Econ Paper

The audience first, or the public be damned? TV Network Wars in the Philippines

Kayceel A. Bacarro & Katrina Felene S. Barrios

Dr. Rodelio Subade

Table of Contents

The rivalry of TV Networks in the Philippines ............................................................................................... 3 Page | 2 The market structure of TV Networks .......................................................................................................... 3 The relationship between TV Networks and the oligopoly market .............................................................. 4 How do TV Networks make money?............................................................................................................. 4 How can TV Networks raise revenue through cooperation?........................................................................ 5 What hinders TV Networks to collaborate? ................................................................................................. 6 Good Side of Oligopolistic Competition among TV Networks ...................................................................... 7 References: ................................................................................................................................................... 8

The rivalry of TV Networks in the Philippines Television is one of the most basic household devices there is, nowadays. It serves its main purpose of entertaining and giving information to people with the help of the different Page | 3 television network cables set for viewing. Each television networks specialize in different categories. It could be a channel about history, science, fashion, music or be a local entertainment network. While television can have hundreds of channels, only few companies dominate the television network industry. The two giant television networks in the Philippines had been airing for more than half a century. They had even more subsidiary networks under their wings which also specializes in different fields such as news; ABS-CBN’s news channel ABS-CBN News Channel (ANC), TV5’s AksyonTV and GMA’s GMA News TV, or music channel; ABS-CBN’s MYX Philippines. It couldn’t be helped that these three major networks are being compared in every way. The intense rivalry blossomed out in the end of the last millennium when the first two senior networks are just starting to have the nationwide campaign of having better reception not only in Metro Manila but all over the country. Then, the cold war on shows started. Both networks started to have same kind of formats on their daily shows; morning news show, talk show, noontime game-oriented show, evening news and the soap operas that Filipinos are all eager to watch patiently. This resulted to have the general mass of people to start having their own preferred shows. People began to talk until the devotion to their preferred network, which ran deep, was formed. The comparisons between the networks will inevitably affect the advertising sector of economy. The entry of TV5, which is just the reestablishment of the old ABC network, shook up the competition. It is still remarkably new in the industry but still shows the potential to overtake the other players if it can make something more astounding from its competitors.

The market structure of TV Networks The Philippine market is an imperfect one. There are monopolies and oligopolies everywhere. A monopoly is where a single firm sells the product or a service. An oligopoly, on the other hand, is where a few firms sell the product or service. Simply, monopolies and oligopolies are when a company or a few of them control an unfair share of the market. Since they have control, they can dictate and influence their target market.

The Philippines probably presents the most diverse media picture in the region in Southeast Asia, with awide variety of broadcasters, both radio and television, operating both nationally andlocally. At the same time, the leading media houses are much commercialised, with ownership concentrated mainly in the hands of large companies or family businesses. Despite having diversity in mass media, the market structure of the television broadcasting networks can be noticed by everyone. The control of the big networks in the industry is glaringly obvious. The power of these big networks paved way for the oligopoly market on TV channels.

The relationship between TV Networks and the oligopoly market The local television broadcasting networks can be a perfect example for an oligopoly market in the local scene. Just like it is with the leading oil companies, they also have the same scenario with the television broadcasting networks. The main local networks, namely ABS-CBN, GMA & TV5, are the major players in this area. Their subsidiaries further widen their areas of concern to be able to have a much larger target market. These broadcasting networks dominate the TV viewers which in turn also makes them the ideal networks for advertising campaigns of different companies. In this situation, the networks don’t only create oligopoly in the shows offered by the management but also the advertising industry. Companies entrusts their products to local TV networks in the form of advertising. The number of consumers watching a show impacts TV advertising revenue. This is because the number of consumers exposed to advertisements is the maximum number of consumers who can purchase a product or service because of that advertisement. Even if a TV advertisement is very convincing, TV advertising revenue will be limited unless enough people are exposed to it. This is where choosing the right service network to host their commercials comes to the picture.

How do TV Networks make money? Advertising revenue provides a significant portion of the funding for most TV networks. The vast majority of television advertisements today consist of brief commercials, ranging in length from a few seconds to several minutes. Advertisements of this sort have been used to promote a wide variety of goods, services and ideas since the emergence of television.Television shows

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offer commercial slots that advertisers pay for depending on factors such as demographics and ratings. Companies are paying enormous price for just 2-3 minute commercial. This is one of the reasons why the three TV Networks here in the Philippines battle for ratings supremacy; to lure Page | 5 advertisers and sponsors and eventuallyearn profit and lessen their costs of production in TV programs, promotions, etc. GMA and ABS-CBN have no problems regarding in their revenues from commercials and sponsorships since they have already consistent high ratings which makes themattractive to advertisers. They are already financially stable. Since TV5 is just a new competitor in the market, it has difficulty in convincing advertisers to put commercials between its TV shows because they have only small audience share compare to the two former networks. Advertising in the Philippines is self-regulated by individual broadcasters. The Kapisanan ng mga Brodkaster sa Pilipinas (KBP), a self-regulatory organization representing most television and radio broadcasters in the country, limit advertising to 18 minutes per hour, a move taken to help "promote public interest." Basically, the restraint in the advertisers diminishes the advertising revenue of the networks. This is the reason why even though the audience share of ABS-CBN is larger than GMA in the whole Philippines, the gross profit of ABS-CBN is smaller than GMA because they are a member of KBP.

How can TV Networks raise revenue through cooperation? It is far from reality for TV Networks to cooperate even if this would mean that they would be better off in collaborating if they act as a monopolist that can dictate the television media industry in the Philippines. So the Prisoner’s Dilemma can be applied. Although oligopolies (TV Networks) would like to form cartels and earn profits just like in monopoly, they cannot do so because of government interventions and anti-trust laws that prohibit the agreement between oligopolies to merge for public policy matters. But one of the recent news today regarding telecommunications industry is Manny Pangilinan’s offer to buy GMA 7. Manny V. Pangilinan is the chairman of telephone monolith Philippine Long Distance Telephone Co. and the chairman-CEO of electricity distribution monopoly Meralco, as well as the owner of TV5. If this proposal would be perfected, then the market structure for telecommunications would be back to duopoly. One way to pursue cooperation is through merger. Then, if these two separate companies will combine, it would result to a greater

market control for them. Combining the viewership of GMA7 and TV5 will capture more than 50 percent of the TV audience. It would definitely mean higher revenue from advertising and distributor fees. The two companies would be both better off by collaborating. But merging is not that easy because they can be accused of engaging into anti-competitive practices or business practices that prevent or reduce competition in the market. It would result to restraint Page | 6 of trade that’s why company mergers are often examined closely by government regulators to avoid reducing competition in an industry.

What hinders TV Networks to collaborate? In other countries, the reason why businesses in an oligopolistic competition cannot easily form a cartel to monopolize a specific market is because of anti-trust laws. But currently, here in the Philippines, we have no anti-trust laws in place, we only have regulations pertaining to competition, monopolies, and opening of new businesses. The regulations that are in place are held in the Constitution of the Philippines Article XII Section 19 which states “The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed”. Other regulations in place are held in The Civil Code of The Philippines which states “Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage.” According to this, one who is in an industry of what was mentioned above started their business unjustly would be penalized. The Philippines have in place the Revised Penal Code of the Philippines, which revised the penal codes and laws. Pertaining to monopolies and frauds would be under Article 186 Monopolies and combinations in restraint of trade which states the penalty of prision correccional in its minimum period or a fine ranging from 200 to 6,000 pesos, or both, shall be imposed upon: 1. Any person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market; 2. Any person who shall monopolize any merchandise or object of trade or commerce, or shall combine with any other person or persons to monopolize and merchandise or object in order to alter the price thereof by spreading false rumors or making use of any other article to restrain free competition in the market;

3. Any person who, being a manufacturer, producer, or processor of any merchandise or object of commerce or an importer of any merchandise or object of commerce from any foreign country, either as principal or agent, wholesaler or retailer, shall combine, conspire or agree in any manner with any person likewise engaged in the manufacture, production, processing, assembling or importation of such merchandise or object of commerce or with any other persons not so similarly engaged for the purpose of making transactions prejudicial to lawful commerce, or of increasing the market price in any part of the Philippines, of any such merchandise or object of commerce manufactured, produced, processed, assembled in or imported into the Philippines, or of any article in the manufacture of which such manufactured, produced, or imported merchandise or object of commerce is used.

Good Side of Oligopolistic Competition among TV Networks In the oligopolistic competition of the telecommunications industry, TV Networks contend not by lowering their prices to bidders but it is more of a non-price competition. Price competition is when companies match each other’s price decreases. Firms in an oligopolistic market would incur loss than profit if this would be the case. So generally, they would rely on non-price methods of competition. The two of the most common non-price competition in the market for TV and entertainment are product differentiation and advertising. Since the goal of a TV Network is to attract viewers thereby increasing their audience share, then these networks would create ways on upgrading the quality of their products or in this case enhance their TV shows. The good thing about having a two to three players in the market is that consumers or viewers get the pick of the bunch that suits their tastes and preferences. The audiences are the one who’s taken into consideration in the product differentiation by the telecommunications company. However, product differentiation for TV networks sometimes results to cloning of television or homogenous programming where programs of the same genre runs in the same time slot. TV networks also compete through advertising. They promote their TV shows to attract viewers. That’s why when there is an upcoming TV show in a particular network; they never fail to put it in commercials, print ads, bill boards, etc.

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References: Alejo, Annie S. "KBP weighs in on commercial overload issue against ABS-CBN." Manila Bulletin. July 22, 2010. http://www.mb.com.ph/articles/268202/kbp-weighs-commercial-overload-issue-against-abscbn. Carballo, Bibsy M. "A healthy end to the network war." The Philippine Star. May 28, 2012. http://www2.philstar.com/entertainment/. Coronel, Sheila S. "World Association for Christian Communication Archive." Media ownership and control in the Philippines, November 2008: http://archive.waccglobal.org/wacc/publications/media_development/archive/1998_4/media_ownersh ip_and_control_in_the_philippines. Irizarry, Christian J. "International Business Wiki." Antitrust Laws in the Philippines , June 14, 2009: http://internationalbusiness.wikia.com/wiki/Antitrust_Laws_in_the_Philippines. Mankiw, George. Principle of Economics. South-Western College Pub, 2009.

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