five corners - wordpress.com · 21/10/2016 · © 21st century fox 2017. all rights reserved. five...

© 21st Century Fox 2017. All Rights Reserved.

Five Corners Brought to you by - Stewart Flecknoe-Brown, Cheryl Hopkins, Jason King, James Lamproglou, Felix Yu, & Janine Zhuravlov.

https://www.youtube.com/watch?v=7pKEalsX1as


2Agenda

Company Background

Culture and Structure

Creative Technology

Strategic Opportunities

Strategic Threats

Strategic Responses

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3A Short History

21st Century Fox was formed by the splitting of entertainment and media properties from News Corporation. Established 30 June 2013, with public trading beginning the following day...

May / June 2013BoD and Shareholder approval

1 July 201321st Century Fox (21CF) Trading on NASDAQ

June 2012Plans for split originally announced

January 2014Plan announced to delist 21CF shares from ASX

June 2014Bid to acquire Time Warner. No deal done. Stock value drops

April 2017EU approval of 21CF bid to acquire Sky

September 2015JV established with National Geographic

December 2016Agreement reached for 21CF to take over remaining 61% of Sky

2012 2013 2014 2015 2016 2017


4Who We are and What We Do...

US $27 Billion Revenues

More Than

21,500 Employees


5Who We are and What We Do...


6Stockholder Returns

$100

$150

$200

$250

$300

FOXA FOX S&P 500 Peer Group

Cumulative stockholder return for five year period(Ended June 30, 2016)


7Competition

Filmed Entertainment Television Cable Network Programming


21st CF Walt DisneyROE 20.14% 21.74%Profit margin 10.08% 16.90%Asset turnover 0.57 0.60Leverage 3.54 2.13

Relevant strategy: cost optimization, cut non-value added asset, restructure the financial position (less liability), etc.

DuPont analysis ROE = profit margin * asset turnover * leverageProfit margin = net profit/revenueAsset turnover = revenue/total assetLeverage = asset/equity

8Financial Comparison - FY2016


9Filmed Entertainment


10Cable Network Programming


11Television


12Strategic Leadership

Strategic plan : • Standout creative output • Innovation across multiple platforms• Monetise content wherever it is

consumed

A new transformed organisation through cost containment initiatives and restructure.

Investments in accretive long-term growth opportunities :

• Through existing businesses, and • New initiatives or acquisitions with both

financial and strategic benefits.


13Organisational Structure

• A multidivisional structure lead by consistency of vision.

• Limited integration of people, process or systems between brands or geographies.

• Exploits local advantages and global efficiencies through multidimensional strategic objectives : – Dispersion,– Specialisation and interdependence, – Respecting the cultural distance, – Harnessing the corporate culture of risk taking and change.

• Enables appetite for change and challenging the status quo.


14Culture vs. Strategic Fit

Resists changePoor strategic alignment

Culture irrelevantOrganisational drifts

Reinforces strategy Promotes alignment

Culture relevant but weakOrganisational drifts

Str

engt

h of

Cul

ture

High

Low

Low HighFit with Strategy

21st

Century

Fox

20th

Century

FoxSky


15Culture Audit – Where it could go wrong

ValuesTrust

LeadershipEthical-above

reproachOrgan StructureMultidivisional

StoriesTake risk

SymbolsNews with

truth

RitualsNetwork

ValuesUnlawful

Leadership Unethical

CEO conduct

Power and Control

Overstep

OrganStructure Not

suited to acquisition

target

Stories Phone

hacking

SymbolsNews with a

slant

Rituals- Sexual

harassment

Purported Actual

Power and ControlBe assertive


Lacked support among stakeholders.

Underestimated environs, both regulatory and cultural.

Organizational structure sound in theory but not in practice.

Implementation levers sound but strategic leadership failed—First attempt acquiring Sky


17Creating the Platform for Change—21st Century Fox

Trust

Empower

People are Stars

Verify Multidivisional

Great teamSustainInnovate


18What do employees think now…

Sustainability and diversity and empowerment

Word cloud of positive comments

Comments from staff now


19Creative destruction of media formats


20From mass output to content service

There is a shift from

Mass Manufacturing

Customer choice

Product technology

Market technology

Market segmentation

Market fragmantaion

Shared views Individual timing


21Developing strengths

What are our competitive capabilities? Keep Fox VRIO

CompetitiveCapabilities

OriginalContent

StrategicAlliance

Large CapitalBase

Huge Customer

Base

DiversePortfolio

Strong Cost

Position

Good MgmtTeam

BrandAwareness

V - ValuableR - RareI - ImitableO - Organized


22Diversified and scaled against change-risk

OnlineAds or

advertisements Web based

Commercials on TV and Radio

Movies

MusicCable TV

Magazines

Newspapers or TV news

Media


23Creating value in media

Advertisers and sponsors

Creators and artists

InfluenceChoices

Management

Viewers and readers

Direction


24Growth matrix

Current

Related

New

Current Mix and

Locations

New Compatible

International Markets

Too far from core - reduced control and increased complexity

Extension of media content

into mature channels

Adopt new technological services LATE

Current Related New

Business and Media Channels

Markets


Global broadcast would be cost effective but would not cater to

localised expectations and biases

Global technological and informational trends cannot be ignoredin media management

Transnational StrategyThink global and act local.Technology of productionand distribution is global.

Service expectation isincreasingly localised

25Media Management is global and localB

enef

its o

f Glo

balis

atio

n

Need for National Responsiveness


26BRITAIN… But why?


27Market Selection - C.A.G.E

AdministrativeCultural

CAGE distance framework*

Economic Geographic

• Regulatory standards• Trade agreements• Capital Markets• Legal system• Government policies• Political alignment• Visa and work permit• Corruption approach

• Physical distance• Atlantic connections• Proximity to EU• Infrastructure• Communication

• Language• Heritage• Religion• Work systems• Tradition• Values, social norms and

dispositions

• Per capita income• Cost of labor• Availability of human

resources• Organizational

capabilities• Economic scale

*Prof. Pankaj Ghemawat - IESE


28Historical Leadup

M&A Activity

Murdoch acquires Britain’s “News of the World” newspaper.

Murdoch acquires British tabloid, “The Sun”.

Murdoch acquires US tabloid, “New York Post” and “San Antonio Express-News”.

Murdoch acquires “The Times” and “Sunday Times”.

Murdoch acquires film unit of 20th Century Fox and handful of local TV stations (which became the Fox network)

Murdoch acquires US publisher, "Harper & Row" and "Williams Collins" which became "Harper Collins"

Murdoch launches Sky Television and merges with British Satellite Broadcasting (BSB) to become BSkyB.

Murdoch launches the US Fox News Channel (which become a major US cable network)

Murdoch acquires social networking site - MySpace.

Murdoch acquires the "Wall Street Journal".

• News Corporation (now known as 21st Century Fox) makes an offer to acquire 100% of BSkyB (now known as SKY Limited) however pulls out of bid.• “News Of the World" magazine is shut down following serious phone hacking allegations of celebrities, royals, and murder victims.

• Janine Murdoch becomes chairman of SKY.• FOX announces intention to acquire the 61% of SKY plc.

• European Commission approves acquisition of SKY.• UK media regulators Ofcom (Communications watchdog) and CMA (Competition and Markets Authority) currently reviewing acquisition.


29Sky UK Limited

From 39% to 100% Ownership

Our Flagship Brands


30Sky UK Limited – Competitive Advantages

• Sky News - UK’s largest digital subscription television company with an average monthly audience reach of 10 million.

• Large online presence with leading third party sides and news aggregators like Yahoo.

• Sky’s products and services cover:– Television– Radio– Online / Broadband / Mobile

Revenues of Television Broadcasters and Carriers, Digital and Satellite

Rev

enue

(€B

n)

Sky BBC VirginMedia

BTConsumer

ITV/STV/UTV

Channel4

Channel 5(Viacom)

7.6

5.1

4.14.0

2.8

1.7

0.9


31SWOT of acquisition at a glance...

STRENGTHS WEAKNESSES

• Brand equity and resources• Complimentary core competencies of SKY

(e.g. broadband network)• Expansion of products and distribution markets

• Dynamic market share

• Aligned culture with FOX

• Reduce operating expenses

• Historic acquisition failure of SKY in 2011• Phone hacking scandal in UK

• Ofcom (UK regulator) concerns

OPPORTUNITIES THREATS

• Access to wider markets / resources• Reduce current competition for TV content

• Reduce international trade barriers

• Streamline value chain activities

• Politics

• Technologies innovations

• Media rivals - Google and Facebook• Regulatory changes

• Advertising expenditures

• Politics


Strategic Threats Heat Map 32

Almost Certain

Likely

Possible

Unlikely

Rare

1

3

6 2

4

5

Like

lihoo

d

Impact

1. Consumer behavior as a result of new technology

2. Competition – ‘Old’ media v ‘New’ media

3. A decline in advertising expenditure

4. Increase in the threat of content piracy and theft

5. Changes in Government Regulations

6. Political Affiliation / Public Perception

Threats


33Strategic Threats - Porter’s 5 Forces Analysis

Bargaining Power of Suppliers (Low)• Can choose suppliers freely• No specific suppliers

Bargaining Power of Buyers (High)• No cost for buyers to switch• Competition

Threat of New Entrants (Low/Moderate)• Large economies of scale• High capital investment needed• Fierce competition• Regulatory environment

Threat of Substitutes (High)• For each of the operating segments, there are

many reasonable substitutes in way of competition offerings.

Rivalry Among existing Firms (Moderate/High)• Large well established rivals• New threat from new players (Amazon, Netflix)

Industry Competitors

New Entrants Buyers Substitutes Suppliers


34Acquiring Sky will make us

21st Century FOX would become the UK’s:

• Largest newspaper provider• 2nd largest radio news provider• 3rd largest television news provider• 4th largest online news provider


35Industry talks...

“Critics of the proposed takeover have voiced concerns that Murdoch would use his position to shape the news agenda leaving Sky’s news coverage resembling that of the right wing Fox News.” - BBC

“The drop in the pound relative to the dollar, driven by the U.K’s June vote to leave the European Union, also served as a catalyst by reducing the cost to Fox” - Bloomberg

“Sky has a significant ability to influence public opinion and the news agenda in audience terms given its presence and reach on TV and having built a strong presence in retail and wholesale news provision” - Ofcom (UK regulator)


Strategic Response – Act Like a Fox

Response to new technology – Digital Gold Rush

• Smart acquisition of online service providers• Combine data feedback to improve service• Improve online platform – Fox networks• Manage old and new style media together • Utilize subscriber base to promote new services• Create and offer more appealing original content• Think global, act local

36



Response to fluctuation in advertising demands

• Create more revenue streams by M&A• Utilize broad media ecosystem and big data to offer

one-stop promotion solutions• Plan ahead and invest in sales & marketing• Seek strategic alliances and long-term contracts

37



Response to hostile conditions - changing regulation, new entrants

• Enter new market (M&A – Star in India, Sky in UK)• Continuous investment in new technology – AR &

VR• Raise the cost of competing – decrease subscription

price, increase content provided and advertising• Political affiliation – change the rules or be the first

to know the change• Divest not-profitable sectors

38


39The ‘board of play’ for succeeding into the UK

Play the ‘Same Game’ into UK

Play within the industry ‘rules’

Optimise Performance

Increase Power

Operational Planning Synergy

With full ownership and an encumbent strategy, a UK asset can be made more competitive.


Regulator’s Comments / Recommendations

Comply with UK regulations

We are concerned about a level of control of competitive forces consistent with 100% ownership of Sky

Move towards a Global Matrix Structure- Ensure all brands have rigorous maintenance of

broadcasting standards.- Allow Sky to continue serving existing media

relationships whilst finding business and operational synergies.

- Greater control over strategic and cultural alignment.


Should this be allowed by the UK Culture Regulator to go ahead?

41Recommendation from the audience

five corners - wordpress.com · 21/10/2016 · © 21st century fox 2017. all rights reserved. five...

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