BSB VS Sky television

A classic example is the battle between Sky Television and British Satellite Broadcasting (BSB) in
the early 1990s to dominate British satellite television. It would be a lose-lose situation if both firms
were to stay in the market and compete vigorously. It would be a win-win if they could negotiate a deal
for one to pay the other to exit. These are the estimates for the financial implications as documented
in a HBS case study:

For BSB: Loss of 190 million if both BSB and Sky stay in game and fight; profit of more than 2
billion if Sky exits; loss of 180 million if BSB exits. For Sky Television: Gain of 700 million if both
parties stay in game and fight; profit of almost 3 billion if BSB exits; loss of 70 million if Sky exits.

It would be a win-win if they could negotiate a deal for one to pay the other to exit. But who has a
stronger negotiating position in this example? Some would say Sky has a stronger position, since it
would still make 700 million even if BSB does not exit the market. BSB is weaker because it would
lose 180190 million if Sky chooses to fight. So BSB must negotiate for Sky to exit.

However, that is not true if you look at the BATNA more carefully. Compare the fight versus exit
option for each company if they fail to reach an agreement. If no agreement is reached for one of the
players to exit, then: For BSB: Fight versus exit means losing 190 million instead of 180 million.
The difference is relatively insignificant. So BSB has flexibility of choosing whether to fight or not
should Sky decide to fight. It has a strong BATNA.

For Sky: Fight versus exit means 700 million profit compared to a 70 million loss! Sky has no
choice but to fight. If it has to fight, then it will increase its profit substantially (from 700 million to
3 billion) if it can negotiate to pay BSB to exit. In fact, theoretically, if BSB does its homework and
understands Sky's BATNA, it would know that Sky should be willing to pay anything up to 2.3 billion
for BSB to exit! In the end, Sky did pay BSB to exit the market.