Time Warner: company history and business operations

¶ … Warner is a media conglomerate, owning such brands as HBO, Turner Broadcasting, Time Inc., DC Comics, Castle Rock Entertainment, New Line Cinema, Warner Bros and a host of cable television properties. The company has spun off subsidiaries like Time Warner Cable and AOL in order to focus on its media properties. Time Warner has a differentiated strategy, one that relies on building a complementary base of content. This allows Time Warner to have substantial bargaining power over cable providers, and over the content providers in the movie business as well (i.e. movie theaters, Netflix, etc.).

Time Warner has used merger, acquisition and divestiture as focal points of its strategy execution. The differentiation strategy is highlighted, however, in a discussion about HBO and the Sopranos, and how Time Warner has been able to successful differentiate its cable offerings in order to entice buyers at the consumer level. There is a brand promise with HBO of high quality programming, and this makes Time Warner's properties in general more attractive -- the company has better bargaining power with cable providers when it has the most attractive properties on television (Jaramillo, 2002).

Acquisitions have also played a significant role in the building of Time Warner. At one time, it was a more vertically-integrated company that it is now. It owned Time Warner Cable, and purchased AOL, which was a similar gateway provider of the Internet, in order to leverage access to the widest possible range of consumers. The idea was that there would be synergies gained from this vertical integration, in particular that it could use its distribution capabilities to market its own content more heavily (Rubinfeld & Singer, 2001). The deal, one of the biggest mergers in history at the time, quickly fizzled. Strategically, it was a complete disaster. The synergies might have been in contravention of antitrust legislation had they been pursued, and operationally the combined entity was clumsy at best. There were massive writedowns and Time Warner divested the AOL unit. In line with that, it also divested its cable unit, to focus on the core of the Time Warner business, which is content creation in both movies and television, and distribution thereof (Barnett & Andrews, 2010).

AOL is in foreign markets to a limited degree. Its movies are distributed though the existing channels, and this is the same for its television properties. The differences relate to the fact that only a handful of countries have a television market like the U.S. with an emphasis on cable. Movie markets are much more similar. However, the key is that Time Warner no longer seeks vertical integration, and even in the U.S. relies on third parties to act as intermediary between Time Warner and the consumer.

The international dimension is not a competitive advantage for Time Warner. While obviously going international provides marginal revenue at very little marginal cost (once the content has already been produced, there is only the cost of getting it to the foreign country). The problem is that this marginal revenue is not a competitive advantage. All of Time Warner's competitors also have substantial foreign income. Of the leaders in the industry, Time Warner actually has the highest degree of reliance on content revenue streams, which actually puts it at a competitive disadvantage. Sony, with its electronics and other interests, and Disney, with its theme parks and cruise line, have much more revenue diversification, and they earn more international revenue than Time Warner does. Fox has a similar portfolio of revenue streams, and NBC Universal does too, but with vertical integration because it is owned by Comcast. Again, international doesn't do anything for Time Warner than its competitors do not have.

As for how Time Warner can gain competitive advantage in foreign markets, there are only two ways to gain such advantage over competitors with equal financial might. The first is to gain advantage in distribution, so as to gain better access to those markets. Market knowledge is critical, because each country has its own distribution systems, and there is often a high level of government control, even in Western nations. Thus, Time Warner can work with governments to gain preferential access for its properties in foreign markets, giving it competitive advantage (Erramilli & Rao, 1990).

The other way to gain advantage is to have better content that is more attractive to that particular market. Content quality is a key success factor in this industry (Jamarillo, 2002). Market knowledge helps Time Warner to understand what to sell to each market. With a wide range of content options, Time Warner might have a lot of different things it can sell to any given cable or satellite provider, so knowing what is mostly likely to succeed in a given market, and having products that will succeed is an important element of success. If Time Warner can do this better than its competitors, it will have competitive advantage, though the variability in content products means that this advantage is difficult to sustain in the long run.