Case 4
BSB & Sky TV
slide1: News Corporation would begin broadcasting a satellite TV service to Britain in February 1989. BSB had been working toward the same goal for eighteen months and planning a fall 1989 launch date. Both were (losing Money, Gaining Profit). Please Choose One.Why would a frim engage itself in price war?
BSB and SKY were both losing money in the price war.Price is a commercial method to beat down competitors in the same industry.One competitor will lower its price first and others will follow this guy to maintain their competency. The increased expenses meant there would eventually leave only one player in the long run. The following explains why this battle is a money-loosing game. First, both companies generated sunken costs by competing over the film rights and programming, which led them paying 3 times the average premium rates for the exclusive rights. Second, the promotion and advertising levels were above the optimal to compete against each other, whereas these activities did not increase the market size. Finally, BSB suffered from great burdens of building cost and launching its own satellites than its original budget plan, since its rival, SKY took the first move by launching the Astra satellite network ahead of BSB’s launching day. slide2&3 2-1 & 2. Which firm is with greater losses? Which firm is with a deeper pocket?
By comparing the profit after taxes of Exhibit 6 and 7, we can see BSB’s loss is far greater than that of SKY’s. In 1990, BSB lost more money than SKY due to heavier cost structure and this loss continues for the next 6 years.
2-3. Would there still be a price war? What are the variables that we should check first.
In this case we believe there would be a price war. BSB was known to have much deeper pockets than Sky, and was therefore much more optimistic about their losses compared to Sky, who were having trouble rolling over its sizeable short-run debt. During the entire “launch process” both companies were
slide1: News Corporation would begin broadcasting a satellite TV service to Britain in February 1989. BSB had been working toward the same goal for eighteen months and planning a fall 1989 launch date. Both were (losing Money, Gaining Profit). Please Choose One.Why would a frim engage itself in price war?
BSB and SKY were both losing money in the price war.Price is a commercial method to beat down competitors in the same industry.One competitor will lower its price first and others will follow this guy to maintain their competency. The increased expenses meant there would eventually leave only one player in the long run. The following explains why this battle is a money-loosing game. First, both companies generated sunken costs by competing over the film rights and programming, which led them paying 3 times the average premium rates for the exclusive rights. Second, the promotion and advertising levels were above the optimal to compete against each other, whereas these activities did not increase the market size. Finally, BSB suffered from great burdens of building cost and launching its own satellites than its original budget plan, since its rival, SKY took the first move by launching the Astra satellite network ahead of BSB’s launching day. slide2&3 2-1 & 2. Which firm is with greater losses? Which firm is with a deeper pocket?
By comparing the profit after taxes of Exhibit 6 and 7, we can see BSB’s loss is far greater than that of SKY’s. In 1990, BSB lost more money than SKY due to heavier cost structure and this loss continues for the next 6 years.
2-3. Would there still be a price war? What are the variables that we should check first.
In this case we believe there would be a price war. BSB was known to have much deeper pockets than Sky, and was therefore much more optimistic about their losses compared to Sky, who were having trouble rolling over its sizeable short-run debt. During the entire “launch process” both companies were