By October 1990, two newcomers, British Satellite Broadcasting (BSB) and Sky Television, rivaled one another in an ugly battle to dominate British satellite television. In pursuit of a better market position, not only did both players invest a combined total of 25 billion, but also racked up losses at the combined rate of nearly million per week. Rather than rationalizing and engaging in cooperative behavior to increase profits for the overall industry, this battle became the war of attrition, ultimately leaving only one player to survive in the long run.
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With million of start-up costs and breakeven anticipation in 1993, BSB built a franchise, secured 2. 5 million of 1st round financing, recruited personnel, and stirred public interest of its new technology, DMAC. Sky TV comes along with only million of start-up costs and breakeven anticipation in early 1992 to launch its own satellite television venture. As a private consortium, offering 16 channels with strong “ footprint” throughout Europe, disregarding BSB’s DMAC technology as “ nonsense”, Sky planned to install 1 million satellite dishes. A war soon followed. BSB retaliated by using its 25-cm “ Squarial” satellite dish as a branding strategy, which was only a “ dummy” at the time, and engaged in negative advertising about Sky. While BSB’s objective was to accelerate sales through increased advertising and promotion levels, it actually ended up emptying its deep pockets (million) for rights to Hollywood films. Sky responded back by offering a “ free film” channel, engaged in negative publicity by branding BSB as “ hot air”, became committed to a bidding war for Hollywood programming, relaxed its terms for its customers to include “ two-week free trial, with no deposit”, and initiated a direct selling effort. These actions combined with slow dish sales resulted in emptying Sky’s pockets by over million. BSB continued to fight the war and lose money through increased marketing and advertising, losing million per week.
It became quite evident that this was a brutal war going nowhere except in lost profits for the overall industry. In trying to be the “ best”, it merely lost profits for itself. Exhibit 6 and 7 demonstrate that up until 1995, both BSB and Sky TV targeted more than 60% of average dish household per year in an atmosphere where supply clearly exceeded demand by over 20%. The idea of engaging in a pricing war in a new market where demand was not high enough was bound to be a disaster for two players attempting to be market leaders. Even if assuming a total initial subscriber base was big enough to sustain more than one DBS firm, the extent to which the scope and content of each firm’s DBS service differs from the other DBS firm would determine the viability of all these services. The capability of a firm with a nationwide service scope to find specific niches unserved by the other firm and cater to many of those niches would maximize the firm’s intra-industry competitive ability. Both BSB and Sky TV failed to do so, and with strong similarity of service, both incurred huge losses.
Both firms’ irrational behavior led to huge losses for the overall DBS industry. Sky TV’s initial program offering did not correspond with the promises made in its promotional campaign, therefore, discouraging and deceiving the audience. The negative marketing campaign that BSB engaged against Sky TV was detrimental to the introduction of DBS altogether as it obscured Sky TV’s message and the DBS concept. The vicious bidding over programming between the two DBS providers resulted in skyrocketing prices and hurt both companies’ program acquisition budgets. The adoption of different DBS standards by each company further confused the audience and contributed to a slow rate of receiver sales.
Although both companies resulted in huge financial losses, the player to survive would be the low cost producer with early break-even anticipations, ultimately forcing the high cost and late break-even anticipator to exit. At first glance, BSB is noted for its deep pockets, but at the end of the day, it incurred exceptionally higher costs with late break-even anticipation, and just could not seem to compete with the aggressive competition of Sky. Sky will most likely be the one to sustain initial losses and be patient enough to remain in the industry. As the survivor, Sky may attempt to leverage BSB’s technological and financial resources by exploring acquisition initiatives with BSB.