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
Section 1 – Industry Analysis 2
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
Section 1 – Industry Analysis 3
(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.
Section 1 – Industry Analysis 4
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
Section 1 – Industry Analysis 5
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.
Section 1 – Industry Analysis 6
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
Section 1 – Industry Analysis 7
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
Section 1 – Industry Analysis 8
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
Section 1 – Industry Analysis 9
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.
Section 1 – Industry Analysis 10
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
Section 1 – Industry Analysis 11
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
Section 1 – Industry Analysis 12
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
Section 1 – Industry Analysis 13
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
Section 1 – Industry Analysis 14
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
Section 1 – Industry Analysis 15
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.
Section 1 – Industry Analysis 16
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.
Section 1 – Industry Analysis 17
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.
Section 1 – Industry Analysis 18
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
Section 2 – Company Analysis 18
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
Section 2 – Company Analysis 19
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
Section 2 – Company Analysis 20
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
Section 2 – Company Analysis 21
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
Section 2 – Company Analysis 22
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.
Section 2 – Company Analysis 23
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
Section 2 – Company Analysis 24
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.
Section 2 – Company Analysis 25
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
Section 2 – Company Analysis 26
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
Section 2 – Company Analysis 27
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
Section 2 – Company Analysis 28
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.
Section 2 – Company Analysis 29
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.
Section 2 – Company Analysis 30
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
Section 2 – Company Analysis 31
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
Section 2 – Company Analysis 32
� 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
Direct Broadcast Satellite
Figure 7.1 – IE Matrix DBS = Harvest or Divest Cable Networks = Hold & Maintain Broadcasting = Grow & Build
Section 2 – Company Analysis 33
� 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
Direct Broadcast Satellite
Section 2 – Company Analysis 34
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.
Section 2 – Company Analysis 35
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
Section 2 – Company Analysis 36
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)
Section 2 – Company Analysis 37
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
Section 2 – Company Analysis 38
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
Section 2 – Company Analysis 39
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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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
Section 3 – Recommendations 40
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.
Section 3 – Recommendations 41
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
Section 3 – Recommendations 42
Secondary Strategy oo AAccqquuiirree UUnniivviissiioonn CCoommmmuunniiccaattiioonnss,, IInncc.. ffrroomm tthhee pprriivvaattee ccoonnssoorrttiiuumm ooff iinnvveessttoorrss
DDeevveelloopp aa sshhoorrtt--tteerrmm ssttrraatteeggyy ttoo aaccqquuiirree ssuuffffiicciieenntt eeqquuiittyy ppoossiittiioonn ffoorr mmaannaaggeemmeenntt
ccoonnttrrooll aanndd aa lloonngg--tteerrmm ssttrraatteeggyy ttoo oobbttaaiinn mmaaxxiimmaall oowwnneerrsshhiipp ooff tthhee ccoommppaannyy..
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
Section 3 – Recommendations 43
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
Section 3 – Recommendations 44
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..
oo NNeeuuttrraalliizzee nneewwss ccoonntteenntt iinn gglloobbaall mmaarrkkeettss..
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.
Section 3 – Recommendations 45
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
Section 3 – Recommendations 46
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
0.80
60.
60In
dust
ry u
ncer
tain
ity a
nd b
usin
ess
risk
0.05
50.
257
0.35
70.
357
0.35
40.
205
0.25
50.
25To
tal W
eigh
t1.
00O
ver
all I
ndu
stry
Att
ract
ive
ne
ss S
core
s5.
257.
156.
257.
803.
907.
405.
95
Com
pet
itiv
e S
tre
ngth
Me
asu
reW
eigh
tR
ate
Scor
eR
ate
Scor
eRa
teSc
ore
Rate
Scor
eRa
teSc
ore
Rat
eSc
ore
Rat
eSc
ore
Rela
tive
Mar
ket
shar
e0.
157
1.05
50.
753
0.45
71.
053
0.45
20.
303
0.45
Cost
s re
lativ
e to
com
petit
or's
cos
t0.
158
1.20
81.
207
1.05
60.
905
0.75
50.
755
0.75
Abilit
y to
mat
ch o
r be
at ri
vals
on
key
prod
uct
attr
ibut
es0.
058
0.40
80.
405
0.25
80.
406
0.30
50.
256
0.30
Abilit
y to
ben
efit
from
str
ateg
ic f
its w
ith s
iste
r bu
sine
sses
0.15
81.
209
1.35
91.
359
1.35
71.
058
1.20
71.
05Ba
rgai
ning
pow
er w
ith s
uppl
iers
/buy
ers;
allie
s0.
209
1.80
71.
407
1.40
71.
405
1.00
51.
005
1.00
Bran
d im
age
and
repu
tatio
n0.
057
0.35
80.
409
0.45
90.
455
0.25
60.
308
0.40
Com
petit
ivel
y va
luab
le c
apab
ilitie
s0.
157
1.05
60.
909
1.35
71.
058
1.20
60.
906
0.90
Prof
itabi
lity
rela
tives
to
com
petit
ors
0.10
90.
908
0.80
10.
108
0.80
50.
507
0.70
30.
30To
tal W
eigh
t1.
00O
ve
rall
Co
mp
eti
tiv
e S
tre
ng
th S
core
s7.
957.
206.
407.
405.
505.
405.
15
Mot
ion
Pict
ures
Tele
visi
on
Cab
le
Broa
dcas
t M
otio
n
Tele
visio
n Br
oadc
ast
Cab
le
Net
wor
ks
Broa
dcas
t Sa
tellit
eN
ewsp
aper
Mag
azin
es
Book
s
New
spap
erM
agaz
ines
Bo
oks
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
Emer
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
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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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