Kghfhfhf Bertelsmann AG Presentation March 2002 Bertelsmann’s Strategic Positioning IN THE MEDIA & ENTERTAINMENT INDUSTRY University of Illinois Executive

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Bertelsmann AG Presentation

March 2002

Bertelsmann’s Strategic Positioning IN THE MEDIA & ENTERTAINMENT INDUSTRY

University of Illinois Executive MBA

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Donna AcklinJay BartlettDan Becker

Brad ComincioliAnne Jennings

Christine MajersRadha Nandkumar

Paulo OliveiraTroy Scott

Vanisha TaylorFaculty Advisor: Professor Joe Mahoney

Bertelsmann’s Strategic Positioning IN THE MEDIA & ENTERTAINMENT INDUSTRY

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Defining the Business: The Starting Point of Strategy

For the purposes of our presentation, we define the

Media & Entertainment Industry as encompassing

companies dedicated to the creation and/or

aggregation and/or distribution of intellectual property

aimed at providing leisure to users, through any

available media outlet.

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Key Industry Participants

AOL Time Warner

Bertelsmann

News Corporation / Fox

Walt Disney

Viacom

Vivendi Universal

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What are the key strategic factors shaping the

Media & Entertainment industry?

What strategies will enhance Bertelsmann’s

future positioning within the industry?

Strategic Focus of the Presentation

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Bertelsmann’s Strategic Positioning in the Media & Entertainment Industry

Industry Analysis

Value Chain Analysis

Recommendations

….……….….Jay Bartlett

…… Anne Jennings

….……. Paulo Oliveira

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Industry Analysis

Jay Bartlett

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Industry Analysis Using Porter’s Five Forces Model

Buyer Power

RivalryThreat of

SubstitutesThreat of Entry

Supplier Power

Complementors

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Supplier Power (Moderate to High)

New Talent

• Difficult to find

• Expensive to cultivate

Existing content

• High price transparency

• May not be for sale

News / General interest

• Expensive to produce

Impact - Moderate

Stars / Popular Production

• Concentrated supplier group

• Star brand more powerful than media firm brand

• Ability for supplier to sell direct via the Internet

Impact - High

Threats to Content Development

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Consumer Power (Moderate)

Advertisers

• Excess capacity/space

• Evolving distribution channels

• Threat of access barriers by owners of distribution

• Demand for coordinated media campaigns

• Highly price conscious

• Advertising budgets often discretionary

Consumers• Increasing number of choices

• Access to media is increasingly via the Internet

• Increasing consumer control (VOD, iTV, Pay-Per-View, PVR)

• Little or no cost to switch

Threats from Customers

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Threat of Entry (Low)

• Branding is critical• Capital requirements are high• Cost advantages to industry

leaders – economies of scale• High costs due to dynamics of

digital mediums • Economies of scope to diversified

companies• Difficult to secure new capital

- Dot.Com crash- Cyclical nature of advertising

spending

Threats from New Firms Entering the Market

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Threat of Substitutes (Low)

• Very few substitutes for content

• Variety of advertising mediums

• Free basic services

• Companies must advertise

From the Perspective of Advertisers

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Rivalry (High)

• Evolving industry• High fixed costs• Excess advertising capacity• Short product life cycles• High entry and exit costs• Large number of competitors

Propensity for Strong Price-based Competition

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Sixth Force – Complementors (High)

• Broadband• Digital Content• Enabling Technologies• New Revenue Models

- Tiered charging models

- Copyright protection

Unique Technological Factors

Results • Adds to competitive forces • Rewards first-movers

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Industry Structure 2002 High Levels of Competition

Buyer Power Moderate

RivalryHigh

Threat of Substitutes

Low

Threat of Entry Low

Supplier Power Moderate/High

ComplementorsHigh

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Anticipated Industry Structure 2007 Consolidation & Maturing Technologies Improve Industry Conditions

Buyer Power

RivalryThreat of

Substitutes Threat of

Entry

Supplier Power

Complementors

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Value Chain Analysis

Anne Jennings

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Vertical Coordination

From the industry analysis we conclude that a key element to improving industry conditions is vertical integration.

• Cost reduction

• Distribution channel risks

• Wide-scope advertising campaigns

Therefore, we turn our focus towards the firm using the tool value-chain analysis.

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Media Value Chain

DISTRIBUTION• Radio• Television/Theater• Magazines• Newspapers• Books• Internet• Theme Parks/Stadiums• Stores/Outlets• Personal Digital

Assistants• Cellular phones• Personal Computers• Kiosks/Pin Walls• Phone/Fax• Billboards

CONTENT• Information• Creative talents• Archives• Intellectual Property

- Copyrights- Trademarks

AGGREGATION• Audio• Video• Print• Virtual

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Global Media Landscape

Movies/Home VideoTV ProductionSportsChildren's EntertainmentNewsMusicMagazine PublishingInteractive SoftwareBroadcast Network

Local TV StationsBasic Cable Network Moderate Presence

Premium Cable NetworkCable SystemsSatellites Little or No Presence

RadioConsumer Products, RetailTheme ParksMovie TheatersE-Commerce/Direct Mkt.Internet-Narrowband

Internet-Broadband

Strong Presence

Salomon Smith Barney, 12/01

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Geographic Diversity of Revenue Streams in 2000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Viacom

AOL Time Warner

Disney

News Corp.

MGM

Vivendi

Bertelsmann

U.S. Europe/Asia/Latin America

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Conclusions & Recommendations

Paulo Oliveira

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What are the key strategic factors shaping the Media & Entertainment Industry?

• Convergence of technologies

• Consolidation of creators, aggregators and distributors

• Governmental regulations

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What strategies will enhance Bertelsmann’s strategic positioning within the industry?

Critical Success Factors

1. Become a dominant global player

2. Control the customer interface

3. Leverage intellectual property from publishing

Horizontal and vertical coordination to control the key links of M&E’s value chain, namely content, aggregation and distribution, on a global basis.

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Recommendations

1. Become a dominant global player • Be a catalyst for non-integrated companies• Utilize M&A, Co-opetition, JV’s, strategic alliances

2. Control the customer interface • Expand electronic distribution capability • Explore unique position in the U.S.A.

3. Leverage intellectual property from publishing • Expand into filmed entertainment production• Lead e-book development

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Possible Scenarios: Integrating Complementary Businesses

“Lone stars” in the U.S.A.

• MGM

• NBC

• AT&T Comcast

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Bertelsmann 2001: # 1 in Publishing & # 6 overall in the Media & Entertainment Industry

Vivendi Universal

AOL Time Warner

Walt Disney

Viacom News

Corp. & Fox

Bertelsmann

Revenue $ 48.2$ 38.5$ 25.3$ 23.3$ 22.4$ 18.4$

Pay TV Network 6.7$ 6.9$ 3.8$ 4.2$ 6.0$

Broadcasting 0.4$ 5.8$ 6.8$ 3.3$ 2.4$

Filmed Entertnmnt 7.2$ 8.1$ 6.3$ 2.8$ 7.2$ 1.1$

Publishing 6.7$ 5.0$ 0.7$ 6.0$ 8.5$

Music 14.5$ 4.2$ 3.5$

Cable Systems 6.5$

Radio 3.7$ 0.2$

Consumer Products 2.3$ 2.0$

Theme Parks 1.9$ 6.8$

Video Rental 5.1$

Telecom 11.1$

Online 7.3$ 0.3$ 0.7$


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MGM acquisition would double Bertelsmann’s film business, but with a minor impact in world positioning

Vivendi Universal

AOL Time Warner

Walt Disney

Viacom News

Corp. & Fox

Bert-MGM

Revenue $ 48.2$ 38.5$ 25.3$ 23.3$ 22.4$ 19.9$

Pay TV Network 6.7$ 6.9$ 3.8$ 4.2$ 6.0$ 0.2$

Broadcasting 0.4$ 5.8$ 6.8$ 3.3$ 2.4$


Publishing 6.7$ 5.0$ 0.7$ 6.0$ 8.5$

Music 14.5$ 4.2$ 3.5$

Cable Systems 6.5$

Radio 3.7$ 0.2$



Video Rental 5.1$

Telecom 11.1$

Online 7.3$ 0.3$ 0.7$


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An alliance with NBC would make Bertelsmann the leading broadcaster in the world

Vivendi Universal

AOL Time Warner

Bert-MGM-NBC

Walt Disney

Viacom News

Corp. & Fox

Revenue $ 48.2$ 38.5$ 26.4$ 25.3$ 23.3$ 22.4$

Pay TV Network 6.7$ 6.9$ 0.2$ 3.8$ 4.2$ 6.0$

Broadcasting 0.4$ 8.9$ 5.8$ 6.8$ 3.3$


Publishing 6.7$ 5.0$ 8.5$ 0.7$ 6.0$

Music 14.5$ 4.2$ 3.5$

Cable Systems 6.5$

Radio 0.2$ 3.7$



Video Rental 5.1$

Telecom 11.1$

Online 7.3$ 0.7$ 0.3$

Salomon Smith Barney 12/01 & Company Reports

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ATT Comcast: Merger of the decade creates the second largest Media & Entertainment company in the world!

Vivendi Universal

Bert-MGM-NBC- ATT-Comcast

AOL Time Warner

Walt Disney

Viacom News

Corp. & Fox

Revenue $ 48.2$ 45.4$ 38.5$ 25.3$ 23.3$ 22.4$

Pay TV Network 6.7$ ? 6.9$ 3.8$ 4.2$ 6.0$

Broadcasting 8.9$ 0.4$ 5.8$ 6.8$ 3.3$


Publishing 6.7$ 8.5$ 5.0$ 0.7$ 6.0$

Music 14.5$ 3.5$ 4.2$

Cable Systems ? 6.5$

Radio 0.2$ 3.7$



Video Rental 5.1$

Telecom 11.1$ ?

Online ? 7.3$ 0.3$

Salomon Smith Barney 12/01 & Company Reports

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Thank you!

Documents

Kghfhfhf Bertelsmann AG Presentation March 2002 Bertelsmann’s Strategic Positioning IN THE MEDIA & ENTERTAINMENT INDUSTRY University of Illinois Executive