CLA 2 Paper & PPT - Managerial Economics

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Managerial Economics A Case Study of Time Warner Cable

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Introduction

Time Warner Cable is an American company which is headquartered in New York city and it is considered the second largest company in the US Cable Television Industry. This paper analyzes the brief history of the company and business it’s business expansion since 2000. Additionally, the paper discusses the business environment of the company as well as the competitors and further looks at the legal environment of Times Warner Cable company. The paper will sum up discussion by analyzing the technological changes and challenges facing the company

A summary history and analysis of Time Warner Cable business expansion since 2000

Time Warner Cable was incorporated in 1968 as Time Inc. purposively as a magazine publisher before acquiring American Television and Communications (ATC) in the 1970s. Notably, in 1990, Time Inc signed a merger agreement with the famous film and television maker Warner Communications and changed its name to Time Warner Inc. The company experienced major business transformation 1990s through business mergers and acquisitions however, the most veritable expansion has been witnessed since the year 2000.

At the beginning of the year 2000, the company merged with American Online (AOL) an internet company in an agreement that was valued at a tune of more than $250 billion. American Online company become a household name in the middle of the 1990s and was seen as one of the fastest-growing internet providers in the US. Besides the provision of internet access (AOL) also provided content and by the year 1997, almost 50% of homes in the US accessed the internet through (AOL) company. The corporation between Time Warner Cable and American Online company was seen as iconic and significant because it involved a traditional media firm and an internet-oriented media corporation. However, things turned south after the merger because the contract was ill-timed. Baye & Prince, (2017) noted that the advent of the dot-com era in the year 2000 led to global economic shocks which fueled a decline in the share price of the majority of global companies, particularly in internet-based industry. It is noted that in the year 2002, AOL experienced an accounting mishap concerning promotional revenue this resulted in AOL Times Warner Cable posting an unprecedented loss in the corporate history of $98.7 billion.

As a strategy to recover from the loss, AOL Time Warner retrenched and placed emphasis on media holding particularly movies studios and cable networks. Notably, in the year 2003 Time Warner rebranded itself by dropping AOL from its name consequently the majority of executive managers from AOL left the company. Another remarkable recovery strategy for the company was registered in 2009 when the managers decided to rely more on the company's internet and communication business resulting in a multiplatform communication company but not a media and entertainment business. During the same year, the owners of Time Warner Inc. were given separate shares of Time Warner Cable stock thus marking its formal separation from the media conglomerate. Additionally, the recovery strategies taken by Time Warner Cable have paid dividends since the company has been posting impressive results in the value of its stock. It has been reported that the company has been recording an annual profit of over 30% between 2009 and 2016.

The business market for Times Warner Cables

The economic environment of Time Warner Cable is the Cable television industry and the company’s presence stretches in five geographical areas of Texas, New York, the Midwest, the Carolinas, and Southern California. Similarly, Time Warner Cable has a market base of 16million customers both business and residential who enjoy its range of services comprising of high-speed data, video, and voices services. Companies that operate in the Cables television industry offer three key services, home telephone, video programming, and internet services (Rahman & Majumder, 2021). More often than not, companies in this industry will provide two or more of these services however, the companies are conspicuously segmented with dissimilar market trends and competitors. The three services provided by firms in this industry are discussed below.

Internet services: the need for internet services has grown very fast thus creating a big market for internet service providers. Time Warner Cable company has capitalized on this aggravated demand and it provides six different forms of internet plans that vary based on the speed of downloading and price charge. For instance, internet with a download speed of 2Mbps is priced at $ 15 every month while a high download speed of 50Mbps offering access to WIFI is charged at $75 per month. Another service being offered by Times Warner Cables is video programming which involves the provision of multichannel video services to residential customers. Video programming accounts for 48.1% of total income received by Time Warner Cable however, this is a decline from 56.1% that was reported in 2010.

Besides the provision of internet services and video programming, Time Warner Cable has a presence in the residential phone services which are provided via the internet. However, the demand for residential phone services has been declining largely due to high competition from wireless telephone services. For instance, the proportion of households facing off-home telephone services rose from 20% in 2008 hitting 40% in 2014. Additionally, despite this trend Time Warner Cable has a market share of 6.3 million subscribers who contributed to the company's balance sheet of $1.9million in 2015.

Competition in the industry and measures taken by Time Warner Cable to remain competitive

Competition in the cable industry has many facets ranging from cables companies, direct broadcast satellite television providers, telephone providers, online video distributors, and suppliers. This has increased consumers' choices and preferences. It’s estimated that almost every household in the US has access to satellite services, close to 99% profit from cable companies and another 50million enjoy telephone services.

Competition among cables companies is pronounced however, almost every company has created its market niche making it difficult for the competitors to penetrate and gained an advantage (Ali & Anwar,2021). This implies that there is a very little confrontation between and among companies. On this front Comcast, the company is the largest competitor of Time Warner Cable. The company which is headquartered in Philadelphia has a market presence in South coast states like Florida, Denver et al. In addition, in the year 2014 Comcast company had shown interest in acquiring Time Warner Cable a mover that was quashed following government opposition. Other notable competitors include Charter communication with a market base of 6.2million customers and other small companies like Cablevision. To contain this competition, Time Warner Cable company has planned to spread its wing into content and programming services (Coimbra, 2017). The company has deliberated on acquiring Viacom Inc, a media company that has a foot in television and film production.

Additionally, online video distributors have gained prominence posing a great challenge to cable companies. This new trend as a result of high internet download speed has led to a major increase in video streaming since 2011. Major players in this front are companies like Netflix, Hulu, Amazon prime video, and YouTube. In efforts not to be faced out, Time Warner Cable company has responded by launching EPIX movie Channels which has been added its digital video subscribers. This strategy has increased the company's market presence attracting around 15059 subscribers who add close to $146823 every month to the company’s income stream.

Moreover, satellite television companies compete more often with cable companies in the provision of video services. It’s reported that the majority of US citizens are serviced by satellite television. Major competitors in this market segment are AT&T Direct TV and Dish network providers. AT&T has gained much presence in the US television market posing a great challenge to companies like Time Warner Cables. In a bid of remaining competitive in this segment Time Warner Cable has tasked its team of strategists to carry out elaborate market analysis and present its report before the executives retreat for adoption and implementation.

Close analysis of competition in the Cable Television Industry reveals that Time Warner Cable has gained competitive advantage and is more resilient in the market. Wang et al (2021) while analyzing the concept of business strategy and competitive advantage notes that, business strategy can be looked at from three angles depending on the degree of proactiveness of the actors. The three groups are prospectors, defenders and analyzers therefore, from the prospector’s perspective Time Warner Cable has focused on innovation of new products and markets thus gaining competitive advantage.

Significant regulatory areas that impact the operation of Time Warner Cable operation.

Cable companies in the US are confronted with a raft of laws and regulations that guides and directs their operations. According to Baye& Prince (2017), Federal Communications Commission (FCC) serves as a watchdog over the observance and adherence of these laws. Some of these laws that impact the operation of Time Warner Cables are discussed below.

Connect America Fund; the fund came into force in the year 2009 following the enactment of the American Reinvestment and Recovery Act. Consequently, FCC was mandated to roll out a national broadband strategy that would see a large number of Americans accessing high-speed internet. Therefore, all companies in the communication industry are expected to contribute to this plan through payment of fees and taxes.

Cable Pricing Regulation; under this law FCC has powers to cap the rates charged by cable companies for their equipment and cable services in markets without effective competition. Effective competition implies the market share that the cable company commands and the number of competitors in that market. Contextually, Time Warner Cable is not subjected to this law since 85% of its market share faces effective competition.

Carriage of Broadcast Television: Under this law, cable companies are required to reserve a fraction of their stations to resident television channels. These channels are called must-carry channels and they community access televisions as well as local channels.

Net Neutrality: This law has been designed purposively to regulate internet service providers. The FCC has the power to monitor communication and transmission via the internet. The requirements are that internet providers will not unreasonably block access to permissible content or network traffic. However, this law has been challenged by some companies.

The technological change and challenges facing Time Warner Cable.

The rapid technological revolution has been witnessed in the cable television industry resulted in unprecedented competition. Notably, programming charges have been on the rise while video subscription fees have been diving. This has pushed competition to high levels as consumers demand high-speed data and internet access (Ke, 2021). The decline in the use of traditional telephone services has also left players in the cable industry guessing on the likely profitability of the services. Some of the technological breakthroughs are discussed as follows;

Digital Video Recorders (DVRs): the increased acceptance of DVRs by consumers have posed a technological challenge to Times Warner Cables. This feature allows subscribers to record video content to watch later or even pause live television transmission this makes consumers avoid commercials at a high level (LESTARI et al,2020). Thus, the use of DVRs denies companies like Time Warner Cable to profit from commercial advertisements.

Cutting the cord: This is another innovation by customers that have resulted in challenges. The cord-cutters are consumers that have been abandoning subscription to video services including reducing the uptake of services provided by traditional video services at the detriment of companies like Time Warner Cable.

Another notable change is the increased demand for wireless mobile phones. It has been reported mobile phone services has become a necessity to virtually all people in the US and other parts of the world. The aftermath of this paradigm shift is the declining use of traditional telephone service a segment that has been a major market for Time Warner Cable.

Conclusion

In summary Time Warner Cable company has witnessed remarkable changes since its inception in 1968. As it has been noted that, the company rebranded itself after 2002 loss making and has remained resilient despite the mounting competition in the industry. Therefore, the future prospect of the company is something to be watched as the wave of technology and legal aspect continue to shape the Cable industry.

References

Ali, B. J., & Anwar, G. (2021). Business strategy: The influence of Strategic Competitiveness on competitive advantage. International Journal of Electrical, Electronics and Computers, 6(2).

Baye, M. R., & Prince, J. T. (2017). Managerial Economics and Business Strategy. Language, 27, 548p.

Coimbra, D. V. C. D. S. (2017). Industry consolidation: the merger of charter communications with time warner cable (Doctoral dissertation).

Galletta, S., Mazzù, S., & Naciti, V. (2021). Banks' business strategy and environmental effectiveness: The monitoring role of the board of directors and the managerial incentives. Business Strategy and the Environment.

Ke, Y. (2021). Applications of Managerial Economics in Business Pricing Strategies. In E3S Web of Conferences (Vol. 235). EDP Sciences.

LESTARI, S. D., LEON, F. M., WIDYASTUTI, S., BRABO, N. A., & Putra, A. H. P. K. (2020). Antecedents and consequences of innovation and business strategy on performance and competitive advantage of SMEs. The Journal of Asian Finance, Economics, and Business, 7(6), 365-378.

Rahman, M. H., & Majumder, S. C. (2021). Relationship between developing manager and managerial economics: a theoretical overview. Independent Journal of Management & Production, 12(5), 1339-1356.

Wang, C., Brabenec, T., Gao, P., & Tang, Z. (2021). The Business Strategy, Competitive Advantage and Financial Strategy: A Perspective from Corporate Maturity Mismatched Investment. JOURNAL OF COMPETITIVENESS, 13(1), 164-181.