Dr. Marilyn Caroll|
In today’s global markets companies are faced with tough decisions, one of the toughest decisions a corporation faces is whether or not they should diversify their business. Diversification simply means to mix a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio (Silvia M.Chan-Olmsted, 2007). Firms that have success strive to transfer their winning business know- how to new activities. To these firms, diversification means looking at new industries as exciting opportunities. The decision to diversify or not is one that is made on the highest level and is initiated as a corporate strategy. Moving forward with diversifying can mean a company becoming lost and ridden with debt. Some corporations such as General Electric (GE) have experienced success while others such as Time Warner have experienced less success. This paper will compare and contrast Time Warner and GE in terms of size, global presence, financials and whether or not their diversification strategy was successful or unsuccessful. To begin, the Warner Brothers established what is known today, after many mergers and acquisitions as Time Warner; the company history can be tracked back to 1922. Today the company is the world’s third largest media conglomerate and is publicly traded on the NY stock exchange. It’s headquartered in New York City and its portfolio includes interactive services, cable systems, filmed entertainment, television networks and publishing. The company is classified as being in the diversified entertainment industry; an industry that’s performance is dependent upon the health of the economy, is highly competitive and very volatile. The company faces fierce competition from the likes of The Walt Disney Company, Google, Comcast and YouTube. Time Warner has businesses that can be classified into five different segments: AOL, Cable, Filmed Entertainment, Networks, and Publishing. Through these different segments they provide internet access, cable television, digital phone, an online web portal, two movie production companies, multiple cable and pay television channels, and a wide variety of magazines and publications (Arthur Anderson, 2007). The company employs over 92,000 people worldwide and operates globally from seven divisions; America Online (AOL), Home Box Office (HBO), Turner Broadcasting System, Time Inc., New Line Cinema, and Warner Brothers Entertainment (Silvia M.Chan-Olmsted, 2007). By holding these diverse businesses Time Warner reduces the overall negative effect that any losses may have on the company. From a product perspective, Time Warner’s diversification strategy appears to be weakening in terms of extent, and mode. In my opinion the company has reached a saturation point in terms of the extent of diversifying. It should be focusing on what these business units are doing and not how many they have. Some of the acquired companies are not performing as they once did and for this reason it is my recommendation Time Warner begin dumping its unfocused business units and/ or begin integrating them. In terms of mode, if the company continues this route of acquiring companies it should look toward young innovative companies that can offer consumers more choices in one place. To put it all into perspective the company ended strong for fiscal year ending December 2011 as it saw an increase in sales revenues of $28,974.0M and one year growth of 7.8 percent. It saw a net income of $2,886.0M with income growth of 11.9 percent (Arthur Anderson, 2007). Time Warner experienced profit loss from 2007-2009 which was largely due to the collapse of the U.S economy. In the years 2009-2010 the company saw...