News Corp in 2005: Consolidating the DirecTV Acquisition
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Introduction
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" . |
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Background Note
The DirecTV acquisition seemed to mark a turning point for Murdoch. DirecTV' s
roots went back to 1932, when Hughes Aircraft was set up to build experimental
airplanes for Howard Hughes (Hughes). During World War II, the company began
building a mammoth flying boat to serve as a troop carrier. After the war, the
company entered the growing defense electronics field. In 1953, it underwent a
major shake-up when about 80 of its top engineers walked out, dissatisfied with
Hughes, who was becoming distant and difficult to deal with. The US Air Force
also threatened to cancel the company's contracts because of Hughes' erratic
behavior.
Hughes transferred the company's assets to the Howard Hughes Medical Institute
(with himself as its sole trustee) and hired former Bendix Aviation executive
Lawrence Hyland (Hyland) to run the company. The institute produced the first
beam of coherent laser light in 1960 and placed the first communications
satellite into geosynchronous orbit in 1963. The Hughes-built Surveyor landed on
the moon in 1966.
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.
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