News Corp in 2005: Consolidating The DirecTV Acquisition

Abstract

The acquisition of DirecTV has given Rupert Murdoch's News Corp considerable bargaining power. With DirecTV, Murdoch has gained access to 12 million subscribers in the US. DirecTV is also expected to fortify News Corp''s own channels against competition from Comcast and Time Warner. Murdoch has dismantled everything at DirecTV that does not have anything to do with satellite broadcasting. He has also moved fast to acquire complete control of Fox Entertainment Group, which holds a controlling interest in DirecTV. DirecTV has launched new satellites. Modeling itself on the success of BSkyB (UK), DirecTV has announced it will introduce interactive television features to the American audience. Betting heavily on the popularity of football, DirecTV is finalising deals with the National Football League (NFL) for broadcasting rights. The case covers the history of DirecTV, its businesses and events starting from the acquisition of DirecTV in 2003 till early 2005.

DirecTV is important to News Corp. because it provides the missing link in News Corp's network of satellite TV platforms around the world.

- Rupert Murdoch

Rupert Murdoch, (Murdoch), News Corp's Chairman, seemed to be on top of the world in early 2005. With the successful acquisition of DirecTV, Murdoch's dreams of building a content and distribution empire were coming true. With savvy investments in Internet technologies, quality content and a strong hold on distribution, News Corp looked like an invincible media powerhouse at the end of 2004. This optimism was reflected in Murdoch's own words ,

"Our satellite platforms now span four continents, and we have more than 26 million subscribers. What that network of platforms gives us is, I believe, the perfect balance of assets for any media company: We have a great mix of subscription and advertising revenue, as well as a great mix of content and distribution businesses -- (and) we're spread geographically in a way no other media company in the world can match".

In 1984, the Department of Defense canceled several missile contracts and the institute found it difficult to fund R&D. The next year the institute sold Hughes Aircraft to General Motors (GM) for $5.2 billion. GM combined its Delco Electronics auto parts unit with Hughes to form GM Hughes Electronics (GMHE). GMHE acquired General Dynamics' missile business in 1992.

In 1995, GMHE became Hughes Electronics and launched its DirecTV satellite service. The same year, the company strengthened its defense business by acquiring CAE-Link (training and technical services) and Magnavox Electronic Systems (warfare and communications systems). Hughes bought a majority stake in satellite communications provider PanAmSat in 1996.

In 1998, the company boosted its stake in PanAmSat to 81% . The investment and sluggish sales led to a drop in profits for 1998. Hughes also took a public relations hit in 1998, when several of its satellites failed and temporarily halted most US pager activity.

To gain customers and expand its broadcast channel offerings, Hughes bought United States Satellite Broadcasting and the satellite business of rival PRIMESTAR and folded the businesses into DirecTV in 1999.

In early 2000, Hughes sold its satellite manufacturing business to Boeing in an effort to focus on its faster growing communications services businesses. GM also issued a tracking stock for Hughes but retained ownership of all the company's assets. Also that year, GM announced that it would try to sell Hughes.

Hughes bought Telocity (later renamed DirecTV Broadband), an Internet Service Provider that used DSL (digital subscriber line) technology, for about $177 million in 2001. As negotiations to sell Hughes to Rupert Murdoch's News Corp continued in 2001, EchoStar made an unsolicited bid to buy Hughes for $30.4 billion in stock and $1.9 billion in assumed debt. Soon News Corp dropped out of the bidding and GM reached a $25.8 billion deal with EchoStar. Even as the Justice Department and the FCC looked likely to block the company's sale to EchoStar, Hughes announced that it was confident the deal would win regulatory approval by the end of the year. However, the companies abruptly called off the merger in December 2002.

In a sudden turn of events, GM sold its 19.8% interest in Hughes Electronics to News Corp in 2003. News Corp acquired another 14.2% from common stockholders, amounting to a 34% stake in Hughes Electronics, which it quickly transferred to its 82%-owned Fox Entertainment Group. In 2004, Hughes Electronics changed its name to The DirecTV Group, declaring its focus and commitment to the DirecTV brand.

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        Case Code   BSTA003
   Case Length    14 Pages
              Period    2003 - 2005
 Organization     News Corp
        Pub Date     2005
Teaching Note    Not Available
     Countries    Global
      Industry    Media

Issues

History of DirecTV, its businesses and events starting from the acquisition of DirecTV

News Corp; DirecTV; Hughes; GM (General Motors); Comcast; Strategy; Acquisition; Rupert Murdoch; Monopoly; Media business