Liberty Global, formed by the merger of the international arm of Liberty Media and nitedGlobalCom(UGC) in 2005, is one of the largest cable companies outside the US. Even though it operates in Europe, America and Australia, the European Market is its strategic key market currently.
Since 2012, John Malone and his international cable company Liberty Global have been hogging the limelight of telecom industry in Europe through its frequent and aggressive acquisition activities in Europe. The companies acquired by Liberty Global include Virgin Media in the UK, Ziggo in the Netherlands, etc. This illustrates Liberty Global’s strategy in the near future to focus on the mature but important European cable market. The telecom industry is a business area with high entry barriers and fierce competition. Besides Liberty Global, Vodafone is another big player and is certainly the main competitor of Liberty Global. The industry, the relationship between these two telecom giants and Liberty Global’s strategy will be analyzed in the following report. Furthermore, the recent acquisition case of Virgin Media,will be looked at more closely.
Under all these considerations, some questions emerge. Is Liberty Global’s current strategy really feasible and good for its business and long term growth? Are there any other options? These are the most important problems we will address throughout this work. Finally, we will end the paper with a summary of the company’s future.
- Liberty Global PLC
Liberty Global Plc, listed on the NASDAQ (Ticker: LBTYA) is an international cable company that focuses on the Internet, telecommunications and television industry. It was established in June 2005 as a merger of Liberty Media International and UGC and recorded revenues of $17.3bio in the fiscal year 2013. Liberty Global plc is one of the largest international cable companies, operating in 14 countries (12 in Europe), employing 36,000 people and providing a cable network reaching 47 million homes. The company is based in London, U.K. and is currently led by the CEO, Michael Fries.His strategy consists of maximizing organic growth, exploiting M&A opportunities and optimizing the capital structure of its affiliates.
The company incorporates the following subsidiaries: Virgin Media (U.K.), UPC (Europe), Unitymedia (Germany), Kabel BW (Germany), Telenet (Belgium), VTR (Chili) and Liberty Cablevision (Puerto Rico). Appendix 1 provides the geographical overview of these subsidiaries. The biggest revenue earned based on region is mainly contributed by the European market and amounts to $15.93billionor about 92.08% of total revenue (See Figure 1). The management clearly states that the focus lies on the European market where it recently reached an agreement to takeover Ziggo, the largest Dutch cable operator. Appendix 2 displays the revenues generated by the different European subsidiaries including Ziggo. Moreover, the revenues of the company are mostly generated from single bundling (cable service) followed by bundling by three products and two products respectively (see appendix 2).
Currently the company is led by 13 executive officers, 12 directors and John C. Malone as the Chairman of the Board of Directors. Mr. Malone is definitely the driving force behind a lot of the company’s endeavours in the cable industry. The so-called “cable cowboy” set his focus on the European market with Liberty Global driving consolidation within the industry. The company’s recent acquisition spree clearly illustrates that Malone’s Liberty Global is not going to stop any time soon with exploring the European market and making use of the potential economies that could be realized with acquiring players all over the continent. Before talking about Liberty Global’s strategy and its implications, let us first have a look at some of the cable industry’s most important characteristics to provide us with a better understanding of the company’s course of action.
- The Cable Industry
The TV, cable, internet and telephony industry is a reflection of the needs of modern society. In developed countries, internet and telephones are no longer seen as luxury products but rather as essential goods without which one cannot live his or her life to the fullest. This of course, plays in the advantage of companies in this industry, decreasing the bargaining power of customers. Barriers of entry are quite high, as significant investments are needed in the cable network in order to provide customers with a decent service.
Overall, the threat of substitute products is low as long as there are no new technologies coming out potentially disrupting the industry. As most of the players within the industry are always trying to stay on top of the market in search for new technologies, we do not expect this risk to be high in the future.
However, the competition in the cable industry is quite fierce, especially when it comes to technological development. As more and more people in Europe are opting for pay-TV, companies within the cable industry try to compete with each other in terms of price but also in terms of quality of content and speed of the network. This, combined with the ongoing consolidation within the industry, makes the cable industry especially hard to compete in requiring a lot of investments both in the network as in research for new technologies. Another threat is the bargaining power of suppliers, on which cable companies are highly dependent in terms of content provided. Without being able to provide the audience with good content, cable companies would not be able to attract many customers so one could say that content providers have a significant amount of power and responsibility within the industry’s value chain.
- John C. Malone as a Chairman
John C. Malone is an American businessman who graduated from John Hopkins University in 1959 and from Yale University in 1963. After this, he started his career in Bell Telephone Laboratories AT&T in economic planning and research and development. Five years, later he joined McKinsey & Company and became Group Vice President of the General Instrument Corporation (GI) in 1970.
John C. Malone served as Director of the National Cable Television Association starting in 1974 and was rewarded by the organization the NCTA Vanguard Award in 1983. Later he resigned from this position. Currently he holds the 61st position out of 400 people on the Forbes list of wealthiest people in America. He is currently Chairman of Liberty Media corporation and Liberty Global. He also serves on the Board of Directors for CATO Institute, Expedia, Discovery Communication andSiriusXM.John C. Malone is an American businessman who graduated from John Hopkins University in 1959 and from Yale University in 1963. After this, he started his career in Bell Telephone Laboratories AT&T in economic planning and research and development. Five years, later he joined McKinsey & Company and became Group Vice President of the General Instrument Corporation (GI) in 1970.