The News Corporations Strategic Development - Assignment Example

Running Head: THE NEWS CORPORATION’S STRATEGIC DEVELOPMENT The News Corporation’s Strategic Development (Your Name) (Your School) Table of Contents Table of Contents………………………………………………...2 Introduction …………………………………………………….. 3 NewsCorp Overview…………………………………………….. 3 TNC’s Strategic Development since the 1980s………….……….5 Change of Strategy……………………………………………… 8 2006 and Beyond …………………..……………………………10 Strengths and Weakness …………….………………………….. 11 Opportunities and Threats………………………………………. 12 Recommendations………………………………………………..12 Conclusion…………………………………………….…………14 References ………………………………………………………. 15 Introduction The News Corporation is a globally diversified media company. The principal operations of the company occur in the Australia, Britain, the US, Continental Europe, the Pacific Basin and Asia. TNC’s operations are carried out through eight segments in the industry, which include Filmed Entertainment, Cable Network Programming, Magazines and Inserts. Other industry segments are Direct Broadcast Satellite Television, Newspapers and Information Services, Book Publishing and Other. NewsCorp owes its origin to the establishment of a local newspaper called The News in 1923, in Australia by the father of Rupert Murdoch (Johnson et al, 2008). By the 80s decade, the company had diversified into various industry segments through mergers, acquisitions and joint ventures on the world media market. Hence there is need to evaluate the business strategies and shifting corporate logics underpinning NewsCorp development. In the wake of the 21st century, TNC is counted among the world’s most international and largest media companies, a progress often attributed to Rupert Murdoch. TNC’s development is a case of success resulting from constant attention to changes in business contexts as a fundamental key. The contextual settings in which the company operated positively influenced the diversification of NewsCorp (Chan-Olmsted, 2005). Thus prior to examining the strategy and presenting recommendations, there is need first to give the overview of the company especially with regard to the recent global economic crisis. NewsCorp Overview In the wake of the 2008 financial meltdown, the NewsCorp media conglomerate managed by Murdoch had only just one of its businesses performing well. This was in the cable networks segment, and specifically Fox News. The Corporation, which owns also Fox broadcast television network, 20th Century Fox film studio, MySpace and newspapers like The New York Post and The Wall Street Journal, reported a plunged operation income of more than 30%. Hence last year is recognized as among the toughest the company has faced in its operational history. However Murdoch thinks that the worst encountered by NewsCorp may have passed and it is now behind the company. The News Corporation, like its peers, has opted to cut costs in efforts to weather the current recession. For instance, at MySpace alone, TNC has cut hundreds of jobs. Nevertheless it should be noted that cost cutting is not a permanent measure, and can only last for so long. The rapid changes being experienced in the media business implies that no company can cost cut its path to global competitiveness. News Corporation’s performance underscored the occurrences across big media conglomerates (Ghemawat, 2007). Cable television, for which clients still subscribe a monthly fee, is the sole world corner maintaining robust operations. At the opposite end of the media spectrum is the newspaper business, where customers are now accustomed to reading their news online for free. The newspaper division of TNC has had its operating income decrease by more than USD 300 million, in the full fiscal year ended. These events have prompted Murdoch to disclose that plans are underway for NewsCorp to charge all its news Web sites. Among the few print publications that have successfully gotten its audience to pay subscription fee for online news is the Journal. The movies business segment of TNC reported an operating income down 8% from the previous year of 2007. Broadcast television, the industry effected deeply by the digital revolution and advertising recession, had its operating income decline by half. Overall, The News Corporation reported operating income in the forth quarter as $948 million, a figure down from $1.4 billion in the forth quarter of last year. For the full fiscal year, TNC reported a net loss of $5 billion. The company’s revenue also dropped during the same period, which was in line with the expectations of the Wall Street analysts (Johnson et al, 2008). Therefore as far as the 2006-2011 strategy is well thought, the events leading to the 2008 economic crunch could not be shielded wholly by such a plan. For the moment, the two most prominent competitors of News Corporation, Viacom and Time Warner both disclosed their recent earnings report. Profits dropped by more than 30 percent in each case. Profits at Viacom, which owns VH1, MTV, Paramount film studio and Comedy Central, fell 32%. But analysts witnessed a twinkle of hope in the advertising revenue at the cable networks of the company that fell less than expected. At Time Warner profits plummeted by 34 percent, chiefly due to slowed DVD sales and the recession in advertising. Nonetheless the outcomes were better than projected, and the company is expected to close the year with a profit essentially flat in comparison with 2008. In the context of the weak economy, most analysts termed the performance as positive (Turow, 2008). To play above its competitors, TNC needs to review its managerial and operational tactics. NewsCorp also revealed that its interactive media division, which comprises the social networking site MySpace, had as result tuned in a low contribution. In the struggle to gain sustainable profitability, NewsCorp recently replaced the management at MySpace. However competition form the larger rival, Facebbook, was dismissed by Murdoch. In the wake of this competition and rapidly changing media business environment, NewsCorp strategy from 1980 will be evaluated and recommendations made. TNC’s Strategic Development Since The 1980s From the early 80s decade to 2005, News Corporation had made 150 acquisitions besides taking stakes in more than 100 companies. During the same period, NewsCorp had more than 160 divestitures. Since the company’s initiation in the early 20th century, it Australian base profitability acted as the springboard to NewsCorp’s multinational status. The base provided the monetary backing in the purchase in 1968 of UK-based publishers of the News of the World. This was followed by the 1973 purchase of Texas’ Express Publishing Company, which resulted in NewsCorp’s US operations in line with expanded newspaper publishing (Hill & Jones, 2007). By 1980, the UK subsidiary was publishing larger circulation Sun in Britain, and acquired Times Newspaper Ltd in 1981. These acquisition moves by the company were strategic, because the UK subsidiary coupled with its newspaper and other interested acted as the chief contributor to TNC’s profits in the 80s. 1984 marked the start of a major product and geographical shift for the company, whose expansion was focused in the United States. The film company Twentieth Century Fox was acquired by NewsCorp in 1984, followed by the purchase of 6 television stations of Metromedia Broadcasting Group in 1985. These acquisitions provided TNC access to a 2,000 film library, to studios for making television programs and films, and to a platform for distributing the content. Significant implications arose from NewsCorp’s expansion into the USA. Operating profits and company’s revenue increased but also the debt levels of the TNC rose. Thus Murdoch treaded carefully not to breach the long agreements entered with private banks. Additionally, as the United States law forbids foreign citizens from owning more than 25% for any corporation with a broadcasting license, Murdoch was compelled to become a US citizen, which he did in 1985 (Ghemawat, 2007). The greatest advantage of a well integrated global company is its ability to respond to events with worldwide strength. This is done through sharing resources, personnel and expertise across platforms and the globe. The News Corporation launched UK Sky Television in 1989, a satellite broadcasting TV network. Broadcasting through satellite represented a new distribution approach in program material. Specifically, it allowed the opportunity for any broadcaster to augment distribution or footprint of any channel. This provided for the first time, program distribution to more than one nation. This channel was designed to be strategically launched ahead of the NewsCorp’s rivals. The 1989 launch target was made, however it happened to be a low-key affair, because it had been a rush and nobody was sure of its working on the material day (Chan-Olmsted, 2005). Products for Sky Television were offered via both conventional cable channels and recently developed household satellite dishes. These coupled with the new encryption technology limited the content to Sky subscribers only, opening up the possibility of a viable model of business. The media regulations of the UK barred newspaper proprietors from owning more than 20% of a television company. Although the programming of Sky mainly targeted the UK audience, Murdoch evaded this by beaming Sky’s programs from rented channels of a Luxembourg-controlled satellite. The sufficiency of this technicality may not have been enough thanks to the unique close relationship, which Murdoch sustained with the Thatcher government. The fewer subscriptions that expected resulted in lower revenues despite the implementation of stringent cost reductions. Sky television performance marked NewsCorp’s financial consequences. Entry into satellite broadcasting had by 1990 reached £130 m in investments, yet the venture continued to incur monthly losses £10 m. During the month of November the same year, a respite was gained when Sky Television merged with it UK competitor, British Satellite Broadcasting (BSB). The corporation came under Sky Television dominance. There was adoption of Sky technology, while redundancies as a result of the merger were mainly experienced within the BSB staff. Hence Sky executives rose to dominate senior management, gaining editorial and operational control of the new corporation (Turow, 2008). The radical expansion of NewsCorp threatened financial risks which overtook the company in 1990. A massive cash drain was witnessed a period when the main market economies of TNC were slowing. The outcome of these problems was the creation of a gap in working capital, whose financing was from a highly costly short-term borrowing. Banks worldwide during this time were experiencing liquidity crisis, which made it difficult for NewsCorp to refinance mature bank debts and to meet working capital requirements. The company’s market value dropped to one-fifth of the previous year’s asset value, while borrowings had increased five fold the stock market capitalization. In 1991 TNC finally embarked on a three year debt restructuring and bridging loan agreement after negotiating with New York’s Citibank. Change of Strategy Sky was initially marketed to subscribers primarily as movie channels. But in 1992, Sky Sports channel was launched by BSkyB, after securing exclusive rights to air the matches from the English premier league for five years. The new venture was effective in that in less than two months had recorded an increased one million new subscribers. This was followed closely by winning rights to broadcast other sports. Ultimately, a market gap had been identified; revolutionizing the nature of sports, BSkyB finances, and NewsCorp’s broadcasting strategy. Sport’s particular value lies best in being viewed live; making it ideal for subscription and pay per view based programming (Quelch, 2004). Furthermore sport is ideal for advertising, since it attracts the rich and those at their prime in life. BSkyB’s successful sports strategy made the corporation to become the most profitable television broadcaster in the United Kingdom. Commentators by 2005 doubted whether BSkyB had become a utility or was a growth stock. Analysts also noted that the changes in the context of business, usually wrought by BSkyB itself, were rendering the business at vulnerable to rivalry. The mid 90s was also a period of intense competition in the media market of the United States. The prize lay in gaining control by winning the US mega media wars of the 1990s, and establish a juggernaut too immense to be handled by anyone else on the globe. Murdoch was in a peculiar state to access some of the most commercially and critically acclaimed programming of the decade. This key to commercial success and expansion meant the NewsCorp acquire more channels. Thus the company’s Fox Group assumed a dominant position accumulating stakes several regional cable networks. By 2000 Fox broadcasting was able to deliver programming services to 98% of the US network in existence (Hill & Jones, 2007). NewsCorp also forged alliances with companies like Echostar, MCI, and then set up ASkyB, a satellite television company in the late 90s. However this would only succeed in the event that the copyright laws of the US were changed. NewsCorp forged an alliance with Primestar after backing out with Echostar. The Clinton administration blocked the move as not being to the consumer’s best interest. Murdoch then was compelled to sell the assets of ASkyB to Echostar. Murdoch had by 2003 finally managed to create a satellite base in the US, by acquiring 34% of Hughes Electronics, including the 11 million viewer Direct TV. By this time, 81% of the operating revenue of NewsCorp resulted from its operations in the United States. Parallel with the expansion in its US operations, NewsCorp entered the Asian media market in 1993 by acquiring STAR TV, a satellite television company. The planning of STAR initially was to be Pan-Asian, English language service. However the region’s diversity indicated that such a plan could not be viable. TNC’s strategy thus was a variant between the global and local act philosophy (Marjoribanks, 2000). The broadcast content was customized and narrowcasted to different Asian markets. STAR acquired the world’s largest modern Chinese movie, entered into exclusive contracts with Hong Kong film companies, and changed into subscriber service. NewsCorp still experienced problems related to finding a modus vivendi with the political leaders of Asia. Telecommunications technology advances have often proved to be an unambiguous threat to totalitarian regimes across the globe. NewsCorp reported in 2003 that STAR had posted the first ever full year profitability. 2006 and Beyond The changing environment of the media market in 2005 implied that the position of BSkyB was threatened. Virgin disclosed the creation of the world’s number one quadruple play media company. It offered television, broadband, mobile and fixed-line communications with nine million direct audiences, a figure a million higher as compared to the BSkyB customers. The extensive upgrading of the UK cable system and the European Commission challenges to the dominance of BSkyB in the premiership football was a really threat NewsCorp quashed the Virgin threat by acquiring 18% of ITV, the principal British commercial channel. BSkyB claimed that the acquisition was a financial choice strictly; however its strategic value in thwarting the progress of a dreaded competitor was apparent. This was also followed by the acquisition of MySpace.com, a social networking site. This was in line with the strategies expectations of the future place of Internet business (Johnson et al, 2008). Technological advancements continue to motivate several of the competitive changes in the media business. This is evident with the shift from conventional terrestrial television distribution systems via aerial, faced competition with cable systems and satellite, to digital and the increasing Internet importance. News Corporation has carried out expansion during every stage of the developments in technology, fighting and winning generally, although at times through great financial risk and cost to the corporation. The changes in technology were accompanied with were accompanied with political changes in certain regions of the globe encouraging deregulation and liberalization of national broadcasting monopolies. Development in digital and internet technology means that the strategic concern of all media shifts to securing appealing content. The focus of rivalry among major media companies is directed towards brand loyalty building, via the certain times democratic and anarchic Internet medium (Turow, 2008). It can be said that NewsCorp’s overall performance is influenced by the internal and external environment. Such environmental components particularly impact the management functions of specific industries. In this respect, the company ought to consider effective and efficient management approach to reduce the impact of such aspects and maximize on the positive effects of the internal and external factors. In the discussion and evaluation of the competitive and strategic position of TNC, marketing tools like SWOT are incorporated. The rational and motivation of the approach by NewsCorp to assume satellite broadcasting, besides the acquisitions during international expansion should serve as a guide in future plans to evade mistakes (Quelch, 2004). Based on such a foothold, attempts to give pertinent recommendations with regard to the company’s strategic development from 2006-2011, will be viable. Strengths and Weakness NewsCorp being a globally recognized media industry holds a strategic position in the media market which forms part of its strengths. The strategy of 2006-2011 aims at streamlining and TNC reincorporation. This will make the company gain advantage in terms of market niche and size. This will enable NewsCorp to outgrow its major rivals like Virgin and become the largest corporation in the market. The acquisition of MySpace.com has led the firm to enhance its strategic position by building a brand that is difficult for other competitor firm to outgrow. TNC should be able to adapt to changing market needs in the future, in order to maximize the profits. Part of the strengths of the company is vested in TNC’s construction of a corporate culture recognized by its loyal satisfied customers (Marjoribanks, 2000). Even though NewsCorp’s weakness is not much as compared to its rivals, TNC’s major weakness is its failure to anticipate the flaws in the industry. The company focuses too much on high-end diversification and acquisition despite the risky impact of such decisions. Opportunities and Threats The foundation of long-term TNC success is the ability to develop continuously new generations of media services that are more advanced. Thus, NewsCorp’s opportunities lies in the chance to tap into wider markets, as the company’s innovations output is being offered in media, television, and the internet industry. The opportunities to enter new growth markets are enhanced through the acquisition of strategic businesses like MySpace. The major threats to TNC are competitors (Chan-Olmsted, 2005). Another company threat results from acquisition, particularly when the acquired firm is not maximized. The inability of NewsCorp to march up with innovations can also establish a major threat for the company’s operations. Additionally, government policies and laws also pose a threat to the company. Recommendations From the evaluation of the company case, a perceived strategic plan for TNC from 2006-2011 can be recommend as follows. Strategic planning should serve as the significant element of the management, wherein it identifies approaches and manners in initiating corporate discount in the operation unit. The strategic plan is employed when TNC intends to initiate particular management and marketing decisions aimed at enhancing company competitiveness (Hill & Jones, 2007). Such management plan executed properly with the strong commitment deserved from employees and management, the company will gain competitive advantage from such plan stability. The recommended approach is for TNC management to pay attention on managing the acquired company and their subsidiaries. The company should also be able to muzzle the ability in maximizing the apparent advantage of acquiring MySpace.com, as the largest social internet networking. The company should be able to maximize the use of its financial resources in the latest innovation and trends of the market setting. There is also need for TNC to manage well its financial resources in order to maintain competitive advantage and position, besides considering customer satisfaction and employee trainings. TNC can utilize strategic plan to develop new technology in interactive media and media market. The business environment, resources and capabilities of an organization or industry contributes to the success or efficacy of strategic change implementation for NewsCorp. TNC should start designing a project plan for this strategy. Another suggestion is that the company should develop a system of monitoring, which will examine regularly the progress of the strategy. This will help in detecting problems ahead of time, in addition to implementing strategy improvements or changes. The management must commence efforts to implement means to meet stakeholder needs via constant communication (Turow, 2008). The management perspective of effective or strategic management is to offer superiors customer experience via direct, wide-ranging business rapport and support tailored programs in the satisfaction of the market needs. Conclusion TNC is said to be controll4ed by an informal management that has been cited by critics as the source of disarray in the company operations. The conclusion is that the management should posses the ability to realize the happenings in the company’s external and internal environment. This also helps in realizing TNC’s needed changes to meet to ever changing customer needs. In this respect, strategic management via proper planning, organizing, controlling and leading is required. A strategic plan will enable the management in countering the negative impacts of advancement in technology, and other factors internal or external. Reference: Chan-Olmsted, S. (2005). Competitive strategy for media firms: strategic and brand management in changing media markets. 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