Viacom Case Analysis

3692 WordsMay 14, 200715 Pages
Strategic Group and Mission Statement: In 1995 one of the strategic groups Viacom competed in was cable TV content providers with its main competitors including News Corp and Time Warner. The purpose of Viacom is to provide benefit to society through media content. The beliefs Viacom holds to realize its mission are growth, performance, and competition and the values upheld are communication, technology, knowledge, intelligence and the decentralized organization. General External Environment: The economic segment of the general external environment reveals that in 1995 the cost of capital is low while the availability of capital is high. In the sociocultural segment under national preferences the success of cable TV in the U.S.…show more content…
To become vertically integrated, a company trying to enter the strategic group would need to acquire several companies in different areas of the entertainment industry. These acquisitions would be highly capital intensive and very risky for a new entrant. Another barrier to entry is the product differentiation in the strategic group. Each company in the strategic group has certain channels that are considered premium channels. Cable providers are willing to pay more for these channels, which they end up having to charge the end consumer more for. These premium channels differentiate content providers from one another. The content providing business is a highly capital intensive business. Therefore, the capital required to enter the strategic group and compete is extremely high. To calculate the capital required for a new entrant, we first found the average revenue of the strategic group (~$7.5 billion). We then assumed that a new entrant would have to capture about a third of this average to even make an impact in the industry. Taking this assumption into account, we figured that the new entrant would need about $2.5 billion in its first year of operation. Using this revenue, we then calculated the first year expenses the new entrant would incur. • Expenses based upon 3 months (3/12):  Total Expenses (90% of Revenue): $562.5 million • Beginning Assets (based off Viacom/3):  Movie and TV inventory: $329 million 

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