prbm030-assignment 1-peng yang s188500

Assignment Cover Sheet

STUDENT NAME:

Peng YangSTUDENT NUMBER

188500POSTAL ADDRESS

NO.40 Britomart GNDS, AlawaPOSTCODE

0810PHONE

0424383054EMAIL

[email protected] NAME

ORGANISATIONAL STRATEGY AND LEADERSHIPUNIT CODE

PRBM030Semester ___2___

Year ____2011____

LECTURER NAME

Dr. Rajeev SharmaASSESSMENT TITLE

INDUSTRY AND EXTERNAL ENVIRONMENT ANALYSIS

DUE DATE

26/08/2011DATE OF SUBMISSION

26/08/2011 APPLIED FOR EXTENSION? YES NO N/A

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PRBM030 ORGANISATIONAL STRATEGY AND LEADERSHIP

ContentsIntroduction...........................................................................................................................................2

Background information........................................................................................................................3

Subscription television in Australia....................................................................................................3

Company Profile................................................................................................................................3

PEST Analysis.........................................................................................................................................4

Political and legal environment.........................................................................................................4

Economic environment......................................................................................................................4

Society environment..........................................................................................................................5

Technological environment...............................................................................................................5

Five Forces Model..................................................................................................................................6

Rivalry................................................................................................................................................6

Supplier Bargaining Power.................................................................................................................7

Buyer Bargaining Power....................................................................................................................8

Potential Entry...................................................................................................................................8

Substitute Products...........................................................................................................................9

Conclusions............................................................................................................................................9

Reference:...........................................................................................................................................11

Peng Yang 1885001 | P a g e


Introduction

Companies always operate in a certain environment; the formulation and

implementation of business strategy are also restricted by the particular environmental

factors. (Osborn & Hunt 1974) In other words, environment decides the enterprises’ strategy,

decisions making, organizational structure and management styles. The environmental

awareness has become the starting point of the environment analysis. (Sethi 1979) In general,

the corporate strategy has two environment factors to consider, internal and external

environments. Furthermore, because the influence degrees are different, the outside

environments divide into the macro environment and industry environment. The productivity

and operation of modern enterprises have been increasing impact from the external

environment. (Osborn & Hunt 1974)

The strategic management for the organization need has an overall and objectives

analysis about the change of the external environment, based the research result to set up the

organizational goals and strategy plans. The enterprise and its external operation conditions

are in an interaction and interrelated relationship.(Osborn & Hunt 1974) The purpose of study

on the peripheral environment is supporting a chance to the organizations to finger out the

possible developing opportunity and potential threat, use them to be the conditions and

limitations to develop the business strategy. (Sethi 1979)

There have a close contact between business and environment. On the one hand, the

environment is the basis for enterprise survival, the elements the business needs all obtained

from the external environments, such as human resource, materials, energy, capital,

technology, information, etc. Meanwhile, the company's products must be marketed through

the external market. On the other hand, the company is a kind of dynamic social organization,

it is not only been dictated by the environment, but also be adapted to the environment and

impact on it, promoting social progress and economic prosperity. (Sethi 1979) So, the

companies must analysis the environment and adapt to being survive and development.

Generally, corporations divide their macro environment into four main pieces to

analysis; they are Politics, Economics, Social and Technology. It called PEST analysis, firms



through indentifies the change of PEST factors to effect on their organizational strategic

managements.

Michael Porter’s Five Forces Model provides a healthy and time-tested framework for

analysing the industry environments, reflected in the strength of the five forces. (Porter 1980)

This framework provides a basis for firms to recognize the opportunities and threats. To

analysis these five forces determines the ultimate profit potential in an industry, where profit

is measured in terms of long term returns on capital invested (Porter 1980).

Background information

Subscription television in Australia

In the last two decades, subscription television has played an increasingly important

part in the broadcasting industry. And recent advances in digital technology will speed up this

process. The consumers will have more than hundreds channels for choice to watching as

well as participating in various interactive services in a while. (The Gale Group 2011) Since

1995, subscription television opened at the Australia. There are more than 100 English-

language television services or channels currently available to Australians. Those contents

offered by the three major local subscription television groups with a selection of time-

shifting, HD and digital channels available. (Seven Network Limited 2004) They are Foxtel,

Optus TV and AUSTAR. Foxtel and Optus TV operate in the metropolitan markets, and

AUSTAR in the regional markets. (The Gale Group 2011) The significant difference between

Pay TV and other broadcasts is there has a direct contract relationship within the customers

and operators. In earlier 2011, Australia has more than two million household subscribers to

pay TV broadcasting services. (Austar United 2008)

Company Profile

AUSTAR's television subscriber was founded in 1995; it is the largest subscription

television operator in regional and rural Australia. Its main business activity is Subscription

Television but it is also involved with internet access and mobile phones. AUSTAR Service

includes over 180 premier channels, 13 HD Channels, a near video-on-demand service, and

increased levels of interactivity. (Austar United 2008) It is the largest subscription television

operator in regional and rural Australia. AUSTAR provides subscription television services



one-third of Australia's total homes, approximately 2.4 millions homes and over 760,000

Australians. (Austar United 2008)

PEST Analysis

Political and legal environment

The political and legal environments are those political factors and legal systems,

which are constrained and influenced on the organizations.(Lumpkin & Dess 2001) The

stable of those factors are the basic conditions of the business’ productivities and other

activities.

Australia has the most wide-ranging sports anti-siphoning legislation in the world. It

gives limited access to sport events. Most of the subscribers are willing to watch living sports

on their Pay-TV. (Carter 2006) However anti-siphoning rules covering 40 events, 85% are

never broadcast live by open broadcasters, and 75% are not open broadcast at all. (Williams

2002) Furthermore, Australian Government policy encouraged cable duplication. They

overbuild more than 80% cables compare with US overbuild around 1%. (Williams 2002)

Government want to differentiate, providers sought exclusive content. However, it causes

Australia pay highest movie costs among the world.

These political and legal facts have general negative impact on subscription television

industry development. Those rules blow consumer enthusiasms and increase operates costs

directly. As well as the repeal of prohibition on multi channelling in 1998, it makes this

industry lost the protection by the political. It is no longer a monopoly and beneficial

industry. (Seven Network Limited 2004) The companies have to keep attention on the

changes of political and legal environments, forecast the threat, and make sure the

corporation running in a long-standing environment.

Economic environment

The economic environment is the socio-economic status and the country's economic

policies, including socio-economic structure, economic system, development,

macroeconomic policies and others.(Lumpkin & Dess 2001) All these factors have more

direct and specific impression to the enterprise production and management, especially the

international economic environment.



Australia is the one of the biggest country in the world. However, they only have 20

millions populations. As record, Australia had 7 millions television householders, and there

are 2.8 millions household got cable passed and 1.5 millions using subscription television.

(Williams 2002) Meanwhile, over 80% cables are overbuilding, it is impossible to achieve

economies of scale. It means this industry is hard to provide enough cash flow for companies

purchasing equipment, satellite time, and programming.

Despite weak economic conditions that had a negative impact on network television

and radio broadcasting companies, Satellite prices are generally lower. In Pay-TV industry

satellite subscriptions offer more channels, which is part of the attraction for consumers. (The

Gale Group 2011) Around 2000s, satellite television services made their presence felt in the

pay television industry by providing an alternative to increasingly expensive cable service,

which was increasing in price faster than the rate of inflation. (The Gale Group 2011)

Nowadays, internet plays a significant role as satellite before to shock the subscription

television industry.

Society environment

The society environment is the place firms operate in, which including the social

structure, customs and habits, beliefs and values, behaviour and lifestyle, cultural traditions

and all that culture elements.(Lumpkin & Dess 2001) These factors determine the direction of

investment related, product improvement and innovation and other major business decision-

making to the company.

Strong competition exists in the newspaper, radio and television industries as well as

in online news media in Australia. People who living in cities, they can enjoy a wide choice

of newspapers, magazines, and radio and television services. However, people living in

remote areas have less choice of news and entertainment sources. Under the banner of free

view, the free-to-air television operators have delivered new digital channels in 2010/11 in

both SD and HD. (Deans 2011) Viewer numbers are increasing and will continue to increase.

Digital transmission launched in Australia since 2001, after ten years operations;

analogue transmission is switched off across whole state. During these periods, more and

more Australians are now enjoying the extra features and channels that are available for free.

These society environments changes have putting pressure on the pay TV industry. (Deans

2011)


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Technological environment

The technical environment is the collection of various social phenomena such as the

national science and technology system, technology policy, technological level and

technological development trends.(Lumpkin & Dess 2001) Technology is the field, where the

business wars fight. It is the place the firms obtain the competitive advantage.

With the development of advance technology, the traditional television industry no

longer fit the customer entertainment requires. (Seven Network Limited 2004) Especially in

subscription television industry, all companies have to enhance their products and services by

the advance technology, to keep survive in market and reduce the completive pressure from

free TVs. However, Pay-TV firms quickly adopt new technology into their services. As

Foxtel's chief executive, Kim Williams, said:

"Foxtel is about delivering compelling video entertainment through any digital

medium, including cable, satellite, broadband and mobile networks. Telstra's Next G network

is an exciting extension for Foxtel, and we intend to grow the offering substantially with the

addition of more channels and on-demand service……You’ll be able to use your mobile

phone to send a message to record something on your iQ." (Carter 2006)

These technical environment factors have very positive outcome to this industry

members to achieve their business goals. Apply new technology on develop and extension

industry’s products diversity, to satisfy the customer’s increasing demanded on

entertainments. It is the weapons to defend the industry from another.

Five Forces Model

Rivalry

The rivalry is the competition among existing firms. The different industries have

various intensity of competition.(Porter 2008) If the major competitors within the industry are

basically equal, no matter how much the number of enterprises within the industry,

competition within the industry will inevitably intense. However, when the industry only has

a few large competitors becoming semi-monopoly, which make the competitive rivalry

weaken, and the corporate profitability will increase.

Subscription television is one of the most regulated start-up businesses in Australia.

(Williams 2002) There are three dominant provider of subscription television consists in



Australia. They are Foxtel, Optus TV and AUSTAR. Foxtel offering their Pay-TV service

almost covered all Australia capital cities via cable and satellite television. And mostly the

same channels offered by AUSTAR through satellite TV in regional areas only, but they have

cable supply in Darwin.(Austar United 2008) The other operator is Optus, they are the one

has least customer group in these three biggest organization. However, Optus selling their

subscription television bind with their internet connect and local telephone service, which are

the main services of them.

The power of rivalry is medium. Because there are only three main firms in the

industry, though they are all focus in different areas and relatively complemented each other

on geographical. (Williams 2002) Moreover, Australia is the biggest content import country

in the world. Those three firms spend huge capital on contents purchase, it takes more than

65% revenue of Foxtel and AUSTAR and Optus spend all their subscription television

incomes. (Datamonitor 2010) High content costs resulted from fierce start-up competition to

secure and create premium content. (Williams 2002)

Supplier Bargaining Power

The supplier refers to the enterprises that supply resources, material and other fitting

parts to another for their productions. The bargaining powers of suppliers are the ability to

rise up the price or reduce the quality and services, to pressure on the purchaser and

maximum their profits.(Porter 2008) There are many factors impression on the supplier

bargaining power, such as volume size, information mastery, and product differentiation and

so on.

The other different between subscription television and free television is the contents

quantity and quality. The customers paid for the programs their want to watch but free TV

not offered or have many limitations. So, offer special and attractive programs are essentially

to subscription television industry. US are the major global content supplier and Australia is

the biggest importer of them. (Williams 2002) The most important is Australia is a net

importer of content; content is not owned but licensed. This means, all parties are free to bid

for content licences on contract renewal. In addition to, channel suppliers wanted to share

channel start-up risks, they often requiring subscription platforms to take equity positions in

the channels. (The Gale Group 2011)



The bargaining powers of suppliers are high in this industry. All these conditions

make members in Pay-TV industry got a disadvantage position when they negotiation with

the content suppliers. And then online TV offers a new choice of partners, handing content

owners greater power over the way people access their shows. (Deans 2011) As well as free

broadcaster often insist that content suppliers commit to 'holdback' periods, that are the

periods of exclusivity ranging from 3 months to 5 years, which deny subscription television

providers access to that programming.(Williams 2002) The only thing to change this situation

is create channels of their own and make them locally relevant.

Buyer Bargaining Power

As a buyer, they will want the products or services they got are inexpensive but good

condition. Therefore, they always pursue lower price and higher quality, and bargaining with

different firms in same industry, which cause the competition and lower profits.(Porter 2008)

Despite the global economic downturn, the numbers of household broadband

connections have continued to grow robustly. According to industry sources, Australia is

expected to add about 1.7 million household broadband connections between 2008 and 2013,

increasing its penetration rate from about 55% in 2008 to 69% in 2013. (Datamonitor 2010)

In addition to the demand for Pay-TV service in Australia also steady growth. Australian Pay

TV penetration reached over 33% in 2009. (Datamonitor 2010) These low Pay TV

penetration levels in Australia represent a huge untapped market with a huge potential

purchasing power, and indicate a significant opportunity for the growth.

However, the increase of market size led intense competition. Since most content is

still in high degree of homogeneity, the audience's loyalty and switching costs are low, it

means the customer have high bargaining power. On the other hand, the advertisers and their

agents are the customers of subscription also. (The Gale Group 2011) Because Pay-TV

channels could target to specific group of customers, it makes the advertisement have more

force and effective other than played on free broadcasters. The advertisers tend to switch their

investments to subscription television. They have lower bargaining power than the television

audiences.


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Potential Entry

Potential entry means the company more likely to enter the industry and becoming

competitors.(Porter 2008) Because the entry will bring new production capacity and material

resources, and asked for a certain market share, challenge the existing enterprises’ position.

The threat extents depend on the barriers to entry, and the responsiveness of existing

enterprises. A lower entry barrier makes it difficult for the existing producers to remain

profitable for long.

Subscription Television and Radio Association's (ASTRA) executive director, Debra

Richard, points out that pay TV was not allowed advertising for the first five years and so it

has had to play catch-up. (Carter 2006) Generally, companies are competing on a national

basis. It was causing all players particularly new player to access government regulation and

using lack of infrastructure to survive. (The Gale Group 2011) However, subscription

television content could be licensed by any company in industry, which is lower the barrier

for new player to entry the industry.

The threat from new entrant is big. Most of them have some new production capacity

and the valuable, rare and inimitable resources to help them achieve advantage market

position. The emergence of new television, on the one hand they will extend the supply of the

television products that lead to competition cause products price down. (The Gale Group

2011) On the other hand, more players scrabble for limited resources, such as TV play and

event lives, may initiate cost increased. These two factors will lead to lower profitability of

the subscription television industry.

Substitute Products

The substitute products are those products have similar or close functions, consumer

can buy or use them to instead the demand of original one.(Porter 2008) The issues decided

the pressures of alternative products are the profitability, management strategy of production

and buyer switching costs.

The pressures of substitute products for subscription television industry mainly are

from traditional free televisions and rising online video entertainments. Free television in

Australia began experimentally as early as 1929, compare with subscription television started

no more than twenty years. Australians got more acceptations on TV are free. With the

development and popularization of internet, it was utilized widely in people’s daily lives and



works. As the research, Australians using internet time longer than they spend on TV at 2007.

People are intensity increasing dependent on the network media and concerns.

Online video, free TV and Pay-TV have high degree of alternative. Online video and

free TV are zero cost for customers that maximum the threats to Pay-TV industry. They are

launched on the market, unless subscription television support superior functions on their

products, otherwise it will limited the Pay-TV price in a low price and profitability level.

Conclusions

According the analysis above, technological environment facts are significant to

subscription television industry. It is the most important driving force of whole industry. It

determined the future development tend of Pay-TV industry and organizations’ developing

direction. Firms need have to evaluate macro environment elements to indentify the

opportunities and threats to their business and whole industry.

The market in which the companies operate is highly competitive. It has been facing

competition from other players and industry providing similar services, complementary

services and substitute services. These competitors may succeed in attracting some of the

industry’s subscribers, which could reduce total market size and have a material adverse

effect on its results of operations. (Datamonitor 2010)

In summary, Australian subscription television is still growing, lacks of scale and is

loss-making. Internet content gives a big challenge to Pay-TV industry. (Pay-TV cannot rest

on its laurels; power is moving toward content owners) People need internet connections to

access this brave new world. However, it still not strong enough to end cable and satellite

television services people. The firms in subscription television industry will basis on macro

and industry environment analysis to hold the emergent opportunities and prepare to defined

the potential possible threats, and beat it back.



Reference:


prbm030-assignment 1-peng yang s188500

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