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VALUE CHAIN OF AN EVOLVING MVPD MARKET

Whereas the notion of strategic groups presented thus far illustrates the diversity of strategic postures for MVPD programmers, it also un- derscores the significance of the changing environment upon the com- petitive dynamics of this market. Because of the complexity of strategic postures among the MVPD firms, an environmental shift such as tech- nological advances in one area might greatly enhance a firm’s market opportunity while limiting another’s expansion plan. Also because MVPD firms are generally more differentiated and branded, changes in the environment that brought forth the opportunity of new-product development would mean a welcome chance to harvest brand equity through brand extension strategies for certain firms. The addition of product variety from the introduction of new MVPD services would again contribute to this industry’s heterogeneity and enrich its differen- tiation possibilities.
The MVPD market is truly in a revolutionary stage with many new media services developing to enhance and add to its current offerings. The list includes digital video, VOD, subscription video-on-demand (SVOD), PVRs, high-definition television (HDTV), interactive/enhanced television (ITV/ETV), Internet protocol (IP) telephone over cable, and high-speed Internet access. It is our assertion that the growth of these new products inevitably contributes to an integration of the Internet, computing, cable television, and telephone industries and thus the emergence of a multimedia market with a value chain that is multilat- eral and interwoven with previously segmented sectors. Some scholars have even suggested that it is increasingly more appropriate to examine three vertical industries—media, telecommunication, and information technology—not by individual markets but by five horizontal value-adding segments of content, packaging, processing, transmis- sion, and devices (Bane, Bradley, & Collis, 1997).
As one of the most technologically equipped media markets, the MVPD industry has ventured into many new media and broad- band-based services such as digital video, high-speed Internet access, and cable telephony, which certainly point to the emergence of a differ- ent value chain with changing functions, relationships, and players. The next section applies the concept of value chain to examine the new, evolving MVPD market.
The notion of value chain is closely related to the discussion of business models as the former scrutinizes the value that is added to a product or service in each stage of its acquisition, transformation, management, marketing, sale, and distribution (Picard, 2000). Value chain analysis al- lows a firm to understand the cost–value relationship for every stage of their operation and thus facilitate the implementation of appropriate strategies. Hoskisson, Hitt, and Ireland (2004) and Porter (1985) detailed that a firm’s value chain includes primary activities (i.e., activities that create, sell, distribute, and service the product) such as inbound logistics, operations, outbound logistics, marketing and sales, and service and sup- port activities (i.e., activities that provide the support needed to imple- ment the primary activities) such as firm infrastructure, human resource management, technological development, and procurement. As a value chain shows how value is added from the raw-material stage to the final output, the key is to identify where the value typically resides and the value-creating opportunities for a particular product.
Figure 6.1 depicts a generic value chain for MVPD programming net- works (i.e., multichannel media programmer or packager) using the Porter value chain framework. For this group of firms, the activities as- sociated with receiving, storing, and disseminating inputs to the prod- uct (i.e., inbound logistics) and collecting, storing, and distributing the product to buyers—MVPD service providers and advertisers—(i.e., out- bound logistics) have more limited value-creating opportunities com- pared to other parts of the value chain. The key to create competitive advantage at these two stages would probably be activities that improve efficiency and result in better cost control. The primary activities associ- ated with transforming inputs into the final product form (i.e., opera- tions), on the other hand, are vital to adding value to the MVPD product, especially in areas of content selection and scheduling. Marketing and sales are another critical set of primary activities because the selection of the right distribution channels (e.g., leading MSOs), effective promotion and branding of the programming products, and productive sales forces (e.g., ad sales) produce tremendous value for MVPD programmers. Fi- nally, service activities, although not as significant at this stage, may become more important in creating value through content and function enhancement as more interactive, broadband-based programming ser- vices are introduced.
We also believe that among all supporting activities, infrastruc- ture-related activities such as effective strategic planning and highly de- veloped information systems that enhance these firms’ understanding of customers programming preferences are essential sources of compet- itive advantages. Note that because numerous MVPD programmers are part of a diversified media firm, their infrastructure activities are split between the business unit and corporate levels. In many cases, the rele- vant corporate activities contribute significantly to creating value for the business unit. Procurement is another major set of supporting activ- ities, especially in gaining access to creative talents, agents, and contents to control costs and increase the quality of their products, thus adding value in the process. Finally, whereas developing incentives to encour- age creativity might be a source of value for human resource manage- ment activities, investments in technologies that enable better differentiation and multiplatform presentations would gradually be-
come more essential for the success of MVPD programmers in the emerging digital media market.
Figure 6.1 also details the value chain for MVPD service providers. Al- though all the categories of primary activities are present and play a role in deriving competitive advantages, we believe that marketing and sales activities, especially those that enhance the packaging, branding, pro- motion campaigns, and innovative e-commerce and ad sales mecha- nisms, would add the most value to these firms. As more new media, broadband-based services become available, outbound logistics that im- prove the friendliness and efficiency of the service delivery (e.g., set-top box) and service activities that boost the perceived value of the products are likely to contribute to the building of competitive advantages for these MVPD firms.
There are many sources that a multichannel media service provider might look to for adding value through its supporting activities: a flat- ter customer service representative (CSR) structure that could respond more efficiently and effectively to subscribers who have bundled or a wide range of services (rather than a departmental, hierarchical CSR configuration); technological activities that focus on developing new consumer-centered rather than technology-centered media products; and procurement activities that emphasize access to valuable, branded content and the acquisition of content enhancement technologies.
A firm’s value chain is also embedded in a larger stream of activities called the value system, where each channel member’s output adds to the channel value of the overall system (Porter, 1985). Gaining competi- tive advantages would depend on understanding both a firm’s value chain and how the firm fits into the total value system. Within the same industry-wide value creation notion, Wirtz (1999) proposed that there are five stages in a multimedia value chain. They are the content/service creators who provide program contents/services, the content/service aggregators who combine various contents/services to create multiple program bundles, the value-added service providers who develop and offer new services on existing platforms, the access/connecting facilita- tors who undertake the transmission of the contents and services to the customer, and the navigation/interfacing suppliers who provide cus- tomer navigation tools. In essence, the system of value chains here rein- forces Porter’s proposition of analyzing an industry by segmenting its market activities that add different values to the final product (Timmers, 1998).
Figure 6.2 depicts the total value system for the emerging MVPD in- dustry, which takes into account the growing role of other new media, broadband-based services. The value system begins with the content creators’ value chain. Whereas the core activity for this stage is content creation, the most critical competencies or resources that might gener- ate significant value for the firms here are access to talents and capital for content development and the syndication rights for their creations (i.e., the right to maximize profit through the content-windowing

strategy based on the notions of price discrimination and market seg- mentation) (Waterman, 2000). Some examples of the firms and busi- ness units involved at this level are film studios such as Universal and television producers such as CNN. The next stage of the value-adding process is packaging, which includes content aggregators (i.e., pro- grammers), whose core activities are to assemble contents into packages that appeal to different segments of customers. The most critical core competencies or resources for these firms are access to popular mass-appeal content and/or niche content; access to distributors; capa- bility of repackaging content for different user segments and/or distri- butions systems; and expertise in areas of marketing, brand management, and publicity. Examples of a programmer/packager would be MSNTV, USA Network, and broadcast stations like WGN. The next group on the value chain, though essential for the functioning of this market, is not as visible to MVPD consumers. The supporting ser- vices basically exist to enhance the operations and marketing of MVPD products, especially for the packagers and distributors. These services may include billing and marketing specialists, consumer information experts, and other consulting firms. Because of the complexity and im- portance of matching the right product with the right segment of audi- ence in a market full of choices, the core competencies or resources for these firms are consumer knowledge, technology know-how, brand management expertise, and creative use of information. Examples here include companies like Kagan Media, Nielsen Media Research, and Jupi- ter Research. The next group, the interfacing/navigating facilitators, adds value to the overall system by providing navigation, interfacing equipment, and software programs that enable easy access to MVPD content, thus enhancing the value of the content. These firms’ core com- petencies or resources for success are technology know-how, consumer knowledge, cost management, and access to distributors. The examples are software developers and hardware manufacturers such as Microsoft and Motorola as well as content management services like TiVo. Note that to be the first firm to introduce or market a navigating/interfacing technology will also increase the likelihood of success because of a first-comer’s ability to set industry standards and influence consumer demands. The final group in the total value system is MVPD service pro- viders, including cable system operators, DBS, and other minor multi- channel media providers. The service providers offer an infrastructure for the delivery of multichannel video contents and manage the interac- tive access to these contents or additional services. The most significant competencies or resources are access to a mass consumer base for scale and scope economies; relationships with the navigating/interfacing fa- cilitators; and the ability to provide a seamless, efficient network or in- frastructure. Note that there are also critical linkages between different value chains and possible dynamic changes as a result of integrations between firms in various value chains through ownership (e.g., News Corp.’s acquisition of DirecTV).
Our discussions thus far of the value chains of the MVPD program-
mers and service providers and the value system of the overall market are based on the notion that by disaggregating a firm’s activities into strategically relevant sets of actions, we might be able to identify the sources of competitive advantages. That is, we can identify compo- nents that an MVPD firm can work on to develop better cost structure, differentiation, technological applications, and other strategies that bring forth above-average returns. We believe that because of the mul- tiplicity of this industry and the increasing service variety propelled by new technologies, such a value source analysis is becoming even more essential.

FINAL THOUGHTS
The MVPD market has grown tremendously in the last two decades with two major system contenders, DBS and cable television, and more than 330 programming networks. With limited threats of substitution and new entrants, as well as extensive clustered consolidations in the ca- ble sector, the MVPD industry is well positioned to implement the next phase of new broadband and interactive video services. In fact, the growing multiplicity of product offerings, the existing diverse pro- gramming sources, and distribution platforms present an ideal mecha- nism for strategic competition and thus a fertile setting for media strategy studies. Vertical integration, international diversification, joint-venture alliances, brand extensions, innovation management, corporate entrepreneurship, and many more market behaviors are ripe for the empirical testing of strategic management and other economic theories in a media context. In fact, as technological advances transform the MVPD market, we are likely to see the addition of more broadband and telephone communications products available along with video programming offerings, making MVPD a contender also for advanced telecommunications services. This chapter has focused on the general is- sues of the MVPD industry. As it continues to evolve in response to tech- nological developments, the interactive/enhanced television and broadband telecommunications aspects of the market will become more evident sources of competitive advantages. Thus, the next two chapters examine the MVPD as well as broadcast firms’ activities in these two ar- eas and their implications.