Time Warner Inc Milestone 3, Research Paper Example

Costs of Production

Currently, Time Warner Cable has extremely high costs of production. For television providers, costs of production typically include the infrastructure needed to provide its users with local service, contracts with various channels to ensure their right to provide these stations to the clients, and staffing costs that are associated with these needs. Since contract negotiation with individual’s channels and communities to provide these services are expensive, Time Warner needs to offset these expenses by passing off costs to the consumer, which is reflective of the prices they offer. While these precise numbers have not been reported by the organization, it is apparent that the costs of production have increased over time due to enhanced competition. Many channels are willing to engage in exclusive business practices for either company, which makes the acquisition of these channels more challenging. Ultimately, this is having a negative impact on profitability and Time Warner Cable is forced to adopt new strategies to continue to be profitable.

It is also important to understand that Time Warner Cable has many fixed costs associated with its business practices. In particular, the organization spends a fixed amount of money on its facilities across the country (Sheffer, 2015). In addition, there is a fixed cost related to the equipment required for installation and employee labor. Programming costs and licensing fees associated with use are also important considerations. Since these fees are so high, Time Warner and its competitors are incentivized to meet the largest market possible in order to offset these costs in the most efficient manner. There is not a significant cost for research and development and raw materials, but more for the abstract costs that will ensure that customers are able to access continued service.

The Overall Market

According to the information provided in figure 1, Time Warner Cable’s market share was 13% for cable providers prior to the entry of Verizon FiOS. It was ranked as fourth place, behind Comcast, DirecTV, and DISH Network. It is currently ranked as fourth in this category, although Verizon FiOS is considered to be one of the leading organizations.

According to the information provided in figure 2, Verizon FiOS currently dominates the phone market. Time Warner Cable was a low ranking competitor prior to the implementation of Verizon FiOS, but it is now categorized in the “other” category, which represents less than 3% of business in the industry. Therefore, Time Warner Cable is still competitive as a cable provider, but not as a landline telephone company.

There is a high barrier to entry in this market; Verizon FiOS was only able to enter the market due to its previous experience in the industry and widespread prevalence. A new company would not be able to compete with any of the major organizations in terms of price. Setting up new infrastructure would be too significantly cost-ineffective. The market structure is based purely on competitive prices. One organization sets a price and the other’s respond in order to attract a larger customer base. It appears that this market ignores supply and demand tactics because the want for internet, telephone, and cable services is somewhat constant. There is a high need for internet and a dwindling need for landline telephone and cable services; every company must deal with these facts equally.

Recommendation

For Time Warner Cable to remain competitive, it is essential for the company to make negotiations with channels that would be unwilling to work with other cable companies if the appropriate deal is struck. The best way for a company to remain competitive in this market is by differentiating itself in a manner that allows it to offer services that the other companies cannot. To determine which channels to offer, Time Warner Cable needs to conduct an analysis of its target demographic in addition to the customer demographic of its competitors. It must then seal a deal for channels that a large majority of this demographic would be attracted to. This exclusivity may bring customers away from the competitors.

Another important way for Time Warner Cable to distinguish itself is to provide excellent customer service. A major complaint of most cable companies is that it appears that they do not care about their customers, which is indicative of the customer service experience. It would therefore be beneficial for Time Warner Cable to demonstrate that it has the best customer service experience. Since the company offers similar prices and services as its competitors, this is another opportunistic way for the company to distinguish itself compared to the competition. Lastly, it may be helpful for the company to spread to more areas, which would enable it to be in more direct competition with its market counterparts. Time Warner Cable currently has many opportunities that it could reasonably take advantage of to help it become more competitive in its current market.

References

Katkin, M. (2013). External Analysis of Time Warner Inc. in the Entertainment and Film Industry. References https://michaelkatkin.files.wordpress.com/2013/08/twx-external.pdf

Sheffer, R. (2015). The US media industry: A three-tiered system. Retrieved from http://marketrealist.com/2015/03/us-media-industry-three-tiered-system/