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International Journal on Media Management
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Global Paradigm Shift: Strategic Management of New and Digital Media in New
and Digital Economics
Zvezdan Vukanovic a
a DG University, Montenegro
Online Publication Date: 01 April 2009
To cite this Article Vukanovic, Zvezdan(2009)'Global Paradigm Shift: Strategic Management of New and Digital Media in New and
Digital Economics',International Journal on Media Management,11:2,81 — 90
To link to this Article: DOI: 10.1080/14241270902844249
URL: http://dx.doi.org/10.1080/14241270902844249
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The International Journal on Media Management, 11: 81–90, 2009
Copyright © Institute for Media and Communications Management
ISSN: 1424-1277 print/1424-1250 online
DOI: 10.1080/14241270902844249
81
HIJM
Global Paradigm Shift: Strategic Management of New and Digital Media
in New and Digital Economics
Strategic Management of Media Zvezdan Vukanovic
DG University, Montenegro
Abstract The purpose of this conceptual article is to outline and explain a global paradigm shift in
strategic management of new and digital media in the age of new and digital economics. Accordingly,
this article presents an analysis of the 5 most-successful international media conglomerates (Time
Warner, Walt Disney Co., News Corporation, CBS Corp., and Bertelsmann AG) in regards to their annual
revenue, profit, and stock growth, as well as total debt to equity. The article finds that 4 out of the 5 firms
are American (Time Warner, Walt Disney Co., News Corporation, and CBS Corp.), and 1 is German
(Bertelsmann AG). For the most part, 6 factors are particularly dominant in explaining the profitable
growth of leading international media conglomerates at the macrolevel: cross-media content distribution
leveraging and repurposing, innovation management, vertical integration, vertical expansion, media diver-
sification, and large number of shareholders. To more effectively position and leverage new paradigmatic
models largely influencing volatile media markets, this article proposes the creation and adoption of repur-
posed media content and economies of aggregation (triple- and quadruple-play bundling strategies and
network externalities) for the emerging Internet Protocol TV, Internet TV, and the mobile-TV markets.
The increased importance of the media industry has grown
incessantly over the last 15 years as a result of new digital
convergence. Its increased importance is particularly
reflected in economic respects. The global media industry
encompasses over $1 trillion (Vizjak & Ringlstetter, 2003)
and accounted for about 22% of the total information
industries’ revenue (Compaine & Gomery, 2000, p. 545). In
its annual media forecast, PricewaterhouseCoopers (2008)
projects that global media revenue will grow by an average
of 6.6% per year, reaching $1.29 trillion in 2012.
Furthermore, the importance of strategic management
of new and digital media in a new and digital economy is
particularly important as present and future markets are in
the process of global expansion. The potential for global
competition will increase by about 300% between 2007 and
2037. It is important to notice that in terms of the average
return on invested capital, the media industry (1963–2003),
together with pharmaceuticals, household and personal
products, and computer software and services, represents
the most profitable global industry (Grant, 2008, p. 70).
Strategies of the Top Five Media
Conglomerate Firms
This section presents an overview of the organizational
and business strategies of the top five international
media conglomerates. I selected the five most–successful,
international media conglomerates in regards to their
annual revenue, profit, and stock growth, as well as total
debt to equity that, in profitable companies, is less than
1. The five companies reviewed in this research include
Time Warner, Walt Disney Co., News Corporation, CBS
Corp., and Bertelsmann AG. All firms are publicly traded
companies with the exception of Bertelsmann AG, which
is privately held (Picard, 2002b, p. 118). These companies
were selected because their divisional structure consists
of at least two or more media-related divisions, and
media activities account for at least one half of the com-
pany’s asset base. As such, the world’s largest company in
terms of revenue, General Electric, is omitted from this
Dr. Zvezdan Vukanovic is an assistant professor in media manage-
ment and economics at the Faculty of International Business, Econom-
ics and Finance, DG University in Montenegro and a visiting lecturer
in management, marketing and international business at the School
of Business and Economics, Thompson Rivers University, Canada.
Address correspondence to Zvezdan Vukanovic, UDG - University
of Donja Gorica, Faculty for International Economics, Finance
and Business, Donja Gorica, 20 000 Podgorica, Montenegro.
E-mail: zvezdanv@t-com.me
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82 Vukanovic
analysis because the company’s media holdings are limited
to a single division that consists of NBC and its branded
cable networks (CNBC, MSNBC; Picard, 2002b, p. 103). Like-
wise, Sony and Vivendi were also rejected because their
media holdings are limited, with most of the company’s
revenues obtained through their consumer electronics and
telecommunications divisions and the sale of music records
and compact discs (CDs; Picard, 2002b, p. 118). In addition,
Viacom was rejected due to its high total debt to equity
(1.10), which is below the profitably expected level (1.0).
Four out of the five firms are American (Time Warner,
Walt Disney Co., News Corporation, and CBS Corp.), and
one is German (Bertelsmann AG). Table 1 presents the
basic description of global media financial ratios in
regards to revenue, annual growth of media market stock,
net income, number of shareholders, and employees.
The market position of the five most-successful media
conglomerates reveals that the total revenue of the “Big
Five” media conglomerates is $156.32 billions. It repre-
sents nearly 15% of the global media revenue in 2007. For
the most part, six factors are particularly dominant in
explaining the profitable growth of leading international
media conglomerates at the macrolevel: cross-media con-
tent distribution leveraging and repurposing, innovation
management, vertical integration, vertical expansion,
media diversification, and large number of shareholders.
Stragetic Management of Cross-Media
Content Distribution, Leveraging,
and Repurposing
In a rapidly changing media industry with firms
continuously facing competition from new entrants, glo-
bal strategic management is important for maintenance
of sustainable competitive advantage. The media indus-
try is in the midst of radical transformation driven by
technological change. In the future, only media compa-
nies focusing on selling content and services in maxi-
mum quantities will manage to maintain a profitable
position in this highly volatile market (Vizjak & Ringl-
stetter, 2003, p. 17). The term cross-media stands for con-
tent repurposing. The strategic management of cross-
media content and platform is important because of two
dominant reasons: It increases the number of media
distribution platforms and services, and it diversifies
firms’ corporate portfolios while reducing financial risk
in highly volatile global markets.
Globalization and convergence have created addi-
tional possibilities and incentives to repackage or to
repurpose media content into as many different formats
as is technically and commercially feasible (books, maga-
zine serializations, television programs and formats, vid-
eos, etc.) and to sell those products through as many
distribution channels, outlets, or windows in as many
geographic markets and to as many paying consumers as
possible (Doyle, 2002, p. 22). Accordingly, repurposing rep-
resents the joint emphasis of media firms on both the
content and distribution.
It was recently estimated by Mark Selby, Vice President
of Nokia Multimedia, that the mixing up of media con-
tent will increase a multimedia content by 25% by 2012.
The concept of cross-media content will integrate both
the hypermedia and multimedia models. Cross-media
and on-demand content offer the enormous content base
(linear and nonlinear) as a part of TV program schedules
(Bakos & Brynjolfsson, 2000). In addition, on-demand TV
services are able to promote premium, niche, and user-
generated content. As such, innovative services are based
on convergent technological architecture (Bakos &
Brynjolfsson, 2000). Due to the faster product life cycles,
volatile markets, and increased competition, future cross-
media services will be more interactive, dynamic,
enhanced, and flexible. This enhanced technological and
content integration will more efficiently stimulate the
economies of aggregation that, in turn, will bring value-
added services to the media business and industry. It is
advisable to point out that identical content must be able
to be called up via an array of media in the future to
achieve the broadest possible marketing effect.
Repurposing and leveraging content can help media
companies reach a larger and a brand new audience. It is
profitable and beneficial because audiences will demand
different experiences based on the different media. Digi-
talization of media production and distribution,
together with increases in cable and Internet bandwidth,
as well as increases in size and screen resolution of con-
ventional TV sets, will positively influence increases in
the delivery of repurposing content.
Table 1. Global Media Financial Ratios
Company
Revenue
(in $billions)
Annual Growth
of Media Market Stock
Net Income
(in $billions)
Number of
Shareholders Employees
Time Warner 47.32 +20% 4.38 25,000 86,400
Walt Disney Co. 37.84 +40% 4.42 658,000 137,000
News Corporation 32.99 +35% 5.4 25,832 64,000
Bertelsmann AG 23.99 NA 0.51 6 102,000
CBS Corp. 14.18 +22% 1.24 113,024 23,650
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Strategic Management of Media 83
The Role of the Economies of Aggregation
in Innovation Management
During the last 2 decades, user-generated content, mass
customization, and personalization have replaced mass
production in the media business. Accordingly, econo-
mies of scale have been substituted largely by economies
of scope. Meanwhile, global hyper-competition has frag-
mented niche markets and stimulated media corporations
to search for more original and innovative services. To be
profitable, innovative services in the media industry and
business have to be diffused and distributed efficiently
and effectively via various cross-media platforms (broad-
band, multicast, and convergent digital models). Ideally,
the economies of aggregation can be based on two crucial
strategic and managerial concepts: triple- and quadruple-
play bundling strategies and network externalities. It is
important to point out that both concepts are fundamental
in terms of increasing the diffusion of innovation.
Bundling is the strategy of adopting, competing, and
differentiating corporate portfolios in volatile media
markets. Bundling strategies add value to different ser-
vices by inventing economical packages that are conve-
nient to use. As such, bundling can create economies of
aggregation for information goods if their marginal costs
are very low, even in the absence of network externali-
ties, economies of scale, or economies of scope. Bundling
stimulates multi-product media firms to innovate.
To be profitable and effectively applied by consumers,
the innovation has to be efficiently diffused. This notion
implies that innovation is of little value unless it dif-
fuses. Effective diffusion of innovations increases econo-
mies of scale effects and captures profits before
competitors. The diffusion of innovation is particularly
important in media industry, as the global competition
tends to be fierce, whereas the market is becoming
increasingly volatile. Generally speaking, companies
should accelerate the diffusion of innovations because
early movers tend to achieve higher market shares.
Triple- and Quadruple-Play
Bundling Strategies
The bundling of services is defined as marketing two or
more components of the same service together as a pack-
age at a special price (Shaw, 2006). A triple-play bundling
strategy is the optimum method for leveraging financial
gain from the content. This strategy is very common in
the software business (e.g., bundle a word processor, a
spreadsheet, and a database into a single office suite) and
in the cable television industry (e.g., basic cable in the
United States and the European Union (EU) generally
offers many channels at 1 price). Today, the concept of
bundling is dominantly seen as an optimal marketing
and management strategy for a multiservice firm with
access to a client. This strategy profits from cost synergies
that include (a) value-adding services and content and (b)
price discounts.
A quadruple- and triple-play bundling strategy implies
the utilization of multiple services, devices, and techno-
logical domains (TV, broadband, telephony, and mobile
telephony), but one network, one vendor, and one bill.
Broadband has emerged as the central hub of the bun-
dling trend. There are two main reasons for this: (a)
Broadband subscriptions comprise the fastest-growing
sector of the global telecoms market with broadband,
and (b) it is possible to deliver all the fixed-line elements
of a service bundle over the same access technology.
These benefits enhance profit; ensure customer loyalty
(thereby decreasing customer churn); and increase con-
sumer choices, market shares, and average revenues per
user while helping to reduce churn and protect against
incursions from new competitors. Competitive pressures
and changing consumption habits are encouraging
media firms to market bundles of services that include
television, telephony, and Internet access (Baranes, 2006).
Studies initiated by Whinston (1990) have shown that the
profitability of bundling results from economies of scale
in the tied market. Other studies (Carbajo, de Meza, &
Seidmann, 1990; Chen, 1997; Seidmann, 1991) have
shown that bundling may mitigate competition by
inducing more differentiation.
The triple-play bundling strategy is most successful
when there are economies of scale in production and
economies of scope in distribution, marginal costs of
bundling are low, production set-up costs are high, cus-
tomer acquisition costs are high, and consumers appreci-
ate the resulting simplification of the purchase decision
and benefit from the joint performance of the combined
product. Research by Bakos and Brynjolfsson (2000)
found that bundling was particularly effective for digital
“information goods” with close to zero marginal cost,
and could enable a bundler with an inferior collection of
products to drive even superior quality goods out of the
market place.
The Role of Network Externalities
in the Media Industry and Business
Network externalities were originally introduced in the
communications network literature. Before the inven-
tion of telecommunications, Internet, and digital media,
the effect of network externalities was less visible and
dominant. Initially, these externalities were referred to
as consumption externalities in which demand is mod-
eled as being interdependent. A market exhibits network
effects (or network externalities) when the value to a
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84 Vukanovic
buyer of an extra unit is higher when more units are
sold, everything else being equal. In other words, the
utility a consumer drives from joining a communications
service increases as others join the network. Theoretically,
network externalities are described as a mechanism
whereby a firm’s marginal product of an input is posi-
tively affected by other firms’ use of the same input
(Ongardanunkul, 2003). Network effects arise because of
complementarities. In a traditional network, network
externalities arise because a typical subscriber can reach
more subscribers in a larger network. In addition, it is
advisable to point out that by increasing the size of the
network, the value of authorized users is increased. At
this point, we witness the creation of positive network
effects, which raise the value received by consumers as
markets get larger. As such, the network of competitors
with larger market shares will have an advantage over
smaller competitors.
The existence of network externalities is the key
reason for the importance, growth, and profitability of
global media industry in the new, digital, and network
economy. Unlike in many other businesses, in the media
services industry the benefit from consuming increases
with the number of other people consuming (Hoskins,
McFadyen & Finn, 2004, p. 72). An extra subscriber to the
media network brings additional benefits to current sub-
scribers. Similarly, the loss of a subscriber reduces bene-
fits to current subscribers. For example, a telephone is of
little value if no one else is using it, of moderate value if
only a few of one’s potential contacts use it, and indis-
pensable if everyone uses it. Obviously, the value of con-
suming a certain TV channel by only a few consumers
has increased with the number of other subscribers.
Economists refer to this phenomenon as network exter-
nalities. Accordingly, a product or service possesses net-
work externalities if the utility one derives from it is a
positive function of the number of other people who con-
sume it. Most media and communications technologies
such as satellite and cable TV, cellular TV, and Internet
Protocol (IP) TV are network goods in this sense: They lit-
erally constitute a network, and the value of the network
depends on the number of persons (or organizations or
other entities) connected to it.
Historically, indirect network externalities have influ-
enced the outcome of technology competition in many
markets, including AM stereo, color television, videocas-
sette recorders, CD players, laser disc players, and personal
computers (Ducey & Fratrik, 1989; Farrell & Shapiro,
1992; McGahan, Vadasz, & Yoffie, 1997). More recently, as
analog technologies give way to digital technologies that
require new software, indirect network externalities will
play an important role in the evolution of a wide range
of technology markets (Yoffie, 1996).
Therefore, it is advisable to point out that network
effects have attracted significant attention from economists
in recent years (Gupta, Jain, & Sawhney, 1999) as they
have been driven by a continuous growth of the digital
media, Internet and media globalization, a quest for
improved efficiency, and cost reduction. These paradigm
changes that occur in the field of management economy
influence value chains to be increasingly reorganized in
value networks. In addition to that, this reorganization
in value networks provides a balance between specializa-
tion and flexibility (Peck & Juttner, 2000). The network
thus involves corporations, customers, and stakeholders
(Lisboa, 2007). At the same time, customers are taking
part in global social networks that shape their percep-
tions and inform their decisions. This is facilitated by
increased Internet and mobile communications access.
The result of these different types of associations is called
network economy—an economy in which the relation-
ships among its members is a product of the information
they exchange (Evans & Wurster, 1997).
When large international media companies work in a
networked economy, they observe lower complexity, bet-
ter internal communication, flexibility, tailored resource
allocation, and high potential for innovation (Johnston &
Lawrence, 1988). The basic concept of the network econ-
omy is that the value of being a part of a network
increases as the network size increases (Lisboa, 2007).
Metcalfe’s rule states that the value of a network
increases proportionally with the square of the number
of its members (Cartwright, 2002; Shapiro & Varian,
1998).
In their fundamental study on the network economy,
Shapiro and Varian described the rules that guide the
dynamics of networks. They argued that it is necessary to
achieve a critical mass in the network to grant positive
feedback. They also explored the effects that a network is
subject to, such phenomena as network externalities and
lock in. Network externalities and critical mass are con-
sidered crucial aspects when taking into account the
whole network with its multiple stakeholders such as
partners, customers, consumers, shareholders, employ-
ees, investors, regulatory sectors, governments, and so on
(Foss, Kristensen, & Wilke, 2004).
However, media management researchers in the
mobile-TV and IP TV industries have been slow to
respond to the growing importance of network econo-
mies and externalities in new product and service adop-
tion. For instance, most new product models in the
management science literature assume that new products
are autonomous and that the adoption of new products is
not affected by the presence or absence of complemen-
tary products (Mahajan, Muller, & Bass, 1993). These
assumptions are being called into question in almost
every durable product market in the network economy,
where firms rarely act alone to create new products, and
products rarely function in isolation (Shapiro & Varian,
1998).
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Strategic Management of Media 85
The network economy is characterized by the fact that
businesses increasingly work together with others when
producing their products and services and—as the other
side of the coin—consumers satisfy their needs by using
products and services that come from the most diverse
sources. The moving forces behind the developments of
the network economy are technologies, which enable the
fast and cheap transportation of goods and information.
The stronger and higher the creation of benefit through
networking with others, the greater one’s own vulnera-
bility and dependency (Petrovic, Ksela, Fallenböck, &
Kittl, 2003, p. 29).
Neoliberal globalization will accelerate network (effects)
externalities. Studies by Barrett and Yang (2001), Econo-
mides (1996a, 1996b), Katz and Shapiro (1994), Kikuchi and
Kobayashi (2007), and Shy (2001) demonstrated that the
role and impact of network effects is amplified in the
globalized world and trade liberalization. Furthermore,
international firms gain from globalization and trade liber-
alization due to intensified network effects (Kikuchi &
Kobayashi, 2007). To empirically prove the beneficial
impact of globalization and network externalities on inter-
national media industry, I present findings related to the
vertical integration and media diversification effects.
Vertical Integration
All five of the examined media conglomerates are vertically
integrated. Vertical integration combines a core business
with its suppliers along a supply chain. A vertically
integrated firm controls most aspects of the production,
distribution, and exhibition of its products (Albarran,
2002, p. 30). Media companies should be producers of
content and providers of distribution. It is very expensive
to be only the producer of content or a provider of distri-
bution. A successful example of vertical integration is
Rupert Murdoch’s Fox News. Vertical integration is a
path for reducing transaction costs. Firms with vertically
integrated structures are considerably larger, on average,
than other firms—even those that operate in multiple
(but not vertically linked) industries.
To maintain a high level of productivity and delivery
of programs, TV companies will have to vertically
integrate their business activities. This implies that TV
companies will own rights over their content and distri-
bution to aggressively seek out new relationships to
accommodate the shift toward digital convergence.
Furthermore, companies will need to test new business
models to address increased fragmentation and intellec-
tual property in a digital era.
Vertical integration is the degree to which a firm
owns its upstream suppliers and its downstream buyers.
Vertically integrated companies are united through a
hierarchy and share a common owner. Usually, each
member of the hierarchy produces a different product or
service, and the products combine to satisfy a common
need. Vertical integration is one method of avoiding the
hold-up problem. Three varieties among vertical integra-
tion are backward (upstream) vertical integration, for-
ward (downstream) vertical integration, and balanced
(horizontal) vertical integration. The most effective
integration in internationally volatile media markets is
balanced (horizontal) vertical integration. In balanced
vertical integration, the company sets up subsidiaries
that both supply them with inputs and distribute their
outputs.
Internal and external gains and benefits due to vertical
integration include lower transaction costs, synchroniza-
tion of supply and demand along the chain of products,
lower uncertainty and higher investment, the ability to
monopolize markets throughout the chain by market
foreclosure, and better adaptation to the line of program-
ming of the broadcasting channel. Another advantage
includes more efficient distribution of the media content.
Vertical integration gives media firms higher control
over their operating environments, and it can help them
avoid losing market access in important upstream or
downstream phases (Doyle, 2002, p. 23). Another reason
for the creation of vertically integrated and diversified
media conglomerates is that it makes it more difficult for
them to be taken over by a predator (Doyle, 2002, p. 25).
As such, it provides additional value and more sustain-
able competitive advantage to media conglomerates. The
following are summaries of arguments made in favor of
vertical integration in the media industry: It prevents
double marginalization (Noam, Groebel, & Gerbarg,
2004, p. 46); it increases investment by internalizing
pecuniary externalities (Noam et al., 2004, p. 47); it may
improve investment coordination (Noam, Groebel, &
Gerbarg, 2004, p. 48); it restricts the entry of competitors
to media markets and businesses; it provides the ability
to secure supplies and future orders and assurance of the
pricing, quality, and availability of supplies and opera-
tional efficiencies gained from coordinating production
of supplies with their consumption.
In summary, vertical integration is a successful strat-
egy for media conglomerates, as it is very efficient for
them to control both content production and distribu-
tion because the greater the distribution of their output,
the lower their per-unit production costs will be (Doyle,
2002, p. 34).
Vertical Expansion and Acquisition
Vertical expansion, in economics, is the growth of a busi-
ness enterprise through the acquisition of companies
that produce the intermediate goods needed by the
business or help market and distribute its final goods.
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86 Vukanovic
The result of the vertical expansion is a more efficient
business with lower costs and more profits. Vertical
expansion gives secure access to essential inputs or essen-
tial distribution outlets for output. This is a key advan-
tage in the media because firms depend on getting access
both to content and to avenues for distribution of con-
tent (Doyle, 2002, p. 35).
Vertical expansion is also known as a vertical acquisi-
tion. Vertical expansions or acquisitions can also be used
to increase scales and to gain market power, as well as to
set up competitive barriers. The acquisition of DirecTV®
by News Corporation is an example of vertical expansion
or acquisition. DirecTV is a satellite TV company through
which News Corporation can distribute more of its
media content: news, movies, and television shows.
Media Diversification
Convergence, globalization, and a massive market dereg-
ulation in the United States and Europe between 1980
and 1996 have strengthened trends toward concentrated
media and cross-media ownership, with the growth of
integrated conglomerates (e.g., Time Warner, Bertelsmann
AG, Walt Disney Co.) whose activities span several areas
of the industry (broadcasting, multichannel video pro-
gramming distribution [MVPD], Internet, publishing).
According to a report by Screen Digest (2000), only in this
decade did Europe see national or regional channels
jump from 100 to 1,000 (Sánchez-Tabernero, 2004),
whereas in the United States the number of TV stations
between 1980 and 2000 increased by about 700
(Vukanovic, 2004, p. 55). This implies that during the
1990s, 100 new commercial channels were created in
Europe every year (Sánchez-Tabernero, 2004).
The reason for the adoption of media diversification
strategies in regard to large and vertically integrated
media conglomerates seem well suited, as they are able
to exploit common resources and spread production
costs across wider product and geographic markets and
benefit from natural economies of scale and scope in the
media. Diversified media enterprises are better able to
reap the economies of scale and scope that are naturally
present in the industry and that, due to globalization
and convergence, have become even more pronounced
(Doyle, 2002, p. 23).
Another motivation underlying strategies of cross-media
expansion is the desire to exploit anticipated synergies
and “economies of multiformity” between different
media sectors (newspaper publishing and television
broadcasting), which may develop over the long term
(Doyle, 2002, p. 33). Economies of multiformity refers to
any and all advantages that firms derive from cross-
owning activities in more than one sector of the media
or communications industry (Doyle, 2002, p. 31). Also,
they arise when the same media content is repackaged or
repurposed into different media products (i.e., econo-
mies of scope). The prevalence of economies of scope in
the media explains the widespread tendency toward
expansion and the high number of multiproduct firms
(Doyle, 2002, p. 28). Thus, the term economies of multi-
formity embraces all benefits that come about through
diagonal cross-ownership in the media and communica-
tions industries (Doyle, 2002, p. 31).
The systematic finding of the study on the relation
between corporate diversification strategy and perfor-
mance clearly indicates that media conglomerates with
high diversity (Time Warner and Bertelsmann AG), as
well as low diversity (News Corporation and CBS Corp.),
perform equally well in terms of net income, annual
revenue, annual growth of media market stock, and total
debt to equity. However, in terms of international diver-
sification, the same study found that a media firm
improved its performance (as measured by revenue and
net income) as it diversified into international markets
(News Corporation and Bertelsmann AG). This conclusion
confirms Jung and Chan-Olmsted’s (see Chan-Olmsted,
2006, p. 191) findings of their longitudinal investigation
of the relation between diversification and performance of
the top 25 media companies over a 12-year (1991–2002)
period.
However, with the exception of News Corporation and
Bertelsmann AG, other media conglomerates with domi-
nantly more unrelated diversified businesses, such as
Vivendi and Viacom, are relatively less profitable in
regard to the Big Five, as evident in their high debt to
equity ratio. Media firms with related diversified busi-
nesses are more profitable than undiversified firms with
unrelated businesses (Chan-Olmsted, 2006, p. 192). In
other words, managerial efficiency and profitability, as
measured by return ratios, decrease with unrelated
product diversification, reflecting the fact that market
investors devalue overly diversified media conglomer-
ates with non-synergistic asset holdings (Chan-Olmsted,
2006, p. 192). It is advisable to point out that in review-
ing the histories of all five of these firms, one can easily
see that these companies became more diversified over
the years through a series of mergers and acquisitions
(Picard, 2002b, p. 117)
Related diversification enables a firm to benefit from
synergy—the added value created by business units work-
ing together and economies of scope and scale through
the leveraging of core competencies and sharing of activ-
ities and information. Related diversification also offers a
firm the advantages of pooled negotiation power and
access to, as well as control over, production materials and
product flows through vertical integration (Chan-Olmsted,
2006, p. 41). In addition, a diversifier can also generate
cash from its core, successful business unit to invest in
other ventures of additional profits (Chan-Olmsted,
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Strategic Management of Media 87
2006, p. 39). Corporate diversification may be a desirable
alternative to reduce a media company’s business risk
(Picard, 2005, p. 27), as well as shift to value chain areas
with a higher added value (Pagani, 2003, pp. 22–25).
Moreover, diversification is an efficient and effective
strategy used by media firms to smooth sales and profit
fluctuations, stimulate growth faster than if they concen-
trated on a single product or service, and ensure that per-
formance is not dependent on the economic cycles of one
location or industry (Picard, 2002a, p. 197).
In conclusion, there is little doubt that media diversi-
fication is an important strategy of many media con-
glomerates. Given the trends in globalization and
convergence of media and communication industries,
the competition between traditional media companies,
but also between companies from emerging media and
information markets, will increase (Picard, 2005, p. 37). A
well-defined diversification strategy may help these com-
panies to create or sustain their competitive advantage.
In summary, it is advisable to point out that the five
most-successful global media conglomerates predomi-
nantly focused their core business activities in media
diversification and vertical integration over the U.S. and
EU media markets. The reason is that these two global
markets are economically and technologically most
advanced and consist of higher numbers of media con-
sumers. Furthermore, both the U.S. and EU economies
account for more than 40% of the global gross domestic
product in 2008.
The Top Five Media Conglomerates
and Their Holdings
Bertelsmann AG centers its holdings in the broadcast,
TV and film production, and print sectors. Time
Warner has the most presence in the MVPD market.
Walt Disney Co. has strong broadcast properties, MVPD
brands, and successful production resources. News Cor-
poration is very competitive in both broadcast and
MVPD markets, in both branded television and film
and print content, as well as in the creation and distri-
bution of online programming. CBS Corp. has strong
Web properties and television production, as well as
print content. The “richest” media conglomerates in
terms of content include Walt Disney Co., Time
Warner, and News Corporation. In terms of distribu-
tion, Time Warner distributes content via broadcast-
ing, cable, the Internet, and print. Walt Disney Co.
concentrates on broadcasting, cable, and the Internet.
News Corporation is the leading distributor of content
via satellite, but also offers distribution via broadcast-
ing, cable, and publishing. CBS Corp.’s distribution
effort primarily focuses on TV and radio broadcasting,
billboards, and publishing.
Large Number of Shareholders
Four out of the five companies have at least 25,000 or
more shareholders. Only Bertelsmann AG has 6 major
shareholders. The analysis suggests that the most profit-
able media conglomerates whose annual growth of
media market stock was +40%, such as Walt Disney Co.,
have the largest number of shareholders (658,000). This
can be explained by the fact that media market stocks
have greater tendency to be sold and bought by different
market investors if there are more shareholders within a
specific company. Frequent buying and selling of market
stocks positively influence the price of media stocks. It
also testifies that market investors are interested in
investing in a media company if they anticipate that its
flexible market and organizational structure will provide
them with more profitable outcomes.
Advantages of Network Externalities on Media
Markets (IP TV and Cellular–Mobile TV)
Information, media, and communications products and
services tend to predominantly define network indus-
tries. Accordingly, network economies will necessarily
govern the ways that we build and exchange products
and services in the information, media, and communica-
tions sectors (business and industry). Unlike with tradi-
tional cable and satellite TV, the global media market is
not saturated with products and services relating to IP TV
and cellular–mobile TV. As such, these two types of
media are more effectively positioned to utilize the bene-
fits of network externalities.
In addition, the main advantage of IP TV, Internet, and
cellular–mobile TV over other media such as newspapers,
radio, and TV is that they are not one-way, but rather
two-way, mediums of communication. Their content can
be efficiently accessed, distributed, as well as customized
and repurposed to suit individual consumers’ needs and
preferences. Because of the fact that it can be efficiently
accessed, Internet takes advantage of “locational monop-
olies,” which represents the monopoly from being physi-
cally close to the customers (Jansen, 2006, p. 146).
Global Market Potential
and Positioning of IP TV
There are several advantages to IP TV including interactiv-
ity, video-on-demand, better compression technologies,
and triple-play efficiencies. Other advantages include bet-
ter program guides. Therefore, it is not surprising that
strategy analytics predicted in 2007 that the number of
broadband subscribers would grow to 530 million by
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88 Vukanovic
2011, up from 210 million in 2005. Presently, telecom-
munication companies offering IP TV services in the
United States are Verizon, AT&T, BellSouth, and
Surewest; in Canada they are Manitoba Telecom Services
and Sasktel; in Europe they are France Telecom, Belgacom,
BT, Telecom Italia, Neuf, Telefonica, Various, Magnet,
Free, Fastweb, DT, Telia/Sonera, Cyprus Telecom Authority,
VNL, Versatel, and Video Networks; in Asia they are
PCCW, Softbank, KDDI, and Chungwa Telecom.
Furthermore, IP TV is set to achieve significant sub-
scriber growth over the next year, according to a recent
report by the Open IP TV Forum in November 2007,
which expects the global market for such services to
reach 39 million by the end of 2009, up from 16 million
in 2007. This prediction is supported by additional stud-
ies of the Multimedia Research Group Inc and MRG, Inc.
On the other hand, global IP TV services’ revenues have
achieved an annual growth rate of 290% over the period of
2003 to 2006. IP TV will reach nearly 10% of the European
pay-TV market by 2009.
Global Market Potential and Positioning
of Cellular–Mobile TV
Mobile television is set to achieve massive subscriber
growth over the next 5 years, according to a report by the
analysis firm, Datamonitor, which expects the global
market for such services to reach 155.6 million by the
end of 2012, up from 15.3 million today. It suggests a
significant growth of 66.2% year over year. Asia Pacific
markets will be the most accepting of mobile TV, Data-
monitor predicts, accounting for 76.3 million subscribers
by December 2012. Europe, meanwhile, is expected to see
year-on-year growth of 102%, for a market size of 42.7
million in the same year, whereas North America will
account for 34.6 million users. Datamonitor media and
broadcasting analysis predicts that Europe’s mobile
broadcasting sector will experience especially “strong
growth” between 2009 and 2012, as terrestrial television
signals are moved from analogue to digital airwaves and
a new spectrum is freed-up for wireless TV technologies
like Digital Video Broadcasting–Handheld and MediaFLO.
Screen Digest’s latest report entitled, “Mobile TV: Busi-
ness Models and Opportunities,” predicts significant
growth in subscriber numbers globally, with 140 million
subscribers and revenues of €4.4 billion by 2011
(Sánchez-Tabernero, 2004). North America will experi-
ence the biggest increase, growing its subscriber base
twentyfold to 28.8 million and revenues as much as fifty-
fold to €1.8 billion by 2011. However, subscriber num-
bers do not equate to revenue; despite its large
subscriber numbers and longevity of mobile TV services,
Screen Digest believes that by 2011, the Asian market will
generate less revenue than Europe and the United States.
Europe will lead with a 42.5% share of global revenues, fol-
lowed by the United States at 40.5%, and Asia accounting
for the remaining 17%. According to the latest IDC
research, the number of U.S. mobile-phone subscribers
paying for some form of television or video content on
their devices is set to rise by 240% between 2007 and 2010.
Future Research Directions in Global
Media Management
To more effectively position and leverage new paradig-
matic models largely influencing volatile media markets,
I propose further diversification of repurposed media
contents, products, and services for the emerging IP TV,
Internet TV, and mobile-TV markets. Accordingly, the
untapped market of IP TV and the mobile-TV market, and
its growing number of subscribers, provide a profitable
base for the expansion and adoption of these technologies
by international media conglomerates.
Furthermore, looking from a macroeconomic view-
point, I suggest that large international media con-
glomerates have to analytically observe transitional
trends from old economies to new and digital econo-
mies (Tables 2 & 3). Only after profound and analytical
examination of these managerial, economic, technolog-
ical, and marketing parameters will it be possible to
conceptualize an effective and sustainable competitive
advantage strategy, as well as to more efficiently locate
the future of a paradigmatic shift in the global media
market.
It is evident that trends toward global conglomeration
will continue because global media conglomerates are in
a more competitive position compared to non-diversified
media firms (Chan-Olmsted, 2006, p. 199). Global media
conglomerates often have the resources to exploit con-
tent products via the repurposing process for distribu-
tion in multiple platforms under different ad or fee
structures, to perform cross-platform marketing with
complementary distribution systems, and to be well-
positioned to deliver products in the developing
broadband spectrum with their diverse holdings and
partnerships (Chan-Olmsted, 2006, p. 199).
As the field of media management and economics
becomes a more mature area of study, it is essential for
scholars to enhance the rigor of the discipline by devel-
oping an analytical framework of strategic paradigms
that draw on new or modified paradigms from these
academic fields (Albarran, Chan-Olmsted, & Wirth,
2006, p. 176). The fluidity of media industries, because
of the continuous changes in communication technol-
ogy, creative development, and audience preferences,
requires media management and economics scholars to
constantly introduce, incorporate, and test new para-
digms (Albarran et al., 2006, p. 177 ).
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Strategic Management of Media 89
The future of global management and new and digital
economies will be profoundly influenced by emerging
economic, technological, managerial, and marketing
paradigms. Therefore, it is necessary for large media con-
glomerates to systematically and effectively monitor and
analyze present and future market and business trends
influencing traditionally volatile media markets. In the
age of a new economy, it is evident that vertical integra-
tion, cross-media contents and platforms, economies of
aggregation (triple- and quadruple-play bundling strate-
gies and network externalities), vertical expansion, and
media diversification will play important role. As such,
more intensive global competition will inevitably influ-
ence product and service life cycles to be shorter, more
innovative, and distributed efficiently to the end users.
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