GM 105 – Strategic Management Dr. Lindle Hatton California State University Sacramento May 13, 2011
Table of Contents
Table of Contents 2
Dominant Economic Characteristics 3
Six Forces of Competition 12
Competitive Position of Major Entertainment Companies 16
Key Success Factors 20
Industry Prospects and Overall Attractiveness 23
In recent years, the entertainment industry has faced vast changes in technology and consumer market demands with the increase in multi-format cellphones, internet and broadband capabilities for programming, marketing, and movie viewing. Industry leaders must adapt and stay flexible in these changing economic times. It is the consumer who is demanding more control of their entertainment choices now and companies need to continue to respond quickly or face the threat of substitution from competition. Analysts predict that the entertainment industry will see improvements in profits and growth faster than some other industries despite the tighter purse strings of many consumers. 28
The following report is an analysis of the diversified entertainment industry. The entertainment industry is a constantly evolving group of corporations with limited competitive pressures. Revenue trends in certain core segments, including broadcast television, media networks and radio, tend to vary with consumers' and advertisers' preferences towards new forms of media (Value Line, 2010). As long as people have had discretionary time and money, the entertainment industry has thrived, and as personal incomes grew, so did the industry. Although the entertainment industry has proven to be quite resilient even in times of tough economic conditions, the most recent economic downturn has had a noticeable negative impact. Even with many large mergers and acquisitions throughout 2009 and 2010, including the Disney’s acquisition of Pixar and Marvel, and the planned merger of Comcast and NBC Universal, current stocks are dropping across the industry at an average decrease of 1.18 % (i.e., Disney’s stock dropped 5.1%). According to Price Water House Coopers (PWC), this trend will not continue and growth in projected to be positive over the next five years (approximately 5%). Below is a forward looking chart listing both current values and encouraging projected values for the Entertainment and Media industry.
Entertainment & Media Industry Overview
Total U.S. Communications & Media Spending
Total U.S. Communications & Media Spending (projection)
U.S. Advertising Revenues, including local outlets (preliminary)
Global Media Suppliers Advertising Revenue (preliminary)
Global Media Suppliers Advertising Revenue (forecast)
Full Service FM Radio Stations, Including Educational, U.S.
Licensed AM Radio Stations, U.S. (Daytime/Unlimited)
U.S. Magazine Advertising Revenues, PIB Measured Magazines
The economic downturn continues to take an increasing toll on the entertainment industry resulting in a declining Gross Domestic Product (GDP) that has thus reduced the amount of discretionary consumer spending, and company advertising compounding the variables in this dynamic industry. This major state of transformation is the light at the end of the tunnel and is seen as the result of economic distressed consumers looking for low-cost entertainment and companies looking for new, innovative ways to fulfill those consumer needs. The desire for increased value has caused the consumer to turn to digital media and the industry to focus on the digital media value chain. As mentioned by PWC, “The Entertainment Industry that entered this recession will not be the same industry to come out of it” (PWC, 2010).
This report includes discussion of the Dominant Economic Characteristics; Six Forces of Competition; Competitive Position of Major Companies and Competitor Analysis; Key Success Factors; Industry Prospects and Overall Attractiveness; and final conclusions and discussion of the overall entertainment industry.
The entertainment industry is broad and constantly evolving as technological advances and market demands shift. The industry includes both producers and distributors of entertainment formats and has been expanding into new areas outside of the traditional segments of radio, print media, television, music, and film. Market demands are shown to be shifting away from some traditional segments into new frontiers of media networks and online entertainment capabilities including online streaming of television and films to online gaming platforms.
In 2010, the industry market capitalization was approximately $210 million, per Yahoo Finance. The top eight leaders in market capitalization are: Walt Disney Company ($78.8 B), News Corporation ($46 B), News Corp. B Voting ($43.3 B), Time Warner Inc. ($38.3 B), UTV Software ($27.1 B), Entertainment ($23.9 B), Vivendi.MI ($23.7 B), Vivendi.PA ($23.4 B), with the closest follower being Pinewood Shepperton ($9.3 B).
In 2010 the entertainment industry started to see market improvements including, “significant growth in emerging markets and stronger results at movie box offices in the U.S. (since 2009). Meanwhile, consumer spending in many categories...improv(ed) in late 2010. In America, consumers are excited about many new entertainment technologies, including Microsoft’s Kinect game player add-on, the entertainment aspects of tablet computers such as the iPad, subscriptions to movie downloads, and ebooks in general, including the rapidly growing use of platforms such as Amazon’s Kindle ebook reader. Internet-based entertainment (and advertising) continues to soar on a global basis” (Plunkett Research).
Scope of Competitive Rivalry
The industry leaders in the entertainment sector are broadly diversified into many segments of the industry and face less overall threat to their market position from new entrants. These leaders are considered media conglomerates, operating in a diverse range of markets spanning movies, music, internet, and television. This can diffuse dependency and limit the short term economic pressure in any particular area. However, emerging technologies are changing the competitive environment and causing the competition to intensify. Apple Inc. and Microsoft are now competitors in the mobile entertainment sector and online gaming markets. Leaders in the industry such as Disney, are holding on to their market dominance by excelling as ‘analyzers’ in their strategic characteristics by staying diversified in more stable sectors of the entertainment industry and focusing on innovation into the emerging media sectors.
Competition between print media and online resources is increasing. Per Plunkett Research, newspapers are finding it increasingly difficult to compete against internet news and advertising rivals and book sales are facing a decline due to the emergence of ebooks in 2010.
Main factors of competitive rivalry:
Alternative delivery methods (in all sectors): Consumer demands are changing rapidly towards the ease of access of mobile and online entertainment platforms.
New technology improvements: For example, the electronic book readers such as Amazon’s Kindle and Apple Inc’s iPad as well as 3D technology.
Cost of entertainment venues: The cost of concerts and movie tickets are a key concern to consumers in the current economic condition where many are facing reductions in incomes and discretionary spending. Lower prices compete as a larger factor than quality or star appeal in this climate.
The U.S. entertainment market has posted fluctuating rates of growth over recent years. The market fell into decline in 2009; however marginal recovery was seen in 2010, followed by an estimated flat and marginal growth towards 2014. However, growth is expected to increase more rapidly in the emerging sectors and decline in the traditional sectors of the industry such as declines in print media and traditional television viewing.
The market growth data compiled in 2010 by Datamonitor in their industry profile estimates, “in 2014, the United States movies & entertainment market is forecast to have a value of $48.2 billion, an increase of 0.3% since 2009. The compound annual growth rate of the market in the period 2009–14 is predicted to be 0.1%” as show in the bar graph below.”
The figure below (United States movies & entertainment market value forecast), illustrates the projected growth in the movie and entertainment market over five years from 2009 through 2014 and shows steady, yet moderate growth.
Number of Companies in the Industry
There are over 200 companies in the entertainment industry and the top seven companies control the majority of the market. The top seven companies ranked by revenues by Fortune 500 are:
CC Media Holdings
Live Nation Entertainment
Walt Disney is the number one ranked company in the industry with revenue growth of 10% in 2010. Recent mergers with Pixar and Marvel further excelled Disney’s market position and scope. Mergers and acquisitions such as this have led to the dominance of conglomerate based companies this industry.
Below is a summary of the financial highlights of the top three companies in the industry: