Case Study #33: Oprah Winfrey’s Partnership with Discovery Communications Represents Good Strategic Integration

Over the years, I receive a lot of good advice about what to do in Chicago, IL:

“Live downtown.”
“Wear multiple layers.”
“Eat the pizza.”
“Go to a Cubs game.”
“You gotta watch the Oprah Show live.”

I have two more years to act on the last piece of advice. A few days ago, Oprah Winfrey announces that she will end her 25-year run in the talk show business by September 2011. Daytime television will not be the same after Winfrey bids farewell to her loving fans. However, Winfrey’s decision to exit the talk show business is very “stratelytical”.

Millions of people watch Oprah’s talk show. Her show launches in syndication in 1986, averaging 6.6 million viewers in the week ending November 8 (Schechner, Sam. “Oprah Winfrey to End Her Program in 2011”.Wall Street Journal, November 19, 2009). What will these 6.6 million viewers tune into instead of Winfrey’s talk show after 2011? How will local stations replace her with equivalent content to minimize attrition from advertisers? How will advertisers reach such a large audience?

Winfrey is fundamentally deploying an inorganic strategy. According to Schechner, Winfrey will be turning her attention to her own television network OWN: The Oprah Winfrey Network. The channel is structured as a 50-50 joint venture between Winfrey and Discovery Communications.

OWN will replace its little-watched Discovery Health channel with the new offering. So, the 6.6 million viewers can breathe a sigh of relief – They can watch Winfrey on cable. The cost of switching is low for them, even if a percentage of the viewers need to be cable subscribers to watch channels on OWN. Unfortunately, local stations will still be challenged with replacement content, but can save money by not syndicating Winfrey’s premium content. Advertisers will be competing for spots on OWN. Discovery Communications will undoubtedly be able to command a premium on their rate cards for that kind of demand. It isn’t the end of the world for all of the players.

Winfrey’s company, Harpo Productions, Inc. is diversified. Its flagship product, the talk show, is the highest-rated TV talk show in history and is seen in almost every US market and in 145 countries. Winfrey’s incredible success in the talk show business space helps her expand her brand into books, movies, magazines and television show spaces. Harpo is a full-line media company, but it has an opportunity to be integrated. Since OWN will replace her current flagship, syndicated product, it can serve as the vertical integrator for her other businesses. Discovery Communications represents an excellent practice in media integration. It will not integrate OWN within its brand portfolio, but also help her integrate her non-talk show specific properties within the OWN media brand. Integration also leads to increased capabilities to measure viewership statistics, particularly engagement levels. There is already evidence of this evolving integration on Winfrey’s site.

While the syndication model is a huge revenue driver for Winfrey, it is also one that may pose some risk as television stations streamline because of adaptations in local viewership and advertising dollars. TV station owners, facing a record drop in advertising, are pushing their news crews to fill expanded schedules, allowing programmers to eliminate more costly syndicated programs such as “Dr. Phil.” In Los Angeles and San Francisco, stations are adding as much as 12 hours of news a week to schedules (Fixmer, Andy. “U.S. TV Stations Attract More Viewers With News Than ‘Seinfeld’”. Bloomberg, April 16, 2009). Winfrey viewership doesn’t really change during the recessionary period, but I imagine Winfrey prefer to align with a resource-driven, global media company than potentially lose syndication revenue from struggling local TV stations. Anticipating a risk now to mitigate its potential harmful impacts in the future is an excellent strategy.

It is already difficult to be an audience member on Winfrey’s talk show. Her exit announcement will make it that much harder to get a seat in the next few years. But, there will be other ways to interact with her brand, whether it is watching one of her movies or reading one of her books. Winfrey's partnership with Discovery Communications will help improve those interactions over time.