2.1.4 Technology Issue
●The Internet
Technology continues to play a crucial role in the production and distribution of content for virtually every division of News Corporation. (www.newscorp.com) The revolution of internet will make News Corp step into a new era. The acquisition of MySpace and set up of a new internet unit in 2005 indicated that Murdoch began to move from traditional outlets to online and look to boost its internet assets. (news.bbc.co.uk)
●Digital Development
Digital service was first offered by News Corp in 1990s and this technology created great profit and subscription. Digital technology enables more programme channels to be accessed; also additional new services are offered to meet the changing consumer needs. The multi-platform digital technology made a 68% increase in profit from 2002 to 2003.
Encryption technology gives News Corp the ability to prompt its business development to attract more viewers with easily setting a decoder box. News Corp won a competitive edge over others by offering this technology to users who pay for the service with great profits.
2.2 SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors while Opportunities and threats are external factors.
2.2.1 Strength
The strength of News Corp mainly lies in its strong power of acquisition. It has a global presence, with particular representation in the UK and the US (which accounts for around 75% of sales). The company operates through seven business divisions: filmed entertainment, magazines and inserts, television, cable network programming, newspapers, book publishing and other activities. (www.cbronline.com) Thus it possesses rich resources and capabilities to acquire other companies as their integral part. Also Murdoch himself is ambitious and risky, his relationship with the local government and the personality to compete with others and finally control them are key determinants of the successful acquisition strategy. In addition, the service and product offered to consumers are much more diversified than any other organization. With the establishment of newspapers in 1920s and later switched to the film and TV industry, even today’s internet technology, News Corp’s service is always changing with the increasing demand of customers. The development of product with highly advanced technology enables News Corp to overtake others in the marketplace.
2.2.2 Weakness
Strategies have long been existed since the earliest days of commerce, early strategic thinking was equated with medium and long term planning, and the corporate plan would provide projections of sales, revenues, costs and profits for the company. (Kay, 1995) however, Murdoch claimed that he did not have a specific strategic plan, he never anticipated where the business was going, although the acquisition and expansion of News Corp is fast, financial failures occurred occasionally. Also the management style of Murdoch is questioned, he made all kinds of decisions himself and did not tell his managers what they should do, therefore News Corp’s management is a reflection of his own feelings and ideas, the company might not maintain its performance and structure without him.
2.2.3 Opportunity
News Corp’s entry into satellite broadcasting in the 1980s represented a significant change in its distribution channels. This technology offers more channels to customers from various countries. With this technology News Corp controlled SATV who provided programmes by satellite to cable systems in Europe. The adoption of satellite technology indicated that News Corp switched its strategy from traditional products and service to satellite-based communications. And the development of the internet appeals great attractiveness for News Corp to seize opportunities in this rising field. The acquisition of MySpace with the existing online assets provides a richer experience for today’s internet users. Simultaneously, MySpace generates "healthy" annual profits of "a few million dollars." It is reported that earnings of $4.5 million on revenues of $78.9 million in the quarter ended March 31, 2005, compared to a loss of $12.4 million on revenues of $57.3 million in the year earlier period. (www.nytimes.com) News Corp undoubtedly benefited from the acquisition.
2.2.4 Threat
News Corp’s competitors are primarily in the Entertainment industry and it also competes in the Film&Video, Internet Content providers, and Music sectors. For News Corp, in the field of animated films, Disney takes a monopoly position. While animated films are attracting a large number of kids and saving production costs, Fox has created new ways to compete with Disney. According to Bear Stearns analyst Spencer Wang (2007), Facebook is emerging as serious competitor to MySpace, Facebook’s user base has grown 46% in 5 months and should reach 50 million users by the end of this year, and 100 million by mid-2008, growing traction for Facebook could negatively impact sentiment on MySpace. (blogs.barrons.com)
3 Company Resources and Capabilities
Based on understanding the strengths and weaknesses of News Corp, the firm’s resources and capabilities are important to identify. The capability of any organization is fundamentally determined by how well it links together its various activities—such as designing, marketing and supporting its services and products and these activities are linked together to form the value chain which considers where and how a firm adds value. (Dobson&Starkey, 1993)
3.1 Physical Resources
News Corp is a multinational media company with many subsidiaries which is expanding quickly throughout the world, in every market acquired it achieved its position. By acquisition, News Corp gained resources from the weak publications which enabled the firm to improve its distribution channels, information systems and production techniques. News Corp takes a competitive edge over others by establishing its satellite TV technology and encryption cable TV systems and entering into the internet technology. It is often accused of using its combined power of its consolidated media assets to push out rivals and push towards a media monopoly. (en.wikipedia.org) however, News Corp possesses the strongest power in delivering media to people around the world.
3.2 Financial Resources
Although News Corp experienced financial losses and crisis in the late 1990s, its financial system is the most effective of all the media companies. Murdoch established a strict weekly reporting system and budget system. He will check the financial situation of all the subsidiaries every week, the documents provided include profit and loss account, weekly and monthly financial prediction and financial research results, therefore News Corp has a strong power of financial unit which is indispensable in helping make effective strategic decisions. With the precise budget system, each investment and acquisition in the world will guarantee News Corp’s leading position.
3.3 Human Resources
The characteristic of News Corp’s human resource management is the leadership of Murdoch. He makes strategic decisions of all important issues and appoints managers to put them beside him. However, the company maintains a policy of equal employment opportunity for all employees and applicants for employment. (www.newscorp.com)
4 Directions and Methods for Development
Devising a strategy for development involves making a decision, firstly, over which is the most appropriate direction for the company to move in, and secondly, on the most appropriate method. (Dobson&Starkey, 1993) The Ansoff product/market grid model has proven to be very useful in business unit strategy processes to determine business growth opportunities. (www.12manage.com) Figure2 shows the alternative directions for strategic development.
Figure 2 source: http://www.valuebasedmanagement.net/methods_productmarketgrid.html
4.1 Strategic Directions
News Corp increases its market share through acquisition or productivity, from its earlier stage, News Corp is acquiring other firms to gain more markets, while at the same time, the firm develops new products in its present markets delivering new forms of media to consumers. News Corp focuses highly on its product development to cater for the continually changing needs of customers. BSkyB’s sports channel and acquisition of MySpace create substantial profits for News Corp. Its market development not only aims at devising new products, but extending and opening up new market segments and geographical areas. News Corp has sought to globalize their activities and move towards being a multinational operator with great attractions. Its business covers four continents with the world’s most important media firms and distribution channels, News Corp has taken a leading position in the market. Another important characteristic of News Corp’s development lies in its diversification. It possesses newspapers, films, TV, music, internet, etc. The firm is vertically integrating forwards towards the outputs. For example, BSkyB’s success is due to its varied and diversified programmes delivered to different customer groups, also Murdoch expanded its business into sports and the stock market such as the acquisition of the Rockies baseball team in US and the purchase of Dow Jones in 2007. Synergy generated by the firm undertaking complementary activities where their combined effect, either in cost savings or profits, is greater than the ‘sum of their parts. (Dobson&Starkey, 1993)
4.2 Development Methods
Generally speaking, the main methods for development fall into three categories: internal development, acquisition and joint development. The choice between them will to a large extent be dictated by the firm’s resources and the market conditions. (Dobson&Starkey, 1993)
Internal Development
This method appears appropriate when News Corp were created and developed in the earlier years. Because of lack of resources at that time, News Corp had to enhance the
base of development in making profits in newspapers. With sound financial resources, it began to expand into Europe purchasing UK’s firms. When News Corp is developing its new services and markets, it also focuses making full use of its present internal resources to expand its business.
Acquisition
Acquisition enables a firm to enter new market areas with greater speed than through internal development. (Dobson&Starkey, 1993) News Corp’s objective is to create an international corporation since its establishment and Murdoch has the personality to take risks and rule the media world. Under the leadership of Murdoch, News Corp is constantly acquiring and purchasing all over the world. In Asia, News Corp took STAR TV in 1990s and entered the market of China, India and Japan. In Europe, Murdoch controlled UK’s leading newspapers and TV broadcastings. In US, it acquired Fox in 1990s and DirectTV, the largest US satellite TV broadcasting corporation in 2003. News Corp nowadays has 789 affiliates in 52 countries (www.chinairn.com) Murdoch’s acquisition strategy makes News Corp the largest and profitable media organizations in the world.
Strategic Alliances/Joint Ventures
This method has become increasingly popular since the early 1970s. (Dobson&Starkey, 1993) News Corp mainly applied this strategy in the US market where competition was fierce. By combination with others, News Corp can reduce competition or put pressure on common competitors. This strategy facilitated the set up of Fox TV network and established sound foundation for the satellite strategic plan.
Based on the analysis of News Corp’s development directions and methods, it can be seen obviously that it has been adopting diversified strategies of mainly acquisition, product and technology innovation, global integration and diversification. These strategies guarantee News Corp’s growth to be a multinational and multiplatform conglomerate.
5 Strategy Evaluation
A strategy is a set of objectives, policies and plans that, taken together, define the scope of the enterprise and its approach to business, strategy must satisfy four broad criteria: consistency, consonance, advantage and feasibility. (www.anderson.ucla.edu) It can neither be formulated nor adjusted to changing circumstances without a process of strategy evaluation, which forms an essential step in the process of guiding an enterprise. (Dobson&Starkey, 1993) In making a decision on how to select appropriate strategies, suitability, feasibility and acceptability are three key criteria that will have to meet. (Dobson&Starkey, 1993) A strategy fails to meet one or more of these criteria is strongly suspect.
5.1 Suitability and Feasibility
To be suitable the strategy should fit the needs of the firm and how effectively it can use and develop the firm’s resources. The main strategy News Corp adopted is through acquisition with supplementary strategies in different parts of the world.
the Europe Market
In Europe, News Corp’s main strategies is to takeover and diversify. It expanded into the UK market from 1960s, purchased UK’s leading publishing organizations like The Times and they created great profits for News Corp in 1980s. In order to accelerate and take much more of the market share, it devised to transform from traditional patterns to more attractive products, therefore it moved into films and TV programmes. New technology was applied to distribute more programmes to customers, the takeover of SATV made the satellite and cable systems linking together. The biggest success was BSkyB which created £3bn for News Corp in 2003 and continued a growth trend. Although losses occurred at first, the firm was able to obtain the necessary funds, technology and managerial resources with the diversification of its products and integration of its components.
the US Market
US market is the most important for News Corp, from 1970s it began to enter the market through purchase or acquisition. In US, News Corp’s main aim is to achieve economies of scale with strategic alliance and acquisition strategy. Competition in US was fierce in the 1990s, News Corp then mainly focused on purchasing distribution rights which later proved to be a suitable strategy in entering the market and gaining profits. The consolidation with TCI and combination with local stations enabled News Corp to establish a national TV network which will go digital in the future. Although the alliance with Echostar was opposed by cable industry runners and the firm experienced profit loss, the acquisition of DirectTV made News Corp the largest satellite operator in US. News Corp’s successful strategy implemented in US contributed to its advantage in financial and technological resources. News Corp now has Fox and 35 stations in US, accounting for 40% of all American TV and Murdoch moved the headquarter to US in 2005 for strategic future development. (news.huash.com)
the Asian Market
In Asia, Murdoch adopted a ‘think global, act local’ strategy to meet the diversified needs of customers. The acquisition of STAR TV to provide an English language service will certainly unviable in the Asian market. Also many Asian countries like China and India place strict regulations in the media field. Therefore, the most important thing for News Corp in Asia is not to gain huge profits by scales of acquisition, but to set up alliances and combinations with local organizations for future development. The local strategy in Asia enabled News Corp to be gradually accepted in the market.
5.2 Acceptability
There is little point in undertaking a strategy if the end result is likely to be unacceptable to senior management or shareholders, strategies should therefore be assessed in terms of likely returns, e.g. profitability and growth rates. (Dobson&Starkey, 1993) During the 50 years development, News Corp experienced many crisis and successes with its strategy implemented in different parts of the world. Murdoch is adept at making use of financial resources to predict the future steps taken, because revenue and profit are two significant indicators for the firm’s sustainable development. When News Corp acquired BSkyB in UK, almost £2 million losses were occurred each week(news.huash.com), but Murdoch insisted in investing and finally he gained huge profit from this acquisition. BSkyB today makes almost £400 million revenue each year. Throughout the history of News Corp, acquisition is Murdoch’s first and most vital strategy, each acquisition has its risks. However, based on its strength and rich resources, there are few effects on the firm’s environment and existing systems. Management groups are clear on expected profitability rates under the leadership of Murdoch. Although the firm experienced serious financial crisis under significant strategic events, it caused few negative effect on the firm’s capital structure (i.e. balance of debt and equity), News Corp owns the capability to pay back and create news opportunities. The acceptability of New Corp’s strategy suits the firm’s environment and conditions, for them which strategy offers the best prospects to best meet their objectives are the most important.
6 Future Strategic Development
6.1 News Corp’s Problem
News Corp today is facing great challenges and competition and Murdoch is also seeking his successor who can make the whole firm sustain its development in a new era. Since his career began in Australia in newspapers, he constantly insisted his acquisition strategy throughout the world. News Corp today is the world’s largest newspaper producer. However, this traditional media industry is in recession worldwide. The Times continued to cause losses these years and subscriptions to the Sun is gradually decreasing. In a financial report of 2005, News Corp’s 175 newspapers’ profit declined by 62.5% accounting for no more than 1% of the firm’s overall profit. (news.huash.com) This situation makes News Corp to change its focus to other media patterns. Also, Murdoch is experiencing management difficulty today. The management structure has long been criticized as informal and emotionally driven by Murdoch. He added more of his personal ideas and feelings into the selection and appointment of senior managers. News Corp actually is under control and management of the family of Murdoch, in making a decision on who will be Murdoch’s successor, his sons and daughters will likely be appointed CEO of the firm. Opposition has been aroused as the appointment to his elder son as CEO of BSkyB in 2003. Although News Corp’s management is committed to strong corporate governance and sound business practices (www.newscorp.com), the management structure reflects more of Murdoch’s thinking. Another problem confronted by News Corp is its risks in the process of acquisition. Some acquisition of weak companies cost much of its finance to reincorporate. The takeover of Dow Jones in 2007 with $5.6bn is a great risk taken by Murdoch whose aim is to set out future plans for The Wall Street Journal, including the possibility of shelving subscription fees for the newspaper's digital assets. (www.brandrepublic.com) American’s traditional newspaper industry is experiencing a declining period, the acquisition of Dow Jones means News Corp will have to take more risks to invest if it is going to revitalize the newspaper industry which might lead to severe outcomes.
6.2 Future Strategies
Throughout the history of News Corp’s development, acquisition enables the company to grow into a multinational media conglomerate. Diversified products and services, local strategy in certain parts, strong leadership in making decisions mainly contribute to the success of News Corp. It not only takes great risks but also creates opportunities in its activities. For sustainable development in the future, News Corp, on one hand, will have to enrich its distribution channel and content. Diversified products and contents will attract more subscriptions. The traditional media industry should still be an important component of News Corp, actions taken on the The Wall Street Journal later will open up a new page for the newspaper industry. On the other hand, with the innovation of technology News Corp will build up a much wider network in the world. BskyB and Direct TV provide Murdoch with adequate resources to establish his satellite TV system with unparalleled distribution network.
The most important strategy is its move into the internet. There seems little doubt that there are huge profits to be made, and that ignoring the Internet would mean passing by a major opportunity. (maxblumberg.typepad.com) The 2005 acquisition of MySpace signaled a late-life conversion to the power and possibilities of the Web which built a sound ground for Murdoch to expand into the internet industry. (www.businessweek.com) The strategy of combining internet with News Corp’s large TV network will create new opportunities in the market. It is predicted that by the year 2008, the revenue of MySpace will be over $8bn.(www.donews.com) however, News Corp will have to compete with Google, Yahoo and Microsoft that have developed internet for many years, the strength of News Corp is its resources and product offered to customers, while the core value of internet lies in its personal subscription, the combination of the two will contribute to the success of its internet strategy.
For better development in the future, especially after the retirement of Murdoch, News Corp will have to develop and establish a more reasonable and sound management system, because the existing management represents Murdoch’s character and opinions. The firm should set clear strategic objectives without making overuse of the resources and taking great risks. Specific objectives will ensure News
Corp make full of its competitive advantages to fulfill achievements. The media industry needs to be commercialized and capitalized, without Murdoch, News Corp will have to think more about the marketplace, focus on marketing strategies and operating methods.
7 Conclusion
This essay mainly analyzes the development and strategy of News Corp, its external and internal environment and competitive advantages are explored. News Corp’s strength, weakness, opportunity and threat are examined to analyze the firm’s development. Then News Corp’s main strategies and development methods are given. As a media conglomerate, News Corp’s success is mainly due to its acquisition strategy throughout the world while making full of its rich resources. Some strategies caused loss or failure, but it strived to get rid of the crisis under the strong leadership of Murdoch. News Corp is adopting different strategies in different parts of the world, and these strategies meet the needs of its expansion and development. Although the firm nowadays is facing great challenges, appropriate strategies will be applied to lead News Corp into a new era. Finally, recommendations and insight into the firm’s future prospects are given. Without Murdoch, no one can make sure what News Corp will be like in the coming decades.
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Appendix
Source: http://www.turnoffyourtv.com/healtheducation/addiction/addiction.html