BSB vs SkY number 1

Introduction :

By October 1990, two new entrants suffered a combined investment of 1.25 billion and a weekly 10 million loss and are waiting desperately the Christmas season to fall in better hands. Rather than behave rationally and focus on profit maximization and a long run going concern for the entire industry, the two companies engaged in a bloody war, that let the industry suffer one of the major loss ever and led to the merger of the two companies .

This case outlines one of the most ferocious competitions of the satellite TV, and announces a series of battles under other skies in the same industry.

The situation described in the case is much to be close to a War Game that ends up with a takeover of one on the other .

Todays view on that situation could be biased due to the result of such game, but we will try to be as fair as possible with BSB management to justify their intention in that time.

The task would not be easy due to the drastic changes in that industry during the 90s. The two companies bet all their funds and based all their future wealth on two different alternatives. Nevertheless, these two alternatives were analogue based technologies that have been replaced rapidly in 1996 by the most cheap and higher quality digital satellite broadcasting with its standard known as DVB . The latter technology allows scrambling of the signals, stereo sounds and wide screen support. A lot of scrambling system has appeared during this period. The most secure one remains the Videoguard NDS system developed by an Israeli firm for BSkyB.

Description of the situation :

We are faced with an extremely competitive market with two players. The situation could be summarized in the hereunder points: - High cost entrance - High Operational Costs - Existence of substitutes (BBC, ITV and Channel 4 terrestrial TV and VCR for movie channels) - High antagonism between the players - Government intervention to regulate the industry (applicant BSB- was forced to use high cost risky transmission standards) - Uncertainty about the technology used - The two companies markets the same product (TV channels package, including a movie channel) - Two monopolists based behaviors who are confronted to a ferocious competition. - Price was setup from the beginning in the initial application to IBA (could be assimilated to a regulation) - Each subscription is considered as an asset (power to retain its customers) because of the high cost of switching from one provider to another .

The Initial Game :

The game started far before the going on air. It has officially started on 1986, when IBA has granted a 15 years franchise for BSB to run its commercial service on three of its five DBS channels.

For matter of simplicity, we will assume that BSB has three aired channels out of potential five DBS channels. The two channels aired on the same frequency will be considered as one.

The terms of the license were that BSB pay for the construction and launch of two high powered satellites . Yet the terms of the franchise were not listed in the case, we could assume the following: - IBA will allot the remaining two channels with the same terms - Since the two DBS remaining channels could not be easily scrambled, intelligence or military use would not be considered. Only commercial use would be useful. - The second applicant will share the costs of high-powered satellite with BSB (or lease the rights for 15 years)

Thus the game could be figured out as follow (sequentially) : Figure 1

* Assumptions concerning the calculation: for this industry the costs are not variables. Up to 80% of the costs are fixed and are directly linked to operations to go on air. Thus and because of lack of information concerning overheads we will assume in our calculations that the costs presented in Exhibit 6 & 7 of the case are needed to run the business less the depreciation of satellite or equipment that are explicitly shown in the case.

Due to the high cost of entry and the High Price of operations (movies rights, programming and Marketing) BSB did not expect any other competitor to enter the market using the two left DBS channels. BSB management felt comfortable with this situation as a monopoly over the British Satellite Broadcasting industry.

Figue 2: Matrix presentation*

*Comp. A could not anticipate that BSB will exit from the market (not rationale decision), thus any entrant will be in the left upper box loosing money. ** -484 mil is the cumulative losses for 1989 & 1990 assuming that Comp. A will enter during fall 1990 and BSB Exit in early 1991

But the unexpected occurs. An aggressive, well experienced and fortunate entrant takes the red line path with an old, cheap but proven technology.

On June 1988 Rupert Murdoch announced his intention to enter to the satellite broadcasting game, through an old but cheap and proven technology. Furthermore, the launch of the satellite package was scheduled 6 months before BSBs launch, which clearly cut the grass under BSBs feet in term of first entrant in the market.

BSB management through their market intelligence did realize the big threat of Murdochs announcement knowing: - Murdochs intention to get to the business - News Corp. Experience in British TV broadcasting (stakes in ITV) - News Corp. agressivity and determination to have a critical mass - The size of News Copr. (one of the top three biggest Media Groups and one third of British newspaper) - Benediction from Prime Minister Margaret Tatcher

From this perspective, and given the market estimates for the penetration of the dishes in the Britons households the Game could be presented as follow :

With a forward thinking, profit-maximization decision making, BSB managers should have get out of the business rapidly in order to minimize their losses, since they will be diving deeply if they keep on rolling the business.

BSB managers should have run this exercise as soon as Murdoch announced his intention to get into the business with a cheaper technology (thus a cheaper cost to entry and a lower operational cost).

BSB managers behave just the opposite. They ridiculed Skys proposal, claiming that PAL technology would be too degraded by satellite transmission, and that in any case BSB had a superior programming . They also had increased their commitment in the industry.

Why did they have behaved this way? Are they just insane?

Absolutely no. They have predicted that the satellite dishes penetration in the Britons households will be much higher than the penetration of VCR, which regression has been primarily used to forecast the satellite dishes penetration. They have applied a rate of approximately 2.3 times the speed of VCR penetration within the same market. They are supported in their approach by the fact that they signed up the rights for films and ensured access within 6 months of their release on video instead of 12 months. They also have thought that a much diversified offer could help cannibalize both VCR addicts and regular terrestrial TV watchers (BBC, ITV and Channel 4). They, besides, have decided to launch a very aggressive Marketing and promotional plan in order to speed up the adoption by the market for the satellite TV broadcasting and their innovative and high quality (though very expensive) technology.

Given the new market growth (highlighted in yellow in the Exhibits) the game could be presented (from BSB side at that moment) as follow :

According to the matrix above, BSBs management has a lot to gain from a higher satellite dishes penetration among Brittons households (even better than staying alone with the former assumption of market growth). Thus a realistic decision should be in that case to increase the commitment and harder the game.

The basis of the thinking of the BSBs managers was healthy. Their assumptions were valuable. They anticipated a booming change in the TV broadcasting and a rapid adoption of the British market for the high quality satellite TV broadcasting.

Nevertheless, they eclipsed one relevant point which was that BSB and SKY offer rely on two different standards and that the public could be skeptic and wait before investing in the reception equipment . And this is what happened.

Furthermore, BSB costs were very high, and even their way of managing was extravagant compared to a much more pragmatic way of its competitor. As an example BSB hired people installed them in a luxury head quarter, had engaged 500 start-up costs while Sky TV had leased their head quarter in an industrial suburb of London and paid only 100 million as start-up costs.

One could not blame only BSB managers, IBA have a lot of responsibility in the failure of this franchise. Indeed, by forcing them to use a costly, not proven, not sustainable and non tested alternative (D-MAC) they implicitly pushed BSB to the highest cost alternative and by not regulating the market to force off the air new entrants with lower quality broadcasting, they have weaken BSB future wealth.

How has finally won that game :

One can say Sky TV, who merged with BSB . Consumers and advertisers have profited by this situation, with high quality programming and movies for the former and low advertising fees for the latter. US movies groups have also profited by this situation as they have been paid almost 3 times their rights.

Amstrad could be considered as the one how have won the game. He came out of the doubtful deal of BSB and contracted a deal with Sky to sell the equipment. He is the unique player who has not lost a penny in that game (Virgin having left the game and the industry).

BSB vs SKY number 2Payoff Matrix:

Since the players have only 2 options "compete" and "exit", calculate the NPV of the project for the players under given scenarios: Taking the given assumptions into consideration and year 1990 as Year 0' (as the losses and costs incurred through 1990 are considered sunk): If BSB competes and Sky TV exists = NPV (BSB) = -104.09 (I.e. (179.97)/1.10+ (139.86)/1.21+(71.25)/1.33)+ (30.99)/1.46+9.8/1.61+ (13.25)/1.77+ (169.14)/1.95+ 44.97/21.14+74.08/2.36+74.08/2.60/0.10)

If Sky TV competes and BSB exists= NPV (Sky TV) = 660.702 (I.e. (61.88)/1.10+ (34.39)/1.21+ (18.27)/1.33)+ 18.90/1.46+ 56.06/1.61+ 50.75/1.77+ 79.86/1.95+ 108.97/2.14+ 138.08/2.36+138.08/2.60/0.10)

If both Sky TV and BSB compete: Starting '93, both the companies will have equal market shares (Assumption given in case). In the given cash flow model; both companies starting '96 are already assumed to be having equal market share. So making a difference in the assumptions for their market share for years '93, '94 and '95 will not make a huge difference in the above-calculated NPV's. In such a scenario, NPV (BSB) will still be negative and NPV (Sky TV) will still be positive. The main reason behind the negative NPV for BSB is its huge capital expenditures and not market share.

Compete Exit Compete (30, 70) (L, G) (100, 0) (L, 0) Exit (0,100) (0,G) (0,0) Sky TV BSB

(L = Loss (negative NPV), G = Gain (positive NPV), 0 = No loss no gain). Also based on percentage of market shares. As can be seen from the payoff matrix, the satellite broadcasting business is a losing proposition for the BSB. It is not possible for the market to sustain these two capital-intensive satellite operation companies in competition. BSB's shoulders the burden of building and launching its own satellites, more ambitious and expensive technology and higher capital expenditure over all. Sky's earlier launch and leasing of transponders has allowed it to overtake its rival in this battle to win customers. BSB's dominant strategy should be "exit", as with Sky in the market, it is not possible for BSB to have a positive return on its investments. BSB should remain in the market if Sky plans to exit (however this has almost no chances of happening in near future). Sky's dominant position should be "compete" as its position is much stronger in the market compared to its competitor. Since both companies are struggling with the burden of massive losses, one company should overtake the other to survive in the market. A prospective merger will also help clear the existing confusion among customers. There is a huge population of potential customers who have decided to wait and see which company would succeed rather than committing themselves to buying equipment that might soon be obsolete. BSB had been no match to shrewd, aggressive marketing and capital expenditure of Sky TV. Sky should offer BSB about 30% share in possible merger. Even though Sky has gained bigger market share, it still has weak advertisers compared to BSB. Sky should ask for 50% share if BSB offers first the idea of merger. As can be seen from the payoff matrix, it is BSB that is in bigger trouble compared to Sky TV. Even though Sky is incurring losses, it has bigger pockets behind its back. On the other hand, BSB's partners are already in financial trouble and may not be able to sustain losses for long in this rivalry.

BSB vs SKY number 3Sky's decision to lease channels rather than purchase a satellite resulted in an annual cost of 10 million, in contrast to an annual 50 million depreciation charge borne by BSB. As compared with the delayed April 1990 introduction of BSB, Sky has a crucial head start in gaining critical mass for technology standardization. BSB should choose to fight instead of exit, aiming to capture 64% of the market by 1993. However, in order to gain a positive NPV, as opposed to the current negative amount of 474. Instead of purchasing satellites, Sky leased several channels at 10 million per year from a medium-powered satellite using an older PAL technology that would broadcast across Europe. Sky promoted its service heavily, and by October 1990 had installed 946,000 dishes. The market game given these strategies is detrimental to both BSB and Sky as each chooses to compete, resulting in significant losses unless a new strategy is implemented. Given that brands are built over time, both BSB and Sky are focusing their strategies on generating consumer awareness while edging out the competition through increased advertising and promotions. Since the satellite is already a sunk cost they should not try to switch gears and cooperate with Sky Television's PAL system. As shown in Exhibit 4, BSB has quickly seized 16% of the market after only 7 months and its install rate is growing at an average of 50% from month to month. This implies that BSB, in order to gain a profitable stance in the fight for market share and technology standardization, must apply a new business strategy for cost containment and operating structure. This notion has already been illustrated in the higher rate of adoption experienced by BSB compared to Sky for the differing technology standards, a trend that would be expected to be even greater under the new strategy. The firm was able to produce programs more cheaply (and quickly) than BSB.

BSB vs SKY number 4The central issue in Ghemawat's final case-study is this: Do price-wars of the sort in which BSB and Sky engaged imply irrationality on the part of one or both of the firms?

What does Ghemawat mean here by `irrationality'? This is more complicated than it seems - or than Ghemawat indicates.

It is sometimes supposed that application of an economic model requires the assumption that all agents act in such a way as to maximize money profits. This is not the case. Economists presume rationality in only a very thin sense: to treat something as an economic agent is only to assume that its choices are consistent with an acyclical ordering of preferences over states of the world. Where firms are the agents, this typically involves the assumption that states of the world involving higher money profits are preferred to states that involve lower ones, but this is not essential. (E.g., BSB could have been maximizing its reputation for toughness, for the sake of prestige. This would not render it `irrational', in that its behaviour could still have been modeled by the theorist, or by its competitors, in game-theoretic terms.)

8.2

However, suppose that BSB was internally divided, in that its manager (i.e., Simmonds-Gooding) was trying to maximize one thing (in this case, status in corporate history as a `winner') while his shareholders were trying to maximize another (in this case, money profits). In that instance, we could not treat BSB as a single agent; our game would involve at least three players - Simmonds-Gooding, the BSB shareholders, and Sky.

This is why Ghemawat wonders whether the case casts doubt on the extent to which game-theoretic modeling can safely treat firms as "unitary agents". This question is exactly equivalent to asking whether we can treat firms as rational. (There is nothing peculiar to game theory here; we could say exactly the same thing with respect to the applicability of any economic model.)

Note, however, that firms are always composed of individuals with different utility functions. We could never model the behaviour of firms at all unless we operated with the following methodological default:

Institutional incentives coordinate the actions of a firm's members in such a way that individual idiosyncrasies cancel out. We treat a firm as `unitary' (and, hence, as `rational' in the economic sense) unless we cannot find any consistent utility function that is consistent with its actions.

8.3

Is this default consistent with Ghemawat's conclusion that BSB behaved irrationally? No. It is not difficult to explain the price war in accordance with consistent profit-maximizing behaviour by both firms. We will first show this, and then analyze the basis of Ghemawat's philosophical mistake. 8.4

The BSB-Sky Monopoly-bidding game

BSB and Sky are competing over the chance at monopoly - an extraordinarily large and profitable monopoly. Model the game as follows:

In round one, BSB can either stay in the game or exit. In round two, Sky faces the same choice (within an information set). This continues, in alternating logical sequence, up to round k. Assume the following payoffs. If BSB exits in round one, it earns a payoff of 0. If it exits at any later point, it earns a strictly lower payoff - lower the later it exits. If Sky exits at round one, BSB earns its maximum payoff, winning the monopoly after no bidding war. For each round that Sky stays in the game before exiting, BSB earns a smaller maximum payoff from winning the monopoly.

Sky's payoffs are exactly symmetrical.

Each firm faces a time t k at which the cost of remaining in the bidding war exceeds the value of the monopoly. If both firms have perfect information, then, if tBSB < tSky, then there is one NE in this game: BSB exits in round one and Sky stays in indefinitely. If tBSB > tSky, then there is also only one NE: Sky exits in round one and BSB stays in indefinitely. If tBSB = tSky then every pair of strategies is a NE unless one firm can take a strategic action that the other cant.

8.5

In the actual game, both firms bid up to tBSB, almost destroying the value of the monopoly in the process. This is why Ghemawat says that the game "did not reach a NE."

But this assumes that both players had perfect information. Surely they didnt. Neither firm knew its own future cost of capital, let alone the other's, since the expected cost of capital to each is itself a function of the dynamics of the game. (Investors will revise the price of capital to each firm as they acquire information through observing the play of the game.) Furthermore, neither side is certain of the value of the monopoly, so they may have differing estimates of tBSB and tSky.

This last bit of uncertainty is especially important. Consider what BSB did following Sky's entry: it expanded its advertising in search of faster market penetration. Ghemawat is puzzled about this: does it not imply that BSB thought the monopoly more valuable in the presence of competition than in its absence? This would indeed imply irrationality on BSB's part (or belief by BSB that Sky is irrational). But we need believe no such thing.

8.6

The bidding game creates a commitment war among the potential customers. No customers wish to be stuck holding the loser's technology. Therefore, customers have an incentive to delay commitment while gathering information about the probable outcome of the game (by observing the game itself, and, even more informatively, by watching each other). BSB, in its advertising after Sky's entry, offered large discounts to customers who committed early. This provides a direct incentive to customers to commit earlier, and an indirect one by signalling that BSB has a larger war-chest than they might otherwise have assumed. Each customer who commits early increases the incentive of others to commit early. This may create a bandwagon effect, giving the victory to BSB. There is thus nothing necessarily irrational about BSB's increased investment following Sky's entry. The game not only has an infinite number of NE, but also an infinite number of sequential equilibria! A war of attrition up to tBSB is among them.

Ghemawat's own analysis on pp. 185-193 builds in this imperfection of information (so that is not where he makes his mistake). In his model, the firms dont know one anothers beliefs about relevant conditional probabilities. They each make conjectures about the other, assigning probability distributions over these conjectures, and then adjust the probability assignments as they acquire information through play of the game. Rational behavior in such a setting consists in using all information that becomes available, and taking the action that maximizes expected utility at each stage given ones conjecture at that stage.

8.7

So why does Ghemawat say that the game doesn't reach a NE? And why does he suggest in other places that the firms were irrational? These two conclusions of his are in direct tension with one another, but I see no motivation for either of them.

It will help us to distinguish risk from uncertainty. Consider the intuitive idea of a NE: I am not playing a NE strategy if I would regret my strategy given the strategies of the other players. Where mixed strategies aren't involved, the notion of `regret' is not ambiguous. But where mixed strategies are involved, `regret' obscures a distinction.

Here is the distinction: If I use the wrong randomization, I will regret my strategy in the sense that, given your strategy, I could have strategized in a way that would have increased my expected payoff. This is genuine `regret' in the game-theoretic sense. But if my best randomization leads to disaster I am merely disappointed at my bad luck; I could not have strategized more wisely, given what I knew ex ante. (Compare, in our river-crossing game from Lecture 2, the escapee who chooses a pure strategy and gets caught [regret] with the escapee who randomizes rationally but meets his pursuers by sad coincidence or is hit by one of the falling rocks [disappointed].)

8.8

BSB's behaviour in this case is consistent with the play of a rational agent that follows its NE strategy and is disappointed. I thus reject Ghemawat's conclusion that this case pinpoints a limitation on the applicability of game-theoretic models. We may use such models to predict the probabilities of price-wars (or their logical twins in Cournot, quantity-wars).

British Satellite Broadcasting (BSB) (1986-1990) was a company set up in 1986 to provide direct broadcast satellite television services to the United Kingdom. Rival Sky Television was also suffering massive losses by 1990 and the companies merged 50:50 financially when Sky's parent, News Corporation, was financially threatened, though it was in effect a management takeover by Sky to form today's British Sky Broadcasting or BSkyB. BSB main shareholders Granada, Pearson Reed and Chargeurs maintained an interest in BSkyB through BSB Holdings Limited, but gradually sold their shares in the market throughout the 1990s, realising huge profits on their investment. BSB's short life had prevented Rupert Murdoch from making 100% of the profits available from UK Satellite televsion.

Background BSB's Five Channels: The Sports Channel, Galaxy, The Movie Channel, Power Station, Now Evolution of UK satellite television A Squarial installed on a house wall BSB TV Month promotional magazine, first issueThe British Satellite Broadcasting consortium was formed in 1986 by Granada, Pearson, Virgin, Anglia Television and Amstrad. In early 1988 the BSB consortium was awarded a licence to operate three channels by the Independent Broadcasting Authority (IBA). The consortium changed around this time; Amstrad withdrew and Australian businessman Alan Bond joined along with Reed, Chargeurs, London Merchant Securities and others.

Rupert Murdoch, having failed to gain regulatory approval for his own satellite service, announced in July 1988 that his pan-European Sky Channel would be relaunched as a four channel UK based service, Sky Television.

The BBC had previously proposed its own satellite service, but pulled out when the Government insisted that the BBC should pay for the satellite's construction and launch. In addition to BSB's three channels licences for two more channels would be put out to tender.

The stage was set for a dramatic confrontation. BSB, anticipated as the UK's only satellite service, was faced with an aggressive drive by Murdoch's Sky to be the first service to launch.

BSB was forced by the conditions of its licence to pay for the construction and launch of two satellites, named Marcopolo 1 and 2 after Marco Polo, capable of broadcasting five channels that could be received on 30cm (12") diameter dishes. The satellites were high powered versions of Hughes Space and Communications' HS376 satellites. As Britain's official satellite provider BSB had high hopes. The company planned to provide a mixture of highbrow programming and popular entertainment, from arts shows and opera to blockbuster movies and music videos. The service would also be technically superior, broadcasting in the D-MAC (Multiplexed Analogue Components type D) system dictated by EU regulation, with potentially superior picture sharpness, digital stereo sound and the potential to show widescreen programming, rather than the existing PAL system.

In contrast to BSB's ambitious (and highly expensive) technology; Sky chose to use the European Astra satellite and broadcast in PAL with analogue sound; this system would require 60cm (24") dishes, although 80cm versions were recommended for Scotland and the north of England. BSB ridiculed Sky's proposals, claiming that the PAL pictures would be too degraded by satellite transmission, and that in any case BSB had superior programming. Furthermore SES Astra had no regulatory permission to broadcast, had plans for only one satellite, so no backup, and the European satellite launch vehicle "Ariane" suffered repeated failures.

To distance itself from Sky and its dish antennas, BSB announced a new type of flat-plate satellite antenna called a "Squarial" (i.e., "square aerial"). The illustrative model Squarial shown to the press was a dummy and BSB commissioned a working version which was under 45 cm (18") in width. A conventional dish of the same diameter was also available. The company had serious technical problems with the development of ITT's D-MAC silicon chips needed for its MAC receivers. When Sky went on air in February of 1989 its launch was so poorly managed that Disney cancelled its plans to launch the Disney Channel on Astra for fear of damaging its image at the time of the opening of the Disney Park in Paris. BSB was still hoping to launch that September, but eventually had to admit that the launch would be delayed. However since no one else had come forward to operate the two spare channels, BSB now had a licence to operate five channels rather than just three. The company continued to promote its Squarial with the slogan "It's Smart to be Square". Despite the length of time since the service closed down, squarials can still be seen on some houses. BSB also had a "minidish" in addition to the squarial, these can also still be seen attached to some properties.

BSB's five satellite channels were:

The Movie Channel The Sports Channel Galaxy The Power Station Now

BSB vs SKY number 5

1. How might BSB have been able to identify News Corporation as its potential competitor even before Rupert Murdoch's announcement on launch of Sky Television? Already Murdoch made an entry in the US satellite TV industry. He was aggressive and due to his stake in Sky, it was only a matter of time before he entered Britain. He has the capability to overcome the entry barriers. But so do other. News corps overall strategy was to be global and to dominate. Already present in US and Europe. Felt UK was a dominated market and shook it up in the newspaper industry. It was an established society and to change it would be through the news and media network. So wanted to enter and dominate UK. Competitor who is competing on economic parameters is much safer, as then we can apply game theory and rationality to it. But Murdoch was losing money and yet staying in. Thus econometrics did have a say in this game. 2. What might have BSB done differently before Sky's announcement of entry? What might have been done differently after the announcement? BSB could try to stop the entry of Sky or minimize the impact on BSB. They have currently made the following moves. They cold have procured movie rights early and saved costs. BSB could lobby to prevent PAL technology of Sky, as BSB was sinking in close to 1B in DMAC technology. No country would want its' citizens shareholders to lose that money. In technology choice, they didn't de-risk their strategy by preventing PAL. A user of tech, it makes immense sense to have options in multiple standards. B'cos betting on only 1, if that std fails, I stand to lose a lot. Pre-sales of receiving equipment could have done if one had the option of PAL technology. Could have given customer initially PAL technology and then replaced it later with DMAC. Instead of launching their own satellite, could have leased it. Extravagant, expensive office space.

Anticipate compttn, id who they are, take mitigating steps

3. What should BSB do in 1990? Why? Both try to merge. Form a cartel Acquire Sky

Sky / BSB Stay Exit Stay 369, -270 1748,-256 Exit -51,1190 -51,-58

What kind of forces exists in the industry and what kind of alterations can be made to gain comparative advantage and competitive positioning?

How can game theory be applied to competition to strategise better?

BSB had a reactive strategy and thus let us examine how it was affected. Sky Fight & induce exit of BSB & thus acquire the firm or its assets Not very lucrative. If they don't compete, regulators will interfere.

The matrix is useful to id the payoffs of the competitor and thus negotiate yr strategy. We will have an idea to the level Sky would go as against BSB would. A rational negotiation is possible using this matrix.

BSB decided to exit. Got 50% stake to exit. BSB had to bring in cash as it was required. 80:20 split for sky in dividends, 50:50 for next 400M and then 20:80 and 50:50 the onwards. Sky gets control rights as they had highest commitment.

Wars of Attrition Rational battles divergent beliefs about how long the other will persist Irrational battles and escalation of commitment Marginal calculations versus sunk costs This war is particularly costly High costs, stakes, switching costs for customers Inelastic supply of films, advertisers