News Corp in 2005: Consolidating the DirecTV Acquisition



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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