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News News CorporationCorporation

ByByTeam VivaldiTeam VivaldiSpring 2008Spring 2008

MGT 693MGT 693Class 18571Class 18571

Professor DegravelProfessor DegravelCase Study Case Study PresentationPresentationTeam VivaldiTeam Vivaldi

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News CorporationNews Corporation

Founded in a small Australian town in 1952Founded in a small Australian town in 1952 Impressive media and entertainment company Impressive media and entertainment company

with broadest global presencewith broadest global presence Major assets include newspaper businesses, Major assets include newspaper businesses,

film and television production, major television film and television production, major television channels, television stations, and channels, television stations, and book/magazine publishingbook/magazine publishing

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IssueIssue

News corporation is trying to acquire DirecTV, News corporation is trying to acquire DirecTV, the dominant provider of satellite television the dominant provider of satellite television service in the United Statesservice in the United States

EchoStar, the second-largest satellite provider EchoStar, the second-largest satellite provider in the U.S, increased its offer to buy DirecTV to in the U.S, increased its offer to buy DirecTV to more than $26 billionmore than $26 billion

VS

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Strategic Logic Strategic Logic ofof Acquiring DirecTV Acquiring DirecTV

Expanding dominant satellite distribution Expanding dominant satellite distribution networksnetworks BSkyS in Europe and Star in AsiaBSkyS in Europe and Star in Asia No distribution presence in the U.SNo distribution presence in the U.S

DirecTV considered as “transforming DirecTV considered as “transforming acquisition”acquisition” Establishes distribution presence of News Establishes distribution presence of News

Corporation in the U.S.Corporation in the U.S. Diversify News Corporations’ revenue streamDiversify News Corporations’ revenue stream

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Benefits from the DirecTV Benefits from the DirecTV Acquisition Acquisition DirecTV with Sky Global linkupDirecTV with Sky Global linkup

Access to cheaper programming and advanced Access to cheaper programming and advanced technology at the Murdoch controlled BSkyBtechnology at the Murdoch controlled BSkyB

Have with Sky Global’s satellite holdings and Have with Sky Global’s satellite holdings and technology companies technology companies

Acquiring DirecTVAcquiring DirecTV BSkyB’s expertise in customer management could BSkyB’s expertise in customer management could

be leveraged into DirecTV’s operationsbe leveraged into DirecTV’s operations Diversify News’ revenue stream in the U.S. beyond Diversify News’ revenue stream in the U.S. beyond

the advertising marketthe advertising market Obtain some synergies from common purchasing of Obtain some synergies from common purchasing of

set-top boxes and programmingset-top boxes and programming Monetize some of News Corporations’ unlisted Monetize some of News Corporations’ unlisted

assets such as STAR.assets such as STAR.

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Corporate StrategyCorporate Strategy

MultinationalMultinational

Diversified across multiple productsDiversified across multiple products

Vertically integratedVertically integrated

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Corporate StrategyCorporate Strategy

MultinationalMultinational Major TV channels are in three continents and dozens Major TV channels are in three continents and dozens

of countriesof countries Newspapers owned in U.S., United kingdom, Newspapers owned in U.S., United kingdom,

Australia, New Zealand, Fiji, and Papua New GuineaAustralia, New Zealand, Fiji, and Papua New Guinea

Diversified across multiple productsDiversified across multiple products Major assets include newspaper businesses, film and Major assets include newspaper businesses, film and

TV production, TV channels, TV stations, and TV production, TV channels, TV stations, and book/magazine publishingbook/magazine publishing

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Corporate StrategyCorporate Strategy

Vertical integration strategyVertical integration strategy Film StudiosFilm Studios TV NetworksTV Networks Cable / pay TV platformsCable / pay TV platforms

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Themes and PatternsThemes and Patterns News Corporation has been systematically News Corporation has been systematically

engaged in the building of a geographically engaged in the building of a geographically dispersed assets base through dispersed assets base through direct foreign direct foreign investment, strategic partnerships, and investment, strategic partnerships, and mergers and acquisitionsmergers and acquisitions U.S. entry into film and broadcasting via acquisitionU.S. entry into film and broadcasting via acquisition

News Corporation’s globalization strategy has News Corporation’s globalization strategy has also been marked by the significant role played also been marked by the significant role played byby joint ventures and strategic partnershipsjoint ventures and strategic partnerships in investments outside its home bases of the in investments outside its home bases of the United States, Australia, and BritainUnited States, Australia, and Britain Investment in Asia and Latin AmericaInvestment in Asia and Latin America

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Weaknesses of ApproachWeaknesses of Approach

Expanding too fastExpanding too fast Stepping on toesStepping on toes Way too diversifiedWay too diversified Bad timingBad timing

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Risks Impacting News Core Risks Impacting News Core StrategiesStrategies

Murdoch spent $75 million on Satellite TVMurdoch spent $75 million on Satellite TV Sky and BSB merger Sky and BSB merger In 1992 BSkyB was acquired for $465 to In 1992 BSkyB was acquired for $465 to

increase subscribersincrease subscribers Paid premiums Paid premiums Decisions were made too quicklyDecisions were made too quickly No business planning departmentNo business planning department

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Deteriorating Core AssetsDeteriorating Core Assets

Network TelevisionNetwork Television Need content and distributionNeed content and distribution

NewspapersNewspapers Shrinking advertising revenuesShrinking advertising revenues

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SWOT AnalysisSWOT AnalysisStrengths Weaknesses

Broadest global presence of media conglomerates w/advanced technology

Movie Studio (Twentieth Century Fox) 1st to integrate newspaper assets with TV Dominate owner of U.S. TV stations (22)

reaching 40% of U.S. (9/10 top markets) FX fastest growing cable network in 2001 Fox Sports cable with 21 local/regional

channels Fox News (< 2/3 staff of NBC and CNN) Corporate culture (rapid decision, instant

feedback, high threshold for risk, 9-vs-300 lawyers, project commitment-nurturing)

Adaptiblity—lack of traditional bureaucracy

No distribution presence in U.S. (need both content and distribution)

Inability to integrate global CA into U.S. Heavy reliance on advertising revenue Susceptible to mogul-think Limited newspaper revenues

Opportunities Threats FCC 1997 channel ownership restriction

loosened (duopoly—leveraged scale economies)

U.S. Satellite 1. Distribution presence 2. Access to NewsCorp worldwide

sports events with BSkyB advanced technology

New Business Technology—Internet

Larger competitors Cable network infrastructure FCC regulations New Business Technology—Internet

implications for media and ET sectors Technology bubble burst Economic downturn on advertising revenue

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Alternative ActionsAlternative Actions

Achieve greater economiesAchieve greater economies Scale—increasing output for a single productScale—increasing output for a single product

• ContentContent Scope—increasing output across multiple productsScope—increasing output across multiple products

• Distribution Distribution

Intensify hit show developmentIntensify hit show development Establish distribution presenceEstablish distribution presence

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RecommendationsRecommendations Leverage Twentieth Century Fox movie creationLeverage Twentieth Century Fox movie creation

Heart of media industryHeart of media industry Gain competency in TV show developmentGain competency in TV show development

Original programming vital (re-run revenue vs. brand)Original programming vital (re-run revenue vs. brand) Become more profitable with age (capital expenses Become more profitable with age (capital expenses

decrease and syndication revenues increase)decrease and syndication revenues increase) EoSca&Sco—acquire more stations and consolidateEoSca&Sco—acquire more stations and consolidate

Operating margins increased (10%)Operating margins increased (10%) Tap new business technology—Internet Tap new business technology—Internet Acquire satellite capability or create joint venture in cable Acquire satellite capability or create joint venture in cable

network infrastructurenetwork infrastructure Distribution presence Distribution presence

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Societal CostsSocietal Costs

Few major conglomerates create less Few major conglomerates create less competitioncompetition Individuals have less optionsIndividuals have less options MonopolyMonopoly

Media biasMedia bias Filtered newsworthinessFiltered newsworthiness Homogenized news reportingHomogenized news reporting Media spinMedia spin

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