Over the last few decades, a general consensus has been building that the vertical integration model doesn’t really apply anymore. There seem to be two general trends driving corporations to move production away from a vertical model. Firstly, more and better information technology creates specialized firms that encourage outsourcing and additional layers within an organization to handle these complex processes. Secondly, globalization makes cheaper production facilities more easily accessible abroad. The NFL presently seems to be grappling with this issue in their stance towards their Thursday Night Football telecast. I believe that despite, the widespread criticism, their decision to wrest control over the television distribution of their games was a sound business decision.
Starting in 2006, the NFL decided to launch a slate of eight weekly games that would be aired on the last eight Thursdays of the season. This ignited quite a bit of controversy at the time because football games are traditionally played on Sundays (with one game reserved for the revered Monday Night Football telecast). Fans saw this additional game as a "cash-grab" by the league and players saw it as a terrible inconvenience for them (since they are generally accustomed to having a week to rest their aches and bruises between games).
Why was the NFL so intent on ensuring that Thursday Night Football survived? The only conceivable reason, despite the criticism, had to do with injecting the NFL’s then-fledgling TV channel (aptly titled the NFL Network) with a shot in the arm. The league had launched the channel in 2003 to exclusively cover the league’s teams and its players. They found it wasn't difficult to attract their hardcore fans to the network but they wanted the channel to be more ubiquitous. As it stood then, an individual had to request access to the channel from their cable provider and pay an additional monthly fee to their cable provider (these channels were not part of the regular cable package that customers purchase). So, in 2006, they decided to independently start broadcasting their own games. In no time, people that hadn't necessarily cared about getting access to the network began to start caring. Fans wanted to be able to watch whatever game they so pleased – as they had grown accustomed to. Customers voiced their displeasure (to cable companies) and the cable companies were forced to acquiesce and make the NFL network part of their regular programming package. Those additional costs were ultimately borne by the customer – as everyone was forced to pay an additional 50 cents or so (regardless of whether they’d ever watch or even cared about the NFL). The NFL Network’s reach expanded exponentially. In the process, the NFL figured out how to create profits from what seemed like a moribund business model. They used the seemingly-antiquated idea of vertical integration – and presided over every part of the television delivery of their games – to create true value. Other industries and businesses are now officially on notice.
References
Hensley J. Ray Lewis: 99 percent of players would vote against Thursday games. Baltimore Sun. Nov 8, 2010. Retrieved from http://weblogs.baltimoresun.com/sports/ravens/blog/2010/11/ray_lewis_99_percent_of_players_would_vote_against_thursday.html
Osegowitsch T, Madhok A. Vertical Integration Is Dead, or Is It? Harvard Business Review. March 15, 2003. Retrieved online from http://hbr.org/product/vertical-integration-is-dead-or-is-it/an/BH089-PDF-ENG
Wooley S. Why the NFL Network is Using the Wrong Playbook. CNN/Money. Nov 11, 2010. Retrieved online from http://tech.fortune.cnn.com/2010/11/11/nfl-network-thursday-night-football-based-on-old-business-assumptions/
