News Corp in 2005: Consolidating the DirecTV Acquisition
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The Road Ahead
" We want DirecTV to be the best television
experience in the world and The DirecTV Group to realize its value
potential for our shareholders. We plan to reinvent DirecTV into an
entrepreneurial, efficient and agile business. Our management team will
establish DirecTV as the leader in exciting, rewarding and compelling
television and we are determined to grow our business while maximizing
profitability."
- Murdoch With DirecTV, Murdoch had gained access to 12 million subscribers in the US. In early 2004, Murdoch' s media empire consisted of businesses that generated $ 30 billion a year and reached out to just about every corner of the world. No other media company controlled such a mix of programming and the means to deliver it to households as News Corp did. |
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For the nine months ended 2004, revenues at DirecTV rose 21% to $8 billion. Net
loss from continuing operations and before changes in accounting standards from
Australian to US GAAP rose from $68 million to $768 million. These results
reflected a larger subscriber base and gains on the sale of XM Satellite stock,
offset by asset impairment charges.
Meanwhile, in early January 2005, DirecTV announced plans to make its own DVR by
the middle of 2005. DirecTV outsourced its DVR requirements to TiVo, the
industry leader. According to DirecTV, the new device would be a step-up from
the current TiVo offering with a 90 minute live TV buffer, a built in TV
'bookmarking' system and other interface refinements.
DirecTV did face a few concerns at the end of 2004. DirecTV Latin America had
filed for Chapter 11 bankruptcy in early 2003, and withdrawn from the market in
2004. Later in the year, DirecTV announced plans to reorganize its Latin
American operations.
In January 2005, DirecTV reported that the Securities and Exchange Commission
(SEC) was seeking further accounting details on deals done with Pegasus
Communications, the National Rural Telecommunications Cooperative and Thomson,
all done in the second quarter of 2004. The SEC had also launched an
investigation on the $1.47 billion write-down of its Spaceway satellites in the
third quarter 2004. DirecTV reported that it might be required to change how it
accounted for those transactions, which might increase its depreciation and
amortization expenses. A DirecTV spokesman commented ,
" We're providing them with the information they requested. This is not an
investigation, it's a routine inquiry" .
Meanwhile, Moody's, the credit rating agency had raised its bond ratings on
DirecTV, citing improving operating performance and a focus on its satellite
pay-TV business. Moody's raised the company' s rating to " Ba2," which was two
steps below investment grade, from " Ba3." Analysts saw this as a positive
reinforcement on how DirecTV was managed.
News Corp moved fast to acquire complete control in Fox Entertainment Group,
which in turn held a controlling interest in DirecTV. In an effort to simplify
News Corp' s corporate structure, Murdoch offered to buy the remaining publicly
held shares of Fox Entertainment Group in a $ 6 billion stock deal in January
2005. News Corp owned about 82% of the equity and 97% of the voting power of Fox
Entertainment.
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