Objective: This lecture focuses on the way media organisations
develop their strategies, different categories of media organisations on
the basis of difference of strategies, media strategic network
development and different characteristics of media products.
When applied in a media industry setting, the emphasis in strategy, by nature, shifts the central question of how media firms, at the aggregated level, meet the needs of audiences, advertisers, and society and the factors that have an impact on the production and allocation of media goods/services to how individual media firms’ various actions obtain competitive advantage and superior performance in the marketplace.
A media strategy study may be defined as the examination of one or more aspects of the financial, marketing, operations, and personnel functions that lead to the sustainable competitive advantage (SCA) of a firm or a group of firms in media industries.
From the Beginning: The Industrial Organization (IO)
View of Strategy
As mentioned earlier, the study of strategic management has its roots in industrial economics. Based primarily on industrial organization concepts, the discipline has tradition ally focused on the linkage between a firm’s strategy and its external environment. Such a linkage is especially evident in the Structure-Conduct-Performance (SCP) paradigm proposed by Bain (1968) and popularized with a strategic flavor by Porter (1985). Specifically, the foundation of strategic management as a field may be traced to Chandler’s definition of strategy as a set of managerial goals and choices, distinct from a structure, and the allocation of resources necessary for carrying out these goals (Chandler, 1962). In a sense, the industry structure in which a firm chooses to compete determines the state of competition, the context for strategies, and, thus, the resulting performance of the strategies (Collis & Montgomery, 1995; Grant, 1991). Process-wise, the IO approach of developing competitive advantage begins with examining the external environment, followed by locating an industry with high potential for above average returns. A strategy is then formulated to benefit from the exogenous factors, and assets and skills are developed to effectively implement the chosen strategy (Hitt, Ireland, & Hoskisson, 2001).
Some have argued that one of the most significant contributions to the development of strategic management came from industrial economics paradigms, especially the work of Michael Porter. His SCP model and the notion of strategic groups, where firms are clustered into groups of firms with strategic similarity within and differences across groups, have established a foundation for research on competitive dynamics (Hoskisson et al1999). As economics scholars gradually adopt other theories such as “game theory,” “transaction costs economics,” and “agency theory,” strategic management research moves closer to firm level and competitive dynamics (Hoskisson et al.). Beginning in the late 1980s, business scholars, seeking to explain the impact of firm attributes/behavior, such as diversification, vertical integration, and technological experience on performance (Lockett & Thompson, 2001), started investigating an inside–out, resource-based view of strategy.
The Arrival of Internal Competency: The Resource-Based View (RBV) of Strategy
Emphasizing the critical value of the internal resources of a firm and the firm’s capabilities to manage them, the resource-based view (RBV) assumes that each firm is a collection of unique resources that provide the foundation for its strategy and lead to the differences in each firm’s performance (Hitt et al., 2001; Peteraf, 1993; Wernerfelt, 1984). The RBV of the firm grew out of a need to identify the sources of the differential performance of firms (Hoskisson et al., 1999). The RBV literature stresses that a firm’s heterogeneous resources are the foremost factors influencing performance and sustainable competitive advantage.
According to the RBV, four specific attributes—value, rareness, non-substitutability, and inimitability—must work in tandem to increase performance. Valuable resources “exploit opportunities and/or neutralize threats in a firm’s environment” (Barney, 1991, p. 105). A rare resource is one that is not easily located and implemented, moving firms beyond the competitive parity that is associated with common resources. Similarly, a non-substitutable resource has no strategic equivalents that perform the same function. The final factor— imperfect imitability—virtually guarantees a firm’s sustainable competitive advantage, but it must work jointly with the aforementioned characteristics. That is, although a resource may be valuable, rare, and not easily substituted, it must be inimitable to bestow the firm with a sustained competitive advantage. Imperfect imitability may be the result of three factors: unique historical conditions, causal ambiguity, and/or social complexity (Barney, 1991). The concurrent interactions, then, between these four resource attributes form the basis of a firm’s superior performance.
Process-wise, an RBV approach begins with identifying and assessing a firm’s resources and capabilities, locating an attractive industry in which the firm’s resources and capabilities can be exploited, and finally selecting a strategy that best utilizes the firm’s resources and capabilities relative to opportunities in that industry (Hitt et al., 2001). Scholars, such as McGahan and Porter (1997), examined the relationship between the comparative impact of firm (an RBV approach) and industry (an IO approach) attributes on firm performance and concluded that firm-related factors seem to carry more weight in influencing performance.
What Kind of Resources?
In examining a firm’s strategy, the relationship between strategy and resources, and the linkage between strategy and performance, strategy scholars developed a number of resource categorization systems in an attempt to assess the differential contributions of various resources to performance in different market environments. Hofer and Schendel (1978) suggested that resources can be classified into six categories: financial resources, physical resources, human resources, technological resources, reputation, and organizational resources. Barney (1991) placed firm resources into three groups: physical capital resources, human capital resources, and organizational resources. Porter (1996) maintained resources are of three types: activities, skills/routines, and external assets, such as reputations and relationships. Black and Boal (1994) further argued that resources are best classified as operating in bundles—or network configurations—of two types: contained resources and system resources, based on the complexity of the network to which the resource belongs. Habann (2000), from a different perspective, divided firm resources into two sets according to their contents: competence, which refers to firm-specific capabilities, and strategic assets, which refer to tangible and intangible assets of strategic importance.
Nonetheless, Miller and Shamsie (1996) and Das and Teng (2000) maintained that the classification of resources is theoretically sound only when incorporated into the afore-mentioned four attributes. Specifically, because the basis of a sustainable competitive ad- vantage lies mainly in the inimitability of a
resource, categorization of resources therefore must incorporate this notion of imperfect imitability. Resources, thus, may be classified into two broad categories: property-based resources and knowledge-based resources, each based on the inimitability of property rights or knowledge barriers, respectively.
Miller and Shamsie further incorporated Black and Boal’s (1994) concept of resource configurations, thus sub-classifying property-based and knowledge-based resources into discrete or systemic resources. That is, both property-based and knowledge-based re- sources may stand alone or compose part of a network of resources.
Specifically, property-based resources are inimitable because of the protection afforded by property rights. A firm may secure a competitive advantage based on the length of the protection, thus proscribing competitors from imitation and appropriation of their source (Miller & Shamsie, 1996). Contractual agreements form the foundation of the two types of property-based resources. Discrete property-based resources, for example, “take the form of ownership rights or legal agreements that give an organization control over scarce and valuable inputs, facilities, locations, or patents” (Miller & Shamsie, p. 524). Disney, for example, has “international rights to about 853 feature films, 671 cartoon shorts and animated features, and tens of thousands of television productions” (Hollywood wired, 2001). Systemic property-based resources include configurations of physical facilities and equipment whose inimitability lies in the complexity of the network configurations. Viacom’s television station group, which consists of 34 owned and operated (O&O) stations, is an example of systemic property-based resources (Viacom Television Stations Group, n.d.).
Knowledge-based resources refer to a firm’s intangible know-how and skills, which cannot be imitated because they are protected by knowledge barriers. Competitors do not have the know-how to imitate a firm’s processed resources, such as technical and managerial skill (Hall, 1992). McEvily and Chakravarthy (2002) attributed uncertain imitability to complexity, tacitness, and specificity of knowledge. Like property-based resources, knowledge-based resources are comprised of discrete and systemic resources.
Discrete knowledge-based resources, such as technical, creative, and functional skills, stand alone. The management experience of specific media subsidiaries is an example of discrete knowledge-based resources. Systemic knowledge-based resources, on the other hand, “may take the form of integrative or coordinative skills required for multidisciplinary teamwork” (Miller & Shamsie, 1996, p. 527). Increasing attention in the strategy literature within the RBV framework has centered on the factor of knowledge. Many studies focused on how firms generate, leverage, transfer, integrate, and protect knowledge (Wright, Dunford, & Snell, 2001). Some went even further, arguing for a “knowledge- based” theory of the firm, under the notion that firms exist because they can better inte- grate, apply, and protect knowledge than can markets (Grant, 1991; Liebeskind, 1996). In recent years, knowledge-based competition has become a popular area of study among strategic management scholars and practitioners. Some researchers claim that knowledge is the most important source of sustainable competitive advantage and performance (McEvily & Chakravarthy, 2002).
Resource Typology in Media Industries
The property–knowledge-based typology presents a meaningful system for classifying and analyzing media firms’ resources because knowledge-related resources are particularly important in developing competitive advantages in a media industry: where the end product is mostly in the form of intangible
content, where creativity and industry knowledge remain the essential elements in the production of the content product, and where content is often seen as the key to success in any media distribution system. Furthermore, because of the fact that today’s media industries are entering a period of unprecedented changes brought about by emerging new technologies such as the Internet and digitization, examinations of knowledge-based resources for media firms are becoming more critical. For example, applying the property–knowledge resource typology, Landers and Chan-Olmsted (2002) studied the broadcast television networks’ changing strategies longitudinally as the broadcast market becomes less stable because of many technological developments. The notion of market uncertainty might be another important factor to investigate. As Miller and Shamsie (1996) discovered in their study of the Hollywood film studios, property-based resources—both discrete and systemic—led to superior performance in the stable environment, whereas knowledge-based resources led to superior performance in the uncertain environment.
Time Factor: Turbulent vs. Stable Environment
illustrates a possible resource typology as applied in the network television market (Landers & Chan-Olmsted, 2002). As depicted, resources such as affiliate contracts (or franchise agreements for cable television), station ownership, and content product copyright might be considered property-based resources, whereas technology management and content multi-purposing expertise might be viewed as knowledge-based resources. Logically, the list of resources would be somewhat different depending on the nature and the value chain of the particular media market. For example, for the newspaper sector, distribution and printing properties represent essential property-based resources. Note that knowledge is a difficult resource to measure because of its fluidity. Most strategy studies used proxies for knowledge-related variables under the assumption that firms acquire more knowledge about activities they invest or engage in to a greater extent (McEvily & Chakravarthy, 2002).In the case of media industries, film/TV program awards and managers’ average tenures were used as proxy measures for such a variable (Landers & Chanolmsted, 2002).The drawback of such an empirical procedure will be discussed later.
The IO and RBV perspectives for examining strategy establish the basic approaches for investigating a firm’s functional, business, and corporate activities and their relationship to performance. Three more areas of study—strategic taxonomy, strategic network, and, more recently, strategic entrepreneurship—have also made a substantial contribution to the strategic management literature and will be reviewed next. These supporting constructs offer a rich theoretical base from which more media strategy studies might spring.
Strategic Taxonomy
Classification of strategy types offers the utility of comparative analysis and systematic assessment of the relationship between different strategic postures and market performance. To this end, the strategy typologies proposed by Miles and Snow (1978) and Porter (1980) are perhaps the most popular frameworks used by strategic management researchers for analyzing business strategy (Slater & Olson, 2000). Whereas Porter proposed that most business strategies fall under one of the strategic types—focus, differentiation, or low-cost leadership, Miles and Snow developed a framework for defining firms’ approaches in product market development, structures, and processes. The notion is that different types of firms have differential strategic preferences. Though firms in the same category might have a similar strategic tendency, they could achieve various levels of performance because of differential implementations of the strategy. Miles and Snow classified firms into four groups:
1. Prospectors, who continuously seek and exploit new products and market opportunities, often the first-to-market with a new product/service
2. Defenders, who focus on occupying a market segment to develop a stable set of products and customers
3. Analyzers, who have an intermediate position between prospectors and defenders by cautiously following the prospectors, while at the same time, monitoring and protecting a stable set of products and customers
4. Reactors, who do not have a consistent product-market orientation but act or respond to competition with a more short-term focus. (Zahra & Pearce, 1990)
Despite the differences in strategic aggressiveness, empirical studies found that except for the reactors, the other three groups of firms achieve equal performance on average (Zahra & Pearce, 1990). The implication is that the implementation of the strategy is most critical to the performance variation within each strategy type.
Strategic Networks
The media industries are among the top sectors for seeking out network relationships with other firms, both horizontally and vertically. This network orientation might be attributed to: media content’s public goods nature; the media industries’ need to be responsive to audience preferences and technological changes; and the symbiotic connection between media distribution and content.
Strategic networks may be defined as the “stable inter-organizational relationships that are strategically important to participating firms.” These ties may take the form of joint ventures, alliances, and even long-term buyer-supplier partnerships (Amit & Zott, 2001, p. 498). In essence, firms might seek out such inter-organizational partnerships to gain access to information, markets, and technologies, and to cultivate the potential to share risk, generate scale and scope economies, share knowledge, and facilitate learning (Gulati, Nohria, & Zaheer, 2000).
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 and distribution outlets, but lack the size, access, or expertise to benefit from these unique resources and capabilities. Strategic networks not only offer an opportunity for access to a greater combination of competencies, but also reduce barriers to entry (e.g., scale economies and brand loyalty) in newer, technology-driven media markets such as the Internet and broadband sectors. Many recent studies in media industries found alliances to be a preferred method of entering the Internet, broadband, and wireless markets (Chan-Olmsted & Chang, 2003; Chan-Olmsted & Kang, 2003; Fang & Chan-Olmsted, 2003). The network strategy may also serve as a pre- curser for the essential merger and acquisition strategy. For example, Local Marketing Agreements (LMAs), which exist in many local television markets, offer participating stations access to expanded sales/marketing resources while, at the same time, reducing competition.
APPLICABILITY OF STRATEGIC MANAGEMENT IN MEDIA INDUSTRIES
This section will turn the focus from the more generic theoretical and empirical discussions in strategic management to the application of these same concepts and issues in media industries by introducing the unique characteristics of media products, certain media taxonomies, and an analytical framework for investigating strategic behavior of media firms.
The Characteristics of Media Products
Strategic decisions are often resource dependent and rely on the specificity within a particular industry (Chatterjee & Wernerfelt, 1991). To this end, media products exhibit certain unique characteristics that shape the strategic directions of media firms. The major distinction between media and non-media products rests in the unique combination of a number of characteristics.
First, media firms offer dual, complementary products of content and distribution. The content component is intangible and inseparable from a tangible distribution medium. Second, most media content products are non-excludable and non-depletable public goods whose consumption by one individual does not interfere with its availability to another but adds to the scale economies in production. Third, many media firms rely on dual revenue sources from consumers and advertisers. Fourth, many media content products use a windowing process to market content. For example, theatrical films are delivered to consumers via multiple outlets sequentially in different time periods (e.g., home video sales, home video rentals, cable and satellite television pay-per-view, pay cable networks, and broadcast networks). In a sense, the potential revenue for such a content product depends on the total number of distribution points and pricing at these points. Fifth, the market boundaries between various types of media products are becoming blurred (i.e., the degree of substitutability is increasing) because of technological advances. Sixth, each media content creation (not the distribution medium or a duplicated copy), by nature, is 9heterogeneous, non-standardizable, and individually evaluated based on consumers’ personal tastes. In other words, whereas Maytag may manufacture a new washing machine that contains certain standardized features, no movies can legally claim to contain identical content from the Harry Potter and the Chamber of Secrets movie. Even Ms. Rowland herself will not pen a standardized set of Harry Potter books. Finally, media products are subject to the cultural preferences and existing communication infrastructure of each geographic market/country and are often subject to more regulatory control from the host market because of how pervasive their impact is on individual societies.
The characteristics of media products listed earlier lead to a market environment in which certain strategies are often observed. For example, as intangibles, content-based media products may be stored and presented in various formats. A strategy of related product diversification, which extends a media firm’s product lines into related content formats (e.g., print and online content), typically benefits firms by enabling content re- purposing, marketing know-how, and sharing of production resources, and thus is likely to be preferred. It is also logical for media firms to seek out distribution products and content products that complement each other. The concept of resource alignment has been discussed extensively in the alliance literature. This concept emphasizes the importance of accessing resources that a firm does not already possess, but which are critical for improving its competitive position (Barney, 1991; Das & Teng, 2000). The symbiotic relationship between media content and distribution products provides a classic case of resource alignment. The fact that an existing product may be redistributed to and reused in different outlets, via a windowing process, reinforces the advantage of diversifying into multiple related distribution sectors in various geographical markets to increase the product’s revenue potential. Furthermore, because of the importance of cultural sensitivity and understanding of the regulatory environment, media firms are more inclined to diversify into related product/geographic markets to take advantage of their acquired local knowledge and relationships. The dependency on local communication/media infrastructure may also lead to a strategy that is geographically related (i.e., regionalized). This is because geographically clustered markets are often at similar stages of infrastructure development, and clusters of media distribution systems may lead to cost/resource-sharing benefits. For example, many U.S. cable systems and radio stations are geographically clustered.
The dual-revenue source mechanism and the public goods characteristic of media content products also create a driver for firms to offer media content that appeals to the largest possible group of marketable consumers. This is because the larger aggregated number of subscribers/audience adds to the value of advertising spots/space with minimal incremental costs for the firms. On the other hand, because of the heterogeneous, non-standardizable, creative characteristic of media content products, intangible resources become especially essential in building competitive advantages. As a result, small firms that do not have access to a mass audience but which possess unique creative resources, still have the opportunity to achieve superior performance.
Media products are also especially sensitive to intangible resources by nature. Intangible resources, such as technology and brand loyalty, often lead to diversification so a media firm might exploit the public goods nature of these assets (Chatterjee & Wernerfelt, 1991).
When applied in a media industry setting, the emphasis in strategy, by nature, shifts the central question of how media firms, at the aggregated level, meet the needs of audiences, advertisers, and society and the factors that have an impact on the production and allocation of media goods/services to how individual media firms’ various actions obtain competitive advantage and superior performance in the marketplace.
A media strategy study may be defined as the examination of one or more aspects of the financial, marketing, operations, and personnel functions that lead to the sustainable competitive advantage (SCA) of a firm or a group of firms in media industries.
THEORETICAL FOUNDATIONS IN STRATEGIC MANAGEMENT
View of Strategy
As mentioned earlier, the study of strategic management has its roots in industrial economics. Based primarily on industrial organization concepts, the discipline has tradition ally focused on the linkage between a firm’s strategy and its external environment. Such a linkage is especially evident in the Structure-Conduct-Performance (SCP) paradigm proposed by Bain (1968) and popularized with a strategic flavor by Porter (1985). Specifically, the foundation of strategic management as a field may be traced to Chandler’s definition of strategy as a set of managerial goals and choices, distinct from a structure, and the allocation of resources necessary for carrying out these goals (Chandler, 1962). In a sense, the industry structure in which a firm chooses to compete determines the state of competition, the context for strategies, and, thus, the resulting performance of the strategies (Collis & Montgomery, 1995; Grant, 1991). Process-wise, the IO approach of developing competitive advantage begins with examining the external environment, followed by locating an industry with high potential for above average returns. A strategy is then formulated to benefit from the exogenous factors, and assets and skills are developed to effectively implement the chosen strategy (Hitt, Ireland, & Hoskisson, 2001).
Some have argued that one of the most significant contributions to the development of strategic management came from industrial economics paradigms, especially the work of Michael Porter. His SCP model and the notion of strategic groups, where firms are clustered into groups of firms with strategic similarity within and differences across groups, have established a foundation for research on competitive dynamics (Hoskisson et al1999). As economics scholars gradually adopt other theories such as “game theory,” “transaction costs economics,” and “agency theory,” strategic management research moves closer to firm level and competitive dynamics (Hoskisson et al.). Beginning in the late 1980s, business scholars, seeking to explain the impact of firm attributes/behavior, such as diversification, vertical integration, and technological experience on performance (Lockett & Thompson, 2001), started investigating an inside–out, resource-based view of strategy.
The Arrival of Internal Competency: The Resource-Based View (RBV) of Strategy
Emphasizing the critical value of the internal resources of a firm and the firm’s capabilities to manage them, the resource-based view (RBV) assumes that each firm is a collection of unique resources that provide the foundation for its strategy and lead to the differences in each firm’s performance (Hitt et al., 2001; Peteraf, 1993; Wernerfelt, 1984). The RBV of the firm grew out of a need to identify the sources of the differential performance of firms (Hoskisson et al., 1999). The RBV literature stresses that a firm’s heterogeneous resources are the foremost factors influencing performance and sustainable competitive advantage.
According to the RBV, four specific attributes—value, rareness, non-substitutability, and inimitability—must work in tandem to increase performance. Valuable resources “exploit opportunities and/or neutralize threats in a firm’s environment” (Barney, 1991, p. 105). A rare resource is one that is not easily located and implemented, moving firms beyond the competitive parity that is associated with common resources. Similarly, a non-substitutable resource has no strategic equivalents that perform the same function. The final factor— imperfect imitability—virtually guarantees a firm’s sustainable competitive advantage, but it must work jointly with the aforementioned characteristics. That is, although a resource may be valuable, rare, and not easily substituted, it must be inimitable to bestow the firm with a sustained competitive advantage. Imperfect imitability may be the result of three factors: unique historical conditions, causal ambiguity, and/or social complexity (Barney, 1991). The concurrent interactions, then, between these four resource attributes form the basis of a firm’s superior performance.
Process-wise, an RBV approach begins with identifying and assessing a firm’s resources and capabilities, locating an attractive industry in which the firm’s resources and capabilities can be exploited, and finally selecting a strategy that best utilizes the firm’s resources and capabilities relative to opportunities in that industry (Hitt et al., 2001). Scholars, such as McGahan and Porter (1997), examined the relationship between the comparative impact of firm (an RBV approach) and industry (an IO approach) attributes on firm performance and concluded that firm-related factors seem to carry more weight in influencing performance.
What Kind of Resources?
In examining a firm’s strategy, the relationship between strategy and resources, and the linkage between strategy and performance, strategy scholars developed a number of resource categorization systems in an attempt to assess the differential contributions of various resources to performance in different market environments. Hofer and Schendel (1978) suggested that resources can be classified into six categories: financial resources, physical resources, human resources, technological resources, reputation, and organizational resources. Barney (1991) placed firm resources into three groups: physical capital resources, human capital resources, and organizational resources. Porter (1996) maintained resources are of three types: activities, skills/routines, and external assets, such as reputations and relationships. Black and Boal (1994) further argued that resources are best classified as operating in bundles—or network configurations—of two types: contained resources and system resources, based on the complexity of the network to which the resource belongs. Habann (2000), from a different perspective, divided firm resources into two sets according to their contents: competence, which refers to firm-specific capabilities, and strategic assets, which refer to tangible and intangible assets of strategic importance.
Nonetheless, Miller and Shamsie (1996) and Das and Teng (2000) maintained that the classification of resources is theoretically sound only when incorporated into the afore-mentioned four attributes. Specifically, because the basis of a sustainable competitive ad- vantage lies mainly in the inimitability of a
resource, categorization of resources therefore must incorporate this notion of imperfect imitability. Resources, thus, may be classified into two broad categories: property-based resources and knowledge-based resources, each based on the inimitability of property rights or knowledge barriers, respectively.
Miller and Shamsie further incorporated Black and Boal’s (1994) concept of resource configurations, thus sub-classifying property-based and knowledge-based resources into discrete or systemic resources. That is, both property-based and knowledge-based re- sources may stand alone or compose part of a network of resources.
Specifically, property-based resources are inimitable because of the protection afforded by property rights. A firm may secure a competitive advantage based on the length of the protection, thus proscribing competitors from imitation and appropriation of their source (Miller & Shamsie, 1996). Contractual agreements form the foundation of the two types of property-based resources. Discrete property-based resources, for example, “take the form of ownership rights or legal agreements that give an organization control over scarce and valuable inputs, facilities, locations, or patents” (Miller & Shamsie, p. 524). Disney, for example, has “international rights to about 853 feature films, 671 cartoon shorts and animated features, and tens of thousands of television productions” (Hollywood wired, 2001). Systemic property-based resources include configurations of physical facilities and equipment whose inimitability lies in the complexity of the network configurations. Viacom’s television station group, which consists of 34 owned and operated (O&O) stations, is an example of systemic property-based resources (Viacom Television Stations Group, n.d.).
Knowledge-based resources refer to a firm’s intangible know-how and skills, which cannot be imitated because they are protected by knowledge barriers. Competitors do not have the know-how to imitate a firm’s processed resources, such as technical and managerial skill (Hall, 1992). McEvily and Chakravarthy (2002) attributed uncertain imitability to complexity, tacitness, and specificity of knowledge. Like property-based resources, knowledge-based resources are comprised of discrete and systemic resources.
Discrete knowledge-based resources, such as technical, creative, and functional skills, stand alone. The management experience of specific media subsidiaries is an example of discrete knowledge-based resources. Systemic knowledge-based resources, on the other hand, “may take the form of integrative or coordinative skills required for multidisciplinary teamwork” (Miller & Shamsie, 1996, p. 527). Increasing attention in the strategy literature within the RBV framework has centered on the factor of knowledge. Many studies focused on how firms generate, leverage, transfer, integrate, and protect knowledge (Wright, Dunford, & Snell, 2001). Some went even further, arguing for a “knowledge- based” theory of the firm, under the notion that firms exist because they can better inte- grate, apply, and protect knowledge than can markets (Grant, 1991; Liebeskind, 1996). In recent years, knowledge-based competition has become a popular area of study among strategic management scholars and practitioners. Some researchers claim that knowledge is the most important source of sustainable competitive advantage and performance (McEvily & Chakravarthy, 2002).
Resource Typology in Media Industries
The property–knowledge-based typology presents a meaningful system for classifying and analyzing media firms’ resources because knowledge-related resources are particularly important in developing competitive advantages in a media industry: where the end product is mostly in the form of intangible
content, where creativity and industry knowledge remain the essential elements in the production of the content product, and where content is often seen as the key to success in any media distribution system. Furthermore, because of the fact that today’s media industries are entering a period of unprecedented changes brought about by emerging new technologies such as the Internet and digitization, examinations of knowledge-based resources for media firms are becoming more critical. For example, applying the property–knowledge resource typology, Landers and Chan-Olmsted (2002) studied the broadcast television networks’ changing strategies longitudinally as the broadcast market becomes less stable because of many technological developments. The notion of market uncertainty might be another important factor to investigate. As Miller and Shamsie (1996) discovered in their study of the Hollywood film studios, property-based resources—both discrete and systemic—led to superior performance in the stable environment, whereas knowledge-based resources led to superior performance in the uncertain environment.
Time Factor: Turbulent vs. Stable Environment
illustrates a possible resource typology as applied in the network television market (Landers & Chan-Olmsted, 2002). As depicted, resources such as affiliate contracts (or franchise agreements for cable television), station ownership, and content product copyright might be considered property-based resources, whereas technology management and content multi-purposing expertise might be viewed as knowledge-based resources. Logically, the list of resources would be somewhat different depending on the nature and the value chain of the particular media market. For example, for the newspaper sector, distribution and printing properties represent essential property-based resources. Note that knowledge is a difficult resource to measure because of its fluidity. Most strategy studies used proxies for knowledge-related variables under the assumption that firms acquire more knowledge about activities they invest or engage in to a greater extent (McEvily & Chakravarthy, 2002).In the case of media industries, film/TV program awards and managers’ average tenures were used as proxy measures for such a variable (Landers & Chanolmsted, 2002).The drawback of such an empirical procedure will be discussed later.
SUPPORTING ANALYTICAL FRAMEWORKS IN STRATEGIC MANAGEMENT
The IO and RBV perspectives for examining strategy establish the basic approaches for investigating a firm’s functional, business, and corporate activities and their relationship to performance. Three more areas of study—strategic taxonomy, strategic network, and, more recently, strategic entrepreneurship—have also made a substantial contribution to the strategic management literature and will be reviewed next. These supporting constructs offer a rich theoretical base from which more media strategy studies might spring.
Strategic Taxonomy
Classification of strategy types offers the utility of comparative analysis and systematic assessment of the relationship between different strategic postures and market performance. To this end, the strategy typologies proposed by Miles and Snow (1978) and Porter (1980) are perhaps the most popular frameworks used by strategic management researchers for analyzing business strategy (Slater & Olson, 2000). Whereas Porter proposed that most business strategies fall under one of the strategic types—focus, differentiation, or low-cost leadership, Miles and Snow developed a framework for defining firms’ approaches in product market development, structures, and processes. The notion is that different types of firms have differential strategic preferences. Though firms in the same category might have a similar strategic tendency, they could achieve various levels of performance because of differential implementations of the strategy. Miles and Snow classified firms into four groups:
1. Prospectors, who continuously seek and exploit new products and market opportunities, often the first-to-market with a new product/service
2. Defenders, who focus on occupying a market segment to develop a stable set of products and customers
3. Analyzers, who have an intermediate position between prospectors and defenders by cautiously following the prospectors, while at the same time, monitoring and protecting a stable set of products and customers
4. Reactors, who do not have a consistent product-market orientation but act or respond to competition with a more short-term focus. (Zahra & Pearce, 1990)
Despite the differences in strategic aggressiveness, empirical studies found that except for the reactors, the other three groups of firms achieve equal performance on average (Zahra & Pearce, 1990). The implication is that the implementation of the strategy is most critical to the performance variation within each strategy type.
Strategic Networks
The media industries are among the top sectors for seeking out network relationships with other firms, both horizontally and vertically. This network orientation might be attributed to: media content’s public goods nature; the media industries’ need to be responsive to audience preferences and technological changes; and the symbiotic connection between media distribution and content.
Strategic networks may be defined as the “stable inter-organizational relationships that are strategically important to participating firms.” These ties may take the form of joint ventures, alliances, and even long-term buyer-supplier partnerships (Amit & Zott, 2001, p. 498). In essence, firms might seek out such inter-organizational partnerships to gain access to information, markets, and technologies, and to cultivate the potential to share risk, generate scale and scope economies, share knowledge, and facilitate learning (Gulati, Nohria, & Zaheer, 2000).
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 and distribution outlets, but lack the size, access, or expertise to benefit from these unique resources and capabilities. Strategic networks not only offer an opportunity for access to a greater combination of competencies, but also reduce barriers to entry (e.g., scale economies and brand loyalty) in newer, technology-driven media markets such as the Internet and broadband sectors. Many recent studies in media industries found alliances to be a preferred method of entering the Internet, broadband, and wireless markets (Chan-Olmsted & Chang, 2003; Chan-Olmsted & Kang, 2003; Fang & Chan-Olmsted, 2003). The network strategy may also serve as a pre- curser for the essential merger and acquisition strategy. For example, Local Marketing Agreements (LMAs), which exist in many local television markets, offer participating stations access to expanded sales/marketing resources while, at the same time, reducing competition.
APPLICABILITY OF STRATEGIC MANAGEMENT IN MEDIA INDUSTRIES
This section will turn the focus from the more generic theoretical and empirical discussions in strategic management to the application of these same concepts and issues in media industries by introducing the unique characteristics of media products, certain media taxonomies, and an analytical framework for investigating strategic behavior of media firms.
The Characteristics of Media Products
Strategic decisions are often resource dependent and rely on the specificity within a particular industry (Chatterjee & Wernerfelt, 1991). To this end, media products exhibit certain unique characteristics that shape the strategic directions of media firms. The major distinction between media and non-media products rests in the unique combination of a number of characteristics.
First, media firms offer dual, complementary products of content and distribution. The content component is intangible and inseparable from a tangible distribution medium. Second, most media content products are non-excludable and non-depletable public goods whose consumption by one individual does not interfere with its availability to another but adds to the scale economies in production. Third, many media firms rely on dual revenue sources from consumers and advertisers. Fourth, many media content products use a windowing process to market content. For example, theatrical films are delivered to consumers via multiple outlets sequentially in different time periods (e.g., home video sales, home video rentals, cable and satellite television pay-per-view, pay cable networks, and broadcast networks). In a sense, the potential revenue for such a content product depends on the total number of distribution points and pricing at these points. Fifth, the market boundaries between various types of media products are becoming blurred (i.e., the degree of substitutability is increasing) because of technological advances. Sixth, each media content creation (not the distribution medium or a duplicated copy), by nature, is 9heterogeneous, non-standardizable, and individually evaluated based on consumers’ personal tastes. In other words, whereas Maytag may manufacture a new washing machine that contains certain standardized features, no movies can legally claim to contain identical content from the Harry Potter and the Chamber of Secrets movie. Even Ms. Rowland herself will not pen a standardized set of Harry Potter books. Finally, media products are subject to the cultural preferences and existing communication infrastructure of each geographic market/country and are often subject to more regulatory control from the host market because of how pervasive their impact is on individual societies.
The characteristics of media products listed earlier lead to a market environment in which certain strategies are often observed. For example, as intangibles, content-based media products may be stored and presented in various formats. A strategy of related product diversification, which extends a media firm’s product lines into related content formats (e.g., print and online content), typically benefits firms by enabling content re- purposing, marketing know-how, and sharing of production resources, and thus is likely to be preferred. It is also logical for media firms to seek out distribution products and content products that complement each other. The concept of resource alignment has been discussed extensively in the alliance literature. This concept emphasizes the importance of accessing resources that a firm does not already possess, but which are critical for improving its competitive position (Barney, 1991; Das & Teng, 2000). The symbiotic relationship between media content and distribution products provides a classic case of resource alignment. The fact that an existing product may be redistributed to and reused in different outlets, via a windowing process, reinforces the advantage of diversifying into multiple related distribution sectors in various geographical markets to increase the product’s revenue potential. Furthermore, because of the importance of cultural sensitivity and understanding of the regulatory environment, media firms are more inclined to diversify into related product/geographic markets to take advantage of their acquired local knowledge and relationships. The dependency on local communication/media infrastructure may also lead to a strategy that is geographically related (i.e., regionalized). This is because geographically clustered markets are often at similar stages of infrastructure development, and clusters of media distribution systems may lead to cost/resource-sharing benefits. For example, many U.S. cable systems and radio stations are geographically clustered.
The dual-revenue source mechanism and the public goods characteristic of media content products also create a driver for firms to offer media content that appeals to the largest possible group of marketable consumers. This is because the larger aggregated number of subscribers/audience adds to the value of advertising spots/space with minimal incremental costs for the firms. On the other hand, because of the heterogeneous, non-standardizable, creative characteristic of media content products, intangible resources become especially essential in building competitive advantages. As a result, small firms that do not have access to a mass audience but which possess unique creative resources, still have the opportunity to achieve superior performance.
Media products are also especially sensitive to intangible resources by nature. Intangible resources, such as technology and brand loyalty, often lead to diversification so a media firm might exploit the public goods nature of these assets (Chatterjee & Wernerfelt, 1991).
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