Page 1 - SCS May 2018 - Day 2 Suggested Solutions

Day 2 Suggested Solutions

SUGGESTED SOLUTIONS

CHAPTER EIGHT

EXERCISE 1

Email

To: Martine Andels, Director of Finance
From: Senior Manager
Subject: Proposed acquisition of MediaMajik (MM)

The proposal to take control of MM would represent a form of vertical integration. At present
MM is a supplier to Couchweb; by acquiring this company Couchweb is becoming more involved
in its overall supply chain.

Such a move would present a number of strategic benefits and risks, which will be considered
individually.

Benefits

The main benefit is that Couchweb would now have control over a significant part of its supply
chain. MM has produced many TV programmes and movies for us in the past; indeed, 26% of our
current catalogue of TV programmes has been made by this company, and 38% of our catalogue
of movies. Taking control of MM would enable us to have greater influence in the actions of that
company, and enable Couchweb to guarantee that it retains the services of MM as a supplier.

It would appear that HomeVideo are also interested in buying MM, following Chet Nolan’s
conversation with Jeff Gilbert. If such a deal were to go ahead, there is a real risk that, having
gained control, HomeVideo would instruct its new subsidiary not to work for certain broadcasters,
and this would presumably include Couchweb, being a main competitor. If Couchweb acquires
MM, it protects itself from being ‘locked out’ in the market.

Secondly, gaining control of MM would allow Couchweb to do the same to its competitors – to
reduce their access to quality programmes. It is not known how much work MM does for
HomeVideo or MovieMaster; it can be assumed that it does at least some work for HomeVideo,
due to that company’s interest in buying MM. If Couchweb takes control of MM, we would be
able to instruct MM not to do any work for our principal competitors, thereby reducing their
access to quality content and giving Couchweb further competitive advantage.

Furthermore, there would now be more ongoing dialogue between Couchweb and MM. This
should result in greater influence on Couchweb’s part over the quality of output from MM; given
that the 2 companies would now be members of the same group, the closer relationship should
give Couchweb a better understanding of what MM is able to produce, and MM a better
understanding of the precise requirements of Couchweb. This should result in a better quality of
programme that is more in tune with the demands of viewers, with the schedules of both
companies in mind. Couchweb needs to time the release of new content so that subscribers
always have something new to watch; MM will have a better understanding of our needs and
deadlines in this regard, and produce content accordingly.

KAPLAN PUBLISHING 57