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Time Warner SWOT & PESTLE Analysis

Last Updated : 24 Jun, 2017

OVERVIEW

Name of the Company: Time Warner Inc.

Business Sector: Mass Media

Operating Geography: United States, North America, Global

About the Company: Time Warner Inc., renamed in 1990, is an American multinational mass media conglomerate headquartered in New York. The organization operates in almost every field of mass media – movie production, cable television, publishing, music, theme parks etc. The company has three major divisions – Turner, Home Box Office (HBO) and Warner Bros. As of March 2017, AT&T has acquired the company pending approval from regulatory authorities. The company has 25,000 employees.

Revenue: $ 29.318 Billion for fiscal year 2016

SWOT & PESTLE Analysis

The SWOT analysis for Time Warner is presented below:
Strengths
Weaknesses
1. Growing Profit Margins and EPS
2. Diversified Revenue Sources
3. Powerful Brand Portfolio
4. Loyal Consumer Base
1. Higher reliance on an unreliable revenue source
2. Cross brand cannibalism
3. Dependence on a dying industry (DVD/Blu Ray)
Opportunities
Threats
1. Increasing demand for OTT services
2. Acquisition AT&T to reach new audiences
3. Increasing popularity of American content on a global scale
1. Competition from low-cost substitutes
2. Piracy of content
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Strengths

1. Growing Profit Margins and EPS: TIME Warner Inc. has been riding on increasing operating profit margins, reflected in an upward trend in the stock prices over the last one year. The EPS has been steadily increasing YoY (EPS is 1.8 for first quarter of 2017 compared to 1.51 for first quarter of 2016)

2. Diversified Revenue Sources: The company has a diversified revenue stream with Warner Bros. contributing 42% of total companywide revenues, HBO contributing 20% and Turner contributing 38% of companywide revenues of $29.318 billion for the financial year of 2016. Each business operates in a different segment of mass media and very well dilutes risks faced by the company. The conglomerate is third in terms of revenue size behind only The Walt Disney Company and Comcast.

3. Powerful Brand Portfolio: It has an arsenal of powerful names and brands like Turner, Warner Bros. and HBO. Under each division there are brands with a global presence and recognition across generations of consumers.

4. Loyal Consumer Base: TIME Warner has a loyal consumer base which follows the brands under its umbrella – HBO has more than 100 million subscribers worldwide.

Weaknesses

1. Higher reliance on an unreliable revenue source: The conglomerate relies upon its Warner Bros. division to a greater extent for its annual revenue. This division focuses on big banner projects distributed exclusively through cinemas. As more and more movie goers continue to find alternatives to watching films in theatres, the division will suffer.

2. Cross brand cannibalism: The results of the last year releases in the DC Entertainment section – ‘Batman Vs Superman’ and ‘Suicide Squad’ were mixed as they could not deliver the unanimous impact as delivered by the superhero franchise of Marvel Comics. However, the next films in the series hope to redeem their value and make sure those theatres stay full.

3. Dependence on a dying industry (DVD/Blu Ray): The Warner Bros. division is still dependent upon DVD/ Blu-ray discs for distribution of media to audiences at home, which is a dying business due to the advent of OTT services such as Netflix, Comcast etc.

Opportunities

1. Increasing demand for OTT services: TIME Warner has recently forayed into the OTT services segment which offers programming with less or no advertisement, and without the involvement of any intermediary service providers (excluding the ISP). This is an opportunity for the company to increase their reach directly.

2. Acquisition AT&T to reach new audiences: The acquisition by AT&T will result in the formation of a media and telecom powerhouse. The merger will earn AT&T a ROIC of 5% which is at par with their current ROIC and WACC. This opportunity unlocked for Time Warner ensures that their content reaches the mobile user audience.

3. Increasing popularity of American content on a global scale: The US market for entertainment media is getting saturated, while Time Warner gains a major chunk of its revenue from the US alone. However, popularity for American media content has been on the rise in the other markets where Time Warner is present. This offers Time Warner an opportunity for expansion in non-US markets.

Threats

1. Competition from low-cost substitutes: The mass media industry is a very competitive one with many players offering new forms of distribution, new age content etc. The major competitive threat is from online streaming services such as Netflix, Hulu, and Amazon.com which are cheaper than traditional cable services such as DirecTV (Now a part of AT&T). Most of Turner Network, HBO and Cinemax are available through direct cable affiliates. This calls for action on part of Time Warner to continue reaching the audience.

2. Piracy of content: The most common threat to any media corporation remains piracy of content. Piracy results in severe losses for the conglomerates because of sunk costs of content development. Even if pirated content is poorer in quality, the cost benefit analysis puts pirated content at the top. In spite of the recent crackdown by governments around the world on torrent sites, which act as distributors for pirated content, the threat is constant.

To get the complete detailed SWOT report on Time Warner please mail us at: support@swotandpestle.com. or contact us here.

Time Warner SWOT analysis has been conducted by Abhinay Pednekar and reviewed by senior analysts from Barakaat Consulting.

References

1. TWX Corporate Annual Report 2016: http://ir.timewarner.com

2. Stock Research data: http://in.reuters.com/finance/stocks/financialHighlights?symbol=TWX.N

3. AT&T Time Warner Acquisition a rare deal that makes economic sense: https://www.forbes.com/sites/greatspeculations/2016/11/15/att-time-warner-acquisition-a-rare-deal-that-makes-economic-sense/3/#23f3f4ed7e12

4. CSR policies: http://www.timewarner.com/company/corporate-responsibility

5. FCC to take vote rollback of Obama-era Net neutrality rules: http://fortune.com/2017/05/18/fcc-vote-rollback-obama-net-neutrality-rules

6. Here’s Elizabeth Warren’s Big Gripe With the AT&T-Time Warner Deal: http://fortune.com/2016/10/31/time-warner-lawyer-christine-varney

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The PESTLE analysis for Time Warner is presented below:
Political
Economical
1. Debate over net neutrality
2. Different regulatory policies across markets
1. High investment Industry
2. State of demand for services in emerging markets
3. Deterioration of certain revenue streams
Social
Technological
1. Nature of content across markets
2. Cultural inclinations of target audiences to be kept in mind
3. Impact of western culture on emerging markets
1. Staying in sync with innovations
2. Letting go of older trends
Legal
Environmental
1. Merger with AT&T is still pending approval1. Impact of filming at open air locations
2. Environmental activism by media companies
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Political

1. Debate over net neutrality: The recent debate over repealing the Net Neutrality order passed under the previous Democratic government has a brought all media and telecom giants in the spotlight with split opinions. AT&T is one of the companies who are publicly against the Net Neutrality order, citing reasons of discouraging investment and innovation. This debate will definitely affect the way telecom and mass media companies modify their revenue models.

2. Different regulatory policies across markets: Across the world, media regulation is done in different ways with different levels of control. TIME Warner has to maintain and distribute content in accordance with the regulations of each country it operates in, to avoid any legal action (fines for media related infarctions represent huge sums). Regional entertainment in different global markets is supported by their respective governments. For example, in India, there is a mandate for at least one Indian movie be screened at every show time across theatres. This leaves foreign entrants with limited options to screen their movies. However, collaboration with regional production houses is a viable option for foreign companies to enter domestic markets.

Economic

1. High investment Industry: The size of the global mass media and entertainment industry is nearly $1.6 trillion with the US market accounting for 29.2 per cent of this volume. However, the industry is an expensive one to be in. The high costs of investment with high risk on return continue to be deterrents for new players, thus leaving only a few giants at the top of the economic pile.

2. State of demand for services in emerging markets: The emerging markets are now a hotbed for major entertainment industry events, as these markets have access to more variety than ever. The impact of western media on emerging markets continues to pull more and more audiences towards western content.

3. Deterioration of certain revenue streams: With the introduction of DVRs and OTT services, consumers enjoy entertainment with little or no ads, which is strangling major revenue streams from advertisements for media companies in mature markets.

Social

1. Nature of content across markets: The entertainment industry has to grapple with changing attitudes of consumers towards genres of content, pricing and availability of on-demand content. For example, with the success of the medieval era hit series Game of Thrones, many entertainment majors experimented with the genre to connect with the current ‘mood’ of the audiences. Different types of programming are being used to engage the consumer across all forms of media. .

2. Cultural inclinations of target audiences to be kept in mind: Other than regulatory pressure, an entertainment company has to keep in mind the cultural inclinations of the consumer in different markets while developing content. For example, American pop culture references do not work globally, as people in different regions are not as exposed to these references as Americans. Therefore, the content developers have to get acquainted with viable knowledge of the target audiences and tweak existing content or design new content accordingly.

3. Impact of western culture on emerging markets: TIME Warner has an active CSR division with a policy drawn for its initiatives. The policies focus on employee benefit, community engagement and environmental protection.

Technological

1. Staying in sync with innovations: The entertainment industry is in a constant state of flux in terms of technology. Cable TV, gaming, filmed entertainment have been undergoing quality enhancements and improvements with bandwidth changes, new forms of transmission, high definition and 3-dimension imagery etc.The ongoing innovation update has been augmented reality, virtual reality and artificial intelligence. Companies will have to adapt to and adopt these technologies to improve end-user experiences to retain their loyalty.

2. Letting go of older trends: With DVRs and OTT services consumers now watch television while skipping ads and on demand (without a fixed schedule). DVDs and Blu-ray discs are getting outdated, which means companies which distribute films and games on these media need to find alternatives for distribution.

Legal

1. Merger with AT&T is still pending approval: The merger with AT&T has sparked debates citing antitrust law due to the merger of a content creator and content distributor, which will possibly create a monopoly over entertainment. The issue has been red flagged by politicians and lawyers alike, while the merger is still pending federal approval. FCC regulations over content creation and distribution continue to govern the strategies chosen by different divisions of TIME Warner regarding content.

Environmental

1. Impact of filming at open air locations: The entertainment industry is affected by environmental norms in case of shoot locations and procedures. However, with the use of CGI for major film projects, the impact on shoot locations has been reduced.

2. Environmental activism by media companies: The industry however is looked upon as stalwarts for promoting environmental activism via its content and talent, which is easily managed by these major corporations. TIME Warner has been actively involved in maintaining its green business standards. More details can be found on their website.

To get the complete detailed PESTLE report on Time Warner please mail us at: support@swotandpestle.com. or contact us here.

Time Warner PESTLE analysis has been conducted by Abhinay Pednekar and reviewed by senior analysts from Barakaat Consulting.

References

1. TWX Corporate Annual Report 2016: http://ir.timewarner.com

2. Stock Research data: http://in.reuters.com/finance/stocks/financialHighlights?symbol=TWX.N

3. AT&T Time Warner Acquisition a rare deal that makes economic sense: https://www.forbes.com/sites/greatspeculations/2016/11/15/att-time-warner-acquisition-a-rare-deal-that-makes-economic-sense/3/#23f3f4ed7e12

4. CSR policies: http://www.timewarner.com/company/corporate-responsibility

5. FCC to take vote rollback of Obama-era Net neutrality rules: http://fortune.com/2017/05/18/fcc-vote-rollback-obama-net-neutrality-rules

6. Here’s Elizabeth Warren’s Big Gripe With the AT&T-Time Warner Deal: http://fortune.com/2016/10/31/time-warner-lawyer-christine-varney

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