4. 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
5. 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
6. 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
7. 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
9. MICHAEL PORTER’S 5 FORCE MODEL
Threat of Competitors Buyers Suppliers Substitutes
new • Time Warner • TV Channels • Content • Cable
entrants • Comcast like Fox Providers like
• EchoStar News, NFL Football
National games,
Geographic, soccer
Speed matches
Channel
• TV viewers
10. 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
11. ECHOSTAR
Constant bids to acquire DirecTV
EchoStar & DirecTV together controlled 92%
of the U.S. satellite pay- TV market
12. 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
13. 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.
14. 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
15. EVALUATION
Parameters Evaluation Attractiveness
Threat of new entrants Low High
Industry Competitors High Low
Buyer’s Bargaining Medium Medium
Power
Suppliers’ Bargaining High Low
Power
Substitutes High Low
17. NEWS CORP TANGIBLE RESOURCES
Financial Physical Technological
resources resources resources
• Subscription & • Geographic spread: • Worldwide network
advertising revenues 4 continents & 26 of satellite
million subscribers distribution (BSkyB,
Star TV, FoxTel,
• High number of SkyTel, Stream)
distributors
18. INTANGIBLE RESOURCES
Human Innovation Reputational
Resources Resources Resources
•Experience & •Innovative •Brand Image
Planning of Murdoch programming and
attractive sports •Content: high quality,
content new/ fresh, innovative
•Attractive sports,
aggressive mktg
19. CAPABILITIES
Distribution Effective use of Content and satellite
distribution. Worldwide network of satellite
distribution
Human resources Murdoch’s negotiation skills
Marketing Aggressive marketing tactics
Free installations
Management Ability to envision the future of Television
viewing experience
Manufacturing High content quality
Research & Quest of Innovative technology
development Could cater to DVRs, HD-Tvs control of fox
23. DIRECT TV TANGIBLE RESOURCES
Financial Physical Technological
resources resources resources
• Revenue: $7.7 • Geographic spread • Digital technology:
billion (19% (72% of US) Broadcasting,
increase) Broadband/ Internet
Profit: $970 million
(59%)
• High number of •25 satellites capable
•12.2 million distributors of covering 98%
customers (revenue world populations
per customer =
$63.9)
24. INTANGIBLE RESOURCES
Human Innovation Reputational
Resources Resources Resources
•Efficient & • Ideas like NFL • Perception of
experienced Sunday Ticket delivering good
leadership of Hughes Package Content
•Efficient distribution •Ranked no. 1 in
system • Scientific innovation customer satisfaction
like Spaceway
•Brand Image
25. 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
31. Competition Faced:
Satellite distribution,
Cable distribution, via
Product Level
bluetooth, infra red or Physical
Diskettes and HDD
Internet(1 way or 2 way)
Broadband connection,
Form Level
Sound(Frequency) -
telephony, Light - Morse code
Distribution through any means
Generic Level
or No distribution at all
Comcast: Cable TV,
Times Warner Cable: Cable TV
Enterprise Level
ECHO star: Satellite TV
32. WHAT WAS THE COMPETITION BETWEEN NEWS
CORP AND HOW DID NEWSCORP FEND OFF
RIVALS?
33. 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
34. 2003
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
35. 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
38. In 2004 and 2005 DirecTV made the highest
NSA beating its immediate competitor
Echostar
39. 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%
40. 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.
41. Cost to acquire and retain a new customer
1000
900
800
700
Cost (US $)
600
500
400
300
200
100
0
2002 2003 2004
Cost (US$) 670 758 894
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
42. DirecTV had very little interest and tax cost
Incurred massive sales and administrative cost by adopting aggressive
advertising campaign to attract new customers, or steal existing cable
customers.
43. 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)
Financial Resources• The firm’s borrowing capacity• The firm’s ability to generate internal fundsOrganizational Resources • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systemsPhysical Resources• Sophistication and location of a firm’s plant and equipment• Access to raw materialsTechnological Resources• Stock of technology, such as patents, trademarks, copyrights, and trade secrets
Human Resources• Knowledge • Trust• Managerial capabilities• Organizational routinesInnovation Resources• Ideas• Scientific capabilities• Capacity to innovateReputational Resources• Reputation with customers• Brand name• Perceptions of product quality, durability, and reliability• Reputation with suppliers• For efficient, effective, supportive, and mutually beneficial interactions and relationships
Distribution Effective use of logistics management techniquesHuman resources Motivating, empowering, and retaining employeesManagement Effective and efficient control of inventories throughinformation systems point-of-purchase data collection methodsMarketing Effective promotion of brand-name products Effective customer service Innovative merchandisingManagement Ability to envision the future of clothing Effective organizational structureManufacturing Design and production skills yielding reliable products Product and design quality Miniaturization of components and productsResearch & Innovative technologydevelopment Development of sophisticated elevator control solutions Rapid transformation of technology into new products and processes Digital technology
Financial Resources• The firm’s borrowing capacity• The firm’s ability to generate internal fundsOrganizational Resources • The firm’s formal reporting structure and its formal planning, controlling, and coordinating systemsPhysical Resources• Sophistication and location of a firm’s plant and equipment• Access to raw materialsTechnological Resources• Stock of technology, such as patents, trademarks, copyrights, and trade secrets
Satellite base made digital technology possible. read that part. Read about alternating camera angles to stay focused,switching off sound etc. Human Resources• Knowledge • Trust• Managerial capabilities• Organizational routinesInnovation Resources• Ideas• Scientific capabilities• Capacity to innovateReputational Resources• Reputation with customers• Brand name• Perceptions of product quality, durability, and reliability• Reputation with suppliers• For efficient, effective, supportive, and mutually beneficial interactions and relationships
Distribution Effective use of logistics management techniquesHuman resources Motivating, empowering, and retaining employeesManagement Effective and efficient control of inventories throughinformation systems point-of-purchase data collection methodsMarketing Effective promotion of brand-name products Effective customer service Innovative merchandisingManagement Ability to envision the future of clothing Effective organizational structureManufacturing Design and production skills yielding reliable products Product and design quality Miniaturization of components and productsResearch & Innovative technologydevelopment Development of sophisticated elevator control solutions Rapid transformation of technology into new products and processes Digital technology