Exhibit $3-2$

Environmental Uncertainty Matrix

$\backslash$table$[[,$Degree of Change$],[,$Stable,Dynamic$],[,$Cell $1,$Cell $2],[,$Stable and predictable environment,Dynamic and unpredictable environment$],[,$Few components in environment,Few components in environment$],[,\backslash$table$[[$Components are somewhat similar$],[$and remain basically the same$]],\backslash$table$[[$Components are somewhat similar but$],[$are continually changing$]]],[,\backslash$table$[[$Minimal need for sophisticated$],[$knowleCase Application $1$

Environmental Uncertainty at HBO

HBO is one of those company names everyone knows. It's the oldest and second$-$largest pay TV station in the US$.$ Since the early $1990$s$,$ it has been developing original programming. That's much longer than Netflix and Amazon. HBO shows like Game of Thrones, The Sopranos, and Westworld have won Emmy and Golden Globe awards. HBO includes seven $24-$hour channels as well as the streaming service HBO Now. It has about $130$ million subscribers worldwide. ${?}^{129}$

That all sounds like HBO is doing well, right? Looking more deeply, though, there is a lot happening in HBO's environment.

Over a million households got rid of their cable TV subscriptions during a three$-$month period in $2017.$ That's much faster change than experts expected. By $2030,$ the cable and satellite TV market is estimated to shrink by $26$ percent. That would leave only $60$ percent of American households as subscribers to pay TV$.{?}^{130}$

Meanwhile, smart phone usage keeps climbing worldwide each year. The number of smart phone users in $2018$ was estimated at $2\mathrm{.}53$ billion. By $2020,$ that number is expected to climb to $2\mathrm{.}87$ billion. ${?}^{131}$

$81$ Also, HBO is now officially part of the AT&T$-$Time Warner family. The merger

End of Chapter: Influence of the External Environment and the Organiz...

$81$

Also, HBO is now officially part of the AT&T$-$Time Warner family. The merger became official as of July $12,2018.{?}^{132}$ Other companies in media and telecommunications industries, like Comcast and $20$th Century Fox, are talking about combining forces. Meanwhile, Apple has set aside $$1$ billion to get in on the action of streaming original content. Competing in these industries is different than it used to be$.$

John Stankey, the AT&T executive in charge of HBO, has made it clear that there will be a lot of change in the company. "It's going to be a tough year. It's going to be a lot of work to alter and change direction a little bit,"$133$ said Stankey. At a recent town hall meeting, Stankey talked about HBO increasing its subscriber numbers and the amount of content offered. This is a different approach from $HB{O}^{\text{'}}s$ emphasis on quality over quantity.

Focusing on quality worked for almost two decades. HBO had the most Emmy nominations from $1999$ to $2017.$ Then, in $2018,$ Netflix beat out HBO with a higher number of Emmy nominations. The sheer volume of Netflix's shows is credited as the reason for its launch to the top. ${?}^{134}$ Plus, HBO only spends about one$-$quarter to one$-$third of what Netflix spends on developing new content. Some of HBO's productions in the past have taken years to develop and cost millions per episode.

Stankey wants HBO to try new approaches and add other types of content than what is currently offered on HBO Now, its streaming service. He offered these glimpses of the future saying that there would be fewer streaming companies. Figuring out how not to just survive but to thrive in this industry will be the challenge.

End of Chapter: Influence of the External Environment and the Organiz... creaited as the reason for its launch to the top. ${?}^x$ Plus, HBU only spenas about one$-$quarter to one$-$third of what Netflix spends on developing new content. Some of HBO's productions in the past have taken years to develop and cost millions per episode.

Stankey wants HBO to try new approaches and add other types of content than what is currently offered on HBO Now, its streaming service. He offered these glimpses of the future saying that there would be fewer streaming companies. Figuring out how not to just survive but to thrive in this industry will be the challenge.

Discussion Questions

$3-11.$ Which of the cells in Exhibit $3-2$ applies most clearly to the environmental uncertainty faced by HBO $?$

$3-12.$ Using Exhibit $3-4,$ what components of HBO's external environment and specific environment are having an impact on the company? Why?

$3-13.$ What, if anything, can HBO do to manage its environment and reduce it uncertainty exposure?

$3-14.$ How might HBO's organizational culture change as a result of the changes described in this case?