotex industry is in its
infancy.
This forces us to look at the videotex industry as a
services
programming
in the cable industry) and system operators
(analogous to cable system operators in the cable industry).
of
both segments
videotex
the
industry
videotex
are
companies
single
(analogous
industry rather than breaking it into information providers
to
12 9
cable industry, we will compare the
the
cable industry to the videotex industry
While
technique
analysis
the
exist,
do
Although
prominent
vying for positions in the system
presently
1950s,
60s
and the early 70s was predominantly composed of system operators.
The
development
the
of addressable converters and satellite communications in
70s
late
programming
made
pay-cable
services
possible
and
services component of the cable industry.
the technology is
videotex
the
Similarly, the cable industry in
operator industry.
already
available
to
allow
the
created
the
However, since
growth
of
the
information provider industry, once systems become available
PAGE
148
for the delivery of videotex information, this industry
begin
should
growing quite rapidly in comparison to the cable industry.
10.1 Barriers to Entry
from
expected
be
As would
an
industry,
emerging
the
However,
barriers to the videotex industry are generally quite small.
as
firms
begin
entering
begin developing as
entry
this industry by 1985, entry barriers will
of
economies
identification
brand
scale,
and
experience curve effects become important.
10.1.1 Economies of Scale
eventually
Although
of
economies
recognized.
scale,
videotex
the
these
economies
industry
just
are
to
beginning
be
The costs of bringing information suppliers in touch with
size
the right videotex users will decrease as the
system
experience
will
of
the
videotex
This effect comes from the fact that the computers at
grows.
the heart of the videotex system become more efficient as they grow in
size.
a
For instance, a videotex system for sixteen users might require
$4000
investment
multiplexers
or
per
however,
user;
controllers,
32
users
system for an investment of only $2500 per
PAGE
149
simply
by
may
more
adding
be supplied a videotex
user.
We
noted
a
very
similar
situation
cable system operators who can add additional
for
subscribers at a low variable cost compared to a high
fixed
cost
of
the initial investment.
10.1.2 Brand Identification
Early entrants to the
industry
videotex
greatest advantage from brand identification.
of
the
expect
to
get
their
In fact, presently four
five videotex system operators are rushing to be the first to
make major commercial introductions around
system
potential
they
country.
The
other
operator, the IBM, CBS, Sears Roebuck joint venture
can expect to benefit from the strong
therefore,
the
can
reputations
of
the
partners;
afford to be slow in introducing their videotex
service.
10.1.3 Experience Curve Effects
Although experience curve effects will be important in
future,
presently
very
On the other hand, the ability
to gain experience in managing relations with each of
the
videotex
near
few organizations have had enough experience
with videotex to build entry barriers.
of
the
the
components
industry may have stimulated the formation of joint
PAGE
150
Such joint ventures have
ventures in this industry.
might
have
taken
decades to amass;
experience
that
thus, they are further along on
the experience curve than if they had been started by only one of
Furthermore,
partners.
the first joint venture that appeared in the
videotex industry probably motivated others
since
the
to
form
joint
ventures
they would otherwise be at a disadvantage with respect to their
position on the learning curve.
10.1.4 Capital Requirements
Unlike the cable industry, only a small investment is required to
become a videotex system operator.
For instance, the hardware
for
a
system that can handle up to 24 simultaneous users can be obtained for
approximately
$50,000.
With the personnel required to manage such a
system, the annual cost of running this system costs only
year.
million.
startup
Even
$150,000
a
large public systems can be established for less than $1
These figures are
companies.
well
within
the
limitations
of
small
Thus, capital costs do not create entry barriers
to the videotex industry.
PAGE
151
10.2 Existing Rivalry
With only four companies offering full NAPLPS
by
the
of
end
Present participants are keeping
competition
operations
establishing
by
in
separate
This may be the result of the newspaper publishing character
cities.
of
services
1984 in four different geographic areas in the U.S.,
rivalry does not yet seem important.
away from the
videotex
newspapers
city
major
Few
participants.
these
compete with other papers in the same city.
vigorously
have
had
The newspaper
partner in each of the videotex joint ventures may be afraid to try
move
competitive
against
other
lack
they
because
operators
to
a
the
competitive expertise.
This lack of
industry
since.
advertisers,
it
provides
government
be
may
competition
a
regulators
beneficial
consistent
and
to
front
financiers.
the
to
videotex
potential
Eventually,
however, four factors will contribute to an intense competition in the
videotex market.
0
0
0
Numerous competitors
Lack of switching costs
Capacity augmented in large increments
0
Diverse competitors
PAGE
152
10.2.1 Numerous Competitors
The low barriers to entry and the
service
industries
geographically
will
create
competitive
competitors in one locality.
the
numbers
numbers
of
interested
the associated computer, communications, publishing and
in
companies
large
industry
companies
and
with
a
least
hundreds
two
or
of
three
The intensity of competition created
differentiation
force
will
an
and
eventually
companies will dominate the industry as multiple system
by
several
operators
or
information providers.
10.2.2 Low Switching Costs
Switching costs will always
a
because
be
low
in
the
videotex
industry
user only has to dial a different phone number -
a process
that will soon mean the depression of only one button videotex
services
suggested
to
be
of
another
important
system
switching
banks and the cost of subscribing to
these
will
diminish
as
a
operator.
costs:
service.
Two
to receive the
factors
the cost of switching
However,
both
the competition in the industry grows.
necessary acceptance of standards such as NAPLPS makes this
switching possible.
PAGE
153
are
low
of
The
cost
10.2.3 Capacity Augmented in Large Increments
Capacity additions
marketing
efforts
to
will
fill
be
disruptive
added
unused,
as
firms
capacity.
their
boost
However, the
marketability of computers, the major fixed asset directly involved in
videotex, allows these firms to avoid chronic overcapacity by
selling
off unused machines.
10.2.4 Diverse Competitors
Since computer, publishing, communications and service industries
are considering
diversity
of
major
players
investment's
in
the
videotex
in this industry will probably be large.
result, no "rules of the game" will be agreed upon.
sophistication
of
industry,
foreign
Furthermore,
the
As a
the
firms such as British Telecom, French PTT
and Infomart make the strategic environment even more complex.
PAGE
154
10.3 Substitutes
Videotex must overcome the commonly used services that substitute
for videotex.
Most
A list of these substitutes is
given
in
Table
10.1.
believe that once consumers see how cheaply and efficiently they
can get services through
readily.
A
Booz,
a
Allen
videotex
and
system,
switching
will
occur
Hamilton study reported that the most
popular services were household budgeting, personal calendars,
games,
travel reservations, electronic messages, education, banking, shopping
and
monitoring
of
customers will
not
burglary
use
and
videotex
fire.
for
These results suggest that
services
that
offer
little
advantage over presently used services such as newspapers.
10.4 Buyer Power
Buyers of videotex services will have strong
Two
bargaining
characteristics of videotex give the buyers this power:
monthly
services,
cost
like
relative
phone
to
and
more
familiar
monthly
powers.
the high
communications
cable TV services, and the commodity-like
nature of videotex.-
PAGE
155
Table
10.1.
SUBSTITUTES
OF VIDEOTEX SERVICES.1
VIDEOTEX SERVICE
3 0
SUBSTITUTES
Newspapers
Magazines
Information Retrieval
Television
Broadcast
Cable
Subscription TV
Audio cassettes
Records
VCR and videodisc
Radio
Telephone
Yellow pages
White pages
Paper files
Transactional
Checks
Cr.edit cards
Purchase orders
Computerized billing
and payments
Catalog shopping
Telephone bill paying
Telephone shopping
Messaging
Telephone
Mail and private carriers
Telegraph
Teleconferencing
Facsimile
Electronic mail
Specialized common carriers
Computing
Calculators
Video games
Electronic games
In-house data processing
Personal and home computers
Timesharing
Stand alone alarms
Autodial alarm systems
Security patrols
Telemonitoring
PAGE
156
10.5 Supplier Power
now
The suppliers of this industry include each of the companies
considering
entering
the
computer, communications,
industry
videotex
and
publishing
as
operators:
system
service
This
companies.
However,
means that the videotex industry has thousands of suppliers.
the communications, service and computer industries are dominated by a
few
such
companies
as
IBM,
and
T,
&
AT
competitors may find these supplier forces affecting
For
upon
instance,
the
announcement
of
Thus, videotex
Sears.
strategy.
their
the IBM, CBS, Sears joint
locked
venture, many firms were concerned about whether they would be
out
of
the videotex markets.
This concern probably caused increased
interest in defensive investments in videotex.
Recent approval of the
NAPLPS standard has decreased the potential for supplier power.
10.6 The Future Structure of the Videotex Industry
The future
pictured
with
structure
of
the
videotex
industry
can
best
Like
a comparison to the radio broadcasting industry.
the future videotex
industry,
the
radio
broadcasting
industry
characterized by low barriers to entry and low switching costs.
be
is
Thus,
the radio dial has numerous channels, each with a quite differentiated
strategy
to
attract
and
hold
listeners.
Likewise,
industry will be made up of numerous companies which
PAGE
157
can
the videotex
be
reached
simply
machine.
by
pushing
a
different
button
on
a phone or cable access
Each videotex company will provide differentiating
services
that attracts and holds a segment of the users of videotex services.
PAGE
158
11
JOINT VENTURES IN THE VIDEOTEX INDUSTRY
entrant
The large number of skills needed to be a successful
of
the videotex industry has forced the formation of many joint ventures.
11.1
Table
lists
some
Group,
these joint ventures associated with the
Jay Borden, a communications consultant
videotex industry.
Yankee
of
said
that
videotex
is
easily
more
operation,
computer
by
done
The
an
communications
organization with two or more of the following skills:
architecture design and
with
design
operation,
and
or transaction processing.131 One other reason may explain
publishing
the motivations for forming joint ventures in the
videotex
industry:
videotex joint ventures are formed to obtain rapid national coverage.
We interviewed representatives
joint
ventures
--
from
the
main
to
determine
motivations and the joint venture structure.
partner's
one of these joint ventures is in an embryonic stage
discuss
only
operator
Viewdata Corporation of America, Videotex America,
Keycom Electronic Publishing and IBM/CBS/Sears --
we
system
of
each
Since all but
development,
the partners contributions and motivations, and the
structure of the joint ventures.
PAGE
Instead of an evaluation section, we
159
Table 11.1.
VIDEOTEX JOINT VENTURES.
CHILD NAME
PRODUCT
PARENTS
CONTRIBUTION
Videotex
System
Operator
IBM
CBS, Inc.
Sears & Roebuck Co.
The System
Info & Entertainment
Transaction services
Infomart
Videotex
System
Operator,
Videotex
Software,
GRASSROOTS,
TELEGUIDE.
Torstar Corp.
(??%)
Southam Inc.(??%)
Videotex America
GATEWAY,
GRASSROOTS,
National
Advertising
Agency,
Videotex
Consultants
Infomart(50%)
Times Mirror(50%)
GATEWAY
(Local Name)
Videotex
System
Operator
Videotex America(20%) Nat. ad. agency/Money
Local Affiliate(80%) Local content and
advertising/Money
GRASSROOTS
California
Videotex
System
Operator
Videotex America(33%) Nat. ad. agency/Money
Bakersfield
Local content and
Californian(3.3%) &
advertising/Money/
McClatchy Newspapers Nat. farm ad. agency
(33%)
GRASSROOTS
America
Videotex
System
Operator
Videotex America(25%) Nat. ad. agency/Money
Agway Inc.(25%),
Local content and
CENEX(25%), &
advertising/Money/
S. States Coop(25%) Nat. farm ad. agency
Viewdata
Corporation
of America
Videotex
System
Operator
Knight Ridder
AT & T
Content/Money
Technology
VIEWTRON
(Local Name)
Videotex
System
Operator
Viewdata CA (??%)
Nat. Content/Videotex
Experience/Money
Local Content and
advertising/Money
Keycom
Electronic
Publishing
Local Newspaper Co.
Videotex
System
Operator
Centel
Honeywell
News America
PAGE
160
Software/Expertise
Image/Content exp.
Administration/Money
Computer Technology
Content
Table 11.1.
VIDEOTEX JOINT VENTURES (continued).
PARENTS
CHILD NAME
PRODUCT
Warner Amex
Cable
Communications
Videotex
System
Operator
(QUBE)
??9
CONTRIBUTION
Warner Communications
Inc.(50%)
The System/Money
Shearson Lehman
American Express(50%)
Marketing expertise/
Money
Downloading Warner Communications
Inc.
Electronic
Activision
Games and
Two-way
Game Service
Full motion
Videotex
System
Warner Communications
& Four other partners
Hardware expertise
Software expertise
Only made it to
negotiation stage
Operator
will use the
conclusions
from
our
cable
industry
study
to
make
recommendations to each of these joint ventures in the next chapter.
PAGE
161
AT & T and VIEWDATA CORPORATION OF AMERICA
Although VCA is not a true joint
venture
between
two
partners
that share an equity share in VCA, it involves a cooperative marketing
agreement
Knight
between
result in a joint venture in
carried
out
by
Knight
the
Ridder
future.132
and
The
initial
was
test
AT & T in 1980 in Coral Gables,
reactions
Florida.
This test determined the
phase
and 5000 households in phase II.
I
and AT & T which may
Ridder Newspaper Co.
of
700
households
in
Following the test, a full
scale market test was rolled out on November 1, 1983. 133
CONTRIBUTIONS--AT & T has been providing the terminals,
expertise
and
customer
service center, while Knight Ridder has been
providing all the capital for
content
for
the
concerted effort
VIEWTRON
to
communication
market
the
VCA,
Both
service.
the
videotex
terminals
software
companies
and
the
are
and
the
making a
service
in
a
package.134
MOTIVATIONS--Knight
Ridder made the joint marketing agreement with AT
& T because they "don't want to be in
said
Jay
the
terminal
sales
business,"
Borden. 135 AT & T uses this cooperative marketing agreement
as a way to test the market for its videotex terminals.
PAGE
162
13 6
AT
STRUCTURE--As mentioned above, the relationship between
&
T
and
Knight Ridder does not involve the creation of a company in which both
companies
Ridder, Viewdata
Corporation
with
arrangement
Instead, a wholly-owned subsidiary of Knight
equity.
have
America,
of
made
a
contractual
This agreement describes the phases of the
AT & T.
market testing to be completed in south
roles
has
Florida,
the
interests
of each partner in joint advertising, promoting and selling the
videotex service and terminal package,
and
leaves
open
the
direction of the relationship after this initial testing phase.
an
and
equity
relationship
might
be
future
Thus,
the outcome of this relationship.
Knight Ridder could market any other terminals
independent
of
AT
&
T. 137
COMMENTS--The
Berkman said,
head
of
AT & T's relationship with Knight Ridder, Sam
"The greatest impediment to a
successful
joint
venture
is the changing of the individuals in each partner who are responsible
for
implementation
changes,
major
of
the
joint
issues must be rehashed that
personnel
Each time an individual
venture.
were
once
his
Through
changes throughout AT & T caused by the divestiture,
and other personnel changes occurring at Knight
and
settled."
contemporary
with
Knight
going. 138
PAGE
163
Ridder
Ridder,
kept
the
Sam
Berkman
relationship
VIEWDATA CORPORATION OF AMERICA AND LOCAL PAPERS
VCA intends to form true
publishers
such
as
joint
Affiliated
ventures
local
with
Publications,
newspaper
publisher of the
the
Boston Globe, to develop a national videotex service offering.139
CONTRIBUTIONS--In the local
videotex
software,
system
joint
ventures,
VCA
expertise
operating
information database while the local company will
will
and
the
provide
the
provide
national
the
local
information and capital. 140
decided
MOTIVATIONS--They
to go into joint ventures in the the local
markets because they lack all the
someone
who
experience.
and
they
want
141
of
joint
local
a
joint
at
joint venture.
this
structure
venture
will
involve
the
venture child in which both VCA and the local
newspaper concern will have equity.
uncertain
information
knows the local market and who has the local advertising
STRUCTURE--The
formation
local
time,
Although the percentage split
is
the local partner will have control of the
142
PAGE
164
AT & T and CBS, INC.
with
After beginning the market test
to
forced
directory
stop
with
relationship
effort
an
to
Southwestern
Knight
develop
Bell,
AT
and
developed
T
being
yellow page
electronic
an
&
Ridder
a
joint
This strategic alliance has already been
with CBS, Inc.
disbanded after the initial market test in Ridgewood, N.J.143
for
CONTRIBUTIONS--In this arrangement, CBS provided only the content
the
videotex
T provided everything else including
&
AT
services.
hardware, software, and marketing. 44
used
MOTIVATIONS--AT & T
markets
for
this
joint
the
develop
AT & T thought this
Furthermore,
terminals.
videotex
to
relationship
would be a way to use the hardware and the software that they could no
longer use in the development of an electronic yellow
with
Southwestern
Bell.
14 5
page
directory
CBS probably thought this would be a way
for them to learn about videotex
and
to
make
an
investment
in
a
videotex system operator.
STRUCTURE--Like
AT
relationship with CBS
agreement
&
T's
was
relationship
purely
a
with
contractual
Knight
Ridder,
arrangement.
its
The
layed out the roles of each partner in performing the field
test in N.J.
and the future was left open.
PAGE
165
When time came to make
a
commitment
to
further
and market introduction, the relationship was
terminated. 146
COMMENTS--The breakup of this strategic alliance probably stemmed from
&
the differences in cultures between AT
entertainment
company,
CBS
tends
methodical.
manner while AT & T is more
confirmed
by
press
to
that
reports
CBS
T
do
CBS,
and
business in an aggressive
This
assumption
thought
been
has
AT & T did not know
anything about marketing.147 An aggressive company like CBS
expected
an
As
Inc.
would
be
to release such rumors after a relationship with the passive
marketing style of AT & T.
Another problem experienced
were not congruent.
its
videotex
operator.
by this
goals
joint venture was that their
for
AT & T simply wanted to stimulate the market
business
by
helping
CBS
become
system
videotex
a
At this they were quite successful, CBS is in the
videotex
system operator business and they might not have been in that business
if
they
had not had the chance to learn about the industry from AT &
T.148 However, CBS probably intended to use this joint
way
to
build
an
investment
in
incongruent motivations for entering
a videotex system operator.
a
insured the failure of the relationship.
PAGE
venture
166
strategic
alliance
as
a
These
probably
VIDEOTEX AMERICA CORPORATION
Videotex America is a joint venture between Times
multimedia
company
located
in
southern
itself a joint venture of two publishing
joint
venture
was
in
formed
Mirror
California,
companies
in
Co,
a
and Infomart,
Canada.
The
1982 after Times Mirror had purchased
videotex
videotex software and services from Infomart for its initial
trials. 149
brought
CONTRIBUTIONS--Infomart
its
expertise
in
software development and in videotex system operation.
brought
to
videotex
NAPLPS
Times
Mirror
the table its presence in the U.S., an initial investment
in testing the GATEWAY system in the Los Angeles area,
and
marketing
skills. 150,151
Infomart and Times Mirror will use Videotex America
MOTIVATIONS--Both
as a means of investing in
sees
apparently
Infomart
system
videotex
the
operators
Times Mirror to build a reputation in the U.S.
Mirror
brought
to
the
the
U.S.
joint venture as a means of obtaining
Infomart also formed the
sales of its software.
in
joint venture.
joint
venture
with
that a name like Times
Like other citizens of other
nations, Americans prefer to buy products and services from a national
company such as Times
Infomart.
Times
Mirror
Mirror
has
rather
than
a
foreign
company
like
gained a partner who has developed the
PAGE
167
most profitable videotex system today This
system.
relationship
markets
and,
therefore,
their expected returns from videotex investments.
STRUCTURE--Videotex
America
is
public
videotex
increased Times Mirror's chances of
has
being successful in the videotex
Teleguide, a
15 2
increased
,1 5 3
a 50/50 partnership.
headed by James Holly, President and CEO who reports
The company is
to
a
Board
of
Directors
made up of ten people, five from Times Mirror and five from
Infomart.
Penny Jo Welsch of Videotex America, said
terms
of the partnership agreement,
Vice
President
interests with
President
of
of
hardware
Technology
suppliers
under
the
"certain decisions are decided by
a toss of a coin when there is a tie vote."
the
that
who
and
15 4
Under the president
manages
standards
is
Videotex America's
decisions;
Vice
Marketing who markets videotex to national advertisers;
Vice President of
Business
Development
who
manages
program and oversees the involvement with Grassroots. 155
PAGE
168
the
affiliate
VIDEOTEX AMERICA AND LOCAL SYSTEM OPERATOR
become
videotex system operators
Washington
Company
Post
in
a
form
will
area.
D.C.
joint ventures with
GRASSROOTS
videotex
farm
venture with Videotex
joint
of
venture
cooperatives
system
operators
Videotex
America,
in
the
market
will
which
Grassroots
Information
The Bakersfield Californian.
establish
to
U.S.
Sources,
Inc.,
is
a
Inc., a
a subsidiary of
Grassroots America is a joint venture of
Videotex America and three farm cooperatives in the northeast
Agway,
videotex
California
subsidiary of McClatchy Newspapers, and Viewcom, Inc.,
area:
the
in
system
Similarly, Videotex America is also forming
services to farmers across the country.
joint
the
example,
For
localities.
their
America when it decides to begin operating a videotex
Washington,
will
partners when they decide to establish GATEWAY
venture
joint
affiliates. who
developed
has
Like VCA, Videotex America
CENEX,
and
States
Southern
farming
Cooperative,
Inc. 156,157
CONTRIBUTIONS--Both the GATEWAY local
will
contribute
software
and
Videotex
America
a portion of the capital in proportion to the equity
that they receive.
the
partner
from
However, the local system
Infomart
and
purchase
operator
the
national
consulting, management and national advertising agency
PAGE
169
must
license
database,
services
from
The local affiliate partner will provide all local
America.
Videotex
information
visibility
consumer
content,
and
and
credibility,
established advertising contacts.158
to
the
national
represent
as
will market the service to their farmer members as well
GRASSROOTS
joint
The farm cooperatives
service.
GRASSROOTS
the
developing
ventures
the
to
contributions
Videotex America will make similar
interested in advertising to
companies
farmers.159
MOTIVATIONS--The local GATEWAY affiliates look at the joint venture as
a way to gain the experience of a company that has already established
videotex systems in the U.S.
as
ventures
joint
local
these
to gain an investment in system operators
way
a
at
Videotex America looks
across the country and to sell their software and services.
16 0
,1 6
1
The cooperatives investing in GRASSROOTS look at their investment
as a way to offer
service
is
an
important
constantly-updated
to
information
is
that
offers
it
because
members
This
members.
their
to
service
additional
essential
to
unique,
staying
competitive in the agricultural markets.
STRUCTURE--The
Mirror
GATEWAY
Videotex
consumer-oriented
Service
NAPLPS
will
affiliates
introduction
commercial
service.
observe
closely
When
they
of
decide
the Times
the
to enter the
market, they will invest 80% of the capital and Videotex America
PAGE
170
second
will
invest
The equity will be divided similarly.
20%.
However, if some
videotex
independent approaches Videotex America about establishing a
system
operator
one of the cities of an affiliate, the affiliate
in
will have first refusal rights. 162 If the
at
invest
affiliate
decides
to
not
that point, Videotex America will be free to form a system
operator with the independent. 163
The GRASSROOTS joint ventures have been divided equally among the
control
partners, but in both cases the farm cooperatives
of
share
the
joint
three 33% parts and
parts.
venture.
Grassroots
the
major
Grassroots California is divided into
America
is
divided
four
into
25%
164
Both GATEWAY and GRASSROOTS systems are managed by a
group
that
runs the programs computers, builds the database and sells advertising
to
local
advertisers.
The
of
Board
Directors
of
system
these
operators will reflect the equity percentages of each partner.165
KEYCOM ELECTRONIC PUBLISHING]
Keycom was originally established when Centel, a phone and
company
in
the
midwest,
initiated
task
force
composed
of
of
deciding
videotex provided a lucrative business opportunity.
After an
for
representation from several companies
whether
a
cable
affirmative decision, Centel joined
PAGE
forces
171
the
with
purpose
Honeywell,
another
task
with
that they would also need a partner
they
sought
relative
into
to
NAPLPS
and
subsidiary
this
videotex).
recently,
service
teletext
(a
Centel and Honeywell bought
name
the
then
More
Publishing.
Electronic
a
publishing,
subsidiary, Field
their
developing
been
in
experience
because
Communcations,
Field
Electronic Publishing, had
one-way
After deciding
to begin a business in videotex.
member,
force
News
to
changed
was
Keycom
America Publishing, a
Sun-Times,
Rupert Murdoch umbrella organization that owns the Chicago
purchased the remaining share of Field Communications.166
CONTRIBUTIONS--Centel
experience.
staff
the communications and administration
provides
positions,
for
instance.
have
they
According to this plan,
decoder
News
developed
they
terminal through a contract with Honeywell.
uses Honeywell computers and Honeywell will
terminal.
primary
Honeywell has provided the computer
hardware and software support, but Keycom claims that
the
the
filled
manufacture
The venture
the
decoder
America Publishing will provide the content for many
of Keycom's services.167
MOTIVATIONS--Vernon Cain, the
previous
employee
VP
of
Operations
for
Keycom
and
a
of Centel who was involved in the establishment of
Keycom, said that Centel decided to use the joint venture strategy for
two reasons.
First, Centel felt that they did not have all the needed
resources themselves to start up a
PAGE
videotex
172
business.
Second,
the
joint
insured that "all three
strategy
venture
[companies] would be
said Cain. 168
trying to make sure their investment does not fly away,"
thought
Centel
to
commitment
that
a
than
success
a
position
computer
the
in
be
good
a
market.
which
way
try
to
to
electronic
an
is now transmitted to 30 million cable subscribers in
the vertical blanking interval of superstation WTBS.
Communications,
Honeywell
Field Communcations
originally entered the Teletext business by publishing
magazine
more
creates
arrangement.
contractual
clearly thought the joint venture would
maintain
arrangement
venture
joint
a
Replacing
Field
News America considers Keycom a defensive strategy to
protect their interests in publishing. 169
percentage
STRUCTURE--The
investment,
additional
each
company
Board
of
Partners
"meet
that
The joint venture
Board
is
by
chaired
an
representation from each company.
has
more often than called for in the
Keycom.
Bylaws," said Jeffrey Ballowe, a public relations person with
The
each
with
now it stands at 54% for Centel, 30% for
but
Honeywell and 16% for News America Publishing.
a
changes
owns
from
executive
and
Centel
Many of the staff came from
has
either
Centel or Field Electronic Publishing, but the majority have come from
outside
the
parents.
The
investment
approximately $25 million. 170
PAGE
173
up
to
March
1984
was
IBM -
CBS, Inc -
Sears and Roebuck Co.
With the breakup of the CBS/AT &
test
videotex
in
videotex
industry
On 14
February,
joint
venture
all
to
arrangement
went looking for some
participants
in
the
temporarily stunned to hear that three super
were
powers in computers, publishing and
begin
cooperative
N.J., CBS, Inc.
Ridgewood,
partners and found them.
T
services
Although
discussions.
had
it
joined
to
forces
would be two years
before this joint venture would offer any services, its presence as
participant in the industry has changed the industry.'
CONTRIBUTIONS--Sears
and
a
71
Roebuck Co will bring the experience it has
gained as an information provider in several videotex experiments,
as
well as its experience gained through majority ownership of The Hudson
Bay
Co.,
which
IBM
Presumably,
will
establishing the West
probably
content
services.
be
of
successful electronic catalog on GRASSROOTS.
a
be
software
and
hardware
has
the
CBS
various
has
expertise
German
responsible
for
responsible
for
gained
national
providing
entertainment
supplying
from
videotex
the
and
the
their
system.
videotex
experience
CBS
will
commercially-sponsored
information
retrieval
had experience providing similar services in the
videotex test it performed in cooperation with AT & T. 172
PAGE
174
MOTIVATIONS--These have not been
releases
about
the
made
clear
any
in
of
the
joint venture, although it seems clear that each
partner sees synergies between videotex and their businesses.
participating
to
press
increase
its
share
of
the
hardware
IBM
is
market for
videotex systems of which Digital Equipment Corporation currently
has
more than 50%.' 73
STRUCTURE--The only structure decided thus far is that the equity will
be
split
33/33/33
from each company.
and that the company will be staffed by employees
Papes, Jr., an IBM vice president was
Theodore C.
named president and chief executive
Also
joint
the
venture.
a committee with nine members, three from each partner, has been
formed to oversee operations of the
will
the
be
and
chairman
CBS/Publishing group, Peter A.
general
counsel,
Akers, president;
Richard
James
Dean
Liebhaber,
T.
practices.
of
of
officer
K.
CEO,
Derow;
Parker.
Phypers,
P.
IBM
venture.
new
director
Thomas
Representing
Wyman;
and senior vice president
senior
of
administration,
corporate planning, Dean P.
Charles
Phypers;
F.
and
president;
vice
PAGE
175
and
and
development and
business
vice
president
vice president of
Moran;
vice
executive
and treasurer of Allstate Insurance Corp., Wayne E.
of
IBM are John F.
Representing
Sears will be represented by their senior
corporate
President
CBS
Hedien.
president
174
12
CONCLUSION
With
ventures,
we
of
overview
this
will
the
apply
we
knowledge
justifications
videotex industries;
ventures;
and
a
gained
be
ventures in the cable industry and will
parts:
operator
system
chances
their
joint ventures that might improve
analysis
videotex
joint
recommendations to these and future videotex
make
now
the
of
success.
This
from studying joint
broken
down
into
three
for comparing joint ventures in the cable and
for
recommendations
description
videotex
operating
joint
of the characteristics of the perfect
joint venture.
12.1 Justifications for Cable and Videotex Industry Comparison
The best way to explain the appropriateness of
a
comparison
of
the
joint ventures in the cable and videotex industry is to show that
the
similarities
between
these
two
differences.
PAGE
176
industries
outweigh
the
12.1.1 Differences
In making
these
comparisons
between
the
cable
and
videotex
industries, one should be aware of three important differences between
these two industries:
o
Different causes for high competition.
O
Different skills required by each industry.
O
Different competitive elements effect each industry.
Clearly,
the major reason for the formations of joint ventures in the
cable industry
industry;
has
whereas,
ventures in the
necessary
been
the
videotex
to
combat
major
the
reason
industry
is
high
for
to
the
in
the
formation of joint
acquire
numerous
skills
These differences also
run a videotex system operator.
to
competition
dictate how each industry will evolve in the future.
Different causes for
experience
high
high
competition
competition,
-
Although
different
both
mechanisms
industries
cause
the
competition, and, therefore, it occurs in different phases of the life
cycle for each industry.
distribution
Cable industry participants compete for
channels.
These
channels
franchising authorities and satellite companies.
the
satellite
transponders
and
PAGE
franchises
177
controlled
are
Once the
have
been
by
rights
the
the
to
determined,
competition among industry participants focuses
broadcast
services
among
and
television
cable
the
among
choice
determine
the
on
like
substitutes
that
traditional
cable
different
the
forces
programming
that already have access to the cable distribution channels.
motivated
has
channels
This competitive drive for distribution
the
formation of joint ventures in the cable industry.
combination
Because videotex companies can choose among one or a
switched
and
unswitched
communication
channels,
and
because
are
regulated
as
of
broadcast,
channels
survive
carriers, videotex companies can
common
competing
for
distribution
will
compete,
not
in
videotex
companies
development
when
geographically
the
will
Videotex
channels.
early
stages
segregate
of
industry
themselves
by choice to minimize-competition, but rather in later
stages when numerous companies will compete in
Where
or cable
communication
non-cable
the
without
companies
satellite
phone,
competition
in
one
geographic
area.
cable industry has shrunk as the industry
the
matures and develops its local monopolies, competition in the videotex
industry will grow as it matures and videotex firms will differentiate
to fight the competition.
industry will
barriers
cause
also
will
off
as
differentiation
the formation of an oligopoly.
of the high degree
ventures
taper
Eventually, the competition in the videotex
not
of
competition
form
as
will
be
and
high
entry
Because the character
differentiation,
joint
a result of the high competition in the
videotex industry.
PAGE
178
Different skills required by each industry -
skilled
in
operation,
bidding
and
in
for
industries
franchises,
video
in
cable
The
programming.
construction
transaction
processing,
videotex is a broader approach
services,
advertising
to
information
providing
providing.
Since
state-of-the-art
cable
it is forced to find broader expertise in these skills than
required by the
operators
and
and
videotex industry will
initially require expertise in communications, computers,
sales,
require
The cable industry required professionals
types of skills.
different
Both
cable
probably
industry.
These
needs
of
videotex
system
have driven the search for joint venture partners
in the videotex industry.
Different competitive elements effect each industry the
videotex
Unlike firms
industry, firms in the cable industry must compete with
the common carrier communications industries
broadcast
communications,
and
phone
such
as
the
cable
companies
plant facilities
competing
to
a
will be forced to sell their cable and other
communications
company
and
in the videotex system operator business;
operators
As
intensifies,
concentrate
on
or, more likely,
they will relinquish their control of information content to
system
satellite
communications industries.
this competition between these communications industries
either
in
videotex
and concentrate on competing as a common carrier in
the communications business.
Presently, cable companies are the
PAGE
179
only
owners of a communications conduit that are not legally separated from
the
information
fiber optic cable
providing industry.
with
ultra-wide
However, as phone companies lay
bandwidth
and
direct
broadcast
satellite companies begin offering more services at the same cost, the
legal
difference between cable and other communications channels will
become unimportant as cable companies open their channels to more
and
more services to remain competitive.
Meanwhile, other cable companies may choose
to
sell
communications assets to become videotex system operators.
off
their
This seems
less likely since the majority of the assets of a cable company are in
the
communications plant and not in information providing.
They have
more or less maintained a role as an information distributor and
they
will probably choose to continue to be an information distributor with
less
control over the content that they distribute.
Returning to the
comparison of the cable industry to the videotex industry,
industry
distributes
information
mainly
to
the
cable
support a distribution
channel, whereas the videotex industry's only role is the distribution
of information.
PAGE
180
12.1.2 Similarities
However, we think that these industries can be
both
types
of
companies
in
companies
the
business
must
concern
of
because
distributing
with
information.
The
reception
information from programmers just as videotex companies
of
cable
are
compared
themselves
must consider how they can retrieve information from
providers.
Both
types
technologies
for
Furthermore,
videotex
of
companies
find
information
distributing
and
must
cable
the
companies
information
the
lowest
cost
customers.
to
their
are
concerned with the
content of information provided to their customers.
These similarities were examined closely in the discussion of the
Both industries have
structure of the videotex industry.
providers
communications network
industry),
and
coaxial
cable
system
Videotex
in
operators
providers
information
via
providers
cable
industry)
provide
two-way
the
programming
technologies.
in
economic
perspective
include.s
the
an
interactive,
cable
via
services
shows
companies
two-way
that
industry.
PAGE
services
the
These
181
provide
and
various
whereas,
from
mainly
coaxial
the
This industrial
industry
similarities
cable
to
information
environment.
videotex
satellite
from
services
satellite
cable
system operators.
and
numerous types of technologies;
Both types of
consumer
the
(specifically
cable system operators provide one and two-way
video
in
providers
service
programming
(called
information
actually
result
in
a
competitive relationship between the cable and videotex industries.
Other
factors
two
these
industries
both
Although
make
barriers
high
have
similarly.
behave
industries
entry, only high
to
Nonetheless, this similarity is
economies of scale is common to both.
important because it causes high industry concentration and stimulates
joint venture formation.
they
i.e.
Both industries have a local nature and focus,
both
local system operators with a national multiple system operators
have
structure
industry
similar
This
that own percentages of the local operators.
evolved because both industries are concerned with the
has
distribution of information and a decentralized structure, such as the
means
multiple system operator structure seems the most efficient
of
distributing information.
in
Also, both industries seem to be
growth.
phase;
high
cable
The
industry
early
whereas, the videotex industry is at an
growth
phase.
This
life
phases
of
high
at the end of its high growth
be
may
different
cycle
comparison,
stage
as
of
its
well as the
information distribution character, high entry barriers, and the local
nature of both industries, make a comparison
joint
ventures
possible.
growth phase of the
cable
What
was
industry,
similar, but younger videotex industry.
PAGE
182
of
and
videotex
in the early and high
learned
should
cable
be
applicable
to
the
12.2 Recommendations
for operating videotex joint ventures.
With this knowledge of the similarities and
differences
between
the cable industries, we will take each of the videotex joint ventures
described
in
the
previous chapter and make recommendations based on
how well they meet the four criteria we
found
for
successful
joint
ventures in the cable industry:
o Similar corporate cultures or an awareness of their
dissimilarities.
o Complementary skills.
O
Similar goals.
o
An agreement on where the ultimate control lies.
12.2.1 AT & T and Viewdata Corporation of America
We recommend that this cooperative relationship
and
not
develop
as
a
relinquish its desire to
joint
venture,
be
major
a
unless
supplier
AT
of
remain
&
as
such
T decides to
videotex
system
hardware and software for an opportunity to invest in a major multiple
videotex
system
operator.
Only with this change in corporate goals
would both partners have an agreement on the joint ventures goals.
can not accurately assess their present relationship since we
PAGE
183
We
studied
ventures
joint
in
this
not
thesis,
frequently
strategic alliance, mistakingly called a joint venture and
formed
between
This
cooperative agreements.
communications network providers and system operators
or between information providers and system operators (called "gateway
joint
would be an excellent topic for future research.
ventures"),
12.2.2 Viewdata Corporation of America and a Local Newspaper Company
Given an appropriate business climate,
joint
operator
system
ventures
will
be
these
we
suspect
a
successful
introducing videotex services to national markets.
approach to
Both partners have
similar corporate cultures because they are both newspaper
Also,
the
the local
national
companies.
partners bring complementary skills to the joint venture company
company
national content.
interest
local
in
local
brings
brings
videotex
advertising
system
and
operating
The goals will match since both
building
a
successful
content
videotex
and
experience and
partners
system
have
the components are present for a successful joint venture.
184
an
operator.
Furthermore, each joint venture gives the local partner control.
PAGE
the
All
12.2.3 Videotex America
of
two
potential problems.
Mirror does not fit with the
leading
the
become
aware
be
We recommend that the two partners of Videotex America
First, the conservative culture of Times
aggressive
Infomart
aspires
which
Second,
videotex system developer and operator.
control
neither Times Mirror nor Infomart seem to have management
to
of
the joint venture.
Times Mirror
may
already
the
precautions
proper
the differences in corporate cultures by allowing Infomart
concerning
TELEGUIDE
to separately market the
Infomart
put
Mirror
taken
have
in
public
videotex
Times
system.
touch with The Chronicle Publishing Company
U.S.,
which now offers the first public-access videotex system in the
Bay
TELEGUIDE.
Area
that connection.
Times Mirror got only a finders fee for making
because the public videotex system will familiarize the San
strategy,
As Penny Welsch said, "It's real hard
Francisco consumer to videotex.
to explain to people what videotex is real hard.
is
hurdle
to
explain what it is.
a
biggest
the
Then you can sell it."
TELEGUIDE
comes
in
to
joint venture with The Chronicle Publishing Company to market
the home videotex system.
solved
That's
then Videotex America
serves this educational purpose;
sign
America
This strategy also complements the Videotex
the
conflict
Once again, management ingenuity
between
a
conservative
Times
may
Mirror
have
and an
aggressive Infomart as well as improved the chances of success for the
PAGE
185
joint venture.
split
is
Directors
of
Concerning the control issue, the Board
50/50, but Times Mirror has put James Holly, President of Times Mirror
Still, potential
Services, at the helm of Videotex America.
Videotex
control problems might arise as the partner organizations
change
and
issues have to be rehashed in costly Board meetings.
However, we think that this joint venture
because
both
Infomart, a successful videotex
or
company
which
has
established
the
nearly profitable GRASSROOTS and TELEGUIDE services in
this joint venture credibility.
things
succeed
Concerning complementary skills,
Canada, as well as the excellent reputation
that
actually
partners clearly have complementary skills and planning
is an important part of the venture.
profitable
may
have
probably
of
Times
Mirror,
gives
Penny Welsch of Videotex America said
gone smoothly because "Times Mirror is a
planning-oriented organization.
upon before they implement it."
Everything is written out and
agreed
17 5
12.2.4 Videotex America and Local System Operators
Given that the Videotex America
joint
venture
succeeds,
these
local system operator joint ventures will probably also be successful.
However, the partners in the GRASSROOTS system operator joint ventures
should
take
precautions
to
avoid
PAGE
problems
186
that
might arise from
differences in corporate cultures between the
and
America
Videotex
cooperative
farm
the
corporate cultures is not a problem in
joint
ventures
because,
both
have
partners
Different
cultures.
GATEWAY
the
of
cultures
newspaper
operator
system
corporate
newspaper
cultures.
skills
Clearly, the partners bring complementary
venture.
In
GATEWAY
the
to
the
joint
operator joint ventures the local
system
company
company brings local advertising and content and the national
and
brings videotex system operating experience and national content;
in
the
cooperatives
videotex
services
advertisers.
and
bring
a
distribution
unique
and
joint
operator
system
GRASSROOTS
channel
contacts
numerous
the
ventures,
with
for
marketing
national
The goals will match since partners in both the
GRASSROOTS
joint
ventures
have
an
interest
Although
successful videotex system operator.
each
in
farm
farm
GATEWAY
building
GATEWAY
a
system
operator joint venture gives the local partner control, the GRASSROOTS
system operator joint ventures give the farm cooperatives control, but
no
single
partner has control.
All the components are present for a
successful joint venture.
PAGE
187
12.2.5 Keycom Electronic Publishing
Since Centel controls this joint venture with 54% of
and
most
of
the
executive
level
cultural differences among the
effect
on
probably
the success of this joint venture.
with Honeywell's long term strategies.
have
will
little
However, Centel better
insure itself that an investment in a videotex
was
positions, the major
management
partners
equity
the
system
operator
fits
If the motivation of Honeywell
to develop markets for its knowledge of computer hardware
solely
and software, then Centel may find that this partner is less committed
to building a videotex system
management
operator
when
changes
in
occur
the
of Honeywell or when Keycom requires a major investment to
introduce its service to the national markets.
and Sears and Roebuck Co.
12.2.6 IBM, CBS, Inc.,
This joint venture should be
arising
from
large
diversity
agreement is completed.
actual
goals
match
the
careful
in
culture
Each company should
goals
to
insure
consider
whether
of the other partners.
control of the joint venture.
188
problems
are considered before an
joint venture should more precisely outline which
PAGE
that
partner
their
Finally, the
will
have
We
cultures
corporate
differences
in
between these three companies must be great.
IBM
recommendations
these
make
the
because
is a giant, a slow mover and lacks experience in
CBS,
is
Inc.
characterized by aggressive
Roebuck
is
Co.
planning and
differences
a
in
the
clear
might
of
these
problems
potential
the
and
Sears
Without careful
business.
sales
retail
awareness
cause,
behavior. 1 7 6
cut-throat
and
business
entertainment
competitive
highly
the
-in
marketing.
consumer
joint venture will have only a short
this
life.
Also, we wonder about whether the actual goals of these companies
are congruent.
videotex
Is
system
IBM
really
interested
in
an
and its offspring?
Personal
If IBM wants the latter, then we suspect
that as soon as the joint venture establishes a
IBM
market
position
partners
might
successful
fail
venture
joint
to
IBM,
the
for
Although
videotex system hardware and software, IBM will divest.
this may mean a
a
operator, or is it trying to develop its markets for
videotex system software and hardware as well as for the IBM
Computer
in
investment
other
two
to obtain their goal of investing in a videotex
system operator.
Control also seems an important
information
that
the
companies
issue
have
since
released,
according
to
the
no one company has
control of the joint venture. 177,178 If the joint venture remains with
this structure, nothing will get done as
the
structures
within
the
partners and the companies fail to maintain agreement about management
PAGE
189
issues.
12.3 Summary
of
Using the four factors
outlined
potential problems in each
We
ventures.
also
of
national
the
and
that
we
operators around the country.
operator
with a local
Corporation
Viewdata
giving
joint
of
a major investment in videotex system
America
Videotex
system
relationships
the
that
conclude
newspaper company should succeed at
America
ventures
studies of the cable industry, we have identified
our
from
joint
successful
However, this prediction relies on
the
assumption that videotex system operation will be a viable business in
the future.
More generally, we have found that of each of the four factors of
success -contributes
one
partner
the
controls
complementary
joint
important.
that
have
partnership ages the
personnel
change.
and
control stands
out
as
the
Without insuring that one partner has control of the
joint venture, partners will spend large
decisions
partner
skills, the partners have congruent goals,
and the partners have similar cultures -most
each
venture,
frequency
corporate
in
made
been
of
previous
this
strategies
amounts
problem
associated
of
time
meetings.
increases
with
Definite control by one partner insures that
each
once
reworking
As
the
as
the
partner
decisions
are made, they must only be reworked if the partner in control decides
PAGE
190
to make a strategic change.
Clearly, these problems should be considered in
form a joint venture.
ventures
any
attempt
to
Many of the partners involved in videotex joint
have apparently considered their impact on the joint venture
and, therefore, have increased their likelihood of success.
PAGE
191
FOOTNOTES
1.
Roberts,
E.
B. "New Ventures for Corporate Growth,"
Harvard
Business Review July/Aug 1980, p. 134.
2.
Ibid., p. 141.
3.
S. V. Berg, J. Duncan and P. Friedman, Joint Venture Strategy
and Corporate Innovation, (Cambridge, MA, 1982), p. 44.
4.
N. D. Fast, The Rise and Fall of Corporate New Venture
Divisions, UMI Research Press, 1978, p. 1.
5.
Roberts, pp. 135-136.
6.
Ibid., pp. 135-136.
7.
"New Marketing Strategies,"
8.
Berg et al., pp. 9-18.
9.
J. D. Hlavecek, B. Dovey and J.
Technology to Marketing Power,"
Jan/Feb 1977, 106-116.
10.
Roberts, p. 135.
11.
Ibid., p. 135.
12.
Berg et al.,
13.
General Instrument Annual Report, 1982.
14.
Berg et al.,
15.
Ibid., p. 112.
16.
Ibid., p. 1.
17.
"Warner/Chris Craft Deal Approved by FCC,"
24(11), 1984, p. 5.
The Yankee Group,
1984,
Section 9.
Biondo, "Tie Small Business
Harvard Business Review
p. 45.
pp. 45 -
46.
PAGE
192
TV Digest,
18.
The White House, Fact Sheet: The National Productivity and
Innovation Act of 1983, Office of the Press Secretary, Sept. 12,
1983.
19.
Berg et al., pp. 155-159.
20.
Ibid., p.
35.
21.
Ibid., p.
35.
22.
Ibid.,
23.
Ibid., p. 20.
24.
Ibid., p. 20.
25.
Ibid., pp. 21-22.
26.
Ibid., p. 166.
27.
Ibid., pp. 29-31.
28.
Ibid., pp. 167-168.
29.
Ibid., pp. 31, 93-96.
30.
J. Bachman, "Joint Ventures in the Light of Recent Antitrust
Developments: Joint Ventures in the Chemical Industry," Antitrust
Bulletin 1 & 2, 1965a, p. 10.
31.
J. Bachman, "Joint Ventures and the Antitrust Laws,"
University Law Review, 40, 1965b.
32.
Berg et al., pp. 96-101.
33.
G. L. Urban and J. R. Hauser, Design and Marketing of New
Products, Englewood Cliffs, N.J.: Prentice Hall, 1980,
pp. 1-10.
34.
Berg et al., pp. 70-73.
35.
Ibid.,
36.
Ibid., pp. 73-74.
pp. 18-27.
pp. 96-101.
PAGE
193
New York
37.
D. R. Fusfeld, "Joint Subsidiaries in the Iron and Steel
Industry," American Economic Review, May 1958, pp. 578-587.
38.
J. F. Brodley, "The Legal Status of Joint Ventures Under the
Antitrust Laws: A Summary Assessment," Antitrust Bulletin Fall,
1976, 453-483.
39.
J. Pfeffer and P. Nowack, "Patterns of Joint Venture Activity:
Implications for Antitrust Research," Antitrust Bulletin Summer,
1976, pp. 315-339.
pp. 150-153.
40.
Berg et al.,
41.
Ibid., p. 157.
42.
Ibid., pp. 155-156.
43.
Ibid.,
44.
Hlavecek et al., pp. 106-116.
45.
Bachman, 1965a, p. 10.
46.
Hlavacek et al., pp. 106-116.
47.
Roberts, p. 141.
48.
Berg et al., p. 46.
49.
Ibid., pp. 46-47.
50.
Hlavecek et al.,
51.
M.A. Phillips, CATV; A History of Community Antenna
Television, (Evanston: Northwestern University Press, 1972),
14.
52.
p. 70-73.
pp. 106-116.
Michael Porter, Competitive Strategy,
(New York: The Free
Press, 1980, p. 3.
53.
Dennis Liebowitz, "Industry Viewpoint,"
Lufkin and Jenrette, 1982), p. 3.
54.
Ibid.,
p. 7.
PAGE
194
(New York:
Donaldson,
p.
p. 11.
55.
Ibid.,
56.
Richard Olin Berner, Constraints on the Regulatory Process,
(Cambridge, MA:
Ballinger Publishing, 1976), p. 11.
57.
Ibid.,
58.
James Roman, Cablemania, (Englewood Cliffs:
p. 29.
Prentice-Hall,
Inc., 1983), p. 28.
59.
United Cable TV Corporation, 1982 Annual Report.
60.
John Cooney, "Cable's Costly Trip to the Big Cities,"
Fortune, April 18, 1983, p. 84.
61.
Liebowitz, p. 78.
62.
Francis Kroncke,
1984, p. 53.
63.
Porter, p. 7.
64.
Liebowitz, p. 10.
65.
Cooney, p. 83.
66.
Ibid., p. 83.
67.
Jean Rice,
D.C.:
68.
"Four Sale," Cable Marketing,
January,
Cable TV Renewals and Refranchising,
(Washington,
Communications Press, Inc., 1983), p. 29.
"MTV Promotion Reflects Cable Marketing Shift," Cable
Marketing, January, 1984, p. 14.
69.
"Roundtable," View, December, 1983, p. 80.
70.
Porter, p. 9.
71.
Interview with Dave Fluhrer, Viacom International, February,
1984.
72.
Kathryn Harris, "Whose Deal Is This Anyway?" View, Oct.,
1982, p. 37.
73.
Jefferson Graham,
"Showtime/TMC and Paramount,"
1984, p.38.
PAGE
195
View,
Feb.,
74.
"Race to Feed Cable TV's Maw," Fortune, May 4, 1981, p. 314.
75.
View, Jan.,
76.
"Roundtable," View, Oct.,
77.
View, Feb., 1984, p. 28.
78.
Alan Pearce, "The Future Isn't what it Used to Be," View,
Sept., 1982, p. 55.
79.
Mary Louise Hollowell, The Cable/Broadband Communications
Handbook, Vol. 2, (White Plains:
Knowledge Industries,
1980), p. 142.
80.
Phillips, p. 36.
81.
Rice, p. 26.
82.
Interview with Jay Borden, The Yankee Group, March, 1-984.
83.
Liebowitz, p. .63.
84.
Interview with Lloyd Werner, V.P.--Marketing, Group W Satellite,
March, 1984.
85.
Harris, p. 37.
86.
Werner interview.
87.
Werner interview.
88.
Interview with Jack Healy, ABC Video Services, March, 1984.
89.
Werner interview.
90.
ABC, 1981 Annual Report.
91.
Interview with Tony Herrling, ABC Video Services, February, 1984.
92.
Healy interview.
93.
Healy interview.
94.
Interview with Alan Spoon, Washington Post, March, 1984.
1983, p. 29.
1982, p. 55.
PAGE
196
95.
Interview with Bob Sullivan, Chief Financial Officer,
Cablevision Systems Development Corporation, March, 1984.
96.
Sullivan interview.
97.
"Spotlight Pay Service Making Mark," Broadcasting, Sept., 6,
1982, p. 56.
98.
Sullivan interview.
99.
"Spotlight Pay Service Making Mark,"
1982, p. 56.
Broadcasting,
Sept.
6,
100. Sullivan interview.
101. Sullivan interview.
102. Cablevision, Jan. 30, 1984, p. 24.
103. Sullivan interview.
104. Fluhrer interview.
105. Interview with Laurie Goodman, Corporate Planning, HBO, April,
1984.
106. Interview with Sherrill Sanderson, WASEC, March, 1984.
107. Sullivan interview.
108. "Rupert Murdoch's High Stakes Gamble on Warner,"
Week, January 23, 1984, p. 107.
Business
109. Sullivan interview.
110. Interview with Irving Kahn, President, Broadband Communications,
March, 1984.
111. Kahn interview.
112. Kahn interview.
113. Interview with George O'Hanasian, Group W Cable, March, 1984.
114. Sullivan interview.
PAGE
197
115. Sullivan interview.
116. J. Tydeman, H. Lipinski, R. P. Adler and L. Zwimpfer, Teletext
and Videotex in the United States. New York: McGraw-Hill, Inc.,
1982, pp. 65-69.
117. General Instrument Annual Reports, 1968-1969.
118. Warner Communications, Inc. Annual Report, 1972.
119. Warner Communications, Inc. Annual and 10K Reports, 1974-1983.
Pasport to the Electronic
120. A. Glossbrenner, "Personal Computers:
Technology Review, May/June, 1983, pp. 62-71.
Universe."
121. "IBM, CBS, Sears in Joint Videotex Venture,"
5(2), (Feb. 22, 1984), pp. 1-2.
Videoprint,
122. D. Hertzberg, "Banks Linking Cash Machines across the U.S.,"
WSJ, Nov. 16, 1983, pp. 33 & 38.
123. Tydeman et al.,
p. 14.
124. Ibid., pp. 14-15.
125. Ibid., p. 15.
126. Ibid., p. 15.
127. "ANSI Endorses NAPLPS," Videoprint, 4(20),
p. 14.
(Oct. 24, 1983),
128. Videoprint, Oct. 1983 - April 1984.
129. Porter, pp. 1-33.
130. Tydeman et al., p. 63.
131. Borden interview.
132. Interview with Sam Berkman, Division Managere, Consumer Sales
and Services, AT & T, April, 1984.
133. Interview with David Allen, Center for Policy Alternatives,
Massachusetts Institutes of Technology, November, 1983.
PAGE
198
134. Berkman interview.
135. Borden interview.
136. Berkman interview.
137. Berkman interview.
138. Berkman interview.
139. Allen interview.
140. Allen interview.
141. Allen interview.
142. Allen interview.
143. Berkman interview.
144. Berkman interview.
145. Berkman interview.
146. Berkman interview.
147. Borden interview.
148. Berkman interview.
149. Interview with Penny Jo Welsch, Manager, Marketing
Communications, Times Mirror Videotex Services, April, 1984.
150. Welsch interview.
151. Interview with Maurice Sprumont, Manager, Business Development,
Infomart, April, 1984.
152. Welsch interview.
153. Sprumont interview.
154. Welsch interview.
155. Welsch interview.
PAGE
199
156. Welsch interview.
157. Sprumont interview.
158. Welsch interview.
159. Welsch interview.
160. Welsch interview.
161. Sprumont interview.
162. Welsch interview.
163. Sprumont interview.
164. Welsch interview.
165. Welsch interview.
166. Interview with Vernon Cain, Vice President of Operations, Keycom
Electronic Publishing.
167. Cain interview.
168. Cain interview.
169. Cain interview.
170. Cain interview.
171. IBM, CBS, Inc., Sears and Roebuck Co. News Release, Feb. 14,
1984.
172. "IBM,
5(2),
CBS, Sears in Joint Videotex Venture,"
(Feb. 22, 1984), pp. 1-2.
Videoprint,
173. Ibid., pp. 1-2.
174. IBM, CBS, Inc., Sears and Roebuck Co. News Release, March
19, 1984.
175. Welsch interview.
176. Berkman interview.
PAGE
200
177.
IBM, CBS, Inc.,
1984.
178. IBM, CBS, Inc.,
1984.
Sears and Roebuck Co. News Release, Feb. 14,
Sears and Roebuck Co. News Release, March 19,
PAGE
201
BIBLIOGRAPHY
"A Surprising Eagerness to Sign
April 1, 1983, p.
Up
for
Business
Videotex."
Week,
108.
"A Ready-made Track for High Tech Communications."
12, 1983, pp. 43-44.
"A Telecommunications Deal
Week, Sept 5, 1983, p.
Enticing
Foreign
Week Sept.
Partners"
Bus.
51.
AMECO Annual Report, 1968 "Anheuser-Busch, TCI,
July 25, 1983, p. 94.
That's
Bus.
1970.
Multimedia in Pay Sports Deal."
Broadcasting,
Annual Report, 1981.
ABC, Inc.
of Recent
the Light
Joint Ventures in
J.
Bachman,
Ventures
in the Chemical Industry.
Developments:
Joint
Bulletin 1 & 2 (1965a), p. 10.
Joint Ventures and
J.
Bachman,
University Law Review 40, (1965b).
Banker's Roundtable.
the
Antitrust
Cablevision, Feb 27, 1984, p.
Laws.
Antitrust
Antitrust
New
York
67.
F.
Statement of William F. Baxter, Assistant Attorney
Baxter, W.
on
Subcommittees
the
before
Division,
General,
Antitrust
and Science, Research and Technology,
Investigations and Oversight
U.S.
House of Representatives, concerning
research
joint
ventures.
Department of Justice, June 30, 1983.
Baxter,
W.
F.
Statement of William F.
Baxter, Assistant Attorney
General, Antitrust Division, before the Subcommittee on Monopolies and
Commercial Law, Committee on the Judiciary, House of
concerning
The
Representatives,
National Productivity Act of 1983 and other proposals
to amend the antitrust laws.
Department of Justice, Sept.
14, 1983.
Attorney
Baxter, Assistant
F. Statement of William F.
Baxter, W.
Division, before the Committee on the Judiciary,
General, Antitrust
U.S.
Senate, concerning The National Productivity and Innovation
of 1983.
Department of Justice, Oct.
PAGE
202
26, 1983.
Act
Statement of William F. Baxter, Assistant Attorney
F.
Baxter, W.
Joint Economic Committee,
General, Antitrust Division, before the
concerning
the
Justice, Nov.
need
for
R
joint
&
D legislation.
Department of
3, 1983.
Berg, S.V., J. Duncan and P. Friedman. Joint Venture Strategies and
Corporate Innovation. Cambridge, MA: Oelgeschlager, Gunn and Hain
Publishers, Inc.,
1982.
Constraints on
Richard
Olin,
Berner,
Cambridge, MA:
Ballinger Publishing, 1976.
Regulatory
the
NY T News, Feb.
Barmosh, I., "Shaping a Sears Financial Empire."
1984, pp. F1 & F6.
Future."
J.
"Journals: Fearing the Electronic
Broad, W.
964-968.
216, (May 1982), pp.
J.
F.
"Oligopoly Power Under
Brodley,
Acts--From Economic Theory to Legal Policy."
285.
(1967), p.
Process.
12,
Science,
the Sherman and Clayton
Review 19
Stanford Law
Joint Ventures Under the
Status of
"The Legal
F.
Brodley, J.
Antitrust
Bulletin
(Fall
A Summary Assessment."
Antitrust Laws:
1976), pp. 453-483.
Cablecom General Annual and 10K Reports, 1970 "Cable Losses
1983, p.
14.
to
"Cable Shoppers."
"Cable Television:
pp. 39-42.
Hurt
Cablevision.
Charles Dolan.
Jan.
Times-Mirror in 1983."
Broadcasting,
July 25,
Static in the System."
"Cable Trading Settling
June 6, 1983, pp. 83-86.
1983,
Ed.
p.
& Pub., June 4,
9.
Forbes,
August
Down After Burst of Buying."
30, 1984, p.
View, Nov.
1976.
46.
Citizens Financial Corporation Annual Reports, 1969 -
PAGE
203
1965,
Broadcasting,
24.
1983, p.
1,
1974.
Cohen,
D.
1983, pp.
Venture, Dec.
"Videotex."
52-61.
1983,
2,
NY T News, Feb.
"CBS and AT & T in Second Videotex Test."
p.
D4.
CBS Annual Report, 1981.
No
"CBS/IBM/Sears Videotex:
(1984), p. 17.
TV Digest, 24(9),
"CBS-MCA Agreements."
TV Digest, 24(8),
Details Announced."
(1984), p.
"Community Antennas Enter the Big TV Picture."
146-147.
pp.
7.
Fortune,
1965,
Aug.
COMSAT Annual Reports, 1981 & 1982.
"COMSAT, CBS talk DBS."
Cablevision, Jan.
"Cable's Costly
John.
Cooney,
April 18, 1983, pp. 82-88.
Trip
19.
2, 1984, p.
Cox Broadcasting Corporation Annual and 10K Reports, 1968 Cox Cable Communications Annual and 10K Reports, 1970 Cox Communications, Inc.
1981.
1976.
Annual and 10K Report, 1982.
Annual Reports, 1971 -
Entron, Inc.
Fortune,
to the Big Cities."
1972.
Fast, Norman D. The Rise and Fall of Corporate New Venture Divisions.
UMI Research Press, 1978.
Rural
in
Cable Television is Expanding
"Fine Reception:
Barron's, Feb. 15, 1965, pp. 11-12.
Areas Alike."
"Foreign Conflict."
"French
D2.
Group
Gecsei, J.
Cablevision, Jan 2, 1984, p.
Plans Marketing in
U.S."
Urban
11.
NY T News,
The Architecture of Videotex Systems.
and
Dec.
3, 1983, p.
Englewood
Cliffs:
Prentice-Hall, Inc., 1983.
General Instrument Corporation Annual and 10K Reports, 1968 - 1983.
PAGE
204
General Tire and Rubber Company Annual and 10K Reports, 1973 -
Glossbrenner,
Universe."
Graham,
p.
A.
"Personal
Technology Review,
Jefferson.
Oct.
NY T News,
"Getting Everybody into the Act."
1983,
pp.
and Paramount."
"Showtime/TMC
F21.
Passport to the Electronic
Computers:
May/June,
p.
1982,
24,
1980.
62-71.
View.
1984,
Feb.,
38.
Strategies Created by Information
New Business
B.
Greenbaum, N.
Telecommunications
in
the Satellite
A
Case
Study
Systems Technology:
of Technology,
Institute
Massachusetts
Master's Thesis,
Industry.
1983.
"Hardware Keeps Steady Pace."
Harris, Kathryn.
37.
"Whose Deal Is This Anyway?"
"Information
Hecht, J.
May, 1983, pp. 58-66.
View.
1982,
Oct,
Services Search for Identity."
Heritage Communications, Inc.
47.
Cablevision, Jan 2, 1984, p.
p.
High Tech.,
Annual and 10K Reports, 1982.
"Banks Linking Cash Machines
Herzberg, D.
33 & 38.
Street Journal, Nov 6, 1983, pp.
Across
U.S."
The
Wall
and J. Biondo. "Tie Small Business
Harvard Business Review, Jan-Feb,
Dovey
D.,
B.
Hlavecek, J.
Technology to Marketing Power."
1977, pp. 106-116.
"Home Banking Network Due in Florida in September, but Cost May Limit
25.
23, 1983, p.
Wall Street Journal, Feb.
Appeal."
"Home Banking Tests Begin in a Few Places but the New Systems
25.
17, 1983, p.
Wall Street Journal, Jan.
Slow to Spread."
May
Be
Hollowell, Mary Louise. The Cable/Broadband Communications Book, Vol.
Knowledge Industries, 1980.
2.
White Plains:
"HBO's
Biondi
Brings
Financial
Broadcasting, Aug 8, 1983, p.
"How TV Is
pp.
Flair
to
Pay
Cable Programming."
95.
Revolutionizing Hollywood."
78-89.
PAGE
205
Bus.
Week,
Feb.
21,
1983,
IBM Annual Report, 1983.
14, 1984.
IBM, CBS, Inc.,
Sears and Roebuck Co.
News Release, Feb.
IBM, CBS, Inc.,
Sears and Roebuck Co.
News Release, March 19, 1984.
(Feb.
News
Sears in Joint Videotex Venture," Videoprint, 5(2),
CBS,
"IBM,
Sears and Roebuck Co.
1-4. IBM, CBS, Inc.,
22, 1984), pp.
Release, Feb. 14, 1984.
IBM, CBS, Inc.,
News Release,
Sears and Roebuck Co.
, 1984.
19, 1984,
NY T News, Feb.
"A Times Mirror Headaches."
A.S.,
Jones,
pp. F1 & F26.
"Business Mail Goes Electronic."
Kahaner, L.
22-25.
1983, pp.
High
Jan/Feb,
Tech.,
Public Acceptance of
"Videotex at the Street Level:
T.
Kerr, S.
Videodisc/Videotex, Summer,
Britain."
Viewdata Services in Great
1983, pp. 196-205.
"Knight Ridder's Viewtron Available
16.
29, 1983, p.
Pub., Oct.
Kroncke, Francis.
"Four
Cable
Sale."
Public This Week."
to
Marketing,
Jan.
Ed.
1984
&
pp.
48-53.
A Proposed Spinoff, Canceled Projects
"Slimming down:
Landro, L.
6, 1983, p. 1.
Wall Street Journal Dec.
Mark New Era at Time, Inc."
Unit,
Landro, L., and D. Kneale, "Warner's Atari
WSJ, Dec.
Venture to Broadcast Home Video Games."
Launch
Activision
p.
10.
1983,
16,
Television
"The Cable
Shimura.
Y.
and T.
E.,
B.
Levenson,
of
Accelerating
Era
A Study of Decision Making in an
Industry:
Change," Master's Thesis, Massachusetts Institute of Technology, 1981.
"Industry
Liebowitz, Dennis.
1982.
Jenrette, Oct.
Lublin,
J.
'Electronic
S.
"Postal
Mail' Service."
Viewpoint."
Service
Finds
Donaldson,
Little
Demand
Wall Street Journal, Sept.
37.
PAGE
206
Lufkin
for
and
New
16, 1983, p.
M/A COM Annual Report, 1981.
Mead, W.
"The
J.
Antitrust Bulletin 12
Lynch
"Merrill
and
to
PBS
"Videotex:
Miller, D.
1983, pp. 42-56.
Science
Regulation:
Cable
Shift."
Service:
the
O'Donnell, T.,
pp. 238-239.
and J.
Schriber.
"Pay-per-view Partners."
"Pay-per-view
p.
93.
Broadcasting,
July 25,
the Goal of ABC-Cox Deal."
1984.
Television
and
Time
207
Forbes, Jan 4,
1983,
p.
1982,
8.
Broadcasting, May 10, 1982,
Pearce, Alan. "The Future Isn't what it Used to
1982, pp. 55-57.
PAGE
1984,
Noam, Harcourt Brace, 1983.
"Publishing."
"Teletext... Its
T.
L.
Pfister,
Proceedings, Online, June 28, 1983.
Marketing.
Competition," Telecommunication
for
Today and Tomorrow, E.
Industry
TV Digest, 24(3),
The Yankee Group.
Scope
July,
Byte,
For Better or Worse?"
"Local Distribution Monopolies in Cable
M.
Wall Street
Use."
Reality?"
Join the Scramble for DBS Slots."
"New Marketing Strategies."
Noam, E.
or
Fiction
Marketing
Cable
"MTV Promotion Reflects
Jan. 1984, p. 14.
Teletext's
Explore
8-9.
43.
"Joint Ventures:
B.
S.
Moskal,
Week, February 20, 1984, pp. 39-45.
Telephone
Ventures."
(1967).
Journal, April 5, 1983, p.
"Newcomers
p.
3.
Joint
of
Significance
Competitive
Broadcasting, July 25, 1983, pp.
"Merger Meeting."
Fortune, Nov.
Services Through the TV Set."
"Coming Fast:
Mayer, M.
14, 1983, pp. 50-55.
Be."
Has Come."
View,
Sept.,
In Videotex '83
Evanston:
A History of Community Antenna TV.
A. CATV:
Phillips, M.
Northwestern University Press, 1972.
Pollack,
1983, p.
Porter, Michael.
1980.
"Race to Fill Cable TV's Maw."
308-318.
Fortune, May 4, 1981, pp.
M. A Study of the Cable Television Industry.
Reardon, D.
Thesis, Massachusetts Institute of Technology, 1971.
Rice, Jean.
Press,
Free
The
New York:
Competitive Strategy.
Master's
D.C.:
Washington,
Cable TV Renewals and Refranchising.
17,
Times, Feb.
N.Y.
Is Ready for Debut."
"Teletext
A.
D1.
Wall
Inc."
"McDonnell Says It Agreed to Buy Tymshare,
Phillips, C.
4.
Street Journal, Nov. 29, 1983, p.
Communications Press, Inc., 1983.
"Is Licensing an Effective Alternative for Achieving
E. B.
Roberts,
Alfred P.
Working Paper,
Commercial Benefits of R & D Results?"
Sloan School of Management, January 1981.
Growth."
"New Ventures for Corporate
B.
E.
Roberts,
134-142.
Business Review, July-Aug., 1980, pp.
Coming
"Rogers United Artists Cablesystems:
Feb 8, 1983.
Roman,
1983.
Englewood Cliffs:
Cablemania.
James.
"Roundtable."
View.
Oct.
1982, p.
37.
"Roundtable."
View.
Dec.
1983, p.
80.
"Rupert Murdoch's High
January 23, 1984, pp.
Seymour,
37-44.
J.
"
Undone."
Stakes
on
Gamble
Harvard
Broadcasting,
Prentice-Hall, Inc.,
Warner."
Business
Week,
105-8.
Videotex...
Todays Office, Oct.,
Finally!"
"Spotlight Pay Service Making Mark."
56.
PAGE
Broadcasting, Sept.,
208
1983, pp.
6, 1982, p.
Storer Broadcasting Company Annual and 10K Reports, 1968 The
"Supertext:
Publication, Vol.
"Survey Finds Papers Ready to Go Electronic."
47, 1983.
"Telecommunications:
pp. 126-148.
The Global Battle."
Americanization
Bus.
of LM Ericsson."
& Pub., April 30):
Week, Oct.
Bus.
INC., February 1984, pp.
"The Age of Alliances,"
"The
63.
Ed.
Group
Yankee
Utility."
38-47.
Enhanced Information
X July/Aug, 1982, pp.
1982.
24, 1983,
68-69.
Week, Oct.
3, 1983, p.
world
that
changed
the
ten
years
Broadcasting, Nov. 16, 1982, pp. 48-52.
of
The National Productivity
Fact Sheet:
White
House.
The
Secretary, Sept.
Innovation Act of 1983, Office of the Press
1983.
and
12,
"The
HBO
Story:
telecommunications."
Matsushita
"Time and
64.
20, 1982, p.
Join
in Teletext Accord."
"Time Strikes the Flag on TV Cable Week."
1983, p.
Broadcasting, Dec.
Broadcasting,
Sept.
19,
38.
"Times-Warner Marriage."
Broadcasting, Sept.
19, 1983 p.
Times-Mirror Company Annual and 10K Reports, 1968 -
8.
1982.
R.
Adler, M. Nyhan and L. Zwimpfer.
H.
Lipinski,
Tydeman, J.,
McGraw-Hill,
New York:
Teletext and Videotex in the United States.
Inc., 1982.
United
1983.
Cable
Television
Corporation
Annual and 10K Reports, 1982 -
New
Hauser, Design and Marketing of
R.
G.
L. Urban and J.
Prentice Hall, 1980, pp. 1-30.
Products, Englewood Cliffs, N.J.:
Urrows, H., and E. Urrows. "Videotex Progress and Trends in England
and France." Videodisc/Videotex, Summer, 1983, pp. 206-214.
PAGE
209
Value Line, Dec.
16, 1983, p.
1806.
Value Line, Jan.
6, 1984, pp.
376-392.
Videoprint, Sept.
View, Feb.,
Vikoa, Inc.
1983 -
1984, p.
April 1984.
29.
Annual and 10K Reports, 1972 -
"Voice Mail Delivery."
Bus.
"Warner Amex Cuts Back QUBE."
Week, Dec.
1975.
13,
1982, p.
TV Digest, 24(4),
84A.
(1984), p.
TV
"Warner Amex Wants to Back Out of Franchise Commitments."
24(3), (1984), p. 2.
"Warner/Chris Craft Deal Approved by FCC."
p.
10.
TV Digest, 24(11),
Digest,
(1984),
5.
Warner Communications, Inc.
Annual and 10K Reports, 1972 -
1983.
Westinghouse Annual Report, 1981.
R.,
and S. Bradford Jr.
G.
Young,
1977.
Arthur D. Little, Inc.
Action.
PAGE
210
Joint Ventures:
Planning and
PERSONAL INTERVIEWS
Allen, David. Center for Policy Alternatives, Massachusetts Institute
of Technology, Cambridge, MA.
Borden, Jay.
89
Group,
Communications Consultant, The Yankee
Broad
Street, Boston, MA.
Director of Corporate Development, Warner Amex Cable,
Judy.
Carroll,
N.Y., N.Y.
Cain, Vernon.
Keycom Electronic Publishing, Chicago, Illinois.
Consultant
Even, Michael.
in
Central
Audiotex/Videotex,
Services
Organization.
Healy, Jack.
Kahn, Irving.
ABC Video Services, N.Y., N.Y.
Past President TelePrompTer, N.Y., NY.
Wes. President, General Videotex Corporation, 3 Blackstone
Kussmaul,
Street, Cambridge, MA.
McIntyre,
G.
General
Massachusetts
Program,
Industrial Liason
Lampe, D.
Technology, Cambridge, MA.
Corporation,
Videotex
3
Institute
of
Blackstone Street,
Cambridge, MA.
O'Hanasian, George.
Vice President Finance, Group W Cable, N.Y., NY.
and
Pounds, William. Past Dean of the Sloan School of Management
Institute
COM, Massachusetts
Board of Directors of M/A
the
Technology, Cambridge, MA.
Corporate
Sachs, Robert. Vice President,
Cablevision, Boston, MA.
Manager,
Sherill.
Sanderson,
Satellite Entertainment Company.
Sirbu,
Marvin.
Center
for
Program
Policy
Institute of Technology, Cambridge, MA.
PAGE
211
Development,
Development,
Alternatives,
on
of
Continental
Warner
Amex
Massachusetts
Chief Financial Officer, Cablevision
Robert.
Sullivan,
Development Corporation, One Media Crossways, Woodbury, NY.
Welsch, Penny Jo.
Manager,
Marketing
Communications,
Times
Systems
Mirror
Videotex Services, 3100 South Harbor Blvd., Santa Ana, CA.
Werner,
NY.
Lloyd.
Vice
President, Marketing, Group W Satellite, N.Y.,
PAGE
212
PHONE INTERVIEWS
Berkman, Sam.
Diller,
Division Manager, Consumer Sales and Services, AT & T.
Jack.
Past
Chief
Operating
Officer,
The
Entertainment
Channel.
Dodge, Steven.
President, American Cablesystems Corporation.
Fay,
Joanne.
Washington D.C.
Antitrust
Fluhrer, David.
N.Y., N.Y.
Director
of
U.S.
Department
Communications,
Viacom
of
International,
Public Relations, ABC Video Services, N.Y.,
Herrling, Tony.
Justice,
Director--Program Planning, HBO, N.Y., N.Y.
Goodman, Laurie.
Loftus,
Division,
Richard.
President
of
Trident
Communications
N.Y.
and
past
President of Scripps Howard.
Mills, James.
Council for Cable Information.
The Neighborhood Project,
Phillips, Collette. Public Relations for
Cablevision Systems Development Corporation - Boston Corporation.
Videotex Industry Association.
Smith, Robert.
Spoon, Allan.
V.P.
Sprumont, Maurice.
Trumpowski,
I.
Wasserman, Bert.
Planning, Washington Post Company.
Vice President, Business Development, Infomart.
Cable Specialist, Young and Rubicam.
Chief Financial Officer, Warner Communications, Inc.
PAGE
213