International TV Market Selection. Case Study Time Warner Inc.

Term Paper, 2015

21 Pages, Grade: 1,7


Table of content

1 Introduction
1.1 Purpose of this paper
1.2 Method for country selection

2 Time Warner Inc
2.1 Key Figures
2.2 Business model and segments
2.3 Risk factors
2.4 PEST Analysis

3 Internationalization and expansion
3.1 European TV market
3.2 Exclusion criteria
3.3 Selected countries
3.4 Goal criteria

4 Analysis
4.1 Risk potential
4.2 Market attractiveness
4.3 Value-benefit analysis
4.4 Result of analysis and advice

5 Abstract

List of Figures

List of Abbreviations

Source Directory

1 Introduction

1.1 Purpose of this paper

This paper deals with the question which country fulfills the necessary requirements to be taken into consideration by Time Warner Inc. as they want to expand onto the Euro- pean market. We will only use data that are related to the television market and that cover Time Warner’s Networks segment as well as their filmed entertainment segment. Furthermore, this case study will focus on the pay television market. Countries in which HBO is already operating with its business will not be considered in the analyzing pro- cess. By identifying risk factors and target criteria, we will then be able to carry out a market selection and discuss the results with regard to future market changes.

1.2 Method for country selection

A market expansion can take place based on market research data. When selecting one or multiple countries, one has always to consider all aspects concerning that coun- try, like cultural, political, environmental and market based criteria.

In order to filter out the right countries, there are several methods including different steps as shown in figure 1, that have to be passed. Once the company has analyzed its own business model, as well as has chosen the right segments for its expansion and has gone through possible risk factors, exclusion criteria can be determined and a first preselection of suitable countries can be made. It follows a cost-benefit analysis that results in writing down one’s target criteria. Those criteria will now be compared with the possible countries, whereupon in the next step a portfolio analysis will be carried out. Following these steps, the right countries can be selected.

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Figure 1 Method of country selection (source: own figure)

2 Time Warner Inc.

Time Warner Inc. is a leading media and entertainment company, operating in the film and TV as well as the entertainment market. The Company offers its customers highquality content on multiple platforms and in different countries. Even though Time Warner is already successful internationally it has decided to spread its wings even wider using the Networks segment to expand on new European markets. The data used in the following chapters has been abstracted from the company’s Annual Report 2014 and the Television 2011 International Key Fact by IP Networks.

The following chapter describes the business model of Time Warner and its business segments.

2.1 Key Figures

Time Warner Inc. has its Headquarters in New York, U.S.A. and employs approximate- ly 25.600 employees. According to its annual report from 2014, the Company generat- ed revenues of $27.359 billion and has an operating income of $5.975 billion. Whereas revenue numbers have risen by 3,4% compared to 2013, the operating income de- clined by 4,7%.

The Company’s net income attributable to Time Warner shareholders has also risen by 3,7% up to $3.827 billion, as well as its cash from continuing operations, which has even risen by 13% compared to 2014 to $3.681 billion. As one of the leading media and entertainment companies, Time Warner is listed as one of the Global Fortune 500 companies.

2.2 Business model and segments

The Company classifies its businesses into two segments:

- Networks
- Filmed Entertainment

While Publishing had also been one segment of the Time Warner business, the Company disposed of the segment in June 2014 and separated from the Time Inc., the largest magazine publisher in the US.1

The Networks segment is subdivided into the part of Turner Broadcasting Systems, Inc. (“Turner”) and Home Box Office, Inc. and principally provides cable networks. Turner operates domestically as well as internationally with its well-known channels such as CNN, TNT and TBS and reaches consumers in over 200 countries worldwide.

Since Time Warner is one of the player in the market of advertising-supported cable television, revenues are generated by offering space for advertising and from providing programming to affiliates. In 2014 revenues of $10.396 billion were generated and $2.954 billion in Operating Income. Compared to figures of 2013, the Operating Income decreased by 15%, while revenues have risen by 4%. As seen in figure 2, the Net- works segment makes up 55,7% of the Company’s overall revenue. Home Box Office derives its revenues from the buyers and subscribers of its Pay-TV channels. It oper- ates two services, HBO and Cinemax, and is ranked as the most widely distributed premium Pay-TV service in the US.

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Figure 2 Revenue distribution of Time Warner’s business segments

During 2014 the Company generated with its Networks segment total revenues of $15.794 billion. By that it is the more profitable segment of Time Warner and an internationalization should be driven forward.

Figure 3 shows the revenue distribution of the Networks segment in detail. It is worth mentioning that even though Turner as being part of the advertising-supported cable television market is providing the bigger part of the revenue distribution, most of the revenue comes from subscriptions instead of advertising, as one might assume. On the basis of the issue of this paper this case study will focus only on the market for pay television services and HBO.

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Figure 3 Revenue distribution of the Networks segment

(source: Time Warner Annual Report 2014, p. 32-34.)

Time Warner’s Filmed Entertainment segment is primarily managed by the Warner Bros. Entertainment Group (“Warner Bros.”) which produces as well as distributes the- atrical motion pictures, TV-shows and videogames. Warner Bros. is one of the leaders in the television content industry and produces and acquires theatrical motion pictures that are distributed in 125 countries, some of them even being local-language films. On top of everything Warner Bros. licenses its own self-produced films for distribution in several countries outside the home market. Furthermore, they will be released on DVD or Blu-ray Discs at the same time.

Warner Bros. has access to over 6.000 films that previously had been released by Warner Bros. itself and other studios, that will be sold also to Pay-TV as well as FreeTV channels approximately one year later. This segment generates revenue principally through rental fees from theatrical exhibition of feature film, which led to revenues of $12.526 billion (44% of the Company’s overall revenues).

2.3 Risk factors

Time Warner may face risks relating to doing business internationally. The Annual Re- port of 2014 describes these risk factors and correlates them to each business seg- ment. Since this case study only deals with the market selection, we will simply identify those risks, that have an effect on the selection. After that they will be separated by political, economical, social and technological factors, based on a PEST-Analysis.

The following risk factors are important for this case study:

1. The company must respond successfully to changes in technology and con- sumer behavior to remain competitive. Competition is growing stronger to gain the customers attention and purchasing power that they invest in entertainment. If the company can fulfill this need, sales can be increased continuously.

2. The popularity of content is difficult to predict and can change rapidly. Low public acceptance of the Company’s content will adversely affect its results of operations. Being capable of continuously providing high-quality content in a highly competitive market is a huge challenge for Time Warner. In times of digitalization pi- racy is another factor that affects the Company’s profitability and revenues negative- ly.

3. The Company is exposed to risks associated with weak domestic and global economic conditions and increased volatility and disruption in the financial market. This might lead to lower consumer spending for the Company’s content and products. Furthermore, a drop in sales might occur if advertisers, licensees, retailers or theater operators reduce their demand for the Company’s content and products due to negative impact of these conditions.

4. The Company may face risks relating to conducting business internationally that could adversely affect its business and operating results, such as legal or political restrictions and industry practices. There might also be trade restrictions and labor regulations that need to be obeyed.

The following are risk factors that particularly refer to international business and the Networks segment.

5. Market entry costs are higher than what had been calculated and predicted.

6. Enforcement difficulties when it comes to the protection of Intellectual Property.

7. Lack of adaption on new technical distribution channels.

8. Failure to renew affiliate agreements of favorable terms.

9. Strong local competitors

2.4 PEST Analysis

A PEST Analysis helps determine how political, environmental, social and technical factors will affect the performance and activities of a business in the long-term.2 The previously listed risk factors will now be classified into the four parts of the PEST- Analysis.

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Figure 4 Classification of risk factors into the PEST-Analysis


1 Vgl. Time Warner Annual Report 2014, S. 19.

2 Vgl. Makos, J. [2011], n.p.

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Jessica Wallusch (Author), 2015, International TV Market Selection. Case Study Time Warner Inc., Munich, GRIN Verlag,


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