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Media companies: Fingers in many pies

Dec 19, 2008

The US has the most developed media industry in the world. The US media giants have established a presence here by partnering with the Indian media houses. Interestingly, the structure of the Indian media industry is evolving to look a lot like its US counterpart. In this article we shall highlight the central theme in the US media industry: conglomerates. Conglomerates are diversified firms with presence in many industries or industry segments. US media industry: Ruled by giants
The US media industry is dominated by conglomerates. Following are the important media conglomerates and the industry segments that they operate in:

Disney: It has a market capitalisation of US$ 42 bn. It has 4 segments - media, parks, studios and consumer products. Media has 6 sub segments - broadcasting (ABC), production & distribution (Buena Vista), TV stations, cable networks (ESPN, Disney, Jetix, E!), radio (broadcasting & stations), and internet & mobile. Studio has 3 sub segments - theatres (Pixar, Touchstone, Miramax), home entertainment and TV.

Time Warner: It has a market capitalisation of US$ 37 bn. It has 5 segments - AOL, cable, films & TV (Warner Bros., New Line, DC comics, MAD magazine), networks (CNN, HBO, Cartoon network, Pogo) and magazine publishing (People, Sports Illustrated, Time, Fortune) .

Newscorp: It has a market capitalisation of US$ 22 bn. It has 8 segments - films (Twentieth Century Fox), TV (FOX, STAR), cable (Nat Geo), DTH (SKY), magazines, newspapers (The Times, Dow Jones-WSJ, Barron's), books (HarperCollins) & others (MySpace).

Viacom: It has a market capitalisation of US$ 11 bn. It has 2 segments - networks (MTV, VH1, Nickelodeon) and films (Paramount, DreamWorks).

CBS: It has a market capitalisation of US$ 5 bn. It has 4 segments - TV (CBS), radio, outdoor and publishing (Simon & Schuster).

NBC universal: It is a division of General Electric. It has 4 segments - networks (NBC), movies (Universal), TV (NBC news, CNBC, MSNBC) and parks.

Why conglomerates?
The conglomerates seek to benefit from synergies between the different segments. As per Michael Porter, synergies arise out of 3 types of interrelationships between activities performed in the different segments.

Tangible interrelationships: They arise due to the presence of common buyers, distribution channels, technology etc. Activities are shared to lower cost or enhance differentiation. Sharing has the potential to reduce cost if the cost of an activity is driven by economies of scale or learning. Sharing activities among business segments may neutralize the cost advantage of a high market share firm competing with one business unit. Also, interrelationships provide sustainable competitive advantage if competitors find it difficult to match it. The most sustainable interrelationships involve industry segments that competitors are not in and find difficult to enter.

Intangible interrelationships: They arise when there is similarity in a broad sense such as type of buyer, type of production process. In this case, activities cannot be shared, but management knowhow in areas such as product management, brand positioning, advertising concepts are shared.

Competitor interrelationships: They arise when there are 'multipoint competitors'. Multipoint competitors are firms that compete with each other not only in one business unit but in number of related business units. Competitors in one industry often expand in the same direction.

The three types of interrelationships can occur together. However, tangible and competitive interrelationships are easier to implement than intangible relationships. In the next article we shall study how the conglomerate structure applies to the Indian media industry.

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