Economic Analysis of Time Warner Inc.

Subject: Business
Type: Profile Essay
Pages: 6
Word count: 1755
Topics: Business Plan, Management, Marketing

Response to #1

Company description

Time Warner Inc. is an entertainment and media company that operates in the US, Germany, France, Canada and the UK among other international countries. The operations of Time Warner Inc. span across three major business divisions, which are publishing, networks and filmed entertainment. Since the inception of the company in 1990 by Steve Ross, the company has grown to various divisions with a subsequent increase in the demand for its products (Time Warner Inc., 2017). The company utilizes the dynamic technology industry, which has managed to see the company expand its productions and supply among the major economies of the world. Time Warner Inc. is listed on the New York Securities Exchange where it trades as a public limited company with a revenue turnover rate of $28,974 million. The company has over 34,000 employees in its base, which assists in the fulfillment of its economic mandate (Time Warner Inc., 2017). 

Time Warner Inc. currently experiences an increase in its revenues at a rate of more than 7% since 2010, indicating the rate of demand for the company’s products. As the world’s third-largest entertainment company, the operating profit of the company is put at over $5.8 million each year since the year 2011 (Time Warner Inc., 2017). Although the company has gone through significant losses in the past, it has managed to stage and survive the economic turbulence in the international entertainment market. To reduce its distribution costs to the international destinations, Time Warner Inc. operates several branches with the goal of getting the products and services closer to the consumer market. The company operates over 45 websites with an average monthly visitor attendance of over 55 million people in the UK and the US combined (Time Warner Inc., 2017).

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Response to #2

The demand for the company’s products

As a company that operates in the media and entertainment industry that is very fluid, Time Warner Inc. experiences elasticity of demand for its products. The company experiences cross-elasticity of demand. Most of the products offered by Time Warner Inc. by their nature provide sustainability at a great deal, which then facilitates cross-elasticity of demand. The cross-elasticity in the company’s demand comes from the fact that Time Warner Inc. offers many media products and choices. Due to the presence of many choices of similar products by the company and other competing firms, the market experiences increased fragmentation into much smaller sectors. Through this, consumers gain more control over the products and how they access their media services (Albarran, 2016). 

However, the cross-elasticity of the company has not changed over the past few years. The supply of the company has remained unchanged with outstanding public shares of 777,000,000 since 2009. The demand for its products is equated to its stock price despite the great change in demand, resulting to the demand equation of price elasticity to be 1, equivalent to the percentage of change of Time Warner Inc. in the US market (United States Securities and Exchange Commission, 2015). Currently, the stock price of Time Warner Inc. is valued at $101.83, up from $86.74 recorded in the 2016 business year that ended on December (CNBC, 2017). The change is described as non-elastic owing to the different factors that saw a rise in the value of the company’s stock price. Most of Time Warner Inc. products are perfect substitutes, hence, the cross-elasticity of the demand for these products is equal to positive infinity. The company is experiencing a reduction in its stock prices prompting a speculated merger with AT & T, which might help the company stay operational and increase its stock prices further (CNBC, 2017).

Response to #3

The production function

Time Warner Inc. maintains a balance between its inputs and output to come up with a relative production function that is responsive to the fluid market conditions. Majority of the company’s inputs are labor in the form of expertise and capital, which is an addition to the investment. Time Warner Inc. level of output is dependent on the substitute goods in the market as well as the complementary goods. In 2016, the ratio of actual output to the maximum output that the company would attain give the forms capital employment and the level of expertise as a labor input was 87% (Time Warner Inc., 2017). The figures indicated that the company while operating in the domestic US market was efficient. The percentage through the function Q/f (L,K) resulted in a 0.87 chance of Time Warner Inc. remaining stable in the entertainment industry (United States Securities nd Exchange Commission, 2015). 

Time Warner Inc. can only produce to its maximum potential only at a point where the ration of capital and labor as major inputs balance in a relative ratio. However, an inefficient management of the publicly listed company has resulted in a reduction in output from what is technologically possible. From the equation of Time Warner Inc. production, the points that fall below or on the production function are the aspects that constitute Time Warner Inc.’s production set, which is a technically feasible set that has the combinations of both inputs and outputs (United States Securities and Exchange Commission, 2015). The optimism of the company is that it will manage to produce as much output as it can into the market given the amount of labor it employs.

Response to #4 

Type of market

Time Warner Inc. operates in an industry that is dominated by few key players who dominate and control the market. Hence the company operates in an oligopoly market. The market is shared by a few firms, both in the US and on the international front and is highly concentrated. Time Warner Inc. is characterized by a lot of interdependence because the market has a few competing firms. Therefore, the company has to strategize on how to take the potential reaction of the close competing companies into consideration when making strategic decisions about market and business operations (Albarran, 2016). Time Warner Inc. considers strategy formulation as a key aspect of the oligopolistic market. Considering that firms under this structure cannot act independently, Time Warner Inc. has to anticipate the likely response of their rivals to non-price activity or a change in the market price for the products.

Due to a reduction in the company’s stock prices, Time Warner Inc. came up with a pricing strategy to make it earn more profits and stay operational and dominant in the media and entertainment industry. The company utilized the cartel model to combine with AT & T to set up a monopoly pricing strategy that can help the company control the market even greater (CNBC, 2017). Since the oligopoly market structure is characterized by free entry and exit, Time Warner Inc. has managed to set a competitive price for its products and services in the domestic market. The performance of the company in the international medical and entertainment is still dominant, with the company contemplating to work as franchises if the stick prices do not show significant improvement. The company also uses patent rights as a pricing strategy to control the market price of the industry.

Time Warner Inc. is also developing homogenous products with the aim of affecting the behavior of other competing firms and how the firms make decisions. The company has recorded revenues that go up to $28,900 million per annum since 2011 and the rates have increased steadily above 7.8% over the years up to 2016. The homogenous products are singled out in the networks division that accounted for 45.6% of the total revenue in 2016, publishing, which accounted for 12.3% in the 2016 financial year as well as 42.2% in the filmed entertainment division (Time Warner Inc., 2017). Through the products, Time Warner Inc. has managed to generate fierce competition and competing firms have been forced to come up with more effective strategies to handle the competition.

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Response to #5

Compensation of executives

Time Warner Inc. executives include its chair Jeffrey Bewkes, Paul Cappuccio, Olaf Olafson, Gary Ginsberg, Howard Averill, James Barksdale, and William Barr among other members. The chairperson earns the highest amount in salaries and compensation as he sits on the executive board, amounting to $32,587,664. The executive vice president and the chief financial officer who is also a member of the board comes second with a compensation amounting to $20,330,866 (Time Warner Inc., 2017). Most of the compensation is paid in equity while the other is compensated in cash. The total equity compensated to the executives aggregates the grant date fair value of the long-term incentives and stick options during an entire fiscal year. On the other hand, the total cash compensation information about the executives is made up of the yearly bonuses and base pay (Time Warner Inc., 2017). The income statements of the executives are filed yearly using the Edgar filing system. From the analysis, the system is effective and transparent, reducing any potential principal-agent problems in the near future.

Response to #6

Important issues

Time Warner Inc. has made forays that have been successful in digital distribution across the multiple platforms that it operates, with a continued series of product launches that are unique and homogenous. In the 2015 fiscal year, over 85 million households in the US alone accessed content generated by Turner through TV everywhere (Time Warner Inc., 2017). The access was inclusive of HLN and CNN streaming versions. The company, through its homogenous strategy, is lauded as the first American media and entertainment company to make all 21 titles under the company platform available in a tablet format (Time Warner Inc., 2017). Additionally, Time Warner Inc. has a history of developing high-quality movie and hit TV programs on an annual basis. 

The demand for TV everywhere by both private and public agencies has created a new drive in Time Warner Inc. network. The company works with the optimism of support from the US government through equity to increase its geographical cover in the US. The company uses the Adobe Pass technology to integrate over 170 pay-tv operators hence covering around 98% of US homes (United States Securities and Exchange Commission, 2015). Additionally, the program takes care of the authentication process. Time Warner Inc. through policy enforcement by the government has kept the US subscribers always logged in as well as giving them the access to an assortment of content. An increase in the adoption of the TV everywhere driven by mobile and online viewing is the next great opportunity for Time Warner Inc.

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Did you like this sample?
  1. Albarran, A. (2016). The Media Economy. New York: Taylor & Francis Group.
  2. CNBC. (2017, October 20). Time Warner Inc (TWX:NYSE). Retrieved from CNBC:
  3. Time Warner Inc. (2017). Company Profile: Time Warner Inc. Time Warner Inc, 4-36.
  4. United States Securities and Exchange Commission, 2015. (2015). TIME WARNER INC. United States Securities and Exchange Commission, 2-66.
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