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STRATEGIC CHOICES
CORPORATE LEVEL STRATEGY
Management Report by
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EXECUTIVE SUMMARY
The industries Viacom operates within include Entertainment, Video/Music &
Theme Parks, Publishing, Cable Television, Networks and Broadcasting. The
strategic options that Viacom is currently facing are either to take a $1b longterm supply contract, or to take an equity stake in a European company’s satellite
channels or expand aggressively into international markets (which is an additional
option we considered to be relevant for Viacom).
The external environment is analysed; it is explained to have potential influence
on anti-competitive behaviour of competitors. Economically, spending on cinema
via consumers is high, bringing high profit margins. The development of
technology in the market is driving Viacom, plus competitors in the market.
Demographics of consumers include an ageing population, and therefore new
programming has to be developed in the segment.
The results from the Porter’s model show that barriers to the industry are high
due to the capital requirements. The power of suppliers is said to be a trend of
consolidation, where many are trying to forward and backward integrate. Threat
of substitute products/services in the market is constantly high as the
development of other technologies increase.
Core competencies found present at Viacom are their ability to market well and
thus build strong brands, and their Human Resources department.
A full analysis of the organisation is noted; the culture of Viacom is very laid
back, young, determined with large pockets of autonomy between departments is
coupled with the de-centralized structure of Viacom.
It is then outlined that this structure will have to change and the Matrix plus
Transnational structures were regarded; the outcome was the Transnational
structure, deemed most suitable.
The Ansoff Matrix, plus strategic analysis was used to assist in which direction
Viacom should be going, utilising ranking techniques. From here it was decided
to reject the development of new products and related diversification was also
discarded, as the domestic market is saturated.
It was then decided that developing the market and products is the best way to
go and in order to develop new markets it would mean Viacom gaining a stake in
the distribution side of the market.
An implementation plan is then considered, firstly, outlining all the bargaining
tools. These tools included strong programming content, strong brands i.e. MTV
etc., other physical assets.
It was then suggested that Viacom could bargain with a distributor to gain a
stake, in return for their programming content, although not exclusively.
The implementation plan of Viacom’s re-structuring is then given, a change
matrix is used and an adaptation technique is suggested. The design of the
change is then analysed via the use of a Change Kaleidoscope. Involving
everyone in the change, it would naturally create communication between
departments and that central HQ should devise, plus communicate a vision to all
departments, thus taking and maintaining some autonomy.
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................2
TABLE OF CONTENTS..................................................................................3
INTRODUCTION .........................................................................................4
Options / Decisions .............................................................................4
EXTERNAL ANALYSIS..................................................................................5
INTERNAL ANALYSIS ..................................................................................6
Unique resources .................................................................................6
Core Competences ...............................................................................6
CORPORATE STRUCTURE ............................................................................8
Processes ............................................................................................8
CORPORATE CULTURE ................................................................................9
CORPORATE PARENT ................................................................................ 10
PORTFOLIO ANALYSIS .............................................................................. 10
STRATEGIC OPTIONS ............................................................................... 12
Strategic objectives ........................................................................... 12
Ansoff Matrix ..................................................................................... 12
Strategic options ............................................................................... 12
Evaluation of strategic options........................................................... 13
Rejected options ................................................................................ 13
STRATEGY IMPLEMENTATION .................................................................... 15
BIBLIOGRAPHY ........................................................................................ 18
APPENDIX
EXTERNAL ANALYSIS................................................................................ 20
PEST analysis..................................................................................... 20
Porter’s Five Forces ........................................................................... 21
PRODUCT LIFE CYCLE ............................................................................... 22
INTERNAL ANALYSIS ................................................................................ 23
Resource audit................................................................................... 23
Value chain analysis .......................................................................... 25
The value system ............................................................................... 28
VALUE SYSTEM ........................................................................................ 30
THE CULTURAL WEB ................................................................................. 31
STRATEGIC OPTIONS ............................................................................... 32
MAJOR EVENTS IN VIACOM’S HISTORY ....................................................... 35
FINANCIAL PERFORMANCE ........................................................................ 36
GROUP MEETING MINUTES………………………………….....……………..…………………………….37
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INTRODUCTION
Viacom Inc. was founded in 1971 through a spin-off by CBS and has since then
become one of the world’s largest media and entertainment companies (1995).
The business segments Viacom operates in are shown in the graphic below:
Entertainment
Networks &
Broadcasting
Media &
Entertainment
Cable
Television
Video & Music/
Theme Parks
Publishing
Options / Decisions
Viacom is currently facing a decision regarding their international expansion
strategy.
1. A $1b long-term supply contract for Paramount to a leading European
media firm that was increasing the number of satellite programming
channels.
2. Equity stake in a European company’s satellite channels with preferential
distribution for MTV and Nickelodeon services.
In addition to this decision, Viacom is also reconsidering its structure and
management style if to maintain decentralised operations or to adopt a more
centralised approach, especially when negotiating with new potential partners.
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EXTERNAL ANALYSIS
Viacom is operating in an industry that is particularly sensitive to changes in the
environment. Of particular interests are governmental influences that have
enormous impact of market liberalisation and fair trading, and antitrust actions.
This is a concern in the USA as well as in international markets. Competition is
intense market consolidation rate is high and only effective lobbying and filing of
lawsuits to enforce market access will lead to success.
One eye should be kept on the economic climate as the success of the movie
production and theatrical movies is highly dependent upon the disposable income.
Also, interest rates and capital markets can be an important factor when
acquiring capital for external growth.
In the near future the media and entertainment industry will move towards a
higher degree of consolidation and more importantly a consistent method of
distribution and broadcasting. At the moment several methods of broadcasting
are in use but only one will offer the highest margins and access to consumers.
We are also expecting a move into new transmission systems such as digital and
online broadcasting.
We also observed a changing demographics as well as a gradual convergence of
international tastes – a consumer group asking for the same programmes on an
international basis – this opens opportunities for the group.
The industry itself is at the moment relatively well-protected from new entrants
as there is high degree of market saturation in the USA and growth can almost
exclusively achieved through external growth. Instead, the emphasis should be
on our current competition – a bunch of oligopolistic – vertically integrated
players.
Viacom certainly exerts a high degree of power through the Blockbuster unit
being the major buyer of content in the industry and also through the ownership
of international recognised brands. However, Viacom is lacking scale concerning
the distribution. Competitors have used this bottlenecks to enforce the power of
supplying. Viacom has done well in the development of UPN but further
development in this area especially in the cable platform segment is needed.
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INTERNAL ANALYSIS
Unique resources
Presently, we perceive the financial assets of Viacom as a unique resource. We
see the main reason for this factor in the high capital demands of film studios
production and the cyclical nature of this very specific segment. Viacom’s capital
resources allow the company to dive through difficult periods. The regained
strength of Viacom’s balance sheet facilitates to cheaply obtain equity and debt
using capital markets.
In terms of physical resources the company has a unique composition of asset.
Viacom has started the process of a vertical integration and has acquired assets
throughout the value chain. Although, it has to be mentioned that currently there
is clearly a strategic emphasis on programme content. By amounting assets in the
film production area and entertainment programming networks division Viacom
exerts considerable amount of buyer power to ensure distribution and access to
broadcasting networks and cable platforms.
In addition, Blockbuster, the biggest customer of Hollywood movies, allows
putting further pressure on the equally integrated entertainment companies for
cheap access to their broadcasting and distribution network.
Generally speaking entertainment gradually need to move towards more
integration to exert buyer/supplier power through their amounted assets.
In terms of intangible resources, Viacom owns and has created invaluable brands.
Brands can create enormous pull-effect as more private customers are
demanding for international brands such as MTV and Nickelodeon. Brands are
equally important for individual companies as well as TV programmes.
Gatekeepers of cable-platforms and broadcasting stations have to concede
customers’ demand for well-established brands and grant access to their
distribution vehicles.
The ever-increasing size of integrated multinational entertainment companies has
called up the need for a strong strategic management. The unique composition of
Viacom’s board – Biondi/Redstone – has given rise to more intangible unique
resources as compared with competitors.
Tom Dooley said about Sumner Redstone: “He’s very good at looking at all sides
of the issue.”
Core Competences
The major core competency lies with marketing. Viacom perfectly understands to
create, develop and maintain its brands more than any other company in the
industry. In addition to that Viacom perfectly realises the value of leveraging the
power of its brand to sell the whole range of its product portfolio to customers.
Viacom also pays great attention to lobbying and PR to circumvent bottlenecks
and gatekeepers of broadcasting facilities and cable networks. By doing so the
company perfectly utilises its unique resources namely its invaluable brands.
Furthermore, Viacom has so far been successful in acquiring brands to
supplement their strategic brand portfolio. The acquisitions of both Paramount
and Blockbusters have been powerful strategic moves and have strengthened
Viacom’s buyer power. The process of strategic procurement has been the
backbone of the overwhelming success of recent years. Ongoing experience will
foster further success in this area. An integrated infrastructure will allow Viacom
to better leverage their brand power and sell their product bundle for an
improved value. Additional procurement focusing on programme content,
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broadcasting facilities and cable platforms will in future create better value and
ensure distribution.
Human Resource Management is another area where core competences derive
from. First of all, the company has a strong corporate parent that is particularly
concerned with communication and strategic planning throughout the company.
Tom Dooley explained: “One of Frank’s rules, a key factor for our success since
1987, is “No Surprises!”
“I think one of the things we rely on is informal communications.”
Strategic management underpins the company’s success through the
decentralised delegation of authority throughout the company. Managers have
crystal clear financial objectives but within their budget they can do whatever
they like.
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CORPORATE STRUCTURE
Viacom has a multidivisional structure, which is built up of separate divisions
based on the six distinct industry segments it operates in.
Head Office
Central services
Division A
Functions
Division B
Functions
Division C
Functions
Through the separation of its divisions Viacom can concentrate on each business
segment and measure each unit’s performance. However, Viacom’s decentralised
management structure makes it more difficult to operate cross-divisional
initiatives and conflicts between the divisions. Further, running separated
divisions is more costly compared to a centralised approach. Additionally, allowing
the business divisions to represent themselves externally can be a major
drawback when negotiating long-term licensing contracts with distribution
operators, as each unit is only interested in its own and not the overall benefits of
the company.
Processes
Viacom currently has a very decentralised management approach involving a
range of informal and formal processes at work. Divisional managers are given a
high degree of autonomy to react quickly to underlying changes in the market
and their individual segment. Viacom as a large corporation is incredibly effective;
handing responsibilities downwards and providing very clear goals. The corporate
parent has very simple rules in charge, for example allowing divisional managers
complete freedom within their budget. Viacom manages its divisional portfolio
through financial performance indicators. This process circumvents flawed topdown planning in a rapidly changing environment.
On the individual level Viacom operates an incentive compensation programme
designed to support the company’s high performance culture. This incentive
programme relates to the financial output of the organisation. This measure
ensures that the overall corporate objectives are achieved.
The complexity and the competitive environment of the media industry have
forced employees and managers to be self-controlled, integrate knowledge and
co-ordinate activities without direct supervision. This process is heavily improved
through a strong communication system – both formal and informal. This ensures
that individuals have channels to interact.
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CORPORATE CULTURE
Though the corporate environment varies widely among Viacom's subsidiaries, an
"energetic," and "laid-back" culture is cultivated throughout the company. The
people are upbeat and young; many employees are straight out of school.
According to Handy, Viacom’s culture type is a task culture since its strategy is
driven by teams, the modus operandi are shared values and ad hoc procedures,
which are developed through projects or tasks. (Johnson & Scholes, 2002)
Viacom is mainly engaged in activities of non-repetitive nature and has often
high-value one-off tasks, which are characteristic of task cultures. (Campbell,
2002)
Since Viacom has a multidivisional structure and not a top-down management
style, there is no central authority which directly delegates tasks to business unit
managers.
The communication within Viacom’s management team is open and informal,
between the divisions and the corporate office, and across the divisions.
Bureaucracy is being avoided to prevent any pitfalls that it may cause. The
atmosphere within the organisation is created to make the employees feel
comfortable and open up.
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CORPORATE PARENT
At one extreme Viacom acts like a holding company that put assets together,
grows them and sells them off, when they mature. On the other side, Viacom also
tries to aggregate assets that are of strategic importance.
However, Viacom primarily acts what is referred to as a parental developer that
seeks to employ its own competences as a parent to add value to its business.
As demonstrated in the internal analysis the corporate parent has core
competencies in brand marketing, PR/lobbying, financing and strategic
procurement and it understands how to use them effectively to create value.
Currently, the business portfolio is integrated throughout the value chain and is
suited to the centre’s expertise. The divisional units are autonomous unless
collaboration to leverage brand power is required. Again, incentives are
performance based and SBUs are supervised and managed through financial
incentives and targets.
PORTFOLIO ANALYSIS
In consistency with Viacom’s corporate role as a parental developer, we applied
the BCG Growth Share Matrix to highlight the diversified but largely related
business portfolio and its fit vis-à-vis the corporate rationale.
A direct link of all subsidiaries to one of Viacom’s core businesses (programming
networks and entertainment production) allows exploiting a common pool of
resources and core competences such as financing and marketing skills.
Although programming networks ranks as a star, failure to secure sufficient
distribution could move it into a cash cow stage and subsequently into a dog. This
issue also applies to entertainment production, which due to its volatile earnings
is endangered to transform into a dog. For this reason it is crucial for Viacom to
turn the broadcasting networks business from its current question mark status
into a star. Besides generating cash, the non-core businesses video & music,
publishing and theme parks have high strategic importance as countervailing
forces.
HIGH
BCG Growth Share Matrix
Stars
Question Marks
Broadcasting Networks
Market Growth
Programming
Networks
Cash Cows
Cable Television
System Operations
Video & Music
?
Dogs
Entertainment
LOW
Publishing
Theme Parks
HIGH
Market Share
LOW
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Ballast business
Heartland business
Publishing
Programming Networks
Entertainment Production
Cable Television
System Operations
Broadcasting Networks
Video & Music
Value trap business
Alien business
Theme Parks
LOW
Value of SBU for Parent
HIGH
“Feel”
Ashridge Portfolio Display
Value of Parent to SBU
“Benefit”
LOW
HIGH
The Ashridge Portfolio Matrix clearly illustrates the vertical relatedness of
Viacom’s Heartland business. As the majority of its portfolio is part of the vertical
value system, the corporate management team is well aware of its subsidiaries’
critical success factors and possesses the appropriate competencies and
resources to add value. Although classified as a ballast business, publishing is a
prominent strategic asset for Viacom’s entertainment production business, as it
supplies the creative input for theatrical movies in addition to steady revenues.
The following chart outlines the subsidiaries’ relationships in more detail and
indicates the Theme Parks’ fit in the portfolio.
Viacom‘s relationships
Programming Networks
Entertainment Production
Topics/
Brands
$
Movies
Ide
$
Theme Parks
rtis ing
Content
nt
nte
$
Co
Adve
c
nt
te
n
o
Publishing
Ad
g
sin
rti
ve
Video & Music
Infrastructure
Broadcasting Networks
dv
$
ert
isi
ng
$
$
$
$
as
/A
$
Cable Television
System Operations
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STRATEGIC OPTIONS
Strategic objectives
Viacom’s top three strategic objectives since the acquisition of Paramount and
Blockbuster are:
1. To reduce the substantial amount of debt taken on to finance the
acquisitions.
2. To enhance its content business’s bargaining position vis-à-vis powerful
distributors.
3. To expand aggressively into international markets in coherence with above
objectives.
Ansoff Matrix
We applied Igor Ansoff’s Growth Vector Matrix to develop potential strategic
directions for Viacom. Forward diversification into the related distribution market
(domestic or international) is an appealing option. Market development, in
particular through leveraging existing and future products to new geographical
regions is an alternative approach. A further option is to enhance the current
position in the slow growing domestic market. New product development proves
risky, as it is not clear which technology will take a dominant position in the longterm. (Appendix)
Strategic options
The following options fit Viacom’s strategic objectives and exploit opportunities in
the environment while addressing current weaknesses.
1) Do nothing: the base case
2) Consolidate domestic entertainment and programming business.
•
Increase market share in slow growing domestic market through the
acquisition of competitors and thus enhance domestic and international
position.
•
Divest from non-core business (publishing, retail, theme parks)
3) Develop new geographical markets for its content and programming
business
•
Licence existing and new entertainment and programming content to
international markets through internal development.
4) Related forward diversification in new geographical markets
•
Forward diversification into the distribution platform market to secure
long-term sales of its current and future entertainment and programming
content.
•
In International markets through joint developments with a local
infrastructure partner and a local programming partner.
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Evaluation of strategic options
To evaluate the strategic options we used a simple qualitative ranking approach.
We examined and ranked the four options according to their suitability,
acceptability and feasibility of Viacom’s strategic objectives, resources,
competences and opportunities in the environment. The diversification option
emerged as having the best fit in nearly all categories. However, the options to
development new geographical markets and to consolidate in the domestic
market could be alternative strategies. (Appendix )
Use for local
Infrastructure
Use of local
programming
and content
£
Customer pays
distribution platform
for TV subscription
£
Joint
developed
distribution platform
Equity Investment
Local Partner
Infrastructure
Cable/Satelite
Local Partner
programming
and content
Use of Viacom
programming
and content
£
Dividend
Viacom
Hollywood
programming
and content
Viacom’s motives to enter the international market are environment, resource
and expectations based. Through joint developments with strategic partners from
the local infrastructure and content sector, Viacom can capitalise long-term on its
current and future content resources and core competencies in marketing and
brand management as well as learn from its complementary strategic partners.
However, as illustrated in the above chart, it is crucial that all partners core
business benefits from the common project to ensure genuine commitment and
interest in the ventures success.
Rejected options
Development of new products in the domestic content and distribution
platform market
•
Joint development of a internet based distribution platform domestic or
international has been rejected as the technology and infrastructure is not
ready yet. It is too long term.
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Internal development of a new broadcasting network is unfeasible as
existing competition is too extensive and marketing costs would be too
high. Also growth of demand has slowed down considerably.
Related diversification options in domestic and international market
•
The domestic distribution platform market is largely saturated.
Acquisitions or joint development would be very costly and high
competitor resistance is anticipated.
•
Joint development of an Internet based distribution platform in
international markets with the outlook for global leverage is attractive, but
has been rejected as of the too long-term project nature with no or little
short-term return.
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STRATEGY IMPLEMENTATION
Bargaining tools need to be established for this option to be implemented; Viacom
is very strong at producing high quality programme content, you only have to
look at the past successes, it seems that the content Viacom produces, the end
customer demands and ultimately the distributors want too.
Other major unique resources that will be used in making this option happen is
our financial assets, the major one being in this case, Blockbuster. Blockbuster
has a massive market share in the media market and distributors rely on such
establishments for additional revenue. Finally, there is the strength of Viacom’s
brands again; it is because of the core competences in Marketing and PR that
ultimately builds these strong brands, which are demanded within the industry
and more importantly by people around the World.
How can we use these tools? It has already been established that the customer is
a major pull factor via demanding our programmes, and by establishing a joint
development with a distributor; they will have continuous supply and even
exclusive programme content, a diagram below illustrates this bargaining
strategy:
High Quality
Programme Content
Viacom
Distributor
Share of
distribution power
In order to make more of an influence in implementing this strategy, Viacom can
use Blockbuster. When it comes too hostile bargaining, it can be suggested that
we may be inclined to cease stocking titles from their distributor. Failing with
that strategy, Viacom can then use the ultimate tool and that is to cease
supplying that distributor.
Distributors strongly rely on continuous new
programming as that generates their core revenue.
It is suggested that Viacom use these solely as a bargaining tools and not
implement them in practise but move on to bargain with another distributor, due
to the risk involved:
Programmes
Distributor
Blockbuster
Customer
The structure of the organization has to be set, which means a change
management process. The reasons behind this is that, it encourages more
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collective decision making within the divisions thus increase innovation, increased
central control, which does not take too much autonomy from division managers
and will allow improved goal congruence, which is required for an international
context. Couple these advantages with the fact that the change required is not
too significant:
The appendix shows a change matrix to determine the speed; it was decided that
adaptation change seems to be the best option minimising the shock of change
but creating the changes within a reasonable time period. Determining the
design of change within the organizations context a ‘Change Kaleidoscope’ is
used:
The question remains on the style to be taken to implement change. In this case
a collaboration technique seems to be the best option. The culture between
departments is based on managers setting their own goals; consequently
collaboration allows this to continue. The change process is longer but the culture
of the organization can remain the same, which was found as a competence.
Instead of changing the culture, there seems more need to add a common
element to all the departments existing cultures, which would encourage
communication. By using collaborative techniques this will involve all employees
in the change process, which will naturally create this shared culture.
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The common culture required comes from a change in the management styles, it
was previously acknowledged that managers take a parental developer approach,
this needs to change to a more synergy management style, where there is a
desire to share resources.
Finally, in order to increase autonomy to the central HQ; there needs to be a
vision and objectives communicated to all departments. By communicating a
vision from the centre it will ultimately take some control from the departments
giving an ultimate goal for everyone to work towards:
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BIBLIOGRAPHY
Ambrosini, V. (1998) Exploring Techiques of Analysis and Evaluation in Strategic
Management, Harlow, Prentice Hall
Balogun, J and Hope, V (2004) Exploring Strategic Change, 2nd edition, Hailey,
Prentice Hall
Campbell, D and Stonehouse, G and Houston, B (2002) Business Strategy – an
introduction, 2nd edition, Oxford, Butterworth-Heinemann
Dixon, S. (2003) Strategic Choices – Business Level Strategy, Kingston University
Lecture 17th November 2003
Dixon, S. (2003) Strategic Choices – Corporate Level Strategy, Kingston
University Lecture 10th November 2003
Dixon, S. (2003) Strategic Choices – Directions and Methods of Development,
Kingston University Lecture 24th November 2003
Eisenmann, T and Bower, J (1996) Viacom Inc, Boston, Harvard Business School
Publishing
Hamel, G., Doz, Y.L. and Prahalad, C.K. (1989) Collaborate with your competitors
– and win, Harvard Business Review, 67, pp. 133-139.
Harrigan, K.R. (1985) Vertical integration and corporate strategy, Academy of
Management Journal, June, pp. 397-425.
Johnson, G and Scholes, K (1999) Exploring Strategic Change, Harlow, Prentice
Hall
Johnson, G and Scholes, K (2002) Exploring Corporate Strategy, 6th edition,
Harlow, Prentice Hall
Jones, G.R. & Hill, W.L. (2004) Strategic Management - An Integrated Approach,
6th edition, London Houghton Mifflin Co,
Lasserre, P (2003) Global Strategic Management, Houndsmill, Palgrave Macmillan
Mullins, L (1999) Management and Organisational Behaviour, 5th edition, Harlow,
Prentice Hall
Rugman, A and Hodgetts, R (2000) International Business – a strategic
Management approach, 2nd edition, Harlow, Prentice Hall Europe
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APPENDIX
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EXTERNAL ANALYSIS
We are looking at the external environment to understand
underlying trends that could have potential impact on the
corporate strategy.
Being able to predict changes and acting to take advantage of, or
defend against, macro-environmental changes can itself be a
source of competitive advantage.
The first step is looking at a detailed PEST analysis to identify
key drivers of industry success/failure in the environment.
PEST analysis
Political, Government, Legal and Regulatory Influence
The Government has an crucial role to play in terms of ensuring
fair and effective competition in the market, especially watching
closely on Viacom’s rapid merger activities. On the other hand
the government and legislation can be a powerful tool in
ensuring access to cable platform and filing antitrust actions
against competitors. (TCI, Time-Warner). Competitive advantage
can also be achieved by lobbying for favourable legislation.
Economic Influence
Economic swings have a particular impact on the theatrical
movies as with all leisure activities, spending on cinema and
theatre is determined by the amount of consumers’ discretionary
income. (Keynote, 2001) This briefly explains the high volatility
of profit margins for Hollywood studios.
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The Economic climate and consumer demand for securities of a
company also influences the price and the amount of capital that
can be obtained through Equity and Debt Capital Markets. This
has an impact on the access to obtain capital to finance growth.
Technological Factor
Technological factor have an enormous impact on the way of
broadcasting content to the consumer. We have seen Viacom
pulling out of the broadcasting infrastructure business, as it has
not yet become apparent which method of broadcasting will
succeed in the long-term.
At the moment we are observing the development of several
broadcasting
methods:
terrestrial broadcasting,
Satellite
broadcasting, cable broadcasting, digital broadcasting. In the
future we are likely to experience more video on demand
services using the latest technology such online broadcasting and
digital and interactive TV. Betting on the wrong horse at this
stage could have a great impact on a firm’s long-term
profitability.
Social Demographical Influence
Changing demographics clearly have an impact on the media
industry. By the end of the first decade of the 21st century,
there are expected to be significant declines in the proportion of
0 to 14 and 30 to 44 year-olds, which will affect those operators
that have targeted the family market.
Media conglomerates targeting changing demographics and the
need for new channels meeting the needs of an ageing
population will be able to create enhanced economic value.
Companies should also be aware of different demographics and
consumer taster when expanding to countries overseas.
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However, there will also be an underlying trend to what we refer
to as “the international convergence” between consumer tastes.
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Threat of Substitutes
Porter’s Five Forces
Increased competition from other forms of visual home
entertainment, e.g. online media and interactive computer
games could impose significant threats upon the “traditional”
media industry.
The Threat of Entry
Competitive Rivalry
The Threat of Entry is currently considerably low because of the
enormous cost of acquiring any stakes in the media industry,
which amounts to a large barrier to entry. There are also
economies of scale at stake since a large market share is already
dominated through a few oligopolistic players.
There is currently a high degree of concentration in the media
and entertainment industry with only a few big integrated
players that are dominating the market. (Time-Warner, Disney,
Viacom, News Corp) Distribution bottlenecks are a constant
concern for a content company (such as Viacom). Many
organisations are therefore striving for a large degree of
integration and consolidation. This trend will continue until a
definite and prevailing method of distribution and broadcasting
has crystallised.
Power of Suppliers
Currently, the industry is experiencing a trend of consolidation.
The main media companies are trying to integrate forward and
backward in the value system to achieve greater supply powers.
There is also a large trend of horizontal integration to realise
greater power. Viacom is one of the biggest forerunners in this
field.
Power of Buyer
Again, Viacom was the first to realise greater power of buyers
with the acquisition of Blockbuster, the main customer of
Hollywood theatrical movies. However, there is also a
considerable degree of buyer power exerted from the
broadcasting and cable platform companies that are trying to
create gates and siphon off a disproportionate share of economic
value. These gatekeepers are also trying to achieve greater
consolidation and thus gain greater powers.
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22
PRODUCT LIFE CYCLE
Since, the Product life cycle for media market is generally short, therefore the market is consistently creating new technologies which
revalorises the overall life cycle of the industry.
As we continually introduce new tech to media market as well as other firms in the industry, overall we are prolonging the life cycle of the
industry as a whole.
The limitation of the model, although this model induce such a factor that continuing technology advancement increase the product life
cycle industry. It must be notice that there are of course other factors that can have an impact n this such as
•
Changing consumer taste,
•
Increasing deposable income etc.
Existing Media Market =
Market Creating Invention =
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INTERNAL ANALYSIS
The internal analysis is concerned with providing a detailed
understanding of the business and how well resources and
competences are deployed in the current portfolio.
Resource audit
The resource audit will identify the available resources of
Viacom, which are compared to the current and anticipated
future threshold resources. Threshold resources are continuously
rising as the quality of the service offered rises and current
threshold resources become the new standard.
The Resource audit categorised the available resources under
four headings:
•
Physical Resources
•
Human Resources
•
Financial Resources
•
Intellectual Capital
The analysis will present the resources gaps that have to be
closed in order to meet customer expectations now and in future.
Threshold resources
The threshold resources have been determined for a global
entertainment, the corporate parent and the media industry as
well as for the individual divisions as defined in the external
analysis.
23
insight partners
strategy consultants
Division
Corporate
Parent
Resources
24
Entertainment
Program
production and
distribution
Publishing
Entertainment
programming
network
X
X
X
X
X
Broadcasting
Entertainmen
t product
retailing
Cable
televisions
system
operations
Financial Resources
Access to equity and debt capital markets
Capital
Physical Resources
X
X
Production facilities (studios)
Broadcasting network/facilities
TV programmes
Retailing Outlets
Movie Theatres
Cable Platforms
Human Resources
X
X
X
X
X
X
X
Business contacts
Experienced staff
Experienced senior management
Creative Staff
Intellectual Capital
X
X
X
X
X
X
X
Brand
Programme Content
Contractual access to broadcasting
networks/facilities
Contractual access to cable platforms
Access to customers
Access to supplier network
Access to buyer networks
Strategic objectives
Culture
Organisation structure
Leadership style
Internal communication
Contractual access to Movie Theatres
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
insight partners
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Unique resources
From the list above we have analysed the resources that
critically underpin the current competitive advantage of Viacom.
Presently, we perceive the financial assets of Viacom as a unique
resource. We see the main reason for this factor in the high
capital demands of film studios production and the cyclical
nature of this very specific segment. Viacom’s capital resources
allow the company to dive through difficult periods. The regained
strength of Viacom’s balance sheet facilitates to cheaply obtain
equity and debt using capital markets.
In terms of physical resources the company has a unique
composition of asset. Viacom has started the process of a
vertical integration and has acquired assets throughout the value
chain. Although, it has to be mentioned that currently there is
clearly a strategic emphasis on programme content. By
amounting assets in the film production area and entertainment
programming networks division Viacom exerts considerable
amount of buyer power to ensure distribution and access to
broadcasting networks and cable platforms.
In addition, Blockbuster, the biggest customer of Hollywood
movies, allows putting further pressure on the equally integrated
entertainment companies for cheap access to their broadcasting
and distribution network.
Generally speaking entertainment gradually need to move
towards more integration to exert buyer/supplier power through
their amounted assets.
In terms of intangible resources, Viacom owns and has created
invaluable brands. Brands can create enormous pull-effect as
more private customers are demanding for international brands
such as MTV and Nickelodeon. Brands are equally important for
25
individual companies as well as TV programmes. Gatekeepers of
cable-platforms and broadcasting stations have to concede
customers’ demand for well-established brands and grant access
to their distribution vehicles.
The
ever-increasing
size
of
integrated
multinational
entertainment companies has called up the need for a strong
strategic management. The unique composition of Viacom’s
board – Biondi/Redstone – has given rise to more intangible
unique resources as compared with competitors.
Tom Dooley said about Sumner Redstone: “He’s very good at
looking at all sides of the issue.”
The culture of decentralised decision making is both an asset but
to some extent a drawback. Biondi’s experience in the industry
and his consequential decentralised management approach is
unique asset to the company. However, it has to be said that
some of this liberality and autonomy has to give way to some
centralised authority as the company moves towards further
integration.
Value chain analysis
The value chain analysis is processed according to Michael
Porter’s value chain.
Competences
We first analysed the competences that are common among
competitors within the entertainment industry. Out of these
competences we identified those capabilities that are core
competences and unique to the company.
insight partners
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Division
Corporate
Parent
Competences
26
Entertainment
Program
production and
distribution
Publishin
g
Entertainment
programming
network
Broadcasting
Entertainment
product
retailing
Cable
televisions
system
operations
X
X
X
X
X
X
HR
Effective Recruiting
Coaching /Learning
Delegation of Authority
Management of Manager/ Employee
relationship
Reward systems
Competitive payments
Integration of acquired cultures
Communication
Lobbying
Strategic management
X
X
X
X
X
X
X
X
X
X
Financial
Setting of financial targets
Acquiring finance
X
X
Marketing
Licensing of programme content
PR/Lobbying
Managing the Marketing mix
Advertising
Leveraging brand power
Selling of product/service bundles
Brand Management
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Operational
Legal issues /copyrights
Production of programme content
Distribution of programme content (DVDs,
movies)
Effective project management
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Distribution
Broadcasting
X
Technology Development
Fostering Innovation
Procurement
Strategic procurement
Investment and competence building
Experience in M&A
X
X
X
Infrastructure
Process of vertical integration
X
X
X
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Core Competences
The major core competency lies with marketing. Viacom
perfectly understands to create, develop and maintain its brands
more than any other company in the industry. In addition to that
Viacom perfectly realises the value of leveraging the power of its
brand to sell the whole range of its product portfolio to
customers.
Viacom also pays great attention to lobbying and PR to
circumvent bottlenecks and gatekeepers of broadcasting facilities
and cable networks. By doing so the company perfectly utilises
its unique resources namely its invaluable brands.
Furthermore, Viacom has so far been successful in acquiring
brands to supplement their strategic brand portfolio. The
acquisitions of both Paramount and Blockbusters have been
powerful strategic moves and have strengthened Viacom’s buyer
power. The process of strategic procurement has been the
backbone of the overwhelming success of recent years. Ongoing
experience will foster further success in this area. An integrated
infrastructure will allow Viacom to better leverage their brand
power and sell their product bundle for an improved value.
Additional procurement focusing on programme content,
broadcasting facilities and cable platforms will in future create
better value and ensure distribution.
Human Resource Management is another area where core
competences derive from. First of all, the company has a strong
corporate
parent
that
is
particularly
concerned
with
communication and strategic planning throughout the company.
Tom Dooley explained: “One of Frank’s rules, a key factor for our
success since 1987, is “No Surprises!”
“I think one of
communications.”
the
things
we
rely
on
is
informal
Strategic management underpins the company’s success through
the decentralised delegation of authority throughout the
company. Managers have crystal clear financial objectives but
within their budget they can do whatever they like.
27
“Our rules are very simple. You can do anything within the
budget. If you want to do it outside your budget, you are going
to have to come back and ask. It’s a pretty easy dialogue.”
Tom Freston acknowledge the value of this: We have never once
been told, “No” for any major, well-though-out investment.”
In future, this will have to change to a more centralised
approach, however the focus should still remain on involving the
individual divisions in strategic planning. This will ensure ongoing
employee participation in strategic planning and subsequently
result in a higher of motivation towards work and the
achievements of goals throughout the organisation.
Development of Core Competences
Marketing
6
Distribution
4
Services
2
Technology Development
0
future
Operations
current
past
HR managent
Infrastructure
Procurement
insight partners
strategy consultants
28
The value system
Value System Analysis
The value system is analysing Viacom’s role as part of the wider
value system.
“The value system is the set of inter-organisational links and
relationships which are necessary to create a product or service.”
(Johnson, G and Scholes, K, 2002:p 161)
As factors change in the macro-environment the value systems
is reconfigured to automatically match those changes. Currently
the whole organisation has integrated operations throughout the
industry’s value system. This is as stated above an enormous
competitive advantage as it decreases the probability of being
locked out of operations through competitors.
However, to sustain its competitive advantage Viacom has to
secure access to distribution networks through forward
integration into further broadcasting facilities and cable
platforms.
Content Creator
6
Publishing
4
Content Packager
2
Themed Parks
Retailing Outlets
0
future
Distributor
Infrastructure Owner
current
past
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strategy consultants
29
Key environmental developments
Unique
Resources/
Core
Competences
Liberalisation of
the media
industry (filing
antitrust
actions)
Lobbying
favourable
legislation
Regained
strength of
balance sheet
Unique
composition of
assets
(throughout the
value chain)
Invaluable brands
Economics
swing and
the impact
on
disposable
income
Strategic
procurement
Integrated
infrastructure
Strong
communication
Decentralised
management
approach
Clear financial
targets (lacking
visions)
Uncertain
future of
prevailing
method of
broadcasting
-
Access to
equity/debt
capital
markets,
demand for
company
securities
International
convergence
of consumer
tastes
Consolidation
of
broadcasting
companies
(gatekeepers)
Competition
from other
forms of visual
home
entertainment
++
+
+
+
++
++
+
++
+
+
+
++
++
++
+
+
++
+
++
+
+-
++
+
Strong board of
directors
Brand
management
Brand leverage
Lobbying/PR
Changing
demographics
and consumer
tastes
++
+
++
++
+
-
++
+
++
+
+
+
-
--
-
insight partners
strategy consultants
30
VALUE SYSTEM
Content Creators
Own
Entertainment
Program
production
& distribution
(Paramount)
Independent
Entertainment
Program
production
& distribution
Own
Production of
TV/Cable
Programmes
Content Packagers
(Programming Networks)
Own
Entertainment
programming
networks
(MTV,
Nickelodeon)
Independent
Entertainment
programming
networks
(MTV,
Nickelodeon)
Retailing Outlets
Own Retailing
Outlets
(Blockbuster)
Independent
Production of
TV/Cable
Programmes
Independent
Retailing
Outlets
(Blockbuster)
Distributors
Infrastructure Owner
Own
broadcasting
networks via
TV/Satellite/
Cable
(UPN, CBS)
Own
TV/Satellite
/Cable
infrastructure
Independent
TV/Satellite
/Cable
infrastructure
Independent
broadcasting
networks via
TV/Satellite/
Cable
Themed Parks
Own Theme
Parks
(Paramount
Parks)
Independent
Theme Parks
Publishing
Own Media
and Publishing
Offices
(Simon &
Schuster)
Independent
Media and
Publishing
Offices
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31
THE CULTURAL WEB
‘Stories’ include Viacom’s history and flag up important events
and personalities, e.g. when Redstone hired Bondi away from
Coca-Cola Entertainment, which owned Columbia Pictures and
other properties.
‘Symbols’ are logos, terminology, and status symbols such as
cars and titles, which do not seem to be of a high importance at
Viacom.
Stories
Regarding ‘Rituals and routines’ Viacom’s open and friendly
atmosphere forms the basis for the informal communication flow
within the organisation.
Viacom’s ‘Power structure’ includes its ‘formula for success’,
which is taken for granted and has grown over the years; e.g. its
very successful acquisitions.
Viacom uses ‘Control systems’ such as the adoption of formal
financial reporting systems to prevent problems early by
compensating actions and warning systems. This included a very
detailed financial planning system reviewed quarterly, requiring
monthly re-forecasts of everyone’s business plans, i.e. tracking
the revenues, expenses, cash flows and balance sheets of each
of Viacom’s businesses.
As “Organisational structure” a multidivisional structure can be
identified.
The communication within Viacom’s management team is open
and informal, between the divisions and the corporate office, and
across the divisions. Bureaucracy is being avoided to prevent any
pitfalls that it may cause.
The atmosphere within the organisation is created to make the
employees feel comfortable and open up.
Rituals
Symbols
The
Paradigm
Control
systems
Power
structures
Organisational
structures
insight partners
strategy consultants
32
STRATEGIC OPTIONS
Ansoff‘s Growth Vector Components Matrix
Existing
Existing
PRODUCT
New
Protect / Build on current position
Product Development
Divest from Non-core business and acquire
further entertainment and programming firms
thus increase market share.
Launch low cost amateur content or
programming business.
Launch new content or programming business
(Movie production or TV Channels)
New
MARKET
Market Development
Diversification
Enter international markets via supply contracts for
content or programming or both.
Related diversification:
Enter distribution platform market as Joint development
in international markets to secure supply contracts for
content and programming.
Launch international content or programming or both
businesses.
Related diversification:
Enter distribution platform market through acquisition or
merger in domestic market to secure supply contracts
for content and programming.
Related diversification:
Enter distribution platform market as Joint development
domestic markets R & D project for internet distribution
platform with cable provider.
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33
As of static market
Joint
Development
Merger &
Acquisitions
Merger &
Acquisitions
Joint
Development
Prod uct
Ex istin g
Internal
Development
Ex istin g
New
Pr otect / Build o n c urrent po sition
Pro duct Development
Dives t f rom Non-core bus ines s and
acquire futher entert ainme nt and
progr amming fi rms thus inc rease
m ark et share.
Launch low cost amateur cont ent or
pr ogramming bus iness .
Market Devel opment
Diversi ficatio n
E nter i nternational markets via s upply
contrac ts f or c ontent or progr amming or both.
Related di vers ifi cation:
Enter dis tributi on pla tfor m m arket as Joint
developme nt in interna tional mark ets to
s ec ure s upply cont rac ts for c onte nt and
programming.
Internal
Development
Launc h new co nte nt or progr amm ing
bus ines s ( Movie produc tion or TV
Channels)
Market
Merger &
Acquisitions
Joint
Development
New
Related di vers ifi cation:
E nt er di stribution platfor m mark et t hrough
ac quisiti on or mer ger i n domes tic mar ket to
s ec ure s upply cont rac ts for c onte nt and
programming.
Internal
Development
Internal
Development
Merger &
Acquisitions
Joint
Development
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34
Do nothing
Consolidate
entertainment,
programming
Geographical
market
development
Related
International
diversification
Not consistent
Not consistent
Consistent
Highly Consistent
Low
Low
Medium / High
High
No
Medium
Appropriate
Very appropriate
Current yes
Future no
Current yes
Future yes
Current yes
Future yes
Current yes
Future yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Good, focus on core
business
Good –
convergence of
global taste
Very Good – forward
diversification into
distribution.
Potential return
Short-term steady
Long-term
declining
Medium – static
market conditions
Short-term high
Long-term
uncertain
Cost/benefit
Low cost/low
benefit
High cost/medium
benefit
Competitor response
None
Strong
Financial risk
High as to repay
current debt.
Business risk
Low – nothing
new
Medium
High – enormous
costs for acquisitions
Medium – subject to
volatility of core
business.
Medium
No
No
Creation of future
options
No
No - consolidation of
current portfolio.
Sustainable
Short-term yes
Long-term no
Yes – development
of major content
supplier.
Low for
continuing
business
High funds required
for acquisitions.
Flexibility in
timing/implementation
No change
Medium, need to
wait for a good
acquisition
opportunity
New skills
requirements
No change
No further skills
required.
Evaluation
Criteria
Suitability
Consistency with
strategic intent
Excitement/motivation
Appropriate to industry
environment
Satisfy current and
future customer needs
Exploits distinctive
competences
Creates competitive
advantage
Portfolio fit
Short-term yes
Long-term no
Medium, related
diversified
portfolio
Acceptability
Robust to change
Satisfaction of
stakeholders
Low cost /medium
benefit
Competitors
follow
simultaneous
Low – contract
based income.
Short term: medium and
long-term: high as
vertical integration and
development of new
markets.
Medium cost/high
benefit
Yes – follow example
Medium – joint
development
Low – supply
contract.
Medium – as of
diversification.
No
Yes
Yes
Yes
No – only
extension or
further contracts.
No – subject to
negotiations for
renewal of
contract.
Yes, global leveraging.
Yes – vertical
integration secures
distribution of supply.
Feasibility
Financing requirements
Rank
4
3
Low – licensing
of current
products.
Little flexibility,
immediate action
require to exploit
opportunities.
International
marketing and
sales skills.
2
Medium – joint
development.
Little flexibility,
immediate action needed
as opportunities arise.
Yes, can be learned from
joint development
partners.
1
insight partners
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35
MAJOR EVENTS IN VIACOM’S HISTORY
S uccessful Bill Cosby Show; Sale of
cable systems for $550m ; Antitrust suit
against Tim e Inc. for monopolising pay TV
Favourable outcome of Time Inc. lawsuit;
Castro Valley trial for interactive
multim edia; Animated program ming for
Nickelodeon; B/S im proved and debt
renegotiated
Million $
Redstone buys Viacom
for $3.4b; B iondi as CEO
12.000
8.000
A cquisition of last
50% of MTV Europe
Proposed MB O; Redstone
acquires 20% stake
Nickelodeon enters Germany and
Australia; MTV Asia launched in
partnership with Polygram; Sell cable
systems to TCI for $2.3b and setlle
antitrust lawsuit
Viacom founded
4.000
Acquisition MTV
Networks & Showtime
N t
k
Nickelodeon launches in UK in partnership with
BSkyB; $8b offer for Paramount; bidding war with
QVC (Merger with Blockbuster planned); Antitrust
suit against TCI
Revenue
Operating income
Long term debt
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
19
71
0
Acquires Paramount for $10b; new substantial
debt; stock price falls 64% since merger plans;
Sale 1/3 in Lifetime cable network for $318m;
Purchase and sale of radio stations to prepare
for UPN launch (TV broadcast network) in
partnership with Chris-Craft; Divesture Madison
Sq. Garden for $1.1b; Blockbuster deal passes
for $7.6b in stock exchanged
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FINANCIAL PERFORMANCE
Revenue per Segment
4.0
3.5
Million $
Schuster) and the merger with Blockbuster. The latter is
forecasted being the second largest segment in 1995 with $3.4b
revenue. The segment networks and broadcasting is largely
dominated by MTV networks, which includes Nickelodeon, and
the premium service Showtime. Entertainment was extremely
expanded through the acquisition of the Hollywood studio
Paramount Pictures and forecasted with the highest revenue of
$3.8b for 1995.
The earnings from continuing operations as a percentage of
revenues are highest for cable television, networks and
broadcasting, and video and music/theme parks with
approximately 20% (Appendix).
3.0
2.5
2.0
1.5
1.0
0.5
0.0
36
1992
1993
Networks and broadcasting
Video and music/theme parks *
Cable television
1994
1995 e
Entertainment
Publishing *
* established in 1994
e estimates by Goldman Sachs
The largest segments as regards revenue are entertainment,
networks and broadcasting, and publishing with $2.3b, $1.9b
and $1.8b respectively in 1994 (Appendix). Viacom created the
segments publishing and video and music/ theme parks in 1994
with the acquisition of Paramount (including Simon and
The total balance sheet value has more than quadrupled from
1993 to 1994 to $28.3b mainly due to the before mentioned
acquisition (increasing liabilities) and the merger (increasing
share capital) but additionally Viacom sold cable networks, radio
stations and Madison Square Gardens (Appendix). More than
55% of Viacom’s assets are in intangible assets, again caused by
the M&A activities.
Although Viacom experienced a decrease in its cash position it
still maintains a positive cash balance (Exhibit 3), since the
Paramount acquisition was almost completely debt-financed.
insight partners
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37
Operational Earnings in % of Revenue
40%
20%
0%
1992
1993
1994
-20%
Networks and broadcasting
Entertainment
Video and music/theme parks *
Publishing *
Cable television
* established in 1994