timewarner, strategic analysis

Shashank Kothari || Management Development Institute, Gurgaon.

TimeWarner Inc.

EXECUTIVE SUMMARY

Last weekend, I was watching the Oscar winning movie, The Spotlight. The movie showcased the

power of good old journalism, and how strong media was imperative for a functional society. It got me

thinking how entertainment, media, literature etc. affect our society. They are the true reflection of our

social development and social mentality. This brings us to one of the biggest player in the

entertainment and media industry, TimeWarner Inc. The report is all about the company and the

industry thereof. It aims to analyse the company and the industry it functions in using multiple

frameworks, and provide a conclusion in accordance with the research.

The report starts with a rough background of the company and the industry, followed by an exhaustive

description of the company, its various operational divisions, its stated strategies and its revenue

models. This is followed by an industry analysis, using frameworks like PEST Analysis and Tetra Threat

Framework. Post this internal and external analysis; we do a competitive analysis for two of its

staunchest rivals, The Walt Disney Co., 21st Century Fox.

Post all the analysis, we conclude the report with few key takeaways and conclusions that we get out of

all our analysis.

CONTENTS

Executive Summary ..................................................................................................................................................................... 1

1) Background ......................................................................................................................................................................... 4

2) Company profile .................................................................................................................................................................. 4

2.1) Company History .............................................................................................................................................................. 1

2.2) Tuner ................................................................................................................................................................................ 1

2.2.1) Sports ........................................................................................................................................................................ 2

2.2.2) Entertainment ............................................................................................................................................................ 2

2.2.3) Kids ........................................................................................................................................................................... 3

2.2.4) News ......................................................................................................................................................................... 3

2.3) HBO .................................................................................................................................................................................. 3

2.4) Warner Bros...................................................................................................................................................................... 4

3) Industry Analysis ................................................................................................................................................................. 5

3.1) Trends .............................................................................................................................................................................. 6

Changes in the Consumer Behavior .................................................................................................................................... 6

3.2) PEST Analysis .................................................................................................................................................................. 7

Political ................................................................................................................................................................................ 7

Economic ............................................................................................................................................................................. 7

Social ................................................................................................................................................................................... 7

Technological ...................................................................................................................................................................... 7

3.3) Tetra Threat Framework ................................................................................................................................................... 8

Added Value ........................................................................................................................................................................ 8

Appropriated Value .............................................................................................................................................................. 8

4) Competitor Analysis ............................................................................................................................................................. 8

The Walt Disney Co. ................................................................................................................................................................ 8

Background ......................................................................................................................................................................... 8

Strategy ............................................................................................................................................................................... 8

21st Century Fox ...................................................................................................................................................................... 9

Background ......................................................................................................................................................................... 9

5) Financial Analysis ................................................................................................................................................................ 9

6) Conclusion ......................................................................................................................................................................... 10

7) Exhibits .............................................................................................................................................................................. 12

Exhibit 1 ............................................................................................................................................................................. 12

Exhibit 2 ............................................................................................................................................................................. 13

Exhibit 3 ............................................................................................................................................................................. 13

Exhibit 4 ............................................................................................................................................................................. 14

Exhibit 5 ............................................................................................................................................................................. 15

8) References ........................................................................................................................................................................ 16

This manuscript pertains to the strategic analysis of the TimeWarner Inc. which constitutes of

various entertainment media such as movies, sports, news etc. The document would analyze

the industry, followed by appraising various strategic steps taken by the company.

STRATEGIC ANALYSIS

TIMEWARNER INC.

STRATEGIC ANALYSIS

TimeWarner Inc.

1) BACKGROUND

The entertainment industry is one of the most

important and one of the most competitive

industries. The importance of the industry cannot

be overstated at all; especially in the world we

live in. not only is the information relevant, but the

mere fact that an average Earthling is hooked to

media 24x7 is enough testament to the raison

d’etre of the entertainment industry. It is not just

the information that is in itself so important, but

the fact that it is being provided to such a large

number of people all at once. Time Warner is in a

business to build, influence and propagate

culture, bring forth social, political and economic

factors and bring people closer together.

The entertainment industry has played a major

part in shrinking the world. The world as a village

now seems to be interlinked in more than one

way; that is precisely why the industry is so

dynamic and robust at the same time. The

requirements and demands of people for

entertainment keep varying daily, if not hourly!

The players always need to be at the top of their

game. While the prime function of an

entertainment and media giant such as the Time

Warner Inc. is to provide high quality content

across the spectrum of median they pursue, there

are a lot of factors which determine the content

that on air. There are a lot of social and political

factors affecting these companies, especially for

their news divisions, such as the CNN, Fox News

or Times Now, down here closer to home. It is not

difficult to understand and appreciate the

dynamics of this industry and gauge the number

of ways in which the industry is affected by, and

affects the world around us.

2) COMPANY PROFILE

Time Warner is a global leader in the media and

entertainment industry. It has its branches spread

across the television and film networks and

boasts of a very high brand equity. It offers, with

success, high quality content in all the spheres of

FROM THE MANAGEMENT

Time Warner has a rich history of both extraordinary creativity and business-model innovation, and 2014 was another great year for both, which led to strong financial performance and returns for our

shareholders. We also lead our industries by harnessing technology to create products and services to reach and entertain audiences in new ways all over the world and deepen their engagement with the brands, stories and experiences they love. Through our "Content Everywhere" initiatives, we seek to give consumers access to our high-quality content across platforms and devices and on demand. Our digital products and services reinforce our industry-leading brands and storytelling capabilities.

-Jeff Bewkes Chairman, TWI

its operations, which are vary disparate but for all

reasons and purposes, conjoint.

2014 was a signature year for them. They spun

off their publishing business to completely focus

of production and dissemination of visual content

for a variety of audiences and with varied

interests.1

So what are the various routes through which

they distribute their content? And what type of

content do these verticals air?

To answer all the questions we need to

understand a little more about

the company.

2.1) Company

History

Time Warner was formed in

1990 as an effect of a merger

between Time Inc. and

Warner Communication. It

acquired Turner Broadcasting

in 1996 and thus was

manifested one of the world’s

largest media conglomerate

in the leagues of The Walt Disney Company. The

company in general holds assets which

retrospectively belonged to Warner

Communications and HBO (a Time Inc.’s

subsidiary up until the merger). Among its assets

are:

New Line Cinema,

HBO,

CNN,

DC Comics,

Cartoon Network Studios,

Turner Broadcasting Systems,

The CW Television Network,

Warner Bros.,

Boomerang,

1 TWX Annual Report, 2014

Adult Swim,

Warner Bros. Animation,

Hanna-Barbera,

Esporte Interativo,

Castle Rock Entertainment and

Warner Bros. Interactive Entertainment

Some of the other

major divisions of the co. include Warner Books,

AOL, Warner Music Group

The company operates under three Operating

Divisions, namely: HBO, Turner Broadcasting

Systems and Warner Bros. To understand the

company in its entirety, it

is requisite to understand

these divisions in depth

and understand the

functioning of these

divisions.

2.2) Tuner

Turner Broadcasting Inc.

owns and operates a fairly

wide portfolio of television

network pertaining to the

fields of entertainment

(prime time and reality shows), sports, kids and

news programs on both the Television and online

platforms such as CNN.com. Turner operates

upwards of 160 channels globally including the

very well-known channels such as TNT, TBS,

Adult Swim, truTV, Turner Classic Movies, Turner

Sports, The Cartoon Network Studios,

Boomerang, CNN and HLN2.

It’s a global network with a reach of more than

200 countries3, which is pretty exhaustive. The

reach and the portfolio both increase the scope of

profits and of losses. Such a wide audience

requires a wide variety of shows and content,

which caters to their personal tastes; even so

Turner is increasing its scale and is bent towards

2 turner.com


The company operates under three

Operating Divisions, namely: HBO,

Turner Broadcasting Systems and

Warner Bros. To understand the

company in its entirety, it is

requisite to understand these

divisions in depth.

strengthening its competitive position throughout

the globe, possibly through various ventures with

local players, partnerships and acquisitions. It is

also going for strategic launches to cater to the

diverse viewers. This helps the division to

compile data for a region and thus provide them

with content that is more to their liking. Turner

provides its services through various modes such

as cable system operators, satellite service

distributors etc. The services reach the viewers

through Television and/or through online

streaming.

Turner owns and operates an exhaustive digital

network. Turner’s CNN is a leading digital news

provider, and Turner’s Bleacher Report is the

second largest digital sports destination in the

world (based on the number of visitors). Other of

Turner’s websites include tntdrama.com

TBS.com, cartoonnetwork.com, NBA.com,

NCAA.com (which provides live streaming of

videos of games) etc.

2.2.1) SPORTS Turner is an award winning sports’ content

provider which functions through various

channels such as TNT, TBS and truTV networks

and its digital presence. The revenue comes in

through the advertisements, affiliate fees, ratings

and other promotional activities. Turner is

licensed to broadcast NBA games till the year

2024-25, MLB till 2021, PGA till 2019. Its flagship

sports channel is NBA TV, which is owned by the

NBA and operated by Turner. It is an

advertisement supported channel that features

continually, NBA exhibition matches and related

programs. Turner has made for itself a big market

by tapping into the two most favorite games of

their domestic audiences, i.e. Basketball and

Golf. Their online presence is strong and gives

them an upper hand over their competition.

The major competition for the sports segment per

se is from ESPN (owned by The Walt Disney

Company majorly), Fox Sports (owned by Fox

Entertainment Group) and NBC Sports (owned by

Comcast).

Internationally, there are a huge number of

regional players which cut into the market share.

Mostly, TBS hold partnerships with local players

or holds a fully owned channel such as the

Esporte Interativo in Brazil. The international

presence for the sports segment is not too

soothing for Turner and could be an opportunity

for them to further increase scale and reach.

2.2.2) ENTERTAINMENT For domestic entertainment, the network provides

an array of offerings, including original series,

acquired series, movies, reality programs etc.

Turner’s TNT and TBS are two of the top five

prime time channels among the target audience

of the age group 18-49 in the USA4.

Turner is also investing heftily in creating original

programs for TNT, TBS and truTV, particularly to

woo younger audiences. The prime reason to

invest highly in producing original content is the

revenue flows from licensing opportunities across

the globe.

TNT focuses on drama and is advancing its

consortium of offerings such as Transporter: The

Series; Murder in the First; Cold Justice etc. Its

syndicated series include Castle, which is on air

in India on Star Worlds, owned by the Star Group.

TBS focuses primarily on comedies such as The

Big Bang Theory (on air in India on Star World);

Family Guy (likewise) etc. Its original series

include The King of Nerds.

Adult Swim provides late night and evening

programs for youngster on the Cartoon Network

such as Black Jesus.

truTv is specially organized to suit the tastes of

young audiences. Its tagline is “Way More Fun” In

India, truTV shows such as Impractical Jokers;


The Carbonaro Effect air on Comedy Central, a

Viacom 18 owned channel.

Also many of the movies and series are

showcased on WB and HBO channels in India.

Thus it has partnered with local players and

provides in silo programs too.

This clear differentiation amongst the channels

provides great opportunities for Turner to cash in

on subscriptions and on advertisements,

particularly for the products made for the target

audience.

2.2.3) KIDS Turner broadcasts kids’ cartoon, animated and

live action shows via its two flagship channels,

The Cartoon Network and Boomerang. Cartoon

Network shows original and

syndicate cartoon series

such as Teen Titans Go!,

whereas Boomerang shows

classic Warner Bros. and

Hanna-Barbera cartoons

such as The Flintstones;

The Jetsons etc. This part

of Turner’s business is

strategically a very

important part for the group

as it is the leading kids’ entertainment provider in

almost all the regions it operates in. Turner’s kids

networks outside the U.S. include Cartoon

Network, Boomerang and Tooncast in Latin

America; BOING, Boomerang, Cartoon Network

and Cartoonito in Europe and the Middle East;

and Boomerang, Cartoon Network, POGO and

Toonami in Asia.

2.2.4) NEWS CNN is its flagship news channel with a number

of variants for both the domestic and international

markets. It operates around 40 news bureaus, 31

of which are outside the USA5. CNN is a global

leader in political coverage and for information

dissemination. The group makes its prime


business to act as an unbiased storyteller in all

the spheres of human life, social, economic,

political and cultural. However there have been

significant controversies of CNN being biased

against the Republican Party in the USA. CNN

has joint ventures with partners to enter into other

regions, such as the CNN-IBN (jointly owned by

TV18) JV to get into India and CNN Indonesia,

co-owned by Trans Media. It is a leading news

channel across the world.

In 1995, CNN introduced CNN.com which has

now become the leading digital news platform.

This quick adaptation surely gave CNN an early

mover’s advantage as it was the first to envisage

a trend of online, real time reporting.6

2.3) HBO

Home Box Office, fondly

called HBO operates an

ultra-premium television

service HBO and Cinemax.

Its basic objective is to

provide premium television

services across the globe.

HBO’s original series are

often path-breaking, award winning series which

click instantly with the youth. The series are

critically acclaimed both for their stories and for

their essence. These series include the likes of

Game of Thrones, True Detective, Band of

Brothers etc. The quality of programs and the

sheer diversity of them is what differentiates HBO

from its competition such as FX Entertainment,

MGM etc. HBO constantly works on developing

intense and good quality content for its viewers.

HBO and Cinemax more often than not also show

famous feature films, and it forms a significant

portion of its program offerings, more so across

the globe. It has long term licenses with Warner

Bros., Twentieth Century Fox and other major

6 turner.com

HBO’s original series are often

path-breaking, award winning

series which click instantly with the

youth. The series are critically

acclaimed both for their stories and

for their essence.

motion picture production companies. Home Box

Office generates revenues principally from

providing its programming to domestic affiliates

under long-term arrangements that provide for

annual service fee increases and have fees that

are generally related to the number of the

affiliates’ subscribers who subscribe to the HBO

and Cinemax services.

In April last year, HBO launched HBO NOW, a

premium stand-alone service for the USA to

target families that don’t subscribe to HBO.

2.4) Warner Bros.

WB is the largest television and film studio in the

world by revenues. Its businesses consist

principally of the production, distribution and

licensing of television programming and feature

films and the distribution of digital and physical

home entertainment products, as well as the

production and distribution of videogames and

consumer product and brand licensing.

In 2014, the WB’s film making division generated

upwards of $4 billion for the 6th straight year! It

has been consistently ranked in the top for the

production of both television series and feature

films. The focus for WB now is to increase the

digital sales and rental of its programs and

services.

WB also encompasses the DC Comics (producer

of the legendary avatars of Batman, Superman,

Justice League and all its members), other

characters such as the Looney Tunes, including

the iconic Bugs Bunny, Scooby-Doo, Tom &

Jerry. These cash cows still bring in a lot of

royalty and licensing fee for the WB and the Time

Warner Inc. These branches also share major

marketing and infrastructural costs which further

reduces the fixed cost to the company, and as it

is well noticed now-a-days, crossovers between

these divisions is far too common, and extremely

fortuitous. WB has created an incredibly effective,

recognizable, global franchise from these

characters including movies like Batman Trilogy,

The Lord of the Rings Series, Harry Potter Series

etc. There are a number of movies lined up for

the years 2016-17 including Superman vs

Batman, the much awaited action thriller.

WB is the producer for a number of legendary

characters, plots and stories including but not

limited to the ones mentioned above. It has

produced iconic television shows such as The Big

Bang Theory, Supernatural, The Voice, The Ellen

DeGeneres Show, Gotham etc. These television

shows have definitely changed the way TV is

perceived and has definitely increased

acceptance of TV as the prime source of

entertainment in every household. Not only has

this, because of the high quality of its shows, WB

earned double revenue on each series by

licensing it out to other parties once it has been

aired on its channel. This enables it to generate

revenues for years and years after the completion

of a series, thus it is very sustainable. Then it also

earns revenues from the sale of digital or physical

copies of the series or movies post its completion.

WB also produces award winning movies which

follow the same pattern of revenue generation as

its television series, and the movies are of a level

similar, if not higher, the series in terms of the

quality of the content. Many of their movies are

Oscar winners such as the very recent Mad Max:

Fury Road.

WB also earns through its videogames segment.

Some of its most popular games are again based

on the characters that it has produced over the

last 100 illustrious years, such as the The Dark

Knight: Arkham Asylum.

Though the issues of piracy are very real and

very strong, the division has shown a sustainable

growth and has increased its revenues due to the

high quality of the content and due to the sheer

plethora of offerings that they provide.

It also holds operating interests in various JVs

such as The CW, which is a JV between Warner

Bros. and CBS Network.

3) INDUSTRY ANALYSIS

There are numerous RISKS for the Time Warner

Inc, namely:

Changes in the Technology:

Changes in technology are a very important

factor that needs to be considered by the

management. The advent of internet and TIVO,

both have had an important impact on the

revenue and cost streams of the entertainment

and media companies. The firms need to stay

ahead of the market and anticipate these

changes to maintain their competitive

advantages.

Time Warner has always been ahead of the

curve, In 1995, CNN was a pioneer in launching a

digital platform for news; in 1996, Warner Bros.

was one of the firsts to launch DVDs; in 1999,

HBO became the spearhead of HD television.

The company must maintain its innovative and

forward looking strategies if it must sustain.

Popularity of the content:

The company has always been on the top of all

the requirements of its audience and has

therefore led a successful life thus far.

Notwithstanding this, the fickle nature of

consumer demands does post a serious threat to

the industry.

Failure to renew agreements on favorable

terms, or at all:

The renewal of current agreements on favorable

terms is the only way to sustain in the business.

TWI has long term agreement with big players

such the NBA, and thus is a little secure in its

blanket of safety. Also the high quality content by

HBO and Warner Bros. ensures that TWI doesn’t

face such problems.

Consumer Behaviors:

Because this industry works so closely upon the

customer demands, any drastic and sudden

change in viewership patterns may lead to huge

losses. There is no direct way to counter this, but

still Media companies have some contingencies

maintained for such an event.

Political and social issues:

Various countries like China have strict political

rules regarding the information that can be

shared with the public. Information giant such as

Google have had an on off relation with China.

TimeWarner Inc. or other such companies can

never easily survive in such scenarios. Moreover

increasing social acceptance of piracy, especially

in India is growing concern for the median

houses.

Even so there are numerous risks, there still are a

lot of OPPORTUNITIES for the company under

consideration:

World demography:

It is particularly true for TimeWarner, because it

specifically targets young and vibrant audiences.

With the world population getting younger, it

would be a boon for the company to produce the

shows, well which it has been producing of late!

Digitization:

While many would say that this is a threat to the

company, it is not true. Digitization results in

faster and cheaper dispersion of information,

which means wider reach and lower costs. It is

not the internet which works against the

company, but the illegal piracy that is harming it.

Also new lean and fast networks like Netflix and

ABC are taking advantage of the internet

penetration to increase their viewership.

TimeWarner can definitely play this card, way

better.

Global Culture:

The fact that the culture all over the world is

diverging helps the media houses insofar as now

they have to research less into production and

can use a generic media for countries across the

globe.

3.1) Trends

For the entertainment industry, visual content

forms the major chunk of monetary inflows, about

$420 billion per annum in subscriptions and

advertisements 7 .The industry has been

predominantly dynamic and fast paced. It has

never been truer of the industry as it is today.

Rapid technological changes and shifting

customer demands have had a huge impact on

the industry, forcing players to change their

revenue models, their expansion plans, and their

overall strategy.

One of the most important factors to consider

here is that the industry is highly consumer

driven. The demand’s price elasticity for these

companies is very high. This is mainly because of

two factors, a) high level of close competition,

and b) frequently changing demands, fads and

prominent.

For any top level manager in the media industry,

the sole competence, or now the bare minimum,

is to be ready to change radically, and

pragmatically. No more is it about developing

content solely to garner viewership of a large

audience and then earning advertisement

revenue. Now the getting is to gather fans, who

are ardent followers of their series, programs,

movies or franchises.

It is important to create a universe around these

franchises/series/movies. With multiple channels

available now to the industry and the consumer, it

7 Entertainment & Media Industry, 2016, PwC

is imperative for the media houses to utilize all

the resources without giving one more attention

than it is required.

The fact as stated above is one of the most

important factors that is driving the growth of

smaller players. It is because these companies

still are able to build value with programs that

strike a chord with the audience. A perfect

example is Breaking Bad, by ABC network. The

program was rejected by almost all the top

networks, but when ABC accepted and aired it, it

changed the course of history. Breaking Bad is

one of the most critically and financially

acclaimed series of all time, with IMDb rankings

among the top 5 year after year.

CHANGES IN THE CONSUMER BEHAVIOR The hitherto prominent model of subscription

channels is getting old and archaic. The fact that

almost all series and movies are available online

for free further accentuates this fact. The users

have increasingly moved away from

subscriptions. According to a PwC report, more

people are shifting towards OTT (Over-the-top),

streaming videos online and disregarding the

traditional subscription channels8.

Now the question arises whether the firms should

embrace the internet or fight it.

The Big Question: Strategy for the Internet

Of late, there have been instances where the

industry has fought back the internet, but more or

less, their response has been dismal at best. The

companies have started providing Television

Subscription options across all the devices to

increase the reach and adoption of the traditional

model. But the response has been disappointing

and the effort was lackluster. Another tactic used

by the companies was to sell their content to

streaming services such as Netflix and Hulu.

Their advertisement model is also very close to

failing as services like TIVO have come up which

8 Refer Exhibit 2

removes ads from the programs. The consumers

have been receptive to ad free viewing of content,

which comes as no shock. These technological

and consumer sided changes have disrupted the

older revenue models for the company. All the

strategies that have been followed, as of yet, fuel

into the reach of internet.

My personal opinion is to embrace this change.

The internet can be a very useful ally for the

media houses as has been mentioned repeatedly

in this report. Using the internet judiciously and

prudently will be one of the most important

differentiator in this market. Internet is the way to

go to earn and sustained in todays’ ecosystem,

which is far too complicated, comprehensive and

competitive for traditional approaches. BCG’s

report 9 on Digital trends suggests that the

structure of revenues for entertainment industries

has been changing, with traditional streams

forming a lower part now than before, and digital

revenue streams growing10.

In a report, BCG writes that people contact the

most with mobile phones11; therefore, one more

point that needs to be kept in mind is that mobile

apps have become a pre requisite today if a

company wants quick market penetration.

Facebook earns 80 percent of its revenues from

mobile, up from 69 percent from an year before.

The companies need make their presence felt on

such mobile applications which would constantly

communicate with the customer.

3.2) PEST Analysis

The PEST analysis is a tool which is used to

access the environment, particularly the political,

economic, social and technological environment,

for a given business. The analysis is widely used

to appraise the industry and understand how

major factors affect it.

9 Digital Business Build, Media & Entertainment, BCG

10 Refer Exhibit 3

11 Refer Exhibit 4

POLITICAL

The political factors affecting this business are

immense. The impact of political situation

prevalent in any given region is extremely huge.

Another point to keep in mind is that the company

is also in the business to gauge all the political

changes, and it becomes very difficult for the

reporters to work in environments of political

instability, such as in Africa or Afghanistan, or

political restrictions such as in China and Korea.

ECONOMIC

With increasing per capita incomes in the world,

more people would now have access to television

and thus the target base increases. The simple

fact still remains the same her, with more

economic activity, this industry booms too.

People start visiting the movie theatres more, as

was seen in Delhi in the past decade. One more

thing that should be kept in mind is the fact that

even when the economy is slow, it is quite

possible that the television divisions, particularly

the news channels would still boom.

SOCIAL

The increasing acceptance of piracy and torrents

has increased the risk for the median houses very

much. But social changes such as more freedom

to women, and the culture of binge watching has

had a positive impact on the industry. Moreover

people make an outing of movie dates and thus

see movies as an option of all round

entertainment.

TECHNOLOGICAL

The recent advent of internet has changed the

whole ball game altogether. Providing digital

content has become a sine quo non for the

existence of all media houses. Real time news

updates have on the one hand increased the cost

for the company, whereas going paper free has

reduced the cost burden for the company. It thus

becomes imperative for the company to stay

updated on all technological advancements.

3.3) Tetra Threat Framework

This framework is used to understand a firm’s

sustainable competitive advantage, and first of all

if it has one.

Let us apply the framework on TimeWarner.

ADDED VALUE

Threat of Imitation

The threat of imitation facing TimeWarner is very

low. Most of its content is unique and

copyrighted/trademarked. The company is in a

prime position with respect to its content, which is

unique to it and has been associated with it for a

long time.

Threat of Substitution

Although there is a lot of competition for the kind

of content that the company publishes, there is no

substitute for the same.

APPROPRIATED VALUE

Threat of Slack

The company is extremely efficient and the

release of almost all its programs and movies has

been timely. The most important for the group is

to maintain efficiency and dynamism in its media

and sports segment, which it does beautifully.

Therefore, although there are threats of slack

existing in the industry the operations of the

company are designed so as to reduce them. For

starters, all three divisions work separately and

autonomously, which gives them more than

enough leeway to conduct their operations in

ways that fits them best. Secondly the company

has enough resources to train and motivate its

employees to get the best out of them.

Threat of Holdup

The company maintains an impeccable image of

serving the best of content to its viewers. The

definition of the best content is affected hugely by

the timing of its release, and thus the company is

abundantly gifted to ensure continuous

production of its programs.

4) COMPETITOR ANALYSIS

The Walt Disney Co.

BACKGROUND The Walt Disney co. is the biggest media

conglomerate in the world and is the prime

competitor for TimeWarner Inc. The company has

an unparalleled reputation and brand because of

its time less characters such as the Mickey

Mouse, The Donald duck and the likes. The

Disney owns a number of channels such as the

ABC network for drama, the Disney channel for

Kids, ESPN for sports, etc. The company has

differentiated itself with its experience centers

such as the Disneyland, which is tagged as the

“World’s Happiest Place”. The company is the

biggest threat to TimeWarner Inc. notwithstanding

the fact that it is also one of the oldest players in

the business. Even so Disney, under its multiple

brands has a huge turnover and market share,

TWX, a relatively young company has given it a

run for its money. There is a lot of demand for

good content and TimeWarner has been

delivering it time and again.

STRATEGY

The mission of The Walt Disney Company is to

be one of the world’s leading producers and

providers of entertainment and information. Using

our portfolio of brands to differentiate our content,

services and consumer products, we seek to

develop the most creative, innovative and

profitable entertainment experiences and related

products in the world.12

The company has branded itself as a feel good

Inc., and has been known to produce heart

12

www.thewaltdisneycompany.com

touching, soulful content. The company maintains

a Disney Lab to work on new and better content

and this R&D department has been applauded

world over for producing top rated content.

The company acquired Pixar in 2006 and has

produced superb movies such as the Oscar

winning Wall-E, Ratatouille etc. This was one of

the most important strategic move by the

company.

The company has maintained its brand image

and has been working on content to keep its top

position from newer, faster players like the

TimeWarner Inc. It will still take a lot of time for

these new players to reach the iconic level of

Walt Disney’s content, but if any company comes

close to doing it, is TimeWarner Inc.

21st

Century Fox

BACKGROUND The company has three major divisions, the

Cable Network, The Filmed Entertainment and

The Television. The first division includes

networks like STAR, Fox Network Group, Fox

Business Network, Fox News Channel etc. The

second division includes the Twentieth Century

Fox Film, and finally, the third division contains

Fox Sports and Fox broadcasting Company to

state a few of its asset. Like the other big

entertainment companies, this company too owns

a comprehensive set of assets with diverse

interests and content.

The company bought the STAR network from its

Hong Kong based owners to capture the Asian

markets and has done well to do so. The

company has been producing the longest running

cartoon series in the world, The Simpsons which

has earned numerous accolades from the

viewers and the industry alike. It recently

launched few of the best drama series currently,

American Horror Stories, Fargo etc. which again

have done quite well critically and financially.

The company has done well by producing content

for varied platforms such as the National

Geographic Channel, Fx, Fox News etc. and has

become one of the most formidable forces in the

industry.

5) FINANCIAL ANALYSIS

This section aims to look at the historical

performances of TMX and its competition, while

understanding its future prospects.

When we look at the data from the past 10 years,

operating income has been stable for the majority

of the decade, sans the single biggest loss

recorded year ended Dec, 2008, primary reasons

for which were the underperforming arms of AOL,

Time Inc. To quote the New York Times, “AOL

and Time Inc. have been twin encumbrances for

some time; before Wednesday, Time Warner had

already taken more than $100 billion in write-

downs to reflect the steady erosion of value at

AOL. The corporate narrative that is Time Warner

recalls the film “Groundhog Day” — an endless

loop of the same story, over and over.”13

The blame could also be put on the declining

world economy in the wake of the subprime crisis.

The company has performed quiet well on the

market, its share price increasing 39% over the

past year. The company has paid constant

dividends of $0.75 over the years and had

announced dividends six times in the past one

and a half years. The return on equity of TMX is

upwards of 20%, far higher than that of

CMCSA14.

The company is constantly generating profits

from all the businesses, except the publishing

arm, which has since been shut down.

13

http://www.nytimes.com/2009/01/08/business/media/08warner.html?_r=0 14

Refer Exhibit 5

$(20,000.00)

$(15,000.00)

$(10,000.00)

$(5,000.00)

$-

$5,000.00

$10,000.00

$15,000.00

Dec,2005

Dec,2006

Dec,2007

Dec,2008

Dec,2009

Dec,2010

Dec,2011

Dec,2012

Dec,2013

Dec,2014

Axis

Tit

le

Axis Title

Operating Profits

The DPS has been increasing and is highest

among its closest competitors15.

TMX’s market cap is a little less than $61 billion,

as against the $150 billion CMCSA. But Time

Warner outweighs Comcast in all other

parameters. TMX’s PEG Ratio is 2.5 as opposed

to CMCSA’s 1.3. This clearly depicts that Time

Warner is set for an explosive growth in the

future. Notwithstanding the tremendous failure of

the AOL and Time Inc. acquisition, the future

prospects still seem strong when we hear of the

upcoming $79B Charter-Time Warner Cable

Deal.

“The Federal Communications Commission has

voted to approve Charter Communications' $79

billion acquisition of Time Warner Cable

and Bright House Networks, an expected move

that clears the way for the companies to integrate

their assets to create the world’s second largest

cable TV andInternet provider, the FCC

announced Friday.”16

15

Refer Exhibit 1 16

http://www.usatoday.com/story/money/2016/05/06/fcc-approves-79b-charter-time-warner-cable-merger/84036184/

The company has set the stage for explosive

growth and all is currently going right with the

company’s franchises.

However Comcast is certainly a bigger company

than Time Warner, but the latter is a faster and

more agile company of the two.17

The Beta calculated for both the companies,

using data available of Yahoo Finance, from the

January of 2015 is 0.65 for TMX; and 0.75 for

CMCSA. Thus again we can see that Time

Warner is more stable than its counterpart.

The recent development of the Charter-Time

Warner deal has resulted in Comcast slashing its

subscription charges. This means that TMX again

has the upper hand here and CMCSA is just

reacting to the strategy of the former. Thus future

growth for Time Warner is expected to be steady

and fast.

6) CONCLUSION

TimeWarner is still young and hungry. In the short

span of 30 odd years, the company has

17

Refer Exhibit 5

becoming one of the most formidable units in the

entertainment industry. The company still has a

long way to go before it rests. It is as of yet giving

companies like the Walt Disney a run for its

money. The high quality content and the vibrant,

youthful feel of their franchise help building the

brand image. All of its brands enjoy a very high

equity and are among the top players in their

respective fields.

Much like The Walt Disney Co., TimeWarner has

Global Median Group which focuses on

customer insights by studying data, and

consequently uses it to market its services, and to

produce content in line with the demands.

It is imperative that the company consolidates on

its online digital business and the offline

business. Mastering both these fields is the only

sure shot way of making it big in current scenario.

The company has been doing great form the past

decades. It has formed various strategic

partnerships such as the partnership between

HBO and DISH NETWORK to provide the DISH

users access to extended HBO services. The

Turner Broadcasting Systems has been able to

crack deals with the NCAA for exclusive rights to

air its matches, thus reposing its sustainable

advantages.

Recently the company got together with the CBS

Network to launch the CW channel which again

was a huge success. Such JVs only bring

strategic advantage to the company and reinforce

its strengths.

The company still has a long way to go!

COMPANY STRATEGY

Several years ago, we set out a strategy

to become the world’s leading video

content company. Put simply, our goals

are to be the preferred home for the

best talent and ideas, to create engaging

and valuable content that we share with

consumers across technological

frontiers and geographic boundaries,

and to be financially disciplined in

everything we do in order to deliver

returns to our shareholders.

Our strategy has four main components:

Use our industry leading scale and brands to increase investments in the best storytelling.

Harness technology and develop new business models to increase the value of our content to consumers and distributors and drive growth for our businesses.

Increase our presence in the most attractive international territories to take advantage of the growing demand for our content worldwide.

Optimize our operating and capital efficiency to provide attractive returns to our shareholders.

7) EXHIBITS

EXHIBIT 1 TimeWarner Inc.

In Millions Revenue Operating Income Net Income Dividend/Share

2012 25,325 5,498 2,922 1.04

2013 26,461 6,268 3,691 1.15

2014 27,359 5,975 3,827 1.27

The Walt Disney Company


2012 34,625 8,863 6,173 0.60

2013 37,280 9,450 6,636 0.75

2014 40,246 11,540 8,004 0.86

Comcast


2012 55,842 10,721 4,160 0.45

2013 62,570 12,179 6,203 0.65

2014 64,657 13,563 6,816 0.78

21st Century Fox


2012 25,051 3,176 1,179 0.18

2013 27,675 6,820 7,097 0.17

2014 31,867 3,785 4,514 0.25

EXHIBIT 2

Source: PwC, 2016 Entertainment & Media Industry Trends

EXHIBIT 3

Source: Digital Business Build, Media & Entertainment BCG

10%

3%

14%

73%

Consumers shift away from traditional viwership patterns

Unsubscribed from pay-TVservices in the past year

Have never subscribed to pay-TVservices

Scaled back the size of their pay-TV package in the past year

Pay-TV subscribers who did notscale back in the past year

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Shifts of Revenues from Traditional to Digital

Traditional

Digital

EXHIBIT 4

Source: Touchpoint Analysis, Media & Entertainment, BCG

EXHIBIT 5

Particulars TMX CMCSA

Market Cap (intraday): $60.69B $149.08B

Enterprise Value (May 8,

2016): $81.80B $200.23B

Trailing P/E (ttm, intraday): 33.1 18.96

Forward P/E (fye Dec 31,

2017): 26.03 15.71

PEG Ratio (5 yr expected): 2.58 1.38

Price/Sales (ttm): 2.54 2

Price/Book (mrq): 6.69 2.85

Return on Assets (ttm): 5.70% 6.22%

Return on Equity (ttm): 21.67% 15.39%

Total Cash (mrq): $1.17B $2.40B

Total Cash Per Share (mrq): 4.13 0.98

Beta 0.65 0.75

Source: www.finance.yahoo.com

8) REFERENCES

www.timewarner.com

www.turner.com

www.warnerbros.com

www.hbo.com

www.thewaltdisneycompany.com

TimeWarner Inc.(TWX) Annual Report, 2014

The Walt Disney Co, Annual Report, 2014

Comcast, Annual Report, 2014

21st Century Fox Annual Report 2014

Touch point Analysis, Media & Entertainment, BCG

http://www.bcg.com/expertise/industries/media-entertainment/touchpoint-analysis.aspx

Digital Business Build, Media & Entertainment, BCG

http://www.bcg.com/expertise/industries/media-entertainment/digital-business-build.aspx

Entertainment & Media Industry Trends, 2016, PwC

http://www.strategyand.pwc.com/perspectives/2016-entertainment-media-industry-trends

List of assets owned by TimeWarner Inc.:

https://en.wikipedia.org/wiki/List_of_assets_owned_by_Time_Warner

timewarner, strategic analysis

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