Post on 14-May-2015
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Consolidating The Direct TV Acquisition
PRESENTED BY-GROUP 8
TIMELINE FOR DIRECT TV AND NEWS CORP
BEFORE 1990’S•1932- Huges aircraft by Howard Huges•1963- 1st communication satellite by Howard Huges Medical Institute•1985- institute sold Huges Aircraft to GM- GMHE
BEFORE 1990•Mid 1980s- Sky television (Sky) £ 10 million
1990- 1995•1995- GMHE became Huges electronics and launched DIRECT TV
1990-1995•1990- BSB, a television channel, merged with Sky•1992-losses due to combined entity but better programs and soccer matches increased revenue to £385 million•1993- BSkyB reached financial stability
1996- 2000•1996- Huges brought major stake in satellite communication PanAmSat• 1998- boosted stake in PanAmSat to 81%•1998- drop in profits•1999- huges bought United States Satellite Broadcasting and folded into Direct TV
1995-2000•1997- 25% british homes were subscribers
2000-2005• 2000- Huges sold its Satellite Manufacturing business•2000- 9.5 million subscribers(largest satellite based television content provider)•2001- Huges bought Telocity- $177 million•2001- negotiations with Rupert Murdoch’s newscorp•2004 HE changed name to Direct TV
2000- 2005•2001- 5 million subscribers •2002 revenues 20% increase in revenue with 6.1 million subscribers•2003- 34% stake in HE
CASE FACTS FOR DIRECTV
BEFORE 1990’S• 1932- Huges aircraft by Howard Huges• 1963- 1st communication satellite by Howard Huges Medical
Institute• 1985- institute sold Huges Aircraft to GM- GMHE
1990- 1995• 1995- GMHE became Huges electronics and launched DIRECT TV
CASE FACTS FOR DIRECTV 1996- 2000
• 1996- Huges brought major stake in satellite communication PanAmSat
• 1998- boosted stake in PanAmSat to 81%• 1998- drop in profits• 1999- huges bought United States Satellite Broadcasting and
folded into Direct TV
2000-2005• 2000- Huges sold its Satellite Manufacturing business• 2000- 9.5 million subscribers(largest satellite based television
content provider)• 2001- Huges bought Telocity- $177 million• 2001- negotiations with Rupert Murdoch’s newscorp• 2004 HE changed name to Direct TV
CASE FACTS FOR NEWSCORP
BEFORE 1990• Mid 1980s- Sky television (Sky) £ 10 million
1990-1995• 1990- BSB, a television channel, merged with Sky• 1992-losses due to combined entity but better programs
and soccer matches increased revenue to £385 million• 1993- BSkyB reached financial stability
CASE FACTS FOR NEWSCORP
1995-2000• 1997- 25% british homes were subscribers
2000- 2005• 2001- 5 million subscribers • 2002 revenues 20% increase in revenue with 6.1 million
subscribers• 2003- 34% stake in HE
PORTER’S 5 FORCES
MICHAEL PORTER’S 5 FORCE MODEL
Threat of new entrants Competitors•Time Warner•Comcast•EchoStar
Buyers•TV Channels like Fox News, National
Geographic, Speed Channel•TV viewers
Suppliers•Content Providers like NFL Football
games, soccer matches
Substitutes•Cable
COMPETITOR COMCAST
No.1 cable system in US
Acquired AT&T Broadband(owned regional sports rights, telephony and 2 way internet interactivity over cable lines)
Deal with Viacom’s MTV & Nickelodeon
Sold movies on cable even before video stores could get them
Partnered with Radio One to launch a channel that targeted African Americans
Struck a deal with Chicago’s major sports teams- Chicago Bulls, Cubs, White Sox, Blackhawks to create a new sports channel
• Acquired TechTV to cater to video gamers
ECHOSTAR
Constant bids to acquire DirecTV
EchoStar & DirecTV together controlled 92% of the U.S. satellite pay- TV market
BUYERS’ BARGAINING POWER
Fixed fees from pricey cable channels
Prices of DVR reduced
Free DirecTV set top box
DirecTV spent $670 (2002), $758(2003), $894(2004) to acquire and keep a new subscriber
SUPPLIERS’ BARGAINING POWER
Hollywood was made to supply movies first to Comcast for broadcasting and then to video stores
News Corp finalized a $3.5 billion with NFL Football games for broadcasting rights for 5 years.
SUBSTITUTES
Cable offered high speed, two way internet access including phone capability
Cable needed a very heavy investment for upgradation to digital technology
Upgradation needed for Digital video recorder, high-definition TV
Weather conditions cannot affect the quality as in case of satellite signals
EVALUATION
Parameters Evaluation Attractiveness
Threat of new entrants Low High
Industry Competitors High Low
Buyer’s Bargaining Power
Medium Medium
Suppliers’ Bargaining Power
High Low
Substitutes High Low
ANALYSIS OF NEWSCORP
NEWS CORP TANGIBLE RESOURCES
Financial resources
Physical resources
Technological resources
• Subscription & advertising revenues
• Geographic spread: 4 continents & 26 million subscribers
• High number of distributors
• Worldwide network of satellite distribution (BSkyB, Star TV, FoxTel, SkyTel, Stream)
INTANGIBLE RESOURCES
Human Resources
Innovation Resources
Reputational Resources
•Experience & Planning of Murdoch
•Innovative programming and attractive sports content
•Brand Image
•Content: high quality, new/ fresh, innovative
•Attractive sports, aggressive mktg
CAPABILITIESDistribution Effective use of Content and satellite
distribution. Worldwide network of satellite distribution
Human resources Murdoch’s negotiation skills
Marketing Aggressive marketing tacticsFree installations
Management Ability to envision the future of Television viewing experience
Manufacturing High content quality
Research & Quest of Innovative technologydevelopment Could cater to DVRs, HD-Tvs control of
fox group
VALUE CHAIN
TECHNOLOGY PRODUCT MANUFACTURING MARKETING DISTRIBUTI
ON SERVICE
CORE COMPETENCE
Innovative Content and Worldworld satellite distribution network are news corp’s core competences
ANALYSIS OF DIRECTV
DIRECT TV TANGIBLE RESOURCES
Financial resources
Physical resources
Technological resources
• Revenue: $7.7 billion (19% increase)Profit: $970 million (59%)
•12.2 million customers (revenue per customer = $63.9)
• Geographic spread (72% of US)
• High number of distributors
• Digital technology: Broadcasting, Broadband/ Internet
•25 satellites capable of covering 98% world populations
INTANGIBLE RESOURCES
Human Resources
Innovation Resources
Reputational Resources
•Efficient & experienced leadership of Hughes
•Efficient distribution system
• Ideas like NFL Sunday Ticket Package
• Scientific innovation like Spaceway
• Perception of delivering good Content
•Ranked no. 1 in customer satisfaction
•Brand Image
CAPABILITIES Distribution Effective use of satellites & digital
techniques
Marketing Effective promotion of brand-name products Effective customer service
Innovative offers
Management Ability to envision the future of satellite technology
R & D Innovative technology Rapid transformation of technology Digital technology
VALUE CHAIN
TECHNOLOGY| PRODUCT MANUFACTURING MARKETING DISTRIBUTI
ON SERVICE
CORE COMPETENCE
Content Distribution in the U.S. using the Satellite technology
DIVERSIFICATION
Level of Diversification: Dominant Business
Reason for Diversification:a) Economies of scaleb) Market power
DIVERSIFICATION STRATEGY
Acquisition
REASON BEHIND MURDOCH’S DECISION TO ACQUIRE DIRECTV
COMPETITORS OF NEWSCORP
Competition Faced:
Product Level
Satellite distribution, Cable distribution, via bluetooth, infra red or
Physical Diskettes and HDD
Form Level
Internet(1 way or 2 way) Broadband connection,
Sound(Frequency) -telephony, Light - Morse
code
Generic LevelDistribution through any
means or No distribution at all
Enterprise Level
Comcast: Cable TV, Times Warner Cable: Cable
TVECHO star: Satellite TV
WHAT WAS THE COMPETITION BETWEEN NEWS CORP AND HOW DID NEWSCORP FEND OFF RIVALS?
2001 DEAL
Acquisition of the DirecTV from Hughes – Echo Star – unsolicited bid: $30.4 bil & $1.9 bil in dent Murdoch’s - $ 177 Mil (confident)
The deal was abruptly called off Hughes and Echo Star consisted 92 percent of the US
Satellite pay –TV market
The Justice Dept. was involved to stop the merger as Murdoch was under confidence since 2001
News Corp. acquired GM’s 19.9 percent stake + 14.1 percent from public share and GM’s pension and funds
Major stake holder, R. Murdoch NOW had a wide entry into USA satellite pay-TV market
Rupert Murdoch – Chairman of Hughes
2003
Cost leadership by NewsCorp: Low rates of set top boxes: Attract
subscribers Low priced Content distribution: Sports and
entertainment Acquired content and distributed it cheaply
Focus Differentiation by NewsCorp: Strong distribution Channels – Comcast
had trouble with it’s reach Digital Video Recorder technology – DVR High Definition TV
FACTORS THAT INHIBIT NEWS CORP FROM DELIVERING ITS FULL POTENTIAL
In 2004 and 2005 DirecTV made the highest NSA beating its immediate competitor Echostar
A low churn rate means high customer retention, which in turn allows for savings in advertising costs. Churn rates below 2.5%, are better than average DBS providers.
DirecTV Echostar
2004 1.59% 1.70%
2005 1.70% 1.85%
TECHNOLOGICAL LIMITATIONS
High switching cost from cable to a direct broadcast satellite.
Cable companies like Comcast have the ability to bundle cable and Internet over their networks. DirecTV did not have the ability to bundle cable, Internet, and phone services, putting them at a pronounced disadvantage.
To overcome this problem DirecTV entered into agreements with Verizon and BellSouth phone companies in 2005 which solved the problem in the short run.
2002 2003 2004
Cost (US$) 670 758 894
50
250
450
650
850
Cost to acquire and retain a new customer
Cost
(US
$)
virtually everyone who is going to buy cable or DBS has already done so, DirecTV has to spend heavily on persuading customers to switch and to retain them
DirecTV had very little interest and tax costIncurred massive sales and administrative cost by adopting aggressive advertising campaign to attract new customers, or steal existing cable customers.
LIMITATIONS WITHIN MARKET
DirecTV had to spend millions in upgrading users' TiVo digital video recorders (DVRs) as technology improves.
DirecTV spends a much greater amount on SGBA compared to its competitors. Echostar had almost no sales and administrative costs in 2005, but still was able to gain almost 1 million new customers.
DirecTV incurred sales and marketing costs for US market, limiting its focus on expanding its Latin American operations as the market is not saturated and it was much cheaper to acquire new customers
DirecTV had a subscriber base of 15 million households as in 15% of homes in USA, in contrast there were 167 million homes in Latin America of which DirecTV was serving only 1% (1.5 million homes)
THANK YOU