The BSB-Sky TV Case Questions

Assignment: Read “British Satellite Broadcasting versus Sky Television” (HBS 9-794-031) and answer the

following questions:

1. Had BSB been able to identify News Corporation as a potential competitor prior to Murdoch’s

announcement of the launch of Sky TV, what might they have done differently before and after the

announcement?

2. Can the two rivals survive? Discuss the rivalry---how the firms try to affect what their rival will do---in

context of the classroom model of the war of attrition we discussed earlier.

3. Estimate the present discounted value of the strategies “fight” and “exit” for both firms, conditional

on what the other firm does [feel free to ignore the (exit,exit) case]. Use exhibits 6 and 7 as a launching

point, but you should depart from those numbers when it is justified. Construct a 2 X 2 matrix

representing the strategies and these payoffs as an exhibit in your memo.

Ignore losses through 1990 and use a discount rate of 10%. Treat cash flows after 1999 as perpetuity

(and discount them). You should get sizable termination values. For the case where the firm concedes,

generate a realistic shut down timing and treat costs appropriately. Justify all assumptions on costs of

the various strategies. In light of these numbers and other qualitative considerations, what should BSB

do in 1990? In particular, what share of a possible merger pie would you hold out for?