Below is my final analysis of Time Warner, Inc. for the Media Management and Leadership, Fall 2015.
Time Warner Inc. consists of hundreds of content and distribution properties spread across four business units. Even though Pan and Jupiter Ascending posted huge losses, the Warner Bros. business unit was the most successful this year (Kalogeropoulos). The runaway success of the division, including an 11 percent jump in sales, has been attributed to new products like video games. While the Warner Bros. division is the only division growing its total sales — e.g. market size — the Turner and HBO divisions posted the top profits for the company in 2015.
This year, Time Warner Inc. piloted new advertising strategies (during a cable broadcast of Family Guy on Adult Swim); earned exclusive rights to air top sporting events (NCAA basketball, NFL and NBA); piloted a streaming service for watching people play video games (called eLeague); and was considering expanding its stake in Hulu (Seeking Alpha). Despite measurable success and pilot projects in 2015, Time Warner Inc.’s stock price is currently hovering around $64 per share — as low as it has been all year. Macroeconomic conditions for cable networks are weighing heavily on its valuation in spite of $5.5M profits in 2015. This has lead analysts at Credit Suisse to name TWX as one of its favorite consumer discretionary stocks of 2016 (Schultz).
Favoritism aside, Time Warner Inc.’s stock price is riding the wake of Q2’15 earnings reports from MVPDs like Dish Network. In the second quarter of this year, Dish lost an estimated 151,000 pay-TV customers (Flint). Declining cable subscribership means loss of per-subscriber affiliate fees as well as unfavorable changes to advertising rate cards for cable networks. Time Warner Inc., which depends so heavily on its cable networks for revenue, will need to begin making changes now to ensure viability past the decline of pay TV.
First, I recommend that Time Warner Inc. conduct a Porter analysis of every product within its business units. A Porter analysis would allow Time Warner Inc. to make an informed decision about the strategy for each of its products. I am recommending a Porter analysis, rather than a Boston matrix analysis, because I believe Time Warner Inc.’s products are heavily affected by competitive forces. For example, I believe Time Warner Inc.’s sports content — which has exclusive licensing — including content distributed on cable networks as well as websites could be an area to double down. Antithetically, cable networks are threatened by both substitutes and new entrants and might be a business to start winding down.
Next, I would recommend that Time Warner Inc. use revenue from existing products to launch new products. By conducting a SWOT analysis, Time Warner Inc. would find that its strengths include the creation of original content. As the company has already found, launching distribution services like HBO Now or a deeper partnership with Hulu might also be an opportunity. Additionally, I recommend that Time Warner Inc. conduct a hedgehog analysis to understand exactly what sits at the intersection of its economic engine, ultimate talent and deepest passion. As an outside observer, I believe that intersection is the production of fantastic content — from Game of Thrones to Batman Vs. Superman.
“Once the good-to-great companies were clear on their Hedgehog Concepts, they built momentum by making a series of decisions relentlessly consistent with that concept, like turning a giant, heavy flywheel, turn upon turn” (Collins). After conducting a hedgehog analysis, the company should begin developing products with marketing in mind. That includes developing the product for a target demographic as well as testing the product throughout the development process. Lastly, the company can fire bullets, then cannonballs, to begin scaling new products. As a corollary, Amazon produced pilot episodes of new shows and then asked users to vote on which shows should be produced. The “pilot season” produced lots of buzz for the shows, ensuring a large audience for launch. According to Gary Hamel in What Matters Now: How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, “Our future, no less than our past, depends on innovation” (Hamel).
The first recommendation, to reconsider the strategy for all of Time Warner Inc.’s existing products, will have consequences related to company organization, culture, staffing and revenue. Time Warner Inc. seems to define itself by its cable networks. While the company should continue to define itself by the great content offered on those networks, it’s unlikely that the company will be able to successfully define itself by cable networks in the future.
My second recommendation, to begin testing new product ideas, implies a culture of innovation and experimentation that might not currently exist at the company. Being successful at this type of strategy often requires all of the other traits that we studied in class; 10x personalities that can execute 20-mile marches (discipline) with empirical creativity, productive paranoia and level 5 ambition. If Time Warner Inc. is unable to convert on any of the innovative product ideas, the company will not see the returns it needs to survive. Pursuing this strategy too aggressively will concern investors and not pursuing it aggressively enough might mean Time Warner Inc. falls below the death line.