Managerial Economics

1. Which of our business lines provide the best opportunity to grow the profitability of the company?

Increased profitability is often derived from two methods, cost-cutting or new revenue generation. Looking at the five business segments contained by Time Warner, there are several opportunities to grow the profitability for the company. The most predictable results come from cable service offers. Cable operations provide the core for Time Warner’s services like TV, high-speed Internet and telephone access. Typical cable operations require a vast network of communication lines in order to deliver products to each individual user. Besides, new technology in the form of HDTV and DVR (digital video recorders) has also allowed room for increased revenues as these technologies increase demand through their clarity and convenience factors. A recent article in an industry publication, Television Week, investigated Time Warner’s HDTV marketing. They found that even amid the economic downturn, Time Warner Cable has stepped up promotion of its high-definition television service by highlighting its low price. In conclusion, by increasing the cable service offers, our company will have the opportunity to grow the profitability and hence sustain in the media industry.

1. What strategic moves would you recommend to position the company for long-term growth?

To position the company for long-term growth, the strategic moves that I would recommend is to increase the funding for market research, special effects, writing and actor salary options within its Warner Bros. and New Line Cinema film production. While these inputs will not guarantee increased box office success, it will provide a recipe to create great possibilities for consumers to be attracted too. In addition, the bargaining power of the consumer is quite high in the film industry because they continually desire a product containing increased realness, authenticity of plots and originality. By identifying the size of target markets, it will help guide film investment decisions and target writing to meet the largest consumer interests. While there is a relevant supply of independent film producers, it is also important to consider the supply side of quality actors to star in a movie. Since this may cause great increases in costs, a more creative, option-based contracting approach could provide average wages with the potential for bonuses based on a film’s success.