DirecTV - Rupert Murdoch Shakes Up American Television

Rupert Murdoch, one of the most successful media tycoons of modern times, has not built his ever-expanding global empire through over-reliance on either caution, or tact. The legendary Australian has profited greatly by boldly sizing up, then seizing opportunities across the English-speaking world. BP Professor of European Competitiveness Karel Cool presents the case of Murdoch-owned News Corp's. efforts to gain entry into the prize US market within the context of achieving "critical mass" in what is still a highly regulated national industry.

by Karel Cool
Last Updated: 23 Jul 2013

"Lucifer has come, trailing smoke and sulphur." Editor of Adelaide (Australia) Review, on Rupert Murdoch's 1997 arrival in town.

Rupert Murdoch, one of the most successful media tycoons of modern times, has not built his ever-expanding global empire through over-reliance on either caution, or tact. The legendary Australian has profited greatly by boldly sizing up, then seizing opportunities across the English-speaking world. -- often presented in the form both of sweeping industry deregulations and consolidations in both print and broadcast media.

BP Professor of European Competitiveness Karel Cool presents the case of Murdoch-owned News Corp's efforts to gain entry into the prize US market within the context of achieving "critical mass" in what is still a highly regulated national industry. The case centres on Murdoch's buyout of what had been EchoStar's main rival, DirecTV, from General Motors in 2003.

Dramatic changes in the quickly expanding American cable and satellite television market has long held appeal for Murdoch, despite the failure of an American pay-TV service in the early 80s. Over the following decade, he saw ample opportunities in the potentially very lucrative US market; due especially to subsequent technological convergences, and concerns on the part of many content providers that sector consolidation would send programming costs soaring.

Murdoch's first successful American broadcasting venture, ASkyB, formed when News Corp partnered with US telephone giant MCI in the mid-90s. ASKyB merged with major American direct-to-home (DTH) provider EchoStar in 1996. Its president felt the merger would "unleash a cosmic armada unmatched since the empire struck back. We can put the dream of the electronic superhighway on every square inch of the rooftops of the United States within the next 18 months".

True to previous form, News Corp soon proved adept after acquiring DirecTV at leveraging the DTH management expertise it had gained in other markets around the world. In trying to lower customer attrition and contain DirecTV's initially quite serious operational losses, its new managers stated their commitment to holding down costs by whatever means necessary - including pushing certain less popular channels off its systems. It soon announced plans to invest $2 billion in the company in order to secure at least 15 million subscribers.

But News Corp's status as a late entrant trying boldly to overcome the first-mover advantages of several wealthy and well-positioned domestic competitors would soon be put to the test. A major rival, CableVision, had recently entered the DTH market, and was anxious to make major inroads into the high definition television (HDTV) market that remains largely un-chartered territory in the USA.

While competition between DTH operators intensified, the "triple-play strategy" employed by cable providers continued. This involved ongoing expansion into both broadband and telephony services, facilitated by recent partnership programmes launched between AT&T and local cable TV companies. Certain trends seemed to bode well for DirecTV's chances of success. Surveys indicated that subscribers tended to be happier with DTH services than those offered by cable TV providers. Growth expectations in revenue per household and basic cable service rates were also encouraging.

But it was (and is) still very far from being clear how major factors shaping the long-term American TV broadcasting industry would evolve, due largely to choices service providers were forced to make regarding core technology. Was the current method of providing DTH services going to prove attractive to enough customers in future? How could Murdoch best hope to turn DirecTV into a sustainable creator of shareholder value?

INSEAD 2005

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