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Boston University School of Management
Cable Television Industry
Ricky HuynhPeter JohnsonWesley Kang
Kenny SumskyJen WeitzmanYong Min Yun
SI 422 Strategy Spring 2015
Boston University School of Management
Industry in Decline
Key Trends Analysis
SP
E
S
T
FCC Regulation on Net NeutralityFCC scrutiny over industry mergersGeographic monopolies allowed to operate
Per capita Disposable Income expected to increase in 2015Consumer Confidence expected to increase in 2015
Increased personal computer/tablet usageNumber of cable TV subscriptions decreasingSubstitutes becoming stronger (Netflix, HBO Now, Apple)Decreasing Customer Satisfaction with cable providers
Devices (i.e. televisions, computers, tablets, phones) and Fiber-Optics are becoming more interactive and fasterTechnical Fragmentation as Cable Coverage Expands
Key Competitor Analysis
Main Competitors• Time Warner Cable• Comcast• Charter• Cable Vision• DISH• Direct TV
AVG TWC CMCST CHTR CVC DISH DRTV-2
3
8
13
18
235 Year Avg. ROI
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Relative Cost Analysis: TWC
Comcast Charter TWC Direct TV -
20.00
40.00
60.00
80.00
100.00
120.00
140.00 EBITDA
Technical Operations
Programming & Content
Sales & Marketing
General Op-erating
Customer Care
Strategic Positioning
REGIONAL PROVIDERS
Source of Strategic Advantage
Scope
Broad
Narrow
DifferentiationCost Leadership
Indu
stry
ASP
Strategic IssueWhat should you do if you are stuck in the middle?
Stuck in the
middle?
Stuck in the
middle?
Can achieve
cost leadership?
Can achieve
cost leadership?
Can achieve higher WTP?
Can achieve higher WTP?
Status Quo
Adopt new position
Focused Competitor
Yes Yes
What would have to be true?• Too many product lines• Adding more costly features that do not add value to product• Price of TWC = Industry Avg. Price• WTP of TWC = Industry Avg. WTP
What would have to be true?
• Economies of density• Lower quality (Fewer channels, slower internet, lower quality network)• Fewer product lines• Economies of scale
What would have to be true?
Can it create a sustainable advantage?
Can it create a sustainable advantage?
Cost Leadership
Sell
Newer, Better
Products
Importance on Acquisition of
Network Contracts
Cloud Access to Content
Differentiation through
Advertising & Marketing
Strategic Activity Map
Customer Experienc
e
Customer Service Centers
Trained Technicians
Individualized Consumer
Packages with specific
channelsNetwork
Expansion
Cross-National Cable &
Technology
Investment in Cap Ex & Equipment
Everyday –low-price
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o Regional/Geographic Focus in Major Markets Focused Customer Base
Reduce Operating Costs
Reduce Acquisition Costs
o Cheaper product at acceptable quality Reduce Operating Costs
Reduce Programming & Acquisition Costs
Reduce Advertising & Marketing Costs
Reduce Consumer Care Costs
Focused Cost Leadership
Simple Customer Experienc
e
Remove Customer
Service Centers
Central training centers
Content tailored to
regional customers
Service more customers in
smaller timeframe
Basic Content & Packages
Acquire regional programs
Cloud Access to Content
Awareness Advertising
New Strategic Activity Map
Focused
markets
Cross-National Cable &
Technology
Strong human capital
Leverage Local Government
relationships to maintain regional
monopoly
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Next Steps
o Step 1: Geographic Focus Focus on major markets (i.e. New York, Los Angeles) through market swaps Economies of density: centralized training, fewer facilities and less equipment Leverage presence close to suppliers in television and entertainment (LA, NY)
o Step 2: Less Advertising and Leveraging Local Relationships Maintain geographic monopolies through relationships with cities and officials Awareness advertising only
o Step 3: Limit Customer Care Initiative Minimize customer service centers & technician training Less of a focus on consumer experience in product line
o Step 4: Targeted Content and Lower Quality Acquire the regional programs in local markets (i.e. Sports New York, SportsNet
LA). Accept lower quality programming and fewer options
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TWC Relative Cost Goal
Old TWC New TWC -
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00 EBITDA
Technical Op-erations
Programming & Content
Sales & Market-ing
General Operat-ing
Customer Care- 40%
- 40%
- 50%
- 40%
+20%
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Any Questions or Comments?
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o Porter’s 5 Forces
o Analysis of Strategic Effectiveness
o TWC Firm History
o Geographic Spread
o Market Swaps
o Network Cost & Viewership
o TWC General Revenue Breakdown
o Per Unit Price
o RCA 100%
o Price Breakdown
o Operating Costs
o Relative Costs (Per Unit)
o Solutions
Appendix
IndustryRivalrySuppliers Buyers
Potential Entry
SubstitutesPower of Suppliers (Medium)•Vertical integration with content suppliers• High Switching Costs•Cable providers can select from many content suppliers•Cable providers are competing for exclusive content
Threat of Entry (Low)• Large economies of scale• High capital requirements• Government regulations• High vertical integration• Adapt to new technology
Extent of Rivalry (Medium) Comcast, Cox Enterprises, Charter Communication, Cable Vision Systems Corporation• Low switching costs• Pricing wars (basic vs. premium)• Targeting the same market
Power of Buyers (Medium)• Medium switching costs• Only a handful of cable TV providers• Some bargaining power (bundle services)• Industry dependent upon buyer’s economic conditions
Threat of Substitutes (High) Online streaming services• Other activities such as video games, read, computer, movies, satellite tv• Price performance increasing
Porter’s Five Forces
Analysis of Strategic Effectiveness
• Industry Definition: • Satellite & Cable Television Providers
• Industry Firms: • Average Profits obtained from mathematical average of top competitors
• Is this firm in a Good or a Bad Industry? • An Average Industry
• Does your firm outperform or underperform the industry average? • Underperforms relative to other firms in the Cable TV & Satellite Industry
Analysis of Financial Performance
6%
Economic Average
+0.5%
Industry Influence
-2.5%
Strategy Influence
4%
Company’s Profitability
6.5%
Industry Profitabilit
y
Client Firm History
Key Events:• 1990: TWC formed as merger
between Time Inc. and Warner Cable
• 2008: TWC separated from parent company, Time Warner
• 2012: TWC acquired Insight Communications Company, Inc. for $1.3 billion
• 2014: Comcast offer to acquire Time Warner Cable• Still unresolved; pending FCC
review
Competitive Advantages:• Geographic Monopoly
• Does not compete in same areas as Comcast• Geographic Price Discrimination
• Controls two largest markets: LA & New York
• Scale (Second Only to Comcast)
• More power over suppliers (i.e. Viacom, Disney) relative to competitors
• Advanced Technology & Network• High Speed Internet, etc.
Geographic Spread
Market Swaps
Per Unit Price & Cost
Costs
Margin
Revenue Breakdown
80%
12%
8%
Sales by Segment
Residential ServicesBusiness ServicesOther Operations 2012 2013 2014
$0.00
$5,000.00
$10,000.00
$15,000.00
$20,000.00
$25,000.00
Other Opera-tionsBusiness ServicesResidential Services
Sale
s in
Mill
ions
Boston University School of Management
Relative Cost Analysis: TWC
RCA0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EBITDepreciation & Amor-tizationProgramming & ContentSales & MarketingTech & General Op-eratingCustomer Care
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• Focus on major markets: LA, NY, & Dallas • Economies of Density
• Lower administrative and transportation costs
• Centralized training = decrease costs & increase technician quality
• Fewer facilities & less equipment nationwide
• Means accepting lower quality network
• Market Swaps with Comcast
Solution: Geographic Focus
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Solution: Less Advertising & Geographic Focus
o Less Marketing & Advertising Abandon Customer Care Initiative
Awareness Advertising
o Leverage local relationships with City Officials Local Officials determine who can run cables through public
Geographic monopoly = lack alternatives & advertising unnecessary
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Solution: Targeted Content & Lower Quality
o Acquire targeted, regional programs around the NYC and LA area Ex: SportsNet LA
o Accept lower quality programming Avoid overpriced contracts
Drop networks that are tough in contract negotiation
Acquire cheap programming that will be acceptable quality
o Leverage regional presence in LA & NY, close to suppliers Human Capital: Hire Industry insiders
Develop Relationships
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Promo Price Price 1 Price 2 Upfront
1 Year Cost
RCN 70 80 90 50 890
TWC 79 91 1092
Comcast 90 115 145 1080
Cox 108* 138 30 1476*Mo 1-6
Dish 52 97 624
Direct 65 112 780
Price Breakdown
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Customer Care
General Operating
Sales & Marketing
Programming & Content
Technical Operations EBITDA
Comcast 2,205 5,412 3,075 9,819 5,517 18,112
TWC 839 4,729 2192 5294 1,530 4632
Charter 1,675 827 529 2,459 428 3,190
Direct TV 2,320 2,113 3,659 14,930 1886 8,352
Operating Costs (millions)
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Customer Care
General Operating
Sales & Marketing
Programming & Content
Technical Operations EBITDA
Total Price
Comcast 5.99 14.71 8.36 26.69 15.00 49.24 120
Direct TV 4.53 4.13 7.15 29.18 3.69 16.32 65
TWC 3.93 22.15 10.27 24.79 7.17 21.69 90
Charter 6.28 5.72 9.90 40.40 5.10 22.60 90
Relative Costs (Per Unit)
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Bibliography & Footnotes
“Cable Networks in the US.” IBISWorld. 1 Nov. 2014. Web. 3 Mar. 2015. http://clients1.ibisworld.com/reports/us/industry/default.aspx?entid=1263.
“Company Overview.” Time Warner Cable. Web. 3 Mar. 2015. http://www.timewarnercable.com/en/about-us/company-overview.html.
Khan, Sarah. Cable Providers in the US. Rep. no. 51711a. N.p.: n.p., n.d. IBISWorld. Web. 3 Mar. 2015.
“Major Pay-TV Providers Lost About 150,000 Subscribers in Q3 2014.” Leichtman Research Group | Press Releases. Web. 3 Mar. 2015. http://www.leichtmanresearch.com/press/111414release.html.
“Time Warner Cable Annual Report.” Time Warner Cable. Web. 3 Mar. 2015. http://ir.timewarnercable.com/files/doc_financials/Annual%20Reports/Time_Warner_AR3_29_11.pdf.
Time Warner Cable Inc. Company Profile. Rep N.p.: n.p., n.d. Marketline. Web. 3 Mar. 2015.“Time Warner Cable Inc. (TWC.N) Quote.” Reuters. Thomson Reuters. Web. 3 Mar. 2015.
http://ww.reuters.com/finance/stocks/overview?symbol=TWC.N.
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Bibliography & Footnotes
Berr, Jonathan. “Can Comcast improve its dismal customer service.” 20 Mar. 2014. CBS Money Watch. 15 Mar. 2015. Web. <http://www.cbsnews.com/news/can-comcast-improve-its-dismal-customer-service/>.
Nisen, Max. “The 15 Companies that Frustrate Americans the Most.” 26 Dec. 2013. Business Insider. 5 Apr. 2015. Web. <http://www.businessinsider.com/companies-with-the-worst-customer-ratings-2013-12?op=1>.
“Charter Communications Unaudited Income Statements of Operations and Operating Data.” Charter Communications. Web. 4 Apr. 2015. <http://ir.charter.com/phoenix.zhtml?c=112298&p=irol-earnings>.
“Annual Report on Form 10K.” Comcast. Web. 4 Apr. 2015. <http://www.cmcsa.com/annuals.cfm>.
“DIRECTV 2014 10K.” Direct TV. Web. 4 Apr. 2015. <http://investor.directv.com/financial-information/quarterly-results/default.aspx>.
