Turner – Strategic Management Analysis

Taylor Bronikowski, George Chidi, Alicia Horbaczewski, Ryan Langdale, Brenton McAuley, Graham Neff, and Aja Reeves3/27/2009

The glass gleams from more than one side, fourteen stories above the packed food courts and hovering tour guides of CNN Center. Media moguls can measure their domains in Nielsen rating points, or in advertising revenue, or in market share. The rows of bald, featureless, 13 ½ -inch tall golden statuettes lining the hallway to Turner Broadcasting’s executive offices represent a different measurement – the legacy of Time Warner, CNN and Ted Turner, calculated using a shining line of Oscars fifty yards long.

Jim McCaffrey bears the weight of some of that legacy now. McCaffrey, Turner’s executive vice-president for operations and strategy, can choose not to notice the conflict-zone portraits of CNN’s star reporters and commentators on his left. But they’re framed at eye level – about six-foot-four, in his case – which keeps them in view. He can more easily avoid seeing the replica of the Braves’ 1995 World Series trophy on his right as he enters the executive media room. But the configuration seems purposeful, a means of projecting a sense of awe to visitors, and, perhaps, of duty onto Turner’s leaders.

McCaffrey isn’t avoiding sports symbols these days. Along with managing the oversight of new product development, minding Turner’s sprawling studios and keeping the networks running on time, McCaffrey serves as Turner’s chief strategist. Strategic vision helped Turner turn eight hours of dead air on Cartoon Network into the subversive gold mine, Adult Swim. International expansion beckons as a way to use Turner’s assets to maximum effect. But the strategic question for the moment is one worthy of Turner’s storied history. Facing unprecedented economic turmoil and global competition today, how can Turner continue to make profits in the news and entertainment media? Using technology resources and its culture of innovation, what can Turner do to set itself up for future success? Finally, how can Turner keep rival ESPN’s all-devouring maw from consuming Turner’s sports offerings?

Turner Broadcasting – A Short Strategic History

Ted Turner founded Turner Broadcasting in 1970 when Ted Turner bought WJRJ-Atlanta Channel 17 and renamed it WTCG. Since then, Turner Broadcasting led a revolution in the television industry. In the process, the company metamorphosed through merger and acquisition into a modern media conglomerate and the leading provider of programming for the basic cable industry (Turner - About).

In 1976, Turner created the “superstation” concept by transmitting programming via satellite to cable systems. This allowed Turner Broadcasting’s programming to fly nationwide. (See Appendix 1 for an abbreviated Turner timeline as well as a full timeline of Turner’s parent company, Time-Warner.) Turner now controls most of the Warner Bros. film collection, CNN and its international affiliates, Cartoon Network, TBS, TNT and a host of other media properties.

Turner’s strategy has evolved both from serendipity and Ted Turner’s will. Adult Swim is an excellent example of emergent strategy – goofy guys working the late shift at Cartoon Network. But early in the company’s existence, Turner Broadcasting’s strategy revolved around its revered founder. Almost every decision flowed through Ted, McCaffrey said (See Appendix 2).

Ted Turner had strongly-held views about media strategy: Use technology to drive innovation.

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Content is king. News should be focused on content and not talent. Satellites are the way of the future. The syndication model was strong. The internet is unimportant. Turner believed that if something was worth having, you should be willing to overpay for it. Turner was always willing to bet the farm on his strategic vision. That vision ultimately drove growth, McCaffrey said (McCaffrey, 2009).

Growth breeds change. Turner Broadcasting’s organizational structure, brand building, content, and technology all evolved, as needed. New employees brought new, great ideas. But good ideas went unnoticed – Ted Turner made all of Turner’s serious decisions. The company recognized the problem, and restructured so more decisions could be made efficiently without upper-management’s blessings.

Turner Broadcasting has a CEO today with a long history in media. Phillip Kent joined Turner in March of 1993 and took over as CEO in February of 2003 (See Appendix 3 for a short bio). Kent has about 28 years of experience in the industry, with 15 years at Turner and 6 years as the CEO of Turner. Throughout his career at Turner, Kent filled many roles.

From the perspective of Turner’s management team, Kent is seen as the main driver of innovation primarily because he allows people to run with their own ideas and to manage their own efforts. Other employees view Kent as a people-oriented leader. Employees feel as though Kent is on their side and would “sell the furniture before his people.” So far, despite tough economic conditions, Kent has resisted a large-scale layoff. (McCaffrey, 2009)

Ted Turner ceased to be Turner’s day-to-day leader after the sale of Turner Broadcasting to Time Warner in 1996. Since then, Turner has grown to be the largest division within Time Warner, given its parent company’s struggles in print publishing and America Online service. With time, some of Turner Broadcasting’s values changed, but many still hold true today. Ted Turner’s DNA remains in everything at CNN, as obvious as graffiti on the office window glass.

Turner Broadcasting – How The Business Works

Turner stages its battle with ESPN by land and air. Each cable, phone or satellite company pays Turner per subscriber, per month, per channel based on the customer’s tier of distribution. Turner can effectively force a network distributor to accept its entire offering of channels. Phone companies have come from nowhere to be the company’s 9th and 10th largest customers, McCaffrey said. And they pay better than cable. “These are phenomenally overcapitalized businesses,” he noted wryly.

If a network distributor wants CNN, TBS and TNT, much less HBO, it will have to take Turner’s classic movie channel, Cartoon Network and whatever else Turner has to offer, or have none of it at all. McCaffrey’s negotiations are hard-nosed, because they can be. A breakdown in negotiations leads to a channel blackout. And angry viewers tend to call the local cable company first to complain.

It’s hard to understate how thoroughly annoyed McCaffrey is at ESPN’s success. CNN faces off cleanly against Fox News and MSNBC. Cartoon Network competes with Nickelodeon and the Disney Channel. TNT competes against A&E and FX. Et cetera. But Disney’s ESPN stands

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almost alone. Fox Sports Channel comes a very weak second as an all-sports competitor. And Disney can use ESPN to push cable companies around the same way Turner uses CNN.

Of course, Turner can’t ignore its constituents. The company has many stakeholders – advertisers, multi-channel distributors, the press, shareholders, bondholders, employees, the Atlanta community, consumers, Hollywood, and the government, for starters. Turner employees are far and away the most important stakeholder, according to upper management. Turner leaders remain reluctant to layoff any of its workforce – they place immense value in its human capital. Turner also spends large sums of money each year on media research to receive feedback about its programming and content. Feedback often comes directly from its TV audience, but also comes from industry insiders and producers.

Turner Broadcasting System earns most of its revenue from advertisers paying for time slots on Turner’s collection of cable networks. To sell these spots for a premium, Turner must provide evidence to advertisers that its content will command exceptionally high ratings. To attract a large number of viewers and successfully compete with its major rivals NBC Universal, Fox Entertainment Group and Disney-ABC Cable Networks Group – read: ESPN – Turner must provide superior content.

The company is horizontally integrated through a number of mergers and acquisitions (A timeline of some of the more prominent examples can be found in Appendix 4). The result is a crazy quilt of old movies and cartoons, sports programs, Web sites and channels to suit any mood, but it works for Turner. The company has lowered its cost structure through a reduction in the number of replicated resources using a matrix organizational structure. It has also benefited from economies of scale from leveraging one program across different geographic areas. Customers benefit as they are offered a wider range of products. Future goals in horizontal integration include expansion into international markets as well as further development of new content such as sports programming.

Turner has also tried to vertically integrate and currently has a tapered integration model. Turner produces some content in-house and buys other content. Turner resells all this material to multi-channel distributors that ultimately deliver the programming to the customer or publish the content on the Internet for direct-to-customer delivery. Turner plans to increase vertical integration in its content production with more original programs and more in-house news gathering capabilities for more exclusive breaking news stories (McCaffrey, 2009). The company is also exploring ways to vertically integrate content delivery by broadcasting programs online.

When Turner negotiates the rights to a show, the company typically signs a contract agreeing to purchase a full season. Turner also enters into contract agreements for original programs, typically of one season. However, Turner sometimes enters much longer agreements, for much larger sums of money. For example, the company bet on the rising producer Tyler Perry and outright bought 100 episodes, a deal unseen when 12 was the industry standard for the first season (McCaffrey, 2009). Turner’s expensive relationship with the NBA has been described as a “practical joint venture.” Its engagement to NASCAR will last through 2014 (Paid Content.org).

With such high stakes, there’s great risk. Either party may discover that it has overpaid or

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overpromised. But the potential for profit is even higher. Turner has guaranteed content, is able to block competitors’ access to the content, and can develop long-term plans for use of the content. The benefits of the long-term contracts have added significant value to the company. And these relationships form Turner’s bulwark against competitive encroachment by ESPN.

Turner Broadcasting – The Challenge

McCaffrey talks with the confident patter of a stockbroker on the train home to New Jersey – a little like Christopher Walken as Donald Trump. To McCaffrey, Fox News isn’t a news channel; it’s a religious cult. Stockholders don’t receive dividends; they get plussed-up. Unlike New York, Chicago or Los Angeles, the city of Atlanta only begrudgingly concedes its status as a center of media industry. McCaffrey concedes nothing for Turner, or for television, or for much at all. He may be constitutionally incapable of it.

“Newspaper is dead. Broadcasting has never been stronger.” Despite fears of an exodus to the Internet and video gaming, McCaffrey’s ratings figures refute losses. “(Advertising) dollars are accelerating to cable,” he said. “Consumption of television has been increasing and is increasing at an accelerated rate.” A pause for effect. “Go figure,” he adds, an epithet.

It’s not all wine and roses. While McCaffrey is waving off lofty projections of Internet ad spending as 30-to-40 percent “speculative” with one hand, he’s doubling his bets online with the other. “We’re not so naïve to think interactive programming isn’t important,” he said. About 60 percent of ad buys on CNN combine online advertising and broadcast. McCaffrey raves about the demographics of CNN.com readers during the day. “We believe, and the data supports, that there has to be a connection between mass reach and content-producing advertising.”

Turner’s differentiation business-level strategy has its advantages and disadvantages. Turner can demand a premium for its services. Differentiation offers a more segmented market. It supports an innovative environment. It decreases the chances of price wars with competitors. But Turner pays for it with a high cost structure, ongoing innovation investments, difficult and expensive positioning decisions, and vulnerability to economic downturns.

The cost structure of network production awes. Broadcasters like Turner face highly dynamic demand. Tastes for media change constantly. But broadcasters face many sunk costs, such as market research and the physical infrastructure to manage content. The uncertainty, relative to the amounts invested, is fierce. And short of selling to a competitor, broadcasters have no meaningful exit option other than profitability or bankruptcy.

So, on some level, Turner tries everything and keeps what works. Adult Swim is a good example. Viewership on Cartoon Network dropped off at night – kids went to bed. Ad prices were low enough to run a national commercial for a kid’s birthday party after 10 p.m., McCaffrey joked. But adult cartoons like “Family Guy,” “The Simpsons, and “South Park” had a growing audience. A Cartoon Network manager pushed for a block of reruns of adult oriented cartoons and Japanese anime as an internal venture. Success prodded the team to seek original programming as well.

No network had ever created a lineup of adult oriented cartoons before Adult Swim. Adults

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made up one third of Cartoon Network viewers, so it only made sense to target them and create more ad revenue at night (USA Today). Turner didn’t have a large budget, but since the channel was already established, creating Adult Swim did not cost a lot of money. Adult Swim original programs cost an average of about $100,000 per episode, a tenth of the cost of a Simpsons episode (USA Today2). Adult Swim’s fan base grew rabid.

Adult Swim currently ranks number one among cable viewers age 12 to 34, adults 18 to 34 and males 12 to 24, among similar programming (Free Library). It is second only to ESPN for men age 18 to 34. It also beats out many late night talk shows, including Letterman and Leno (New York Times). According to Jim McCaffrey, the network is a classic “cash cow.”

Perhaps that’s why the Sci-Fi Channel – soon to be called SyFy – has launched its own late-night anime block, starting at 10 p.m. No one gets a free ride for long.

The aggressive rivalry between the largest network operators should be unsurprising, given the risks and the costs. ESPN appears to be a real threat. The broadcast networks can put a dent in ESPN during football season, but its dominance remains largely unchallenged. There is no equivalent to SportsCenter’s hold on young men. ESPN.com accounts for about half of the online traffic to network sports Web sites. Most of CNN/Sports Illustrated (SI) traffic comes from links to the immensely popular CNN.com site. However, ESPN isn’t so much stalking its sports broadcasting competitors as it is trampling them.

ESPN provides Disney the same wedge with advertisers and cable operators that CNN (and now TNT) does for Turner. Without a threat, McCaffrey worries that the ultra-popular sports channel will provide a beachhead for its parent company – Disney – threatening to siphon off the profitable growth of Turner’s other sports properties in basketball, NASCAR and baseball.

“ESPN is a huge deal for Disney, probably their most important deal,” McCaffrey said. “They will never let it go or sell it.”

Turner Broadcasting – Getting Out Of America

Aside from the ESPN threat, McCaffrey has to cope with the fundamental challenges of managing Turner’s operations. The extent to which Turner’s product offering – in this case, media content – is differentiated from its rivals can make the difference between the survival and the death of a show, or even a whole station. Turner needs to use all it has, as efficiently and effectively as possible.

Global expansion is one route to efficiency. Turner has 11 international CNN stations including Headline News. Turner also has five entertainment stations and eight animated stations abroad (see Exhibit 1). Turner has a strong presence in Latin America and Asia, as well as a few countries in Europe such as Germany. CNN also has partnerships with local media channels in Spain and India as well as with Claxson Networks in Latin America.

National differences in customer tastes and preferences around the world might require CNN to change its programming and become more localized in its orientation towards programming to different markets. Turner has a different product internationally ever since 1995, when CNN

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initially expanded abroad. CNN repackaged US news for international audiences such as world political and business leaders in addition to hotels viewers so that it was less US-centric.

Ever since continuing expansion, CNN has become ever more customized to the specific region, by transmitting local news in local languages. However, this strategy backfired in China when the government turned off CNN’s news feed due to even stricter local censorship regulations. As a result, CNN decided to exit China although a fortune had been lost in set-up costs. Nevertheless, while it is recommended to report on local news to cater to local needs, this does not mean that Turner should change the tone on international news reports to adhere to what it perceives the local viewers to agree with. CNN is seen as “one of the world's most respected and trusted sources for news and information” and must not lose this trust by altering its international news programming to fit local political leniencies.

CNN’s international growth is almost three times its domestic growth. Continued international expansion is vital. Expanding globally can help a company save money by spreading fixed costs over a global sales volume. In Turner’s Europe-Middle East-Asia initiative, for example, the company shares 80 percent of its U.S.-generated content. Local affiliates produce the remaining 20 percent. This practice lets Turner cut costs on customized programming, while offering content with appeal to the local audience.

While CNN is continuing to support its international strategic mission and invest money overseas, it isn’t making the money it does at home – international margins are way below domestic returns. It will take more than great news and entertainment shows to be successful in other countries. Turner must provide distinctive competencies producing and marketing those goods and services.

Turner Broadcasting – Differentiation

Turner is in an advantageous position because it has already created many subsidiaries globally. Also, Turner has established multiple innovation systems that encourage employees to foster new competencies and think like entrepreneurs, taking Turner to the new level of global success. CNN tries to allow for as many ways as possible for innovation to arise. CNN designs cross-functional teams that promote organizational learning across diverse functional and divisional roles. Additionally, CNN hosts Freethinking Fridays where employees are encouraged to present their innovative ideas for possible adoption by CNN. One idea that was developed from this system was CNN en Espanol.

This culture of innovation also allows CNN to use an innovative approach to customer service. For the first time, CNN allowed viewers around the world to watch news programs 24 hours a day. This type of service delivery brought a new core benefit for viewers who couldn’t tune in at 6:00 pm or 11:00 pm. By focusing on an underexplored service benefit, managers were able to turn customer needs into a new service innovation opportunity and profit. Exhibit 2 gives a graphical representation of the impact that differentiation has had at Turner.

Turner’s inventiveness and efficiency can also be observed in its marketing strategy. The high fixed costs that companies bear for acquiring new customers are usually only recouped when a customer remains loyal to them for a long period of time (Hill). Turner uses aggressive branding

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and promotion strategies to retain current viewers and reel in new ones. Last year Turner packaged DVDs of its original series, “The Closer” with food products and promoted family packs at Six Flags and minor league ball parks as a new way to cater to existing fans (Lafayette). Loyalty mainly determines viewer defection rates. Turner’s focus on building strong, branded cable-TV networks helps retain viewers (Romano). Kent maintains that this emphasis on branding distinguishes Turner from its competitors (Romano).

McCaffrey believes in brands. Earlier in his career he held positions at decidedly un-media brand firm Beatrice Companies, and served as a brand manager at Cadbury-Schweppes. McCaffrey believes consumers behave in media space as they do in grocery-space. Brands breed comfort, identity, and familiarity with a consumer. Each of Turner’s brands allows the broadcaster to appeal clearly to a differentiated segment of the market with unique content. Turner trains heavy marketing foci on setting up TBS as “Very Funny,” TNT as “We Know Drama,” and CNN as “The Most Trusted Name in News.”

Turner rebranded the former CourtTV in 2008, dubbing it “truTV” and attaching the tagline, “Not reality. Actuality.” The change came about in an effort to better align the network’s position with its programming (Hamilton). By complementing its syndicated programming with its original series, Turner can fill a void for viewers that many other networks haven’t been able to. Viewers have a variety of different “single-genre” programs to choose from on each network.

Turner can also deliver content differentiated by form. For example, CNN focuses on delivering quality news programming with a strong emphasis on online and mobile form delivery. Naturally, Turner’s targeted segment for CNN is the well-educated, tech-savvy, on-the-go viewers. TNT caters to an older crowd with mature programming in an effort to appeal to the 25-54 year old age group. It’s the #1 cable network for that segment. TBS is #1 in the 18-34 year old segment for comedy. Turner recognized a growing segment in the African American population, and met it by pulling in popular programming like Tyler Perry’s House of Pain, a run-away success according to Nielsen ratings. A full summary of Turner’s segmentation strategy with its entertainment business can be seen in (Exhibit 3).

Plainly, Turner’s segmentation isn’t perfect. Over one-third of the viewers on the Cartoon Network during the day are adults, while “adult-programming” doesn’t actually begin until later at night on Adult Swim. Every once in a while, children will stay up too late and see Adult Swim. White people do watch House of Payne sometimes. Cross over between segments like this inhibits Turner’s value proposition to advertisers hoping to target its promotions. It also makes programming decisions more difficult.

Turner, through CNN, has also been on the forefront of innovative – or, at least goofy-looking –technologies. The “Magic Wall” and holographic interviews both made a splash during the 2008 presidential election Turner’s forward-thinking when it comes to diversity also gained them recognition as innovators.

Turner has made efforts to broaden the experience and perspective reflected in its content by focusing on diversity (Kent). Kent, Turner’s CEO, maintains that the company sees diversity as mandatory and a matter of business survival (Kent). Turner acquired a group of established Spanish-language television networks to double its scale in Latin America and Mexico. Turner

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also committed resources to produce CNN’s “Black in America” series last year. Turner casts shows that reflect diversity of real-life workplaces, as can be seen in The Closer, Saving Grace and Tyler Perry’s House of Payne.

In addition to diversity, Turner’s mission and major goals for the next few years also include “executional excellence, audience development, and international expansion,” as McCaffrey put it. The company also seeks to “ensur[e] the quality of [its] products remains high, making the best possible use of [its] resources, and executing with even greater purpose on [its] growth goals” (Dyar, 2009).

Turner has turned its focus from simply providing content to building brands, such as TBS – Very Funny and TNT – We Know Drama. McCaffrey views this as a major strategic shift for Turner Broadcasting. “The bulk of our efforts are behind entertainment, both in new brands and existing brands,” McCaffrey said.

The company moved strongly into the digital space with CNN.com and CartoonNetwork.com. Although there were many skeptics when launching CNN.com it is now a major content delivery mechanism and has done very well. And though Ted Turner originally downplayed the importance of the Internet, the company has continued to use technology as a driver of innovation. (McCaffrey, 2009).

The company has also long been a believer in the strength of sports as content and still believes in the value of sports programming. Turner’s TBS station shows Braves games and divisional championships, while TNT shows basketball and NASCAR races. Turner owns the online rights to the NBA. ESPN is driving Turner to develop new strategies intended to fight for market share in this segment.

Turner Broadcasting – A Few Threats

Shirtsleeves-up in the boardroom, Jim McCaffrey has a lot on his mind. While Turner has made moves to protect itself from some known threats, the media industry in general – and Turner in particular – faces a roiling, unpredictable sea of changes. Here are a few of the better ones.

A conversation with a Turner stockholder indicated that in most cases, management is able to align itself with the interests of its stakeholders. One exception glares out – the enormous $6 billion chunk of unlevered cash Turner currently has on its books after selling off Time Warner Cable. Nervous shareholders want to be “plussed up,” before management buys something expensive. Shareholders still sting from management’s decision to decrease Turner’s equity base by 25 percent in a recent financial maneuver. That action dropped Turner’s share price by roughly 30 percent in the markets.

Despite Turner’s strong leadership and relatively amicable relationship with its stakeholders, there have been problems with strategic decisions made by the company in recent years. Most notably, in 2003 Turner decided to jettison the financially-draining Atlanta Hawks and Atlanta Thrashers from its portfolio. During the negotiation process, Turner entered into what Texas

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businessman David McDavid thought was a contractual agreement to sell. Turner instead chose to sell to the Atlanta Spirit Group.(source in endnotes).

Lawsuits unspooled. McDavid alleged that Turner had reneged in its agreement to sell. The court found Turner guilty of breaching contract and fined them around $300 million. Beyond the legal and financial repercussions of this behavior, Turner’s reputation stood at risk. Guilty or not, people believed Turner ended up selling to the Spirit Group because of its strong ties to The Spirit Group’s management, namely Ted Turner’s son-in-law. Turner has extremely valuable brands; bad publicity could harm CNN’s reputation as “the most trusted name in news.” For these reasons, Turner will need to be more forthright and transparent in its future business dealings. Fair or not, perception is often reality in the public’s view.

Turner is also facing a real threat – and, possibly an opportunity – from the Internet as a distribution mechanism. Multi-channel distributors view the Internet as a giant disintermediation tool. Turner could just cut out the middleman and offer its programming directly to consumers as a digital download. The trouble for Turner – its content suppliers could easily do the same thing to Turner.

Turner Broadcasting – A Few Recommendations

Sports Media has realized considerable growth in recent years, with projections continuing to trend positive. Television and digital advertising largely drive this growth. The old guard of print media and magazine subscriptions (and subsequently ad revenue) has flat lined and is projecting a decline. Currently, Sports Illustrated is the most widely circulated sports magazine. Quite clearly, strategic movement needs to be made. Given Turner’s extensive history of cable broadcasting, innovation with technology, and strong brand imaging, a transition to explicit sports television is recommended. This television content, coupled with the ever growing SI.com landscape and the highly branded Sports Illustrated print medium, will help to serve and grow a solid sports television channel. As extensively noted, ESPN dominates the sports media landscape with their vast array of platforms and breadth of content. The comprehensive brand, spanning television, print media, and digital content, trumps all competitors. Yes, ESPN is uncatchable in the short-term. However, market share can be attained with solid strategic implementation in a few key areas. Turner should focus on strong content, unique personalities, and an ever-present brand image.SI-TV will be available, period. Because of the noted contract stipulations, Turner essentially says “all or nothing” in regards to cable companies providing all their channels. SI-TV will be included with the Turner lineup. Content has always served as a lynchpin for Turner. Content, content, content McCaffrey repeats on end. Well, the content is available. Spread over TBS and TNT, Turner has a stake hold in numerous sports ventures and television contracts. The NBA has been a foundation on TNT, with the annual February All-Star and April playoffs drawing extreme ratings. Major League Baseball has been anchored on TBS, dating back to the 1970’s with the Atlanta Braves, through the 2000’s with expanded national coverage and playoff series. NASCAR and PGA Tour coverage are also found on TNT. The content is present. Certainly expansions should be introduced – original content (such as a daily sports news show similar to SportsCenter) is a necessary venture. Original content is augmented by well-known, likeable personalities. SI.com is industry-respected for news reporting and unique perspective writing. Assimilating these current print personalities to television personalities is a necessary

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task. This strategy has been used successfully in the past with CNN anchors, and can be utilized again with SI-TV.Another benefit to creating a separate, sports-specific channel is overall brand enhancement. Currently TBS (Very Funny.) and TNT (We Know Drama.) have strong brands. However, the aforementioned sports content does not necessarily align with such branding. Removing this content from those two respective channels, and placing them on an all-sports channel will serve to create three very strongly branded channels.

There are a number of things that Turner could do to improve their business-level strategy and thus their competitive advantage. Turner has a love affair with creating memorable brands, as part of their overall differentiation strategy, but hasn’t countered rivals’ teen-branding at Disney or Nickelodeon. Live kids programming has produced super-star franchises – the Hilary Duff, Miley Cyrus, and Jonas Brothers empires. Turner cannot afford to ignore the lack of human personalities in their child programming, eroding its ability to create those valuable brands they need.

It is also critical that Turner leverage the skills of their current talent within their 9,000-employee global network. Turner is in the information industry, and the collection and communication of information relies on their people. Turner must recognize that valuable skills and strategies can arise from anywhere within the firm’s global network, not just at the corporate center or at the top of the organization. Turner’s commitment to fostering a culture for innovation is admirable, but their employee incentive system for such innovative ideas leaves rewards for entrepreneurial ideas to be desired.

More opportunities for vertical integration also exist. On the content development side, Turner can expand their budget for original programming and start a program to grow talent internally. On the content delivery side Turner can expand their online offerings, partner with a content provider such as a cable company or Apple TV, and further develop the mobile market. Each of these opportunities comes with a number of costs and risks which must be thoroughly examined.

Among the dangers associated with this vertical integration in content is that Turner may have trouble filling all of its airtime if it relies solely on original programming. Turner must also be careful not to alienate some of its largest customers, the cable companies, by delivering programming via the Web or some other device such as Apple TV. Turner is already testing the waters by providing online access to programming for users who can prove that they’re a subscriber to a cable, satellite, or telecom television service (Smart Brief). The mobile market is also growing and changing rapidly. A high bandwidth network coupled with a high performance device may soon allow customers to watch all their favorite shows in real-time from their mobile devices. The implications of this technological paradigm shift will have a substantial impact on Turner’s strategy and constituent relationships.

In addition to vertical integration with regard to content form and delivery, Turner might also choose to focus on pursuing additional long-term cooperative relationships. To provide a unique experience for the end user, Turner could partner with telecom companies that are rolling out IPTV to provide exclusive content based on the end user’s preferences. A partnership of this type would benefit the telecom company by differentiating their service from that offered by the cable and satellite companies. This partnership would also benefit Turner if it was given

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exclusive rights to use the advanced technology services for a given period of time.

Partnerships are also essential to Turner’s internationalization strategy. To break into the international market, Turner needs to pursue partnerships with established media companies in the countries that it has not yet entered. This will allow it to capitalize on existing infrastructure, brand recognition, and local knowledge. National differences in customer tastes and preferences around the world also may require CNN to change its programming and become more localized, moving away from Turner’s 80-20 rule. Currently, Turner’s localization strategy – taking its national product and adapting it to local markets – still needs to become more efficient to capture full scale economies from its global reach. Turner might consider moving towards a transnational strategy for the long term, which is more effective in reducing costs as well as being locally responsive.

Turner Broadcasting – The Close

Jim McCaffrey is feeling good about his company’s strategic position, “Turner has never been stronger!” Indeed, Turner has managed to not only remain profitable, but also accumulate a significant amount of capital for cushion in these turbulent economic times. McCaffrey knows that since newspaper is dead, diversification with new technology into new markets and geographies with new global alliances is the key to continued competitive advantage.

However confident McCaffrey seems outwardly, he knows that it has been a fight every step of the way. His organization needs to continue to perform well, and the battle for business excellence is ongoing. Because of intense competitive pressures, his business is constantly changing. McCaffrey needs to ensure that Turner is agile enough to withstand such continuous pressure. As he looks down from his office on the 14th floor of the CNN Center through the glass walls to the media center down below, he nevertheless can’t help but smile. The broadcasting business is still good.

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