1. Background Information
In 1998, StarHub foremost introduced the English Premier League to Singapore and has invariably secured broadcast medium rights for the past 12 old ages.
During that period, local telecommunications challenger, SingTel, has launched their ain pay-TV service named mio Television on July 2007, signaling its purpose to equal StarHub to be the state ‘s chief pay-TV supplier.
In 2008, SingTel made its first measure by procuring the media rights to the UEFA Champions League and UEFA Europa League from 2009 to 2012. With the rights for these esteemed European football competitions, many StarHub pay-TV clients were forced to subscribe up with SingTel ‘s mio Television to fulfill their demands.
One twelvemonth on, in October, SingTel rocked the state by denoting their triumph in the command war for the media rights for the English Premier League, which is known now as the Barclays Premier League, from 2011 to 2013. The triumph was greeted with discouragement from many football fans, as they now have to do the leap from StarHub ‘s pay-TV over to mio Television to acquire their dose of English football. This efficaciously ended StarHub ‘s 12-year broadcast medium rights of the conference, which would surely ensue in a autumn of endorsers in clip to come.
2. Purpose of the Report
This study aims to place the assorted economic constructs shown in the text edition, and demo how they are applicable in the existent concern universe utilizing the determinations of StarHub and SingTel as illustrations.
3. The Art and Science of Economic Analysis
3.1 The Economic Problem
In the article, it is clearly identified that the resources which led to Starhub delivery in the Barclays Premier League ( BPL ) to Singapore are human capital and the entrepreneurial ability of the house.
Human capital was shown in the signifier of cognition they had on the wants of the locals, and the entrepreneurial ability of StarHub made them recognize that they could gain from this undertaking.
It was precisely the same two factors that led SingTel to wrestle for the BPL media rights from StarHub. Having observed the immense economic benefits StarHub enjoyed with the monopoly of the BPL media rights in Singapore, SingTel realized they excessively, would gain enormously from the ownership of the BPL media rights.
Therefore, SingTel launched a command to equal StarHub for the rights, which sparked off a command war between the two telecommunications house. Finally, SingTel earned the rights to air the conference ‘s game for the following 3 old ages, get downing from 2010.
3.2 The Science of Economic Analysis
SingTel ‘s determination to plunder into the Pay-TV market and particularly, the market for televised athleticss like association football is non due to a normative economic statement, or sentiment, made by their staff. Alternatively, it has been based on a positive economic statement, which is backed by concrete facts.
The determination to outbid StarHub for the BPL media rights was greeted by the stock market with alterations to the portion monetary values of both houses. “ StarHub ‘s monetary value dived 16 cents to a depression of $ 2.01 before shutting at $ 2.03 yesterday. SingTel ‘s portion monetary value rose from $ 3.25 to $ 3.31 before shutting at $ 3.28. ” ( A whole new ball game in pay-tv market, 2009, October )
This supports the statement that the local market for the BPL is moneymaking, as the stock market has made alterations to reflect the expected hereafter additions of SingTel, and the foreseen loss of StarHub.
Having said so, the alteration in the portion monetary values are decidedly in response to SingTel ‘s successful command, therefore extinguishing the possibility that the false belief that association is causing was committed.
4. Economic Tools and Economic Systems
4.1 Three Economic Questions
Of class, before the command was launched, SingTel had to cognize what to make should they win the command. Hence, the three economic inquiries learned in Microeconomics come into drama. First, SingTel has identified the broadcast medium of Barclays Premier League lucifers as a service they wish to supply to the state.
Second, the launch of mio Television in 2007 paved the manner for the command, with SingTel in the clear that they would utilize the mio Television as a portal to air programmes, particularly the BPL games in the hereafter.
With the above two inquiries answered, SingTel ‘s ultimate purpose was to catch StarHub as the state ‘s prima pay-TV supplier. Hence, their mark market would be the bing endorsers to StarHub ‘s pay-TV, and more notably, the immense figure of endorsers to the BPL games and other athleticss programmes.
4.2 Negative Spillover Costss
Negative spillover costs have been incurred with SingTel ‘s raid into the local pay-TV market. This is supported by the article which mentioned that “ SingTel ‘s raid into wage Television – which split the football content which antecedently all resided with StarHub – really fuelled association football fans ‘ anger.
Thankss to competition between the couple, they said, football fans have to subscribe up for both StarHub and SingTel ‘s pay-TV services to bask all of the lucifers they had antecedently received when StarHub was the exclusive pay-TV participant. ” ( A whole new ball game in pay-tv market, 2009, October )
With that, it is clear that the move by SingTel has non gone down good with athleticss endorsers of StarHub ‘s pay-TV and has created unneeded incommodiousness.
5. Economic Decision Makers
5.1 The Firm
The replies from the three economic inquiries, viz. what service to bring forth, how and who to bring forth the service for, reiterates the fact that SingTel is a house, merely like StarHub.
Firms are economic units created by enterprisers looking to gain money through the combination of the assorted resources to bring forth a good or supply a signifier of service.
A more specific term to depict SingTel and StarHub are that they are separate corporations. Corporations are one of the most highly-valued signifiers of concern, frequently equipped with important fiscal power. Fundss can be raised rapidly through the sale of the corporation ‘s stocks, which besides leads to the company holding an array of shareholders.
Behind the strong fiscal wealth are several drawbacks. First, shareholders are unable to hold a important say in the operations of the corporations with their ballots doing up merely a minority. Alternatively, a board of managers is frequently entrusted with the occupation of doing corporate determinations with their bigger portions. Corporate income is besides taxed twice, ensuing in more net incomes being used to pay revenue enhancements.
Despite that, corporate incomes are frequently immense amounts of money, and the revenue enhancements would non be able to impact it much.
6. Demand, Supply and Markets
6.1 Demand, Supply and Market Equilibrium for SingTel ‘s mio Television
For SingTel ‘s mio Television, the demand and supply additions by the same value. The addition in demand is attributed to the successful command of SingTel for the Barclays Premier League ‘s media rights. With the media rights, SingTel is able to air the BPL games on their pay-TV service. This would do a important addition in the endorsers for mio Television as the endorsers want their dose of BPL football. This is in line with the gustatory sensation and penchants of the endorsers, which is a determiner of demand. Hence, there will be a rightward displacement for demand.
The alteration in supply for SingTel ‘s mio Television is due to SingTel ‘s outlooks on the hereafter monetary values of their athleticss bundle, which is a determiner of supply. With the ballyhoo for the BPL lucifers present now, it would convey along gross revenues for the athleticss bundle. However, in a twelvemonth ‘s clip, people might be more interested in other featuring events, and the BPL lucifers would non appeal every bit much to the populace.
As a consequence, SingTel would so hold to cut down their monetary values to increase gross revenues as the athletics bundle would turn into a luxury merchandise, alternatively of a necessity. This would see a leftward displacement for supply.
With an indistinguishable displacement in the demand and supply curve, the equilibrium monetary value will stay the same.
6.2 Demand, Supply and Market Equilibrium for StarHub ‘s pay-TV
For StarHub ‘s pay-TV, a autumn in demand has been observed. This is a consequence of their failure to go on supplying Singapore with the BPL lucifers on their pay-TV service. As such, consumers desperate for their hole of football decided to do the leap to SingTel ‘s mio Television due to their gustatory sensation and penchant for the BPL lucifers. This is the determiner of demand that causes the autumn in demand.
There is no alteration reflected in the supply curve as the channels in the athleticss bundle are still present. However, the lone difference is the remotion of the BPL content. Hence, there is no alteration in supply.
As such, the equilibrium monetary value has reduced to account for the autumn in demand.
7. Elasticity of Demand and Supply
7.1 Price Elasticity
For many Singaporeans, the Barclays Premier League lucifers are non considered as a necessity to them. Hence, the demand of SingTel ‘s athleticss bundle is more monetary value elastic to the general populace. This means that they are really antiphonal to alterations in the monetary value programs for the lucifers, and would be improbable to subscribe up for the bundle should it be excessively costly.
However, to the football fans in the state, it is a content they are non able to populate without. Therefore, the demand of the bundle is less monetary value elastic to them, proposing they are non antiphonal to monetary value alterations. This indicates that they would be willing to subscribe up for the bundle, irrespective of the alteration in monetary value.
7.2 Income snap
With the state retrieving rapidly from the economic recession, as seen from the recent studies saying that Singapore ‘s economic system “ expanded at a arresting gait of 19.3 per cent in the 2nd one-fourth of 2010. ” ( Singapore economic system zooms 19.3 % in Q2, 2010, July ) , the money income of consumers has risen.
To them, SingTel ‘s athleticss bundle is a normal good, as compared to StarHub ‘s athleticss bundle, which has been deemed as an inferior good. This is extremely due to SingTel ‘s success in procuring the media rights for the BPL games, which allows them to air the BPL games and other related programmes on mio Television.
Therefore, with the addition in money income of consumers, they would be more willing to buy the athleticss bundle launched by SingTel.
8. Production and Cost
8.1 Costss in the Long Run and Economies of Scale
First, the successful command for the BPL media rights and ESPN Star Sports brought an addition to the sum of channels available for mio Television. This would bespeak an addition in the end product by SingTel.
Following, mean cost for SingTel lessenings as they would see an addition in endorsers, particularly with football fans hotfooting to subscribe up for their athleticss bundle. This would cover up the cost incurred between Q and qa.
Last, with the addition in clients for SingTel ‘s mio Television service, they would hold to increase their works size to provide to the addition in demand. The works size could increase in the signifier of holding more service centres around the island, with more technicians and client service officers hired to run into demands. This would open up the chance to make a more extended division of labor, reflected from qa to q ‘ .
In the long tally, SingTel ‘s determination to take over as the sole broadcaster of BPL content would enable them to gain a tidy amount of net income. SingTel was non afraid of enduring losingss even though StarHub reported that they “ lose money from supplying athleticss content to pay-TV clients. ” ( A whole new ball game in pay-tv market, 2009, October )
They knew that as they were the lone pay-TV operator demoing BPL content, they would be able to profit from the media rights with concern chances coming in from all over the market, including advertisement and partnership trades.
8.2 Explicit and Implicit Costss
In the instance of SingTel, they have incurred both explicit and inexplicit costs in their determination to outbid StarHub for the BPL media rights. The explicit costs incurred are the money spent on command for the sole media rights for the Barclays Premier League and the cost of runing mio Television.
The implicit costs, besides known as the chance cost incurred, would be the decrease of their budgets to pass on other genres of programmes. This reduces their ability to offer for other genres of programmes such as primetime blockbusters.
9. Oligopoly – Duopoly
9.1 Barriers to Entry
With merely two pay-TV operators in Singapore, the oligopoly could be identified as a duopoly. A duopoly is a signifier of oligopoly where merely two dominant participants are present in a market.
As with all sorts of market construction, barriers to entry are in topographic point to discourage extra competition. First, there is a high-start up cost involved to come in the pay-TV industry. With commands get downing from six-figure amounts, a deficiency of start-up financess would surely spell the terminal of the new company as they would non be able to vie with the fiscal power of StarHub and SingTel.
Second, StarHub and SingTel have been around for some clip, set uping a repute along the manner. The general populace is more accustomed to these trade names, and any new entrants to the pay-TV market would happen it difficult to carry clients to exchange to their service. This is true boulder clay they are able to coerce competition through supplying sole content that the clients demand or other attractive trades.
In the instance of SingTel ‘s mio Television, their original entry to the industry back in 2007 was tough as StarHub was the merely established participant in the market. SingTel ‘s mio Television was eventually able to earn the support of clients when they secured the rights to the elect European football competitions.
Last, the new entrants would likely endure losingss early on, as a big end product is required earlier low production costs can be achieved. This is besides known as the economic systems of graduated table.
The economic systems of graduated table would non profit the new entrants as it takes clip to set up high economic systems of graduated table. This would set them at a disadvantage as they are unable to efficaciously vie with the other pay-TV suppliers.
9.2 Price Leadership
Price leading refers to a participant in the market that establishes a monetary value for the remainder of the industry to stay to. The participant that sets the market monetary value is normally one of the precursors in the industry, and others in the market would follow suit. This is practiced to avoid monetary value competition as everyone ‘s monetary values will be kept the same.
In the instance of SingTel, after they have taken over the media rights for the BPL games from StarHub, force per unit area was inflicted by the populace for monetary values to stay the same. Fans feared that a alteration in ownership of the rights would do a hiking in the monetary value for BPL lucifers, due to the extortionate command made by SingTel for the rights.
Hence, SingTel agreed to keep the same monetary value that StarHub used to bear down for their athleticss bundle, pacifying the populace. Therefore, monetary value competition was non present in this scenario.
$ 25 million
SingTel mio Television
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$ 25 million9.3 Game Theory
SingTel ‘s immense command for the Barclays Premier League media rights was non made without any signifier of theory. Alternatively, SingTel and StarHub ‘s commands for the BPL media rights could be represented by the game theory. In the game theory presented above, the figures used are generic as the existent command was non disclosed to the populace.
The aim of the game theory is to avoid the worst possible result, which in this scenario, is losing the command for the rights. Hence, neither SingTel nor StarHub would believe of keeping their current command. This is because if the other party decides to raise their command, it would efficaciously govern them out of the competition.
Therefore, neither side would keep their command, governing out the option of both parties keeping their commands. As such, the merely likely pick would be for both telecommunications house to raise their command.
The difference was that SingTel decided to raise their command significantly, which outweighed StarHub ‘s raised command with easiness. Hence, SingTel obtained the media rights for the Barclays Premier League.
In decision, SingTel has come a long manner to accomplish its end of overtake StarHub as Singapore ‘s dominant pay-TV operator in athleticss. When SingTel foremost started, they experienced troubles pulling clients as they were unable to equal what StarHub was able to offer to its endorsers.
It was merely when they obtained the broadcast medium rights for the UEFA Champions League and UEFA Europa League that football-mad clients decided to do the switch to SingTel ‘s mio Television. A twelvemonth ago, SingTel stepped up its effort to catch StarHub by outbidding the latter for the BPL media rights for the following three old ages.
Their successful command enabled them to be the new monetary value leader in the industry, and many football fans from StarHub made the leap from StarHub ‘s pay-TV to SingTel ‘s mio Television to acquire their hole of football. This led to an addition in demand of SingTel ‘s mio Television, and a autumn in demand for StarHub ‘s pay-TV.
Looking at the long term benefits, SingTel ‘s costs have been reduced due to an addition in the economic systems of graduated table, through set uping more service centres and engaging more workers to run into the increased demand.
With a immense figure of clients doing the switch from StarHub pay-tv to SingTel mio Television due to their demand for football, it has allowed SingTel to catch StarHub as the state ‘s dominant pay-TV operator in athleticss.