DirecTV strategy final

Irma NegroniIrma NegroniMike KostoffMike KostoffVince RubieraVince RubieraWayne AndermanWayne AndermanAdam BerkAdam BerkSteve SherwoodSteve Sherwood

IntroductionIntroductionIntroductionIntroduction• The DIRECTV Group is a world-leading provider of digital television

entertainment services. in the United States and Latin America. • Two business segments, DIRECTV U.S. and DIRECTV Latin America,

which are differentiated by their geographic location, are engaged in acquiring, promoting, selling and/or distributing digital entertainment programming via satellite to residential and commercial subscribers.

• DIRECTV Group provides digital television service to more than 17.1 million customers in the United States and over 5.3 million customers in Latin America.

• The DIRECTV Group reported revenues of $4.81 billion in the second quarter of 2008.

• The DIRECTV Group is composed of two main operating units - DIRECTV U.S., and Latin America.

Source: www.Directv.com

MissionMissionMissionMission

“To deliver the best television experience in the United States to higher quality

subscribers. “

Major BusinessMajor BusinessMajor BusinessMajor Business

“DIRECTV is dedicated to defining the best TV experience in the world through a mix of :(1) content, (2) technology (3) service

DIRECTV has contributed to the evolution of TV with HD programming, interactive features, digital video recorder (DVR) services, quality customer service, and electronic program guide (EPG).”

Source: www.Directv.com

Major Business/ Core ProductsMajor Business/ Core ProductsMajor Business/ Core ProductsMajor Business/ Core Products• Content:

– Access to over 250 channels– 100% digital picture and sound, exclusive programming– Access is offered to homes, airports, hotels, restaurants, hospitals, office buildings, airplanes,

automobiles and portable electronics. – Currently offer over 90 National HD channels.

• Technology: – More than 7,500 employees operate DIRECTV’– DIRECTV is the first to deliver an interactive on-screen program guide and pay per view ordering

by remote control. – Their innovations have led to hundreds of filings for US patents as DIRECTV has introduced must-

have technologies to the TV viewing experience.• Service:

– For the seventh year in a row, DIRECTV scored higher in customer satisfaction than every cable company measured in the American Customer Satisfaction Index.

– More than half of their employees primarily work to deliver the highest level of service to customers

– An entrepreneurial spirit is alive in all that DIRECTV does, reinforcing values of leadership, innovation, decisiveness, agility, teamwork and integrity.

– Thanks to their employee’s abilities and innovative thinking, DIRECTV is competitive in a rapidly changing industry.

Source: DirecTV 10K

Major MarketsMajor MarketsMajor MarketsMajor Markets

Major MarketsMajor MarketsMajor MarketsMajor Markets

DIRECTV U.S. Gross Additions Mix

Corporate History DevelopmentCorporate History DevelopmentCorporate History DevelopmentCorporate History Development

• 1990: Founded• 06/1994: Launched Service• 10/1994: National Availability• 11/1995: One Millionth Customer• 07/2001: Ten Millionth Customer• 12/2003: News Corp. acquires 34% interest in

DIRECTV• 10/2005: 15 Millionth Customer01/2006: 100%

Ownership of DIRECTV Latin America acquired• 10/2007: High definition revolution begins

with more than 70 national HD channels*

Source: DirecTV 10K

External EnvironmentExternal Environment

Threat of New Entrants – Threat of New Entrants – LowLow

Threat of New Entrants – Threat of New Entrants – LowLow

• DirecTV has achieved effect of Economies of scale• DirecTV prides itself on its differentiation strategy• Capital requirements are very high• Switching costs are high while in contract• Access to distribution channels is limited• Other cost disadvantages• Strict FCC policies and regulations• DirecTV will be expected to retaliate

Bargaining Power of Suppliers – Bargaining Power of Suppliers – Low/MediumLow/Medium

Bargaining Power of Suppliers – Bargaining Power of Suppliers – Low/MediumLow/Medium

• Many suppliers offering many substitutes• DirecTV suppliers:

– Hardware (set-top boxes): Thompson, LG, Pace Micro– Satellite: Boeing, Loral, Hugh Electronics– Content: ABC, NBC, CNN, NFL, HBO, Showtime

• DirecTV is in important customer to suppliers• Content suppliers’ product critical to DirecTV’s customers• Content suppliers’ product is differentiated• Low switching cost for suppliers’ products• Suppliers do not pose credible threat

of forward integration

Bargaining Power of Buyers – Bargaining Power of Buyers – MediumMedium

Bargaining Power of Buyers – Bargaining Power of Buyers – MediumMedium

• DirecTV buyers:– Residential– Business– Mobile (RVs, cars, boats, and aircrafts)

• Subscriptions are critical for DirecTV sales• Important product differentiations• Buyers locked in contract• Affordable competitive pricing• Buyers do not present credible threat of backward integration• Quality is important for customers• Customers are well informed

Threat of Substitute Products – Threat of Substitute Products – HighHigh

Threat of Substitute Products – Threat of Substitute Products – HighHigh

• Internet• Rental Video (Blockbuster, Netflix)• Video on Demand (Apple TV, XBOX360)• Movie Theaters• Video Gaming• Blu-Ray DVD

Rivalry Among Competitors – Rivalry Among Competitors – Very IntenseVery Intense

Rivalry Among Competitors – Rivalry Among Competitors – Very IntenseVery Intense

• Numerous of competitors (Satellite, Cable, Fiber)

• Matured industry• High fixed costs for all competitors• Low differentiation• Moderate switching costs• High strategic stakes for DirecTV• High exit barriers

Industry Life CycleIndustry Life CycleIndustry Life CycleIndustry Life Cycle

Embryonic Growth Shakeout Maturity Decline

Time

Demand

Broadcasting and Telecommunications Broadcasting and Telecommunications Industry 1987-2006Industry 1987-2006

Broadcasting and Telecommunications Broadcasting and Telecommunications Industry 1987-2006Industry 1987-2006

Demographic SegmentDemographic SegmentDemographic SegmentDemographic SegmentUS population size: 305 Million

Economic SegmentEconomic SegmentEconomic SegmentEconomic Segment

• Inflation rate: 4.9 % (September 2008)• Average for the last 12 months: 5.5% • Interest rate: 1.0% (October 2008)• Trade deficits: $59.1 billion (August 2008) • Personal savings rate: 2.8% (August 2008) • Gross domestic product: -0.3% (October 2008)

Political/Legal SegmentPolitical/Legal SegmentPolitical/Legal SegmentPolitical/Legal Segment

• FCC- Federal Communication Commission regulations: • Leasing of satellites, assignment of frequencies, avoidance of

interference• Communications Act • SHVIA- Satellite Home Viewer Improvement Act• SHVERA- Satellite Home Viewer Extension and Reauthorization Act• ITU- International Telecommunications Union regulations• State telemarketing and advertising rules• Subscriber privacy rules• Theft of satellite programming signals

Socio-cultural SegmentSocio-cultural SegmentSocio-cultural SegmentSocio-cultural Segment

• Women comprise 46% of the total U.S. labor force• 75% of employed women work full-time

• Diversity in the workplace: Racial minorities represent 32.3% of workforce.– African-Americans: 14.2%– Asians 5.2%– Hispanic: 12.3%

• Growing interest for environmental initiatives in the private sector

Technological SegmentTechnological SegmentTechnological SegmentTechnological Segment

• Fiber optics lines to home to deliver video services.

• Digital video compression over phone lines.

• Growth of providers of digital media Satellite operators.

• Video-on-Demand over the Internet

• High Definition growing demand

Global SegmentGlobal SegmentGlobal SegmentGlobal Segment

• Critical Markets: South America, Central America, Caribbean • Emerging markets represent large opportunity for DirecTV growth

• Economic downturns could lead to:– Decrease in consumer demand– Subscriber credit problems– Longer payment cycles or higher default rate

• Political factors-growth of populism in Venezuela, Brazil could lead to:– Changes in regulatory environments– Difficulty in obtaining approval

for important transactions

Summary of ThreatsSummary of ThreatsSummary of ThreatsSummary of Threats

• Narrowing difference between service providers

• Increasing programming costs• FCC requirements• Economic slowdown

Summary of OpportunitiesSummary of OpportunitiesSummary of OpportunitiesSummary of Opportunities

• Strategic Alliances• Growth of HDTV market• Increasing broadcasting market

Internal EnvironmentInternal Environment

Financial CapabilityFinancial CapabilityFinancial CapabilityFinancial Capability

Ratio Type 2007 2006 2005PROFITABILITYGross Profit Margin 0.155 0.171 0.066Net Profit Margin 0.088 0.099 0.027Return on assets 0.183 0.188 0.051Return on Equity 0.287 0.309 0.099LIQUIDITYCurrent Ratio 0.873 1.089 1.037Quick Ratio 0.809 1.037 0.930Inventory to net work. cap -0.507 0.588 2.889LEVERAGEDebt-to-assets ratio 0.276 0.291 0.324Debt-to-equity ratio 0.716 0.776 1.035Long term debt-to-equity 0.706 0.774 1.033ACTIVITYInventory Turnover 70.187 81.400 40.561Fixed-asset turnover 2.952 3.414 4.432Aver Collection Period 32.605 33.648 29.756

Organizational Capability Organizational Capability Organizational Capability Organizational Capability

• Vision: “We are defining the best TV experience in the

world through a compelling mix of content, technology, and service.”

• Leadership capability:DTV is capable of quickly seizing opportunities by identifying customer needs and trends and capitalizing on them in record time. Example: growth in demand for HD technology and interactive programming.

Organizational CapabilityOrganizational CapabilityOrganizational CapabilityOrganizational Capability• Corporate Citizenship:

DIRECTV's Corporate Citizenship department is responsible for developing and maintaining the company's strategy for philanthropic giving and public affairs. .

• Diversity: DTV seeks to meet federal diversity guidelines, and also seeks diversity of backgrounds for its employee workforce.

Organizational CapabilityOrganizational CapabilityOrganizational CapabilityOrganizational Capability

• Human Resource Management12,000 employees: 11,300 full-time, 1,000 part-time. Pension plan, 401k, and standard benefits package. No labor unions in US. Some labor unions in Latin America.

• Organizational Control:DIRECTV Home Services: DTV sets the quality of installation and service standards, performs quality control, manages inventory andmonitors the overall service network performance.

• Research and Development R&D 2005: $16.0 million

2004: $49.0 million 2003: $54.6 million

DTV invests heavily in technological firms that can provide cutting edge products, such as remote controls, set-top boxes, and smart cards.

• Patents: Over 1,650 issued patents worldwide Over 710 registered trademarks, including over 465 foreign registrations

Technological CapabilitiesTechnological CapabilitiesTechnological CapabilitiesTechnological Capabilities

Technological CapabilitiesTechnological CapabilitiesTechnological CapabilitiesTechnological Capabilities• Products:

Set-top receivers that incorporate DVR and HD technology. • Constant upgrades:

2006- New HD-DVR capable of receiving and recording new MPEG-4 HD signals. Interactive and video-on-demand functionality.

2008- Ability to remotely schedule DVR recordings via the Internet or cell / mobile phone. Significantly increased the recording capacity of HD-DVR. Plans to introduce HD versions of interactive applications, and Whole-House and Portable Services.

• Young satellite fleet: 11 satellites, 5 uplink facilities, 3 broadcast centers.

Technological CapabilitiesTechnological CapabilitiesTechnological CapabilitiesTechnological Capabilities

• Licenses: Licenses to broadcast services from 46 of 96 assigned Direct Broadcast Satellite frequencies in the Ku-band spectrum. Licenses in three orbital slots in the Ka-band spectrum.

• Optimum orbital slots:

Reduce obstructions and effect of rain.Allow single-dish solution for all customers

Operational CapabilitiesOperational CapabilitiesOperational CapabilitiesOperational Capabilities

Customer Service: • Online services: view billing statements, add packages,

make payments to account, user manuals.• 31 Third-party owned care center inside and outside of

U.S.• Subsidiary DTV Customer Service LLC: 5 locations in US.

4,700 reps. 24/7 phone assistance.

Differentiation of Brand name:• Brand name recognition almost universal 93%

Organizational CapabilitiesOrganizational CapabilitiesOrganizational CapabilitiesOrganizational Capabilities

Quality control:• Efforts to improve equipment quality (boxes,

Connectors, Switches)• Improve Field Technician Quality (Dish pointing,

trouble shooting skills, repeat visits)• Revamp repair facilities• Standardize connectors and cables to simplify

installation process • Implement hand-held devices across the

network.


Efforts to Reduce Churn: • Focus on quality customers• Limit risky subscribers • HD and DVR penetration• Improved customer service• Continued steady improvement


Efforts to improve subscriber quality: • Stricter Credit policies for accepting new

clients, new fraud management system • Extending term commitments from 12 to 18

months for basic equipment and 2 years for advanced equipment

• 2005 high risk was 28%, 2007 high risk was 10%.


Supply Chain logistics initiatives: • Lower cost of recovered boxes -Multi-pack kit,

HSP pick-up • Revamp repair process- Implement auto

testers, Built-in Self Test (BIST)• Remove cables from boxes• Full production of recycled cards- Increase to

400-500K cards per month

Core CompetenciesCore CompetenciesCore CompetenciesCore Competencies

Leading Brand Name: • Over 93% of consumers in United States are

aware of the DIRECTV service.

Substantial Channel Capacity and Programming Content:

• Delivers one of the widest selections of local and national programming available today in the United States

• Substantial capacity in the Ka-Band spectrum

Core CompetenciesCore CompetenciesCore CompetenciesCore CompetenciesHigh-Quality Digital Picture and Sound, Including HD Programming:

• Video and audio programming is 100% digitally delivered • DTV offers the most comprehensive selection of HD

programming in the United States.

Strong Customer Service:• Top rankings in customer satisfaction for the industry for

seven consecutive years • Minimizes subscriber disconnection (“churn rate”) and

attracts new subscribers.

Core CompetenciesCore CompetenciesCore CompetenciesCore CompetenciesTechnology Leadership and Valuable Orbital Slots and Satellite-Based Technology:

• DTV’s holds authorizations by FCC to use desirable orbital slots and

broadcast spectrum. • DTV holds licenses to broadcast from 46 out of 96 available DBS

frequencies in the Ku-Band spectrum • DTV holds hundreds of patents and constantly updates its

hardware, offering customers the best and newest systems in the market.

Summary of StrengthsSummary of StrengthsSummary of StrengthsSummary of Strengths

• Leading Market Position• Strong Financial performance• High customer satisfaction

Summary of WeaknessesSummary of WeaknessesSummary of WeaknessesSummary of Weaknesses

• Continuing Churn Rate• Patent infringements

Corporate Level StrategyCorporate Level Strategy

HistoryHistoryHistoryHistory

• 1932 Hughes Aircraft• 1963 1st Communication Satellite into orbit • 1976 Acquired by GM• 1992 Acquired General Dynamics Missile• 1994 Direct TV Launched in U.S.• 1997 Sold Defense electronics unit• 1998 Majority Stake PanAmSat


• 1999 Hughes Electronics bought US Satellite Broadcasting & Primestar

• Began building Spaceway Broadband Satellite Network

• 2003 agreement to construct 2 new satellites


• 2003 DirecTV Latin America Chapter 11• 2004 Emerged from Chapter 11• Acquired Pegasus Satellite Television• 2005 Launched two satellites - HD

DivesturesDivesturesDivesturesDivestures

• Sale of of HSN set-top receiver manufacturing operations

• Sale of 55% ownership in Hughes Software Systems

• 2005 sold 50% ownership in Hughes Network systems

• 2006 remaining 50% sold• Transferred 3 satellites to Telesat for use in

Canada

Recent HistoryRecent HistoryRecent HistoryRecent History

• 2006 Intel and Microsoft agreement• Acquired the interests of news corporation

and Liberty Media in Sky Brazil• Merged with Directv Brazil • Acquired Darlenes Investment of 14% in

Directv Latin America

Level & Type of diversificationLevel & Type of diversificationLevel & Type of diversificationLevel & Type of diversification

• Dominant level StrategyPrimary Goal is to provide subscribers with best

T.V. experience in the U.S.

Type of DiversificationType of DiversificationType of DiversificationType of Diversification

• Geographic Diversification into Central America, South America and the Caribbean

• Interrelated with DTV USA through Technology• DTV is the leading provider of DTH digital T.V.

services throughout Caribbean, South America and Central America

Latin AmericaLatin AmericaLatin AmericaLatin America

• High Quality Digital picture & Sound • Large Subscriber base• Relationship with DTV – international

programming – 65 international channels• Leading Brands – Strongest in each territory –

Spanish Soccer League

Recent HistoryRecent HistoryRecent HistoryRecent History

• 2007 1st full year of performance that combined DTV and Skyplatforms in Latin America

• March 2008 Combined Platforms of DTV with Pan Americana – Sky Brazil – and Sky Mexico

• Passed 5 million subscriber level

Means of DiversificationMeans of DiversificationMeans of DiversificationMeans of Diversification

• Growth mode – Ownership• 74% Sky Brazil 1.5 Million• 41% Sky Mexico 1.6 Million• 100% Pan Americana 1.7 million• Pan Americana includes Venezuela, Argentina,

Chile, Columbia, Puerto Rico and others

Future Future Future Future

• Prepaid Service– Point of Differentiation – Access new segments– Venezuela in 2007– No one offers service

Strategic Advantages to Pre Paid Strategic Advantages to Pre Paid Strategic Advantages to Pre Paid Strategic Advantages to Pre Paid

• Access to Subscribers in cash based economies• Competitors not able to offer Pre Paid –

Analog based• Protects & limits churn in case of economic

slowdown

DIRECTV Business Level Strategy

DIRECTV Business Level Strategy

Acquiring Market Share, Customers Acquiring Market Share, Customers and Building Competitive and Building Competitive

AdvantageAdvantage

Competitive StrategyCompetitive StrategyCompetitive StrategyCompetitive Strategy

Cost Leadership

Subscription prices to home media services are competitive to point of commoditization

Not the Competitive Strategy Chosen

Competitive Strategy: Competitive Strategy: DifferentiationDifferentiation


Geographic DifferentiationService Based-Content Based

Differentiation is Strategically FocusedOffering exclusive content Compelling programming

Interactive servicesExpanded International Programming

Video On Demand



• Expanded High Definition– Launched DIRECTV 11 this year

• Boeing 702 Model Satellite• Increased channels to 1500 local stations• Increased HD to 150 National Channels

• Exclusive Content– Offerings not available on other MVPD– NFL Sunday Ticket, NCAA March Madness– Select Concerts Live, Original Series Programming– Championship Gaming Series: Viewer

inside game!



• Enhanced and Interactive Services– Mix Channel Functions– NASCAR Hot Pass

• Introduction of Video On Demand– Access by set-top box: 1000’s movies, cable,

network programming– Downloaded over broadband with DTV’s HD-DVR

• Expanded International Programming

Competitive Strategy: Focused Competitive Strategy: Focused StrategyStrategy

Competitive Strategy: Focused Competitive Strategy: Focused StrategyStrategy

• Technology Leadership• DVR & HD Equipment

– Cornerstone of their strategy as discussed at Board level

– Set top receivers incorporate both– Remote Scheduling DVR: Web & Cell Phone

• Leaving Antenna’s on Buildings• Whole house and Portable services

The Four Building Blocks of The Four Building Blocks of Competitive AdvantageCompetitive Advantage


• Superior Customer Responsiveness– Mass Customization of subscription services– Customer call centers operate 24/7– Highest industry satisfaction awards including JD

Powers– Rankings give DTV a competitive advantage over

its competition by protecting market share



• Innovation– DVR and HD box built into one– Whole House & Portable services:

• D/L of content for transfer to PC-Laptop from DVR• Media Share: Allows for content form PC to be

displayed on DTV (Music Videos Pictures)• Home Media center that allows access to all stored

content (Video Music Pictures)seamlessly to any set– Interactive game channel: puts viewer in games– Remote Schedule for DVRs via

internet/cell phone



• Superior Quality and its Dimensions– Performance: Satellite over cable for Natural disaster

or storm related Terra Damages– Features: Digital Picture and Sound , up to date

technology, programming now remote– Durability: Satellites and Set top boxes.– Serviceability: Real Time Remote Servicing from

centers of technicians are same day to 24 hour turnaround.

– Aesthetics: Boxes are sleek and home theater designs…cutting edge



• Superior Efficiency– 1000’s of Uniformed Outsourced and In sourced

Installers– Moving Programs: Keep service when you move.

Seamless transition. Call-its handled.– Service Bundling: Voice, Data, Media, Web– HD & VOD scheduler back again!– Support area of website: Do it all online

Support EfficiencySupport EfficiencySupport EfficiencySupport Efficiency

Value Chain AnalysisValue Chain AnalysisPrimary ActivitiesPrimary Activities

Value Chain AnalysisValue Chain AnalysisPrimary ActivitiesPrimary ActivitiesInbound Logistics

– Programming received from Content providers– Local Channels transmitted to uplink centers– 5 major uplink facilities provides HD local channels

Operations– Content “uplinked” to satellite– System Redundancy– Signal theft precaution—compromised Smart Card– Technician, Call Center, Work orders

Value Chain Analysis Primary ActivitiesValue Chain Analysis Primary ActivitiesValue Chain Analysis Primary ActivitiesValue Chain Analysis Primary Activities

Outbound Logistics Superior– 11 geosynchronous Satellites to transmit– 1800 channel availability system wide– Programming range by competitors weaker

(e. g. Exclusive sport packages elusive to Dish)

Marketing & Sales Superior– Brand Awareness 93%, 140+ markets, – Direct sales generates 40% of new subscribers—Web—800– Bundled packages; Strategic partners: ATT & Quest

Service– Customer Satisfaction Index leader

• Industry average 64 2008; DTV 68

– Proactive Sales and Help 31 Domestic centers– Online interactivity for al l aspects of

business

Value Chain Analysis: Support ActivitiesValue Chain Analysis: Support ActivitiesValue Chain Analysis: Support ActivitiesValue Chain Analysis: Support Activities

Infrastructure– Offices

• HQ Located El Segundo-Los Angeles, • Corporate offices in Denver & NY• 2 Digital Broadcast Centers: Colorado and L.A., Ca.• 5 uplink facilities for local programming delivery

– Care Centers: Call and Technical Diversification• 31 in 16 states, 25 cities—19 in 9 countries outside US

– Licenses: 46 of 96 broadcast frequencies in Ku spectrum– Orbital satellite slots: 3—increases channel capacity– Satellite risk management: Launch and orbit insurance– Installation: Home services performed 94% of all in home

Value Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: Support

HR Management– 12000 employees, Benefits, Pension, 401k– High recruiting efforts for technicians– No labor union’s US—Latin America does

• DSH is in collective bargain with two field offices

Technology Development– Interactivity; Set top boxes; TiVo Alliances for software

upgrade– Portable satellite systems (think XM)– PC and whole house experience.

Value Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: Support

Procurement– Purchase obligations in Programming commitments– Launch agreements with Boeing: Sea Launch

Consortium– Service contracts: Billing, Telemetry, Control

Services, BC center services– Transfer of control-Liberty Media-Chairman’s old

company

International LevelStrategies

International LevelStrategies

Global expansionGlobal expansionGlobal expansionGlobal expansion• Latin America 1995 - Historical perspective on

expansion• Radical

– $500 million on new, unproven market share– “Hail Mary” entry approach

• Market motives– Offensive (primary)

• First movers• Little infrastructure development• High revenues/Low cost• Competition moving into Latin America

Global expansionGlobal expansionGlobal expansionGlobal expansion• Strategic motives

– Capitalize on system technologies already in place at home

– Existing cold war technologies converted into value chain

– First mover• Economic motives

– Capital • Ability to charge recurring fee revenue for sat service• 77 million households

– Resource exploitation• Existing aggressive prominent

partners

Macro Business Level AnalysisMacro Business Level AnalysisMacro Business Level AnalysisMacro Business Level Analysis

• Country Selection: Mexico– Economic Soundness

• GDP (purchasing power parity): $1.353 trillion (2007 est.) • GDP - real growth rate: 3.2% (2007 est.) • GDP - per capita (PPP): $12,400 (2007 est.) • GDP - composition by sector: agriculture: 4%, industry:

26.6% , services: 69.5% (2007 est.) • Labor force: 44.71 million (2007 est.) • Unemployment rate: 3.7%• Household income: lowest 10%: 1.2%

highest 10%: 37% (2006)


• Country Selection: Mexico– Finance

• Mexican pesos per US dollar - 13.5 (2008), • Debt – external: $179.8 billion (31 December

2007) • Solvency

– Revenues: $227.5 billion – Expenditures: $227.2 billion (2007 est.)


• Country Selection: Mexico– Internalization

• Exports: $271.9 billion f.o.b. (2007 est.) • Exports – commodities: manufactured goods, oil and oil

products, silver, fruits, vegetables, coffee, cotton • Exports – partners: US 75.9%, Canada 6.3%, Germany 1.7%

(2007)• Stock of direct foreign investment - at home: $260.9 billion

(2007 est.)• Reserves of foreign exchange and gold: $87.19 billion

(31 December 2007 est.)• NAFTA


MXN to USDMXN to USD

Location Selection (Micro)Location Selection (Micro)Location Selection (Micro)Location Selection (Micro)

• Locations: Major urban areas of Mexico• Firm strategy, structure and rivalry

– Rivalry: Main competitor is Cable• Pay-TV only has 28% market share

– Strategy: Differentiation• Demand condition

– Purchasing Power is low – Few alternatives – Income is increasing as the economy improves– Primary segment: TV Watchers

• Governmental, Industrial/FDI Policies– NAFTA

Timing of Entry (Returns)Timing of Entry (Returns)Timing of Entry (Returns)Timing of Entry (Returns)• Entry into Brazil: 1995 (DTV owned by Hughes)

– Market power• Teamed with top 3 LA media companies• New proprietary satellite systems• Same + Enhanced content – superior quality• Hughes had relationship with military and government

– Preemptive opportunities• Establish brand recognition through co-branding• First mover

– Strategic options• Access to existing infrastructure and content via partners• Few homes have to access conventional cable• Urban populations• Low Competition

Timing of Entry (Risks)Timing of Entry (Risks)Timing of Entry (Risks)Timing of Entry (Risks)

– Environmental uncertainty• New unproven technology (1995)

– Operational risks• Backorder on dishes• Low call centers• Small base of installers• Markets operating on borrowed money

– Extra operational costs• Hiring & training phone representatives (language)• Hiring & training installers• Signal theft

Entry ModeEntry ModeEntry ModeEntry Mode

• Entry mode: Latin America– Equity joint venture

• $500 million joint venture• Hughes 50%• Cisneros Group 20%• Televisao Abril & MVS Multivision 30%

Joint Venture BuildingJoint Venture BuildingJoint Venture BuildingJoint Venture Building• Partner selection

– Compatible goals• Capture viewer market share

– Capacity• Strategic attributes

– All partners with industry experience– Technological skills in media delivery– Partners held prominent media market share

• Organizational attributes– Based in Latin America – high experience in those foreign

markets• Financial attributes

– Selection based on profitability and efficiency

Joint Venture BuildingJoint Venture BuildingJoint Venture BuildingJoint Venture Building

• Partner selection– Cooperative culture

• Entrenched market share – behemoths

– Commensurate risk• Research is weak

– Continuous commitment• Millions at stake

– Complimentary skills• Content providers

Global Integration Global Integration Strategy/StructureStrategy/StructureGlobal Integration Global Integration Strategy/StructureStrategy/Structure

• Integration - The global strategy– All decisions were coordinated from domestic HQ

• Structure – One company international division– DTV’s international joint venture interest’s are

managed as units reporting to a international division within the domestic DTV HQ

Corporate GovernanceCorporate Governance

Ownership ConcentrationOwnership ConcentrationOwnership ConcentrationOwnership Concentration• 474 institutional shareholders = 57%

– Ranging from Mutual Funds, Hedge Funds, Pension Funds, and Banks

• 50% of shares held by all insiders and > 5% owners.– SEC requires listing of all owners with > 5% holdings

Holder Shares % Out Value* Reported

Barclays Global Investors UK Holdings Ltd 56,789,297 5.12 $1,471,410,685 30-Jun-08

PRIMECAP MANAGEMENT COMPANY 51,260,210 4.62 $1,328,152,041 30-Jun-08

SOUTHEASTERN ASSET MANAGEMENT, INC. 49,914,782 4.5 $1,293,292,001 30-Jun-08

STATE STREET CORPORATION 29,139,692 2.63 $755,009,419 30-Jun-08

VANGUARD GROUP, INC. (THE) 21,730,018 1.96 $563,024,766 30-Jun-08

FMR LLC 20,927,363 1.89 $542,227,975 30-Jun-08

AXA 18,524,298 1.67 $479,964,561 30-Jun-08

JANUS CAPITAL MANAGEMENT, LLC 18,454,639 1.66 $478,159,696 30-Jun-08

THORNBURG INVESTMENT MANAGEMENT INC. 16,244,491 1.46 $420,894,761 30-Jun-08

MACKENZIE FINANCIAL CORPORATION 13,759,623 1.24 $356,511,831 30-Jun-08

TOP INSTITUTIONAL HOLDERSHolder Shares % Out Value* Reported

Barclays Global Investors UK Holdings Ltd 56,789,297 5.12 $1,471,410,685 30-Jun-08

PRIMECAP MANAGEMENT COMPANY 51,260,210 4.62 $1,328,152,041 30-Jun-08

SOUTHEASTERN ASSET MANAGEMENT, INC. 49,914,782 4.5 $1,293,292,001 30-Jun-08

STATE STREET CORPORATION 29,139,692 2.63 $755,009,419 30-Jun-08

VANGUARD GROUP, INC. (THE) 21,730,018 1.96 $563,024,766 30-Jun-08

FMR LLC 20,927,363 1.89 $542,227,975 30-Jun-08

AXA 18,524,298 1.67 $479,964,561 30-Jun-08

JANUS CAPITAL MANAGEMENT, LLC 18,454,639 1.66 $478,159,696 30-Jun-08

THORNBURG INVESTMENT MANAGEMENT INC. 16,244,491 1.46 $420,894,761 30-Jun-08

MACKENZIE FINANCIAL CORPORATION 13,759,623 1.24 $356,511,831 30-Jun-08

TOP INSTITUTIONAL HOLDERS

Ownership ConcentrationOwnership ConcentrationOwnership ConcentrationOwnership Concentration

• Major direct holders

Board Size and CompositionBoard Size and CompositionBoard Size and CompositionBoard Size and CompositionJohn Malone

Chairman

Chase CareyPresident and CEO

Neil R Austrian Director

Ralph H BoydDirector

Haim SabanDirector

Peter A LundDirector

Gregory B MaffeiDirector

James M CorneliusDirector

Charles R LeeDirector

Nancy S NewcombDirector

Non-Executive Executive

CommitteesCommitteesCommitteesCommittees

Government RegulationsGovernment RegulationsGovernment RegulationsGovernment Regulations• International Telecommunication Union

– United Nations: • Private sector telecommunications

– Latin American regulatory agencies– Legislative bodies in all countries DTV operates– Local Authorities

Government RegulationsGovernment RegulationsGovernment RegulationsGovernment Regulations• FCC – Communications Act and other related acts

– The licensing of satellites, earth stations and ancillary authorizations

– The assignment of frequencies and orbital slots, the relocation of satellites to different orbital locations or the replacement of an existing satellite with a new satellite

– Compliance with required timetables for construction and operation of satellites

– Avoidance of interference by and to operations with operations of other entities that make use of the radio spectrum

– SHIVA AND SHERVA

SEC RegulationsSEC RegulationsSEC RegulationsSEC Regulations

• Rule 13a – 15(f)– In their 2007 10k DTV States they have claimed:

• The effectiveness of their internal control over financial reporting

• Assessments were made using the criteria from the Internal Control- Integrated Framework by the COSO

– Independent audit firm used to perform internal audit

– Reviewed and by approved by the Audit Committee

Executive CompensationExecutive CompensationExecutive CompensationExecutive Compensation• Base Salary

– Compensate for day-to-day performance at the executive’s level of responsibility.

• Annual Bouns– Variable with performance, Paid in cash, short term

• Long Term incentives– Paid in stock, long term

• Employee Benefits• Perquisites

– Fixed, indirect, short-term• Post-Termination

– Both Fixed and variable, cash & stocks

Ethical Codes and ProgramsEthical Codes and ProgramsEthical Codes and ProgramsEthical Codes and Programs

Ethical Codes and ProgramsEthical Codes and ProgramsEthical Codes and ProgramsEthical Codes and Programs

RecommendationsRecommendations

Summary of unique strategiesSummary of unique strategiesSummary of unique strategiesSummary of unique strategies

• Differentiation– Geographic– Content based– Competitive advantage

• Think globally act locally– Expansion into Latin America

Generalizable Lessons to OthersGeneralizable Lessons to OthersGeneralizable Lessons to OthersGeneralizable Lessons to Others

– Be a first mover in emerging markets when your strengths meet opportunities

– Carry Unique and exclusive programming– Customer satisfaction is your lifeblood in this

industry• Loyalty goes so only far though

– Competitive price– New products / services to further differentiate– Subscriber growth over short term profitability

RecommendationsRecommendationsRecommendationsRecommendations• Competing with other MVPDs:

– Coopetition with RBOCs where video footprint is limited– I.e. Future contract with AT&T– 75% of all satellite customers will use RBOCs for voice and

data• Emerging digital media competition could materially

adversely affecting DTV– Need portable services sooner

• Carriage requirements may negatively affect our ability to deliver local broadcast stations, as well as other aspects– Increase lobbying power with RBOCs

RecommendationsRecommendationsRecommendationsRecommendations• Leveled playing field

– Need higher investment in R&D – Increase differentiated services– Exclusive licensing agreements

• Build a bundle programming– target segments with suggested configurations

• Baby boomers– Completely customized line-up

• Churn rate– Contact customers at end of commitment– Local Pre-paid service– Stricter credit policies

RecommendationsRecommendationsRecommendationsRecommendations

• Target High Density/Low infrastructure emerging markets– All you need is a box and a view of the sky

• Target MDU’s with greater strength• Stock issuance for high debt reduction

– Lowers cost of debt service coverage– Increase free cash flow– Recent buybacks of equity at depressed prices

mitigating dilution effect

ReferencesReferencesReferencesReferences• www.Forbes.com Monday Matchup: DirecTV vs EchoStar, Aude Lagorce 8-16-2004 (Technology)• www.engadgethd.com "Tussle over DirecTV Latin America's Future" by Darren Murph 9-21-2008• www.newyorktimes.com "Hughes in Venture to Expand Direct TV" by Andrea Adleson March 10, 1995• www.newyorktimes.com "A Satellite Empire: News Analysis; Murdoch Gets Upper Hand in Deal on Cable with Hughes Deal" by

David D. Kirkpatrick April 10, 2003• www.directvlatinamerica.com Pirmary Source Various• www.direcTV.com Various Sources on site• DataMonitor: Company Profile DirecTV April 24, 2008• www.yahoo.com Financial sections• 2007 DirecTV Annual Report & DirecTV 2007 10k• Los Angeles Business Journal "Local Outifts Jump into Latin American TV: Fox and Hughes go after Spanish Language Viewers"

August 7, 1995• Global Advertising Strategies Corporation: www.ethnicusa.com DirecTV Case Study• Zuckerman, Sam. "Commerce reports big drop in nation's GDP." San Francisco Chronicle 30 Oct. 2008.• DirecTV Annual Report 2006• DirecTV Annual Report 2005• U. S. Department of Labor• U. S. Department of Commerce• Bureau of Economic Analysis• www.pcworld.com - “Early IPTV Uses Only a Little of Its Fat Pipe”• www.verizon.com• www.att.com• www.dishnetwork.com

DirecTV strategy final

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