Question #3
Reading: Reading 14 Financial Statement Modeling
PDF File: Reading 14 Financial Statement Modeling.pdf
Page: 2
Status: Unattempted
Question
Kerry Winstone covers TVStream Inc., a U.S. based company offering streaming video. She has carried out an analysis using Porter's five forces model. The table below summarizes her main conclusions. Force Factors Threat of substitutes Broadcast TV and DVD media are cost-effective substitutes. Rivalry There are several companies in the industry and TVStream has a 25% market share. Bargaining power of suppliers The content must be purchased from the major networks and movie studios. Bargaining powers of buyers Customers are fragmented and the base consists largely of individual subscribers. Threat of new entrants Major TV networks are in position to launch their own streaming service using existing technologies. Winstone should most appropriately conclude that:
Answer Choices:
A. TVStream is likely to have a high degree of pricing power derived largely from high barriers to entry
B. TVStream is unlikely to have a large degree of pricing power and below average profitability due to threat of new entrants
C. TVStream is likely to have a large degree of pricing power and above average profitability due to favorable bargaining power of suppliers
Explanation
Force
Factors
Condition
Threat of substitutes
Broadcast TV and DVD media are cost-
effective substitutes.
Unfavorable
Rivalry
There are several companies in the industry
and TVStream has a 25% market share.
Neutral
Bargaining power of
suppliers
The content must be purchased from the
major networks and movie studios.
Unfavorable
Bargaining powers of
buyers
Customers are fragmented and the base
consists largely of individual subscribers.
Favorable
Threat of new entrants
Major TV networks are in position to launch
their own streaming service using existing
technologies.
Unfavorable
There is clearly a high threat of new entrants and high bargaining power of suppliers, both
of which make the industry relatively unattractive.