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British Satellite Broadcasting vs. Sky Television Case Solution

Solution Id Length Case Author Case Publisher
1215 1174 Words (3 Pages) Pankaj Ghemawat Harvard Business School : 794031
This solution includes: A Word File A Word File

This case is related to the satellite broadcasting industry in its initial stages in the United Kingdom. Two strong players BSB and Sky TV dominated the market and got into a fierce competition. The companies already had invested a great deal in the satellite setup and the fixed costs for the satellite’s maintenance. However, due to both companies launching at the same time, they competed for customers. BSB invested more in marketing and promotions as a result of the knowledge that it gained on Sky’s launch. They bided for content (movies) that went up to high prices than what they could have been bought for. This caused an increase in expenses for both companies. They were also faced with a shortage of supplies that limited their sales. However, this did not limit them from competing against each other.

Following questions are answered in this case study solution

  1. Evaluate the structure of this industry in terms of its attractiveness to incumbents.

  2. How do you expect competition to look in this industry in the long-run? Can the two rivals survive in this industry? Why?

  3. Choose one of the companies and analyze its actions, considering the way it tries to affect what its rival will do.

Case Analysis for British Satellite Broadcasting vs. Sky Television Case Solution

1. Evaluate the structure of this industry in terms of its attractiveness to incumbents.

The satellite television market in the United Kingdom was comprised of three major players. One was the public forecasting company; the other was regional private companies and the third was the Independent broadcasting authority. However, with the development of technology, viewers could be offered more than just four channels for broadcast entertainment. Satellite television and cable were two complementary inventions that pushed the British Satellite Broadcasting (BSB) to raise financing for satellite because of its forecasted profitability. The company was taken by surprise when a private broadcaster planned to launch a satellite venture called Sky TV. Therefore, it can be stated that the industry had two major players, both of which were involved in tough price competition to dominate the industry above the costs of the new setup.

Previously, there were companies that had launched satellites. However, due to low investment, the signal could be transmitted to a cable system rather than individual customer devices. Also, the problem was low penetration leading to low advertising interest, therefore, issues in finance. Therefore, it can be analyzed that the industry cannot be dominated by players who have weak financial backing. The barriers to entry are high due to high investment requirements that otherwise would be a failure of the company. BSB had a collaboration with eleven companies that were involved in raising funds for putting up a satellite. This shows that the initial investment required for funding a satellite is high. Also, if the investment is not enough, it would mean a failure of the company. Other than that, the fixed costs mentioned in the case show that the financing required, and the fixed cost for its maintenance is high. It is almost 80% of the costs that a company has. If the company wants to recover its investment, it has to have a high penetration in the market.

Other problems highlighted, in this case, are the shortage of equipment in the market causing a sales shortfall for both the companies in the industry. These factors regarding the initial investment, fixed costs, price competition and the shortage of equipment make the industry less attractive to incumbents. Also, the competition factor shows that a new player would face difficulties if it decides to enter the market considering that the two players already in the industry are strong players given their background. These players are competing on the basis of price and bidding that would be difficult for new entrants to face given that they have made an immense amount of investments in purchasing satellites and covering the fixed costs that come with it.

2. How do you expect competition to look in this industry in the long-run? Can the two rivals survive in this industry? Why?

In the long-run, either the companies will not survive, or they will merge or come into an agreement to dominate in an oligopolistic industry rather than a monopolistic one. The reason is that the industry is facing equipment shortages that have led to lower sales than predicted for both the companies. Also, the initial investment and making a profit after the recovery of the investment amount is important for both the companies. In this case, the fixed costs are very high.

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