Characteristics of Vertical Mergers
Discuss about the Digitizing Practices and Systems Quality.
Vertical merger occurs between two companies who are operating at different levels within the supply chain of a particular industry. Mostly it occurs between a supplier and the manufacturer of a particular product within the supply chain management. The few important characteristics of vertical mergers are
- It occurs between companies that are operating at different level within the same supply chain of any product. It is done in order to increase the synergies of production and the manufacturer can take the entire control of the production of a product from manufacturing to supplying the same. Vertical mergers have their own share of advantages and disadvantages; however they help in having a strategic view to the overall production of the goods.
- There are various types of vertical mergers like forward integration and backward integration. There are five stages in case of a supply chain of a product: raw material, intermediaries, manufacturing, assembling and distribution(Visinescu, Jones and Sidorova). The vertical merger types moves up and down the supply chain and the people operating in that stages. Forward integration occurs when the company moves forward to get hold of the supply chain and remove all the intermediaries from the supply chain. Backward integration occurs when the manufacturer moves up the supply chain to get hold of the production of the raw materials. These are the two types of vertical mergers. They help in development of synergies that helps in simplifying the overall process of production and makes it easier for the manufacturers and the suppliers to negotiate terms and generate more amount of profit.
- Vertical mergers are helpful for the public also as removal of intermediaries helps in reduction of the overall cost of the product. Thus it helps in simplifying the overall process of production of the products and makes it easier for different companies to operate together. It helps in elimination of unnecessary middle men that leads to increasing the overall cost of the products these are the few benefits of the vertical mergers that will be discussed in brief in the given case study.(Kohtamäki)
In the given case study there is a situation where the two top companies belonging to the field of content creation and distribution are joining hands to provide excellent services to the customers. It is a form of vertical merger If reviewed closely it is a winning situation for both the companies. The content creator company will get a valid platform without paying extra to showcase their content and the distributors will have exclusive rights on the same. The combination of the second largest wireless carrier company that is AT&T, with the fourth biggest entertainment company that includes Time Warner that is having excellent assets in the form of CNN and HBO, will be extremely beneficial for the audience and the two companies. It will help in creating a massive huge mobile entertainment business, as people are now shifting from normal television to watching content on their smart phones. Both the companies will be benefited from this union (Mayntz). As an acquirer the AT&T, will have right on the exclusive content that the entertainment company will be producing and can showcase the same through their huge distribution channels. Also the other company will be benefited as the issues that they face with respect to driving the content and getting it on board will now be transferred to the other company. The AT&T, will now having control on both the traditional and digital media channels and will earn huge revenue from the subscriptions of channel like HBO and CNN. The distribution channel will have an edge over other same companies as they will have exclusive rights on the content that the entertainment company will be producing. This will help them to develop their brand and make a difference in comparison to other companies. As per reports it is mentioned that it will be one of the most powerful combination of content and distribution that the American country has ever witnessed and will help in the overall growth of the quality content creation and broadcasting. Thus we can see that if the companies merge then both will have great opportunities. Since they are operating at different levels of the supply chain of the same content creation and distribution it can be termed as vertical merger for the companies (Gartland). The various synergies that the merger will generate will be enjoyed by both the companies and they will have a powerful presence in the already growing industry of content creation and distribution. But there are some issues that the companies need to take care of, in case of the potential merger of the given companies. Few of the potential risks that both the companies might face with respect of the aforesaid merger are
Case Study of a Potential Vertical Merger
The era has changed a lot, and digitization has led to huge use of social media platforms like Facebook and Twitter. These companies are the major market leaders in case of content advertising, e commerce, hardware etc and have been affecting the overall content distribution since then. So it can be rightly said that the future of content on television is going to be defunct soon as more and more people are switching to digitization and are focusing on content on mobiles and social media platforms. Thus the merger between the two competing companies of the media industry will not be as viable as it seem to be (Mayntz). There will not be any net benefit, the revenue and the problems will just get transferred from one pocket to the other. It is rightly said that growth will not happen by combining two challenged business, there may be better services at cheaper rates, more streaming of exclusive content, more bundled services with wireless content and all but there will not be any net growth from the same. The problems that the entertainment company was facing with respect to streaming of their content will now be transferred to the distributing company. There will not be any net benefit from the same. Previously the company use to believe that if they are operating in the distribution business, they will not grow if they do not own the content but this myth has now been broke. Companies like Facebook and Twitter are distributing million of contents every second, without actually owning them. The companies are now part of the traditional distribution channel and their huge influence cannot be neglected. Thus if the new merged company wants to have a hold in the market, they need to make effective use of the digital world and the advantages that it has to offer (Elimam). So even if the companies’ merge they will not be much benefited, they will other issues also with maintain effective strategic approach to the overall scenario and then try to generate the revenue out of the same. This is one of the main issues in case of vertical mergers as companies will find it difficult to get hold of the supply chain at reduced cost. The companies won’t benefit in the long run if they fail to make an effective switch from the world of television to more advanced and huge world of digital media. They need to make use of the social media management platforms to promote their content. Previously it was believed that content was the king and if the content is good and the audience likes it, the company will flourish. But now the situation has changed along with good content people need to think of effective ways to promote that content, make it more accessible for the people, and have exclusive copyrights on the same. So if an entertainment company is getting merged with a distribution company, there are high chances that there will be no added benefits of the same (Bakir). Moreover the content creation company will lose rights on their content, as the streaming of the same will be regulated by the distribution company. So we see that there are many potential risks that both the companies will face if they get into such kind of mergers that might destroy their presence in the market. Time will only tell whether this will be a viable deal or not, however on close scrutiny it can only be said that the companies need to strategize the overall union if they want to earn any kind of synergy from the said merger of content creation and development and distribution (Belton).
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Visinescu, L, M.C Jones and A Sidorova. “Improving Decision Quality: The Role of Business Intelligence.” Journal of Computer Information Systems 57.1 (2017): 58-66.
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