Newspaper Industry Essay, Research Paper

Strategy

Assignment Two: News Corporation.

Discuss the growth strategies pursued by Rupert Murdoch for News Corporation between 1960 and the early 1990s.

?In the world of Rupert Murdoch, ruthlessness is expected; weakness leads to corporate Siberia.? (www.bn.com)

Rupert Murdoch is the inventor of the modern global information empire. With cable and satellite channels on five continents, Murdoch reaches nearly seventy five percent of the world. Initially building News Corporation (News Corp.) upon a series of smaller acquisitions and brand-new ventures (La Franco, 1998), Murdoch has acquired a taste for ?corporate cross-pollination? (Baker, 1998). By diversifying and vertically integrating News Corp., in addition to forming strategic alliances and pursuing joint ventures, Murdoch?s corporate strategy allows him to endlessly pursue growth opportunities.

The evolution of News Corp.

In 1954 Rupert Murdoch inherited two Adelaide newspapers, Sunday Mail and The News. He converted The News into a paper dominated by sex and scandal (www.britannica.com), a strategy that he later successfully applied to other national papers, and subsequently his international publications. Despite local success, Australia was considered ?too slow and provincial? for Rupert who devised a strategy to broaden his media network (Kiernan, p85). In 1969 he acquired his first British newspaper, and in 1973 he entered the American market by purchasing two daily papers.

News Corp. includes major holdings in radio and television stations, newspapers and magazines, video and record companies, publishing houses, sports teams, satellite and cable networks, the development of digital broadcasting, the production and distribution of motion pictures and television programming, amongst other investments. The company has a frightfully complex structure, listing roughly 800 subsidiaries.

Strategic issues.

The strategy issues News Corp. must appraise are consistently changing to address a dynamic environment and a changing portfolio of companies. The pertinent areas Murdoch has always considered include the threat of intensifying competition and globalisation, the evolution of new technologies, the power of information, and the potential for new alliances. Superseding these concerns is the critical question for strategy; evaluating what resources and capabilities provide the most promising basis for exploitation or development. Markides (2000) dictates that the company?s initial resource endowments and core competencies should constitute the focus for strategy, and therefore guide the search for new combinations of activities.

Resources.

In order to sustain a competitive advantage, valuable firm resources and capabilities are those which cannot be imitated by others in a competitive market, or substituted by some other asset that can be purchased competitively. The firm specific assets of News Corp. include it?s brand name, reputation, and identity, which have been described as ?distinctive? compelling ? unique?a risk taker? (Gunther, 1998). The following resources are also essential to the creation of a competitive advantage that supports News Corp.?s growth strategy. Knowledge of how to operate a multinational company; of overseas markets; and of competitors; decisive leadership; and News Corp.?s unique culture. These resources are invaluable to Murdoch and help position his company as a market leader.

Capabilities.

It can be contended that Murdoch himself is a capability for News Corp. When evaluating what truly differentiates News Corp. from it? rivals, consensus amongst observers and competitors is that the risk taking nature of Murdoch is a valuable asset that other companies cannot emulate. His relentless determination and daring, his quest to defy convention and break the rules of the establishment, give his company opportunities that others would readily overlook or disregard. Furthermore, Murdoch?s ?great business skill and guile? (Kiernan, 1986, p321), guide News Corp. and help to establish and enact its aggressive growth strategy.

The overall growth strategy of News Corp.

Robert (1998) states that the vision of the CEO is the starting point for strategic thinking; his/her task being to shape and clarify the organizations future strategic profile. News Corp. has no strategic planners (Gunther, 1998). Decision-making tasks reside with Murdoch and two other executives. Murdoch bets on his instincts which underlie the company?s strategy; News Corp. takes chances when others don?t. Hussey (1999) explains that strategy is the means by which an organization moves to attain its long-term aims. Although a gambler, Murdoch employs a long-term focus for strategic growth, and when speaking about his strategy of grabbing a chance as it presents itself, he discloses that ?Sometimes you have to pay a high price for opportunity. It?s a case of sacrificing immediate earnings for a longer-term build up of asset values.? (La Franco, 1998)

Beginning in Australia, Murdoch applied a rigid formula of ?scandal, sports, cheesecake and crime? (Kirkland and Kinkead, 1984) to most of his papers. He bought pallid papers cheaply and successfully transformed them into profitable enterprises. This led to enormous growth opportunities. He transported this winning strategy overseas and also achieved unprecedented profits and expansion in Britain. By the mid-80s Murdoch controlled the Australian and British press to such an extent that few acquisition opportunities remained. He ferociously attacked America, being the only English speaking market able to match his appetite. After gobbling various newspapers as appetisers, Murdoch staked his claim in the States when he purchased Twentieth Century-Fox and the metromedia television stations in 1985, to form Fox Inc. and establish a fourth US television network (www.salon.com). Although still hungry for big city papers, Murdoch became convinced that an increasing share of News Corp.?s growth must come from broadcasting, movie production and satellite communications (Kirkland and Kinkead, 1984).

The strategy of vertical integration.

Vertical integration relates to the make-or-buy choice companies make. It involves a strategic decision to perform activities within the company as opposed to purchasing them from an independent organisation (Besanko et. al. 2000). Murdoch has pursued vertical integration ?with a vengeance? in the newspaper industry (Gunther, 1998). He has tried to emulate this boundary expansion strategy in America, purchasing Twentieth Century-Fox followed by numerous TV stations to supply his programs to consumers, instead of purchasing from competitors. He was the first to realise that owning more TV stations is strategically important in his quest to make Fox the number one network. Vertical integration allows Hollywood production facilities to feed their distribution apparatus and create symmetry within the business.

Vertical integration, as a component of a corporate growth strategy, is apparent throughout the Murdoch empire. News Corp. is gradually investing in all areas of the entertainment industry to compete for the ?hearts, minds, and eyeballs of the world?s 6 billion people? (Rose, 1998, p2). By integrating vertically Murdoch is able to exert increasing control over the content of his numerous communication channels. One medium is used to boost others through content and advertising, in addition to ridiculing his rivals. Furthermore, strategic buys such as baseball clubs ensure that loyal fans purchase his cable channels in order to watch games, and are subsequently exposed to a foray of ?News Corp.? offerings.

Diversification.

Sutton (1998) highlights that in order to understand the constraints and opportunities for diversification, a company must focus on the resources it can deploy. Firms can diversify by developing a new business area internally, by embarking on joint ventures with other firms, or through the acquisition of firms in unrelated lines of business. News Corp. continually expands its? boundaries, generally within the entertainment business, and is a modern conglomerate proving that ?focus and diversity are not always mutually exclusive? (David, 1999).

One argument for diversification is that long term success requires a company to develop a portfolio of businesses that assures an adequate and stable cash flow with which to finance its activities. In this scenario, growth is pursued due to the fiscal advantages of managing large growing firms, which Henry Manne defines as a ?market for corporate control? (Besanko p210). The control of corporations is considered a valuable asset, and Murdoch can be classified as a ?corporate raider? motivated by financial rewards. He skilfully identifies an undervalued firm, adapts their strategy using specialised knowledge and resources, and then reaps previously unexploited profits. However, Gliek (1998) cautions that the larger a company gets, the more difficult it can be for the left hand to know what the right is doing.

Strategic alliances and joint ventures.

Strategic alliances are valuable to a company as they permit cooperation and coordination with another company, allowing the sharing of information and productive resources. News Corp. has been involved in both horizontal and vertical alliances, involving collaboration with other firms involved in the entertainment industry. David (1999) explains that joint ventures are becoming an increasingly popular strategy, as they allow companies to improve communications and networking, to globalise operations and to minimise risk. Although not heavily involved in joint ventures in the past, News Corp. is undertaking such initiatives more frequently, particularly with investments in the developing world and recent internet initiatives.

Strategy differences between News Corp. subsidiaries.

When discussing the overall strategy of News Corp. as a conglomerate, it would be negligent not to address the fact that individual companies within News Corp. employ quite different strategies to compete in their unique industries. In the newspaper industry, in addition to sensationalist hype, News Corp. has employed what Porter terms ?cost leadership strategy? (van den Bosch and de Man, 1997) to establish a competitive advantage. With the New York Post in America (Hoyt, 1998) and The Times in England (editorial), prices have been slashed to undercut competitors and boost flagging circulation. Regarding Fox, the company has diversified and assets are vertically integrated in order to fulfil the strategy of being everywhere, in order to capitalise on future profits. Despite industry related discrepancies, Murdoch generally employs aggressive growth tactics to expand the News Corp. kingdom. His ruthless strategy may be expensive in the short run, however, a long-term focus allows Murdoch to defeat short-term fiscal hiccups and frees him to conquer the world.

Conclusion.

It is laughable that Keith Murdoch, Rupert?s father, doubted his sons? ?tenacity? to assume his mantle as an influential newspaper man (Leapman, 1983, p13). Although Murdoch?s grand scheme, to create a ?cosmic armada of satellites girdling the globe? (Rose, 1989, p4) has not eventuated, he remains a powerful competitor in the global market, securely ranked among history?s top media magnates. As we enter the 21st century, Murdoch continues to interweave News Corp.?s vast media holdings, while maintaining a strategy that spurs continued company growth. On a local scale, News Corp. has recently been titled the biggest company in Australia, which is a testament to Murdoch?s insatiable appetite for expansion. It seems that the ?rise and rise, and rise, and rise? (Pascoe, 2000) of News Corp. will continue.