A Business Mission Essay, analysing ITV
The company I have decided to look at ITV. This company is in the media sector. It is a television broadcaster and has been operating for 50 years. Throughout these 50 years it has established itself as the UK’s number one commercial TV channel. They have many different channels including ITV1, ITV2, ITV3 and the ITV news channel. As they state in their annual report they provide ‘viewers with the very best television can offer’ by ‘engaging popular, accessible, challenging and innovative programming across all genres that people want to watch.’ In the future they aim to become the number one commercial channel in Europe and to create new content for future new technologies, such as digital. It now provides many new, successful digital channels such as ITV2 and the recent ITV3. Both these channels are providing increased revenues year on year.
The Industry Life Cycle
Below is a diagram that illustrates the industry life cycle:
Having looked at this life cycle model I can say that ITV is in the mature sector. It is not in the embryonic because it is well established in their industry. It is not growing, as it is now the number one commercial channel in the UK. It is not in decline as it is expanding to maintain its number one position by looking at other markets and looking at the future of broadcasting, by looking at new technologies, such as digital.
The Porter’s 5 Forces Model
Porter’s 5 forces model can illustrated as below:
Using this model I will now analyse the environment ITV operates in and will attempt to indicate the implications on the profitability of the company. I will start with the threat of new entrants. Already in the broadcasting environment, there are many different channels. Each channel provides a service and caters to the needs of the customer. Therefore, I can say that the threat of new entrants into this environment is quite low. Although entry into this environment is relatively easy (especially due to the new digital age), providing you have the finances, I believe that ITV has such an established market share that profitability will not be effected at all. If profitability is effected it will be so low that it would hardly be worth mentioning.
The Bargaining Power of Suppliers:
I will now look at the bargaining power of suppliers. I believe that the bargaining power of suppliers is both quite high and quite low. It will depend on the experience and reputation of the supplier. ITV is the number one commercial channel in the UK, so suppliers will want their programs shown on this channel. However, the more reputable and experienced customer will be in demand more. Therefore, they will have offers from all ITV’s major and minor competitors. This will mean that the bargaining power of the supplier will be greatly increased and ITV will have to pay more for their services. This point is illustrated to great effect by the football highlights show. This year ITV lost the right to show highlights of Premiership football matches (known as The Premiership) to the BBC’s Match of the Day program. This was due to the BBC outbidding ITV. The Football Association (FA) being the supplier held out for the highest bidder. The supplier in this case had more power than ITV. Another point that illustrates the power of the supplier is that of Cilla Black. Cilla Black had been on Blind Date for many years and Blind Date was one of ITV’s flagship Saturday night shows. However, ITV decided to change the format of the show against the wishes of Cilla Black. This meant the Cilla Black left the show. Blind Date has not been shown since. Because of this ITV lost a lot of the Saturday night audience.
On the other hand, ITV’s popularity means that established stars will want to be associated with them. This point can be illustrated by Michael Parkinson’s recent defection from the BBC to ITV. However, this is probably due to the bargaining power of the supplier. Parkinson left for ITV because they could offer more money.
The power of less reputable suppliers will be greatly reduced due to the fact that they will not have as many broadcasters fighting for their product. This will mean that ITV can dictate terms more because the supplier will want to be shown on such an established channel and will do anything to get their product shown.
The bargaining power of suppliers will have a great effect on profitability. Losing such shows as the football highlights will mean that a large proportion of the audience moves to a major competitor. Also, losing big star names such as Cilla Black will mean that audience figures fall causing profitability to fall. However, profitability can be increased due to the fact that ITV can attract the big names, such as Michael Parkinson, which will attract the audiences back, causing profits will rise.
Competitive Rivalry within the Industry:
I will now look at competitive rivalry within the industry. Within the industry I can see that there is a lot of competition. Looking at the UK television market alone I can see that there is a lot of competition and alternative channels that will affect the profitability of ITV. Obviously, ITV’s main rival is BBC. This rivalry is best illustrated by the flagship shows of both broadcasters. These are the soap operas of Eastenders for the BBC and Coronation Street for ITV. When outsiders look to see which broadcaster id outperforming the other, they often look at the viewing figures for these two programmes. At the minute ITV is coming out on top. Each broadcaster is always trying to outperform the other by coming up with better storylines. This will mean that extra money is spent on the programs to get the best writers and the best actors. This will cost more money and therefore lower profitability. However, the extra audience figures that this will generate will increase profitability.
Looking at bit wider, I can see that a major rival will be Sky. This broadcaster is backed by a wealthy owner and provides a wide range of services, including specialised movie channels, sports channels and entertainment channels. These channels are only available via digital TV. ITV has both terrestrial and digital channels. However, the Government plans to make all broadcasting digital within the next 10 years. This will mean that Sky, BBC and ITV will all be competing in the same market. This will mean that future profitability will be negatively affected due to the increased choice that will be forced on all TV customers. Digital also provides competition from other smaller channels such as Bravo and MTV, but these channels are specific to one area of broadcasting and will not affect the profitability of ITV too much.
The Bargaining Power of Customers:
I will now look at the bargaining power of customers. The main customers that ITV will have are that of the viewing public and also the many companies that will want to advertise their products on ITV. The bargaining power of the viewers will be very high. This is due to the fact that there is a lot of competition in the industry. If the customers do not like what they are seeing then they will switch over to another channel and not view ITV. This is illustrated by the fact that many shows do not make it past the pilot show. This is truer in USA where competition is fierce. An example of a show being cancelled due to falling audience figures is that of Star Trek Enterprise. All previous Star Trek spin off shows made it 7 series. However, Enterprise will finish after only 4 (a disappointment in my view). Viewers also have the power to bring back their favourite shows if support is high enough. An example of this is Doctor Who on BBC1. This show was cancelled many years ago, however, a new series has just begun on BBC1. The profitability of ITV is dependant on the amount of viewers it can attract. The more viewers it can attract the more profitable ITV will become. Therefore, the bargaining power of customers has a great affect on profitability.
Companies wishing to advertise on ITV will have a limited amount of power. Although there are many broadcasters that are reliant on commercial income, ITV is the number one in the UK. Therefore, ITV can dictate cost a lot more than advertises may wish to pay.
The Threat of Substitutes:
I will now look at the threat of substitutes. There are many substitutes that will affect ITV, some more than others. The main substitute I can see comes from the movie industry. If there is a must see movie on at the cinema then viewers might decide to go and view that instead. However, due to the fact that movies are shown everyday and at various times of the day I cannot see this affecting ITV too much. Another main substitute will be that of spending the evening in the pub. This is probably the main reason for the fall in the main Saturday night audience. Other substitutes are events such as pop concerts and sporting events. However, these events are not that common and will not greatly affect the profitability of ITV.