An analysis of the supplier bargaining power in the cable and broadcasting industry.

1. Equipment/Digital Set up Boxes
Commodity
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.

2. Sizable Fraction of Costs
The 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 services
Commodity
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 Programming
Companies 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.

3. Internet Services
Internet services are usually provided through third party affiliates usually smaller and
limited in number not much more information beyond that is provided.
Phone Services
Voice 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 Programming
When 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 Services
The 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 Services
For 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

4. 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 Inputs
There are no needed inputs in short supply which decreases suppliers bargaining power.
Differentiated Input
Video Programming
When 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 Services
Internet 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 Services
Industry 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 Programming
The 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.

5. Internet/Phone Services
Industry 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 Programming
Video 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 Programming
Companies 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 Services
There 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

6. 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 Programming
Integrating 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 Services
Companies 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 Services
Internet 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.