Europe’s commercial television broadcasters are learning to their cost that structural advantage is not all it was once cracked up to be. VTM, the leading Flemish broadcaster, announced an operational deficit for 1996 equivalent to a return on capital employed of minus 15 percent. Similarly, HMG of the Netherlands announced a sharp fall in profits last year, and Spain’s Antena 3 TV had to make deep cost cuts to keep out of the red.

These and many other "free"¹ commercial operators once found it relatively easy to make money because they dominated their national advertising markets. They were textbook examples of the traditional strategic theory that companies with structural advantage are likely to earn high returns. But more recent management theory has warned that structural advantage can prove short lived, leaving those that rely on it dangerously exposed once entry barriers to their markets fall.² Unless a company also has strong operating skills, it will have difficulty protecting itself against new competitors.

This is largely what has happened in the European television industry in recent years. For free commercial broadcasters, strong operating skills means the ability to squeeze maximum profit from the cost of program schedules with...