Newscorp & directv

Consolidating The Direct TV Acquisition

PRESENTED BY-GROUP 8

TIMELINE FOR DIRECT TV AND NEWS CORP

BEFORE 1990’S•1932- Huges aircraft by Howard Huges•1963- 1st communication satellite by Howard Huges Medical Institute•1985- institute sold Huges Aircraft to GM- GMHE

BEFORE 1990•Mid 1980s- Sky television (Sky) £ 10 million

1990- 1995•1995- GMHE became Huges electronics and launched DIRECT TV

1990-1995•1990- BSB, a television channel, merged with Sky•1992-losses due to combined entity but better programs and soccer matches increased revenue to £385 million•1993- BSkyB reached financial stability

1996- 2000•1996- Huges brought major stake in satellite communication PanAmSat• 1998- boosted stake in PanAmSat to 81%•1998- drop in profits•1999- huges bought United States Satellite Broadcasting and folded into Direct TV

1995-2000•1997- 25% british homes were subscribers

2000-2005• 2000- Huges sold its Satellite Manufacturing business•2000- 9.5 million subscribers(largest satellite based television content provider)•2001- Huges bought Telocity- $177 million•2001- negotiations with Rupert Murdoch’s newscorp•2004 HE changed name to Direct TV

2000- 2005•2001- 5 million subscribers •2002 revenues 20% increase in revenue with 6.1 million subscribers•2003- 34% stake in HE

CASE FACTS FOR DIRECTV

BEFORE 1990’S• 1932- Huges aircraft by Howard Huges• 1963- 1st communication satellite by Howard Huges Medical

Institute• 1985- institute sold Huges Aircraft to GM- GMHE

1990- 1995• 1995- GMHE became Huges electronics and launched DIRECT TV

CASE FACTS FOR DIRECTV 1996- 2000

• 1996- Huges brought major stake in satellite communication PanAmSat

• 1998- boosted stake in PanAmSat to 81%• 1998- drop in profits• 1999- huges bought United States Satellite Broadcasting and

folded into Direct TV

2000-2005• 2000- Huges sold its Satellite Manufacturing business• 2000- 9.5 million subscribers(largest satellite based television

content provider)• 2001- Huges bought Telocity- $177 million• 2001- negotiations with Rupert Murdoch’s newscorp• 2004 HE changed name to Direct TV

CASE FACTS FOR NEWSCORP

BEFORE 1990• Mid 1980s- Sky television (Sky) £ 10 million

1990-1995• 1990- BSB, a television channel, merged with Sky• 1992-losses due to combined entity but better programs

and soccer matches increased revenue to £385 million• 1993- BSkyB reached financial stability

CASE FACTS FOR NEWSCORP

1995-2000• 1997- 25% british homes were subscribers

2000- 2005• 2001- 5 million subscribers • 2002 revenues 20% increase in revenue with 6.1 million

subscribers• 2003- 34% stake in HE

PORTER’S 5 FORCES

MICHAEL PORTER’S 5 FORCE MODEL

Threat of new entrants Competitors•Time Warner•Comcast•EchoStar

Buyers•TV Channels like Fox News, National

Geographic, Speed Channel•TV viewers

Suppliers•Content Providers like NFL Football

games, soccer matches

Substitutes•Cable

COMPETITOR COMCAST

No.1 cable system in US

Acquired AT&T Broadband(owned regional sports rights, telephony and 2 way internet interactivity over cable lines)

Deal with Viacom’s MTV & Nickelodeon

Sold movies on cable even before video stores could get them

Partnered with Radio One to launch a channel that targeted African Americans

Struck a deal with Chicago’s major sports teams- Chicago Bulls, Cubs, White Sox, Blackhawks to create a new sports channel

• Acquired TechTV to cater to video gamers

ECHOSTAR

Constant bids to acquire DirecTV

EchoStar & DirecTV together controlled 92% of the U.S. satellite pay- TV market

BUYERS’ BARGAINING POWER

Fixed fees from pricey cable channels

Prices of DVR reduced

Free DirecTV set top box

DirecTV spent $670 (2002), $758(2003), $894(2004) to acquire and keep a new subscriber

SUPPLIERS’ BARGAINING POWER

Hollywood was made to supply movies first to Comcast for broadcasting and then to video stores

News Corp finalized a $3.5 billion with NFL Football games for broadcasting rights for 5 years.

SUBSTITUTES

Cable offered high speed, two way internet access including phone capability

Cable needed a very heavy investment for upgradation to digital technology

Upgradation needed for Digital video recorder, high-definition TV

Weather conditions cannot affect the quality as in case of satellite signals

EVALUATION

Parameters Evaluation Attractiveness

Threat of new entrants Low High

Industry Competitors High Low

Buyer’s Bargaining Power

Medium Medium

Suppliers’ Bargaining Power

High Low

Substitutes High Low

ANALYSIS OF NEWSCORP

NEWS CORP TANGIBLE RESOURCES

Financial resources

Physical resources

Technological resources

• Subscription & advertising revenues

• Geographic spread: 4 continents & 26 million subscribers

• High number of distributors

• Worldwide network of satellite distribution (BSkyB, Star TV, FoxTel, SkyTel, Stream)

INTANGIBLE RESOURCES

Human Resources

Innovation Resources

Reputational Resources

•Experience & Planning of Murdoch

•Innovative programming and attractive sports content

•Brand Image

•Content: high quality, new/ fresh, innovative

•Attractive sports, aggressive mktg

CAPABILITIESDistribution Effective use of Content and satellite

distribution. Worldwide network of satellite distribution

Human resources Murdoch’s negotiation skills

Marketing Aggressive marketing tacticsFree installations

Management Ability to envision the future of Television viewing experience

Manufacturing High content quality

Research & Quest of Innovative technologydevelopment Could cater to DVRs, HD-Tvs control of

fox group

VALUE CHAIN

TECHNOLOGY PRODUCT MANUFACTURING MARKETING DISTRIBUTI

ON SERVICE

CORE COMPETENCE

Innovative Content and Worldworld satellite distribution network are news corp’s core competences

ANALYSIS OF DIRECTV

DIRECT TV TANGIBLE RESOURCES

Financial resources

Physical resources

Technological resources

• Revenue: $7.7 billion (19% increase)Profit: $970 million (59%)

•12.2 million customers (revenue per customer = $63.9)

• Geographic spread (72% of US)

• High number of distributors

• Digital technology: Broadcasting, Broadband/ Internet

•25 satellites capable of covering 98% world populations

INTANGIBLE RESOURCES

Human Resources

Innovation Resources

Reputational Resources

•Efficient & experienced leadership of Hughes

•Efficient distribution system

• Ideas like NFL Sunday Ticket Package

• Scientific innovation like Spaceway

• Perception of delivering good Content

•Ranked no. 1 in customer satisfaction

•Brand Image

CAPABILITIES Distribution Effective use of satellites & digital

techniques

Marketing Effective promotion of brand-name products Effective customer service

Innovative offers

Management Ability to envision the future of satellite technology

R & D Innovative technology Rapid transformation of technology Digital technology

VALUE CHAIN

TECHNOLOGY| PRODUCT MANUFACTURING MARKETING DISTRIBUTI

ON SERVICE

CORE COMPETENCE

Content Distribution in the U.S. using the Satellite technology

DIVERSIFICATION

Level of Diversification: Dominant Business

Reason for Diversification:a) Economies of scaleb) Market power

DIVERSIFICATION STRATEGY

Acquisition

REASON BEHIND MURDOCH’S DECISION TO ACQUIRE DIRECTV

COMPETITORS OF NEWSCORP

Competition Faced:

Product Level

Satellite distribution, Cable distribution, via bluetooth, infra red or

Physical Diskettes and HDD

Form Level

Internet(1 way or 2 way) Broadband connection,

Sound(Frequency) -telephony, Light - Morse

code

Generic LevelDistribution through any

means or No distribution at all

Enterprise Level

Comcast: Cable TV, Times Warner Cable: Cable

TVECHO star: Satellite TV

WHAT WAS THE COMPETITION BETWEEN NEWS CORP AND HOW DID NEWSCORP FEND OFF RIVALS?

2001 DEAL

Acquisition of the DirecTV from Hughes – Echo Star – unsolicited bid: $30.4 bil & $1.9 bil in dent Murdoch’s - $ 177 Mil (confident)

The deal was abruptly called off Hughes and Echo Star consisted 92 percent of the US

Satellite pay –TV market

The Justice Dept. was involved to stop the merger as Murdoch was under confidence since 2001

News Corp. acquired GM’s 19.9 percent stake + 14.1 percent from public share and GM’s pension and funds

Major stake holder, R. Murdoch NOW had a wide entry into USA satellite pay-TV market

Rupert Murdoch – Chairman of Hughes

2003

Cost leadership by NewsCorp: Low rates of set top boxes: Attract

subscribers Low priced Content distribution: Sports and

entertainment Acquired content and distributed it cheaply

Focus Differentiation by NewsCorp: Strong distribution Channels – Comcast

had trouble with it’s reach Digital Video Recorder technology – DVR High Definition TV

FACTORS THAT INHIBIT NEWS CORP FROM DELIVERING ITS FULL POTENTIAL

In 2004 and 2005 DirecTV made the highest NSA beating its immediate competitor Echostar

A low churn rate means high customer retention, which in turn allows for savings in advertising costs. Churn rates below 2.5%, are better than average DBS providers.

DirecTV Echostar

2004 1.59% 1.70%

2005 1.70% 1.85%

TECHNOLOGICAL LIMITATIONS

High switching cost from cable to a direct broadcast satellite.

Cable companies like Comcast have the ability to bundle cable and Internet over their networks. DirecTV did not have the ability to bundle cable, Internet, and phone services, putting them at a pronounced disadvantage.

To overcome this problem DirecTV entered into agreements with Verizon and BellSouth phone companies in 2005 which solved the problem in the short run.

2002 2003 2004

Cost (US$) 670 758 894

50

250

450

650

850

Cost to acquire and retain a new customer

Cost

(US

$)

virtually everyone who is going to buy cable or DBS has already done so, DirecTV has to spend heavily on persuading customers to switch and to retain them

DirecTV had very little interest and tax costIncurred massive sales and administrative cost by adopting aggressive advertising campaign to attract new customers, or steal existing cable customers.

LIMITATIONS WITHIN MARKET

DirecTV had to spend millions in upgrading users' TiVo digital video recorders (DVRs) as technology improves.

DirecTV spends a much greater amount on SGBA compared to its competitors. Echostar had almost no sales and administrative costs in 2005, but still was able to gain almost 1 million new customers.

DirecTV incurred sales and marketing costs for US market, limiting its focus on expanding its Latin American operations as the market is not saturated and it was much cheaper to acquire new customers

DirecTV had a subscriber base of 15 million households as in 15% of homes in USA, in contrast there were 167 million homes in Latin America of which DirecTV was serving only 1% (1.5 million homes)

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