GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS
Student name: Đặng Quỳnh Anh Student ID number: 31201029104
Student name: Phạm Quỳnh Anh Student ID number: B1242016007
Student name: Nguyễn Thị Thanh Bình Student ID number: 31201028982
Student name: Hồ Phi Phụng Student ID number: B1242013031
Student name: Hồ Ngọc Tường Vi Student ID number: 31201028797
Student name: Phạm Nguyễn Khánh Vy Student ID number: 31201029217
UNIT AND TUTORIAL DETAILS
ME_S1(2021-
Unit name: Managerial Economics Unit number: 2022)DH46ISB-7
Tues 3:30 - 6:50PM
Tutorial/Lecture: Managerial Economics Class day and time: Fri 8:00 - 11:20AM
Lecturer or Tutor name: Mr. Phạm Tuấn Anh
ASSIGNMENT DETAILS
Title: CSA1
Length: 9 pages Due date: 22/10/2021 Date submitted: 21/10/2021

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Student’s signature: Nguyễn Thị Thanh Bình
Student’s signature: Hồ Phi Phụng
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signed.
 Time Warner Cable Five Forces Analysis:
Introduction
Porter's Five Forces is a widely used business analysis model to determine different
levels of profitability in various industries. The same case applies to Time Warner Inc., the
analysis for the industry structure will be executed based on this model.

1. Threats of new entrants

Through reduced pricing strategies and delivering new value to customers, new
entrants provide innovation and put pressure on the cable sector. To maintain its
competitive advantage, the cable sector must handle all of these issues and erect effective
barriers. Developing new goods and services as well as gaining economies of scale can
mitigate new entrant concerns.
The danger of entrance into a given industry is determined by the current entry
barriers as well as the reaction that entrants may expect from existing rivals. If the danger of
entry is strong and industry profitability is reduced, if entry barriers are low and entrants
expect minimal retribution from established rivals.

2. Bargaining power of suppliers

Suppliers have the ability to affect pricing, availability of resources/inputs, and product
quality. This has an impact on the competitive environment and profit potential of
purchasers in an industry. Providers are most powerful when businesses rely on them and
are unable to move to other suppliers due to increased costs or a lack of other sources. It is
sometimes difficult to locate a company's real suppliers. Many businesses do not wish to
share the information with their competition. Supplier negotiating power is one of the
elements that form an industry's competitive environment and helps determine an
industry's desirability.

3. Threats of substitute products or services

The profits of the cable industry, especially Timer Warner Cable, will suffer when a
new product or service is released that satisfies similar demands of customers in uniquely
different ways. Former buyers in the cable industry are gradually canceling cable

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subscriptions as they have more options at a lower price. For instance, modern customers
nowadays tend to choose internet TV services or streaming boxes rather than cable
television. This becomes a threat to the profitability of the cable industry and Time Warner
Inc. Faced with this challenge, TWC needs to understand the core demands of customers
when they purchase products and have greater concentration on service orientation.

4. Rivalry among the existing competitors

Industry rivalry or rivalry among existing firms used to analyse the degree of
competition in a specific industry. The industry's total profitability will be harmed by rivalry
from existing competitors. Instead of battling for a tiny market, the cable company might
address the situation of conflict with existing competitors by partnering with them to
expand the market size.

5. Bargaining power of buyers

Buyers can select from a wide range of product options such as broadcast networks,
subscription networks, and films from several companies that provide television and film
entertainment. That may reduce the number of customers the company has. Moreover,
buyers often demand a lot. They want to get the greatest deal possible by paying the least
amount of money feasible. In the long run, this puts a strain on Time Warner Inc.'s
profitability. Therefore, a smaller customer base will result in a higher bargaining power of
the customers, which enhances their capacity to request greater discounts and incentives.
Because buyers seek discounts on known items, the cable sector may avoid buyer
bargaining power by establishing a big client base and inventing new products.

Conclusion
Through Porter’s Five Forces framework, Time Warner Inc.’s competitive
environment has been reviewed and analyzed. This analysis has provided a closer view to
the current competition of the business, therefore, it will greatly assist Time Warner Inc. in
guiding its business strategies.

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 1. Which TWC business segments provide the best opportunity to grow the
company’s profits?

As the pay-TV sector has declined, the total demand for high-speed Internet is being
aided by the usage of numerous devices and a growing prevalence of smartphones. Because
there is such a great demand for high-speed internet, Time Warner Cable has focused on its
high-speed data operations to promote growth. TWC's data business has been the
company's fastest-growing and most profitable segment in the last few years, which makes
up roughly 30% (Figure 15-2) of the total revenue in 2015 according to TWC’s annual report
from 2010 to 2015. Moreover, high-speed data also has a high growth rate of about 5,4%
(Exhibit 2A) of the average monthly revenue per subscriber and 11.3% (Exhibit 2B) of
revenue by service, which is predicted to continue to increase in the following years due to
the high demand of the market.

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 Porter's Five Forces could be used to demonstrate why the high-speed Internet
segment can provide TWC with the best opportunity to enhance profitability as below.
(1) Threats of new entrants into the industry are low
- Entry cost for a new technological business is enormously high.
- Existing firms such as Time Warner Cable have successfully built strong
reputations in the industry.
(2) Rivalry in the industry is limited to only few firms
- The potential competitors of Time Warner in high-speed Internet segments in
terms of price range and same or better quality are only a few, such as
Google Fiber, Comcast (according to Pulliaml, 2016).
- Distinguish itself from competitors by emphasizing the advantages of product
bundling.
(3) Input suppliers power is low
- The main inputs for high-speed Internet business are maintenance of servers
and telecommunications infrastructure => Many alternative companies are
willing to supply these common services to a large business like Time Warner.
(4) Buyers have low power
- Not many reliable substitutes with the same or better pricing and quality as
few competitors mentioned above.
- Demand for high-speed Internet is increasing as a result of digitization and
the widespread work-from-home culture.
(5) Threats of substitutes products and services are low

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 - Internet has become the most important commodity in the digital market,
but currently, there is no product or service that can totally replace the
Internet.

2. Which business segments are more susceptible to competitive pressures?

a. The Internet
The demand for Internet services has exploded due to the speed of the
development of a technology, making it a critical service for cable companies. High-speed
data accounts for 37% of Time Warner Cable's revenue, as seen in Figure 15–2.

Furthermore, from 2010 and 2015, revenue increased by 11.3 percent per year (see
Exhibit 2B). This indicates a 6.0 percent increase in the number of subscribers as well as an
increase in revenue per subscriber subscribed to (5.4 percent).

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 Because of the innovation of digital devices, the Internet is becoming an important
service to daily life, as a result, the group argues that it is one of the business segments that
is more susceptible to competitive pressure since the massive customers and the huge profit
from the internet industry. However, the industry rivalry quite strict while the TWC
company has to compete the potential clients with two giant companies are Comcast and
Charter Communications.
b. Video programming
The major business of cable providers is to provide multichannel video services to
residential users. Residential video services account for 41.8 percent of Time Warner's
revenue, down from 56.1 percent as recently as 2010. In 2014, video revenue fell by 5%,
and in 2015, it fell by 1% (as you can see in Exhibit 2B above). Forecasts vary, but the
industry consensus is that video income will continue to drop at a pace of roughly 1% per
year for the next five years.
The reason for this issue is because, nowadays, GenZ usually don’t watch as much
television as the previous generations. They usually watch videos, movies, news, etc through
their phone. Cable companies are now competing with internet providers such as Netflix,
Youtube, Amazon Prime Video, Disney+, and so on.

3. What other risks to profitability and/or growth are present for our business lines?

Online video content distributors (OVDs) may pose the greatest challenge to the
existing cable business. In the United States, there are 43.4 million paying subscribers to the
streaming video service. Movies, TV shows, and original programming are among the
offerings. For the previous three years, revenue has increased by 20 to 25 percent annually.

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Figure 15–4 depicts membership and income growth throughout the last three years.

In the late 1990s, Netflix began as a DVD mailing business, primarily competing with
video rental companies. Netflix changed its attention to its streaming video service in 2011
and began creating all its original content shortly after. Netflix is receiving growing attention
from its customers, in addition to having a larger user base. In 2015, users reported a total
of 42.5 billion hours of watching time, averaging 1.8 hrs each per user.

Amazon.com has recently stepped up its video content competition. Attempt to

compete against cable with its Amazon Prime Video service., while being best known as an
online marketplace. For $99 per year, Amazon Prime members enjoy free two-day delivery,
savings, and great deals, as well as subscription to video content through the Amazon Video
service. Amazon produces original content in addition to films and tv shows. While the
number of Prime members is not disclosed, analysts believe that it is in the range of 50 to 55
million in the United States.

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 Time Warner's earnings might be jeopardized by piracy. Hackers may play a
significant influence in the move toward online digital distribution. Even if pirated content is
of poor quality, it is extremely inexpensive.

Another issue that Time Warner may have to address shortly is passcode sharing
on HBO Go. People will utilize their peers' accounts to view the films and tv shows for free
instead of paying for a cable subscription with full access to HBO and its 26 programs.

HBO executives were unconcerned when questioned about such trends in sharing
and privacy. They feel that by doing so, the firm's brand would gain greater exposure, which
will help the company in the long term.

4. What strategic moves do you recommend?

Through the use of Porter’s Five Forces framework in analyzing the competitive
environment that Time Warner Inc. is put in, there are 3 recommendations on the
business’s next strategic moves: Developing Sports Programming, Developing LTE for Mobile
and Bringing TV to Social Media!
- Developing Sports Programming
Regarding sports programming, it is stated that the popularity of sports in American culture
has greatly contributed to households’ cable use. The reason for this is that live sporting
events on television are widely preferred compared to recorded ones. Therefore, sports
programming is one of the leading sectors that are worth investing in.
On the other hand, the popularity in combination with the exclusivity of sports networks
and broadcasters has caused a boom in demand, hence, higher programming and
retransmission fees. This has put cable and satellite providers in difficult situations.
However, the significance of this problem is later on reduced. The domination of live sports
events on television results in the peaking tv ratings. High ratings lead to high advertising
and sponsorship dollars for the networks. As a result, networks are willing to pay for
broadcast rights to the games. Football’s continued increasing popularity makes it unlikely
that this trend will reverse anytime soon.
- Developing LTE for mobile devices users
Mobile wireless services have shifted from a luxury to a necessity. Mobile devices have
gone from being primarily used for voice, e-mail, and web browsing to now including video

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entertainment, social media, and mobile commerce. Despite the growing needs, mobile
Internet access is nowhere compared to fixed broadband in terms of speed and capacity.
This has made fixed broadband become a common way to have mobile Internet connection.
However, the dependence on wireless transmission of another router causes inconvenience
in certain situations where it cannot be accessed or is not available. Therefore, it is
recommended that a fixed wireless Internet connectivity with a comparable capacity as
fixed broadband should be provided.
- Bringing TV to Social Media
The growth of social media in the past few years has been widely acknowledged. Various
social media platforms have upgraded the approach to videos for their users recently. A
grand example that could be put into consideration is Facebook Watch. Watching videos via
Facebook is never unfamiliar to users. However, the popularity of it has been growing after
a newly launched sector: Facebook Watch. This proves the users’ need to entertain by
watching videos. Besides uploaded videos, live streaming is also common for Facebook
users when they want to watch some shows that are not aired/broadcasted in their country
or area. For those reasons, it is reasonably believed that Time Warner Inc. can benefit from
this factor by signing deals with social media to stream their films. Cable is not widely used
anymore, but social media is! In other words, an exclusive streaming service right on social
media sites. This deal would help the partnered site have exclusive high-quality content
from Time Warner while Time Warner’s revenue increases through licensing.

References:

Bargaining power of suppliers. (2020, July 13). Retrieved October 20, 2021, from
https://corporatefinanceinstitute.com/resources/knowledge/strategy/bargaining-power-of-
suppliers/

Graham, E. M. (2019). Intra-industry direct foreign investment, market structure, firm rivalry and
technological performance. In Multinationals as Mutual Invaders (pp. 67-96). Routledge.
Kalogeropoulos, D. (2016, March 16). Time Warner Cable Inc.’s Best Business Segment. The Motley
Fool. Retrieved October 20, 2021, from
https://www.fool.com/investing/general/2016/03/16/time-warner-cable-incs-best-business-
segment.aspx

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Katkin, M. (2013). External Analysis of Time Warner Inc. in the Entertainment and Film Industry.
wordpress. Retrieved 2021, from https://michaelkatkin.files.wordpress.com/2013/08/twx-
external.pdf

Porter's five forces analysis: Power of suppliers. (2021, September 24). Retrieved October 20, 2021,
from https://liu.cwp.libguides.com/5forces/SupplierPower

Pulliam, B. (2016, April 13). Here's how Google Fiber stacks up against the competition. Retrieved
October 20, 2021, from https://www.bizjournals.com/louisville/news/2016/04/13/heres-how-
google-fiber-stacks-up-against-the.html

Team, T. (2016, January 27). Time Warner Cable: Strong performance from pay-TV and high-speed
internet segments bodes well. Forbes. Retrieved October 21, 2021, from
https://www.forbes.com/sites/greatspeculations/2016/01/27/time-warner-cable-strong-
performance-from-pay-tv-and-high-speed-internet-segments-bodes-well/?sh=4f040c1f6900

Time Warner Inc. Porter Five Forces Analysis, Porter 5 forces analysis. (n.d.). Fern Fort University.
Retrieved October 20, 2021, from http://fernfortuniversity.com/term-
papers/porter5/analysis/3226-time-warner-inc-.php

Peer Evaluation Form

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