Sky Television Case Analysis

Case Analysis: BSB vs. Sky Television

How might BSB have been able to identify News Corporation as a potential competitor prior to Rubert Murdoch’s announcement of the launch of Sky Television? Reportedly BSB was taken by surprise with the announcement of the launch of Sky Television but there were numerous signs that pointed to News Corp’s possible entry into satellite television and, at the least, BSB should have been aware of the potential of a competitor to enter the market. BSB ignored one of the four important applications about exit and entry, “when planning for the future, the manager must account for an unknown competitor – the entrant.”

The major blunder made by BSB was the company’s dismissal of potential entrants. After Armstrad pulled out of BSB, the company made public their intention to remain in satellite television by stating in their annual report that, “as soon as the bureaucrats have sorted out the issues of standards, timings, and licenses, you will find Armstrad poised with low cost, high quality receiving equipment.” The company’s disappointment with the venture is clear as is their intention to remain in the industry. BSB should have kept a closer watch on Armstrad’s dealings which could have led to potential entrants, making BSB more prepared to respond to threats in the marketplace.

Despite the noted limitations of the launch of Astra, BSB should have recognized its ability to reduce the barriers to entry into satellite television by acquiring broadcast rights at a substantial discount. Without the D-MAC requirement imposed by the British government in the DBS along with Astra’s ability to lower overhead costs, News Corp’s barriers to entry were greatly reduced, something that should have been apparent to BSB. Even with Astra’s launch and Armsrad’s frustration, BSB failed to prepare for a competitor’s entry and more specifically, the launch of Sky Television.

News Corporation’s entry into satellite television was apparent for several reasons. The clearest was the company’s failed bid in 1986 for the British DBS franchise. Already owner of Sky Television, which it acquired in 1983, pointed to the fact the News Corp was positioned to look for a new direction for the fledgling acquisition. The establishment of New Media Group to shift away from print media to electronic media, as well as the terminated satellite television venture, Skyband, in the United States were clues that Murdoch believed satellite television was the future of broadcasting. Skyband was terminated because satellite technology was not yet ready for the consumer and as that technology advanced, BSB should have been aware of Murdoch as a potential threat. The departure of Armstrad and the company’s potential to assist Murdoch in creating a consumer friendly satellite technology should have been a major red flag for BSB.

BSB ignored several key pieces of information that pointed to a competitor, specifically News Corp, entering the satellite television marketplace. And when the company was taken aback by the announcement of Sky Television, they were ill-prepared to take the necessary steps to combat the announcement. In hindsight, BSB should have had a better plan for taking on a competitor like Sky.

What might BSB have done differently before Sky’s entry announcement? Following the announcement? British cable television was much further behind than cable TV in the rest of the world, with less than 5% of households having been wired for cable. BSB could have exploited this by touting the accessibility of satellite televisions and spending R&D funds to develop a consumer friendly receiver. If that feat could be accomplished, BSB could have been well ahead of the competition by going directly to the consumer to deliver a quality product.

In order to prepare for threats, BSB should have taken the launch of Astra much more seriously and what the improving technology allowed. With a very small amount of money ($10 million) compared to the investment BSB had made, they could have purchased the broadcasting rights provided by the launch of Astra, or at least engaged in a bidding war to drive up the price paid by Murdoch. This would have given BSB control of essential resources or inputs in satellite television.

After Sky Television’s entry into the marketplace was announced, BSB should have further enhanced its competitive advantage. The system BSB controlled was designed to give the consumer a better television viewing experience because of the enhanced quality of sight and sound. BSB could have positioned to take better take advantage of this by marketing the advantage to the consumer and, perhaps, offer a television deal with satellite installation to ensure the consumer received the best viewing standard. Instead, BSB focused on a square satellite receiver whose technology had not yet been perfected.

After holding out on signing major movie studios because of a disagreement over the time allotted for access to films, BSB should have re-evaluated its movie subscription model. With News Corporation already owning a major move studio, Fox, the company had a major advantage over BSB. When prices to secure movie rights escalated, BSB could have revised its revenue model, looking at license fees like the BBC rather than receiving income from a $10 movie subscription fee.

What should BSB do in 1990?
BSB should analyze its financial situation, including sunk costs and barriers to exit, to decide whether or not to remain in the satellite television industry. Based on its sunk costs, BSB should continue the battle with Sky. Although barriers of exit are low because of little to no agreements for labor and satellite services, the sunk costs already incurred are significant enough for BSB to continue. Because it is more beneficial for BSB to continue operations, the company should look for ways to outperform Sky.

BSB should look to exploit its competitive advantage in the quality of broadcasting. With a natural partner in Granada, the company should redirect funds to developing a state of the art receiver as well as look into the possibility of packaging a television capable of taking advantage of the DMAC system to sell with the receiver.

Due to Sky’s mismanagement of retailers, BSB should look into exposing that
weakness by locking retailers into exclusive deals. The company can entice such deals through competitive pricing, kickbacks, and proper management of the relationship. Without access to consumers through retailers, Sky would have to sink significant capital into a door to door or telemarketing model.

Why did this competitive battle turn out to be so costly for both parties? The reason the battle between Sky and BSB turned out to be so costly is because the companies engaged in a war of attrition. Each company is rapidly expending resources and startup capital in order to dominate the satellite television industry and secure market share. But as stated in Chapter 11, “If the war (of attrition) lasts long enough, even the winner may be worse off than when the war began because the resources it expended to win the war may exceed its ultimate reward.” One of the clearest wars of attrition in which the firms participated was the battle over movie rights. The companies together racked up costs of $670 million and paid 300% over fair market value for the rights. And the resulting revenue stream was a meager $10 per month per subscription.

The race to be the first to the airwaves resulted in poor programming, poor technology, and a poor customer experience. Even without considering the financial losses incurred by each company, they may have lost consumers to other options like cable television because of the poor product they produced.