Case Overview
Atom Film was the first entertainment company to distribute a short-format entertainment including short films and animations to a large consumer audience primarily through the internet and television. In 2000, Atom Film’s innovative and quality film content was in great demand among the audience, making it a company of choice for most online media companies.
However, towards the end of the same year, a decline of the market, particularly internet advertising market, led to reduced revenues and investment. This forced the Atom Film’s CEO, Mika Salmi, to forge a merger with another online advertising firm, Shockwave.com, in order to strengthen the company.
Consequently, Atom Shockwave, with Salmi as the CEO, was founded. Unfortunately, unfavorable economic conditions that plunged the internet-advertising industry between 2001 and 2002 led to increased cost cutting in an attempt to remain profitable. During this time, most companies dealing in internet advertising closed down.
However, Atom Shockwave survived but again faced stiff competition in 2003 for the online market from other established internet companies reducing its profitability. It had expanded its investments to include online games, a market niche dominated by powerful internet companies such as Yahoo and Microsoft.
Mika Salmi as an Entrepreneur
Entrepreneurs are broad-minded people with the ability to recognize potential business opportunities to invest. In this respect, Mika Salmi was an entrepreneur in that, as the founder of Atom Films, he identified the idea of short films as potential business opportunity as an MBA student at INSEAD campus in France in 1992.
The French Television, M6, which showed short animations, music, and video clips to the audience, inspired Salmi to pursue his idea. Later in 1997, he launched RealVideo, a streaming video product while working as a director of the Business Development for Real Networks.
This shows Salmi’s confidence and determination, which are core qualities of an entrepreneur. Additionally, Salmi was proactive and believed that his idea will later be successful and even carried out market research before starting the business.
Successful entrepreneur set out strategies and tactics that can facilitate the accomplishment of their business goals. In this regard, Salmi shared his business idea with Tom Hughes and Mark Torrance who co-founded Photodisc, part of Getty Images. He was able to get technical and material support to further his idea when he worked with Getty images.
Successful entrepreneurs always endeavor to ensure that their idea succeeds and do not belief in failure. Despite challenges such as limited resources, lack of sufficient investment, and low business prospects, Salmi went ahead to start his business venture.
Unlike other firms that provided online content, Salmi, as an innovative entrepreneur, targeted online entertainment market segment intended for airlines and television stations. To attract investment into the new Atom Films Company, Salmi sought more investment from prospective investors including Thomas Hughes and Tori Hackett.
He was able to link with cable television and internet providers, the major target market for the Atom Film Company. He was able to raise enough funds to support the new venture. The new investors helped market the content offered by the new company and structure the content to suit the market needs.
The Entrepreneurial Process
The entrepreneurial process entails the actions or activities involved in the identification of a business opportunity and establishing an enterprise to pursue the opportunity. The entrepreneurial process involves four distinct stages viz. identification and assessment of the viability of the idea, creation of a business plan, determining the resource requirements, and management of the enterprise.
Salmi had identified the short-format entertainment as a profitable business while a student at INSEAD’s campus in France. A local television channel that specialized in short films inspired his idea.
The next stage would have been to develop a business plan for his business idea. Salmi developed a business plan that primarily focused on short internet content, which he presented to some people including Thomas Hughes and Mark Torrance. However, the business plan was not adequately prepared as Salmi encountered difficulties in finding investors.
A good business plan outlines the means of obtaining resources and the ways of attracting potential investors. Apparently, Salmi’s business plan did not address the potential sources of funding or investment. He had to rely on Thomas Hughes and Mark Torrance, the owners of Photodisc, to sell his idea to other investors.
Additionally, the determination of the resource requirements for the enterprise was underestimated and did not factor in future expansion activities of the company. Consequently, Salmi had to struggle to seek funds to sustain the enterprise.
Additionally, the resources were not acquired in a timely manner, which forced the company to undergo restructuring and cost cutting and as a result, it merged with Shockwave.com for survival. With regard to management of the enterprise, Hughes and Hackett, the main investors, believed that the management style and leadership structure was quite satisfactory.
Atom Films Merger with Shockwave
The shrinking advertising market coupled with a decline in investments made it impossible for Atom Films to pursue its growth goals. As a result, Salmi sought alternative opportunities to save the company. A merger with Shockwave, a relatively profitable company, presented an opportunity to save Atom Films. By combining the two companies, higher revenues and reduction in operating expenses were expected.
Additionally, the merger aimed at ensuring a wider market access and strategic positioning. The merger was deemed as essential in two ways; firstly, Shockwave’s interactive media software provided an opportunity for Atom Film to integrate its short-format content to reach a wider market. Secondly, it allowed Atom Films access to wider financial resources and attracted investment into the new entity.
Salmi also used establishment of syndicates and joint ventures as other strategies to keep Atom Film profitable. Atom Films established a joint venture with Global Media to provide short films and animations through Atom television cable. Atom film also established networks that facilitate armature streaming of armature submissions and sponsored contests to expand the market.
The merger with Shockwave was not appropriate in many respects. Although the merger was expected to reduce operating costs, the costs did not reduce as expected. This forced AtomShockwave to undertake extensive cost cutting and restructuring between 2001 and 2002, which targeted the staff, royalties, and infrastructural expenses.
Even after all these efforts, AtomShockwave was still not profitable, which forced Salmi to explore other business options. Additionally, even after the merger, Atom Film and Shockwave continued to conduct their business as separate entities. Atom Film ran a sponsored fan film contest and formed a joint venture with Global Media Company while Shockwave.com, in 2002, introduced Gameblast game portal independently.
Strategies to improve the Company’s Performance
Normally, the strategies to improve organizational performance involve cost reduction and joint ventures or mergers to pool resources (Argyris 142). However, in Atom Films’ case, these interventions constrained organizational performance.
Given that the merger with Shockwave was not generating much revenue as anticipated, I would advise Salmi to consider strategies concerning innovation in both products and sales and marketing of these products. Salmi should focus at product differentiation, targeting a wider audience in order to remain competitive.
The product offerings should be tailored to suit the changing consumer needs. He should be cautious with his expansion and growth goals by focusing on a single market segment first. This can be achieved through a SWOT analysis.
At the same time, Salmi should focus on the external environment factors such as competition from companies that offer short format content online. Importantly, Salmi should understand the marketing strategies and competitive advantages of Microsoft, AOL, and other major competitors before investing in a particular market niche.
External factors such as stiff competition affect organizational performance. Additionally, Salmi should undertake to understand the preference and demographics of the target customers. Failure to understand the customers affects a company’s competitive advantage due to poor customer relations.
He should also consider the available technologies and utilize them in order to remain competitive. Salmi should ensure that the company is profitable before reaching at a decision to go public.
Essentially, an IPO process begins with an executive meeting six weeks before registering with the Securities and Exchange Commission (SEC), followed by identification of partner banks to assist in selling the shares. The management then meets with potential investors to agree on the share price before marketing the IPO. After the price has been agreed on and a final prospectus issued, the stocks begin trading in the SEC.
Organizational failure arises when an organization’s performance deteriorates followed by reduction of resources within an organization. Lack of sufficient funds is among the top internal causes of organizational failure. Most companies begin operating with insufficient investment or funding, which affects their performance and growth (Leana and Barry 753).
Another internal cause is the poor management skills or style among the leadership of the company. Moreover, lack of clear business objectives and planning leads to business failure. External causes of organizational failure include competition from established companies and business laws and regulations that do not promote the growth of a new business venture (Ramezani, Soenen, and Jung 56).
Continuous corporate renewal is a major long-term strategy for most business ventures. The strategy encompasses re-invention with regard to business operations, products, and services, human capital, and market diversification. This can be realized through proper market research and improved investments into the company.
Conclusion
Given the many challenges faced by Atom Films Company, corporate renewal is the only option of ensuring sustained profitability. Even after its merger with Shockwave.com, the company remained barely profitable.
The stiff competition from other established companies and the limited resources in Atom Films Company underscored its failure. However, restructuring aimed at product differentiation and market expansion would be appropriate.
Works Cited
Argyris, Chris. On Organizational Learning. Blackwell: Malden, 1992.
Leana, Bradley, and Barry, Carl. Stability and change as simultaneous experiences in Organizational life. Academy of Management Review 25.4 (2002): 753
Ramezani, Aldrin, Soenen, Leign, and Jung, Archer. Growth, corporate profitability, and Value creation. Financial Analysts Journal 58.6 (2002): 56