Abstract
The American television broadcasting industry has been and is still steadily changing and registering growth. Over the years, the growth of the industry characterized by the massive entry of very many firms to compete for the market share has indeed intensified rivalry in the industry making it one of the most competitive business platforms globally. Currently, American television broadcasting has over 300 firms generating more than one billion USD annually on average to the US GDP. The industry has to some extent withstood the tides of the global financial crises to register growth though at a decelerating rate. Market leaders such as the General Electric Corporation and CBC which rule the US television industry in terms of market share and overall productivity greatly intimidate new and potential entrants. However, opportunities exist since the market is growing at a very first-rate and it is expected that it would continue growing especially after the tides caused by the global financial crisis subsides. The TV industry greatly relies on other industries such as the film and movies production industry, the media industry among others, hence its relationship with them is crucial. Being an industry where consumers have high bargaining power, significant threat of substitutes, intense rivalry focus strategy, competitive strategy, and relative advantage are critical. More so productivity depends on the ability of the player to maximize revenue both from commercial viewing and delayed TV viewing since the two are the major products and sources of revenue for the industry.
Introduction
The television industry is one of the sectors that have been undergoing constant massive change and transformation in the past few years. The industry had registered unmatched growth in the past few decades culminating in a robust, highly concentrated, extremely competitive, and pulsating sector in many parts of the globe. The industry, which is composed of both the film industry and television broadcasting, offers a wide range of entertainment and information services to viewers either free or by charging a subscription fee. In addition, the industry offers marketing services to subscribers via the sale of advertisement spaces and air time (Seema, 2005, p.14).
Both TV entertainment and television advertising components of the industry have been growing by the day and have attracted more firms in the industry. This has made it highly concentrated and competitive as new firms enter to share the huge profits that it offers. Today, the industry has approximately 3000 companies and generates more than 1.5 trillion USD (MPAA, 2007, p.5). Competition in the industry has become more intense than ever.
Technological advances and the ever-growing markets present a potential opportunity for future growth in the industry. By looking at the United States’ television broadcasting industry, this paper presents a comprehensive analysis of the television industry to identify potential entry opportunities and strategies for the growth of the existing companies as well as new entrants. Today, over 90% of the United States have daily access to television, while 57 % of the African population has daily accesses to television [Business Wire, October 30, 2008, p.5]. The analysis comprises a complete overview of the television industry, including competitors, competitive strategies, and industry future opportunities. Various models have been employed in the analysis, including PESTEL factors, Five Forces, industry life cycle, sector/segment/strategic groups, and current issues analysis.
Industry Size
The US television broadcasting industry is made up of well over 300 television broadcasting firms which are estimated to generate about $36 985 million annually on averages (2007-2008) to the US annual gross domestic product. General Electric Company, News Corporation, CBS Corporation, the Walt Disney Company are the major players Contributing approximately $64 billion which is around 52% of the industry total revenue [Business Wire, October 30, 2008, p.7].
According to IBS world industry reports statistics (Feb. 2008), the four companies also lead in terms of market share with genera electric company taking 28.7%, news corporation 23.4%, CBS corporation 15.5%, the white Disney 12.7%, Acxiom Corporation – 2% Magma Design 0.17% Automation, Incorporated 0.7% and Adobe Systems, Incorporated 0.23%.
According to the latter, the leading companies in the industry also lead in terms of technology, viewers, and affluence in terms of advertising and overall marketing. The market leaders are also among the most profitable companies in the industry. In the last 12 months, for instance, the general electric company reported a gross profit margin of 57%% followed closely by CBS corporation with 47.89% and news corporation with 44 %. This is attributed to a large number of revenues especially in advertising-income, coupled by unmatched economies of scale that the market leaders enjoy. For a new entrant to come into the industry and achieve a significant market share and profitability to match these leading television companies, both focus strategy, high degree of product differentiation, and unmatched high quality must be present preceded by the highest level of resilience from the new entrant or industry minnows such as LIN TV Corporation and, REIS Inc.
Industry Dependence
The thriving of the TV broadcasting industry greatly relies on the lucrativeness of the Television Production movie and film production industry, cable network industry and the overall telecommunication industry, media industry, and the television brand industry all of which are critical for its operation. These industries offer unmatched and vital support to the television broadcasting industry deficiency of which it is likely to crumble (Adizes, 1999). As a result, the relationship between the TV industry and this support industry is critical.
Fig 1: Table Showing Respective Percentage Market Share of US Television Firms:
Sources of Revenues
Viewers’ subscriptions and revenues from charges levied from the advertisers are the two main revenues sources for the television industry. However, most of the TV channels are offered freely to the viewers hence remunerations from the sale of advertisement spaces and airtime are the major source of revenues for many companies in the television industry, not only in the United States of America but also in the global TV broadcasting industry. The two major products in the TV broadcasting industry are the Commercial Network TV Viewing, Time-shifted, or Delayed TV Viewing (Intervistas, 2005, p.3). The latter is the major source of revenues contributing approximately 78% of the total industry revenue and the rest 22% coming from time-shifted pay-TV viewing. The total revenue from the United States TV broadcasting industry for 2008 was $36 985 million [Business Wire, October 30 2008:7]. However, with the entry of other advertising competitors and the economic crisis that hit the globe from the onset of 2006, the revenues from the industry have continued to grow at a shrinking rate. Indeed, over-reliance on advertising as a major revenue stream is a risk factor in the industry, thus arousing the need to diversify into another source of revenues. Consequently, some organizations in the industry have resulted in providing subscription services as a secondary source of revenue although over 90% of revenues continue to come from advertising.
Industry players are constantly developing new services in hope of finding new revenue streams (Intervistas, 2005, p.17). TV broadcasting industry organizations have a relatively low cost of goods sold and fixed assets relative to sales. As such, established industry firms such as the general electric company and the news corporation have at times well over 70% in gross profit margins a factor that exhibits the lucrativeness of the industry. Profitability statistics from the US television industry however show that the level of productivity has a significant relationship with the size and the level of the respective firms with large firms such as General Electric Corporation, news corporation, and CBS corporations taking the lion share of the industrial profits.
Table 2: Table showing percentage of revenue contribution per product (US TV broadcasting industry 2008):
The Industry Growth Trends
The United States television broadcasting industry has been changing and evolving over the years. It is still evolving constantly. To date unlike a few years ago, the aged technology and outdated equipment have been replaced by up-to-date and more efficient transmission approaches. The industry customer base has been registering consistent growth (both in terms of commercial viewers and advertisers) and continues to exhibit similar trends; a factor that indicates opportunities in the industry. In 1971, only 57% of the population had access to television, 33% of whom had TV access on the daily basis. In 2008 however, almost 100% of the American population have daily access to television either in terms of commercial viewing or delayed or shifted viewing of the same. Similarly, the number of firms in the US television broadcasting industry has increased from 36 in 1971 to well over 300 firms to date, a 77.6% growth (IBS world industry statistics, 2008).
The robust growth in the United States television broadcasting industry is also manifested in the revenues growth. For instance, the revenue generated by the television industry in the United States increased from $ 32 623 million in 2002 to $ 36985 million in 2008 representing over a 13.37% increase in revenues. However, the impressive growth trend has been affected by the global economic recession which has seen the overall TV industry revenue grow at a reducing rate i.e. from 28% in 2005 to 2.4% in 2008 [Business Wire, 2008, p.7]
Effect of the Current Financial Crisis
The TV industry is certainly not immune to the current global economic crisis. Some experts believe that the global recession could benefit firms in the TV industry, as companies abandon their current marketing strategies in favor of more efficient and cost-effective advertising. Television broadcasting firms generate a majority of their revenue from advertising and would stand to gain from the global economic crisis. In addition, the organizations that are swift in shifting to digital advertising are likely to gain from the affected advertisers shifting from the traditional television advertising approaches. Despite these potential benefits that the financial crisis poses to the TV industry it has suffered since 2006 (Bill, 2004, p. 6). Even the news corporation, the US industry market leader in terms of risk management and disaster preparedness, has cried foul over the effects of the financial crises on its overall business. Consequently, they have cut costs, consolidated facilities, and reduced their workforce. Due to ever-increasing competition and slowing growth in online advertising, major players have admitted that they expect growth to slow down and anticipate downward pressure on their operating margins despite the enhanced strategies to counter these effects.
The Global Industrial Growth
The television industry’s growth has not only been witnessed in the United States but also the whole globe. According to MPAA (2009, p.5), Growth in worldwide TV viewing and advertising is greatly attributed to the overall growth in the industry as a whole the major factor fueling the industry. While the domestic (US) industry has matured due to almost growth in TV usage and advertisement, large global markets remain unexploited. As a result, the united television broadcasting industry is offered more opportunities overseas the success of which depends on the ability to diversify to the international market. For instance, over half of the African population and a significant proportion of people in the Middle East and Australia indicate limited access or no access to the television, according to MPAA industry analysis reports 2009
Fig 2: Table Showing Global TV Usage and Growth
MPAA also predicts further growth in TV advertising revenue in spite of the negative impact of current economic conditions. TV advertising growth continues but the effects of the economic downturn are evident. US online advertising revenues grew by 35% in 2006, 21% in 2007, and only 11% in 2008 (Bill, 2009). In addition, the latter forecasts only 8% growth in 2009 and 13% in 2010 once the temporary tide created by the current economic crisis subsides.
Industry Life Cycle Analysis
With television industry experiencing rapid worldwide expansion, the industry appears to be still in its growth stage. Irrespective of the global economic crisis that set in at the beginning of 2006, the US television industry continues to grow steadily although the growth has fluctuated since 2006; this could be attributed to the current global financial crisis (Sullivan, 2009, p.47).
Figure 3 below illustrates this industry growth.
Figure 3: Revenue Growth of the US television industry (2001-2008)
The same trends of growth are exhibited in the increase in profitability margins. The profits of companies have been growing steadily since 2000 to 2006 and then started increasing at a decreasing rate from 2006 to 2008. This could imply that the industry is moving towards the maturity stage (Adizes, 1999, p. 267), or that the slow growth rate from 2006 is a result of the shocks of the global economic crisis. The growth stage is evidenced by strong revenue growth, increasing competition, and high emphasis by the firms on developing highly differentiated (and rich in quality) television content of specific brands. Technological advancements and increased efficiency in organizational operation are common, especially the movement from analog to digital TV by almost all the major US television broadcasting firms.
PESTEL Analysis
For this analysis, the PESTEL model was used to evaluate and organize the external factors through a close understanding of their implications in the organizational decision-making and the United States television broadcasting industry as a whole. It is important to note that the external variables that are represented in this model are beyond the control of a particular organization hence they impact greatly on the organizational strategy and overall decision making. The PESTEL variable assists organizational managers to ally the company’s strategic goals and objectives with the external forces to ensure that wrong decision-making is avoided. The six variable presented by PESTEL model includes political factors, economic, social, technological, environmental, and legal factors all of which have varying effects on the United States television industry.
Political
Government involvement and control of business affairs greatly influence the industry’s business decision-making and overall operations. Ideally, both the federal and states government involvement in the regulation of the television broadcasting and investments (to control the industry and ensure that the United States viewers and advertisers are protected) has increased greatly in the recent few years. Practically federal governments’ policies or rather the US laws governing media and broadcasting, advertising, viewers, and advertiser protection among others will undoubtedly have a direct influence on the industry’s decisions and actions. As a result, both the established firms in the industry as well as potential entrants must seek to understand the effects of such policies on the general business welfare; anticipate changes of such policies, and devise appropriate approaches to mitigate the threats that they pose or take advantage of any opportunities that the dynamism of the political environment may present.
Economic
The overall state of the economy has a major impact on the television broadcasting business. This industry is particularly very vulnerable to economic downturns. Advertising spending is largely flexible, as it largely depends on the affluence of the overall business and economic environment, mainly provided by the balance between the market demand and the organizational ability to spend in marketing and advertising. This aspect of the business environment makes future revenues and incomes erratic and often culminates into highly unpredictable stock prices of the television-based companies in the New York stock exchange (Bill, 2009). MPAA (2009) statistics indicate that the global economic crisis has severely stunted the growth of the United States television broadcasting revenues since 2006 slowing from an immense growth of 6.0% in 2005-2006 to as low as 0.009% in 2006 and 0.16% in 2008 (Business Wire, 2008, p.7).
Social
The television or broadcasting organization must adapt to the values, beliefs, and lifestyles of their customers (viewers and advertisers) that they target, for instance, the television contents must be developed. The cultural variable will to a great extent influence the content of the television programs and content that a channel airs. Cultural elements such as religion, social class, education levels cultural beliefs, and practices of the target population will certainly influence the demand for TV content and watching patterns of the latter. The general electric corporation and CBS news, for instance, conforms to a greater extent with the local (American) values that are greatly exhibited throughout the content of the broadcaster perhaps one of the reason why it has the largest market share in the United States television.
Technological
Rapid technological advances and innovations are undoubtedly the engines behind the recent growth of the television industry in the United States of America (television communication market, 2009, p. 2). Technological innovations and inventions as well as the company’s ability to incorporate up-to-date technology in its operation offer the most ideal opportunity for organizations in the television industry to improve their broadcasting efficiency, reliability, contents, and service delivery both to the viewers and the advertisers. The incorporation of digital technology in broadcasting has greatly transformed the industry in terms of services quality and efficiency in services delivery; a factor that has to a great extent influenced the industry competitiveness.
Environmental
The television industry has very few environmental implications. The industry content and services have been continuously improving and efficiency increased as the industry undergoes transformation technology-wise, resulting in a relatively positive environmental impact. While environmentalists have often faulted the television industry in terms of unhealthy competition, morality displeasures, and contribution to moral decay on the part of viewers especially on the part of a young social group, the television industry is generally environmentally friendly.
Legal
The television industry is highly regulated especially in the United States of America. Irrespective of few physical barriers as far as the television broadcasting industry in the United States of America is concerned, the government has enacted stern laws that govern the industry in terms of competition, advertising, the content aired, social responsibility, licensing, use of technology and other business practices. The industry is also not exempted from the US labor laws as well as the overall ILO. Television broadcasting firms companies in the US are also forbidden by law to violate any patents, copyrights, or international laws, as they continue to expand their content and services to international markets. The same case applies to international television companies with representation in the United States.
Current Issues Analysis
Initially, the television broadcasting industry was characterized by low levels of technology, poor quality signals of transmissions, limited coverage, and very shallow content. Very few companies were present in the industry and the degree of competitiveness was typically low. The industry has since become more diversified in terms of market convergence, technology compatibility, the quality of content, and marketing effectiveness. Technologically, players in the television broadcasting industry are shifting from the ancient analog terrestrial transmission technology to digital terrestrial transmission in the recent effort to improve the effectiveness of the industry. The United general electric corporation for instance has a plan underway to have digitalized its operation by the beginning of the year 2012. Other technological advances that are currently taking place include the coming up invention of mobile TV and the internet TV in which mobile services providers like orange, Vodafone, and T-phone in collaboration with the major US television networks, have devised ways through which transmission signals can be received by subscriber via the third generation cell phones the latter of which is marketed as live TV.
In addition, such signals have also been made possible over the internet while other competitors have come in to offer advertising services such as the traditional print media, the internet services providers such as Google, Yahoo, and MSN, the revenues of the TV industry are declining by the day. In addition, the reliability of advertising as a source of revenue is diminishing by the day forcing companies to devise other ways to generate revenues. Such include the payable internet television, mobile television, the subscription channel. Technology is the in thing and a key strategy for competition in the industry. It also offers bright potential for industry growth if the rate and trends of technological innovations and inventions are anything to go by. For instance, Digital video advertising revenues in the United States rose 98% in 2008, and S&P forecast a 73% increase in 2009 and 58% in 2010 (Business Wire, October 30, 2008, p.7). Advancements in broadcasting equipment coupled with the transformation of IT systems have made television transmission faster and more reliable; a factor that has a major hand in facilitating the growth of digital advertising.
Five Forces Analysis
The porter five forces analysis model is made up of five main segments and points of consideration to guide industrial decision making and strategy formulation.
These include the threats presented by new entrants in the industry, the bargaining power of suppliers based on their strengths and relationships, the bargaining power of consumers based on the availability of substitutes, the threats presented to the company by the available substitutes in the market as well as the degree of rivalry or competition in the market and its overall effect of the company strategy (Day, 1990, p.33). Close analysis of the five forces model will offer a clear understanding of the United States TV broadcasting industry and unearth the opportunities and threats that the industry offers to current and potential investors.
Threat of New Entrants
The already established firms in the United States television broadcasting industry such as the general electric corporation, CBC, and the new corporation are faced with a great threat from the new firms that are competitively entering the industry every other day. However, the intensity of the threat that the new entrants pose to the established television company largely depends on the existing barriers to entry. Setting up a TV station is an expensive endeavor. The established television firms and which are much stronger financially greatly intimidate potential entrants into the industry. The great economies of scale that the latter continues to enjoy greatly discourage new entrants thus creating a barrier to new entries. A new entrant in the television broadcasting industry will have no alternative but to invest heavily in equipment, marketing, and advertisement to acquire the same competitive ground with market leaders. Nevertheless, the threats from new entrants remain immense in this industry since it is a perfectly competitive market with limited physical barriers to entry.
Bargaining Power of Suppliers
In the television broadcasting industry, the competitiveness and survival of the organization largely rely on the advancement in technology and technical expertise. As a result, most of the equipment and components are obtained from outside suppliers and which are critical for the broadcasting stations’ operations; consequently, suppliers have very high bargaining power. With the pulsating rivalry among the many strong television broadcasting companies, the market for the digital and broadcasting services providers and suppliers is very extensive and the demand for their services and supplies is increasing by the day. Consequently, the bargaining powers of suppliers are quite high. However, the advancement of technology and availability of many firms supplying the necessity of the industry operation has to a greater extent lessened the power. However, both players in the television industry need to realize that strategic partnerships with suppliers can be a source of competitive advantage. This will ensure just in time, reduction in lead time, avoid last minute order, increased expedition among other benefits.
Bargaining Power of Buyers
In this industry, customers can be categorized into two main groups namely the viewers and the advertisers. In the television broadcasting industry, both the viewers and the advertisers have great bargaining power since the substitutes are many, there are limited switching costs and there is absolutely no financial commitment either by the viewers or the advertisers to anyone broadcasting firm. Since the advertisers’ main concern in the choice of the TV channel, to use in advertising is the extensiveness of the coverage for the highest market reach, the bargaining power of the viewers is equally enhanced. In circumstances where either the viewers or the advertisers are not satisfied with the services of a TV company, switching is instant and freer. In addition, the transformation of the advertising industry by technological advances such as the emergence of internet advertising via market leaders such as Google, Yahoo, MSN, facebook, and cell phones in advertising has provided the advertisers with a wide range of choices. This has handed advertisers unmatched bargaining power thus the players in the television industry have to be strategic if at all they are to remain competitive and profitable.
Threat of Substitutes
The threat of substitution presents a great challenge to the players in the United States television broadcasting industry. Ideally, there are very many competing firms in the market and most of them offer similar services, if not the same. Just like it was mentioned earlier in the analysis, the advances in technology have made it very easy for a customer (either a viewer or an advertiser) to switch from one television channel to another. As a result, substitutes that are presented by the many broadcasting organizations either locally or internationally offer a great threat to the British broadcasting strongholds and market leaders like CBC and the general electric corporation. In addition entertainment substitutes for viewers such as the rampant movie and films industry, as well wide options for advertisers such as the internet portals and communities like facebook are great threats to the television broadcasting industry. To avert or mitigate this threat, both the existing television broadcasting companies in the US and potential investors must ensure their services and other customers’ maintenance strategy are kept at the highest levels.
Industry Rivalry
The television broadcasting industry especially in the United States of America is one of the most competitive business platforms. Competition in this industry has greatly intensified and continues to become fiercer by the day. Consequently, the market leaders like CBC, the News Corporation, General Electric Corporation the white Disney among other industry strongholds are faced with intense rivalry from sprouting broadcasting companies such as Qad, Incorporated CSG Systems International, Inc. Quest Software Inc, CSS Industries, Incorporated Quotemedia, Inc. Cumulus Media, Inc among many others. In addition, external broadcasting companies with subsidiaries in America as well as the rivalry for market leadership among the established television broadcasting organizational have exerted very severe competitiveness in the United States television broadcasting industry. In addition, entertainment alternatives like the vibrant US movie industry, internet advertising, and emerging advertising communities like Facebook are major sources of competition. With the high intensity of rivalry in the industry, therefore, a company that hopes to survive must come up with the most effective competitive strategies of which maintenance of quality customer services is key.
Overall, Porter’s Five Forces Analysis reveals that the US television broadcasting industry is very discouraging to the new entrants or rather potential investors. Irrespective of low costs of entry coupled with limited physical barriers, huge amounts of resources are necessary to market, advertise, and enhance the growth of an infant television company in an industry that is highly competitive and ruled by strongly established television broadcasting strongholds that enjoy unmatched market share and large economies of scales like GEC, news corporation, the white Disney, CBC, and other broadcasting strongholds. In addition, the competition is severe, buyers have high bargaining power, and the threat of substitutes is high due to the many choices that consumers are presented with.
However, this does not close out the opportunities in the industries but rather makes it difficult for the latter to thrive, necessitating a very effective strategy for a new firm to successively entering the market. Similarly, entering the US television broadcasting industry to dethrone the market leaders like General Electric Company from their superior market position will be unwise for a new entrant. However, there is a lifeline for a new entrant if the latter maintains a focus strategy and offers points of differentiation in terms of quality and unique services/ content. New entrants need to note that companies such as white Disney and which have since made a remarkable mark in the US television market started recently as a small broadcasting house amid competition and intimidation from television strongholds like CBC and the general electric corporation.
Conclusion
The United States television broadcasting industry indicates more future potential this is because of the rapid growth and technological advancement that continues to be exhibited by the industry. This offers unlimited market growth and lucrative profitability potential. However, with the competitiveness that the industry continues to attract it is important for a company, whether new or existing to be strategically positioned if at all it is to survive. Established companies in the industry such as the general electric corporation, News Corporation, CBC among others are typically dominating the US television broadcasting industry both in terms of market share and absolute profitability. This is perhaps due to the financial strength, extensiveness of their operations, and richness of their content as well as the large economies of scale the firms continue to enjoy.
General Electric Corporation, for instance, the industry market leader takes the market lion share with a magnificent 22.7 % of the total US Television broadcasting market (IBS world industry statistics, 2009). Although this intimidates the less established and potential entrant, the rapidly growing industry presents an opportunity for entry especially for those companies that have the potential of maintaining a strategic focus and offering differentiated content and services that outdo what the industry can currently offer. This is demonstrated by industry minnows which were recently started and which have since created a mar in the industry. These include white Disney, The New York Times Company Broad Vision, Incorporated NIC, Inc. Cablevision Systems Corporation Novatel Wireless, Inc. Cadence Designs Systems, Incorporated, among many others. In this industry, the substitutes are many and switching costs are low. As a result, buyers have very high bargaining power hence organizations must remain strategic in terms of quality, efficiency, and relationship marketing since customer maintenance is essential for survival.
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