Report: Bsb vs Sky Television
1. BSB should have been able to identify potential competitors, particularly News Corporation. News Corporation was successful in US (in the US TV satellite industry), had experience transmitting television programs to Western Europe with a low-powered satellite and they already had presence in the UK with newspapers, which could allowed Sky to realize economies of scope. These economies of scope are even more significant if we take into account that News Corporation owns 20th Century Fox Studios. After purchasing 69% interests in SATV and renaming it to Sky Channel, this was a clear signal of a potential competitor to BSB. Adding to this, other signal was Murdoch’s personality, characterized by being aggressive and used to risk and make
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Again they should have opted for PAL to get quicker into the market. Lobbing against Sky and financial incentives to retailers were still an option. However, what should have been avoided was the negative advertising that not only failed to leverage their technological standard, creating more confusion in costumers, but also represented an additional cost. Above all, in this type of infinite prisoners’ dilemma games (simultaneous games) parts are better cooperating and dividing monopoly gains than competing interminably. Thus, the best course of action would be to start merger negotiations as quickly as possible. Otherwise, in the long-run, if BSB were to survive the war of attrition it must cut down drastically its costs.
3. In 1990, with a heavier cost structure and loosing money in the next 6 years, BSB was in worst position to win the war in the long-run, even if we claim that Sky has less money to spend. At that point, our proposal is that BSB looked for a merger in order to recover the previous investments. The share of a possible merger pie that BSB would hold out for, is, in other words, the bottom line share that makes it indifferent between continuing to compete and cooperate. For that we computed the discounted cash flows predicted to BSB (Exhibit 7) starting in 1990, and we had to assume that from 1999 on it will generate constant cash flows; all this assuming a discounting factor of 5%:BSB’s NPV = 873£ MTo calculate a value of a possible merger we