Equipment/Digital Set up BoxesCommodity

The equipment and parts that cable and broadcasting companies need to operate are not commodities. Few large suppliers of a particular item

The equipment they require is usually set up boxes, routers and satellites which aren’t easy to come by in the market place. The dependence on those companies that do provide the specialized equipment increases the supplier’s power. A majority of the companies in the industry rely heavily on key companies to provide all their supply needs. There are only a few large suppliers that provide the equipment and services that companies in this industry need. Dish network relies solely on Echostar for its digital set up boxes and broadcast operations (Dish Network 10-K). Time Warner Cable relies on a small number of suppliers for their digital set up boxes, their 3 largest suppliers include Samsung Electronics Co, Cisco Systems and Motorola Inc (TWC 10-K). Comcast also purchases from a limited number of suppliers for their digital setup boxes and network equipment/services (Comcast 10-K). Comcast relies on Acer, Dell, Sony, Nintendo and Intel for their consumer electronic needs. DirecTV provides little information on who their suppliers are, but mention extensively the reliance they have on the construction and deployment of satellites (DirecTV 10-K). This heavy dependence could hurt them sternly. The companies in this industry rely heavily on a limited number of suppliers to provide their needs and that drastically increases suppliers bargaining power. Switching Costs

The heavily reliance on those few suppliers raises the switching cost. If any of the companies switched suppliers they would have to change their infrastructure because they could have a clash of technology with the set-up boxes. Companies also have different deals set up with various suppliers to reduce cost and those suppliers will have more of a vast knowledge of what that company needs specifically. Dish network for example only has one supplier and according to their 10-K, if they were to change their supplier it would have an adverse effect on their revenue. They would have to change their infrastructure to adjust for differences in technology, user interface, and other difficulties as well (Dish Network 10-K). Comcast has contracts with a lot of its suppliers; in fact Time Warner Cable along with Comcast have just signed an agreement with Samsung to sell more of their digital set up boxes. The agreement they’ve signed has them tied to that company for years to come so switching to another supplier could have extensive costs along with legal ramifications. Those contracts and legal ramifications increase the power of the suppliers.Needed Inputs

There are no needed inputs in short supply so that decreases the suppliers’ power.Differentiated input

Suppliers don’t necessarily provide an input that enhances performance or quality but, they do offer a product that is differentiated from the rest. Companies obtain their digital set up boxes from certain suppliers that are accustomed to that company and its specific needs. They have technology that is accustomed to the way certain suppliers manufacturer the boxes. Time Warner cable’s Cable CARD only works with certain set up boxes. Some of the services they offer wouldn’t work with some set up boxes as well. Comcast is able to offer TiVo through some of it’s set up boxes provided by Cisco systems and Motorola. These different inputs that allow companies to improve upon their services increase the supplier’s power.

Sizable Fraction of CostsThe purchase of the digital set up boxes isn’t a sizable fraction of the cost of the service

that companies provide to consumers. Dish Network spends about .07% of its revenue on expense related to equipment. Comcast spends 7% of revenue on equipment. Both of the companies spend very little on equipment. Since equipment isn’t a sizable fraction of industry members cost this decreases the `supplier’s power. The real costs aren’t incurred until one addresses cable programming which will be talked about in another section. Major Customers

Industry members aren’t major customers of their supplies. Cisco systems for instance had a decline in revenue in their video systems segment according to their annual report. There decline was offset by an increase in sales of their advanced technology so they aren’t heavily dependent on sales from their video systems. Samsung Electronics has many segments: telecommunications, Mobile Communications, Appliances, IT Solutions, and TV’s as well. They have so many avenues for revenue and receive a vast amount of their income from digital media according to their annual report to shareholders. Motorola, another large supplier of set up boxes, only accounts 18% of its revenue to digital set up boxes while their mobile devices segment accounts for 40% of their revenue which is double their segment of home devices. The three aforementioned companies are some of the largest suppliers of digital set up boxes and they don’t rely very heavily on those sales and members in the cable and broadcasting industry which increase the suppliers bargaining power. Economically Viable

It wouldn’t be economically viable for industry members to manufacture their own set up boxes because FCC regulations have encouraged the retail sale of set up boxes. The only thing a consumer requires to access some the cable content on their TV’s is a CableCARD from their service provider. The incentives and sales they could receive from making their own digital set up boxes and selling them to consumers is almost non-existent. A majority of consumers already have a digital set up box and simply require the CableCARD. Partnerships

There are no seller supplier partnerships that give suppliers an advantage which decreases the suppliers bargaining power.

Video Programming/Internet/Phone servicesCommodity

The services that are provided by suppliers are not commodities and are relatively hard to come by with FCC regulations which increase the suppliers’ power. Few Large Suppliers of a particular item

Video ProgrammingCompanies usually go through a limited number of suppliers for video programming,

internet and phone services. For video programming services they usually go through cable programming networks. Industry members have to deal with very large companies when they make deals to acquire cable programming networks. They are the primary source for programming when it comes to the video services they provide customers. Industry members also make deals with movie studios to acquire the rights to show movies with their Video On Demand (VOD) services. Industry members for example must go through television networks to provide certain TV shows and to provide TV shows online as well. Time Warner Cable must go directly through film studios to provide movies through its VOD service.

Internet ServicesInternet services are usually provided through third party affiliates usually smaller and

limited in number not much more information beyond that is provided.

Phone ServicesVoice services are provided by third party companies as well and some larger companies

Time Warner Cable has a multi-year agreement with Sprint so that Sprint will assist them and help them provide their voice services (Time Warner Cable 10-K). Comcast has an interconnected VOIP (Voice over internet protocol) service that allows them to offer usage based or unlimited local/long distance calls. Comcast does have multi-year contracts with some third party companies to offer some phone services like voicemail. So industry members don’t necessarily rely on large suppliers for a particular service they rely on smaller and third party companies. There isn’t one large supplier when it comes to any particular service so that decrease the suppliers power because there are a lot of third party companies. Switching Costs

Video ProgrammingWhen it comes to switching cost for the different services the cost are extremely high.

When it comes to video programming industry members have to go through cable program networks. They have to usually sign multi-year contracts and try to obtain the content that consumers would like to watch the most. Industry members don’t determine what consumers want to watch and can’t switch to another network with very few people watching because that would decrease their revenue. The expenses industry members incur are based upon their subscriber base so there is an incentive to offer the best programming so you can increase your subscriber base. Turner Broadcasting Systems owns TBS and TNT so industry members must go through them to get the content they offer consumers. The content and programs they offer is very unique and aren’t offered by other programming suppliers. This dependence on certain suppliers that offer unique content raises switching cost. This in turn increases the suppliers power.

Internet ServicesThe switching cost involved with providing internet is quite high because that would

involve in a change in infrastructure. A company would have to adjust all their devices or electronics that are connected to the old supplier. If the internet provider is slower it could have a very adverse effect on productivity. Time Warner Cable provides their internet subscribers with a tiered subscription base and with their Roadrunner broadband service. Switching to another supplier would mean that they would have to change their subscription model because they offer different subscribers a variety of speeds. Comcast has a variety of 3rd party suppliers that allows them to offer services such as email and security software. They have contracts with these suppliers that allow them to pay for those services at a fixed rate. If the supplier that they switch doesn’t have the speed they used to offer customers they could upset their subscribers. Industry members are usually locked into multi-year contracts as well.

Phone ServicesFor companies to provide their phone services they usually have 3rd party suppliers.

Comcast provides a variety of its services like voicemail through a variety of suppliers that aren’t specified. Time Warner cable has a deal with Sprint that allows them to use their services. The

switching cost from a huge corporation like that would be vast because Sprint has a great deal of resources compared to a third party. A majority of Industry members use VOIP services to provide their phone services and use third party companies for other services like voicemail. This also affects their subscribers because now the service they’ve been accustomed to have changed, and now consumers have to adjust to a new system. The switching cost for industry members is high which increases suppliers bargaining power when it comes to each segment (internet, video programming and phone).

Needed InputsThere are no needed inputs in short supply which decreases suppliers bargaining power.

Differentiated InputVideo ProgrammingWhen it comes to providing differentiated input or service cable network’s have a great

deal of bargaining power because each network offers different programming. Each industry member wants to obtain the programming that subscribers are going to want. So with each network comes unique and different programming which increases the suppliers bargaining power, because they won’t be able to obtain that programming or content from another cable network. Discovery Communications offers programming such as the discovery channel and animal planet and they are the only company that provides that unique programming. NBCUniversal owns the USA network and they offer so they most go through them to offer their unique television content. This differentiation in services increases the supplier’s power.

Internet ServicesInternet suppliers in this industry also offer a unique service to industry members because

some internet providers have faster broadband services and wireless. Suppliers are never specifically listed they use a variety of 3rd party suppliers.

Phone ServicesIndustry members who are supplied with phone services also have suppliers with

differentiated services as well. The suppliers aren’t specifically listed most companies use a variety of 3rd party companies. Phone suppliers are able to offer you a variety of services like long distance, international calling and voicemail. The amount of countries an industry member could advertise that a consumer is able to call can depend on their supplier and rates are also going to fluctuate depending on the supplier as well. The differences in service that suppliers offer increases suppliers bargaining power because most services are unique to certain companies. Cost Savings

Video ProgrammingThe cost savings that suppliers provide industry members aren’t necessarily directly

attributed with special discounts. Comcast is the only company that mentions cost savings on their 10-K by buying in volume from cable networks. Time Warner Cable entered into some long term flat rate contracts with some cable programmers to lower the expense cost related with their programming. DirecTV also has contracts with a lot of their cable network programmers they enter into flat rate agreements and minimum subscriber base agreements to help lower cost.

Internet/Phone ServicesIndustry members haven’t listed any cost savings associated with internet and phone

suppliers. The real cost savings come with companies not having to integrate backwards to provide the different services they need to operate that will be addressed in another section. Sizable Fraction of Costs

Video ProgrammingVideo programming accounts for a huge of amount of the service industry members

provide consumers. Comcast accounts 52% of its operating expenses to its video programming in 2010 that’s a little over half of their expenses. The amount of revenue they can attribute to their video services is 54% so their company is heavily dependent on that segment. DirecTV accounts 49% of its operating expenses to broadcast programming in 2010 but, no information on how much of their revenue was based upon their video services. Time Warner Cable 47% of their operating expenses are covered under the category of video programming and their video services provide them with 58% of their total revenue for 2010. The supplier’s bargaining power when it comes to video programming is vastly increased when companies derive at least half of their revenue from video services.

Internet/Phone Services Phone and internet services aren’t sizable fractions of the cost of services that industry

members provide to consumers. Time Warner Cable’s operating expense for its high speed internet amounted to 1.5% of their total operating expenses in 2010. Their operating expense for phone services was 7.4% for the year. When looking at phone and internet suppliers their bargaining power is decreased because they don’t provide a sizable fraction cost for the services we provide. The most sizable fraction of cost to provide their services has been video programming and will continue to be the case in the years to come. Major Customers

Video ProgrammingCompanies in the industry aren’t major customers of suppliers in any segment (Video,

Phone and Internet). Discovery Channel is one of the leading cable programming providers to Cable companies and they are owned by Discovery Communications Inc. That company has ten other channels and is also involved in international markets as well (Discovery Communications Inc 10-K). Discovery Communications received 43% of their revenue from advertising alone during 2010 and also can attribute revenue through other mediums as well. Some of their services provide education and curriculum; while others are generated from online content and other digital media. Turner Broadcasting Systems (TBS) is another leading cable programming provider and is owned by Time Warner. Time Warner is involved nationally and internationally with movies, network programming and publishing. The company operates in three different segments and according to their 10-K and does considerable well in each segment. In their filmed entertainment (Movies) segment they can attribute $11,359 (in millions) to the movie alone. That’s not taking into consideration subscription based consumers who pay for Video on Demand services and advertising revenue. Suppliers of video programming aren’t heavily reliant on industry an member which increases the suppliers bargaining power.

Internet/Phone ServicesThere was a lack of information on specific phone and internet suppliers most companies

use their own means to provide phone services. Time Warner Cable is one of the few companies

that uses an outside supplier; which is the Sprint Corporation. Sprint is heavily reliant on revenue from the sale of phones and subscribers. Sprint’s revenue from wholesale, affiliates and other companies was only .8% of their total revenue for 2010. They don’t rely on industry members for revenue which increases the bargaining power they have with Time Warner Cable. Industry members did not give enough information on their internet suppliers to judge accurately if they are major customers. Economically Viable

Video ProgrammingIntegrating backwards to become more economically viable is not the way to go

especially with providing your own cable programming. The cost and efforts it would take for a Industry member to come up with its own network and produce their own TV shows would be exhausting. The effort and risk involved is already taken out when you buy from a cable programmer; a company can already find out what content consumers want to see without the entire R&D. The substantial cost and time it would take to integrate backwards with programming increases the suppliers bargaining power.

Phone ServicesCompanies in the industry already have set up their own phone systems for the most part

Time Warner Cable is one of the few companies that has a supplier. It’s impossible to determine the economic benefits to having sprint at the moment. They are still going through some infrastructure changes and dealing with a variety of other things and won’t be expected to be through this process until 2014.

Internet ServicesInternet services that third party companies provide are a huge cost savings to companies.

Comcast addresses the issue on their 10-k referring to the fact if they were on a standalone basis and had to provide internet themselves operating expenses would rise. The reliance on those 3rd party companies increase the bargaining they have over industry members. Partnerships

There is no seller to supplier partnerships which decreases the supplier’s bargaining power.

The overall competitive force of supplier bargaining power is moderate tostrong. Industry members rely heavily on the key suppliers and don’t have very many alternatives with key services and products they need to sustain themselves. The prime example is examining video service revenue; which accounts for at least half of most company’s total revenue for the year. Industry members are dependent on the content cable programmers provide them; while those as suppliers have other means of revenue to depend on other than members in the cable and broadcasting industry.