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Various issues have been pointed out as potential problems for the
strategies of mergers and acquisitions. Hitt et al. (2001) specifically identified seven pitfalls to watch for: integration difficulties, inadequate evaluation of target firms, large or extraordinary debt, inability to achieve synergy, overdiversification, excessive focus on acquisitions by management, and oversized corporations. The high-profile restructur- ing efforts of AOL Time Warner and AT&T illustrate some of these post-M&A challenges.
STRATEGIC NETWORKS AND ALLIANCES
Media industries are among the top sectors for seeking out strategic alli- ances or network relationships with other firms. This alliance or net- work orientation might be attributed to media content’s public-goods nature, the media industries’ need to be responsive to audience prefer- ences and technological changes, and the symbiotic connection between media distribution and content (Chan-Olmsted, 2006). For the rest of the chapter, the term strategic networks is used to denote various cooper- ative agreements, including strategic alliances.
What Is a Strategic Network?
Strategic networks may be defined as the “stable inter-organizational relationships that are strategically important to participating firms” (Amit & Zott, 2001, p. 498). These ties may take the form of joint ven- tures, alliances, and even long-term buyer–supplier partnerships (Amit & Zott, 2001). Specifically, alliances can also take a variety of forms such as joint firms, minority equity alliances, joint production, joint marketing and promotion, enhanced supplier partnerships, distribu- tion agreements, and licensing agreements (Yoshino & Rangan, 1995). Furthermore, an alliance can be examined by its structure—equity alli- ances, which involve the creation of new entities or ownership transfer of existing entities, and nonequity alliances, which do not (Das & Teng, 2000; Gulati, 1995). Finally, equity alliances involve equity joint firms and minority equity alliances, whereas nonequity alliances refer to all other cooperative arrangements that do not involve equity exchange and can be grouped into either unilateral or bilateral contract-based alli- ances (Mowery, Oxley, & Silverman, 1998).
Why Create a Strategic Network?
Firms might seek out such interorganizational partnerships to gain access to information, resources, and restricted markets; reduce costs and share risks; improve competitive position (e.g., competition re- duction and leadership maintenance); generate scale and scope econo- mies; share knowledge and facilitate learning; develop industry standards; align resources for large-scale projects; and increase speed in product development or market entry (Bailey & Shan, 1995; Gulati, Nohria, & Zaheer, 2000; Hitt et al., 2001; Kale, Singh, & Perlmutter, 2000; Stuart, 2000; J. R. Williams, 1992, 1998). For instance, in media industries, an alliance with a movie studio would provide its partner the critical access to “content” resources; an equity joint venture would allow a media firm to enter a new country or market that has ownership quota regulations for its media products. Parise and Henderson (2001) further suggested that technological advances also tend to induce strategic alliances as firms strive to acquire technology complementarity, reduce the time span for innovation, lessen uncer- tainty in terms of emerging technologies, and assist firms to position themselves where there is a convergence of several industry segments. The technological driver is especially applicable in the context of an emerging digital media marketplace.
Theoretically, transaction cost economics provides the principal ra- tionale for explaining strategic network formation and development (Ramanathan, Seth, & Thomas, 1997), though various theories such as agency theory, game theory, RBV, social exchange theory, power-de- pendence theory, and organizational learning have also been applied to explain the factors influencing the formation and dynamics of strategic networks (Das & Teng, 2000; Robson, Leonidou, & Katsikeas, 2002). The RBV approach of analyzing strategic alliances seems to be especially fruitful in explicating the choice of certain alliance strategies. For in- stance, linking strategic alliance formats to RBV, Das and Teng argued that the types of resources contributed by the alliance partners are the key determinants of the structural preference in an alliance. Das and Teng proposed that a firm will prefer an equity joint firm if it primarily contributes property-based resources, and its partner primarily con- tributes knowledge-based resources; a firm will prefer a minority eq- uity alliance if it primarily contributes knowledge-based resources, and its partner primarily contributes property-based resources; a firm will prefer a bilateral contract-based alliance if both partner firms primarily contribute knowledge-based resources; and a firm will prefer a unilat- eral contract-based alliance if both partner firms primarily contribute property-based resources. In essence, RBV scholars suggest that firms seek partners that have resources complementary to their own and alli- ances that allow them to acquire new capabilities (Eisenhardt & Schoonhoven, 1996; H. M. Harrison, Hoskisson, & Ireland, 2001). The RBV has been applied in some empirical studies of media markets (Chan-Olmsted, 1998; D. Miller & Shamsie, 1996). Chan-Olmsted used the RBV framework to study the strategic alliances of broadcasting, ca- ble television, and telephone services in the telecommunication indus- try. Miller and Shamsie applied the RBV approach to study the property-based and knowledge-based resources’ role in determining the
U.S. film studios’ performance in two different environments, one uncertain and one predictable.
Studies of Strategic Networks
Research in strategic networks often addresses questions that deal with such factors as the drivers and processes of strategic network for-mation, the type of interfirm relationships that  help  participating firms compete, the sources of value creation in these networks, and the linkage between performance and participating firms’ different net- work positions and relationships (Amit & Zott, 2001). In general, studies in cooperative strategy may be grouped into three bodies of re- search: (a) those that focus on the reasons why alliances are formed,
(b) those that emphasize how collaborative agreements should be managed to be successful, and (c) those that examine the evolution of the interpartner relationship (Ariño & García-Pont, 1998).
The most evident strategic network forms in the media industry are joint ventures and alliances. Many media firms have attractive core competencies such as the ownership of valuable content, talent, or dis- tribution outlets but lack the size, access, or expertise to benefit from these unique resources and capabilities. Strategic networks not only of- fer an opportunity for access to a greater combination of competencies but also reduce barriers to entry (e.g., scale economies and brand loy- alty) in newer, technology-driven media markets such as the Internet and broadband sectors. Many recent studies in media industries have found alliances to be a preferred method of entering the Internet, broad- band, and wireless markets (Chan-Olmsted & Chang, 2003; Chan-Olmsted & Kang, 2003; Fang & Chan-Olmsted, 2003). The net- work strategy may also serve as a precursor for the essential M&A strat- egy. For example, local marketing agreements (LMAs), which exist in many local television markets, offer participating stations access to expanded sales and marketing resources while at the same time reducing competition.
The notion of strategic networks also complements the strategic taxonomy research framework. Examination of firm resources and resource typology for media products are especially appropriate be- cause of the tendency of media firms to adopt alliance strategies that enhance the value of a content product through content repurposing, cross-promotion, and product windowing, and to pool resources to- gether to compete in a fast-changing information technology envi- ronment. In a sense, the RBV theory of strategic  management provides the fundamental rationale for many alliance studies (Bar- ney, 1986; Zahra, Ireland, Gutierrez, & Hitt, 2000). By the same to- ken, RBV and the corresponding resource typology studies present an excellent opportunity for media scholars to examine alliances in the media industries with a more theory-driven framework. For exam- ple, Liu and Chan-Olmsted (2002) examined the strategic alliances between the U.S. broadcast television networks and Internet firms in the context of convergence using the aforementioned knowl- edge–property resource typology.
Scholars have also begun investigating cooperative agreements in an international context. Alliance strategies became popular between mul- tinational corporations beginning in the 1980s (Ariño & García-Pont, 1998); however, recent studies have found that American multinational firms increasingly organize their foreign business operations as wholly owned ventures rather than strategic networks such as joint ventures, mainly due to difficulties in coordinating business operations (Desai, Foley, & Hines, 2001). Regarding the performance of international stra- tegic networks, it was suggested that business relatedness, partner ri- valry, previous network experience, equity ownership, firm size, level of political risks, and similarity between partners’ national cultures were important determinants. Nevertheless, researchers also found no signif- icant performance differences in the American firms’ international networks with partners from developed versus developing countries (Merchant, 2000).

INTERNATIONAL STRATEGY

As discussed earlier, international diversification is a popular corporate strategy of growth. Media firms such as Time Warner now operate in more than 60 countries. Multinational industrial giants such as Vivendi Universal (before the sale of Universal) and Bertelsmann have turned to the communication sectors by acquiring U.S.-based media companies and either divesting or packaging their industrial assets into separate publicly traded companies (Goldsmith, 2000). There is also evidence of oligopolistic, interdependent behavior as we began to see many strategic alliances between the same leading media conglomerates. Several driv- ers have contributed to the growth of a global media market. Most evi- dently, the progress in communications technology enables the provision of entertainment and information in a faster, more efficient manner and actually makes many media industries more attractive sec- tors for capital investment, which is necessary for a move toward global expansion. Also because of the technological changes, many countries are revamping their existing media policies. We are seeing more liberal- ization and privatization of media industries. This, of course, fosters the growth of an international media market. Furthermore, there has been a decreasing dominance of the U.S.-based media companies in the inter- national marketplace during the last decade. Many high-profile M&As brought about the development of non-U.S.-based global media con- glomerates such as News Corporation and Bertelsmann. The impor- tance of the international market is further magnified by the fact that the demand for certain media products in the United States, such as broadcasting and cable television, is saturated. Also because of techno- logical advances, the lifestyle differences between individual societies are now less pronounced. The traditional market segmentation ap- proach by demographics like age and location is not as practical with the rise of information-based attitude groups that share similar consump- tion patterns. This is an important factor for a product like media con- tent, which is associated with pop cultures. This lifestyle parallelism provides further incentives for the globalization of media companies. Fi-nally, as a result of increasingly blurry industry boundaries and the growth of global multimedia conglomerates, there is a tendency to com- pete multilaterally in several media sectors and multiple countries at the same time. In other words, to compete successfully with a growing number of firms that have international holdings of multiple media products, a media company would have to do the same, which again leads to a trend toward internationalization.
Conceptually, various theories of internationalization have been pro- posed to explain why firms expand internationally or why they should do so. The product life cycle theory of internationalization postulated that as a product loses its competitiveness (i.e., started to decline in its life cycle) in an existing market within more developed economies, it will need to be progressively exported to markets in less-developed economies where it could start new cycles till it reaches the end of its commercial life- time (Vernon, 1966). The opportunistic growth theory of international expansion regards internationalization as opportunities presented by changing environments that a firm encounters and pursues rather than as a result of systematic rational analyses. The economics of transaction costs also provides extensive literature in the area of foreign direct invest- ment to explain a firm’s international expansion choices based on its abil- ity to define, specify, and contract for various kinds of economic activities in an international setting (Sanchez & Heene, 2004).
Many of the studies in international strategies seem to fall into two main categories: research that tackles a firm’s entry mode strategies in international expansion and research that investigates an internation- ally diversified firm’s choice of a global, multidomestic, or transna- tional management approach. In terms of market entry modes, a firm has many options when it decides to expand internationally. The modes of foreign entry range from export, license, franchise, strategic alliance, and joint venture, to wholly owned subsidiary, with increasing owner- ship and control as well as investment and risk. (Dess et al., 2004). Thus, the entry mode strategy has significant performance consequences. Hitt et al. (2001) suggested that a firm’s entry mode decision is likely to be influenced by the industry’s competitive conditions; the firm’s unique set of resources, capabilities, and core competencies; and the country’s situation and government policies. Traditionally, media firms have fol- lowed the option continuum sequentially beginning with exports and continuing with strategic alliances and joint ventures. There seems to be less green-field investment with the establishment of wholly owned subsidiaries in this industry, perhaps due to the diversity of local environments (e.g., regulation and infrastructure) and preferences in regards to media products.
Another major area of international corporate-level strategy is the balance between centralized and localized managerial control, consider- ing the opposing pressures of reducing costs and expenses in adaptation to local markets. A firm might adopt a multidomestic strategy in which local responsiveness is the priority and strategic decisions are decentral-ized to the business unit in each country. On the other hand, a firm might adopt a global strategy in which global integration and standard- ization is the priority and the headquarters is often in charge of formu- lating the competitive strategies. A third option, a transnational strategy, aims to obtain both global efficiency and local responsiveness through shared vision, flexible coordination, and an integrated network of domestic resources. Nevertheless, it is difficult to carry out a transna- tional strategy in reality (Hitt et al., 2001). Dess et al. (2004) suggested that the existence of a global product; the potential for economies of scale, learning, and scope; and limited availability of an essential re- source would likely tip the scale toward a global strategic approach, whereas differential local market preferences, high transportation and distribution costs, widely available resources, regulations, and speed in providing customer support would encourage a more localized, multidomestic strategy. For example, Hollywood studios are likely to adopt a more global strategy because their “content” products are glob- ally attractive; contain locally unavailable resources such as interna- tionally recognizable talent and sophisticated production studios; have a potential for scale, scope, and learning economies; and require minimal distribution costs.
FINAL THOUGHTS
Corporate strategies such as diversification approaches, M&A, and strategic networks, along with international strategies like foreign en- try modes and global versus localized management design, play a sig- nificant role in shaping today’s media industries as multinational media corporations such as Time Warner, Disney, Sony, and Bertelsmann continue to expand their holdings in both product and geographic markets and the SBU mom-and-pop media firms gradu- ally disappear. As media firms continue to respond to environmental opportunities and contemplate their capabilities and competencies in formulating expansion strategies, the aforementioned media-specific characteristics such as the complementary nature of content and dis- tribution and the windowing process for media content products mat- ter in this process. In other words, there is a tendency for media firms to diversify, acquire, collaborate, and internationalize in a certain fashion. In essence, media industries today are infused with digital technologies and converging platforms. Consequentially, media firms are faced with an increasing need to be less reliant on traditional busi- ness models (e.g., advertising revenues), to develop attractive new-me- dia services, and to compete multilaterally (i.e., multipoint competition in different product and geographic markets). In this complex market environment of abundant potentials as well as risks, corporate-level strategies, with the utilities of improving efficiency, spreading risk, and sharing resources, are indispensable tools in the race to develop competitive advantages.