Case study and analysis: Portugal TVI media / broadcasting company

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Chapter 3

A Primer in Corporate and International Strategy for Media Firms

In pursuing competitive advantages, a media firm goes through the stages of strategy analysis, formulation, and implementation (Dess, Lumpkin, & Taylor, 2004). These strategic actions involve different lev- els of complexity as well as resource commitments, ranging from microlevel, functional strategies like an advertising campaign; to busi- ness-level strategies that are mainly concerned with developing core competencies in a specific product market (e.g., a differentiation or cost leadership strategy); to corporate strategies that deal with how a media corporation diversifies its business units, allocates resources, and man- ages its portfolio. Although each business unit of a diversified firm has to analyze and align the external and internal environment of its prod- uct market with the unit’s business mission and intent to exploit com- petitive advantages in a particular market (e.g., ABC in the network TV market), a diversified corporation such as Disney, the corporate parent of ABC, also has the challenging tasks of finding the best combination of resources and business environments in which the overall company can be competitive in multiple markets. Hitt, Ireland, and Hoskisson (2001) suggested that a company may adopt among five generic business-level strategies: cost leadership, differentiation, focused cost leadership, fo- cused differentiation, and integrated cost leadership/differentiation. Compared to these single-market business-level strategies, corporate strategies tackle more multidimensional issues such as mergers and ac- quisitions as well as product and geographical diversification that are heavily dependent on the conditions of a firm’s external environment and have substantial implications for the development and appropria-

38Chan-Olmsted, S. M. (2005). Competitive strategy for media firms : Strategic and brand management in changing media markets. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2019-03-01 14:48:04.

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tion of its resources. Along the same line, considering the popularity of strategic alliances in the media industries and the emergence of numer- ous global media conglomerates, a media firm’s cooperative strategies that exploit pooled competitive advantages and international strategies that aim at capitalizing on the technological, political, societal, and eco- nomic changes in the global marketplace have also become critical cor- porate decisions that impact a media firm’s competitiveness in the marketplace. Thus, to supplement the general strategic management concepts discussed in chapter 2, this chapter further reviews relevant theories in areas of diversification, M&A, strategic alliances and net- works, and international strategy. It also discusses how these strategic approaches and theories might be applicable to media products in the context of a changing media marketplace. Note that whereas diversifi- cation, M&A, and cooperative strategies such as strategic alliances are examined in the context of an international marketplace, additional concepts in international expansion are discussed separately.

DIVERSIFICATION

Diversification is the dominant topic in the studies of corporate strat- egy—the strategic management of organizations with multiple busi- ness units in search of synergistic competitive advantages. Various reasons have been cited as the drivers for diversification. These ratio- nales might be grouped into six categories: growth, market power, mar- ket efficiency, financial-performance improvement, profit stability, and synergy effects. In fact, diversification is simply a “faster ” way to grow, especially via the means of acquisitions. Unlike natural internal expan- sion, which takes time for planning, developing, and implementing, an acquisition or merger can be achieved fairly quickly and new resources and customers become immediately available. For example, most lead- ing cable television multiple system operators (MSOs) have grown tre- mendously in the last decade through acquisitions of clustered systems rather than through building new systems. Scholars have noted that a diversified firm may acquire market power that is unavailable to its un- diversified counterparts (Caves, 1981; Hitt et al., 2001; McCutcheon, 1991; Scherer, 1980; Sobel, 1984). For instance, a vertically integrated diversifier may gain market power through reciprocal buying and sell- ing (Grant, 1998). A diversified firm can make use of efficiencies that are unavailable to its single-business-unit (SBU) counterparts by owning sharable, transferable resources and thus leading to scale/scope econo- mies. A diversifier can also generate cash from its core, successful busi- ness unit to invest in other ventures for additional profits. Television networks and movie studios have long used the cash they garner from blockbusters to invest in new content or technology projects. Further- more, diversification into new businesses can reduce risks and varia- tions in corporate profits by expanding the firm’s lines of business.

A PRIMER IN CORPORATE AND INTERNATIONAL STRATEGY I 39

Chan-Olmsted, S. M. (2005). Competitive strategy for media firms : Strategic and brand management in changing media markets. Retrieved from http://ebookcentral.proquest.com Created from ashford-ebooks on 2019-03-01 14:48:04.

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NBC’s entry into the cable market with its MSNBC and CNBC properties has helped boost its advertising sales amid declining broadcast TV audi- ences. Finally, a diversified firm may benefit from synergy—the added value created by business units working together.

Sanchez and Heene (2004) suggested that corporate synergies might be achieved as a result of cost reductions through a combination of economies of scale, scope, learning, and substitution (i.e., resource sub- stitution) enabled by a firm’s business portfolio; or as a result of im- proved products or processes through better control of key inputs and supply/distribution relationships with vertical integration, leveraging of technology and intangible assets such as brands, and sharing of knowledge and capabilities. Such synergistic effects have also fre- quently been cited as a driver for media firms’ diversification (Jung & Chan-Olmsted, in press). For instance, media conglomerates have placed more emphasis on the promotion of their own subsidiaries’ prod- ucts such as television programs or movies. The result is that these con- glomerates, with their enormous resources and diverse holdings, have been very successful in developing and promoting content products in ways their stand-alone counterparts cannot match (Jung, 2001, 2002; McAllister, 2000; D. Williams, 2002).

Diversification involves either geographic or product market expan- sions (see Fig. 3.1). Sanchez and Heene (2004) suggested that an SBU typ- ically grows geographically in a domestic market before expanding internationally or beginning horizontal integration with acquisitions of business units in its domestic market. Very often, domestic or even inter- national vertical integration with businesses upstream or downstream from the distribution channel is the last step. In fact, the media industry is going through a phase of transformation, moving from a national to an international marketplace as many media conglomerates also become multinational corporations. The strategy of international diversification

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FIG. 3.1. Types of corporate and international strategies.

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by media firms has indeed generated heated debates among policymakers, consumer advocates, and scholars (Croteau & Hoynes, 2001; S. Davis, 1999; C. Davis & Craft, 2000; Demers, 1999; Teinowitz, 2001). Some have suggested that a media firm is inclined to diversify in- ternationally to increase the size of its potential market. It is a particu- larly attractive option for those located in developed countries with limited continuous domestic growth opportunities. For example, some U.S. cable television firms are venturing into South American and Asian cable markets as demands for cable television services in the United States are saturated (Chan-Olmsted & Albarran, 1998). Access to local talent and to knowledge of local preferences for culture-sensitive content prod- uct is another unique driver for media diversification. Gershon (1997) further identified another motive for the international diversification of media firms—empire building. For instance, News Corporation’s Rupert Murdoch has been characterized as an empire builder in the tradition of the 19th-century press barons (Smith, 1991). Bagdikian (2000) also re- ferred to the current generation of media businessmen as the “Lords of the Global Village.” Transnational media owners are risk takers who of- ten measure success by business gamesmanship and the art of deal mak- ing (Gershon, 1997).

Approaches to Diversification

There are various approaches to diversification strategies. For analytical purposes, diversification strategies may be classified as concentric, verti- cally integrated, or conglomerate. Whereas concentric diversification re- fers to a firm’s branching into business units in related markets, vertical integration is the linking of businesses that have a buyer–supplier rela- tionship or represent stages of production. Conglomerate diversification is the expansion of a corporation into new, unrelated lines of business. A diversification can again be viewed as either “related” or “unrelated.” Re- lated diversification enables a firm to benefit from economies of scope and scale through the leveraging of core competencies and sharing of activi- ties and information. Related diversification also offers a firm the advan- tages of pooled negotiation power and access to, as well as control over, production materials and product flows through vertical integration. Unrelated diversification, on the other hand, may derive benefits from the possible synergies created by leveraging corporate restructuring and general management capabilities, learning “best practices” in other busi- ness units, improving capital allocations by forming an internal capital market, and reducing financial risk through a diversified business portfo- lio (Dess et al., 2004; Sanchez & Heene, 2004).

Diversification Strategy and Performance

So do diversifiers generally outperform nondiversifiers? The empirical re- sults on the linkage between diversification and performance seem to sug-

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gest that a “moderate” diversification strategy is the key to success. Grant, Jammine, and Thomas (1988) found managerial difficulties as a firm tries to manage an increasingly disparate portfolio of businesses. Markides (1992) discovered many hidden costs such as coordination costs and other diseconomies related to the organizational inefficiencies of conflicting “dominant logics” between businesses and internal capital market ineffi- ciencies. In essence, studies put forward that moderate levels of product di- versification yield higher levels of performance than either limited or extensive diversification. In fact, an inverted-U curvilinear model wherein performance increases as firms shift from single-business strategies to re- lated diversification but performance decreases as firms change from re- lated diversification to unrelated diversification was generally supported by empirical findings (Geringer, Tallman, & Olsen, 2000; Grant et al., 1988; W. C. Kim, Hwang, & Burgers, 1989; Palepu, 1985; Palich, Cardinal, & C. C. Miller, 2000; Palich, Carini, & Seaman, 2000; Sambharya, 1995).

Researchers have also found that international diversification in- creases the stability of a firm’s revenues and that geographic scope is positively related to firm performance in the analysis of U.S. corpora- tions (Geringer, Beamish, & daCosta, 1989; Grant, 1987; Grant et al., 1988; Hitt, Hoskisson, & H. Kim, 1997; W.C. Kim et al., 1989; Tallman & Li, 1996). The positive relationship between international diversifica- tion and firm performance was supported in the context of other coun- tries outside of the United States as well (Bengtsson, 2000; Buhner, 1987). However, some studies have argued that as firms diversified in- ternationally, the costs associated with geographic dispersion began es- calating. Thus, profit margins erode after a certain hurdle point (Chen, 1998; Geringer et al., 2000; Hitt et al., 1997).

Some research has shown that the interaction between international and product diversification leads to a substantial increase in firm per- formance (Sambharya, 1995). Hitt et al. (1997) found that geograph- ical diversification improves performance in firms that are highly diversified in terms of product markets. In fact, W. C. Kim et al. (1989) concluded that the performance of related and unrelated product diver- sification strategies depends on the degree of international diversifica- tion. Nevertheless, another group of studies has also indicated an inverse relationship between product and international diversification (Buhner, 1987; Madura & Rose, 1987). As both types of diversification involve substantial risks, it is unlikely that a firm would take on both strategies simultaneously (Sambharya, 1995). In sum, geographic and product diversifications interact with one another and, individually and collectively, influence different performances among firms (Grant, 1987; Palepu, 1985).

Research in Diversification

Diversification has had a rich tradition as a topic of research since the late 1950s (Ansoff, 1958; Chandler, 1962; Gort, 1962). Salter and Weinhold

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(1979) proposed three general but related models in the discussion of cor- porate diversification strategies. The product/market-portfolio model emphasizes the attractiveness of the target market in terms of attributes such as market size, growth rate, and profitability. The strategy model stresses the interrelationship between the core-business market and the target market. The third approach, the risk/return model, derives mainly from financial theories and reflects the concern and interest of investors. Studies of diversification have generally focused on one or more of the three aspects of diversification: (a) the “extent” (i.e., less or more diversifi- cation), (b) the “directions” (i.e., related or unrelated diversification), and (c) the “mode” (i.e., diversification via internal expansion, M&A, or choices of M&A strategy) of diversification (Qian, 1997; Sambharya, 1995). Diversification strategy may be studied from either the “product” or “geographic” perspective. More recent studies in product diversifica- tion often investigate the directions of diversification as related or unre- lated (Qian, 1997; Rumelt, 1984). Some have argued that related diversification might exploit economies of scope, product knowledge, and other relevant experience, thus reducing transaction costs and improving performance (Grant, 1988; Williamson, 1981). Others have found no dif- ferences or the opposite (Grant & Jammine, 1988; Michel & Shaked, 1984). In general, the RBV of strategic management strongly argues for strategic relatedness within a conglomerate when it comes to diversifica- tion strategy (Chatterjee & Wernerfelt, 1991).

Diversification has gradually become a topic of interest in media management and economics research as well. Dimmick and Wallschlaeger (1986), in one of the initial diversification endeavors, ex- amined the level of diversification of television network parent compa- nies and found that the least diversified parent companies were most active in new media ventures. Albarran and Porco (1990), applying Dimmick and Wallschlaeger ’s measures, studied the diversification strategy of pay cable and concluded that these firms appeared to utilize diversification as a means to limit resource dependency and ensure or- ganizational survival. Picard and Rimmer (1999) further explored whether the degree of product and geographical diversification affected the financial performance of newspaper firms during the economic downturn. Whereas Albarran and Moellinger (2002) examined 6 lead- ing media conglomerates’ structure, conduct, and performance follow- ing the IO model, Powers and Pang (2002) reviewed the diversification and performance of 11 media conglomerates before and after the Tele- communications Act of 1996. The trend of research in this area contin- ued as Shaver and Shaver (2003) investigated the activities of 11 companies over a 10-year period and concluded that operating margins were significantly and negatively correlated to the degree of business di- versity. Peltier (2002) further suggested that although there is no posi- tive correlation between a media conglomerate’s presence in multiple businesses and its economic performance, the internationalization rate of a firm appears to be positively correlated with its economic perfor-

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mance. Adopting a strategic management perspective, Chan-Olmsted and Chang (2003) studied the diversification patterns of seven leading media companies in the product/international dimension and proposed an analytical framework for examining the factors influencing these strategic choices. They also explained how the medium diversifiers yielded the best financial performance. Finally, Kranenburg (2004) pro- posed a series of useful indicators to measure the international diversifi- cation of publishing companies and discovered that the publishing companies have preferred related diversification.

It is our belief that the embedded characteristics of media products (see chap. 1) would lead to a market environment in which related prod- uct and geographic diversification are likely to be the preferred diversifi- cation strategy. For example, as the “intangible,” “content-based” media product may be stored and presented in various formats (e.g., print vs. electronic media), related product diversification that extends a diversifier ’s product lines into related content formats (e.g., owning a magazine and an online content site) would likely benefit the corpora- tion by enabling content repurposing, marketing know-how, and shar- ing of production resources, thus leading to superior performance. It is also likely for a media diversifier to seek out distribution products that complement its own content products and vice versa. The fact that an existing product may be redistributed to and reused in different outlets via a windowing process again reinforces the advantage of diversifying into multiple related distribution sectors in various international mar- kets to increase the revenue potential for such a product.

The dual-revenue source mechanism would likely lead to related di- versification as the larger aggregated number of subscribers or audience enhances a media firm’s ability to offer promotional outlets to multina- tional corporations more efficiently and acquired marketing knowledge about the customers more effectively. In addition, because of the impor- tance of cultural sensitivity and the understanding of a country’s regu- latory environment, global media corporations are more inclined to diversify into related product and geographic markets to take advan- tage of the acquired local knowledge and relationships. The dependency on local communications and media infrastructure may also lead to a diversification strategy that is geographically related (i.e., regionalized) because geographically clustered countries are often at similar stages of infrastructure development and clusters of media systems may lead to cost- and resource-sharing benefits.

MERGERS AND ACQUISITIONS

The strategy of M&A is closely related to the previous topic. It is, in fact, a main means to achieve diversification. There are subtle differences be- tween the terms mergers, acquisitions, and takeovers. According to Hitt et al. (2001), strategically, a merger is a balanced integration of two firms’ operations to combine resources and capabilities for creating a stronger

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competitive advantage, whereas an acquisition is the purchase of a tar- get firm as a subsidiary business with the intent of enhancing a core competency of the acquirer. When the target firm did not solicit the ac- quisition, it is called a takeover.

Many rationales have been suggested as the drivers for M&A. Assum- ing a rational managerial approach, thus excluding the motives of “em- pire building” and “risk reduction” for maximizing a manager’s personal utility, a primary reason for M&A might be to achieve greater “market power” (Haspeslagh, 1999). Market power exists when a firm is able to sell its goods or services above competitive levels or when the costs of its primary or support activities are below those of the competitors (Hitt et al., 2001). Many media companies may have attractive core competen- cies such as the ownership of valuable content or talents and distribution outlets, but lack the size to benefit from these unique resources and capa- bilities. M&As offer an opportunity to achieve greater market power through the increase of firm size (e.g., mergers of MSOs). An attempt to reduce barriers to entry might be another driver for the formation of M&As. For example, market barriers may arise when well-established competitors are able to enjoy significant scale economies and/or brand loyalty. Facing these barriers, a new entrant may find the acquisition of an established company to be more effective than an attempt to enter the market as a competitor offering a good or service that is unfamiliar to current buyers (Hitt et al., 2001; e.g., GE’s acquisition of NBC). In addi- tion, because developing new products internally and successfully intro- ducing them into the marketplace often requires significant investments of a firm’s resources and makes it difficult to earn a profitable return quickly (Shank & Govindarajan, 1992), M&As are another means through which a firm can gain access to new products and to current products that are new to the firm. Compared to internal development processes, M&As provide a more predictable return and faster market en- try (McCardle & Viswanathan, 1994; Rappaport & Sirower, 1999) (e.g., the merger between AOL and Time Warner gave Time Warner immediate access to many Internet subscribers). Again, because it is harder for com- panies to develop products that differ from their current lines for new geographical markets in which they lack experience, a firm is more likely to use M&A rather than internal development as a strategy when engag- ing in international product diversification (Hitt, Hoskisson, & Ireland, 1990; Hitt, Hoskisson, Ireland, & J. S. Harrison, 1991; e.g., News Corp.’s acquisition of DirecTV via Hughes gave News Corp. a presence in the U.S. direct broadcast satellite [DBS] market). Finally, a firm may use M&A as a way to restrict its dependence on a single or a few products or markets, thus reducing its reliance on the financial performance of individual sec- tors (e.g., NBC’s merger with Universal gave NBC the important access to a major studio).

Various issues have been pointed out as potential problems for the strategies of mergers and acquisitions. Hitt et al. (2001) specifically identified seven pitfalls to watch for: integration difficulties, inadequate

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evaluation of target firms, large or extraordinary debt, inability to achieve synergy, overdiversification, excessive focus on acquisitions by management, and oversized corporations. The high-profile restructur- ing efforts of AOL Time Warner and AT&T illustrate some of these post-M&A challenges.

STRATEGIC NETWORKS AND ALLIANCES

Media industries are among the top sectors for seeking out strategic alli- ances or network relationships with other firms. This alliance or net- work orientation might be attributed to media content’s public-goods nature, the media industries’ need to be responsive to audience prefer- ences and technological changes, and the symbiotic connection between media distribution and content (Chan-Olmsted, 2006). For the rest of the chapter, the term strategic networks is used to denote various cooper- ative agreements, including strategic alliances.

What Is a Strategic Network?

Strategic networks may be defined as the “stable inter-organizational relationships that are strategically important to participating firms” (Amit & Zott, 2001, p. 498). These ties may take the form of joint ven- tures, alliances, and even long-term buyer–supplier partnerships (Amit & Zott, 2001). Specifically, alliances can also take a variety of forms such as joint firms, minority equity alliances, joint production, joint marketing and promotion, enhanced supplier partnerships, distribu- tion agreements, and licensing agreements (Yoshino & Rangan, 1995). Furthermore, an alliance can be examined by its structure—equity alli- ances, which involve the creation of new entities or ownership transfer of existing entities, and nonequity alliances, which do not (Das & Teng, 2000; Gulati, 1995). Finally, equity alliances involve equity joint firms and minority equity alliances, whereas nonequity alliances refer to all other cooperative arrangements that do not involve equity exchange and can be grouped into either unilateral or bilateral contract-based alli- ances (Mowery, Oxley, & Silverman, 1998).

Why Create a Strategic Network?

Firms might seek out such interorganizational partnerships to gain access to information, resources, and restricted markets; reduce costs and share risks; improve competitive position (e.g., competition re- duction and leadership maintenance); generate scale and scope econo- mies; share knowledge and facilitate learning; develop industry standards; align resources for large-scale projects; and increase speed in product development or market entry (Bailey & Shan, 1995; Gulati, Nohria, & Zaheer, 2000; Hitt et al., 2001; Kale, Singh, & Perlmutter, 2000; Stuart, 2000; J. R. Williams, 1992, 1998). For instance, in media industries, an alliance with a movie studio would provide its partner

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the critical access to “content” resources; an equity joint venture would allow a media firm to enter a new country or market that has ownership quota regulations for its media products. Parise and Henderson (2001) further suggested that technological advances also tend to induce strategic alliances as firms strive to acquire technology complementarity, reduce the time span for innovation, lessen uncer- tainty in terms of emerging technologies, and assist firms to position themselves where there is a convergence of several industry segments. The technological driver is especially applicable in the context of an emerging digital media marketplace.

Theoretically, transaction cost economics provides the principal ra- tionale for explaining strategic network formation and development (Ramanathan, Seth, & Thomas, 1997), though various theories such as agency theory, game theory, RBV, social exchange theory, power-de- pendence theory, and organizational learning have also been applied to explain the factors influencing the formation and dynamics of strategic networks (Das & Teng, 2000; Robson, Leonidou, & Katsikeas, 2002). The RBV approach of analyzing strategic alliances seems to be especially fruitful in explicating the choice of certain alliance strategies. For in- stance, linking strategic alliance formats to RBV, Das and Teng argued that the types of resources contributed by the alliance partners are the key determinants of the structural preference in an alliance. Das and Teng proposed that a firm will prefer an equity joint firm if it primarily contributes property-based resources, and its partner primarily con- tributes knowledge-based resources; a firm will prefer a minority eq- uity alliance if it primarily contributes knowledge-based resources, and its partner primarily contributes property-based resources; a firm will prefer a bilateral contract-based alliance if both partner firms primarily contribute knowledge-based resources; and a firm will prefer a unilat- eral contract-based alliance if both partner firms primarily contribute property-based resources. In essence, RBV scholars suggest that firms seek partners that have resources complementary to their own and alli- ances that allow them to acquire new capabilities (Eisenhardt & Schoonhoven, 1996; H. M. Harrison, Hoskisson, & Ireland, 2001). The RBV has been applied in some empirical studies of media markets (Chan-Olmsted, 1998; D. Miller & Shamsie, 1996). Chan-Olmsted used the RBV framework to study the strategic alliances of broadcasting, ca- ble television, and telephone services in the telecommunication indus- try. Miller and Shamsie applied the RBV approach to study the property-based and knowledge-based resources’ role in determining the U.S. film studios’ performance in two different environments, one uncertain and one predictable.

Studies of Strategic Networks

Research in strategic networks often addresses questions that deal with such factors as the drivers and processes of strategic network for-

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mation, the type of interfirm relationships that help participating firms compete, the sources of value creation in these networks, and the linkage between performance and participating firms’ different net- work positions and relationships (Amit & Zott, 2001). In general, studies in cooperative strategy may be grouped into three bodies of re- search: (a) those that focus on the reasons why alliances are formed, (b) those that emphasize how collaborative agreements should be managed to be successful, and (c) those that examine the evolution of the interpartner relationship (Ariño & García-Pont, 1998).

The most evident strategic network forms in the media industry are joint ventures and alliances. Many media firms have attractive core competencies such as the ownership of valuable content, talent, or dis- tribution outlets but lack the size, access, or expertise to benefit from these unique resources and capabilities. Strategic networks not only of- fer an opportunity for access to a greater combination of competencies but also reduce barriers to entry (e.g., scale economies and brand loy- alty) in newer, technology-driven media markets such as the Internet and broadband sectors. Many recent studies in media industries have found alliances to be a preferred method of entering the Internet, broad- band, and wireless markets (Chan- Olmsted & Chang, 2003; Chan-Olmsted & Kang, 2003; Fang & Chan-Olmsted, 2003). The net- work strategy may also serve as a precursor for the essential M&A strat- egy. For example, local marketing agreements (LMAs), which exist in many local television markets, offer participating stations access to expanded sales and marketing resources while at the same time reducing competition.

The notion of strategic networks also complements the strategic taxonomy research framework. Examination of firm resources and resource typology for media products are especially appropriate be- cause of the tendency of media firms to adopt alliance strategies that enhance the value of a content product through content repurposing, cross-promotion, and product windowing, and to pool resources to- gether to compete in a fast-changing information technology envi- ronment. In a sense, the RBV theory of strategic management provides the fundamental rationale for many alliance studies (Bar- ney, 1986; Zahra, Ireland, Gutierrez, & Hitt, 2000). By the same to- ken, RBV and the corresponding resource typology studies present an excellent opportunity for media scholars to examine alliances in the media industries with a more theory-driven framework. For exam- ple, Liu and Chan-Olmsted (2002) examined the strategic alliances between the U.S. broadcast television networks and Internet firms in the context of convergence using the aforementioned knowl- edge–property resource typology.

Scholars have also begun investigating cooperative agreements in an international context. Alliance strategies became popular between mul- tinational corporations beginning in the 1980s (Ariño & García-Pont, 1998); however, recent studies have found that American multinational

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firms increasingly organize their foreign business operations as wholly owned ventures rather than strategic networks such as joint ventures, mainly due to difficulties in coordinating business operations (Desai, Foley, & Hines, 2001). Regarding the performance of international stra- tegic networks, it was suggested that business relatedness, partner ri- valry, previous network experience, equity ownership, firm size, level of political risks, and similarity between partners’ national cultures were important determinants. Nevertheless, researchers also found no signif- icant performance differences in the American firms’ international networks with partners from developed versus developing countries (Merchant, 2000).

INTERNATIONAL STRATEGY

As discussed earlier, international diversification is a popular corporate strategy of growth. Media firms such as Time Warner now operate in more than 60 countries. Multinational industrial giants such as Vivendi Universal (before the sale of Universal) and Bertelsmann have turned to the communication sectors by acquiring U.S.-based media companies and either divesting or packaging their industrial assets into separate publicly traded companies (Goldsmith, 2000). There is also evidence of oligopolistic, interdependent behavior as we began to see many strategic alliances between the same leading media conglomerates. Several driv- ers have contributed to the growth of a global media market. Most evi- dently, the progress in communications technology enables the provision of entertainment and information in a faster, more efficient manner and actually makes many media industries more attractive sec- tors for capital investment, which is necessary for a move toward global expansion. Also because of the technological changes, many countries are revamping their existing media policies. We are seeing more liberal- ization and privatization of media industries. This, of course, fosters the growth of an international media market. Furthermore, there has been a decreasing dominance of the U.S.-based media companies in the inter- national marketplace during the last decade. Many high-profile M&As brought about the development of non-U.S.-based global media con- glomerates such as News Corporation and Bertelsmann. The impor- tance of the international market is further magnified by the fact that the demand for certain media products in the United States, such as broadcasting and cable television, is saturated. Also because of techno- logical advances, the lifestyle differences between individual societies are now less pronounced. The traditional market segmentation ap- proach by demographics like age and location is not as practical with the rise of information-based attitude groups that share similar consump- tion patterns. This is an important factor for a product like media con- tent, which is associated with pop cultures. This lifestyle parallelism provides further incentives for the globalization of media companies. Fi-

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nally, as a result of increasingly blurry industry boundaries and the growth of global multimedia conglomerates, there is a tendency to com- pete multilaterally in several media sectors and multiple countries at the same time. In other words, to compete successfully with a growing number of firms that have international holdings of multiple media products, a media company would have to do the same, which again leads to a trend toward internationalization.

Conceptually, various theories of internationalization have been pro- posed to explain why firms expand internationally or why they should do so. The product life cycle theory of internationalization postulated that as a product loses its competitiveness (i.e., started to decline in its life cycle) in an existing market within more developed economies, it will need to be progressively exported to markets in less-developed economies where it could start new cycles till it reaches the end of its commercial life- time (Vernon, 1966). The opportunistic growth theory of international expansion regards internationalization as opportunities presented by changing environments that a firm encounters and pursues rather than as a result of systematic rational analyses. The economics of transaction costs also provides extensive literature in the area of foreign direct invest- ment to explain a firm’s international expansion choices based on its abil- ity to define, specify, and contract for various kinds of economic activities in an international setting (Sanchez & Heene, 2004).

Many of the studies in international strategies seem to fall into two main categories: research that tackles a firm’s entry mode strategies in international expansion and research that investigates an internation- ally diversified firm’s choice of a global, multidomestic, or transna- tional management approach. In terms of market entry modes, a firm has many options when it decides to expand internationally. The modes of foreign entry range from export, license, franchise, strategic alliance, and joint venture, to wholly owned subsidiary, with increasing owner- ship and control as well as investment and risk. (Dess et al., 2004). Thus, the entry mode strategy has significant performance consequences. Hitt et al. (2001) suggested that a firm’s entry mode decision is likely to be influenced by the industry’s competitive conditions; the firm’s unique set of resources, capabilities, and core competencies; and the country’s situation and government policies. Traditionally, media firms have fol- lowed the option continuum sequentially beginning with exports and continuing with strategic alliances and joint ventures. There seems to be less green-field investment with the establishment of wholly owned subsidiaries in this industry, perhaps due to the diversity of local environments (e.g., regulation and infrastructure) and preferences in regards to media products.

Another major area of international corporate-level strategy is the balance between centralized and localized managerial control, consider- ing the opposing pressures of reducing costs and expenses in adaptation to local markets. A firm might adopt a multidomestic strategy in which local responsiveness is the priority and strategic decisions are decentral-

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ized to the business unit in each country. On the other hand, a firm might adopt a global strategy in which global integration and standard- ization is the priority and the headquarters is often in charge of formu- lating the competitive strategies. A third option, a transnational strategy, aims to obtain both global efficiency and local responsiveness through shared vision, flexible coordination, and an integrated network of domestic resources. Nevertheless, it is difficult to carry out a transna- tional strategy in reality (Hitt et al., 2001). Dess et al. (2004) suggested that the existence of a global product; the potential for economies of scale, learning, and scope; and limited availability of an essential re- source would likely tip the scale toward a global strategic approach, whereas differential local market preferences, high transportation and distribution costs, widely available resources, regulations, and speed in providing customer support would encourage a more localized, multidomestic strategy. For example, Hollywood studios are likely to adopt a more global strategy because their “content” products are glob- ally attractive; contain locally unavailable resources such as interna- tionally recognizable talent and sophisticated production studios; have a potential for scale, scope, and learning economies; and require minimal distribution costs.

FINAL THOUGHTS

Corporate strategies such as diversification approaches, M&A, and strategic networks, along with international strategies like foreign en- try modes and global versus localized management design, play a sig- nificant role in shaping today’s media industries as multinational media corporations such as Time Warner, Disney, Sony, and Bertelsmann continue to expand their holdings in both product and geographic markets and the SBU mom-and-pop media firms gradu- ally disappear. As media firms continue to respond to environmental opportunities and contemplate their capabilities and competencies in formulating expansion strategies, the aforementioned media-specific characteristics such as the complementary nature of content and dis- tribution and the windowing process for media content products mat- ter in this process. In other words, there is a tendency for media firms to diversify, acquire, collaborate, and internationalize in a certain fashion. In essence, media industries today are infused with digital technologies and converging platforms. Consequentially, media firms are faced with an increasing need to be less reliant on traditional busi- ness models (e.g., advertising revenues), to develop attractive new-me- dia services, and to compete multilaterally (i.e., multipoint competition in different product and geographic markets). In this complex market environment of abundant potentials as well as risks, corporate-level strategies, with the utilities of improving efficiency, spreading risk, and sharing resources, are indispensable tools in the race to develop competitive advantages.

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