Media Studies: Volume II: Strengths Opportunities

Media Studies: Volume II
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A SWOT analysis reveals an organisation’s strengths(S), weaknesses(W),

opportunities(O) and threats(T). SWOT combines an internal strength/
weakness analysis with an analysis of external opportunities and threats
that may be present in the environment around the organisation. Boone
and Kurtz (1992 (1974):124) define SWOT as: “A study of organizational
resources and capabilities to assess the firm’s strengths and weaknesses
and scanning the external environments to identify opportunities and
threats.” When the strategic plan has to be thought out, the strong points
of an organisation have to be used as leverage with the opportunities that
the external environment offers, and problems have to be identified that
may occur in the future as threats to the weak points of the organisation.
Naturally, a good strategic plan takes the limitations (or constraints)
and the vulnerabilities that any organisation has, into account (see
Figure 5.4). Although the SWOT method is mainly meant to measure
the strength of an organisation, it can also be used – as Van Neerven
(1992:274–281) has shown – to reveal the strengths and weaknesses of
an entire branch of industry, in this case the daily newspaper press.
Strengths Opportunities
Cost advantages Add to production line
Financial resources Enter new markets
Customer loyalty leverage Acquire firms with
Modern production needed technology
facilities
Patents
vulnerability constaints
Weaknesses Threats
Too narrow a production Shifting buyer tastes
line Likely entry of new
High-cost operation competitors
due to high labour Unfavourable
U.S. or applicable copyright law.
problems
costs and obsolete government policies
production facilities
Inadequate financing
capabilities
Weak market image
Figure 5.4
SWOT analysis
(Based on Boone & Kurtz, 1992 (1974):126)
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Strategic Media Management
5.3.4 Corporate, business and functional strategy

Strategic management in large organisations runs on three levels: three
l the corporate level – the level of the entire organisation; strategic
levels
l the business level – the level of the sections of the organisation (the
businesses);
l the functional level – the level of the support units of the
organisation.
The strategic questions that have to be asked for the organisation vary
according to the level concerned (Daft 1991:154–156).
On the level of the organisation as a whole, the following strategic
question has to be answered: What business are we in? What is the
purpose or goal of the organisation? What is the mission of our
broadcasting? How do we see ourselves? Those are typical questions at
the highest level of strategic management.
In most organisations there are several production units bringing
different products on the market. On this level, the level of the producing
subsections of the organisation, the most important strategic question is:
How do we compete? How can we stay ahead of our competitors? With
which entertainment programmes and current affairs programmes can
we respond to the programmes offered on competing channels? These
are questions on the business level.
Every large organisation also has support units, such as human
resources, finance, research and development (R&D) and marketing.
These units also have to be taken into account when making strategic
plans, plans that would give an answer to a question such as: How
do we support the business-level strategy? On this level, there is a very
important question, namely how the organisation could ensure that its
units are continuously working at product innovation. And, speaking
about broadcasting, how do we keep our finger on the pulse of viewers
and listeners’ changing preferences? What research are we going to
undertake in this regard? These are typical questions for the functional-
level strategy.
5.4 CORPORATE STRATEGY: WHAT KIND OF BUSINESS ARE WE IN?

If one asks the wrong strategic questions or answers the wrong
questions, one will almost certainly ‘miss the boat’. That is true on the
level of boards of directors and management of business concerns.
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On this level, the most important strategic question is: What kind of
business are we in? How do we best describe the type of products that
we want to bring on the market? The answer to this question may be
referred to as the business definition of an enterprise. This definition
forms the core of the corporate strategy. Next to it, the portfolio strategy
and the production strategy form important parts of corporate strategy.
5.4.1 The business definition

core The business definition of an enterprise indicates with which product the
competence business wants to excel in which market. Wherein lies the enterprise’s
strength? The business definition lays down what is referred to as the
core competence of the organisation. How wide or narrow does the
enterprise want to define their product? Textbooks on management
advise that the business definition should not be defined too narrow, as
one may then run the risk of myopia (Boone & Kurtz 1992 (1974):14).
Myopia means shortsightedness. If managers choose a narrow business
definition or cling to a narrow business definition for too long, they
run the same risk as hit the American railways at the beginning of the
twentieth century. The case is well-known. The American railways
were so focused on the business of the railway that they did not notice
the rapidly growing competition of airlines before it was too late. By
clinging to the myopic definition ‘our business is transport via the
railways’, the American railways companies were reduced within a few
decades to marginal enterprises – in any case, compared to air travel
companies.
This risk of shortsightedness, just as everywhere else, is also present

in the communication sector. A telephone company who defines its
business today as exclusively telephony, is going to fail because of
myopia. Of course, no telephone company would do that: modern
telecommunication industries are also very active in the area of
the internet, cable television and various other forms of electronic
transmission. Their business is telecommunication in the widest sense
of the word.
Publishers are also trying to avoid myopia. More than any other
industry, the publishing industry is aware of the fact that their business
is no longer only the newspaper or the magazine, but content (news,
entertainment, sport, education, comment, documentary, et cetera) – be
it on paper, on the internet, and so on. The modern publishing house is a
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multi-media concern whose core competence is content packaging. The

technical means that happens to carry the information – paper, internet
– has also become more and more secondary for the publisher.
5.4.2 Portfolio strategy

Most business enterprises have not only one product on offer, but a
whole range of products. This is also true for media enterprises: they
often serve very different markets with widely divergent products.
The composition of a package of different products that the enterprise
wishes to operate on the market, forms part of its corporate strategy,
and is referred to as its portfolio strategy.
Market share
(relative)
High Low
High
Star Question mark

Market growth
Low
Cash cow Dog
Figure 5.5
Product life cycle, ideal direction for development of product
Portfolio
cash flow
strategy: the
BCG matrix
In a company’s portfolio strategy, it is all about the question, which question

portfolio of products the company is going to produce in order to obtain marks, stars,
cash cows
a competitive advantage in the market. For a portfolio analysis, people

and dogs
often use the well-known BCG matrix, designed by the American Boston
Consulting Group (Daft 1991:161–163; Van Dam & Marcus 1999:65–75;
Keuning & Eppink 1990:373–374; Pride & Ferrell 1991:610–614). By
means of this matrix, a company could arrange its business along two
dimensions. The first dimension is that of market share of the product
concerned: does the company have with this product a large or a small
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market share? The second dimension concerns the business growth

rate: is the growth of the market of the product high or low? Can one
speak of a fast growing market – or is it the opposite? If we bring both
dimensions together, it renders a matrix with four different product-
market combinations (as shown in Figure 5.5):
1. Question mark: a product at the beginning of its product life cycle
with a rapid growth, but of which the company has only a small
market share. Question marks are simultaneously challenges and
risks: some question marks are going to become stars, but others will
prove to be a failure.
2. Star: a product at the beginning of the product life cycle with a
rapid growth, of which the company has a large market share. Stars
are interesting because of their rapid growth and the large market
share that the company has of them. However, the risk that new
competitors will enter this product market is high.
3. Cash cow: a mature product with a low market growth, of which the
company has, however, a large market share. Cash cows yield stable
incomes – admittedly with very little growth, but the company has a
guaranteed source of income with this product.
4. Dog: a mature product with a low market growth, of which the
company has a tiny market share. Dogs are products that are not
doing well, and should be gotten rid of as quickly as possible.
The BCG matrix is closely linked to the product life cycle that we learnt
about in the previous chapter. New products always set out as ‘question
marks’, possibly develop into ‘stars’ and often eventually become a
‘cash cow’ for one or a limited number of enterprises. But sometimes a
product degenerates into a ‘dog’.
What is then a sensible portfolio strategy? What kind of portfolio of

products should the entrepreneur ideally strive for? To determine
this, the entrepreneur has to look at the contribution of the various
products to the income of his/her business. In short, it boils down to
the following: the best portfolio that an enterprise can have would be
a portfolio with one or more cash cows of which the revenue may be
used for new, still growing products (question marks and stars), which
may later also become cash cows. In Figure 5.5 this strategy is indicated
with arrows.
cash flow We could put this a bit more technically. The kind of portfolio that
would be attractive to a business enterprise would depend on the cash
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flow within the enterprise. Cash flow is a business economics concept

that refers to the nett profit of a business increased with the write-offs.
Not all products contribute in equal measure and positively to the money
– the cash flow – that the business earns. As the name already indicates,
it is especially cash cows that bring in profit. A wise entrepreneur would
take care that he/she has a few cash cows on hand. Examples of cash
cows in the publishing sector are women’s magazines, such as Sarie and
True Love. Although the market for women’s magazines is not really
growing anymore, women’s magazines do deliver for a publishing
business a rather stable source of income through their relatively high
circulation figures. Managements with an eye to the future use cash
cows to invest in new and promising products (that is, in question
marks and stars) with a rapid market growth. A wise publisher would
make sure that he/she has, in addition to a few large cash cows, also
a few stars, and even some question marks. Being in business means
taking risks – as we have said before.
5.4.3 Production strategy: horizontal and vertical dynamics

In addition to the first question (which portfolio of products should we
ideally be bringing on the market?), there is another question that has
to be asked in corporate strategy, namely: how could these products
best be produced and distributed on the market, and especially, by
whom? So, the management will have to ask themselves whether the
organisation should hold all the different stages of the production and
distribution process in their own hands, or would it be wiser to focus on
certain stages or parts in the process only, and to leave others to other
firms? For instance, should a magazine publisher have its own printing
works (printing press), or should it rather have magazines printed by an
outside printer? Should a television broadcaster have its own production
studios or should they rather use those of others? What is strategically
wiser? Is it better to ‘integrate’ – a term that business economists use –
or should one differentiate?
In business economics, a distinction is made between a branch branch of

of industry and a chain of industries (Slot 1987:239–244; Keuning industry,
chain of
1989:71–78). A branch of industry is a group of business enterprises industries
that are producing the same product. The shoe industry, the daily
newspaper press, banking, the cable companies – each category forms
a branch of industry. A chain of industries is a series of branches of
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industry that are connected in sequence in the process of production

and distribution of a specific commodity. The foodstuffs branch forms
a chain of industries, a chain stretching from producer of raw materials
(the farmer), via wholesaler and manufacturer, to retailer.
integration
raw materials producer
Vertical dynamics
manufacturer
wholesaler
retailer
differentiation
parallellisation
specialisation
Horizontal dynamics
Figure 5.6
Horizontal and
vertical dynamics
Within branches of industry and chains of industries, various kinds

of processes of combination and concentration take place, and also of
splitting/branching and deconcentration of enterprises. These processes
determine the dynamics of production and market. They can present as
vertical dynamics, that is, between different links in a chain of businesses,
or horizontal, that is, within a single node of the chain of businesses (see
also ‘Six strategies for a publisher’ on the opposite page).
vertical In vertical processes, we speak of integration and differentiation. With

dynamics: integration, different links in the chain of industries are brought together
integration and
in one enterprise, and that then takes care of the consecutive phases of
differentiation
the same production process. A typical example is a supermarket chain
such as Spar that has its own bakeries. Differentiation is the opposite of
integration. In differentiation, a certain phase of the product process is
discontinued by an organisation, for instance when a company gives its
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transport division to an outside organisation to run. This is also referred

to as outsourcing. An example of outsourcing in the publishing world
is, for instance, when a publisher sells its printing works to have its own
products printed by other printers in the future. Differentiation is often
seen as a business-economical solution when an organisation wishes to
consolidate and focus more on the core activities of its business.
Horizontal dynamics occurs within one segment of one or more horizontal

chain(s) of industries. Here, one can distinguish parallelisation and dynamics:
parallelisation
its counterpart specialisation. In parallelisation (also referred to as
and
‘diversification’ in the literature), different enterprises that are active in specialisation
the same phase of different chains of industries, are brought together in a
single organisation. For example, banks that concentrate on various types
of insurance and travel, or publishers of a daily newspaper diversifying
into publishing magazines and other newspapers. Parallelisation is often
desired as a form of hedging against and spreading one’s risks: if one
sector is not doing too well, there is always a chance that the other sectors
will perform well. With the opposite movement, namely specialisation,
the organisation would outsource one or more products in order to be
able to focus on a specific type of product. A typical example is an office
stationer-cum-bookseller outsourcing its office supplies, and focusing
then on the selling of books. In general, specialisation means limiting
the range.
Six strategies for a publisher

Publishers may employ six different strategies for the future of their enterprise (see
Hendriks, 1999:97–98).
For example, the first strategy a newspaper publisher could employ is (further)
penetration of the market. Within the current market, he (or she) could try to
attain higher sales figures for his daily newspaper. He could, for instance, try to
increase his market share by improving the editorial content of his newspaper.
The second and third strategies are strategies of vertical integration, also referred
to as vertical concentration. ‘Vertical’ refers to the direction in the chain of
industries, the production process that takes place between ‘raw’ information and
end user of processed information (information product). The more stages of the
production process that an enterprise keeps in its own control, the more integrated
we regard the production to be. Vertical integration can occur backwards as well as
forwards. In backward vertical integration, an enterprise takes over a prior activity
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or phase in the production process. In forward vertical integration, a following

activity or phase is integrated into the production process of the business.
Generally, daily newspaper concerns are strongly integrated, backwards as well as
forwards. They have their own editorial staff and their own printing works. Because
of the necessity to ensure a steady supply of editorial copy and also the close
coordination that is needed between editorial and layout staff, many newspaper
publishers see backward vertical integration as inevitable. Moreover, printing and
distributing newspapers requires hands-on coordination on a daily basis, so that
newspaper publishers usually wish to hold these reins also in own hands.
With popular magazines, the necessity for vertical integration is not so high,
because the production of magazines usually takes place over a longer time
period. With television companies, there is a modified kind of vertical integration.
Only a limited number of programmes are nowadays produced internally (for
instance, news programmes); most programmes are bought in ready-made on
the international television market (series, films) or are commissioned (game
programmes) by independent television producers such as Endemol.
The fourth strategy that a publisher may follow is parallelisation, also referred to as
horizontal concentration. In this strategy, the publisher within the daily newspaper
market tries, via merging or take-over, to add other products to his assortment.
In this way, he increases his market share. The publisher could also achieve
parallelisation with a new product for the same subdivision of the market. In the
arena of daily newspapers, that would mean that he brings a new newspaper on the
market.
A strategy that looks a bit like parallelisation, is concentric diversification. In

this fifth strategy, the publisher decides to try and sell his current products with
the same production technology but in a different subdivision of the market. An
example of this would be the newspaper publisher who ventures into the magazine
market: the customers and the needs in the magazine market differ from those in
the daily newspaper market, but the transfer technology is the same (paper), as is
the nature of the production process.
A publisher may also strive for diversification, by using other (non-printed matter)
technologies besides the existing (printed matter) technology. This sixth strategy
is known as conglomerative diversification. An example of this would be the

magazine publisher entering radio or television, and the newspaper publisher who
puts his newspaper also on the internet as electronic newspaper. In both cases,
the publisher of printed matter is entering a market that is actually based on other,
unrelated technology.
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5.4.4 Portfolio and vertical integration

In practice, there is a certain relationship between portfolio strategy the wider the
and production strategy, especially in the publishing industry (Kist range, the more
of production
1996:83–85). Publishers who bring a wide selection of magazines and
under own
books on the market tend to hold as many as possible of the different control
links of the production and distribution in their own hands. Publishers
who target ‘niches’ in the market (e.g. publishers of scientific and
educational publications) show a reduced strategic need to control all
the processes.
5.5 BUSINESS STRATEGY: HOW DO WE COMPETE?

Being in business usually also entails competing with other businesses
that are active in the same market. Anybody who wants to be successful
in business, has to develop a business strategy that gives an adequate
answer to the question: ‘How can we best compete?’ In other words, the
business strategy is first and foremost a competitive strategy.
5.5.1 Competitive strategy

The way people think about competitive strategies has been strongly two questions,
influenced in the past two decades by Porter’s classic work Competitive three
strategies
Advantage (1985). According to Porter, an entrepreneur has to answer
two questions when deciding on a competitive strategy. Firstly, do I
want to compete with my competitors on the cost or on the quality
of my products? Secondly, do I want to define the focus, the target
groups of my products broadly or narrowly, or even limit myself to one
target group only? Combining both questions, Porter distinguishes the
following competitive strategies:
Table 5.2 Michael Porter’s competitive strategies
Competitive advantage
Low cost Differentiation
1 2
Broad
target
Competitive
Cost Leadership Differentiation

scope
Narrow
3a 3b
target
Cost focus Differentiation focus
(Based on Porter, 1985)
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low cost The four competitive strategies that could theoretically be distinguished
strategy may in practice be reduced to three. The first strategy is the strategy of
cost leadership (Porter 1985:12) whereby the enterprise tries to beat its
competitors by looking very closely at costs, so that its products may
be offered as cheaply as possible on the market. ‘Cost control’, ‘cost
reduction’ and ‘efficiency’ are key words in this strategy. Also very
important in such a strategy are economies of scale and economies of
scope – see paragraph 5.5.4. Competing on costs and price is especially
an option for large concerns that have a large and efficient production
and distribution apparatus.
In the media sector, a strategy of low costs entails that one would try
and reach, for example in television, as large a viewing public as possible
with programmes that are inexpensive (talk shows, quizzes), so that
one could enter into attractive contracts with advertisers. Obviously,
this kind of strategy would mostly be followed when the economy is
not doing as well as one would wish. In a period of economic decline,
many publishers would agree with the following statement: “Cost
containment is the basic and most effective method to remain profitable
under difficult economic conditions because one dollar of cost savings
equals one dollar of profit improvement” (Fink 1988:77).
differentiation The second competitive strategy is Porter’s differentiation strategy.
strategy In such a strategy, one competes on the quality of products. In this
strategy, the enterprise tries to beat its opponents with products that
are ‘different’, that are of ‘better’ quality. Such a differentiation strategy
is followed for instance in the magazine sector by small publishers who
bring magazines on the market with a targeted, specific content (niche
markets). However, large publishers also, for instance in the domain of
science and the professions, can follow such a strategy for their magazines
because their target groups are themselves quite specialised. This brings
us to the third competitive strategy, namely a strategy of focus.
focus In a focus strategy, the enterprise attempts to attain a competitive
strategy advantage by focusing on only one segment in its market, or only on

a few, following again a cost strategy or a differentiation strategy. Such
a segment(s) may be defined regionally, but also in terms of socio-
demographic and interest profiles. Examples of this in the television
market are MTV (Music TV), Discovery Channel and National
Geographic, broadcasters that target not the masses, but a clearly and
narrowly defined target group, such as the youth segment on MTV.
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Block et al. (2001: 303, 304) point out in this context that the costs of cost, time,
media products – newspapers, television programmes, et cetera – quality
essentially depend on two variables: the quality of the product in
question, and the time it takes to manufacture the product.
If the enterprise wishes to increase the quality of its product, then the
production costs should increase, unless the improved product can be
manufactured in a shorter time. In other words, the media producer
always has to weigh up the following: “If the time increases, then costs
go up, unless quality goes down” (Block 2001:304).
5.5.2 Production costs, fixed and variable

The entrepreneur is never totally free in his choice of a specific
competition strategy. Much would depend on the market in which
he is active, but also on the cost structure that he works with in the
production of his goods. In a business strategy, which is our focus here,
price and costs are indeed also important strategic variables.
Let us first look at the production costs that an organisation has to fixed and
spend. In the production process, input, that is raw materials, is variable
input
transformed into output (products). For production in the media sector,
this means that information, scripts, news, or music compositions are
transformed into products such as newspapers, films, DVDs, television
programmes. Input can be subdivided into fixed and variable input (for
more on this topic, see Picard, 1989:52–72). Fixed input is all the input
that is essential for the production, and that does not vary with the scale
of production. One would think here of buildings, studios and printing
presses. When one sets out to publish a newspaper, one would need the
same space for the editorial staff, whether the print run is going to be
10 000 or 100 000 copies; the accommodation for the editorial staff is
thus a fixed input. In contrast, the variable input is directly associated
with the magnitude of the production. If the print run of the newspaper
increases from 10 000 to 100 000 copies, then the quantity of paper
needed will also increase with a factor of ten. In the newspaper sector,
paper is a typical example of a variable input. But there are also other
examples: the more advertisements the newspaper manages to sell, the
larger the advertising division usually is.
In the context of fixed and variable input lies the distinction between fixed and
fixed and variable production costs. Fixed costs are costs that are variable costs
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incurred for the fixed input in the production, and variable costs
are costs for the variable input. Generally speaking, the higher the
fixed costs for a product, the more difficult it will be to bring a new
product of that type on the market. Newspaper publishing has high
fixed costs (printing works), which makes it difficult – if one is not
already publishing a newspaper – to bring a totally new newspaper
on the market. The magazine sector, however, has low fixed costs: to
bring a magazine on the market, one does not need to own a printing
works, because one can easily have one’s product printed at someone
else’s printing works. Radio also has low fixed costs: one does not
need expensive studios to produce a radio programme, and a mast for
broadcasting costs relatively little. With television, however, the fixed
costs are high: anyone who wishes to create television programmes
professionally, will have to have access to or own professional studios
and expensive cameras. Newcomers on the television market have to
make quite a large outlay before they can start.
first-copy Every type of medium has its own, typical cost structure in terms of
costs often fixed and variable costs. To create the very first copy of a newspaper,
high
quite a substantial amount of first-copy costs has to be incurred. The
same holds true for television: the first-copy costs of a television
production are usually high. For magazines and radio programmes, it
will be much less.
5.5.3 Distribution economics

Media types differ not only in terms of fixed and variable costs, but
also in terms of the types of costs accompanying production and
distribution. One type of media costs more to produce, that is, has a
higher production cost (for example, television), while another costs
more to distribute (for example, newspapers). In other words, media
types have their own distribution economics, as Picard (1989:65–67)
puts it. In the newspaper business, the distribution costs per reader is
a relatively constant amount, while the content costs decrease as the
number of readers increase. With television, by contrast, the content

costs and the distribution costs both decrease per viewer as the number
of viewers increases. In any case, this only holds true for distribution
via the ether or via cable, subscription or pay television; when television
is distributed in the form of streaming video via the internet, the costs
would of course increase with the volume of the downloads.
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5.5.4 Economies of scale and scope

The cost structure is also determined by what the minimum, efficient scale size
scale of production is for an enterprise. The higher the fixed costs, the
more units have to be made of the product in order to bring the costs
noticeably down. When the fixed costs are high, the enterprise has to
realise high production figures in order to keep its average cost per
unit product low. For media with high first-copy costs, it is therefore
very important to try and realise high enough circulation figures or
viewer numbers, to keep this average cost within acceptable limits.
Entrepreneurs aim for economies of scale, that is, for the benefits that
come with significant increases of the scale of production, so that the
production costs may be spread over more units.
Sometimes one would try to keep the production costs low by achieving
economies of scope – that is, spreading the costs over different types of
product. In this way, a newspaper publisher could try to recover part of
the editorial costs for the paper version of the newspaper by bringing the
same editorial content via the internet on the market, as an electronic
newspaper. Besides, business economics teaches that production cost
does not always decrease as production is increased: economies of scale
could switch to their opposite – diseconomies – with the cost per unit
product rising again as production is increased.
5.6 STRATEGIC PLAN, LONG-RANGE PLAN, OPERATIONAL PLAN

When a business enterprise has answered the first two questions
of strategic management (What business are we in? and How do we
compete?), it has already determined the strategic policy. The third
question (How do we support the business-level strategy?) is of a
somewhat different order, because of its supporting, operational nature.
This is the functional level of the business operations; the strategic
planning. In our discussion of policy, we have focused on strategic
policy, i.e. on the level of the relationship between the organisation and
its environment, and much less on the operational, executive policy on
the corporate or business level.
The strategic policy on corporate and business level is often laid down in
a strategic policy plan, business plan or long-range plan. In such a plan,
the questions and options that have been discussed above, are answered,
taking into account their interconnectedness. The operational plan
(‘business plan’) often serves to facilitate decision-making within the
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top management of the organisation, and often – in the case of open

or public accountability – for the external accountability to external
role-players.
Environmental
investigation:
Aims
opportunities
and threats
Determining
Determining Developing Evaluation Designing
present
strategic strategic and action
strategic
gap alternatives choice plans
profile
Internal
Figure 5.7 investigation:
Criteria
Formulating strengths and
weaknesses
operational
plans
(Based on Keuning, 1989:136)
Figure 5.7 shows an overview of the different steps in the drawing

up of an operational plan. Although such an overview appears in
most textbooks on management science, business administration
and organisation theory, we follow the overview given by Keuning
(1989:133–153).
5.6.1 Strategic profile

current As a first step in an operational plan, the policy designers determine the
status strategic profile of the organisation, in terms of aims, fields of activity,
competitive edge and synergy. In actual fact, this first step means
determining the current status of an organisation. The current strategic

profile may be described by using the following questions:
1. Aims/goals: With which aims or goals – economic as well as
non-economic – is the organisation dealing at this moment?
2. Fields of activity: Which product groups and markets does the
organisation have, and what is its geographic range? Also, what is
the profitability or added value of the various fields of activity?
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3. Competitive edge: Does the industry compete mainly on price, or on

quality and added value of product or service?
4. Synergy: What are the benefits of cooperation and/or attuning
between different activities of the organisation?
5.6.2 Investigation
In the second phase, a critical analysis is done of the world surrounding
the organisation as well as its inner world: the ‘environmental
investigation’ and the ‘internal investigation’. This is very similar to the
SWOT analysis (see paragraph 5.3.3).
In the environmental investigation, one looks at external developments environmental

such as changes in technology, demography, macro-economic trends investigation
and developments in culture and politics. In addition, developments
within the branch of industry itself are brought into focus. In the first
part of the environmental investigation, it is about identifying the
external developments – factors and trends over which the organisation
has very little control, yet that are certainly relevant. The most
important external developments that should receive attention in an
environmental investigation are the following:
1. Technological developments: In the communication sector, change is
often driven by technological innovations such as digitalisation and
convergence.
2. Demographic factors: Changes in the nature and composition of the
population (decreasing population, ageing and declining birth rate)
and of target groups and lifestyles (multicultural society) may have a
significant influence on the demand for communication products.
3. Macro-economic trends: How does the spendable income of buyers
develop in the planning period? Moreover, in the communication
sector the advertising market is highly sensitive for changes in the
economic climate.
4. Developments in culture and politics: Examples here would be
changes in laws and regulations, on national and international
scale, and important social developments such as individualisation,

smaller families, increase in level of education and, more generally,
the higher demands of citizens.
Communication industries that operate in an open society and that are

highly dependent on being in touch with and accountable to society,
simply have to analyse these broader social developments. Investigating
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these external factors can also help to avoid the above-mentioned risk of
industrial shortsightedness, ‘myopia’ (see paragraph 5.4).
analysis In addition to analysing social developments, one also needs to analyse

of the the developments within and around the branch of industry. For this
competition
analysis of the competition, Porter’s model (see chapter 4 paragraph
4.8) is often used. The purpose of this analysis is to obtain a picture
of the competition within the branch of industry, and also to obtain
a picture of the different factors and forces that affect the branch of
industry as a whole (cost structure, entry and exit thresholds, profit
potentials). Porter distinguishes four kinds of competitive forces that
may influence a branch of industry from outside:
1. Customers/buyers: number, degree of concentration, and position of
power with respect to the suppliers;
2. Suppliers: the same forces as for customers/buyers above;
3. Substitute products: products or services that come on the market
and that could take over the function of the product or service that
the organisation offers;
4. New entrants to the market: new entrants to the market mean
more competition within the branch of industry. Whether new
parties would enter, depend on entry thresholds such as required
investments, access to distribution channels and rules/regulations.
The results of the external investigation (environmental investigation

and analysis of competition) together form the opportunities and
threats of the SWOT analysis from paragraph 5.3.3. In addition to
external opportunities and threats, SWOT also reveals strengths and
weaknesses. Those are the focus of the internal investigation.
internal In the internal investigation, the focus is inwards: how strong or weak is
investigation the organisation in various respects (production, product development,
marketing, human resources, finance)? The purpose of such an analysis
is, on the one hand, to discover the weaknesses and shortcomings that
the organisation might have, and on the other hand, to determine the
strengths of the organisation, and so to be able to decide in which

direction the organisation should endeavour to extend its activities.
An internal investigation into strengths/weaknesses is focused on the
following aspects of the organisation:
1. Production: quality of production means, work methods, delivery
times, efficiency;
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2. Product developments: number of new products per year, utilising

R&D;
3. Marketing/sales: using market research, using marketing mix (we
discuss this in paragraph 5.8 below), success rate of new products
introduced, sales figures, distribution costs;
4. Personnel: building up, turnover (absence/sickness), training policy,
incentive/reward system;
5. Finance: cash flow, own versus outside capital;
6. Management/organisation: degree of planning (strategic,
operational), management information system, unsegmented/
segmented organisation, ‘management of creativity’.
Investigating the internal strengths/weaknesses is often done by a

team of management or staff from the organisation itself. Such an
investigation requires, in addition to a thorough knowledge of the
organisation, obviously also objectivity and self-criticism. For these
reasons, external evaluators (such as organisational advisers) are often
involved in this exercise.
5.6.3 Strategic ‘gap’, alternatives and options

In the next phase of the drafting of the operational plan, after developing
the environmental investigation and the internal investigation, one and choosing
alternatives
investigates how the organisation will be able at the end of the period
concerned – usually three to five years – to achieve the aims and goals
that it has set for itself. In other words, is there a ‘strategic gap’ between
the set goals/aims and the expected reality?
Once the ‘strategic gap’ has been clearly mapped out, the above-
mentioned corporate and business strategies are discussed. Questions
such as: which portfolio of products do we want to carry and for which
markets do we want to work (‘product-market combinations’); in which
links of the branch of industry and the chain of industries do we want
to move (integration, differentiation, specialisation)? In this phase of
strategic planning, different strategic alternatives are developed for the

organisation.
When choosing from the strategic alternatives, the following important

criteria have to be kept in mind.
1. Internal consistency: Do the chosen strategy, aims and existing
capabilities in the organisation match up with one another?
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2. Synergy: Which combinatory advantages are there?

3. Uncertainty: What kind of risk will the management take?
4. Flexibility: Are interim adjustments possible?
5. Timing: What, when and how rapidly will change take place?
action If the strategic plan is made in this way and approved, the next step is
plans the execution of the plan. The strategic plan is translated into action
plans for the various functional sectors in the organisation: production,
personnel, marketing, sales, finance.
5.7 PRICING OF MEDIA PRODUCTS

marginal Every entrepreneur has to determine in his (or her) business strategy
costs = how much he is going to produce for the market. Of course this has
marginal
returns to be decided product by product, but there is a general kind of rule.
He has to produce so much that he can recover his costs. There has to
be a profit, or at the very least, no loss must be suffered. In economics
one says that the entrepreneur has to increase production up to the
point where ‘marginal costs = marginal returns = the price’. A wise
entrepreneur would increase his production so far that the cost for the
last unit of the product produced (marginal costs) is equal to the returns
of the unit on the market (marginal returns).
What determines the marginal returns, the price of a newspaper, a book?

Here we again enter the field of classic economics that we discussed in
chapter 4. The price of a product depends on the demand and supply
on the market. If demand is high, then the price will be high (suppliers’
market); if the supply is high, then the price will be low (buyers’ market)
(see previous chapter).
5.7.1 Price elasticity

market The more expensive a product, the fewer consumers will buy it. So
sensitivity for businesses cannot simply raise their prices. Exactly how the demand will
changes in
react to the price, is determined by the price elasticity of that product.
price
The price elasticity expresses the sensitivity of a market for price
increases and decreases. If the demand for a product does not decrease
or hardly decreases when its price is increased, we refer to an inelasticity
of demand. However, if the demand decreases more than the price has
increased, then we refer to the demand as elastic. Thus the demand for
books is elastic if an increase in the price of books with, for instance, ten
percent, results in a decrease of 15 percent in the demand. The demand
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for books would be referred to as inelastic if with such a ten percent

price increase, the demand should decrease with only five percent.
In addition to the price elasticity of the demand, one can also analyse
the price elasticity of the supply. The supply of products is elastic if
price increases lead to proportionately still more supply, and inelastic if
a price increase results in proportionately less supply.
What determines whether products are price-elastic or price-inelastic? determinants

According to Boone and Kurtz (1992 (1974):642 et seq.), the following of price
elasticity
factors determine price elasticity.
l Are there substitute products available? If substitute products are
available, then the demand is usually elastic. If a reader would easily
exchange her newspaper for another newspaper, then the price
elasticity of that newspaper is high.
l Is the product a necessity or a luxury? Necessary products, such as
food, medicine, housing, generally show an inelastic demand. The
demand for such products to satisfy the most basic survival needs is
relatively ‘insensitive’ to price. One can argue that media products
are luxury products. The demand is thus elastic and media products
are therefore sensitive to price.
l Time perspective: all prices are in the long run rather elastic than
inelastic. It takes the demand side a certain period of time to react to
new prices. If the prices are drastically increased, consumers would
go and look for substitutes.
How does price elasticity work on different communication markets? newspapers

The market for popular books is generally elastic: consumers react inelastic;
books elastic
pretty fiercely to price increases by buying fewer books. With scientific
magazines, by contrast, prices are rather inelastic. One could guess the
reason for this. Once scientific libraries have subscribed to a magazine,
such subscription will not easily be discontinued, even if the price is
drastically increased. Until the internet came into being as an alternative
distribution channel for scientific output (e-Journals), publishers
reaped the benefits of this. In developed countries with high literacy

figures and an established reading culture the prices of newspapers are
usually inelastic. This may not be the case in developing countries with
high illiteracy figures and a limited reading culture.
telephony:
The telephone is another story, because it has to do with two price inelastic and
elasticities. The telephone connection – the subscription on the fixed elastic
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Media Studies: Volume II

A SWOT analysis reveals an organisation’s strengths(S), weaknesses(W),

5.3.4 Corporate, business and functional strategy

5.4 CORPORATE STRATEGY: WHAT KIND OF BUSINESS ARE WE IN?

5.4.1 The business definition

This risk of shortsightedness, just as everywhere else, is also present

multi-media concern whose core competence is content packaging. The

5.4.2 Portfolio strategy

Star Question mark

Cash cow Dog

In a company’s portfolio strategy, it is all about the question, which question

a competitive advantage in the market. For a portfolio analysis, people

market share? The second dimension concerns the business growth

What is then a sensible portfolio strategy? What kind of portfolio of

flow within the enterprise. Cash flow is a business economics concept

5.4.3 Production strategy: horizontal and vertical dynamics

In business economics, a distinction is made between a branch branch of

industry that are connected in sequence in the process of production

Within branches of industry and chains of industries, various kinds

vertical In vertical processes, we speak of integration and differentiation. With

transport division to an outside organisation to run. This is also referred

Horizontal dynamics occurs within one segment of one or more horizontal

Six strategies for a publisher

or phase in the production process. In forward vertical integration, a following

A strategy that looks a bit like parallelisation, is concentric diversification. In

is known as conglomerative diversification. An example of this would be the

5.4.4 Portfolio and vertical integration

5.5 BUSINESS STRATEGY: HOW DO WE COMPETE?

5.5.1 Competitive strategy

Table 5.2 Michael Porter’s competitive strategies

Cost Leadership Differentiation

Cost focus Differentiation focus

(Based on Porter, 1985)

strategy advantage by focusing on only one segment in its market, or only on

5.5.2 Production costs, fixed and variable

5.5.3 Distribution economics

number of readers increase. With television, by contrast, the content

5.5.4 Economies of scale and scope

5.6 STRATEGIC PLAN, LONG-RANGE PLAN, OPERATIONAL PLAN

the corporate or business level.

top management of the organisation, and often – in the case of open

Figure 5.7 shows an overview of the different steps in the drawing

5.6.1 Strategic profile

determining the current status of an organisation. The current strategic

3. Competitive edge: Does the industry compete mainly on price, or on

In the environmental investigation, one looks at external developments environmental

scale, and important social developments such as individualisation,

Communication industries that operate in an open society and that are

analysis In addition to analysing social developments, one also needs to analyse

The results of the external investigation (environmental investigation

strengths of the organisation, and so to be able to decide in which

2. Product developments: number of new products per year, utilising

Investigating the internal strengths/weaknesses is often done by a

5.6.3 Strategic ‘gap’, alternatives and options

strategic planning, different strategic alternatives are developed for the

When choosing from the strategic alternatives, the following important

2. Synergy: Which combinatory advantages are there?

5.7 PRICING OF MEDIA PRODUCTS

What determines the marginal returns, the price of a newspaper, a book?