Introduction
Foxtel is a vibrant and fast growing pay TV service provider in Australia that offers cable, IPTV as well as direct broadcast satellite services.
Over the years, the company has been making milestones in the industry that includes, among others, the delivery of up to 20 channels over Telstra’s Hybrid Fibre Coaxial network, the acquisition of Galaxy satellite television in 1998 as well as the imminent take over of Austar, formerly one of Foxtel’s fiercest competitors, set to be finalised in 2012 (Foxtel, 2012).
This merger will have far reaching consequences in terms of business performance of other players in the same media industry. These implications are identified and explained in detail below.
Issues Resulting from the Merger
Weakening or killing competition
Austar and Foxtel intended merger will see the companies spend a hefty combined budget of $500 million each year on content originating from Australia. Apart from content, the company will also be bidding for technology as well as conducting national campaigns. $500 million is a huge amount of money that can hardly be raised by other players in this same industry due to their capacity in terms of market share.
In essence, Austar and Foxtel could be creating some sort of monopoly by virtue of their sheer expenditure value (Goldenberg, 1973). They will be able to acquire the best and most expensive technology and buy almost the entire TV programs prepared in Australia. Even if the competitors would, somehow, acquire rights for other local contents, it would most likely be less lucrative and less attractive.
Ethically, content producers may deny other TV companies like SWM the chance and opportunity to acquire their content simply because they will be anticipating for better prices offered by Austar and Foxtel. This ‘hoarding’ is not healthy for any business environment as it favours only one side or player at the behest of the others.
Similarly, all top cream broadcasters and other professionals will be lured by the handsome sums dangled by these two companies right at their faces. However, Foxtel and Austar’s rush to self-imposition as the market leader could open up many gaps that competitors could use against them with much success.
It will require some time before their internal working structures and systems are fully merged before producing as expected (Ferguson, 2011).
Untenable prices
The merger between Foxtel and Austar, if unchecked, could easily force other players in the market into folding up and quitting altogether. This is due to a number of factors which would work against other players while largely favouring Foxter and Austar. For instance, with a huge combined spending of $500 million per year, the margin of economies of scale that these companies will be enjoying will be enormous (Anderson, 1917).
Users will literally desert other pay TV service providers, including SWM, in favour of Foxtel and Austar because of their reduced prices. The only way that the competitors can match their prices to coincide with Foxtel and Austar’s prices would be to reduce theirs as well.
However, that would be suicidal given their size of revenue (Kimmons, n.d). Reduction in prices will mean little or zero revenues at the end of the day and therefore there will be no funds to run the enterprise (Biyalogorsky & Gerstner, 2004). Workers will do without salaries, marketing activities will not be sustained and repairs and maintenance will fail to take place.
These lost opportunities and business will lead to job cuts in all the affected companies and could also result in compromised qualities in a bid to remain in business (McGuckin, 2005). With the ongoing global recession, however, even Foxtel and Austar could find operating with low prices untenable.
This may force the company to maintain higher prices than expected to ensure sustainability in the hard economic times. There is biting inflation and therefore people would rather spend their little cash on basics like food and shelter rather than on entertainment (Grauwe & Ji 2012).
Reduced share prices
The planned merger between Foxtel and Austar will have a negative effect on the share prizes of other media players in Australia. So far, the deal looks lucrative and every investor both local and international is anticipating being part of the success story that will soon be Australia’s biggest television company (McKinsey et al, 2010). This is undoubtedly true given the great expectations.
The excitement is further fanned by the huge sums, up to $500 million, that the joint venture plans to spend in their budgetary allocation. This will herald anticipatory buying in the stock market in favour of Foxtel and Austar shares (Thaler, 2005). Their shares will shoot up in the stock market and will be bought in large quantities due to the rise in demand.
This is expected with a high stake company such as the one which would be realized from the merger. On the other hand though, share prices of other media players like SWM will stagnate or even fall in terms of prices. Demand for these shares will wane because they are not promising any unique investment in the market (Brigham & Houston, 2012).
Their relatively small profit margins at the end of every financial year will not be convincing investors of a possible chance to equal or even beat Foxtel and Austar’s anticipated performance. However, results posted by Foxtel and Austar in the first quarter of this year could be the turnaround of this trend.
If Foxtel and Austar, somehow due to the challenges of their merger, will not have recorded good profits, the same investors could flock back to the other companies like SWM (Malkiel & Tylor, 2008). That will raise demand for their shares in the stock market, thus proportionately causing rise in share prices. This fluctuation in prices on the extreme often is not the best for planning due to its unpredictability.
Poaching of workers
Both Foxtel and Austar have their weakness areas in terms of their daily operations. The merger will call for scrutiny of weaknesses on both sides with the view of addressing them once and for all so that the company can optimise profits. There are possibilities that they will be tempted to lure workers from other firms, like Seven West Media, particularly if the rival firm is performing excellently in the said field.
The bait most likely to be used is the promise of better salaries and improved working condition. However, that can be avoided by ensuring that your workers are satisfied while at their jobs. Run your Personnel function professionally and recognise contributions by individual employees to boost their morale (Gill, Fluitman & Dar 2000).
Spying
By virtue of their merger, Foxtel and Austar are faced with the challenge of disapproving their skeptical share holders that the deal was worth it. The management will only achieve this by making huge profits within the shortest time possible. However, it might not be smooth sailing because the firm’s operations are now complex given the new challenges arising from the merger.
In a bid to move things first, it could be possible that they plant spies within their fiercest rivals so as to ward off competition. Spies used by rival companies are often internal workers who feel dissatisfied or are paid heftily to do the dirty work.
Mostly, they will be looking for strategic information, information on promotional plans and even pricing strategies. Such information should be handled with utmost confidentiality to eliminate any such possibilities (Earnest & Karinch, 2010).
Conclusion
The imminent merger between Foxtel and Austar is posing real danger to other players in the media industry, particularly pay television services in Australia. Both companies have been in the market and they therefore understand the modalities of conducting their business effectively.
Their huge combined capital will stifle the market to their advantage because they will attract more investors and will be in a position to acquire the latest technology in the market for purposes of doing business.
However, it will not be smooth sailing as it sounds. The biting global inflation could slow down or even harm their interests during the initial phase of their joint operation (Janda, 2012). Equally, time will be needed to eradicate discrepancies in their individual internal structures and systems so as to have a hybrid system that is workable.
List of References
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