Directv Case Analysis

This paper is a full case analysis about DirecTV.

1 Executive Summary

This report will provide a case of News Corporation (News Corp.) and specifically DirecTV. This report examines three strategic issues facing News Corp and DirecTV: who will replace Rupert Murdoch as News Corp. CEO; how can DirecTV gain market share; and how can DirecTV improve profitability in a market that has not yet reached maturity, but is clearly saturated. A SWOT analysis and industry information will also be reviewed.

Background

DirecTV is the first entertainment service in the United States to provide all digital quality, multi-channel television programming via an 18-inch satellite DISH and also reach people across America and other targeted market locations with an alternative to cable television. DirecTV provides those who live in rural communities with access to programming equivalent to what their urban and suburban neighbors are receiving.

DirecTV is made up of four main units that include DirecTV U.S., DirecTV Latin America, PanAmSat, and Hughes Network Systems. This organization serves over 12 million U.S. Satellite TV customers and another 1.5 million subscribers in Latin countries. Through PanAmSat, they operate a fleet of 25 satellites capable of providing satellite transmissions to 98% of the world. And Hughes Network Systems (HNS) operates a satellite-based consumer broadband Internet access service known as DirecWay. This component of Hughes has over 180,000 subscribers. HNS is also one of the largest manufacturers of DirecTV set-top receivers. The four different aspects of The DirecTV Group give the company a large, comprehensive base of direct and indirect satellite customers. Their partnerships with technology leaders such as AOL, Microsoft, and TiVo also add to their customer base.

1 Executive Summary

Analysis

According to analysts, projected growth in the cable and satellite TV market will hit an average annual compound rate of 7.1 percent through 2006 to reach $106.3 billion. That pace would make cable and satellite TV the largest segment of the media industry. The growth rate also would mark a slowing of satellite and cable TV revenue gains from the 9.7 percent rate it achieved in 2001.

Technology: Satellites orbiting the sky do the job, without the need for any cable connection. Satellite television's one-way feed technology is also what limits it from offering broadband and telephone services.

Pricing/Costs: On average, DirecTV spends $626 in promotions along to win a new subscriber. That comes to about 75% of what the customer will pay in fees during the first year. DirecTV needs to re-evaluate how much of the actual and direct costs for promotions and satellite packages they will need to pass on to their customers in order to become more profitable.

Lack of Key Strategic Partnerships: DirecTV has partnerships with Microsoft, AOL and TiVo, just to name a few. What these partnerships lack is the ability to offer broadband and telephone services to their customers. Cable television companies are offering what is now known as the "triple play" - the ability to offer digital television, high-speed internet and digital telephone services. DirecTV needs to engage in strategic partnerships so that they can offer similar packages (or better ones) that cable currently offers.

1 Executive Summary

Recommendations

Add information re: succession planning.

It would be to Mr. Murdoch's benefit to implement a formal succession plan for News Corp. to ensure that it the corporation continues successfully when he departs. As for DirecTV, Chase Carey is the current President and CEO and should work with Mr. Murdoch to create a formal agreeable succession plan. The company's financial health and profitability outlook are rated below average by Morningstar. Mr. Carey and Mr. Murdoch must develop and present a plan to address DirecTV's profitability problem.

DirecTV currently faces an increasingly competitive landscape. It is evident that in a time of consolidation and bundled package services, DirecTV cannot be successful in offering satellite television alone to its customers. DirecTV's rivals such as Comcast, TimeWarner, and Cablevision offer bundled packages that have successfully drawn customers away from single service providers. The company must enter into strategic partnerships that will allow them to offer bundled services (as their cable counterparts do already) and possible better services - services that would differentiate DirecTV from their competitors.

DirecTV should focus on better alliances with business partners in order to bring their base package start price per month of $39.99 down in the range of their competition (DISH Network) of $19.99 per month. Warehousing or factory locations, as well as shipping agreements should be reviewed in order to reduce overhead and eliminate the burden of shipping costs they have placed on their customers. Addressing these areas of unbalance between DirecTV and DISH Network is part of the competitive dynamics between two firms competing in a market looking for an advantage.

2 Situation Analysis

In 1952, Rupert Murdoch inherited a small Australian newspaper, The News1 and from there he proceeded to build one of the largest media corporations in the world. News Corporation is a conglomerate that includes television, feature films, online services news papers, and books. During his career, Mr. Murdoch has acquired many media outlets all over the world - his empire is spreads from Australia, through Europe, to the United States and China.

To provide a picture of just how large Mr. Murdoch's empire is; here is a brief listing of some of his companies.

Filmed Entertainment

Television

Cable TV

Direct TV & Satellite

20th Century Fox

20th Century Fox Television