Summary History and analysis of Time Warner business expansion since 2000
In January 2000 Time Warner signed an agreement to merge with an Internet company, AOL. A deal which was seen as the most significant merger between a traditional company and an Internet company. This deal was valued at $250 billion. The alliance did not last due to poor timing of the merger as it came at the time when the dot com burst and brought down share prices of companies, especially the internet companies. It was because of the accounting irregularities associated with advertising agencies.
In 2002, AOL Time Warner recorded a historic loss contrary to the business goals that they had in their merger. This led to retrenchment in the company and dropping of the name AOL. Also, it led to pulling out of AOL company as its directors resigned from the company and left. The loss brought about financial constraints to the company and its operations. Time Warner focused on its media holdings; cable networks and movie studios. In 2009, Time Warner disconnected from AOL and Time Warner cable citing that the cable companies were relying on its independent establishment as a communication company rather than focusing on the main company business which was on media and entertainment. This market rivalry made the two to be pulled out by the mother company.
In the same year; 2009 as realignment was at its peak, Time Warner Inc. and Time Warner Cable Stock shareholders received their shares differently and the two companies separate. Time Warner cable and the stock has seen a tremendous improvement in business operations and returns. Shareholders have been smiling from 2009 to 2016. Over time, Time Warner Cable established itself amidst the competitive market made of established companies. It has remained to be the largest company providing services in 33 states, formerly established as a cable television provider to high-speed internet, digital phone and wireless services.
Business Markets for Time Warner.
Time Warner Cable operates mainly in the Television industry. As a cable television provider, they provide internet service, video programming and home telephone. Most of these services providers in the market have two or more other services provided to the customers in the market. The services in the market are quite distinct such that sellers have some control over the prices of the products since the customers are quite aware of the differences in the product. This makes the market behave like a monopolistically competitive market. The sellers here focus on product promotion aimed at illustrating the variations of the products.
The advantages gained by these firms in competition, including Time Warner include product sensitization. Differentiation of the products being the primary concern of the sellers. Parenti, Ushchev and Thisse (2017) maintain that for a fair monopolistically competitive market, there is the consideration of the market demand and competition rate in a flexible manner to the sellers and buyers. Buyers in this market compete for customers with substitute products but differentiated. This brings about the control of price by the seller instead of the customers being the price givers, and the sellers remain price takers.
The internet services provided by the company face a challenge in the market since there are many sellers. Internet access has no differentiation. All the firms who offer this kind of service have to be price takers. Here the competition is at its best, making the market an atomistic or perfect market. In such markets, Koschker and Möst (2016) maintain that the sellers use competition concept with or without strategic behaviour to derive prices. Businesses providing this service attains their maximum revenue by using marketing services effectively. The income calculated after sales here is a result of the number of services offered and price.
The existence of Time Warner and other few big competing companies in the market hasn’t closed the market as there is free entry to the market. Small companies get to survive in the business despite the involvement of these big companies in the market. The telephone services provided by the company are mainly used. Few big companies operate but don’t prevent smaller companies from surviving. The telephone service experiences a type of oligopoly market where few firms are providing the service and several small firms. The reduction of sellers in this service due to its consideration by people as a traditional way of communication at some point renders the few firms providing this service as price givers. They, therefore, raise their prices at will because of the lack of an alternative.
When oligopoly continues, and other firms shed off their services in the market, the only firm that remains acquires a monopoly title in the market. As a monopoly business, the firm gets to give high prices of the product with perfect knowledge that consumers have no alternative for the product.
Competition for Time Warner Company.
Time Warner faces competition from various companies in all of their services. Due to the competition in the market, consumers have a wide range of products to choose from. An oligopoly kind of market is where few large companies are highly competing in providing services for their customers. As Geras’kin and Chkhartishvili (2017) reported, the prices in this kind of market are homogenous. Cost models can’t be used here for having a competitive advantage. Time Warner faces competition from Comcast for cable services. Stiff competition is evident between the two companies providing video streaming services for the last decade. In curbing the competition and owning the market, the two companies are reported to have a merger which was later stopped by the government before the merger took effect. Time Warner has developed strategies of always luring their top competitors into an alliance so that they can achieve a monopoly status in the market.
In the telephone industry, the company is out of competition as other competing companies took over the market. This is a product that is believed to be traditional, and therefore they concentrated on other products, that has since made the small companies focuses on it. It has since increased the small company’s emergence. Trade Warner cables have a primary policy of countering their competing companies by organizing a merger. Gagnon and Volesky (2017), in their research, found out that mergers and acquisitions impact the level of competition in a market. It is the reason why this company has always tried to merger with its competitors.
Significant regulatory areas that impact the operations and strategic decisions of time warner
Time Warner believe in organizing mergers. This was until the government through federal communication commission thwarted their merger plan with Comcast in a way that seemed that Time Warner was trying to avoid the stiff market competition that they were getting. An oligopoly market and then there is a merger brought about by strategic interactions by the two companies could have caused the market. Gagnon and Volesky (2017) found that company mergers dearly affect market competition. Mergers between such oligopoly companies could have thrown the remaining few companies out of business after that establishing a monopoly market with restrictions to the entrance.
The government regulations of the markets have influenced Time Warner’s optimal decisions. The government regulations in ensuring all businesses survive is a significant obstacle in their decision making. Baye and Prince (2006) reported that the Federal Communication Commission FCC had set standards of prices that are charged for cable services, this affects the company’s optimal decisions since the company can’t charge higher rates even when they are a monopoly in the market. No matter the quality of the cables there is set prices beyond which the FCC can’t allow to be charged.
There is net neutrality program that ensures that net provides are regulated in their transmissions across the internet. It is in conjunction with bans of giving priorities to some internet traffic over others. A situation that renders the company’s strategic initiatives barred from implementation. Strict rules are regulating the market. On the other side, the FCC collect taxes from companies like Time Warner and use the money to connect millions of the residents of America to the internet denying the companies their market though allowing them subscription income.
Technological change and challenges that time warner has been facing
Time Warner, just like any other company in this kind of business in the market has been facing high competition from other companies since all companies in this sector needs to survive at the expense of the other. Some of the Time Warner’s services face Oligopolistic competition in the market while others are in a monopolistically competitive market. In these scenarios, it is only product promotion and sales tactics that save the company in the market; otherwise, there is the possibility of halting operations. There is also a decrease in video subscription rates, thereby decreasing the profits formerly got by the company. There is also an increase in programming fees while FCC maintains the standard charges; this means that the company’s profit margin decreases. Above all, there competitive threats as companies are trying to find any leeway for gaining competitive advantage in the market.
References
Parenti, M., Ushchev, P., & Thisse, J. F. (2017). Toward a theory of monopolistic competition. Journal of Economic Theory, 167, 86-115.
Koschker, S., & Möst, D. (2016). Perfect competition vs strategic behaviour models to derive electricity prices and the influence of renewables on market power. OR Spectrum, 38(3), 661-686
Geras’kin, M. I., & Chkhartishvili, A. G. (2017). Structural modelling of oligopoly market under the nonlinear functions of demand and agents’ costs. Automation and Remote Control, 78(2), 332-348..
Gagnon, M. A., & Volesky, K. D. (2017). Merger mania: mergers and acquisitions in the generic drug sector from 1995 to 2016. Globalization and health, 13(1), 1-7.
Baye, M. R., & Prince, J. T. (2006). Managerial economics and business. Mc Graw Hill.