Media
Diversifications: Horizontal and Vertical
It's the dawn of the Media companies to diversify themselves into
various business either related or unrelated. Why are companies seriously doing
this? Or is it to establish them once again in the digital era, not only to
capture eyeballs or time, but to consequently influence lifestyles. If this is
the Media Companies' mission, then they have to not only integrate
horizontally, but also integrate vertically. How are the media companies
enabling expansions to their profitability? Do they lose focus in their core
competencies, is what the article attempts to explore.
Media companies are all working on strategies that can render
their sizes bigger. It seems that they know that –Bigger is better. This is
becoming a reality. For we have been seeing the trend for some time now. They
are actively creating the next generation of media of improved connectivity all
enabled with increased size and clout.
In February this year, STAR TV was rechristened to STAR. It is the
number one channel in the Asian zone. In content the channel boasts of 19,000
hours of programming, in seven different languages for 300 million viewers
across 53 countries. Promoter Rupert Murdoch's announcement emphasized this, on
how he wants to leverage his brand value, content, technology, local expertise
and extensive infrastructure. STAR shall do this by forging important
partnerships in key markets. For Distribution it partnered with Hathway in
India and GigaMedia in Taiwan, for Radio it has partnered with the Telecom
Mogul to launch many FM stations. STAR is seen to evolve from a television
brand to a multi-service and multi-platform brand, to totally transform for a
new corporate identity.
In the next month followed SUN TV's announcement to shift from
pure TV channel to communications. After dominating Southern TV channel over a
decade it now plans to cross-sell its content in print media for south. Zee is
seen looking for many related businesses, it has signed up with Prasar Bharti
to market event of ODI cricket matches internationally, besides also
broadcasting them in TV. Sony Entertainment has acquired Sri Adhikari Brothers
Television Network for Rs. 57 crore this March with this it has distribution
with it.
Many media firms are vertically integrated in distribution
networks, toys, clothing, retailing, fun parks etc. Disney World is the master
in cross-selling to synergize the content they use. The animated film "The
Lion King" generated more than 1 billion USD profit. The profits are not
merely from the film, but due to many lucrative media spin offs. There were 186
merchandize items that were followed on the film's theme. Looking into this
Wall Street analysts have estimated that such films on average generate four
times more profit than their domestic box-office take.
Even the print media is in game for this kind of expansion. Vaarta
telugu daily has expressed its interests for broadcasting Telugu news on TV.
The Bennett and Coleman of The Times Group is the largest selling National
daily, and is also the most diversified media group. Its horizontal
diversification can be seen in FM radio Mirchi, SMS 8888, Times Now TV; a
perfect case of cross-selling the content to cater different audiences, also is
selling music and other entertainment in its name are a huge success.
These are all examples of how media companies are cross-selling
and expanding. One thing is pretty clear and that is none of these companies
are doing this irrationally, these are well crafted strategies.
Reasons for Diversification:
Technology is the seed for the trend that we are witnessing. With
new technology came rise in service sector, and more money at consumer's
disposal causing Indian economy to grow at 8.4 % p.a. With the rise of
the great Indian consumerism and proliferation of more products. A number
of TV channels and new media types likewise, came along with certain
interactive features. Like radio FM airing interactive talks or even SMS linked
to TV. Industry observers say SMS gives the channels 30-50% of their revenues
(; Indian Idol), which is a lot of money. Technology also brought Digitization
of Content making it available on multiple media platforms reaching cross
border territories. To be proactively involved in the change media companies
had to plan out for such diversifications. As Nawal Ahuja, the Director for
Exchange4Media says:
"For a media company it is important to be present across as
many media verticals as possible to be able to tap the consumer base across the
entire strata of the society and hence leverage the commercial potential of the
business"
The other ramifications of Technology can be summarized into the
three areas, highly volatile media markets, Policies by the Indian Government
and free and competitive market. To tackle all the three reasons is the
critical factor for Companies to diversify.
Media markets are volatile, not only are the media vehicles
getting fragmented by each day, to cater to all the groups and social classes,
but the number of players is increasing; this is happening with the free
non-monopolistic market that the government of India believes in. The
inconsistent policies of the government are another reason to diversify- In
2003-2004 the government had made CAS compulsory. Had it happened eventually,
it would combine the radio, TV, Internet and all together. Later its
announcement of DTH- (direct to home) broadband connectivity has not
materialized so far. So the businessmen of media are quite vary of the erratic
tendencies and are mounting their businesses elsewhere.
Regarding competitive market scenario. India has opted for a free
and fair competition; media is the "fourth arm" of democracy. Even
while this is ensured, some firms are entering into joint ventures and tie-up
and artificially creating oligopoly or cartels. This is creating a kind of Tier
system among the media players. Because size begets size and the bigger players
are in the Tier I. The reason this is happening is because, Media players need
to buy media space and sell it on discounted prices thereby come into the
circle of economies of scale, else they lose their markets. NDTV's 24*7 has
acquired sanctions to broadcast their news channel to Canada based NRI's. The
reach of numerous press media is increasing across the globe with cross–selling
enabled by content digitization. With this it is now having large scale
operations; they also need to expand their scale.
In order to sustain the high market volatility not only do media
houses aim at increasing scale but also scope. Ramoji of Eenadu is today not
just a Media Baron- but a renowned businessman in many fields, his SBUs include
vernacular Telugu daily circulated in Andhra Pradesh, Chit funds,
Entertainment, Studios, Satellite channels extended to National viewers and
NRIs. In short it's the dawn of media owners to realize their stakes in
media as entry tickets to move into greener pastures. So increasing their
influence inside the media business kindles pathways for all future ventures.
Pitfalls:
The synergy effect can be quite good, unless properly harnessed.
What is actually intended may not be truly functional after all. The case in
the point is AOL Time Warner, in 1999, when the world witnessed the biggest
merger of all kinds. Within two years the companies realized tensions growing,
and that the tie-up was in haste. They split up finally in 2001, as
concentration of power did not work out.
Ruthless expansions can kill core competencies. Analysts opine
that a pure media house will have more capacity to cover an issue in depth,
with rigor and cover diversity of opinions. The best illustration is perhaps,
Disney, one cannot expect it to talk too much on sweatshop labor when it is
accused of being involved in such itself. The focus on the core competencies
would wane and the company might lose it's much earned credibility in content
quality. Times is the most diversified Indian Media group, but has not been
quite successful with in the Television foray.
Some wider Industry implications of vertical integration are that
if corporations have control of total process, they have few motives for
genuine competition because they would have a power to dominate the prices.
Expansions are Market Driven:
The pressure is expand is only being proactive to market
phenomenon because a conglomerate wields more power and confidence. Vertical
integrations are more profound and not sheer promoter's fancies.
Walt Disney India, says that Television is globally just one-third
of its business; because they are going to use television to drive other
business. The company shall enter into gaming and mobile platforms in India
with its absolute monopoly in Mickey Mouse. With market forces stimulating the
media players to increase cross-promoting and cross-selling the brand, the
profit potential is enormous. If a film is sold off to magazines, books,
products, television of your own company then the spin-offs yield higher results.
For smaller companies, who do not have backing of distribution and
cross-selling possibilities the competition is very difficult. They have to
eventually merge with somebody, or get phased out. The dictum –"If you
can't beat them then join them rings true". Media companies should
consider the pitfalls and experiences from global players while expanding. But
while government approves of mergers and buyouts and vertical integrations to
happen on the one hand, diversity and real competition would be dampened.
Benefits of Diversification.
Increased Market Power- If a big business house owns big media
space, and then it is more likely that the criticism is less especially in
political and government issues. So also the upstream, downstream channel
partners and all the members in its territory possess enhanced market power.
Further, with top media companies working under monopolistic conditions are
entering into strategic joint ventures and tie-ups. These media conglomerates
are artificially creating oligopoly and a niche Tier-I media groups who owning
shares in each others' enterprises. The less powerful ones form Tier-II and
III. With greater market power come other benefits. Customer perception of
linkages between the various media is achieved. The top 10 media firms occupy
42% of media space, in 2003 according to advertising age 100 media company
list.
For example, in the case of Times Group cross-selling with the
goodwill it has generated over the years. Benefits such as greater economies of
scale such as the largest selling newpaper ranked 68th among the top 100 publishers- - - - -. Economies of scope such as
leveraging its brand image to start other media services like FM- Radio Mirchi,
Times now TV channel, Times Music and Times Network.
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