Vertical & Horizontal Integration

Vertical Integration

Vertical integration is the process where a product or services production and / distribution is controlled by one single entity or company, in order to increase their power in the marketplace.

Every single product has a large life cycle. Whilst you might recognise the product with the brand name printed on it, many companies are involved in developing that product. these companies are not necessarily part of the brand you see.

Vertical integration in simple terms is this; a media conglomerate owns several different companies at different stages of the production or supply chain, for example; Warner Bros., owned by conglomerate Time Warner.

An example of Warner's vertical integration is, Harry Potter and the Deathly Hallows Part 2.

The film's process goes like this.

- Production; HP and the DH: P2 was created by Warner Bros. Pictures

- Distribution: Warner Bros. Distribution then distributed the film.

- Marketing: Several of Time Warner's companies successfully marketing the HP film by showing a Behind the Scenes programme on HBO ahead of the film's worldwide release, CNN showed a special which consisted of interviews with the actors before the red carpet premiere and Time magazine also ran special HP features before and after the films release. This helped not only gain further box office ratings, but proceeded to help with DVD sales.

- Exhibition: Warner Bros. were able to use it's WB International Cinemas chain to present the film to a worldwide audience. 

In the US, HBO broadcast the films television premiere, it allowed HBO to profit from airing a box office hit for the first time.

There are 3 types of Vertical Integration;

- Backward integration - When a company tried to own an input product company.

- Forward integration - When a business attempts to control it's own post production or the distribution area.

- Balanced integration - A combination of the two! A balanced strategy with advantages of both.

Horizontal Integration

Horizontal integration is a lot simpler and more common that vertical as it is simply a strategy to increase a company's market share by taking over a similar company. 

A strong example of this type of integration would be the merging of YouTube and Google as Google had a strong and loyal user base that would increase popularity and ratings for the online media video site. Google announced the acquisition on October 9th 2006, stating the agreement with YouTube would cost $1.65 billion in a stock-for-stock transaction. YouTube was able to retain its distinct brand identity.