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Medium Profitability Market Entry

World View

#Telecommunications #Cable TV
ProHub Comment

This case tests whether candidates can identify that the real competitive threat is not from other cable companies but from free local TV stations, which fundamentally changes the profitability analysis. The key insight is recognizing that market structure (substitute products) and consumer behavior differ significantly between Canada and the US, requiring a consumer-centric analysis rather than focusing on direct competition.

Estimated Time 15 minutes
Difficulty Medium
Source Harvard
50 / 100
A cable TV company from Canada, World View, had recently entered the US market in the northeast to expand its market share. World View saw this move as an opportunity to capture a large part of the US market (4MM consumers) in a market with very little competition. However, in the last couple of years, much to the surprise of management, World View has been unable to make a profit. You have been hired to figure out why and advise them on their next move.

Clarifying Information

  1. Let’s look at costs first. Did World View incur additional costs per customer on average in the new market? No, based on the potential number of subscribers, they have instituted the same system that was in place. Costs associated with cable wire, debt, maintenance costs, etc. are all proportionally the same.
  2. What about the number of subscribers. Out of the 4MM potential customers, how many are signed up? Only 2.1 MM.
  3. Are other cable companies capturing the remaining market? No, competition is not an issue. Those that we have not acquired as customers simply do not have cable.
  4. What about substitutes and viewing behavior? How is the consumer in the northeast US different from the one in Canada? Well, the Canadian consumer does not rely much on local stations for watching TV. Cable is a major source of entertainment and news coverage. In the northeast US, we tend to see consumers shy away from paying the $40 a month. They settle for watching local stations.
  5. Does the new market have a lower income level? Yes, they do, by about 20% on average.
  6. What about the local stations? How many are they? Do they meet most of the needs of the consumer? There about 16 local stations that have coverage over the entire northeast. I guess they are doing pretty well by providing programming that the consumer wants. You tend to see the average consumer in the northeast watch regular TV more than Cable when compared with the Canadian consumer.
  7. Do these stations have good reception and how much do they charge? They have a very good reception and they are part of basic TV, so they are free.
  8. Is World View providing any type of programming that the local stations are not providing? Some, but the consumers don’t seem to be interested. They don’t feel that it’s worth $40.