Strategic-Analysis-Newscorp-Fox-[MBA-Project]

STRATEGIC ANALYSIS Broadcasting Industry

Research Report By Chamil N. Hettiarachchi HUMBOLDT STATE UNIVERSITY May 2006

“A Strategic Analysis of NEWS CORPORATION, INC. in the Broadcasting Industry”

EXECUTIVE SUMMARY

Key findings in this report recommend News Corporation to continue adopting an aggressive strategy, specifically with emphasis on consumer, content and convergence. No radical change of strategy is advised as recent financial results place News Corporation in a strong position to compete in the future. The aggregate television broadcast industry growth of 9-10% still looks promising for News Corporation to compete and improve its current revenue position. However, our findings show that the industry headed in a new direction with customers continuing to take charge of what, how, when and where they consume content. New devices continue to rise in popularity and some are even threatening ultimately to replace the traditional 30-second with more sponsored and ad-supported content. Global broadband access grows at a rate of 29% with key Asian markets dominating the global broadband penetration. Video is a key driver to broadband access. Technology will continue to favor the content owners such as News Corporation. Therefore, acquisition of content for longer-term distribution deals, whether it may be sports, movies, news or general entertainment, will benefit the company, as content will not expire. Moreover, other forms of content such as gaming, feeds, pictures, radio, and user created content are becoming ever popular amongst the young adults. Therefore, targeting the 18-34 age groups of consumers with all available content, platforms and markets accordingly to their changing habits and activities will define the industry’s future. Television will continue to dominate as a persuasive form of media among old adults and it is time to cash in on broadcast television for those markets since FCC’s DTV bill closes in. The retiring baby boomers will spend more on leisure activities, which could also include television to some degree. Spanish population expected to take over the African American population by 2010 with spending also doubling at that time. The RBOC’s move in the video market with IP based video and high bandwidth on fiber rollout will play a major role in competing for the subscription television. On demand services, digital rights management and service bundles will become key for this sector. Broadcast viewers continue to switch to cable; therefore, stronger content on cable networks will benefit News Corporation in the future. Finally, strong content ownership, knowledge of customers, flexibility to adapt to digital era, 360o integration and cash flows will determine the future of the leaders in the industry. News Corporation has the required capabilities for gearing up for the future; particularly, DIRECTV, popular online portals, second broadcast network, strong news channel, integrated business units and strong sports rights. Some areas demand improvement, particularly the number of original programming hours on FOX and MyNetworkTV, cable content variety, and DBS limitations on bundling voice and data. Financials are stronger than ever with high profits and growth compared to rivals with $6.4 billion in cash. News Corp. is in a strong position for taking on future challenges with a strong leader and an aggressive media spending strategy. Overall assessment of News Corp’s current strategy and future strategic options based on the internal and external environments help make the following recommendations for the overall entity and its three broadcasting industry’s business units. Recommendations for:

News Corporation - centralize all content through consolidating the backend operations to promote the creation of a single content resource center. Continue current strategies for acquiring Internet assets worldwide; diversify into new platforms and increasing sports properties. Secondly, acquire Univision from the private consortium. Gain control equity in short term, then full ownership. FOX Broadcasting - reach 20 hours of original programming and target content for fifty plus age groups. FOX Cable Networks - invest in more cable channels with broader content variety in US. DBS Television - build a partnership with a Telecommunications company to offer voice and data services.

Scope of the Report This report analyses the broadcasting industry and its impact on News Corporation’s ability to compete in the market. First, it presents an overview of our key findings about the challenges and opportunities resulting from social-economic and regularity trends in the industry. It examines the key trends that are driving convergence, disrupting existing business models, and future success. Next, it provides a detailed analysis of the company, including its internal position, competitive position, customers and recent financial results – followed by an analysis of future strategic options using a series of portfolio models. Finally, it provides recommendations for the overall company and the three strategic business units competing in the broadcasting industry.

Chamil Hettiarachchi Humboldt State University

i

Table of Contents

Part I – Industry Overview 1

Classification 1 Definition 1 Dominant Economic Features 2

Part II – Competitive Forces 6

Strong Competitor Rivalry 6 Bargaining Power of Suppliers 6 Threat of Substitutes 7 Threat of Potential Entry 7 Bargaining Power of Buyers 8

Part III – Forces Driving the Industry 8

Technological Advances 8 Legislative Reforms 11 Demographic Changes 11

Part IV – Positioning of Key Rivals 12

Part V – Next Moves by Rivals 13

Part VI – Key Success Factors 14

Consumer Knowledge 14 Content Ownership 15 Value Chain Participation 15 Technological Flexibility 16 Financial Strength 16

Part I– Company Profile 16

Mission Statement 16 Background 16 Business Segments 17

Revenue Breakdown 17

Part II – Current Strategy Assessment 18

Current Strategies 18 Recent Moves 18

Part III – Current Performance 19

Financial Performance 19 Customer Performance 22 Social Impacts 23

SECTION 1- INDUSTRY ANALYSIS

SECTION 2 – COMPANY ANAYSIS

ii

Table of Contents - Continued

Part IV – Risk Factors 24

Financial Risk 24 Market Risk 24

Foreign Exchange and Global Economic Trends 24 Regulatory Risk 24

Online Business 24

Part V – Analysis of Key Success Factors Fit 25

Competitive Profile Matrix 25 Readiness of Strategic Business Units 25

Part VI – SWOT Analysis 26

Internal Factor Evaluation (IFE) Matrix 26 External Factor Evaluation (EFE) Matrix 28

Part VII – Strategy Formulation 29

TOWS Matrix 29 Internal/External (IE) Matrix 30

Boston Consulting Group Matrix 31

The Grand Strategy Matrix 33

Diversification 33

SPACE Matrix 35

Industry Life Cycle Fit 36

Part VIII – Quantitative Analysis 36

Recommendations for News Corp. 38

Primary Strategy 38

Complimenting Current Strategy 38

Secondary Strategy 41

Rationale for Companywide Strategy Selection 41

Recommendations for Strategic Business Units 42

FOX Broadcasting Company (FBC) – Primary Strategy 42

FOX Cable Network (FCN) - Primary Strategy 43

Direct Broadcast Satellite Television (DBS) - Primary Strategy 44

Rationale for Segment-Level Strategy 44

Recommendations for Financing 45

Appendix Glossary Endnotes Reference

SECTION 3- RECOMMENDATIONS

SECTION ONE

Industry Analysis

Section 1 – Industry Analysis 1

The section one of the report, will discuss and analyze in detail the broadcasting industry that includes

traditional broadcast television firms, cable networks and subscription television firms. Broadcasting

industry, like any other industry in the information sector are subject to general economic conditions;

therefore, the focus of this analysis is directed primarily towards the external environment within the

broadcasting industry itself. The purpose of this analysis is to identify the key economic features,

competition, and dynamic changes within the industry, to establish key success factors and strategies

needed to improve the competitive position of News Corporation.

Broadcasting industry in general is a highly competitive industry with a number of new developments

potentially threatening or opening maximal revenue streams; therefore, a considerable portion of this

report will assess such conditions.

Classification

The Broadcasting industry is categorized under the sub-sector Broadcasting and Telecommunications

(NAICS 513), which belongs to the Information Services sector in the 2002 NAICS industry classification

(NAICS-51).1 This report will focus on the three sub-industries linked solely to television: Television

Broadcasting (NAICS-51312), Cable Networks (NAICS-51321), and Cable and Other Program

Distribution (NAICS-51322).2 See Appendix 1 – Table A for a deta il classification list.

Definitions

Television Broadcasting includes firms who create content or acquire the right to distribute content

and subsequently broadcast the content free to the viewers through an over the air network for

generating revenue from advertising.3

Cable Networks include firms who create content or acquire the right to distribute content and

subsequently broadcast the content for a fee through a multi-channel video program distribution

(MVPD) network. Cable networks also generate a portion of advertising.4

PART I – INDUSTRY OVERVIEW

SECTION 1- INDUSTRY ANALYSIS


Cable and other program distribution include firms engaged in the business of distributing an

aggregation of programming channels acquired from cable and broadcast networks to generate

revenue from monthly fees charged to subscribers. These firms, generally identified as Multi-channel

video distribution (MVPD), also earn local spot advertising as an additional revenue source.5

Dominant Economic Features

Industry Size and Growth

The broadcasting industry contributes 16.5% to the total Information Services Sector revenue and

approximately 1.3% to the GDP of the United States. As at December 2005, total revenue for the

broadcasting sector was $163 billion of which $81 billion came from cable distribution segment.6 The

industry has been growing at a compound annual growth rate of 9.8% overall for the past five years

with cable networks and Multi-channel video distribution (MVPDs) contributing 12.3% and 11.6%

respectively.7 Television broadcasting industry revenue dropped slightly in 2005 (See Table 1.1 be low).

Table 1.1 – Industry Revenue, Growth Rates & Contribution Ratios (In millions)

51 Information Sector Total 878,387 885,081 912,788 904,870 991,506 3.1%513 Broadcasting & Telecommunications 489,328 486,204 492,756 511,006 530,912 2.1%51312 Television Broadcasting 37,795 42,140 42,530 47,199 47,060 5.8%51321 Cable Networks 21,899 24,073 28,996 30,577 34,656 12.3%51322 Cable & Other Program Distribution 52,698 56,656 65,472 73,582 81,563 11.6%

Industry Total 112,392 122,869 136,998 151,358 163,279 9.8%

1.1% 1.1% 1.2% 1.3% 1.3%12.8% 13.9% 15.0% 16.7% 16.5%23.0% 25.3% 27.8% 29.6% 30.8%

To the Gross Domestic Product (GDP) To the Information Sector To the Broadcasting & Telecoms Sub-Sector

Broadcasting Industry's Contribution

2005 $

CAGRNAICS Code

Sector/Sub-sector/Industry2001

$2002

$2003

$2004

$

2004 20052001 2002 2003

Sources: Econom ic Census 2002, QSS – Census 2006

The breakdown of advertising for television sector is 30% to cable TV and 70% to broadcast TV in

2005. The 5-year market growth rate for TV advertising was 6.8% and it is expected to drop to 6% by

the forth quarter of 2006.8 Although there are speculations that TV ad spending will drop further due to

growth in new media, there is evidence that growth for TV advertising will remain on an odd/even cycle

of 6-7% for the next five years.9

From the total industry revenue, $73.6 billion consists of subscription related revenue and 71% of that

came from the hardwired cable operators, while the remaining coming from alternate delivery systems


(e.g. Direct Broadcast Satellite – DBS). Cable will see their video subscribers decrease by 3% from

2006 to 2008 due to DBS competition and their revenue is forecasted to be $63 billion by 2008 with

annual growth rates of 4.7%, 4.5% and 4.3% for 2006-2008.10 DBS operators will continue to enjoy

high growth figures between 13%-15% in the near future.11

Table 1.2 – Television Advertising Revenue (Dollars billion)

Breakdown 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Broadcast TV 37.79 42.14 42.53 47.19 47.06 49.33 52.09 54.49 57.54 60.19Cable TV 14.08 14.74 16.62 18.78 20.87 21.74 23.73 25.58 27.91 30.08Total 51.87 56.88 59.15 65.97 67.93 71.07 75.82 80.07 85.45 90.27Annual Growth -12% 10% 4% 12% 2% 6% 7% 6% 7% 6%

Source: S&P Industry Report

Product Life Cycle

Since the arrival of Internet, television-advertising segment is heading towards the maturity phase as

the growth is slowing down. The traditional television market is saturated with 98.2% of the total US

households having access to television (See Appendix 1A – Table B).12 As per cable and DBS, 88.5% of

the total television households are connected to some form of fee based television service (See

Appendix 1A - Table C).13 Hardwired cable TV is also saturated; with issues such as customer service,

technical support and high prices, which drive away subscribers. The DBS sector is still in high growth

phase due to high subscriber acquisition expenditure by the operators and their nationwide reach.

Geographical Boundaries

Broadcast television is generally a localized market, but the top five broadcasters have significant

operations in terms of cable networks within the United States and in global markets with similar brand

names (Table 1.3 and see Appendix 1- figure B. for Global Markets and Key Players).14 Subscription

television is strictly limited to the US with each cable system operator being allocated with designated

market areas (DMAs) to operate (See Appendix 1A - Table D).15 DBS has no demarcations, but over-

the-air satellite coverage (footprints) reaches more than the continental Unites States (F igure 1.1).16

Time Warner Viacom Disney News Corp NBC UniversalLatin America Latin America Latin America Latin America Latin AmericaEurope Europe Europe Europe Europe Asia Asia Asia Asia AsiaMiddle East Africa Middle EastAfrica Middle East

Sources: 2005 Company Annual Reports

Table 1.3 Global markets covered by the top five media giants in the US.


Number of Rivals

The three sub-industries consist of 8,629 establishments amongst all firms with a total of 1,750

broadcast TV stations and 1,525 already transmitting digital signals (See Appendix 1A – Tables A,E).17

Table 1.4 below shows that the ten largest broadcasters own a sizable number of commercial TV

stations. They contribute more than 70% of the total television advertising revenue.18 There are nearly

700 cable TV multiple system operators (MSO’s) and two Direct Broadcasting Satellite (DBS) operators.

The top five operators control 75% of the total US household subscribers and more than 80% of sector

revenue (See Table 1.5 above).19 As at 2005, there were more than 300 cable television channels,

most of which are owned or operated by the top media conglomerates (See Appendix 1A – Table F).

Table 1.4 – Top 10 TV Station Groups Table 1.5 – Top 10 MVPD Service Providers (In thousands)

Buyer Needs and Requirement

The primary buyers in the broadcast sector are the advertising firms that purchase airtime on networks

based on viewers. Advertisers change their airtime hunt based on seasonal changes due to program

popularity amongst the viewers and through a yearly upfront sales process. The primary buyers in

general for the cable sector are the ultimate subscribers, even though there is still a significant amount

of advertising involved in cable networks. A correct balance between quality content and the amount of

advertising could determine the fate of a subscriber switching from one station to another. In a

TV Group Stations Markets Households1 Viacom/CBS 35 26 38.9%

2 News Corp./Fox 35 26 38.3%3 GE/NBC Universal 30 22 34.0%4 Tribune Company 26 22 30.2%5 Disney/ABC 10 10 23.6%6 Univision Communications 37 27 22.9%7 Gannett Company 20 19 17.9%8 Hearst-Argyle Television 27 24 16.4%9 Belo Corporation 20 15 14.0%10 Cox Broadcasting 15 11 12.8%

Note: Excludes stations under joint sales agreements & time-brokerage. % of TV households as calculated by the FCC.

Sources: BIA F inancia l Network; Standard & Poor's.

Provider Subscribers1 Comcast 21,409

2 Direc TV 14,9333 EchoStar 11,7104 Time Warner Cable 10,9235 Cox 6,2656 Charter 5,9067 Adelphia 4,9178 Cablevision 3,0099 Bright House 2,22510 Mediacom 1,429

Note: Subscriber are as at September 2005

Sources: Co. reports; estimates by S&P’s.

Figure 1. 1 A. Echo Star’s Coverage Footprint. B. DIRECTV’s Latin American Footprint.

Source: SatCoDX Online

A

B


broader sense, the television audience is changing into two-way communication (interactive) as

opposed to one-way (passive - broadcaster to viewer).

Pace of Technological Change

The pace of technological change in the broadcasting industry is rapid. The digital transition has

brought a new phase in TV with the advent of Digital Video Recorders (DVR) combined with on demand

services through TV and Internet, heading towards the disruption of TV advertising revenue.20 The

digital age, however, will benefit the content owners in exploitation of emerging platforms, since

content is a driving force in this industry. There is a growing trend towards time and place shifting of

television viewing with innovative products like the Sling Box, iPod, and 3G cellular and DVB-H enabled

handsets.21 In the multi-channel (MVPD) business, the leading cable operators are offering bundled

services (video, data, voice), whereas, the two satellite operators are inflexible for offering such

services directly. The pace of technology spending, high profile deal making and the convergent R&D

sets the table for increased level of innovation and will play the biggest role in future growth of this

industry.

Industry Integration

The industry has a complex value chain with the producers of the individual shows, networks that put

together program schedules, and local broadcasting and cable companies that undertake final

distribution. For distribution companies, there are two buyers – viewers and advertisers. Some

companies are vertically integrated across several stages of the value chain. Networks such as FOX,

NBC, ABC and CBS not only create and distribute program schedules, they are also backward integrated

into producing TV shows and forward integrated into distributing through ownership of local TV

stations. Likewise, most players in the top 15 are fully integrated entities. (See Appendix 1 - F igure A

for Industry Value cha in).

Product Differentiation and Exclusivity

Broadcasters continue increasing the number of programs that are interactive to promote viewer

participation for live polls, games and prize competitions, which also attract sponsorship revenue. At

the same time, content variety is equally important to broadcast networks as well as cable networks

(sports, movies, music, reality shows, sitcoms, drama, news, education and leisure, etc). Product

differentiation could come from the negotiation power to win exclusive licensing agreements for popular

sporting events such as the FIFA World Cup 2006, NBA playoffs, Super Bowl, etc.


The competitive forces in this industry are analyzed by applying Michael Porter’s five forces model of

competition (F igure 2.1). The five forces suggest the following:

Strong Competitor Rivalry

Rivalry among the competing firms is fierce as they all compete to capture the viewers who spend on

average four hours per day watching television. Viewers skip TV commercials, or switch between 100+

television channels, therefore, the broadcasters must compete with the best programs. There are 1,750

nationwide TV stations, 600 plus cable networks and other pay television operators attempting to

entertain the 110 million TV households in the US, which is already saturated.22 The limited advertising

budgets also attract other media. Therefore, the industry rivals are thriving to produce, procure, bid,

market, distribute and broadcast the TV programs to capture higher ratings and subscribers for

maximum revenue.

Suppliers

Hit Movies, Live SportsReality TV, High RatingMany Cable Channels

Many H/W Vendors

Buyers

Ratings, Programs4 TV Hours / Day200+ Channels

Cable, DBS, IPTV

Substitutes

DVD, iPod, Cinema, Radio, Internet, Pubs

4 TV Hours / DayTV Still Persuasive

New Entrants

RBOC’s, Internet TVTV License, DMA’s

Capital, Value ChainCustomers, Experience

Weak to Moderate

Moderate to Strong

RivalryStrong

2,647 establishments110m households

$68 billion ad salesCable, DBS, IPTV

Bargaining Power of Suppliers – Moderate to Strong

The power of the content suppliers is high. At the same time, the power of equipment vendors is low,

which signals that overall bargaining power of the suppliers in this industry is moderate to high since

content is what sells. Content is readily available, but popular content demand higher prices due to the

Figure 2.1 Michael Porter’s five forces model of competition.

PART II – COMPETITIVE FORCES


intensity of the players bidding for them. Similarly, popular movie sequels bargain high on airing rights,

whether it is for broadcast or cable networks. Broadcast network owners have higher negotiating power

against the independent distributing stations for affiliate fees, which are subject to renewal.

Threat of Substitutes – Weak to Moderate

Television would remain the preferred form of entertainment and news consumption amongst the

adults and would continue to attract the advertisers as the most influential medium (See Appendix 2 –

F igure A).23 Therefore, any threat from substitutes is marginal even with other entertainment options

available. Advertisers use any medium to promote products to consumers; therefore, television-

broadcasting sector face competition from newspapers, radio, magazines, direct mailers, outdoor,

Internet, mobile networks, and gaming for the total ad budget. Competing for consumers’ time for

broadcast entertainment are directly substituted by many sources, such as DVD, CD, MP3, radio, iPod

and online entertainment, while longer version of consumer leisure time face competition from movie

theatres, theme parks, outdoor activities, live concerts, and live sports indirectly. Entertainment may

also come in the form of social gatherings, restaurants, nightclubs and pubs. Finally, Internet

publishing, newspapers, books, magazines and radio, substitute TV programs from catering to the

informational needs of the consumers.

Threat of Potential Entry – Moderate to Strong

There are numerous barriers to enter in this industry for new players (See Table below), other than

those who are already in the broader information sector services industry or those financially strong

firms looking to diversify through mergers and acquisitions. The potential threat is mostly poised

towards the multichannel video distribution (MVPD) operators rather than the cable programming or

broadcast networks. RBOCs (regional bell operating companies) are entering the MVPD business with

multiple services because of excess capacity in their fiber optic infrastructure. Emerging IPTV

technologies, longer break-even point in direct broadcast satellite TV and voice/data service offerings

by cable operators make this industry attractive for RBOCs.

Table 2.1 – Entry barriers in the US broadcasting industry

Entry Barriers Examples

Capital requirements High infrastructure intensity (broadcast stations, wired networks, transponder space)

Government regulations Designated market areas, broadcast license, ownership restrictions, RF spectrum scarcity

Economies of scale Needs customer volume (subscribers) and viewer ratings for cost/price benefits

Vertical integration Companies own studios, broadcast stations, cable network or MVPD operation

Experience Customer loyalty, industry experience, retaliation by rivals for lower fees

Source: Company Annual Reports


Bargaining Power of Buyers – Strong

Advertisers and consumers are powerful in this industry, either collectively as a consumer group or

independently as an advertiser. Broadcast networks strive to increase their ratings on the Nielson

Media Research LPM (local people meter) to attract advertising and sponsorship deals. Advertising

revenue is available throughout the day for a TV network, however, insufficient to cover cost of

programming; thus, ratings remain important in charging competitive prices. The viewers, on the other

hand, have many choices; first, the option of not subscribing to fee based TV and actively switching

between the existing free-over-the-air channels. Secondly, when subscribing to a fee service, there are

competing platforms (cable, DBS, and now IPTV). Thirdly, the number of channels viewed by an

average consumer is 15-20 even when the total number of receivable channels exceeds 50 per

household (See Appendix 2 – F igure B); indicating that broadcasters must compete to be included in

the viewers’ average viewed list.24 In addition to channels viewed, the hours of TV per person per day

are also limited25 (Appendix 2 – F igure C).

Technological advances, regulatory reforms, and continued demographic and lifestyle changes are driving

traditional providers of broadcasting, cable, and satellite services to an increasingly competitive

environment.

Technological Advances

Source: Price Waterhouse Coopers

Figure 3.1

Five forces driving convergence

PART III – DRIVING FORCES


Convergence Becoming a Reality

Among all sub-sectors: broadcasting, motion picture & sound, telecommunications, Internet, and

technology; convergence is now emerging as the predominant movement for the future. Meaning that

different platforms (broadcast, satellite, cable, telecommunications) carrying a bundle of services

(voice, video, data and mobile) using one infrastructure; and the consumer devices such as telephones,

televisions, or PCs are merging as a result of customer gaining control of content. 26

Technology

Innovations

Interactive/digital TV, HDTV, DVR, TiVo, iPod video, mobile TV and IPTV are all contributing for

the industry to converge into single platforms capable of multiple services and single content

with delivery capabilities through multiple platforms.27

Increase in Mergers

& Acquisitions

Significant transactions ranging from acquisitions in niche distribution technologies to large non-

traditional mergers that crossover traditional boundaries are rapidly increasing (See Appendix 3 –

Figure B for Deal Making Activity for 2005) 28

Content Explosion Content is no longer limited to a single access device. Additionally, consumers are choosing not

only professionally produced content but also community and user-created content.29

Bandwidth

Availability

Broadband is gaining popularity with high bandwidth services (cable Internet and DSL) already in

the market and the arrival of ADSL2+ and fiber optic rollout by voice operators (10-50 mbps).30

Rise in Capital

Investments

All players in the industry continue to spend on new developments as individual investors

continue investing.31

Increased Use of Digital Video Recorders (DVRs)

The DVR usage in the US is expected to ramp up over the next few years due to increased deployment

of generic versions by cable and Direct Broadcast Satellite (DBS) providers, and earlier popularity of

TiVo. DVR penetration in US homes will climb from about 10% or 12% in 2006, to between 30% and

35% by 2010. DVRs said to provide both opportunities and threats for the advertising industry over

the long term. The ad-skipping capabilities of DVRs could adversely affect, to some extent, the future

of the traditional 30-second ad, at the same time could potentially allow advertisers to create

addressable messages that target niche audiences.

Audience Tracking

Audience is becoming highly fragmented; therefore, content providers and advertisers will be more

accountable for their performance because it is now measurable. Given the proven effectiveness of

targeted advertising in other interactive media, television advertising will continue being more targeted.

Knowledge of consumer activity rather than exclusive ownership of content or distribution assets will

become the basis for competition in the future.


Global Marketplace – Digital Box Office

The high growth in household broadband access throughout the world (See Table 3.1) will enable a

global platform to deliver content that would increase the revenue potential of the broadcasters by ten

fold.32

Table 3.1 - Household Broadband Growth Rates (Percent)

Source: PriceWaterHouse Coopers

Emergence of Lifestyle Media Marketplace

Lifestyle Media is the combination of a personalized media experience with a social context for

participation.33 Lifestyle Media will allow beneficial interaction between consumers, content owners,

service providers, and networks. This new marketplace will let consumers search, research, share, and

configure their media experiences and will become valuable consumer gateways. In the future,

Lifestyle Media marketplace will become the primary means for consumers to navigate the exploding

content. (See Appendix 3 - Figure A. Forces Driving Life Style Media).

IPTV Transformation

Traditional cable TV companies are offering Internet telephony (VoIP) and high speed Internet to

maintain their video subscriber base. IPTV (Internet Protocol TV) transformation is posing the biggest

threat to the cable industry as voice carriers such as Verizon, BellSouth, SBS and Qwest had

successfully adopted the technology, and covered at least 6 million home passes at the end of 2005

(See Appendix 3 – Table A).34 IPTV could ultimately revolutionize how content is delivered to

consumers. Based on this new trend, consumers could expect the following by the year 2015:

o Internet broadband speeds of 50-Mbps downstream and 10-Mbps upstream

o DVR’s with capabilities to contain 32,000 full-length movies

o License agreements between studios and DVR manufactures to preload all movies and series ever made

o Directories and bundles of new entertainment offerings by Yahoo and Google accessed directly from studios or in partnerships with new types of content aggregators

o High-quality real-time viewing of content generated by broadcasters by using new versions of Internet multicast technology instead of relying on distributors

Region 2002 2003 2004 2005 2006* 2007* CAGRUnited States 54.3 39.4 27.3 21.4 13.1 12.1 22.3 EMEA 66.7 50.0 46.7 31.8 27.6 21.6 35.1 Asia/Pacific 46.7 48.1 35.0 29.6 22.9 16.3 29.9 Latin America 70.0 76.5 66.7 40.0 28.6 22.2 45.3 Canada 64.7 39.3 33.3 26.9 13.6 13.3 24.9

Total 55.7 46.2 36.8 28.2 21.2 16.9 29.4


Legislative Reforms

Digital Television (DTV) Bill

There is an on-going battle for settling for a hard date to make a full transition to digital by all over-the-

air broadcasters. In 1997, the government mandated all broadcast stations to return the radio spectrum

back to the government by December 2006. The bill is now expected to materialize by April 2009. The

NAB (National Association of Broadcasters) is still pushing to extend the deadline as far as 2014,

primarily due to the existing 70 million analog TV sets not connected to cable or DBS and 20 million

households still receive free over-the-air signals as a primary source of television.35

Censorship

FCC is coming down hard on the broadcasters for censorship and indecency issues since broadcast

television is free-over-the-air and access restriction from children is remote. The FCC heavily criticizes

the recent “Janet Jackson” exposure on live television and broadcasters are paying the price ($500,000

per offense).36

Demographic Changes

Expanding Consumer Needs

Consumer needs are expanding beyond mass media and segmented media to Lifestyle Media.

Convergence is making consumers more sophisticated in their video consumption habits by elevating

Lifestyle Media to the top of the value-creating hierarchy (See Appendix 3 – F igure A).37 Consuming

content through the traditional television media will continue to grow because of the increasing usage

of cable and satellite television overtaking broadcast television. Broadcast TV however, would still be

viewed heavily with DVR usage. Nevertheless, the new trend will be to increase in hours spent on

mediums other than traditional network delivered television (broadcast, cable, and satellite).

Attractive Hispanic Market

Recent demographic changes in the US Hispanic segment have made this market an increasingly

attractive target for mainstream advertisers. The US Census Bureau projects that the Hispanic

population will grow 34% from about 35.6 million in 2000 (or 12.6% of the US population) to 47.8

million in 2010 (15.5%). At that point, they are projected to outpace African Americans as the nation’s

largest minority group, by more than seven million. Even more significantly, growth in Hispanic buying

power is expected to outpace the segment’s population growth by nearly three times over the same

period. Hispanic consumer expenditures will be more than double from $456 billion in 2000 to over

$985 billion in 2010 — an 8% compound annual growth rate.38


The competitive positions held by the firms in this industry are analyzed in their respective categories in the

Strategic Group Maps (SGM). Figure 4.1 represents the strategic group map of the top five cable networks

in the industry, which indicates that Time Warner is best placed in their content variety and the total

number of channels. Disney has a diverse mix of content (sports, movies, kids, entertainment, educational,

lifestyle) themselves, but lacks in the number of channels compared to Time Warner but dominates the

industry with the biggest market share for cable network programming.

Figure 4.1 – SGM of Cable Networks Figure 4.2 – SGM of Broadcast Networks

Prim

etim

e Vi

ewer

s / R

atin

g Low

High

Con

tent

Var

iety

Worse

Best

Figure 4.2 maps the broadcast networks, in which News Corporation dominates the top position with the

highest ratings and the maximum number of stations operated by a single company. News Corp’s high

rating success comes primarily from their hit series American Idol (See Appendix 3 – Table A). NBC

dropped from first to fourth place ever since they lost their hit series ‘Friends,’ while ABC and CBS both

gained their grounds with their serials Desperate Housewives and CSI.39

The multichannel group is led by Comcast with their national cable systems reaching 21 million subscribers

as opposed to Direct TV’s 14 million (See F igure 4.3 be low). Direct TV and Echo Star (DISH Network)

however have more advantage in terms of coverage with signals spilling over US borders; and the pace of

subscriber growth is much higher than Comcast. Direct TV is well positioned to become the number one

network in subscriber numbers in the near future.40

PART IV – POSITIONS OF KEY RIVALS


Figure 4.3 – SGM of MVPDs Table 4.1 – Overall Rankings

Source: Company Annual Reports

Table 4.1 lists the overall market positioning of the top 15 players in the industry accordingly to their

market share in television revenue. News Corporation is ranked sixth in the overall television ladder trailing

slightly behind their 34% owned subsidiary DIRECTV. Univision Communications has become the leader in

Spanish language television and they are growing rapidly with revenues and ratings increasing by 30% and

20% respectively from 2004. Finally, the driving forces of this industry will create enough turmoil amongst

the players to jump their market positions quite regularly.

Mergers, acquisitions, and strategic alliances characterize most of the moves made by the rivals resulting

from technological breakthroughs, which clearly indicate that the industry’s direction towards the Lifestyle

Media marketplace resulting from convergence.Major announcements are as follows (See Appendix 5 –Table

D – Next Moves By Rivals, for a more detailed list):

o Univision Communications announced the sale of the company.

o Time Warner and CBS Corporation forming a joint venture to launch a new network called CW by

combining The WB network and UPN (United Paramount Network).

TV Revenue Market($ millions) Share

1 Time Warner/WB 16,682 10.2%2 Viacom/CBS 15,982 9.8%3 Comcast Corporation 15,913 9.7%4 Disney/ABC 13,207 8.1%5 DirecTV 12,958 7.9%6 News Corporation/FOX 10,339 6.3%7 GE/NBC Universal 8,067 4.9%8 EchoStar/Dish Network 8,046 4.9%9 Cox Communication 4,168 2.6%

10 Univision Communications 1,366 0.8%11 Tribune Company 1,250 0.8%12 Liberty Media 1,004 0.6%13 Gannett Company 736 0.5%14 Hearst-Argyle Television 706 0.4%15 Belo Corporation 703 0.4%

Top 15 Players 111,127 68%Total Market Size 163,279 100%

Rank Company

PART V – RIVALS’ NEXT MOVES


o Time Warner is expanding its current strategic alliance with Google Inc to make AOL content

available to Google users.

o Comcast and Time Warner Cable are acquiring Adelphia Communication.

o Comcast completed a transaction to acquire Metro-Golwyn-Myer Inc (MGM).

o Echostar Communications, Inc., (Dish Network) struck a strategic partnership with AT&T to offer

bundled services.

o Verizon Communications, Inc., SBC Communications, Inc., and BellSouth Corporation are

entering the video market through fiber optic and IPTV.

o News Corporation, Disney, Viacom, Time Warner and NBC are all making content available

online through their own websites and on iTunes.

Key success factors in this industry will revolve around the consumer, content, value chain, technology and

financial strength. As the future of television is evolving to consumer driven, time and place shifted

mediums; companies competing in this industry will have challenging tasks ahead of them in order to

succeed.

Consumer Knowledge

Viewer ratings Advertising revenue is primarily dependent upon the popularity of the programs, which is

what drives ad CPM (cost per thousand). Therefore, achieving the highest ratings for

programs around the clock are important for maximizing revenue.

Value-price proposition Unless companies enhance the value-price proposition, their sales will decline as digital

technology proliferates. Technology advances will drive down the cost of distributing

content to the consumers significantly.

Customer knowledge &

ownership

Companies who have rights to distribution content must create strong customer bases both

online and over-the-air. Measuring of customer activity and their lifestyles will be necessary

to target the right content and attract advertising revenue on segmented basis.

Brand loyalty & customer

relationship

Those players with better loyalty towards their brands are likely to succeed in the industry

in the future. Especially for cable operators, since DBS is already spending heavy on

customer acquisition.

PART VI – KEY SUCCESS FACTORS


Content Ownership & Strength

Content variety The industry norm “Content is King” is still valid. Especially when there are diverse markets

with changing expectations and lifestyles; broadcasters, cable networks and pay television

operators alike must provide the right variety in content.

Interactivity Getting the consumer involved in the program will be the key to maintaining viewership.

Therefore, content must gear towards keeping the viewers locked into the program both

visually and electronically.

Continued creativity &

differentiation

Cable networks should continue to add new channels to their networks with creative

programming content to attract consumers. Broadcasters should continue creating more

interactive programs to reach top viewer ratings.

Multi platform delivery The ability to deliver content through all types of devices and mediums will be needed to

compete in the future. The traditional content need to adjust significantly to bring more

value, when viewed from alternative media (iPod, 3G phone, Sling-box, etc)

Digital content security Being able to manage content to avoid piracy and reproduction will play a big role in the

digital era. Therefore, firms must invest in secure DRM systems to avoid such losses.

Exclusive licensing of

content

The ability to negotiate license agreements for hit television programs and live sporting

events could increase viewer ratings.

Value Chain Participation

Vertical integration Those who have the ability of creating, right to ownership, right to distribute content will be

powerful players. Content owners who interact directly with customers will be true winners.

Strategic alliances All companies in this industry must build alliances with electronic device manufacturers,

independent content creators, studios, content aggregators, cable networks, pay TV

operators, telecommunications companies and other Internet based operations.

Global marketing channels Global content marketplace as a result of broadband will require global advertising

campaigns to generate traffic to web based content downloads.

Technological Flexibility

Multicast Digital television paved the way for new television experiences such as High Definition TV

(HDTV) and DVR. Broadcasters should be able to take advantage of such advances to

provide multi-cast programming content that allows the viewers to browse through the

channel for experiences like extended angel shots, subtitling, multi-lingual programming,

messaging, live display of polls, etc.

Triple and quadruple play Since, the cable market (households) is saturated, pay television operators will need to

work hard at retaining customers by offering more than video services such as voice, data,

gaming and mobile services to generate more revenue per subscriber.


Innovation The industry participants need to be catching the wave of technological advances in the

industry, which will enable them to continue to canvass revenue streams.

Exploiting & increasing

bandwidth

Service providers such as cable and Direct Broadcast Satellite (DBS) will need to join the

high bandwidth bandwagon in order to compete with the emerging telecommunications

players as IPTV could ultimately threaten to replace the traditional pay television operators.

Financial Strength

The industry is characterized heavily by high profile deal making; therefore, substantial health in terms

of financials will be necessary for continued growth in the industry. Further, companies with growth

potential and technological capabilities that are financially unsteady should avoid being takeover

targets.


1 North American Industry Classification System (NAICS), available at http://www.census.gov/epcd/www/naics.html 2 North American Industry Classification System (NAICS), available at http://www.census.gov/epcd/www/naics.html 3 North American Industry Classification System (NAICS), available at http://www.census.gov/epcd/www/naics.html 4 North American Industry Classification System (NAICS), available at http://www.census.gov/epcd/www/naics.html 5 North American Industry Classification System (NAICS), available at http://www.census.gov/epcd/www/naics.html 6 NAICS, Economic Census 2002, QSS – Census 2006, available at http://www.census.gov/epcd/www/naics.html 7 NAICS, Economic Census 2002, QSS – Census 2006, available at http://www.census.gov/epcd/www/naics.html 8 NAICS, Economic Census 2002, QSS – Census 2006, available at http://www.census.gov/epcd/www/naics.html 9 NAICS, Economic Census 2002, QSS – Census 2006, available at http://www.census.gov/epcd/www/naics.html 10 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005. 11 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005. 12 Nielsen Media Research, “TV penetration in US”: 1980 to date as of Jan. of calendar year, available at http://tvb.org 13 Nielsen Media Research, “Subscription TV penetration in US”: 1980 to date as of Jan. of calendar year, available at http://tvb.org 14 News Corporation, Company Annual Report: 2005. 15 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005. 16 SatcoDX's World of Satellites, available at http://www.satcodx.info/manual/eng/ 17 NAICS, Economic Census 2002, QSS – Census 2006, available at http://www.census.gov/epcd/www/naics.html 18 Standard & Poor’s BIA Financial Network: 2005. 19 Standard & Poor’s Company reports: Sep., 2005. 20 Pricewaterhousecoopers’ The Rise of Lifestyle Media: Achieving Success in the Digital Convergence Era: 2006 21 Pricewaterhousecoopers’ The Rise of Lifestyle Media: Achieving Success in the Digital Convergence Era: 2006 22 NAICS, Economic Census 2002, QSS – Census 2006, available at http://www.census.gov/epcd/www/naics.html 23 Veronis Schuler Stevenson, July 2005, available at http://tvb.org 24 Veronis Schuler Stevenson,” Number of channels viewed on average” July 2005, available at http://tvb.org 25 Veronis Schuler Stevenson, “ Annual Media usage per person”: July 2005, available at http://tvb.org 26 Pricewaterhousecoopers’ Breaking Down Walls: How an open business model is now the convergence imperative: 2006 27 Pricewaterhousecoopers’ Breaking Down Walls: How an open business model is now the convergence imperative: 2006 28 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005. 29 Pricewaterhousecoopers’ Breaking Down Walls: How an open business model is now the convergence imperative: 2006 30 Pricewaterhousecoopers’ Breaking Down Walls: How an open business model is now the convergence imperative: 2006 31 Pricewaterhousecoopers’ Breaking Down Walls: How an open business model is now the convergence imperative: 2006 32 Pricewaterhousecoopers’ A new Era for Content: Protection, Potentia l, & Prof its in the Digital World: 2006 33 Pricewaterhousecoopers’ The Rise of Lifestyle Media: Achieving Success in the Digital Convergence Era: 2006 34 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005.


35 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005. 36 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005. 37 Pricewaterhousecoopers’ The Rise of Lifestyle Media: Achieving Success in the Digital Convergence Era: 2006 38 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005 39 Nielsen Media Research, “Broadcasting TV Primetime Ratings 2005-2006”,available at http://tvb.org 40 Standard & Poor’s Industry Survey: Broadcasting, Cable & Satellite: December 8, 2005.

SECTION TWO

Company Analysis

Section 2 – Company Analysis 17

The purpose of this section of the report is to analyze the Company in detail to identify specific

strategies, relevant to the success of the broadcasting business, to develop calculated recommendations.

First, the report will evaluate the Company’s current strategies and their resulting performance within the

last five years. Then, a set of strategic planning tools will be used to articulate strategy alternatives for

the final evaluation process in preparation for recommendations.

Mission Statement

“A conste llation of media businesses, News Corporation’s global operations encompass the fields of filmed

entertainment, newspapers, pay and free-to-air television, cable network programming, book publishing, magazines

and consumer marketing.

Just as our assets span the world, our vision spans art and humor, audacity and compassion, information and

innovation – whether in an American te levision series, an Indian game show, an Australian newspaper, an English

sports broadcast or an internationa l box-office hit .

Every day, hundreds of millions of people are enterta ined and enlightened by the authors and actors, printers and

producers, reporters and directors who fulfill our mission. That mission rema ins unchanged after ha lf a century of

expansion and improvement: the creation and distribution of top-qua lity news, sports and entertainment around the

world.”41

Background

The News Corporation Incorporated, established as a newspaper company in 1952, is now a fully

diversified media and entertainment conglomerate. Listed on the New York Stock Exchange (NYSE:

NWS), News Corp. recorded $23.9 billion in sales in 2005 and are owners to $55 billion of assets with a

market value of $19.4 billion (as of July 2006)42. The Company publishes scores of newspapers (including

The Times of London) and books (through units such as HarperCollins). FOX Entertainment Group (FEG)

subsidiary has significant entertainment holdings, including FOX Broadcasting (TV network with 200

affiliates) in the US, Twentieth Century FOX, and a 34% stake in DIRECTV parent company, The

PART I – COMPANY PROFILE

SECTION 2 – COMPANY ANALYSIS


DIRECTV Group.43 They also own cable and satellite operations throughout Asia Pacific, Europe, and Latin

America. Almost 60% of sales come from US businesses. The Chairman and CEO – Keith Rupert Murdoch

and his family control 30% of the Company (Refer to Appendix 6 – Table 2A for Board of Directors- News

Corp.).

Business Segments

Filmed Entertainment include the production and acquisition of live-action and animated motion

pictures for distribution and licensing in all formats in all entertainment media worldwide, and the

production of original TV programming. Broadcast Television consists of 35 broadcast TV stations,

including nine duopolies in the US; the broadcasting of network programming in the US; and the

development, production and broadcasting of TV programming in Asia. Cable Network Programming

consists of the production and licensing of programming, distributed through cable TV systems and DBS

operators in the U.S. Direct Broadcast Satellite Television consists of the distribution of

programming services via satellite to subscribers in Italy. Others include Magazines and Inserts,

Newspapers, Book Publishing, and Other (companies engaged in supplying digital technology

services, enabling and supporting digital pay-TV platforms and content providers and global sports

franchises)44. Refer to Appendix 6 – Table 1A for a list of subsidiaries and media investments worldwide.

Revenue Breakdown

Filmed Entertainment contributes the most in revenue (25% of total) for the Company, while the

broadcasting segment revenue generates approximately 43% to the total. Broadcast TV produced the

majority of News Corporation’s television revenue in 2005.45

Figure 1 – 2005 Revenue by Business Segment

A. Overall Company Revenue B. Broadcasting Segment Revenue

Source: Annual Report 2005

4%

6% 5%

10%

17%

11%

22%

25%

Filmed EntertainmentBroadcast TelevisionCable Network ProgrammingDirect Broadcast SatelliteMagazines & InsertsNewspapers

Book PublishingOther

26%

22%

52%Broadcast TV

Cable Networks

DB Satellite TV


The company, often identified as a controversial media empire, continues to expand its global businesses

through aggressive strategies through the intuitive leadership of Rupert Murdoch – the Chairman and the

Chief Executive Officer of News Corporation. The following section identifies the current strategies

deployed by the Company and the specific actions taken to execute them:

Current Strategies

1. Focus on high quality, broad-appeal programming and content worldwide

2. Strengthen resources in sports entertainment brands

3. Invest and expand into multiple digital media platforms

4. Focus on the Internet as a significant distribution platform

5. Focus on local presence in large and attractive markets

6. Strengthen the existing satellite distribution network worldwide

7. Consolidate content and distribution assets

Recent Moves to Executing Strategy

The Company continues its aggressive media spending, as most of their expansion came externally

through mergers and acquisitions. There was substantial emphasis on new digital media such as the

Internet. Finally, the centralization of all media assets also played a major role. Key activities in pursuing

their strategy were as follows:

o Acquired 34% controlling shares of DIRECTV in 2004, and installed News Corp.’s own Co-Chief

Operating Officer as Chief Executive Officer of DIRECTV

o Restructured the regional sports network partnership with Cablevision, Inc resulting in full ownership of FOX Sports Networks Ohio and FOX Sports Networks Florida

o FOX Sports Networks re-signed 20 professional sporting teams, including NBA’s Houston Rockets,

Los Angeles Lakers, Miami Heat and Seattle Supersonics; and MLB's Houston Astros and Colorado Rockies, for longer-term licensing deals

o In 2005, DIRECTV Group sold its aging Pan American Satellite (PAS) fleet to focus on DBS

distribution satellites as opposed to vendor services satellites

PART II – CURRENT STRATEGY ASSESSMENT


o Company formed a new unit called ‘FOX Interactive Media’ (FIM), to focus on the Internet strategy, to consolidate the strong online presence of all FOX divisions, from news to sports to entertainment

o FIM acquired MySpace.com (social networking site) and Scout.com (number one independent

online college sports network) to strengthen the Internet based content distribution

o The Company took full ownership of SKY Italia by acquiring Telecom Italia’s 20% stake

o Established “My Network TV,” the new broadcast network scheduled to launch in September 2006 with 12 hours of original programming to compete with CBS and WB’s CW network

o “My Network TV” has already signed up affiliate stations to cover almost 60% of the US

households in key local markets

o FOX Entertainment Group signed the biggest content library alliance with Apple Computers, Inc. to enable online downloads of most of their programming content

o FOX News became the first news channel available to cell phone users, appearing live on Sprint

phones 24 hours a day

o FOX Television Stations (FTS) expanding local newscasts to add 45 more hours of news per week across the US, which brings the total to 900 hours per week (highest for a US station group)

o FOX News secured new international distribution deals in fiscal 2005 with cable systems in

Germany, Iceland, Colombia, El Salvador, Japan, Mongolia, Singapore and Canada

Financial Performance

News Corporation displayed the most impressive results in 2005 with its financial performance compared

to its peers, resulting in their market share to jump 0.2% upwards to 6.3% from 6.1% in 2004.

Company’s financial statements produced substantial results even within a dynamic environment.

Income Statement

Company’s revenue grew by 14.7% in 2005 to $23.9 billion from $20.8 billion in 2004, this

growth rate was almost three times the industry average, and it was a fair improvement from its

own five-year average of 8.1% (See Appendix 7 - Table 3A - Key Ratios). The broadcasting

related revenue, however, grew by 13.6% (Table 3.1 be low), which was also higher than the

five-year compound average growth rate of the industry. All three segments of the company

produced growth; particularly the Direct Broadcasting Satellite (DBS) segment grew substantially

PART III – CURRENT PERFORMANCE


over the last three years (F igure 3.1 below) and was primarily due to the successful turnaround

of Sky Italia operation.

Table 3.1 – Revenue Growth by Segment

Source: Annual Reports 2005

In addition to the rapid growth in revenue, the company recorded an all time high operating

margins compared to its peers to finish the year at 23.7% (Table 3.2 be low) for the television

segment and 18.1% for the company overall. Profit performance was well above its peers and its

own previous averages.

Figure 3.1 – Segment Revenue – Historical Analysis

(In millions)

Source: Annual Reports 2005

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

2003 2004 2005

Other Segments

Direct BroadcastSatellite

Cable NetworkProgramming

BroadcastTelevision

Industry Segments Industry CAGR News Corp.Television Broadcasting 5.8% 6.2%Cable Netw orks 12.3% 11.6%Cable & Other Program Distribution 11.6% 39.9%

Overall 9.8% 13.6%

New s FOX

Disney ABC

Warner WB

Viacom CBS

Broadcast TV 19.6% 38.4% 13.2% -51.4%Cable Netw orks 31.9% 6.4% 26.3% 39.2%Overall Segment 23.7% 20.8% 21.9% -13.6%Company 18.1% 14.6% 17.4% -16.1%

Operating Income By Segment - 2005Table 3.2


The net income to shareholders was up by 39% from $1.5 billion in 2004 to $2.1 in 2005. This

significant increase is primarily due to the Company’s high operating leverage, which was more

apparent in the fiscal 2004 when the Company increased its revenue by 19.6% and increased its

earnings by 86% from 2003. Effectiveness of the Company’s management was also proven by

the improved results in return on investment, return on assets, and return on equity as compared

to the industry (See Appendix 7 - Table 3A - Key Ratios).

Balance Sheet

The Company is in a strong position in terms of financial health as it could meet its short-term

obligations swiftly. The current and quick ratios were 1.87 and 1.59 and were well above the

industry averages of 1.1 and 0.84 respectively. Company’s cash increased 59% from $4 billion to

$6.4 billion in 2005, while the long-term debt increased from $9,080 million to $10,087 in 2005,

while shareholders equity increasing by $8,858 to strengthen the debt to equity position from

43% to 34% in 2005. The long-term debt to equity ratio is below some of the key rivals and half

the industry and the information sector averages. Company’s total asset base was also increased

by 13% in 2005.

Cash Flows

In 2005, the Company produced the highest net cash increases compared to 2004 and 2003. A

total net cash addition of $2.3 billion was contributed primarily from the positive $3.37 billion in

operating cash flows, which was up by 40% from the previous year. Major financing activities

included an issuance of $1.8 billion in debt and a subsequent repayment of $2.1 billion; finishing

the year with an overall negative cash flow of $681 million. Finally, the investing activities

included $1,103 million in acquisitions and investments and $800 million in proceeds from the

disposal of investments and non-current assets that produced a negative cash flow of $303

million; a significant reduction from the previous year’s $3 billion cash used for investments.

Efficiency

Employee capabilities proven the best in the industry as both News Corp and its DBS partner,

DIRECTV generated $560,000 and nearly $1 million, respectively, in revenue per employee and

around $60,000 in profits per employee. At the same time, the utilization of their $55 billion

assets was satisfactory. On the other hand, the Company is lagging behind its peers when it

comes to the speed of collecting debts and turning inventory to cash.


Stock Performance

The Company’s stock has been performing well despite their higher dividend payout ratio of

31%. The rates of returns on the ‘NWS’ stock is similar to that of Disney through out the year;

and has been beating the overall market index (S&P 500) since May 2006. Company’s price

earnings (P/E) and price to book (P/B) ratios, however suggests that the stock price may be

undervalued. Having adequate growth potential, the shareholders could even see room for

realization of extraordinary trading returns (F igure 3.2 above).

Figure 3.2 – News Corporation (NWS) – Rates of Returns on Stock Price

Source: Yahoo Finance

Customer Performance

Broadcast Television Viewers

FOX Broadcasting Company’s (FBC) American Idol, in its fourth year, was the number one show

for the 2004-2005 season among the popular demographic of Adults between 18-49. Super Bowl

broadcast in 2004 had the largest total audience in FOX’s history and the fifth largest in US

television history that attracted 133.7 million viewers. The 2004 MLB postseason on FOX was

highlighted by the Boston Red Sox’ historic World Series, which averaged 25.4 million viewers

across its four games, making it the most-watched World Series on any network since 1995.

Cable Network Subscribers

FOX Reality channel passed 20 million homes in its first year, while FOX News Channel continues

to dominate the cable news landscape, finishing the year with primetime ratings more than

double those of its nearest competitor CNN. FOX News had maintained its position as the number

one cable news network for 42 consecutive months, often beating the combined ratings of its

NWS - News Corp DIS – Disney TWX - Time Warner VIA – Viacom GE – NBC Universal GSPC – S&P 500


cable news competitors (See Appendix 7 – Figure 3A). Its ratings were also up 30% in

primetime. FX channel had increased ratings by 16% among adults 18-49. The two channels,

FOX News and FX, reached approximately 88 million and 87 million households (Nielsen Media)

thus increasing the total subscribers by 3% and 4% respectively from 2004.

Direct Broadcast Satellite Subscribers

The Company’s 37 percent-owned British Sky Broadcasting (B-Sky-B) expanded its direct-to-

home (DTH) subscriber base by 6% to 7.8 million in 2005 while revamping its pricing and

package structure for increased flexibility. Their DVR subscribers doubled from 2004. At the same

time, SKY Italia was News Corp.’s best success story; Europe’s fastest growing digital platform

increased its subscriber base by 650,000 to more than 3.3 million in only its second year of

operation. Finally, DIRECTV grew its subscriber base by a record 1.7 million net and aggressively

expanded its product offerings with more local channels and HD and DVR capabilities.

Social Impacts

The broadcasting industry in general is subject to criticism for its impact on viewers. Media influences

the day-to-day lives of the people since its use as a primary source of information, news and

entertainment. Especially, the exposure to violence, sex, use of alcohol, smoking and drugs aired on

television and their potential impact on children. News Corp. however, exposed to specific criticisms on

the following aspects:

News and Information Bias

FOX News channel and FOX’s Broadcast networks are criticized for its parade of right-wing

commentators and accused of blatant bias in its reporting. Election 2004: A study, by The

Program on International Policy (PIPA) at the University of Maryland, revealed that those who

primarily watch FOX News were significantly more likely to have political misperceptions than

other networks. They claimed that ‘more likely you were to watch FOX News; the less likely you

were to know the facts.’

MySpace.Com

The social network MySpace.com is raising concerns for the parents and authorities for keeping

away online sexual predators. However, FOX Interactive Media Group had taken significant steps

to secure underage user access.


The Company is faced with numerous risk factors that are also common to most of the players in the

industry such as, cyclical fluctuations, audience acceptance of programs, political risks, competition,

piracy/intellectual property violations, lawsuits, loss of affiliates, etc. The following will list those risks that

are most important for the Company:

Financial Risk

Company’s risks in terms of financial leverage are subject to fluctuations in interest rates and

general economic activities. However, the recent decrease in the debt to equity position further

reduced the exposure to financial risks.

Market Risk

Company’s stock performance in relation to general economic activity and market forces is higher

than most of the top rivals in the industry with a beta value of 1.68 compared to 1.45 for the

industry. However, such market risks will further reduce as the Company matures its stock listing

in the NYSE.

Foreign Exchange and Global Economic Trends

Nearly 40% of the Company’s revenue comes from overseas; therefore, it is subject to risks

involved with foreign currency fluctuations, general economic conditions and political instabilities

in those markets.

Regulatory Risks

The broadcasting industry is highly regularized by the FCC; therefore, the Company, having

interest in various media segments, is subject to any risks arising from new developments in

media ownership, digital television transmission, market allocations or any such legislative

reforms that are imposed from time to time.

Online Business

The Company’s new online asset MySpace.com is subject to lawsuits that may arise from any

activities involved in online sexual predators. The Bush Administration had recently signed a new

bill to punish any such offenders and the Company’s reputation could be at risk, if such offenders

are users of MySpace.

PART IV – RISK FACTORS


Apart from minor deficiencies in technology, News Corporation is established fairly well in terms of

internal capabilities to take on the challenges for future competitiveness. The following matrices will help

detail the specific areas in which the Company needs to focus on building the required capabilities to

match the success factors of the industry.

Competitive Profile Matrix (CPM)

Table 5.1 shows how the Company and its rival’s capabilities match up in terms of Key Success Factors of

the Broadcasting Industry. News Corporation received a total weighted score of 3.43, placing the

Company in the fourth place. The Company is lagging slightly behind in offering some of the new

broadcast technologies such as HDTV in their cable programming, and the limitations in satellite

technologies for two-way services. However, there is ample room for improvement for the Company to

acquire such capabilities. Most of which will be discussed further in detail in the strategy formulation

section.

Table 5.1 – Competitive Profile Matrix Broadcasting Industry

Rt Sc Rt Sc Rt Sc Rt Sc Rt Sc Rt Sc Rt Sc Rt Sc

Consumer Knowledge & Ownership 0.20 3.6 0.72 3 0.60 3.8 0.76 3.8 0.76 3.8 0.76 3 0.60 4 0.80 4 0.80Content Ownership & Ratings 0.30 3.2 0.96 3 0.90 2.8 0.84 3.8 1.14 3.9 1.17 3 0.90 3 0.90 2 0.60Value Chain Participation 0.20 3.7 0.74 2 0.40 3.8 0.76 3.9 0.78 3.4 0.68 4 0.80 3 0.60 3 0.60Flexibility to Technological Change 0.15 2.7 0.41 3 0.45 3.8 0.57 3.8 0.57 2.8 0.42 4 0.60 3 0.45 2 0.30Financial Strength 0.15 4 0.60 4 0.60 3.9 0.59 3.8 0.57 3.2 0.48 2 0.30 2 0.30 1 0.15

OVERALL SCORES 1.00 3.43 2.95 3.52 3.82 3.51 3.2 3.1 2.5

KEY SUCCESS FACTORS WieghtNews Corp NBC Disney Warner Viacom Com

CastDirec

TVEcho Star

Readiness of Strategic Business Units

Based on the Competitive Profile Matrix above and the Key Success Factors described in the industry

analysis, it was necessary to isolate the areas where the Company should focus to strengthen their

capabilities to gear up for the future. Therefore, the Company’s three broadcasting units are analyzed

individually to determine the weaker areas. Table 5.2 highlights that Direct Broadcast Satellite segment

needs the most attention to keep up with other cable operators in terms of technology offerings. While

FOX Cable Networks have some required resources, but demands further improvements in customer

knowledge, content strength and technology. Overall, the Company’s competencies look favorable in

delivering results within this highly competitive industry.

PART V – KEY SUCCESS FACTOR FIT


Table 5.2 – Key Success Factor Fit

Broadcast Television

Cable Network Programming

Direct Broadcast Satellite

1 Consumer Knowledge 3.5 3.5 3.81.1 Viewer Ratings 4 3 41.2 Value Price Proposition 3 3 31.3 Customer Ownership 4 4 41.4 Brand Loyalty & Customer Relationship 3 4 42 Content Ownership & Strength 3.5 3.0 3.22.1 Content Variety 2 1 42.2 Interactivity 4 3 12.3 Continued Creativity & Differenciation 4 3 32.4 Multi-platform Delivery 4 3 32.5 Digital Content Security 3 4 42.6 Exclusive Licensing of Content 4 4 43 Strong Value Chain Participation 4.0 3.7 3.33.1 Integration 4 4 43.2 Strategic Alliances 4 3 23.3 Global Marketing Channels 4 4 44 Technological Flexibility 3.3 3.0 1.84.1 Multicast /HDTV/DVR 2 2 24.2 Media Convergence 3 3 14.3 Innovation 4 3 34.4 Broadband Exploitation 4 4 15 Financial Strength 4.0 4.0 4.05.1 Free Cash Flows 4 4 45.2 Strong Leverage 4 4 4

1= Very Weak 2 = Weak 3 = Strong 4 = Very Strong

Overall Company

3.6

3.2

3.7

2.7

4.0

Strategic Business Units

Key Success Factors

Internal Factor Evaluation (IFE) Matrix

The IFE Matrix summarizes and evaluates the major strengths and weaknesses in the functional areas,

where the Company has a total weighted score of 2.82 (Table 6.1). The score indicates that the internal

strengths outweigh the internal weaknesses, thus place the Company in a stronger internal position.

Among the internal strengths, the highest weights were allocated to the following:

1. 34% equity ownership and management control of DIRECTV

A distinctive competence that the Company boasts is being the only media company that can

reach the entire US market in all three-television platforms: Fox Television (99% coverage), Fox

Cable Networks (88 million subscribers) and DIRECTV (15 million subscribers with national

satellite coverage).

PART VI – SWOT ANALYSIS


2. Competencies in online strategy and customer ownership

The Company boasts of being the leader in the number of unique online visitors, page views and

ad impressions with their combined web portals (FoxNews.com, Fox Sports on MSN, Scout.com,

MySpace.com, and IGN.com) for a media company.

3. Strong balance sheet and cash position

Company’s cash sources exceeded $6 billion, at the end of fiscal 2005, coupled with a stronger

equity position than those in the industry. The strong financial position gives ample capabilities

for their aggressive media-buying mode.

Table 6.1 – Internal Factor Evaluation Matrix

Weight Rate Score

Internal Strengths1 Powerful vision and leadership 0.03 3 0.093 34% controlling ownership of Direct TV 0.08 4 0.324 High viewer ratings for FOX and FX 0.05 4 0.205 Continuous introduction of breakthrough programs 0.05 4 0.206 Exclusive licensing for 80% of NHL, MLB, NBA teams 0.03 3 0.097 Largest distribution platform in the world 0.05 3 0.158 Fully vertically integrated with horizontal synergies 0.05 4 0.209 Strongest market presence in Australasia and Europe 0.03 3 0.0910 Distinctive competences in online strategy & customer base 0.08 4 0.3211 Studio facilities around the world with diverse capabilities 0.04 3 0.1212 Strong creative talent and diverse industry experience 0.03 3 0.0913 Strong balance sheet and cash position 0.08 4 0.3214 Planned launch of the second network - MyNetworkTV 0.05 4 0.20

Internal Weaknesses1 Lowest original prime time programming hours per week 0.03 2 0.062 Lack of market presence in Africa and Middle East 0.04 2 0.083 Limited cable content to suit all market segments 0.08 1 0.084 Lower number of cable channels overall 0.05 1 0.055 Satellite technology limitations for bundling services 0.08 1 0.086 Lack of HDTV content and broadband channels 0.04 2 0.087 Low upfront advertising sales compared to rivals 0.03 2 0.06

2.82

Key Internal Factors

Among the weaknesses, the Company had two major limitations that were important for industry

success: First, the limitations in the number of cable channels and content variety to suit all market

segments compared to its close rivals (See Appendix 8 -table 1E for Competitor Ana lysis). Second, the

DBS segment and DIRECTV, have technical inflexibilities for offering bundling services that other players

are already generating substantial revenues.

External Factor Evaluation (EFE) Matrix

EFE Matrix for News Corporation had a total weighted score of 2.64. The EFE score implies that the

Company’s response to existing opportunities and threats is above average with more room to grow.


Among the industry opportunities, the highest weights allocated to digital and convergence related

opportunities such as:

1. Broadband access boom, which opens a global marketplace for Internet downloads,

2. Cross ownership in broadcasting & telecommunications rules being relaxed by the FCC

3. Platform convergence where multiple services delivered on single platforms and single

content delivery on multiple platforms

Table 6.2 – External Factor Evaluation Matrix

Key External Factors Weight Rate Score

Opportunities1 Rapid growth in global broadband access & video consumption 0.10 2 0.202 Cross ownership of broadcasting & telecommunications 0.10 4 0.403 Growth in mobile and other handheld devices and users 0.04 4 0.164 Changes in content consumption habits 0.04 3 0.125 Asia Pacific markets are booming 0.04 3 0.126 Growth in Hispanic population and their spending 0.06 2 0.127 Content mobility and immortality 0.04 4 0.168 Video, data, voice all converging into single platforms 0.10 1 0.109 Retirement of baby boomers increases leisure spending 0.06 1 0.0610 Massive cost reductions in storing, retrieving & streaming content 0.08 3 0.24

Threats 1 New broadcast TV joint venture between WB & CBS 0.06 4 0.242 FCC approving Adelphia acquisition by Comcast & TW cable 0.04 2 0.083 FCC enforcing of digital TV laws by FCC in 2009 0.05 2 0.104 Internet growth outpacing all other media in usage & in ad dollars 0.05 4 0.205 Risk of digital and Internet content piracy 0.03 4 0.126 Growth in Digital Video Recorder usage 0.04 2 0.087 Changes in global economic and political conditions 0.03 2 0.068 Telecom giants entering video market with IPTV & bundled services 0.04 2 0.08

2.64

Its worth mentioning that the rising Spanish speaking population and the retiring baby boomers also

show growth opportunities; however, News Corporation currently emphasizes heavily on the Internet. On

the other hand, a key threat that News Corporation faces is the new broadcasting TV joint venture

between Time Warner and CBS to create one broadcasting channel called CW. The joint venture will

bring both companies’ resource strengths into one broadcasting channel, which News Corporation is

already countering with the launch of their own second network ‘MyNetworkTV.’ Other major threats to

broadcasting revenue are the Internet’s ad revenue potential itself and the FCC’s mandatory analog

signal switch-off scheduled for February 2009.


Using a matching tool such as the TOWS Matrix, this section focuses on the development of strategy

alternatives for the Company.46 A series of additional measures, such as the I/E, BCG, GS, GE and the

SPACE matrices are used with an emphasis on the industry’s life cycle to strengthen, modify and/or

validate those strategies developed by the Company as well as those articulated by the TOWS Matrix.

Threat-Opportunity-Weakness-Strength (TOWS) Matrix

TOWS Matrix is one of the most vital tools that helps generate four types of strategies using the

Company’s SWOT analysis. Table 7.1 below is a depiction of the derived strategies under each of the

combinations of the TOWS Matrix used for the final evaluation of the strategy alternatives.

Table 7.1 – TOWS Matrix Results

SO Strength/Opportunity Strategies Coordinates1 Acquire Univision Inc. (S12,O6)2 Offer bundled services through strategic alliances (S2,O8)3 Invest more in Cable & Satellite in Asiapacific region (S12,O5)4 Continue to allocate more recourses for the current Internet strategy (S9,O2,O4)5 Develop programming targeted to 55+ age group (S10,S11,O9)6 Use more resources to focus on mobile and other handheld content (S7,O4,O3)7 Integrate content into centralized libraries for multiple delivery streams (S7,S9,O10)8 Invest or acquire telecommunications shares (S6,S12,O3)ST Strength/Threat Strategies Coordinates1 Enhance the number of original programming hours for MyNetworkTV (S13,T1)2 Global marketing strategy to get more advertising for websites (S6,S9,T4)3 Introduce collective customer education campaigns for DTV (S9,T4)4 Create and distribute ad supported DVR content (S1,T3)5 Establish partnerships with the Teleco's for bundled services (S1,S2,T8)7 Nuetralize news & entertainment content to suit international markets (S6,S8,T7)8 Invest in more exclusive licensing for sports programming & teams (S5,T1,T2)

WO Weakness/Opportunity Strategies Coordinates1 Invest on broadband channels & develop HD for all TV media (W6,T4)2 Centralize content libraries for creating broadband channels (W6,O10)3 Acquire Univision, Inc. (W3,T6)4 Invest or acquire telecommunications company shares (W5,O2)

WT Weakness/Threat Strategies Coordinates1 Enhance the no. of original programming hours for MyNetworkTV (W1,T1)2 Establish partnerships with the Teleco's for bundled services (W5,T8)3 Invest in more cable channels since DTV drives viewers to cable (W4,T3)4 Penetrate FOX News Channel to African & Middle East (W2,T7)

According to TOWS, strength/opportunity (S/O) strategies are the most common in formulating strategy.

In this case, three of the S/O strategies repeat in other components of the TOWS matrix. For example,

establishing partnerships with the telecommunications companies who are entering the bundled service

business threatens DBS’s and DIRECTV’s existing subscriber-base, at the same time; bundling service

PART VII – STRATEGY FORMULATION


capability is a weakness for DIRECTV. Why this is an opportunity for News Corporation as a strategy is

because of their operational control of DIRECTV and the FCC’s restrictions on designated market areas

for wired television networks, such as the telecommunications players, who fall under this category.

Fortunately, for DIRECTV, they cover the entire US market, which the Telco’s will not be able to acquire

in terms of the regulatory restrictions. Therefore, the S/O strategy to offer bundled services through

alliances also becomes a strategy for W/T and S/T (Refer to Appendix 7 – Table 6E for TOWS Matrix).

Strategies to acquire Univision Inc. and centralizing content libraries also repeat in the TOWS matching

matrix.

Internal/External (IE) Matrix

Internal-External (IE) Matrix is a portfolio matrix based on two key dimensions: weighted scores of

Internal Factor Evaluation (IFE) and External Factor Evaluation (EFE). The bubbles on the matrix are

placed using the total weighted scores derived from each SBU’s EFE and IFE matrices (See Appendix 7 –

Tables 6A, 6B, and 6C).

The Television Broadcasting has an IFE total weighted score of 3.07, which, according to I /E matrix,

indicates a strong internal position. However, both Cable Networks and DBS have total IFE weighted

scores of 2.65 and 2.70, which represent a weaker internal position. Similarly, the total EFE scores for

Television Broadcasting, Cable Networks and DBS are 2.84, 2.05 and 1.15 respectively - showing their

individual response to external factors. In this case, Fox Broadcasting Company (FBC) and Fox Cable

Networks’ (FCN) capabilities in responding to the external environment, fall within the medium category,

while the DBS operation’s response is in the lower region. In the I/E Matrix (Figure 7.1) the size of the

circle represents the percentage revenue contribution of each SBU and pie slices reveal the percentage of

profit contribution from each SBU to the television segment total of the Company.

The Broadcasting SBU contributes the highest revenues and profits with 52% and 55% respectively.

Lowest contribution of revenue and profits come from DBS (Cable & Satellite TV Distribution industry)

with 22% and -1% respectively. As per the I/E Matrix, respective generic strategies for each SBU is as

follows:

� Television Broadcasting falls in Quadrant IV, where the prescription is to develop Grow and Build

strategies, which include: (1) intensive strategy - market penetration, market development, and

product development and (2) integrative strategy - backward, forward and horizontal integration.

� Cable Networks fall in the Quadrant V, thus, it is best managed with Hold and Ma inta in

strategies. which include: Market penetration, Product development


� Direct Broadcast Satellite falls in Quadrant VIII and the strategy options for firms in this quadrant

are to either Harvest or Divest 47

The I/E Matrix is a portfolio model that helps validate the Company’s existing strategies or those derived

from the TOWS Matrix. Therefore, the specific fit for the above generic strategies will be evaluated in the

final decision stage, which will be crucial in building recommendations.

Boston Consulting Group (BCG) Matrix

Boston Consulting Group (BCG) Matrix is helpful in evaluating the performance of each Strategic Business

Unit (SBU) individually to formulating strategy options that fits each SBU.48 Two of News Corporation’s

three SBUs in the broadcasting sector, namely Cable Networks, and Direct Broadcasting Satellite (DBS)

fall as ‘Question Marks’ according to this matrix. However, Television-Broadcasting unit is considered a

‘Star’ due to its market share relative to Viacom/CBS’s revenue in the same segment. The 39% market

share of FOX Cable Network was relative to Time Warner’s revenue for the same segment, while Comcast

was the market leader for Direct Broadcast Satellite of the Company.

According the BCG Matrix, ‘Star’ represents the organization’s best long run opportunities for growth and

profitability. Therefore, FOX Broadcasting Corporation (FBC), which operates the Television Broadcasting

segment of News Corporation, should receive substantial investments to maintain or strengthen their

existing position. FBC contributes 52% in revenue for the television business and 22% to the entire

company. Recommended generic strategy options for Stars are as follows:

Harvest or Divest

1.0

IFE TOTAL WEIGHTED SCORE

EFE

TOTA

L W

EIG

HTE

D S

CO

RE

1.0

Grow & Build Hold & Maintain

Hig

hM

edLo

w

3.0

2.0

Strong Average3.0 2.0

Weak

IXVIIIVII

VIV

I II III

IV20%

32%

-1%

Broadcasting

Cable Networks


Figure 7.1 – IE Matrix DBS = Harvest or Divest Cable Networks = Hold & Maintain Broadcasting = Grow & Build


� Forward, backward, and horizontal integration

� Market penetration, market development and product development

� Joint ventures49

Both Cable Networks and DBS are ‘Question Marks’ with low relative market share and yet compete in a

high-growth sector of the industry. Generally, ‘Question Marks’ require high investments but their cash

generation is high. Since these two SBU’s are questionable, the firm must decide whether to strengthen

them by pursuing an intensive strategy (market penetration/development, or product development) or to

sell the units in terms of generic strategies suggested by the Boston Consulting Group. However, these

two investments are significant growth drivers and compliment the Company due to their synergies in

media. Therefore, the more appropriate of the two generic strategies to consider, as an option, is an

intensive strategy.

The Grand Strategy Matrix

The Grand Strategy (GS) Matrix is yet another popular tool for formulating strategic options, at the same

time, help validate those derived from the TOWS matrix. The GS matrix is based on two evaluative

dimensions: competitive position and market growth.50 News Corporation, as shown in its GS Matrix

(F igure 7.3), is located in Quadrant I, since the Company has a strong competitive position and the

Figure 7.2 – BCG Matrix Cable & Satellite = ??? Cable Networks = ??? Broadcasting = Stars

+20%High

0%

Medium

Low-20%

Low HighMedium

RELATIVE MARKET SHARE

MA

RK

ET G

RO

WTH

RA

TE (

%)

Question Marks Stars

Dogs

0.0 0.5 1.0

Cash Cows

20%

32%-1%

Broadcasting

Cable Networks



industry is experiencing rapid market growth rates of 12.3% for Cable Networks, 11.6 for Cable and

Satellite Distribution, and 5.8% for Television Broadcasting with an overall growth of 9.8%. News

Corporation is in an excellent strategic position due to its placement in the GS Matrix.

Therefore, should follow the generic strategies relevant to the first quadrant. More specifically:

� Continued concentration on current markets (market penetration, development)

� Continued concentration on product development

� When firms have excessive resources; backward, forward or horizontal integration is effective

� If the firm is too heavily committed to a single product or service, then concentric

diversification may reduce the risks associated with a narrow product line.

� The firms can afford to take advantage of external opportunities in several areas. They can

also take aggressive risks whenever necessary.51

Diversification

News Corporation is already a fully diversified media company, with established businesses in all

segments of media. As per the degree of diversification, News Corporation operates in both related and

unrelated industries within the information sector, thereby adopting a broad diversification strategy for

the sector. The Company’s related businesses in television are the three Strategic Business Units under

study, which are well complimented with their biggest revenue generator - Filmed Entertainment.

Rapid Market Growth

Strong Competitive Position

Slow Market Growth

Weak Competitive

Position

Quadrant I

1. Market development 2. Market penetration 3. Product development 4. Forward integration 5. Backward integration 6. Horizontal integration 7. Concentric diversification

Quadrant II

Quadrant III Quadrant IV

Figure 7.3 Grand Strategy Matrix News Corporation falls into Quadrant I. Highlighted are the generic strategies for Quadrant I.


Figure 7.4 – GE Matrix

As mentioned previously, News Corporation is the only company to operate in all three distribution

platforms on a larger scale in the US. ‘Fox Interactive Media’ (FIM), which was formed primarily as a key

diversification strategy to exploit the growth in the Internet as well as a horizontal synergy fit for their

existing media assets.

Table 7.3 – Generic Strategies for the GE Matrix

BUILD SELECTIVELY INVEST TO BUILD PROTECT POSITION

A. Specialize around strengths. A. Reinforce areas of vulnerability.

A. Invest to grow at maximum digestible rate.

B. Seek ways to overcome weaknesses.

B. Build selectively on strengths. B. Concentrate effort on maintaining strength.

C. Withdraw if no indications of sustainable growth.

C. Challenge for leadership.

LIMITED EXPANSION OR HARVEST

SELECTIVITY/MANAGE FOR EARNINGS BUILD SELECTIVELY

A. A. Protect existing program. A.B.

B.

DIVEST MANAGE FOR EARNINGS PROTECT & REFOCUS

A. Sell at time that maximizes cash value

A. Protect position in most profitable segments

A. Maximize current earnings.

B.B. B. Minimize investment

C. Defend strengths.

Look for ways to expand without high risk; else, minimize investment and rationalize operations.

Concentrate investments in segments where profit is good and risks are low.

Cut fixed costs and avoid investment

Concentrate on attractive segments.

Invest heavily in most attractive segments.Build up ability to counter competition.

FIM’s online assets generate the second highest traffic next to Yahoo within the US, which is a significant

achievement that resulted by drawing a single check for $580 million. All SBU’s of the Company fits well

-

3.3

6.7

10.0

- 3.3 6.7 10.0

Competitive Strength / Market Position

Indu

stry

Att

ract

iven

ess Television Broadcast

Motion Pictures

Cable Networks

Broadcast Satellite

Newspaper

Magazines

Books


horizontally across all its value chains to benefit from costs advantages arising from centralized resource

capabilities. General Electric (GE) Matrix, a matrix built to improve on the limitations of the BCG Matrix,

is used as an effective measure of the Company’s future strategic direction in terms of diversification and

managing resources (See Figure 7.4 above).

Based on the calculations (See Appendix 7 – Table 6D), the GE Matrix places the Company’s Filmed

Entertainment unit in the highest position in terms of industry attractiveness and the corresponding

market position. On the other hand, the television SBUs are placed in a mixture of quadrants above the

average positions with respect to their competitive strengths and the attractiveness of the industries they

operate. Specifically, the generic strategies for each of the SBUs are derived from Table 7.3 above.

The Strategic Position and Action Evaluation (SPACE) Matrix

SPACE matrix is an important matching tool indicating the type of strategic position a company should be

adopting. The representative internal dimensions: Financial Strength (FS) and Competitive Advantage

(CA) and external dimensions: Environmental Stability (ES) and Industry Strength (IS) resulted in

positioning News Corporation in the ‘aggressive’ quadrant (Figure 7.5 below). Refer to Appendix 7 –

Table 6F for SPACE Matrix Calculations.

Accordingly, News Corporation is in an excellent position to utilize its internal strengths:

� To take advantage of external opportunities � To overcome internal weakness � To avoid external threats

Feasible strategy options for the Company being in the Aggressive Quadrant are:

� Market penetration, market development, product development � Backward integration, forward integration, horizontal integration � Conglomerate, concentric, horizontal diversification or a combined strategy

Figure 7.5 – SPACE Matrix The directional vectors for News Corp.’s derived from Environment Stability = -3.0 Industry Strength = 4.5 Competitive Advantage = -1.8 Financial Strength = 5.0

Financial Strength

Industry Strength

Environmental Stability

Competitive Advantage

COMPETITIVE DEFENSIVE

CONSERVATIVE AGGRESSIVE

(2.7, 2.0)


Industry Life Cycle Fit

Broadcasting industry, characterized heavily by rapid technological change, has frequent moves by

competitors and rapidly revolving customer requirements and expectations are all occurring at once.52

Therefore, News Corporation operates in a turbulent, high-velocity market and the central strategy

making is managing change. The Company can assume any three strategic postures in dealing with high

velocity change.

React to Change: DIRECTV to provide bundle services to compete with Comcast, Echostar, and TW Cable

Anticipating Change: Launch of MyNetworkTV to compete with the anticipated launch of CW network

Leading Change: News Corporation is the first to initiate a strategic move to concentrate and allocate its

resources heavily on Internet portals such as Myspace.com and Scout.com, which gave them a large and

growing ready-made customer base to sell broadcast content online. The Company was also the first

media firm to launch a dedicated mobile video content website (Mobizzo.com) providing access to any

customer on any mobile network throughout the world.

News Corporation is in a leading position in the industry with a market share of 6.3%, where the actual

market leader’s share is 10.2%. The main strategic concern for News Corporation revolves around how to

defend and strengthen its current position, perhaps becoming the dominant leader as opposed to just a

leader. Therefore, the strategy postures for News Corporation are to: (1) stay on an offensive strategy,

(2) fortify and defend strategy, and (3) muscle flexing strategy.

The TOWS strategies, developed in PART VII above, are further summarized to develop a set of distinctive

strategies for the final quantitative evaluation process. The summarized strategies are provided with

alternatives to ensure that all possible means are explored. For example, in order to take advantage of the

growing Spanish population and their spending, the TOWS strategy suggests that News Corporation should

expand externally by acquiring Univision Communication; however, the same goal could be achieved by

developing and aggregating content internally. Therefore, the Quantitative Strategic Planning Matrix (QSPM)

not only helps eliminate such mutually exclusive strategic options, but also helps rank the selected strategies

by matching the Company’s internal and external factor scores (See Appendix 9 – Table A. for QSPM Matrix).

Table 8.1 shows the strategies eliminated (ones not highlighted in bold) from the mutually exclusive sets

based on the resulting scores. The last three strategies numbered 16, 17 and 18 listed in the QSPM were not

mutually exclusive, therefore they are considered as ultimate candidates for the final evaluation process.

PART VIII – QUANTITATIVE ANALYSIS


Since News Corporation has three distinct business segments in the broadcasting industry, specific

strategy alternatives relative to each business segment are also developed from their respective internal

and external factor evaluation matrices.

Table 8.1 – QSPM Results

QSPM Score

1 Acquire Univision Inc 2.872 Produce & acquire content to develop Spanish networks 1.843 Build joint ventures with telecommunications companies 2.694 Diversify by acquiring telecommunications assets 2.605 Increase more exclusive rights for live sports porgramming 2.826 Invest in more major league sporting teams including NHL 3.037 Introduce ad supported DVR content for broadcast and cable TV 2.558 Maximize original programming for both broadcast networks 2.759 Maximize resources to Asiapacific markets 1.8910 Penetrate cable networks to Africa & Middle East 2.1311 Invest in Direct Broadcast Satellite services in Afria & Middle East 1.8612 Develop new cable channels for all demographics 2.6413 Acquire popular cable networks to meet all demographics 2.5914 Continue acquiring popular Internet assets 3.2715 Maximize online content aggregation through partnerships 3.4716 Centralize content libraries & integrate distribution platforms 3.9317 Develop customer education campaigns for analog switch-off 1.1018 Introduce more nuetral global news programming 0.93

Strategy Alternatives


41 News Corp. Website: http://newscorp.com 42 News Corporation, Company Annual Report: 2005. 43 News Corporation, Company Annual Report: 2005. 44 News Corporation, Company Annual Report: 2005. 45 News Corporation, Company Annual Report: 2005. 46 Strategy Analysis & Choice: http://www.csuchico.edu/mgmt/strategy/module 1 47 Strategy Analysis & Choice: http://www.csuchico.edu/mgmt/strategy/module 1 48 Strategy Analysis & Choice: http://www.csuchico.edu/mgmt/strategy/module 1 49 Strategy Analysis & Choice: http://www.csuchico.edu/mgmt/strategy/module 1 50 Strategy Analysis & Choice: http://www.csuchico.edu/mgmt/strategy/module 1 51 Strategy Analysis & Choice: http://www.csuchico.edu/mgmt/strategy/module 1 52 Thompson A., Strickland A. & Gable J. (2005). Crafting and Executive Strategy: The Quest for Competitive. page 206

SECTION THREE

Recommendations

Section 3 – Recommendations 39

This section provides specific recommendations in terms of overall strategic direction for News

Corporation as a whole and specific actions for the three business units - broadcast television, cable

networks and direct broadcast satellite television, based on a comprehensive evaluation of the Company

and the industry. Key findings in the financial results demand only moderate changes to the existing

strategy. However, much of the focus should be directed towards pursuing a “3C” concept that includes

CONSUMER, CONTENT and CONVERGENCE, which together characterize the future success of the

broadcasting industry.

Recommendations for News Corporation

The Company should adopt the following companywide strategic framework:

Primary Strategy

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Complimenting Current Strategies

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Objectives of the primary strategy are to take advantage of the opportunities in technological

trends that include the rapid growth in worldwide broadband access and online video

consumption, availability of bandwidth, content becoming immortal, worldwide convergence of

media platforms and devices, and cost reductions in digital media storage. In terms of

demographic changes, (1) expansions in consumer’s content consumption habits from traditional

SECTION 3- RECOMMENDATIONS


television to time and place shifting devices, and (2) booming Asia pacific markets, are

considered.

Primary benefits expected from this strategy are the costs commonalities and efficiencies that

promote maximizing revenue streams simultaneously at a global level.

Figure 8.1 – Key Concept of the Primary Strategy

The Company should not only centralize their own content produced by their own television,

radio and film studios, but also the content that is externally licensed. Specific content types

should not be limited to television programs and films, but extend to video games, music,

wallpapers, ring tones, stock quotes, polls, weather, etc., and those created by communities and

consumers themselves. A primary content resource center is to be located in the United States

that connects to secondary resource centers throughout the world for localized content in

overseas markets.

In addition to content, the backend consolidation should include centralizing human resources,

legal, and billing resources to deal with licensing, intellectual property law, subscription revenue,

managing piracy and digital content rights. Finally, advertising efforts should also be centralized

to enable packaged sponsorship deals for multiple platforms rather than selling advertising just

for the television. Measuring customer activities to see what, when, how and where they are

consuming or creating content will be key to benefit from a centralized content environment.

Figure 8.2 below graphically illustrates the key concept – ‘build once, sell many,’ which suggests

that the Company should use the centralized backend resources and content to be available for

consumers to share, mix, remix, search and configure through multiple platforms and devices.


Figure 8.2 – Build Once, Sell Many - Key Concept

For example, a popular program, even before being aired on US primetime television, can be

made available in other markets for viewing on their mobile phones, iPods, game consoles and

even on the Internet, securely without being subject to piracy and generate revenue from ‘pay-

per-view,’ through sponsorship, or through a combination of the two. Figure 8.3 illustrates this

example with the popular cartoon series ‘The Family Guy’ being sold in multiple platforms in

multiple marketes.

Figure 8.2 – Example of Build Once, Sell Many Concept

Distributing and retrieving content through multiple platforms and devices

Consumers not only retrieve content, but search, share and create content


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The primary objective of this strategy is to take advantage of the growing Hispanic population

and the increase in their disposable income, and the fact that Univision is now sold to a

consortium of investors whom News Corporation had previously opened discussions. In addition

to opportunities in Hsipanic demographics, acquiring Univision will benefit the Company due to

their number one rating in Spanish programming with 90% of the top rated programs. Univision

also operates in 27 markets in the US with 37 of their own television stations with a total revenue

of $1.3 billion as at 2005. The strategy will also increase the potential to enhance the market

presense in Latin America and Europe with Spanish programs.

Rationale for Companywide Strategy Selection

Articulation of the companywide strategies is derived from the overall assessment of the Company’s

portfolio models. The assessment considers, the generic strategies suggested by the resulting placement

of the Company in each of the matrices, strategy options suggested for the appropriate stage in the

industry life cycle, and the strategic fit for the industry’s key success factors.

Table 8.1 shows how the selected strategies fit the overall position. The quantitative strategic planning

matrix (QSPM) score ranks the first four as primary options. Each of these four strategies corresponds to

the Company’s three business segments. The portfolio models further validate these strategies. For

example, the SPACE Matrix and the Grand Strategy Matrix suggest that the Company adopt aggressive

strategies. In this case, horizontal integration, diversification, product development, market development

and market penetration are generic strategies that correspond to the first eight strategies in table 8.1.

Similarly, the turbulent stage of the product life cycle fits a leader like News Corporation to assume an

offensive strategy. Finally, the first eight strategies are appropriate fits for the industry’s key success

factors. However, the multiple check marks [x] in the ‘success factors’ column in table 8.1 mean that the

QSPM strategies are not only appropriate fits, but the Company can benefit more from adopting them

because they help overcome the gaps in the required future capabilities. Therefore, the first four


strategies were used to develop the above recommendations as each fit all three business units, portfolio

models and most importantly the key success factors. In addition, the second and third strategies

correspond well to the Company’s existing strategy.

Table 8.1 – Strategy Selection Summary for Companywide Strategy

Recommendations for Strategic Business Units

In addition to the Companywide strategies, specific strategies are articulated for the three business

segments; FOX Broadcasting Company, FOX Cable Networks and Direct Broadcast Satellite Television.

FOX Broadcasting Company (FBC) – Primary Strategy oo EEnnhhaannccee tthhee nnuummbbeerr ooff oorriiggiinnaall pprrooggrraammmmiinngg hhoouurrss ppeerr wweeeekk ffoorr bbootthh ‘‘FFOOXX’’ aanndd ‘‘MMYY

NNeettwwoorrkk TTVV..’’

Complimenting Strategy oo DDeevveelloopp pprrooggrraammss tthhaatt aallssoo ccaatteerr ttoo tthhee ‘‘ffiiffttyy pplluuss’’ ddeemmooggrraapphhiicc ggrroouuppss..

This strategy is developed to manage the weaknesses that the Company currently has in

competing with ABC, CBS and NBC whom already air 22 hours of original primetime programming

Broadcast TV

Cable Network DBS SPACE Matrix GS Matrix

Life Cycle Stage

Success Factors

1 (3.93) Centralizing content libraries & integrate distribution platforms

X X X Horizontal integration

Horizontal integration

X X

2 (3.47) Maximize online content aggregation through partnerships

X X X Diversification Diversification X X

3 (3.03) Invest in more major league sporting teams including NHL

X X X Product Development

Product Development

X X

4 (2.87) Acquire Univision Inc X X X Market Dev. & Penetration

Market Dev. & Penetration

X X X

5 (2.75) Maximize the number of original programming hours per week

X Product Development

Product Development

X X X

6 (2.69) Build joint ventures with existing telecommunications companies

X Diversification Diversification X X X X

7 (2.64) Develop new cable channels for all demographic groups

X Market Development

Market Development

X X X

8 (2.13) Penetrate cable networks to Africa & Middle East

X Market Penetration

Market Penetration

X X

9 (1.10) Develop customer education campaigns for analog switch-off

X

10 (0.93) Introduce more nuetral global news programming

X

Strategy AlternativesQSPM Rank/

(Score)

Business Unit Fit Portfolio Model Fit


per week. FOX only schedules 15 hours of original primetime programs, while the new broadcast

channel, ‘MyNetworkTV’ expected to launch in September 2006, starts only with 12 hours of

original primetime programming per week. A boost in the number of hours to match the

competition could bring the Company’s broadcast television revenue much closer to the leader’s

revenue, since advertising CPM (cost per thousand) is the highest during primetime (See

Appendix 9 -Figure B. for Broadcast TV- Expected Future Strategic Position, 2010). Furthermore,

the increase in the number of hours to MyNetworkTV will enable FOX Broadcasting Company to

compete strongly with the new network, ‘The CW,’ launched by CBS and Time Warner with their

combined assets of UPN (United Paramount Network) and The WB network. Finally, the

complimenting strategy takes advantage of the retiring baby boomers market. FOX currently

holds the number one position in the 18-49 age groups, while CBS is the number one network for

34-54 age groups.

FOX Cable Network (FCN) - Primary Strategy

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Secondary Strategy

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ppeenneettrraattee sseelleecctt MMiiddddllee EEaasstteerrnn mmaarrkkeettss iinn tthhee lloonnggeerr tteerrmm..

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FOX Cable Network currently program news, sports, general entertainment, lifestyle and

educational content and only carries 15 cable channels, while close rivals such as Time Warner

and Viacom not only provide wide variety of programs but they also own the highest number of

cable channels (25 and 30 respectively). In addition to content variety in the United States, Time

Warner and Viacom are in every global market including Africa and the Middle East. Therefore,

FOX Cable Network (FCN) could take advantage of this weakness by penetrating those markets.

Therefore, FCN should penetrate the African markets, initially with FOX Sports and FOX News.

Subsequently, penetrate select Middle Eastern markets where American media is accepted. FOX

Cable Network should neutralize its global news content to avoid criticisms of being biased.


Direct Broadcast Satellite Television (DBS) - Primary Strategy oo BBuuiilldd ppaarrttnneerrsshhiippss wwiitthh tteelleeccoommmmuunniiccaattiioonnss ccoommppaanniieess ttoo ooffffeerr bbuunnddlleedd sseerrvviicceess..

News Corporation’s satellite assets such as British Sky Broadcasting, Sky Italia and DIRECTV face

strong competition from cable operators that offer high-speed internet and telephone services to

attract more revenue per user as well as subscribers in general, which News Corporation is unable to

offer. In addition to the weakness in satellite technology for such services, the emerging threat

comes from the telecommunications companies throughout the US and Europe, with IPTV

technologies capable of providing high bandwidth for video, voice, and data services. Therefore, the

Company should develop partnerships with those who are already entering the television market or

with other national voice carriers for offering bundled services to increase growth in subscribers in a

saturating market (See Appendix 9 – F igure C. for Cable & Satellite - Expected Future Strategic Position –

2010) .

Rationale for Segment-Level Strategy

A segment level final assessment was necessary to validate the strategies derived from the overall firm-

level strategy assessment demonstrated in table 8.1. In the overall assessment, strategies placed in the

fifth, sixth, seventh and eight positions along with alternatives developed from the segment level TOWS

matrices were further examined by applying a portfolio model fit assessment.

Table 8.2 – Strategy Selection Summary for Segment-Level Strategy

Recommendations for Financing

Financing the selected strategies would require sufficient capital; therefore, it is important to explore the

options available to the Company to fund the operations.

SBU - Strategy AlternativesQSPM Rank I/E MATRIX

BCG MATRIX

G/E Matrix

Key Success Factor

Broadcast Television Grow & Build Star Selective BuildEnhance sporting brands & distribution rights 1 Product Dev. Product Dev. X XEnhance number of original programming hours 2 Product Dev. Product Dev. X X XDevelop content for 50+ age group for FOX 3 Market Dev. Market Dev. X X XCreate and distribute ad supported DVR content 4 Product Dev. Product Dev. X

Cable Networks Hold & Maintain Question Marks Invest to BuildInvest in channels catering to all tastes & groups 1 Product Dev. Product Dev. X X X XPenetrate cable channels to Africa & Middle East 2 Market Pen. Market Pen. X XInvest in cable & satellite in Asiapacific region 3 Product Dev. Product Dev. X XEnhance local distribution deals overseas 4 Market Dev. Market Dev. X

Direct Broadcast Satellite Harvest/ Divest Question MarksManage for

EarningsEstablish partnerships for data and voice 1 Joint Ventures X X XMaximize exclusive Video on Demand content 2 Product Dev. X XPackage mobile and gaming subscription 3 Market Dev. X X X XDevelop capacity for DVR & HDTV capabilities 4 Product Dev. X X


Table 8.2 above represents the segment level final assessment, which lists four sets of strategic

alternatives arising from the TOWS matrix. The QSPM ranks the strategies in order of importance

relevant to the QSPM scores. The generic strategies identified from the various matrices and the Key

Success Factors help determine the necessary strategies for each of the business segments. The

recommended primary, secondary and complimentary strategies are derived from the options highlighted

in blue in table 8.2.

Financing Strategy

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sshhaarreess aanndd uussee ooff bbaallaannccee sshheeeett ccaasshh..

News Corporation is a financially strong company capable of funding most of its strategy; however,

acquiring Univision Communications would require additional funding. Therefore, four financing

options, including opportunities to divest any units not operating directly within the broadcasting

industry are summarized in Table 8.3. “Magazines” and “Other” segments generate less revenue than

Univision; therefore, can be identified as suitable units to divest. However, the Magazine business

provides the highest percentage in operating income and the industry is still growing rapidly with

strong future profit opportunities and horizontal synergies amongst other business units. Whereas,

the “Other” category of businesses include the Company’s Internet assets, digital media security

assets (NDS Group s.a. – a company that provides conditional access for pay television systems),

National Rugby League (in Australia) and many other broadcasting and entertainment related

businesses. In addition to financial aspects, none of the business units fall into the ‘divest quadrant’

of the G.E. Matrix. Therefore, divesting any existing business units is not recommended. Instead, a

combination of debt, equity and cash strategy is recommended because of the strong financial

position. For example, the Company can relax the current 34% debt financed position since it is

considerably lower than the industry average (68%), and the Company has $6.4 billion in cash in the

balance sheet with a stock performance that has recently been outperforming the market index.

Table 8.3 – Divesting Options

Business Segment Revenue

ContributionOperating

MarginFuture Profits

Industry 5-Yr. CAGR

G.E. Matrix Future Synergies

Magazines 4.5% 28.5% Very Strong 10.1% Invest to Build Strong

Filmed Entertainment 24.8% 18.7% Very Strong 4.5% Protect Position Very Strong

Book 5.6% 12.8% Strong 5.6%Manage for

EarningsWeak

Other 4.7% -9.1% N/A N/A N/A Very Strong

Newspaper 17.1% 23.5% Very Strong -1.6%Manage for

Earnings Strong

APPENDICES

APPENDIX 1 ..

Table A. Information Industries - Establishments, Staff, Revenue, and Growth

(1) Establishments include the number of physical locations owned and operated by firms. Data as at March 2001 (2) Paid employee count is as of March 2001

Sources: Econom ic Census 2002, QSS – Census 2006

Table B. TV Penetration in the US Table C. Subscription TV Penetration in US Households

Year Total US Households

TV Households

% With TV

1985 86,530 84,900 98.11986 87,590 85,900 98.11987 89,130 87,400 98.11988 90,270 88,600 98.11989 92,030 90,400 98.21990 93,760 92,100 98.21991 94,800 93,100 98.21992* 93,680 92,100 98.31993 94,710 93,100 98.31994 95,860 94,200 98.31995 97,060 95,400 98.31996 97,540 95,900 98.31997 98,610 97,000 98.41998 99,680 98,000 98.31999 101,240 99,400 98.22000 102,680 100,800 98.22001 104,080 102,200 98.22002 107,400 105,500 98.22003 108,620 106,700 98.22004 110,420 108,400 98.22005 111,630 109,600 98.22006 112,260 110,200 98.2

1980 to date as of Jan. of ca lendar year.

*Reflects adjustments to conform to the 1990 census.

Source: Nie lsen Media Research.

Total TV HHConnected

1995 63.4% 0.8% 3.5% 67.7%1996 65.3% 2.1% 3.8% 71.2%1997 66.5% 3.9% 3.8% 74.2%1998 67.2% 5.9% 3.4% 76.5%1999 67.5% 6.9% 2.4% 76.8%2000 68.0% 9.2% 2.4% 79.6%2001 68.0% 12.4% 1.7% 82.1%2002 69.4% 15.1% 1.4% 85.9%2003 69.8% 17.3% 1.1% 88.2%2004 68.1% 18.6% 0.8% 87.5%2005 67.5% 20.2% 0.8% 88.5%

Note: Cable HH data is based on Wired Cable Homes onlyADS - Alternate Delivery SystemsOther - Big Dish Satellite, MMDS, SMATV

Source : Nie lsen Media Research

Year DBS Other Cable

51 Information Sector 137,293 3,754 991,506 3.1%511 Publishing industries 32,111 1,100 276,360 3.7%512 Motion picture & sound recording industries 22,782 297 84,174 4.5%513 Broadcasting and telecommunications 59,675 1,777 530,912 2.4%5131 Radio and television broadcasting 9,234 269 64,437 4.3%51311 Radio broadcasting 7,297 142 18,377 4.3%51312 Television broadcasting 1,937 126 46,060 4.4%5132 Cable networks and program distribution 6,692 245 116,219 11.3%51321 Cable networks 887 41 34,656 10.8%51322 Cable and other program distribution 5,805 204 81,563 11.6%5133 Telecommunications 43,749 1,262 364,639 1.0%51331 Wired telecommunication carriers 27,509 905 202,545 -5.2%51332 Wireless telecommunications carriers 11,610 256 142,997 17.4%51333 Telecommunications resellers 2,475 59 9,972 2.3%51334 Satellite telecommunications 737 21 9,125 2.2%514 Information services & data processing services 22,725 579 100,060 5.2%

5-Year CAGR

Establish-ments1

Paid Staff (000)2

2005 ($ million)

NAICS Code Sub-Sectors

Table D. Sample - Designated Market Areas (DMA) for US Households

UE – Universe Estimates Source: Nielsen Media Research – February 2005

Table E. Commercial Television Stations

Table F. Cable Channels Distributed by the Top 5 Cable Networks

VHF UHF Total1985 520 363 8831990 547 545 1,0921995 562 599 1,1612000 564 684 1,2482001 571 731 1,3022002 571 732 1,3032003 586 755 1,3412004 591 770 1,3612005 594 781 1,375

Source: Te lev ision & Cable Fact Book (www. tvb.org)

News Corp Time Warner Disney NBC Universal Viacom/CBSSpeed Channel HBO ESPN Bravo BETFuel TV HBO Signature ESPN2 CNBC Comedy CentralFox Collge Sports HBO Family ESPN Classic MSNBC CMTFox Movie Channel HBO Comedy ESPNWS Mun2 IFILMFox News HBO Zone Disney Channel NBC LogoFox Soccer Channel Cinemax Toon Disney NBC News MTVFox Sports International MoreMax SOAPnet NBC Olympics MTV2Fox Reality ActionMax ABC Family NBC Sports MTVUFX ThrillerMax JETIX Sci Fi NeopetsNational Geographic 5StarMax A&E Telemundo Nick@Nite

Wmax The History Channel Trio NogginOuterMax The Biography Channel SpikeBoomerang History International TV LandCartoon Network A&E International VH1CNN Lifetime TelevisionCNN Headline News Lifetime Movie NetworksTBS Lifetime Real WomenTNT E! EntertainmnetTCM Classic StyleTurner Classic Movies Sources: Company Annual Reports, Websites

Figure A. Industry Value Chain

Figure B. Global Markets & Key Players

Figure 1.2 Motion pictures go through a number of segments and markets in the value chain. Top media companies participate in most of them.

APPENDIX 2 ..

Figure A – TV is the most Persuasive and Influential Media for Advertisers

Source: Veronis Suhler Stevenson, July 2005, www .tvb.org Figure B – Annual Media Usage per Person Figure B – Annual Media Usage per Person Personal Video Recorders (PVR) included in TV. *Age 12+, all others 18+

Source: Veronis Suhler Stevenson, July 2005. www .tvb.org

APPENDIX 3 ..

Table A - Regional Bell Operating Companies’ Fiber Deployment Strategies

Company Connection Type Bandwidth Target Home Passes

Verizon Fiber to the Premise 50 Mbps 3 million homes in '05; 12-15 million by 2009

SBS Fiber to the Node 20-25 Mbps 5 million homes in '05; 18 million by mid-2008

BellSouth Fiber to the Curb 20-25 Mbps2.6 million homes in '05; 150,000-200,000 adds per year (ADSL2+)

Source: Standard & Poor’s – Broadcasting , Cable & Satellite Industry Survey Report. Dec 2005

Figure A – Forces Driving Lifestyle Media

New Sources of Content

New ways to find Content

New ways to Interact with

Content

New Distribution Channels

Lifestyle Media

Figure B – US Deal Volume by Sectors - 2005

Source: PriceWaterhouse

Coopers. Entertainment &

Media Publications

Source: PriceWaterhouse

Coopers. Entertainment &

Media Publications

APPENDIX 4 ..

Table A – Broadcast TV Primetime Ratings 2005-2006

Rank / Series Network Viewers (million)

Rating / Share

1. American Idol (Tuesday) Fox 31.2 12.9/32 (1)

2. American Idol (Wednesday) Fox 30.2 12.3/30 (2)

3. CSI: Crime Scene Investigation CBS 25.2 8.3/21 (5)

4. Desperate Housewives ABC 22.2 9.3/20 (3)

5. Grey's Anatomy ABC 19.9 8.9/21 (4)

6. Without a Trace CBS 18.7 5.8/15 (14)

7. Dancing With the Stars (Thursday) ABC 18.6 5.0/13 (17)

8. Survivor: Guatemala CBS 18.3 6.5/18 (7)

9. CSI: Miami CBS 18.1 6.0/15 (10)

10. House Fox 17.3 6.8/16 (6)

11. Survivor: Panama - Exile Island CBS 16.8 5.9/17 (12)

12. Monday Night Football ABC 16 6.2/17 (9)

13. Deal or No Deal (Monday) NBC 15.8 5.0/13 (17)

14. The Unit CBS 15.5 4.3/10 (26)

14. Lost ABC 15.5 6.4/15 (8)

16. NCIS CBS 15.3 3.6/10 (43)

17. Two and a Half Men CBS 15.1 5.0/12 (17)

18. Dancing With the Stars (Friday) ABC 14.8 3.7/11 (39)

19. Extreme Makeover: Home Edition ABC 14.7 5.9/14 (12)

20. Cold Case CBS 14.5 3.6/8 (43)

21. Deal or No Deal (Wednesday) NBC 14.4 4.6/13 (24)

22. CSI: NY CBS 14.2 4.7/12 (23)

23. Unanimous Fox 13.8 6.0/14 (10)

23. 24 Fox 13.8 5.7/13 (15)

23. Law & Order: SVU Fox 13.8 5.0/13 (17)

26. 60 Minutes NBC 13.6 3.1/8 (64)

27. Criminal Minds CBS 12.8 3.8/9 (37)

28. Commander in Chief ABC 12.7 3.4/8 (53)

29. The New Adventures of Old Christine CBS 12.5 4.1/9 (30)

30. ER NBC 12.3 5.3/14 (16)

31. Numbers CBS 11.7 3.3/10 (56)

32. Out of Practice CBS 11.6 3.8/9 (37)

32. Deal or No Deal (Friday) NBC 11.6 3.5/12 (48)

34. Skating With Celebrities Fox 11.4 4.1/10 (30)

35. Courting Alex CBS 11.2 3.7/8 (39)

35. Law & Order NBC 11.2 3.5/9 (48)

Source: Nielsen Media Research

APPENDIX 5 ..

Table A – Competitor Positioning to Key Success Factors

Source: Writer

Table B – Competitor Positioning to Industry Attractiveness

Source: Writer

Table C – CPM and EFE Calculations

Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score

Consumer Knowledge & Ownership 0.15 3 0.45 3 0.45 4 0.6 4 0.6 4 0.6 3 0.45 5 0.75 4 0.6 2 0.3Content Ownership & Ratings 0.25 3 0.75 3 0.75 4 1 4 1 4 1 3 0.75 3 0.75 2 0.5 2 0.5Value Chain Participation 0.25 4 1 2 0.5 4 1 5 1.25 4 1 4 1 3 0.75 3 0.75 3 0.75Flexibility to Technological Change 0.20 3 0.6 3 0.6 4 0.8 4 0.8 3 0.6 5 1 2 0.4 2 0.4 4 0.8Financial Strength 0.15 2 0.3 4 0.6 3 0.45 4 0.6 3 0.45 2 0.3 2 0.3 1 0.15 2 0.3

OVERALL SCORES 1.00 3.10 2.90 3.85 4.25 3.65 3.5 2.95 2.4 2.65

Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score Rate Score

OpportunitiesAvailability of bandwidth 0.10 2 0.2 3 0.3 3 0.3 3 0.3 4 0.4 4 0.4 1 0.1 1 0.1 3 0.3Online content consumption growth 0.05 3 0.15 3 0.15 4 0.2 3 0.15 4 0.2 2 0.1 1 0.05 1 0.05 2 0.1Consumers shifting to Lifestyle Media 0.10 2 0.2 3 0.3 3 0.3 2 0.2 3 0.3 2 0.2 1 0.1 1 0.1 1 0.1Innovative devices & revenue streams 0.15 2 0.3 2 0.3 3 0.45 3 0.45 3 0.45 3 0.45 3 0.45 2 0.3 2 0.3Content immortality 0.15 4 0.6 3 0.45 4 0.6 3 0.45 4 0.6 3 0.45 2 0.3 2 0.3 2 0.3ThreatsHigh growth in Internet ad spending 0.10 3 0.3 3 0.3 4 0.4 4 0.4 4 0.4 3 0.3 5 0.5 4 0.4 2 0.2Early DTV Bill by FCC 0.15 2 0.3 2 0.3 2 0.3 2 0.3 2 0.3 2 0.3 4 0.6 4 0.6 2 0.3Disruptive use of DVR 0.05 2 0.1 2 0.1 2 0.1 2 0.1 2 0.1 4 0.2 4 0.2 4 0.2 4 0.2Risk of digital content piracy 0.05 3 0.15 3 0.15 4 0.2 4 0.2 3 0.15 4 0.2 2 0.1 2 0.1 4 0.2IP transformation eating revenue 0.10 3 0.3 3 0.3 3 0.3 3 0.3 3 0.3 2 0.2 1 0.1 1 0.1 1 0.1

OVERALL SCORES 1.00 2.60 2.65 3.15 2.85 3.20 2.80 2.50 2.25 2.10

Comcast Direct TV EchoStar Cox

EchoStar Cox

EXTERNAL FACTOR EVALUATION MATRIX

INDUSTRY ATTRACTIVENESS Wieght News Corp NBC Disney Warner Viacom

COMPETITIVE PROFILE MATRIX

KEY SUCCESS FACTORS Wieght News Corp NBC Disney Warner Viacom Comcast Direct TV

Table D – Next Moves by Rivals

Rivals Strategic Moves by Rivals Industry Impact & Response

ABC began streaming episodes of hit shows at ABC.com in May 2006. Since then, the site has drawn 8.03 million users and the hit series "Desperate Housewives" had been viewed over 11 million times during month of May.

We will see in the near future many more rivals in this industry fiercely competing for the time of Internet users for downloads of content.

Apple unveiled its Video ipod in October 2005, since then video has been sold along with songs, including ABC and Disney Channels shows.

In the near future, with the unveiling of Video ipod, we will see intense competition among all broadcasting networks to sell their content via ipod technology.

Robert A. Iger, President and Chief Executive Officer of The Walt Disney Company has announced that Disney has completed its acquisition of renowned computer animation leader Pixar in May 2006.

This will give Disney a competitive advantage over its competitors in terms of animation and would be difficult for rivals in the industry match.

Disney

Table D – Next Moves by Rivals

Rivals Strategic Moves by Rivals Industry Impact & Response

ViacomComedy Central and VH1 have launched two new mobile applications. Comedy Central’s “Take Out” and VH1’s “Pocket VH1” was premiered in May 2006.

This is one of many example of mobile applications launched by rivals in the industry and we will see many more rivals selling content via mobile phones and other portable device in the near future.

Echostar

Echostar has continued to pursue opportunities to bundle Dish Network with the voice and data services of AT&T. AT&T has begun deployment of fiber –optic networks that will allow it to offer video service directly to millions of homes as early as second half of 2006. This agreement will drive increased subscriber growth; as well will discontinue AT &T’s effort to acquire the current subscribers.

Among the strategic moves the rivals in the industry are making, building strategic alliance enable certain rivals in the industry to gain competitive advantage over others. We can also predict the only other satellite Tv provider DircetTv to pursue the same.

DirecTv has announced its agreements with Intel Corporation to enable remote viewing of programming to PC screens, laptops, portable media players and televisions through Intel, later 2006.

This move gives DircetTv a competitive advantage over its rivals.

In May 2006, Fox began offering hits such as "24" for paid downloads on Myspace.com.

Acquiring MySpace gives News corp. a ready made customer base to stream content via internet. We may see in the future rivals trying to copy this move.

DirecTV has announced an agreement with Microsoft to develop new opportunities to expand the reach of digital music, televisions, and movies through the home and to portable devices.

Under the agreement , Direct Tv will work with Microsoft, which will enable the flow of digital content between Windows Pcs, DirecTV set –top receivers, PlayForSure devices, and the Xbox 360.

Time Warner

During 2005, the Time Warner announced that AOL is expanding its current strategic alliance with Google inc. to enhance its global online advertising partnership and make more of AOL content available to Google users.

This will give Time Warner a competitive advantage over their rivals in terms of video downloads.

Time Warner/CBS

In January 24, 2006, Warner Bros. and CBS Corp. (“ CBS”) announced an agreement in principle to form a new fully –distributed national broadcast networks, to be called CW.

Merger of there two players together will pose a biggest challenge to other Broadcasting networks.

Comcast, In April 2005, we completed a transaction with a group of investors to acquire Metro-Goldwyn-Mayer Inc. (“MGM”).

This transaction contemplates the inclusion of Sony Pictures and MGM programming in Video on Demand (“VOD”) service.

Comcast and Time Warner have announce the acquisition of Adelphia Communications, in a $17.6 billion transaction that is expected to close in the first half of 2006.

This acquisition will strengthen both Comcast's and Time Warner's Cable TV subscriber base.

RBOC

The three of the nation’s largest telecom service operators – Verizen Communications Inc., SBC Communications Inc., and BellSouth Corp. agreed on a common set of technological specifications and standards to deploy fiber-optic connections directly in to homes and businesses.

This move will no doubt create fierce competition among the RBOCs, Cable Tv operators and DBS providers in already saturated market of Pay Tv.

NBC Universal has struck a deal with Apple Itunes Music store to offer several Tv series for download on to video Ipods.

This will give NBC a competitive advantage over its rivals in terms of video Ipod downloads.

NBC has the exclusive licensing of broadcasting Olympic games until 2012.

This is a strengh for NBC

News Corp

Comcast

NBC Universal

APPENDIX 6

Table 1A. Subsidiaries, Investments and Markets

Filmed Entertainment SPEED Channel The Sunday TelegraphUnited States FUEL Herald SunFox Filmed Entertainment Fox Reality Sunday Herald Sun

20th Century Fox Film Corporation National Sports Partners The Courier-MailFox 2000 Pictures National Advertising Partners Sunday Mail (Brisbane)Fox Searchlight Pictures Fox Sports Net Bay Area 40% The AdvertiserFox Music Fox Pan American Sports 38% Sunday Mail (Adelaide)20th Century Fox Home Entertainment National Geographic US 67% The Mercury20th Century Fox Licensing & Merch. National Geographic Intl. 50% Sunday TasmanianBlue Sky Studios Australia The Sunday Times20th Century Fox Television Premier Media Group 50% Northern Territory New sFox Television Studios Sunday Territorian20th Television Direct Broadcast Satellite TV Fiji Regency Television 50% United States The Fiji Times

Asia The DIRECTV Group 34% Sunday TimesBalaji Telef ilms 26% Europe Nai Lalakai

Latin America SKY Italia Shanti DutFox Studios Baja Sky Sport Papua New GuineaCanal Fox Calcio Sky Post-Courier 63%

Sky CinemaTelevision Sky TG 24 Magazines and Inserts

United States British Sky Broadcasting 37% United States and CanadaFOX Broadcasting Company Sky New s New s America Marketing

Fox Television Stations (35)1 Sky Sports In-StoreAsia Sky Travel FSI (SmartSource Magazine)STAR Television Group Sky One SmartSource iGroup

STAR Plus Sky Movies New s Marketing CanadaSTAR Movies Latin America The Weekly StandardSTAR New s Sky Latin America DBS Platforms Gemstar-TV Guide Intl. 41%STAR Mandarin Movies Mexico – Innova 30% AustraliaSTAR World Brazil – Sky Brasil 50% (b) INSIDEoutSTAR Gold Asia donna haySTAR Chinese Channel Space TV (India DBS) 20%ESPN STAR Sports 50% Phoenix Satellite Television 38% Book PublishingChannel [V] (Taiw an) Hathw ay Cable and Datacom 26% United States, Canada, Europe & AustraliaChannel [V] (Thailand) 50% China Netw ork Systems HarperCollins PublishersXing Kong Wei Shi (17 af filiated cable systems)Vijay Television Other

Latin America Newspapers EuropeCine Canal 23% United States NDS 76%Telecine 13% New York Post Broadsystem Ventures

Australia and New Zealand United Kingdom Convoys GroupPremium Movie Partnership 20% The Times Sky Radio 93%

The Sunday Times New s Outdoor Group 75%Cable Netw ork Programming The Sun Balkan New s Corporation

United States New s of the World Australia and New ZealandFOX New s Channel TSL Education FOXTEL 25%Fox Cable Netw orks Australia Sky Netw ork Television Limited 44%

FX More than 110 titles including: National Rugby League 50%Fox Movie Channel The Australian New s InteractiveFox Regional Sports Netw orks (14) The Weekend Australian Festival Mushroom RecordsFox Soccer Channel The Daily Telegraph

Table 2A. Board of Directors – News Corp.

K. Rupert Murdoch Viet DinhChairman and Chief Executive Officer Professor of LawNews Corporation Georgetown University

José María Aznar Rod EddingtonPresident Non-Executive Chairman forFAES - Foundation for Social Studies and Analysis Australia and New ZealandFormer President of Spain JPMorgan

Peter Barnes Andrew S.B. KnightChairman DirectorAnsell Limited Rothschild Investment Trust C.P.

Chase Carey Lachlan MurdochPresident and Chief Executive Officer Illyria Pty LtdThe DIRECTV Group, Inc.

Rod Paige, Ed.D.Peter Chernin ChairmanPresident and Chief Operating Officer Chartwell Education Group, LLCNews Corporation

Thomas J. PerkinsKenneth E. Cowley PartnerChairman Kleiner, Perkins, Caulfield & Byers R.M. Williams Holdings Pty. Limited

Arthur M. SiskindDavid F. DeVoe Senior Advisor to the ChairmanChief Financial Officer News CorporationNews Corporation

John L. ThorntonProfessor of Global LeadershipTsinghua University of Beijing

BOARD OF DIRECTORS

APPENDIX 7

Table 3A. Key Financial Ratios (Comparative Analysis)

KEY RATIOSNew s Corp

Walt Disney

Time Warner

Viacom CBS

GE NBC Industry Sector

Market RatiosP/E Ratio 22.59 22.20 24.78 21.77 18.82 32.40 26.03Beta 1.68 1.25 1.96 1.08 0.83 1.45 1.09Price to Sales ($) 2.47 2.06 1.65 1.44 2.26 2.70 2.79Price to Book ($) 2.14 2.23 1.18 0.95 3.22 2.70 4.23Price to Cash Flow ($) 18.46 13.09 7.91 17.27 12.97 12.61 15.33

DividendsDividend Yield 0.62 0.91 1.19 2.63 3.00 1.46 2.27Dividend Yield - 5 Year Avg. 0.08 0.22 0.02 0.26 0.78 0.46 1.63Payout Ratio 31.41 0.00 22.01 52.66 0.08 22.87

Growth Rates (%)Sales - 1 Yr Grow th 14.70 2.61 3.21 14.82 13.26 5.83 12.12Sales - 5 Yr. Ave. Grow th 8.08 4.75 41.83 -6.22 2.89 22.25 12.96EPS vs. Qtr. 1 Yr. Ago 88.70 18.52 37.15 7.55 15.28 17.96 15.23EPS vs. 1 Yr. Ago 54.53 14.84 -5.99 44.49 12.60 13.58 21.93EPS - 5 Yr. Grow th 16.68 7.27 6.33 0.15 11.97Capital Spending - 5 Yr 13.14 -2.83 33.07 -10.63 0.67 15.53 6.57

Financial StrengthQuick Ratio 1.59 0.95 0.75 1.21 0.84 0.82Current Ratio 1.87 1.02 0.93 1.40 1.10 1.33LT Debt to Equity 39.87 40.54 32.04 32.02 207.44 68.60 77.20Total Debt to Equity 40.07 49.41 32.17 32.10 349.96 72.10 91.60

Profitability Ratios (%)Gross Margin 34.73 13.28 41.30 50.24 20.66 46.17 41.78

Gross Margin - 5 Yr. Avg. 18.13 12.03 39.29 40.41 47.74 40.43 41.51EBITD Margin 21.46 18.86 19.45 -30.76 20.98 18.74 21.69

EBITD - 5 Yr. Avg. 13.47 15.01 29.20 -12.42 21.11 13.64 21.26Operating Margin 18.14 14.57 17.26 -16.16 15.65 9.47 12.98

Oper. Margin - 5 Yr. Avg. 10.38 9.59 -10.63 -16.18 14.97 7.26 11.96Net Prof it Margin 10.92 8.84 7.20 -56.70 12.25 3.38 7.85

NP Margin - 5 Yr. Avg. -4.90 5.93 -18.86 -25.51 11.84 1.55 6.72Effectiveness (%)

Return On Assets 4.86 5.26 2.58 -15.21 2.63 0.96 5.95ROA - 5 Yr. Avg. -2.02 3.37 -5.81 -5.40 2.57 -1.73 5.27

Return On Investment 5.61 6.47 3.03 -16.93 3.61 1.03 8.64ROI - 5 Yr. Avg. -2.53 4.12 -6.74 -6.03 3.63 -1.71 7.58

Return On Equity 9.62 10.33 4.99 -26.30 17.02 4.20 13.98ROE - 5 Yr. Avg. -4.40 6.38 -10.36 -8.21 19.96 -1.02 12.24

EfficiencyRevenue/Employee ($) 560K 243K 496K 456K 484K 473K 601K Net Income/Employee ($) 61K 21K 35K -131K 59K 38K 65K Receivable Turnover 4.98 6.41 8.56 4.44 0.51 11.26 17.71Inventory Turnover 9.04 42.87 12.13 10.96 23.85 17.38Asset Turnover 0.45 0.59 0.36 0.27 0.21 0.43 1.11

Balance Sheet Highlights ($)Cash and Equivalents 6.47B 2.03B 4.22B 1.66M 8.50BTotal Assets 54.7B 53.1B 122.4B 62.1B 673.3BTotal Debt 11.43B 12.82B 34.35B 7.78B 376.17B

Cash Flow Highlights ($)Operating Cash Flow 3.49B 5.32B 4.96B 1.70B 34.23BLevered Free Cash Flow 2.95B 2.90B 4.51B 8.87B 3.92B

Table 3A. Key Financial Ratios (Comparative Analysis)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

CNN

MSNBC

Fox New s

Table 6A. IFE and EFE for Broadcast Television

INTERNAL STRENGTHS Wt. Rate Score

Highest ratings in the 05-06 season for the 18-49 age group 0.10 4 0.40 Exclusive licensing for 80% of NHL, MLB, NBA teams 0.08 4 0.32 35 owned stations with 196 affiliates covering 98% of US 0.08 3 0.24 MySpace generates highest traffic next to Yahoo 0.15 4 0.60 Own TV studios and strong alliances for breakthrough content 0.08 3 0.24 Strong creative talent and diverse industry experience 0.05 3 0.15 Launch of 2nd broadcast network - MyNetwork TV 0.10 4 0.40

2.35

INTERNAL WEAKNESSESLowest prime time programming hours/week (15 vs. 22) 0.10 2 0.20 Lack of HDTV content and broadband channels 0.06 2 0.12 Low upfront advertising sales compared to main rivals 0.10 2 0.20 Weak content focus for the mature adult age groups 0.10 2 0.20

1.00 0.72

OPPORTUNITIESGrowth in Hispanic population and their spending 0.08 2 0.16 Content mobility and immortality 0.05 3 0.15 Growth in mobile and other handheld devices and users 0.10 3 0.30 High growth in Internet content consumption 0.10 4 0.40 High bandwidth availability 0.10 3 0.30 Baby boomers retiring 0.08 2 0.16

1.47 THREATSNew joint venture between WB & CBS to from CW 0.10 4 0.40 FCC enforcing digital TV laws by FCC in 2009 as planned 0.05 3 0.15 Internet growth outpacing all broadcast ad revenue 0.10 2 0.20 Growth in Digital Video Recorder usage 0.10 2 0.20 Consumers shifting towards cable channels 0.09 3 0.27 Risk of digital and Internet content piracy 0.05 3 0.15

1.00 1.37

EFE - BROADCAST TELEVISION

IFE - BROADCAST TELEVISION

Table 6B. IFE and EFE for Cable Networks

IFE - CABLE NETWORKSINTERNAL STRENGTHS Wt Rate Score

87 million US subscribers and 400 million globally 0.15 4 0.60 Exclusive sports licensing from around the world 0.10 4 0.40 Strongest market presence in Australasia and Europe 0.10 3 0.30 FOX News is the most viewed cable news channel 0.10 3 0.30 Ownership or acquired distribution rights to 3,00+ movies 0.10 3 0.30 Online web portals generating the highest traffic next to Yahoo 0.05 3 0.15

2.05

INTERNAL WEAKNESSESLack of market presence in Africa and Middle East 0.15 2 0.30 Limited cable content to suit all market segments 0.10 1 0.10 Lower number of cable channels overall 0.10 1 0.10 Lack of HDTV content or broadband channels 0.05 2 0.10

1.00 0.60

EFE - CABLE NETWORKSOPPORTUNITIESRapid growth in global broadband access 0.10 3 0.30 Customers shifting from broadcast TV to cable TV 0.15 3 0.45 Emerging Asia Pacific and Eastern European markets 0.10 4 0.40 Content mobility and immortality 0.15 3 0.45

1.60 THREATSRisk of content piracy 0.05 3 0.15 Other media giants introducing new cable channels 0.15 2 0.30 Internet growth outpacing all other media in usage & in ad dollars 0.10 3 0.30 Growth in Digital Video Recorder usage 0.05 3 0.15 Changes in global economic and political conditions 0.15 3 0.45

1.00 1.35

Table 6C. IFE and EFE for Cable Networks

IFE - DBS

INTERNAL STRENGTHS Wt Rate Score

34% controlling ownership of Direct TV (DBS leader in US) 0.15 4 0.60 Full integration with cable and broadcast networks 0.10 4 0.40 National coverage in every operated market 0.10 4 0.40 Leader in DBS subscribers in UK and Italy 0.05 3 0.15 Cost effective carriage of video channels 0.10 3 0.30 Strategic alliances with Samsung & Microsoft (Portability and XBox) 0.05 3 0.15 Distribution agreements with consumer electronics retailer 0.05 3 0.15

2.15 INTERNAL WEAKNESSESSatellite technology limitations for bundling services 0.15 1 0.15 Low average revenue per user (ARPU) 0.10 1 0.10 Lack of HDTV program distribution 0.05 2 0.10 High transponder and uplinking expenditure 0.05 2 0.10 Extreme weather conditions deteriorating satellite signals 0.05 2 0.10

1.00 0.55

EFE - DBSOPPORTUNITIESChanges in content consumption habits 0.05 3 0.15 Emerging Asia Pacific and European markets 0.05 3 0.15 Growth in Hispanic population and their spending 0.05 2 0.10 Video, data, voice all converging into single platforms 0.15 1 0.15 Content mobility and immortality 0.05 3 0.15 Digital Video Recorder gaining popularity 0.10 3 0.30

THREATSFCC approving Adelphia acquisition by Comcast & TW cable 0.15 2 0.30 Existing cable operators offering quad-play 0.15 1 0.15 Internet based content attracting the 12-30 age group 0.05 2 0.10 Telecom giants entering video market with IPTV & bundled services 0.15 1 0.15 Must carry and retransmission rights bill by FCC 0.05 3 0.15

1.00 0.85

Table 6D. GE Matrix Calculations

Indu

stry

Att

ract

ive

ne

ss M

eas

ure

Wei

ght

Rat

eSc

ore

Rat

eSc

ore

Rate

Scor

eRa

teSc

ore

Rate

Scor

eR

ate

Scor

eR

ate

Scor

eM

arke

t siz

e an

d pr

ojec

ted

grow

th

0.15

50.

759

1.35

81.

206

0.90

20.

309

1.35

60.

90In

tens

ity o

f com

petit

ion

0.25

51.

256

1.50

41.

008

2.00

41.

007

1.75

61.

50Em

ergi

ng o

ppor

tuni

ties

and

thre

ats

0.10

30.

306

0.60

60.

608

0.80

40.

408

0.80

20.

20Cr

oss-

indu

stry

str

ateg

ic fit

s0.

157

1.05

81.

208

1.20

101.

505

0.75

71.

057

1.05

Reso

urce

req

uire

men

ts0.

105

0.50

80.

807

0.70

70.

704

0.40

70.

708

0.80

Seas

onal

and

cyc

lical

influ

ence

s0.

055

0.25

80.

408

0.40

80.

405

0.25

70.

355

0.25

Socie

tal,

polit

ical,

regu

lato

ry, a

nd e

nviro

nmen

tal f

acto

rs0.

056

0.30

50.

256

0.30

70.

356

0.30

70.

358

0.40

Indu

stry

Pro

fitab

ility

0.10

60.

607

0.70

50.

508

0.80

30.

308

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60.

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dust

ry u

ncer

tain

ity a

nd b

usin

ess

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156.

257.

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95

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itiv

e S

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e to

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158

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207

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y to

mat

ch o

r be

at ri

vals

on

key

prod

uct

attr

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0.40

80.

405

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80.

406

0.30

50.

256

0.30

Abilit

y to

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efit

from

str

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ic f

its w

ith s

iste

r bu

sine

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81.

209

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91.

359

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71.

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71.

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rgai

ning

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er w

ith s

uppl

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/buy

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allie

s0.

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407

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405

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005

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d im

age

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itabi

lity

rela

tives

to

com

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ion

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ures

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visi

on

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le

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dcas

t M

otio

n

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n Br

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ks

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spap

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Table 6E. TOWS Matrix

STR

ENG

THS

(S)

WEA

KNES

SES

(W

)

1Po

wer

ful v

ision

and

lead

ersh

ip

1Lo

wes

t orig

inal

prim

e tim

e pr

ogra

mm

ing

hour

s pe

r wee

k2

34%

con

trol

ling

owne

rshi

p of

Dire

ct T

V2

Lack

of m

arke

t pre

senc

e in

Afr

ica a

nd M

iddl

e Ea

st3

Hig

h vi

ewer

ratin

gs f

or F

OX

and

FX3

Limite

d ca

ble

cont

ent t

o su

it al

l mar

ket

segm

ents

4C

ontin

uous

intr

oduc

tion

of b

reak

thro

ugh

prog

ram

s 4

Low

er n

umbe

r of

cab

le c

hann

els

over

all

5Ex

clusiv

e lic

ensin

g fo

r 80%

of N

HL, M

LB,

NBA

team

s5

Sate

llite

tech

nolo

gy li

mita

tions

for

bun

dlin

g se

rvice

s6

Larg

est

dist

ribut

ion

plat

form

in t

he w

orld

6La

ck o

f HDT

V co

nten

t an

d br

oadb

and

chan

nels

7Fu

lly v

ertic

ally

inte

grat

ed w

ith h

oriz

onta

l syn

ergi

es

7Lo

w u

pfro

nt a

dver

tisin

g sa

les

com

pare

d to

riv

als

8St

rong

est m

arke

t pr

esen

ce in

Aus

tral

asia

and

Eur

ope

9D

istin

ctiv

e co

mpe

tenc

es in

onl

ine

stra

tegy

and

cus

tom

er o

wne

rshi

p10

Stud

io fa

ciliti

es a

roun

d th

e w

orld

with

div

erse

cap

abilit

ies

11St

rong

cre

ativ

e ta

lent

and

div

erse

indu

stry

exp

erie

nce

12St

rong

bal

ance

she

et a

nd c

ash

posit

ion

13Pl

anne

d la

unch

of

the

seco

nd n

etw

ork

- M

yNet

wor

k Tv

OP

POR

TU

NIT

IES

(O

)S

/O S

TR

AT

EGIE

SCo

ordi

nate

sW

/O S

TR

AT

EGIE

SCo

ordi

nate

s

1R

apid

gro

wth

in g

loba

l bro

adba

nd a

cces

s 1

Acq

uire

Uni

visi

on I

nc.

(S12

,O6)

2H

igh

grow

th in

Int

erne

t vi

deo

cons

umpt

ion

2O

ffer

bun

dled

ser

vice

s th

roug

h st

rate

gic

allia

nces

(S

2,O

8)1

Inve

st o

n br

oadb

and

chan

nels

& d

evel

op H

D fo

r al

l TV

med

ia(W

6,T4

)3

Gro

wth

in m

obile

and

oth

er h

andh

eld

devi

ces

and

user

s3

Inve

st m

ore

in C

able

TV

in A

siapa

c &

Eas

tern

Eur

opea

n re

gion

(S

12,O

5)2

Cent

raliz

e co

nten

t lib

rarie

s fo

r cre

atin

g br

oadb

and

chan

nels

(W6,

O10

)4

Cha

nges

in c

onte

nt c

onsu

mpt

ion

habi

ts

4C

ontin

ue to

allo

cate

mor

e re

cour

ses

for

the

curr

ent

Inte

rnet

str

ateg

y(S

9,O

2,O

4)3

Acqu

ire U

nivi

sion,

Inc

.(W

3,T3

)5

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ging

Asia

Pac

ific

and

East

ern

Euro

pean

mar

kets

5D

evel

op p

rogr

amm

ing

targ

ette

d to

55+

age

gro

up

(S10

,S11

,O9)

6G

row

th in

His

pani

c po

pula

tion

and

thei

r sp

endi

ng6

Use

mor

e re

sour

ces

to fo

cus

on m

obile

and

oth

er h

andh

eld

cont

ent

(S7,

O4,

O3)

7C

onte

nt m

obilit

y an

d im

mor

talit

y 7

Inte

grat

e co

nten

t int

o ce

ntra

lized

libra

ries

for

deliv

ery

over

mul

tiple

str

eam

s (S

7,S9

,O10

)8

Vide

o, d

ata,

voi

ce a

ll co

nver

ging

into

sin

gle

plat

form

s9

Ret

irem

ent o

f ba

by b

oom

ers

incr

ease

s le

isur

e sp

endi

ng10

Mas

sive

cost

dec

lines

in s

torin

g, r

etrie

ving

& s

trea

min

g co

nten

t

TH

REA

TS

(T

)S

/T S

TR

AT

EGIE

SCo

ordi

nate

sW

/T S

TR

AT

EGIE

SCo

ordi

nate

s

1N

ew b

road

cast

TV

join

t ven

ture

bet

wee

n W

B &

CBS

1

Enha

nce

the

num

ber o

f orig

inal

pro

gram

min

g ho

urs

for

MyN

etw

orkT

V(S

13,T

1)1

Enha

nce

the

no. o

f orig

inal

pro

gram

min

g ho

urs

for M

yNet

wor

kTV(W

1,T1

)2

FCC

app

rovi

ng A

delp

hia

acqu

isiti

on b

y Co

mca

st &

TW

cab

le2

Glo

bal m

arke

ting

stra

tegy

to

get

mor

e ad

vert

isin

g fo

r w

ebsi

tes

(S6,

S9,T

4)2

Esta

blsi

h pa

rtne

rshi

ps w

ith th

e Te

leco

's fo

r bu

ndle

d se

rvic

es(W

5, T

8)3

FCC

enf

orcin

g of

dig

ital T

V la

ws

by F

CC

in 2

009

3In

trod

uce

colle

ctiv

e cu

stom

er e

duca

tion

cam

paig

ns fo

r D

TV (

T3, S

1)(S

9,T4

)3

Inve

st in

mor

e ca

ble

chan

nels

sin

ce D

igita

l TV

driv

es v

iew

ers

to c

able

(W

4,T3

)4

Inte

rnet

gro

wth

out

paci

ng a

ll ot

her m

edia

in u

sage

& in

ad

dolla

rs 4

Cre

ate

and

dist

ribut

e ad

sup

port

ed D

VR c

onte

nt (T

6, S

4,S7

,S11

,S10

)(S

1,T3

)4

Pene

trat

e FO

X Ne

ws

Cha

nnel

to

Afric

an &

Mid

dle

East

(W2,

T7)

5R

isk

of d

igita

l and

Int

erne

t co

nten

t pi

racy

5Es

tabl

sih p

artn

ersh

ips

with

the

Tel

eco'

s fo

r bun

dled

ser

vice

s(S

1,S2

,T8)

6G

row

th in

Dig

ital V

ideo

Rec

orde

r us

age

7

Cha

nges

in g

loba

l eco

nom

ic an

d po

litic

al c

ondi

tions

8Te

leco

m g

iant

s en

terin

g th

e m

arke

t with

bun

dled

ser

vice

s

Table 6F. SPACE Matrix - Calculation

ComponentsFINANCIAL STRENGTHS (FS)ROI is 5.61% & ROE is 9.62% and are higher than industry averages of 1.03% & 4.2% 5Current and Quick ratios of 1.87 and 1.59 vs. industry averages of 1.10 and 0.84 4Total Debt to Equity position is 40%. Considerably lower than industry (72%) 5Net income exceeded $2.1 billion, a 39% increase over the prior year 6Cash position is $6.5 billion, up by $2 billion from 2004 6ROA is 4.86%, up from 5-year average of -2% and higher than industry average 4

30INDUSTRY STRENGTHS (IS)High growth potential with a 5-year CAGR of 9.8% 5High profit potential 5Convergence into single platforms capable of delivering data, voice, video, etc 4Increase in mergers, acquisitions and capital investments 5Regulated transition to Digital TV 5Telecommunications companies entering the multiple services market (video, data, voice) 3

27ENVIRONMENTAL STABILITY (ES)War uncertainties in Middle East and Asia -3Exchange rate fluctuations (40% of News Corps. Revenue comes from overseas) -4High competive pressure among the top 5 players -2

-9COMPETITIVE ADVANTAGE (CA)Market learder with 14.3% (when revenues combined with DIRECTV) -3Distinctive value chain competence of having broadcast, cable network and DBS -1Largest distribution platform in the world -1Exclusive licensing for 80% of NHL, MLB, NBA teams -3Strongest market presence in Australasia and Europe -1

-9

CONCLUSIONES Average (-9.0/3.0) -3.0IS Average (27/6.0) 4.5

CA Average (-9.0/5.0) -1.8FS Average (30.0/6.0) 5.0

Directional Vector Coordinates: X-axis: (-1.8 + 4.5) 2.7Directional Vector Coordinates: Y-axis: (-3.0 + 5.0) 2.0

RatingSPACE Matrix Calculation

APPENDIX 8 FINANCIAL HIGHLIGHTS

Table 1B. Historical Revenue and Operating Margins by Segment

NEWS CORPORATION

Segment 2003 2004 2005Filmed Entertainment 4,486$ 5,187$ 5,919$ Broadcast Television 4,763$ 5,027$ 5,338$ Cable Network Programming 2,145$ 2,409$ 2,688$ Direct Broadcast Satellite 220$ 1,665$ 2,313$ Magazines & Inserts 923$ 979$ 1,068$ Newspapers 2,718$ 3,425$ 4,083$ Book Publishing 1,162$ 1,276$ 1,327$ Other 963$ 834$ 1,123$

Total Revenue 17,380$ 20,802$ 23,859$ Growth 19.7% 14.7%

Segment 2003 2004 2005Filmed Entertainment 716$ 959$ 1,109$ Television 955$ 1,043$ 1,044$ Cable Network Programming 472$ 658$ 858$

Direct Broadcast Satellite (56)$ (125)$ (17)$ Magazines & Inserts 263$ 276$ 304$ Newspapers 531$ 722$ 962$ Book Publishing 136$ 163$ 170$ Other (98)$ (71)$ (101)$

Total Operating Income 2,919$ 3,625$ 4,329$ Growth 24.2% 19.4%

OPERATING INCOME (in millions)

REVENUE (in millions)

Source: Annual Reports

Table 1C. Segment Profitability Analysis

TOP FIVE BROADCAST RIVALS

News Corp. (FOX) Revenues Break Down Oper. Income Oper. MarginBroadcasting 5,338 22.4% 1,044 19.6%Cable Networks 2,688 11.3% 858 31.9%Direct Broadcast Satellite 2,313 9.7% (17) -0.7%Filmed Entertainment 5,919 24.8% 1,109 18.7%Magazines & Inserts 1,068 4.5% 304 28.5%Newspapers 4,083 17.1% 962 23.6%Book Publishing 1,327 5.6% 170 12.8%Other 1,123 4.7% (101) -9.0%Total 23,859 100% 4,329 18.1%

Disney (ABC) Revenues Break Down Oper. Income Oper. MarginBroadcasting 5,945 18.6% 2,285 38.4%Cable Networks 7,262 22.7% 464 6.4%Filmed Entertainment 7,587 23.8% 207 2.7%Parks and Resorts 9,023 28.2% 1,178 13.1%Consumer Products 2,127 6.7% 520 24.4%Total 31,944 100% 4,654 14.6%

Time Warner (WB) Revenues Break Down Oper. Income Oper. MarginBroadcasting 3,192 7.1% 422 13.2%Cable Networks 6,419 14.2% 1,685 26.3%Cable Operations 9,498 21.0% 2,565 27.0%Filmed Entertainment 11,924 26.4% 905 7.6%AOL 8,283 18.3% 1,334 16.1%Publishing 5,846 12.9% 884 15.1%Total 45,162 100% 7,796 17.26%

Viacom (CBS) Revenues Break Down Oper. Income Oper. MarginTelevision 9,325 38.6% (4,792) -51.4%Cable Networks 6,657 27.6% 2,610 39.2%Filmed Entertainment 2,952 12.2% 70 2.4%Radio 2,115 8.8% (2,154) -101.9%Outdoor 1,949 8.1% 261 13.4%Parks/Publishing 1,147 4.8% 118 10.3%Total 24,146 100% (3,887) -16.10%

General Electric (NBC) Revenues Break Down Oper. Income Oper. MarginBroadcasting 4,611 Cable Networks 3,456 Filmed Entertainment 3,973 Parks 2,649 Media & Entertainment Total 14,689 9.8% 3,092 21.0%Other Businesses 135,013 90.2% 20,333 15.1%Total 149,702 100% 23,425 15.65%

Source: Annual Reports

Table 1D. Historical Income Statement Analysis

TOP EIGHT INDUSTRY RIVALS

2002 Change 2003 Change 2004 Change 2005 4-Yr. Ave.New s Corporation 16,221 22.3% 19,845 5.0% 20,828 14.6% 23,859 13.9%Timer Warner 37,060 6.8% 39,563 6.4% 42,089 3.7% 43,652 5.6%Walt Disney 25,329 6.8% 27,061 13.6% 30,752 3.9% 31,944 8.1%Viacom / CBS 25,238 -17.3% 20,859 8.7% 22,680 6.5% 24,146 -0.7%GE/NBC Universal 132,226 -14.6% 112,886 19.1% 134,481 11.3% 149,702 5.3%Direct TV 8,185 14.5% 9,372 21.2% 11,360 15.9% 13,165 17.2%Dish Netw ork 4,821 19.1% 5,739 24.6% 7,151 17.8% 8,426 20.5%Comcast 8,102 126.5% 18,348 10.7% 20,307 9.6% 22,255 48.9%

2002 Change 2003 Change 2004 Change 2005 4-Yr. Ave.New s Corporation 19,014 -0.5% 18,911 -0.1% 18,893 -15.8% 15,901 -5.5%Timer Warner 22,291 5.1% 23,422 4.4% 24,449 2.6% 25,075 4.0%Walt Disney 22,924 6.2% 24,348 9.7% 26,704 4.2% 27,837 6.7%Viacom / CBS 13,693 -13.5% 11,838 6.0% 12,552 6.8% 13,409 -0.2%GE/NBC Universal 63,007 -2.1% 61,666 19.1% 73,415 11.7% 82,001 9.5%Direct TV 4,858 6.4% 5,167 11.8% 5,776 12.0% 6,467 10.0%Dish Netw ork 2,936 18.8% 3,488 28.4% 4,477 3.5% 4,636 16.9%Comcast 3,012 133.8% 7,041 6.0% 7,462 6.8% 7,969 48.8%

2002 Change 2003 Change 2004 Change 2005 4-Yr. Ave.New s Corporation 2,624 31.9% 3,461 -6.5% 3,235 146.0% 7,958 57.1%Timer Warner 12,929 13.3% 14,652 12.3% 16,461 5.5% 17,374 10.4%Walt Disney 2,405 12.8% 2,713 49.2% 4,048 1.5% 4,107 21.2%Viacom / CBS 11,545 -21.9% 9,021 12.3% 10,128 6.0% 10,737 -1.2%GE/NBC Universal 68,206 -25.8% 50,618 18.5% 60,002 10.0% 66,018 0.9%Direct TV 3,327 26.4% 4,205 32.8% 5,584 19.9% 6,697 26.4%Dish Netw ork 1,842 20.4% 2,217 16.1% 2,573 43.6% 3,697 26.7%Comcast 5,090 122.1% 11,307 13.6% 12,845 11.2% 14,286 49.0%

2002 Change 2003 Change 2004 Change 2005 4-Yr. Ave.New s Corporation 21,446 -9.3% 19,450 -2.9% 18,893 7.4% 20,295 -1.6%Timer Warner 74,474 -53.9% 34,309 4.7% 35,924 8.9% 39,133 -13.4%Walt Disney 23,139 7.2% 24,807 8.9% 27,013 3.5% 27,957 6.5%Viacom / CBS 19,259 -15.1% 16,346 117.5% 35,551 -19.6% 28,598 27.6%GE/NBC Universal 113,254 -15.9% 95,275 20.4% 114,710 11.2% 127,573 5.2%Direct TV 8,595 13.1% 9,722 38.2% 13,436 -6.7% 12,532 14.9%Dish Netw ork 5,059 -0.5% 5,032 28.1% 6,448 12.6% 7,258 13.4%Comcast 7,428 121.7% 16,466 5.7% 17,399 6.7% 18,565 44.7%

2002 Change 2003 Change 2004 Change 2005 4-Yr. Ave.New s Corporation 193 1418.0% 2,922 10.7% 3,235 10.2% 3,564 479.6%Timer Warner (37,414) -114.0% 5,254 17.3% 6,165 -26.7% 4,519 -41.1%Walt Disney 2,190 2.9% 2,254 65.9% 3,739 6.6% 3,987 25.1%Viacom / CBS 5,979 -24.5% 4,513 -385.2% (12,872) -65.4% (4,452) -158.4%GE/NBC Universal 18,972 -7.2% 17,611 12.3% 19,771 11.9% 22,129 5.7%Direct TV (410) -69.5% (350) 30.5% (2,076) 130.5% 633 30.5%Dish Netw ork (238) -396.9% 708 -0.6% 703 66.0% 1,167 -110.5%Comcast 674 179.2% 1,882 54.5% 2,908 26.9% 3,690 86.9%

2002 Change 2003 Change 2004 Change 2005 4-Yr. Ave.New s Corporation (11,031) -109.7% 1,069 62.7% 1,739 23.0% 2,138 -8.0%Timer Warner (97,217) -102.7% 2,639 27.5% 3,364 -13.6% 2,905 -29.6%Walt Disney 1,236 2.5% 1,267 85.1% 2,345 8.0% 2,533 31.9%Viacom / CBS 406 331.9% 1,755 -1078.0% (17,169) -66.0% (5,832) -270.7%GE/NBC Universal 14,167 7.5% 15,236 10.4% 16,819 -2.8% 16,353 5.1%Direct TV (894) -59.5% (362) 438.8% (1,949) -117.2% 336 87.3%Dish Netw ork (852) -126.4% 225 -4.3% 215 605.2% 1,515 158.2%Comcast (274) -1282.5% 3,240 -70.1% 970 -4.3% 928 -452.3%

Operating Income

Net Income

Cost of Revenue

Total Revenue

Total Operating Expense

Gross Profit

Source: etrade.com

Table 1E. Competitor Analysis

Competitive Analysis

Criteria News Corp.

Time Warner Viacom/CBS Disney NBC DirecTv Comcast Echostar

Average Audience Coverage1 38.3 NA 38.9 23.6 34 N/A N/A N/A TV households coverage 98% 95% 99% 99% 98% N/A N/A N/A Average Network ad cost 154,600 66,000 12900 149700 158400 N/A N/A N/A Prime time hours 15 NA 22 22 22 N/A N/A N/A Broadcast Ranking for 18-49 group 1 6 2 3 4 N/A N/A N/A No. of Stations 35 NA 39 10 30 N/A N/A N/A No. of Affiliates Stations 196 NA 200 226 230 N/A N/A N/A No. of Cable Channels 15 19 38 16 10 0 6 0 No. of Movie Channels 1 13 19 1 0 0 0 0 No. of Kids Channels 0 1 8 2 0 0 0 0 No. of News Channels 1 3 0 0 3 0 0 0 No. of Sports Channels 5 0 1 4 2 0 2 0 No. of Entertainment Channels 2 2 5 4 5 0 1 0 No. of Music Channels 0 0 5 0 0 0 0 0 No. of Educational Channels 1 0 0 3 0 0 1 0 No. of Life Style Channels 0 0 0 2 0 0 2 0 No. of Markets (US) 26 NA 26 10 22 All 25 All

Market Share (%) 4.9% 10.20% 8.20% 8.20% 5.10% 7.90% 9.70% 5.10%

International Markets AS, LA, Aus. Eu

AS, Pac, Europe,LA,

Aus LA, AS, AF, EU, Pac,Aus

LA, AS, Pac,EU,

LA,AS,Pac,EU,AF, ME,

LA &Ccarrib

(27)

A/Pac, LA,

Europe LA Upfront Sales Volume (billions)2 1.6 0.7 2.5 2.1 1.9 N/A N/A N/A Subscribers (in millions) N/A N/A N/A N/A N/A 14.9 21.4 11.7 ARPU ($) N/A N/A N/A N/A N/A 69.61 84 57.81 Bundle Services High Speed Internet N/A N/A N/A N/A N/A No Yes No Telephony N/A N/A N/A N/A N/A No Yes No No of total channels N/A N/A N/A N/A N/A 1500 250 NA Local N/A N/A N/A N/A N/A 1100 NA 180 Basic N/A N/A N/A N/A N/A 130 20 NA Premium movie channels N/A N/A N/A N/A N/A 31 NA NA

Online customer base My Space Aol/in2tv Neo pet N/A N/A N/A N/A N/A No. of online customers (million) 75 24.5 25 N/A N/A N/A N/A N/A Monthly sub fees-basic ($) N/A N/A N/A N/A N/A 44.99 NA 24.99 Online visitors/month (million) 70 107 23 15 N/A N/A N/A HDTV No Yes Yes Yes Yes N/A N/A N/A Cable Network Reach -households (millions) 87 NA 89 90 88 NA 79 NA Viewers (million) 81 88 Cable Networks - No of countries 157 150 167 192 130 N/A N/A N/A Cable Network Global Households (million) 400 NA 440 NA 230 N/A N/A N/A Employees 44000 87850 47850 133000 11800 80000 21000

APPENDIX 9

Figure A. Revenue Forecast for 2005-2010 for Strategic Business Units

Figure B. Broadcast TV- Expected Future Strategic Position -2010

$-$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000

2003 2004 2005 2006 2007 2008 2009 2010

(mill

ions

)

Broadcast Television Cable Network Programming Direct Broadcast Satell i te

Number of Stations

Prim

etim

e Vi

ewer

s / R

atin

g

Few Many

Low

Hig

h

Figure C. Cable & Satellite- Expected Future Strategic Position -2010

Table C. Expected Market Share by 2010

Geographic Coverage

Num

ber o

f Sub

scrib

ers

Regional National Multinational

Few

Many

Table D. Convergence Media Revenue by 2010

Affiliate — A station that carries a network’s programming but is not owned by the network. Network owned stations are referred to as “owned-and-operated” (O&O). Analog — The conventional transmission system, using signals of varying frequency or amplitude, which can be susceptible to noise interference. Antenna — Equipment for sending and/or receiving signals. Bandwidth — The overall capacity of a transmission system, measured in bits per second (bps) for digital lines and hertz (Hz) for analog lines. Barter — A compensation arrangement between a TV station or a network and the owner of a syndicated program. The owner of the show would split the associated ad revenues with the network or the station on which the show is aired. Bits-per-second (bps) — A measurement of the speed by which information is transmitted over certain electronic media. A “bit” is a single binary pulse of information; megabit per second (Mbps) is about one million bps; kilobit per second (Kbps) is 1,000 bps. Broadband — High-speed Internet access, whether wired or wireless, with data transmission systems carrying multiple signals simultaneously. Broadband satellite service (BSS) — A radio communications service that transmits or retransmits broadcast signals via space stations. Broadcast — A signal transmitted to all user terminals in a service area. Cable modem — A broadband access device which enables a computer to transmit data over a cable line, with speeds ranging from 512 Kbps to more than 10 Mbps. Cable television (CATV) — A delivery system over a network of coaxial or fiber-optic cable that gives subscribers hundreds of video channels. A cable system includes the headend, trunk lines, feeder lines, and drop lines. C-band — The portion of the electromagnetic spectrum allotted for satellite transmission in the 4 gigahertz (GHz) to 8 GHz frequency transmission range. Churn — A measure of subscriber turnover for cable and satellite operators. Circuit-switched — The traditional telephone platform, where calls are routed over the public switched telephone network (PSTN).

Coaxial cable — Copper cable that is run by cable TV companies between a community antenna and subscribers’ homes and businesses. Cost per thousand (CPM) — The price of reaching 1,000 households or viewers with an advertisement; the cost of the airtime by the number of persons. As a measure of cost efficiency, CPM also is used to compare different programs. Customer relationships — The number of customers that receive at least one service (such as voice, video, or data) from a cable operator. Designated market area (DMA) — A distinct television coverage market as determined by Nielsen Media Research Inc. The US is currently divided into 210 DMAs. Digital — A transmission technology where information is encoded as binary language (“bytes”), in separate “bits” of 0 and 1, as opposed to analog. Digital subscriber line (DSL) — A broadband technology used to increase the capacity of copper phone lines, with speeds of 144 Kbps to 2 Mbps. Digital television (DTV) — Provides higher resolution and digital sound quality than analog television. DTV is a new transmission system scheduled by the Federal Communications Commission (FCC) to replace conventional analog TV broadcasting. A DTV bill currently making its way through the US Congress is proposing a “hard date” of April 2009 for the DTV transition. Digital video recorders (DVRs) — Also called personal video recorders (PVRs), these devices allow viewers to record and store hours of TV programs on a hard drive for later viewing. DVRs also provide users with the ability to skip commercials, or to replay, pause, rewind, and fast-forward live TV programs. DVRs are offered by cable and direct broadcast satellite providers for an extra monthly charge. Direct broadcast satellite (DBS) — Refers to satellite television (TV) systems in which the subscribers, or end users, receive signals directly from geostationary high-powered satellites orbiting 22,300 miles above the earth. Signals are broadcast in digital format at microwave frequencies. Also known as “mini dish” systems, DBS systems are the descendant of direct-to-home (DTH) satellite services. Downlink — The portion of a satellite circuit extending from the satellite to the user terminal. Drive time — Radio’s equivalent of TV’s prime time: the primary hours for audiences (and ad sales). “Morning drive” is 6 a.m. to 9 a.m. or 10 a.m.; “afternoon drive” runs from 3 p.m. to 7 p.m.

GLOSSARY

Fiber-optic cable — Transmission system on very thin glass fibers using light waves. Fiber-optic cable carries more information with greater speed and less electromagnetic interference (compared to coaxial cable or conventional copper wire). Fiber-to-the-home (FTTH) — Generic deployment of optical fiber from a telephone switch directly into users’ homes. Variations of this strategy include fiber-to-the node (FTTN) and fiber-to-the-premise (FTTP). Footprint — The coverage area of a cable system, broadcast, or satellite signal. Headend — The central distribution point for a cable TV system, where video signals are received from satellites and broadcast TV stations, amplified, converted to appropriate channels, and rebroadcast through the cable system. Hertz (Hz) — A unit of frequency — used to measure, for example, electromagnetic waves — that equals one cycle per second. One megahertz (MHz) is equal to one million Hertz. High-definition television (HDTV) — Higher level digital transmission, which offers higher resolution than digital TV (DTV) or standard definition TV. Ka-band — The portion of the electromagnetic spectrum allotted for satellite transmission in the 20 GHz to 30 GHz frequency range. Ku-band — The portion of the electromagnetic spectrum allotted for satellite transmission in the 12 GHz to 14 GHz frequency range. L-band — The portion of the electromagnetic spectrum allotted for satellite transmission in the 1 GHz to 2 GHz frequency range. Local market agreement (LMA) — An arrangement in which a TV or radio station in one market is responsible for programming and/or ad sales of a station in another market. The subordinate station remains responsible for FCC regulations. Local people meter (LPM) — An electronic recording device attached to the TV set, which is used by Nielsen for local TV audience measurement (“ratings”). As of November 2005, Nielsen was deploying across the top DMAs; it plans ultimately to replace the original manual recording system, which uses paper diaries. Makegood — Air time given free of charge to compensate for shortfalls on minimum ratings guarantees for specific network programs. May also arise from a station error, preemption by an advertiser, or a programming change. Microwave multidistribution system (MMDS) — Also known as “wireless cable,” MMDS distributes signals using microwaves, which are picked up by a home receiver and then redistributed via internal wiring.

Modem — A device or program that enables a computer to transmit data over, for example, telephone or cable lines. Multicast — A simultaneous broadcast of multiple transmissions (or “streams”) of digital program or data content. Multiple system operator (MSO) — A cable operating company that owns and/or operates systems in more than one market. Must carry — Mandatory carriage of a local TV signal by cable or DBS. Once every three years, the FCC requires each station to elect either “must-carry” or “retransmission consent.” Weaker stations typically opt for “must-carry.” (See Retransmission consent.) National spot — Advertising market where national advertisers, such as General Motors or IBM, buy ads in selected local markets through local media. Network — A broadcast entity that airs programming and sells commercial time nationally via affiliated and/or licensed local stations. Examples are the NBC television network, the ESPN cable network, and the ABC radio network. Off-network syndication — Network programs sold as reruns in the syndication market; they typically ran in prime time when first released. Orbital slots — The orbit locations of satellites, usually in degrees. Pay-per-view — Cable or DBS service in which subscribers pay individually for programs such as movies and special events, rather than paying a monthly fee. Pay TV — Any subscription-based television services, including analog and digital cable and satellite. Also called “premium channels” on cable, for which subscribers are charged extra fees; these include HBO, Showtime, and Starz. Penetration — The percentage of households subscribing to a given service. Portable people meter (PPM) — A beeper-like electronic device carried by users for out-of-home radio and television measurement. As of November 2005, PPM was under testing in Houston by Arbitron, which plans to launch the system in 50 US markets between April 2006 and January 2012. Preemption — A broadcast of television programming obtained by an affiliate from sources other than the network. Affiliates typically receive rights to preempt a certain number of hours of network-supplied programming each year. Prime time — Peak viewing hours, during which time networks televise their most high-profile programming. In the Eastern time zone, prime time lasts from 8:00 p.m. to 11:00 p.m., Monday through Saturday, and from 7:00 p.m. to 11:00 p.m. on Sunday.

Rating/share — Used by Nielsen as measures of TV audiences: “Rating” is the percentage of TV households viewing a program; “share” is the percentage of all households viewing TV at that time. For local stations: one rating point equals 1% of the total households in a station’s DMA; one share point equals 1% of a DMA’s households tuned to a specific show. For national networks: one rating point equals 1% of US TV households (110.2 million homes). A program with a national rating/share score of 3/9 was watched by about 3.31 million (3 x 1.102 million) households, or 9% of the TV audience at the time. Retransmission consent — Requirement for cable operators to obtain consent of a commercial TV station owner before broadcasting their local signals. Once every three years, cable providers must negotiate terms of carriage with TV stations that elect retransmission consent (instead of “must carry”). Revenue generating units (RGUs) — Cable subscriber metric that counts all analog, digital, data, and phone customers, excluding additional outlets. Satellite — A space vehicle in a fixed orbital location about 22,300 miles above the earth, which receives communications signals from one point on earth and retransmits them to multiple reception points. Satellite master antenna television (SMATV) — A broadcast service typically sold to a housing complex or hotel. Cable channels are received via satellite and distributed to the units by coaxial cable. S-band — The portion of the electromagnetic spectrum allotted for satellite transmission in the two to four GHz frequency range. Scatter — Network air time purchased after the start of the broadcast season, at prevailing spot rates differing from those negotiated during “upfront.” (See Upfront.) Signal — The images and sounds transmitted by broadcast, cable, and satellite. Spectrum — The airwaves, licensed by the FCC, over which images and sounds are transmitted by broadcast, cable and satellite. May be analog or digital. Spot sales — TV or radio commercial time sold on a market-by-market basis, as opposed to nationally. Also refers to the ad market for local TV stations (versus the market for broadcast networks). “Local spot” ads are placed directly in a station’s local market, while “national spot” ads are placed through rep firms or agencies. Spots — Ads or commercials (e.g., “30-second spot” or “60-second spot”). Sweeps — The periods in February, May, July, and November during which TV audience measurement firm Nielsen Media Research most closely tracks and reports national and local ratings; figures are reported by households and by demographics. The sweeps ratings

reports are important for broadcasters and also for advertisers, which use them to set advertising rates based on the audience delivered. Syndication — A method of distributing radio, TV, and cable programs on a market-by-market basis, mostly aired during periods other than prime time. Such programming may be “first-run” shows made specifically for this market, or “off-network” series that have aired previously on a major network. Transponder — Component of a satellite that receives a signal from the earth, processes and amplifies it, and retransmits it to another location on the earth. Upfront — An annual spring bazaar for the advance sales of air time on national broadcast network, national cable, and TV syndication markets. The process lasts for about two weeks, during which time the sellers review their program lineups for the subsequent fall TV season, and then proceed to negotiate locked-in ad rates for specific shows desired by advertisers. Airtime not committed in the upfront is sold in “scatter.” (See Scatter.) Uplink — The portion of a satellite circuit extending from the user’s terminal to the satellite. Video on demand (VOD) — A system by which viewers can watch video programs transmitted from a central server to their own TV sets at the time they choose. Most major cable operators offer VOD to their digital subscribers — some at no extra charge, others for an extra monthly nominal fee. A variant of this service is subscription video-on-demand (SVOD). Voice over Internet Protocol (VoIP) — A new digital phone technology that converts ordinary telephone calls to digits, which are then transmitted over “packet-switched” data networks. Also called IP telephony, VoIP phone calls require the subscriber to have a broadband connection, bypassing the public switched telephone network (PSTN) used by traditional “circuit-switched” phone companies. Cable operators have been launching VoIP phone service across their footprints since 2004. Source: Standard & Poor’s – Broadcasting, Cable & Satellite Industry Survey. December 2005

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