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Battle of the Channels

In the general sense, television networks today have two primary jobs and forms of profit — creating content and distributing content. For some, the two are done simultaneously, with the created content being distributed on a channel owned by the same network company. For others, only one of the two is specialized in. Yet for Time Warner Inc. (not to be confused with Time Warner Cable!), neither one is the case — by allowing other networks to air TW-created shows, Ferry believes this has led TW to become a frontrunner in the competition for television monopoly. As he writes in his article, TW uses its competitors, such as CBS, as customers instead, thereby enabling it to succeed even more. For example, with shows such as the Big Bang Theory, arguably one of the more successful shows on television, TW receives an even bigger profit by selling it to the highest bidder out of its competitor channels. And given the popularity of Big Bang Theory, the offers that TW will get for the show must be even higher. Therefore, by leasing Big Bang Theory to CBS to air, TW not only makes a profit from the show being aired on multiple channels (CBS as well as TW channels like TBS), but it also generates revenue from its competitors.

Such as with prisoner’s dilemma, this situation presents TW with a payoff matrix in which its options are to collaborate or compete with the other media companies. The others are faced with the same options. As we have observed in class, the payoff matrix is normally higher for one company when that company collaborates and the other one does not. This is the case with TW — by collaborating with other stations, it is able to profit more in the long-run, as it has multiple sources of income. For the others, on the other hand, while they are collaborating with TW by distributing its shows, by continuing to solely air their own shows on their own channels, they miss out on more money-maximizing opportunities. Furthermore, they allow TW to continue to increase its profits, as a portion of theirs gets transferred over to TW.

This network can also be viewed using the graphs that denote positive and negative relationships. By collaborating and creating stable, positive relationships with the other companies, TW effectively becomes a dominant force. In opposition, the other media moguls choose to compete with all the companies other than TW, thereby producing a number of negative relationships. With these types of relationships, this isolates these companies — for example, if one of them fails, then it is essentially on its own. When TW fails, it also affects the others, although to a lesser degree. While this may be harmful in very certain and particular cases, it overall generates less competition for TW because it brings the other companies into the picture. The other companies are therefore more likely to help TW (because it affects them as well) than try to make it fail.

All in all, TW’s choice to collaborate has come at an especially profitable time because its competitors have yet to create and distribute content in the same way that it is doing so. Yet while TW is certainly laudable for behaving in such a way, a payoff matrix that is analogous to that in prisoner’s dilemma brings about a follow-up question — what happens if the others begin leasing its content to others as well? According to the matrix, having the option of both parties contributing would decrease the profit that each one makes. Yet, in this case, the payoff matrix is generated in such a way that it is a self-propelling situation. In other words, the payoff depends on the show’s popularity, which originally depends on the payoff that was previously obtained, and so on and so forth. Therefore, even if the other companies begin collaborating in a way similar to that of TW, the payoff won’t change drastically so that the other companies gain the same profit as TW’s — because the past results have an effect on the present ones (unlike in prisoner’s dilemma, where the trials are independent of one another), TW will from now on have an advantage over the others.

Overall, viewing the market competition for the television networks brings about the dominant strategy for profit maximization, which is to collaborate with the others rather than specialize in one field individually. Yet, this differs from the natural case of game theory in that there is less independency in future decisions — because of this, the players in the game are affected by their past decisions, which makes it more difficult to start out on a more even playing field in the future. As a result, TW is more likely to continue dominating the media industry in the years to come.

-kyk

http://beta.fool.com/catominor/2012/06/29/time-warner-battle-living-room/6349/

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