DirecTV strategy final

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  • Content : Each day, DIRECTV subscribers enjoy access to over 250 channels of 100% digital picture and sound, exclusive programming and the most comprehensive collection of sports programming available anywhere, including NFL SUNDAY TICKET™ and MLB EXTRA INNINGS®. Access is offered to homes, airports, hotels, restaurants, hospitals, office buildings, airplanes, automobiles and portable electronics. DIRECTV also leads the digital television technology revolution with exclusives such as NFL SUNDAY TICKET SuperFan™, US Open Interactive and YES Network Interactive and currently offer over 90 National HD channels. Technology: More than 7,500 employees operate DIRECTV’s broadcast centers on the ground, monitor satellites in space and deliver industry-leading service and value. As an all-digital platform, DIRECTV is the first to deliver an interactive on-screen program guide and pay per view ordering by remote control. Their innovations have led to six Emmy® Awards and hundreds of filings for US patents as DIRECTV has introduced must-have technologies to the TV viewing experience. Service: For the seventh year in a row, DIRECTV scored higher in customer satisfaction than every cable company measured in the American Customer Satisfaction Index.* More than half of their employees primarily work to deliver the highest level of service to our customers, whether they call 1-800-DIRECTV, work with one of our installers or manage their accounts online at directv.com. We want our customers to rely on us to meet their needs effectively and professionally. An entrepreneurial spirit is alive in all that we do, reinforcing our values of leadership, innovation, decisiveness, agility, teamwork and integrity. Our employees' diverse talents and life experiences generate the ideas that continue to drive the company forward, ahead of our competitors. Their pride and enthusiasm is vital to each and every job across more than one dozen U.S. locations. Thanks to their abilities and innovative thinking, DIRECTV is competitive in a rapidly changing industry.
  • As of December 31, 2007, DIRECTC had approximately 11,300 full-time and 1,000 part-time employees. We believe that our employee relations are good. None of our employees is represented by labor unions in the United States. In some countries in Latin America there are labor unions with which we have a good working relationship.
  • Threat of New Entrants: Low   Economies of Scale: DTV has 11 satellites that reach the 48 contiguous US states, and also through partnerships with foreign companies reaches customers in Latin America and the Caribbean. More than 22 million subscribers.   Product Differentiation: DTV prides itself on its differentiation strategy, and offers exclusive programming packages that are based on costly long-term contracts and relationships, which would be difficult to duplicate for a new entrant.   Capital Requirements: Are very high, considering that satellites must be built and launched and content acquired. Just in 2007, DTV spent $2.9 billion dollars for the acquisition of property and satellites.   Switching Costs: Depends on contract of service. Contracts have early-termination fees, which discourage switching around. Moreover, when a customer decides to terminate service, DTV will often make a tempting offer by lowering price or offering premium channels. The new entrant would not be able to make a similar offer.   Access to Distribution Channels: DTV has built relationships with content providers over time, and it enjoys exclusive distribution rights to sports events, which for a new entrant would be prohibitively costly and difficult to obtain. Cost Disadvantages Independent of Scale: Proprietary product technology, Securing licenses, Purchase of satellites, Partnerships with AT&T, TiVo, etc. would be very difficult to duplicate for a new entrant. DTV holds over 1,650 issued patents worldwide, including over 250 directly related to satellite business. Government Policy: Satellite providers depend upon the FCC’s allocation of sufficient DBS frequencies and assignment of DBS licenses in order to operate. DBS frequencies and available DBS orbital locations have become increasingly scarce, which is a high barrier to a new entrant. FCC grants authorization to satellite operators that meet its legal, technical and financial qualification requirements, which new entrant may not be able to meet. Operators are subject to FCC regulations (including obligation to carry local channels and rules that govern co-existence with other satellite and terrestrial service providers), Communications Act Requirements (Public Interest Requirement, Emergency Alert System) and Copyright laws. Expected Retaliation: DTV’s powerful marketing machine and appealing offers and promotions, could easily squash any attempts by a new entrant to capture market share. Cable companies also would up the ante by lowering their prices, and the new entrant would have to lower prices as well and sacrifice profits.
  • Supplier Power : Low/Medium   DTV suppliers: Suppliers of hardware, Satellite Suppliers, Content Suppliers -Hardware (set-top box): Provided by Pace Micro Technology of Britain, LG of Korea, Thomson of France -Satellite: Hugh Electronics, Loral, Boeing, DTV owns most satellites, only one leased -Content: Local channels, NFL Sunday Ticket, NCAA Mega March Madness Premium Channels (HBO, Showtime), Specialty Channels (Golf channel, Home Shopping Network, Food Network Supplier industry is dominated by many firms Suppliers’ products have many substitutes Buyer is an important customer to supplier: only 2 satellite TV providers in the US. To reach as many customers as possible, suppliers need to make their content available in all distribution channels, since they are mutually exclusive: cable/ DTV/ Dish) Supplier’s product is important input to buyer’s product, but not essential. Supplier has a wide variety of choices. Supplier’s products are somewhat differentiated. In the case of hardware and satellites, they are not differentiated. In the case of content, high degree of differentiation, but within each category there are many choices. Example, Movie channels: Showtime, Starz, HBO, Cinemax. Supplier’s products don’t have high switching costs. To change from one provider to another, DTV only has to change a signal. Supplier doesn’t pose a credible threat of forward integration. Content providers produce content; don’t plan on distributing it via their own satellite system.
  • Buyer Power: Medium   Buyers are not concentrated: DirecTV residential, business, DirecTV Mobile (RVs, cars, boats), and DirecTV Airborne (aircraft). Also DirecTV is diverse geographically. Purchase accounts for a significant fraction of supplier’s sales   Products are undifferentiated in general: Basic TV stations are all the same ABC, NBC, CNN, ESPN, etc. However, very strong differentiation is noticed in the offering of certain packages such as the NFL Sunday Ticket. DirecTV has exclusive rights to broadcast NFL games, no other network has this service. Hence very low buyer power.   Buyers face few switching costs: see above Buyer’s industry earns moderate profits. Majority of customers can afford DirecTV service. Product important to quality: DTV prides itself on the quality of its programming options and expects high quality from providers.   Buyers do not present credible threat of backward integration   Quality is important   Customers are well informed
  • Threat of Substitutes: High Products with improving price/performance tradeoffs relative to present industry products. Internet, rental video (Blockbuster, Netflix), movie theaters, I-tunes, video-gaming consoles industry (Xbox provides movies), Blu-Ray high definition DVD’s.
  • Intensity of Rivalry Among Competitors: Very Intense   Numerous or equally balanced competitors: There are several competitors providing the Television service (Satellite, Cable and Fiber), although only few major ones are available in a particular geographical region, inducing higher rivalry among competitors.   Slow industry growth: Television industry has matured and growth is very slow. Battles to protect market share are fierce.   High fixed costs: All television competitors provide service over an existing hardware infrastructure. They all strive to maximize the use of their product capacity, and thus achieving higher economies of scale. They often cut cost and offer rebates which intensifies the rivalry.   Low differentiation: Essentially all Television service providers offer the same service (TV channels). DirecTV focuses on service differentiation by offering more channels, more HD channels and excellent customer service, however in its core the Television product is the same, cause extreme rivalry between providers.   Low switching costs: Even though TV providers try to lock users into yearly contracts, imposing high termination fees, once the contract expires nothing stops the customer from changing its TV provider. In addition competitors offer attractive sing up deals, including 1 month free basic service, free installation and activation and 1 month free premium channels.   High Strategic Stakes: It is critical for DirecTV to perform well in the Television market, since it is its main revenue provider. New competitors such as phone and internet giants Verizon and ATT have entered this market offering fiber TV service to its existing customers who also are DirecTV customers. They offer multiproduct bundle discounts, single bill and quality TV service, which will is hard to compete against for non-diversified firms such as DirecTV.   High Exit Barriers: Exiting the Television market is couple with high stakes for DirecTV. For example, the firm has invested heavily in infrastructure (satellites) and has existing long term contract with other corporations (JetBlue Airlines). High exit barriers leads to additional rivalry intensification.
  • DirecTV falls in the Broadcast and Telecommunications Industry. Our research shows that this industry is currently at the end of the Shakeout and beginning of the Maturity stage.
  • According to the Bureau of Economic Analysis at the Department of Commerce, the growth in this industry in 2006 was 6.6%. The 20 year growth trend is displayed in the chart below. The chart shows a period of strong growth in 1997-2000 and then shows almost no growth in the period 2001-2003. The first reflects the introduction of digital television and also the popularization of Internet based technologies, while the second reflects the events that took place on September 11 th , 2001 and the effect they had on the entire economy: one key factor was the dramatic decrease in the companies’ spending on TV advertisements. Throughout its over 100 year history, the Broadcast and Telecommunications Industry had multiple periods of growth, maturity and decline. This is due mostly to the continuous industrial innovation. Some examples include radio broadcasting; followed by B&W television broadcasting, color TV, cable TV, digital TV, and now interactive and programmable TV and HDTV. Technological advancements have allowed for the introduction of new TV features which add more value to the customers’ experience. The highly anticipated next phase of television entertainment which will spark another growth stage is Video on Demand (VOD).
  • Demographic Population size: 305 million   Age structure: Median age 36.2 years old   Ethnic mix: Hispanics are the largest minority with 13% followed by African Americans 11%   Income distribution: About 1/3 of US households reports less than 35K USD annual income. 19% report 50-75K USD.
  • Inflation rate: 4.9 % (September 2008) Average for the last 12 months: 5.5% These are the latest Bureau of Labor Statistics (BLS) data released. The newest figures indicate consumer prices (inflation) rose 4.9 in September from a year ago, compared to 5.4% in August. On a monthly basis, the Consumer Price Index (CPI) was virtually unchanged following a 0.1% decrease in August.   Interest rate: 1.0% (October 2008) Trade deficits: $59.1 billion (August 2008)   The U.S. monthly goods and services deficit decreased in August 2008, according to the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The deficit decreased from $61.3 billion (revised) in July to $59.1 billion in August, as imports decreased more than exports. The previously published July deficit was $62.2 billion. Chart Budget deficit or surpluses:   Personal savings rate: 2.8% (August 2008) 2008-06-01 2.8 2008-07-01 1.9 2008-08-01 1.0   Gross domestic product: 0.3% The government reported Thursday that the economy shrank in the summer, sending the strongest signal yet that a recession may have already begun. The Commerce Department reported that gross domestic product, the broadest measure of economic health, fell at an annual rate of 0.3 percent in the July-September period, a significant slowdown after growth of 2.8 percent in the prior quarter. Consumer spending, which accounts for two-thirds of the economy, dropped by the largest amount in 28 years in the third quarter.
  • Political/Legal Segment: we have listed only the one we think pertain to the Broadcast & Telecommunication Industry FCC- Federal Communication Commission regulations: As you can see the B and T industry is heavily regulated, it has to abide by International, Federal, State, and Local regulations. Leasing of satellites, assignment of frequencies, avoidance of interference Communications Act SHVIA- Satellite Home Viewer Improvement Act SHVERA- Satellite Home Viewer Extension and Reauthorization Act ITU- International Telecommunications Union regulations State telemarketing and advertising rules Subscriber privacy rules Theft of satellite programming signals
  • Women in the workforce: 2007 · Women comprise 46% of the total U.S. labor force and are projected to account for 47% of the labor force in 2016. · Women are projected to account for 49% of the increase in total labor force growth between 2006 and 2016. · A record 68 million women were employed in the U.S.--75% of employed women worked on full-time jobs, while 25% worked on a part-time basis. Diversity in the workplace: In 2007, racial minorities increased their share to 32.3 percent of workforce. African-Americans: 14.2% Asians 5.2% Hispanic: 12.3% Source: U.S. Dept. of Labor
  • Critical Markets: South America, Central America, Caribbean   Emerging markets represent large opportunity for DirecTV growth. Wonderful opportunity but on the downside, these markets are more volatile. In the past: Economic crisis in Brazil, Argentina, Colombia Venezuela have led to: Exchange rate instability High inflation High domestic interest rates Economic contraction High unemployment   Currently: Economic downturns could lead to: Decrease in consumer demand Subscriber credit problems Longer payment cycles   Political factors-growth of populism in Venezuela, Brazil could lead to: For example Chaves have nationalized the media companies in Venezuela Changes in regulatory environments Difficulty in obtaining approval for important transactions
  • DTV relies on third parties to provide programming services (content, such as shows and sports events). The cost of providing these services has increased steadily every year. If company passes these additional costs to subscribers, churn rate could increase. If it doesn’t pass them on, company’s operating and financial position could be affected. FCC: Enforces certain “carriage requirements” that prohibit satellite carriers from signing up new subscribers to distant analog or digital signals, and require that certain programming (such as sports) be deleted from signals of certain distant stations. These requirements could affect company’s local broadcast stations services.
  • In July 2007, DTV and Tivo entered into alliance to develop a software upgrade to enhance user experience for customers. Another example of an alliance is when in Dec. 2007, DTV, SKY Mexico and Sky Brazil made agreement with Intelsat Corporation to build and launch a new 24-transponder satellite. Also, NDS, which provides the smart access cards, signed an agreement with DTV to extend term of relationship until 2013. Alliances like these serve to enhance the product offerings, as well as provide opportunities to enter emerging markets. High-definition market in the US is growing dramatically. By end of this year, it is expected that more than 47 million households in US will pay for some type of HD service. This is an increase of 17 million homes from 2007, which represents higher revenues for DTV. By developing and launching its HD offerings before its competitors, DTV has strengthened its leadership position which translates into growth of customer base.
  • PROFITABILITY: Gross profit margin: Numbers show improved cost control Net profit margin: 4 fold increase Return on assets: 3.5 x increase, Return on equity: very healthy 3fold increase. good for shareholders   LIQUIDITY: We looked into 10k for 2007 to find out why the current ratio experience such a drastic decrease… see cash 2.5 bill to 1 billion. . Current Liabilities didn't go up but assets shrank Why ? Capital expenditures were really high in 2007: 2 reasons: . Beginning March 1, 2006, capital expenditures include the cost of set-top boxes receivers capitalized under DIRECTV U.S.' lease program. Also, purchase in cash of Darlene, acquisition of Sky Brazil and Sky Mexico and expenses related to High Definition program. LEVERAGE: margins expanding as we see debt paid down. increase in assets…leverage decrease.   ACTIVITY: Increase means high demand for boxes and other equipt and hardware. The declining # shows they have been heavily investing in fixed assets: set top boxes, Darlene, Sky Brazil and Mexico. Show increase in credit risk accounts from 2005 but getting better from last year. Reflection of Strategy of reducing high-risk accounts and focusing on quality subscribers.
  • Vision: We’ve contributed to the evolution of TV with our HD programming, interactive features, DVR services, quality customer service, and electronic program guide.” Leadership: . Example: growth in demand for HD technology and interactive programming.
  • Corporate citizenship: The department manages charitable giving in DIRECTV's name, including cash and in-kind donations, and is the primary point of contact for cause-related outreach and community involvement.
  • HR management: Active and vigorous recruiting of technically skilled employees to drive technological innovation. DTV Home services: third party installation and service network that performs installation, upgrades, and other service call work.
  • Research and Development: Expenditures for research and development were $16.0 million in 2005, $49.0 million in 2004 and $54.6 million in 2003. Expenditures for following years not disclosed. Patents: DTV holds over 1,650 issued patents worldwide relating to past and present businesses It holds a worldwide portfolio of over 710 registered trademarks, including over 465 foreign registrations
  • Set-top receivers that incorporate DVR and HD technology. Constant upgrades: In 2006, introduced new HD-DVR capable of receiving and recording new MPEG-4 HD signals. This box also incorporated interactive and video-on-demand functionality. In 2008, it introduced the ability to remotely schedule DVR recordings via the Internet or cell / mobile phone. Also in 2008, it significantly increased the recording capacity of HD-DVR. Plans to introduce HD versions of interactive applications, and Whole-House and Portable Services. Young satellite fleet : DTV has 11 satellites, 5 uplink facilities, 3 broadcast centers that reach 48 contiguous United States and Latin America.
  • Licenses: DTV holds licenses to broadcast services from 46 of 96 assigned Direct Broadcast Satellite frequencies in the Ku-band spectrum. Also holds licenses in three orbital slots in the Ka-band spectrum.   Optimum orbital slots: Reduce obstructions and effect of rain, Allow single-dish solution for all customers  
  • Churn: subscriber disconnection
  • Efforts to improve subscriber quality: Stricter Credit policies for accepting new clients (mandatory credit cards, social security numbers), new fraud management system. Extending term commitments from 12 to 18 months for basic equipment and 2 years for advanced equipment (such as DVRs). 2005-2007 ratio of high-risk to low-risk subscribers was decreased. 2005 high risk was 28%, 2007 high risk was 10%.
  • HSP –home services personel pick up
  • Valuable -Rare -Costly to Imitate –Nonsubstitutable Leading Brand Name: Brand name is an important factor in ability to attract new subscribers and secure strategic alliances with programmers, distributors and other technology and service providers. Delivers one of the widest selections of local and national programming available today in the United States, including exclusive programming such as the NFL SUNDAY TICKET package and international programming. Substantial capacity in the Ka-Band spectrum enables DTV to offer the most national HD programming currently available in the industry. ,
  • High-Quality Digital Picture and Sound, Including HD Programming:   Video and audio programming is 100% digitally delivered, which enhances quality of image and sound. Cable providers offer programming in analog format and charge extra for digital channels. DTV offers the most comprehensive selection of HD programming in the United States.   Strong Customer Service: DTV has attained top rankings in customer satisfaction for the industry for seven consecutive years. Quality of customer service minimizes subscriber disconnection (“churn rate”) and attracts new subscribers.
  • Direct TV is the largest provider of direct to home digital television services in the US and the second-largest provider in the multi-channel video programming distribution in the USA. DTV also provides one of the most extensive collections of programming available. Company revenue improved 14% from 2005 to 2007, operating profit margin increased 14.4% in 2007 and net profit margin increased 8.4% . DTV has achieved the highest customer satisfaction ratings for 7 consecutive years. This helps to give the company a competitive advantage and protect its market share by attracting new subscribers and reducing churn.
  • Churn Rate is the percentage of customers that disconnect their service each month. Churn rate of 1.5% in 2007, Dish had a churn rate of 1.7 in 2007. This indicates problems with retention of customers, could impact market share. Company has been accused of patent infringement by Finisar Corporation. US District Court for the Eastern District of Texas determined that DTV had to pay Finisar $1.60 per new set-top box from June 2006 until patent expires in 2012. Damages awarded to Finisar $25 million and pre-judgment interest of $13 million. This can affect not only financial position but also the brand image of DTV.
  • Gm Merged Delco Electronics Unit and Hughes aircraft to Form GM Hughes Electronics GMHE Panamsat Satilites Communication Provider – increased stake to 81%
  • US Satillite and Primstar increased consumer base and channel line up Sold Satellite manufacturing business to Boeing 2003 agreement with Space systems/Loral DIRECTTV 8 & DIRECTTV 9S
  • Filled for Bankruptcy PanAmSat to Kravis Koleberg Roberts
  • Operations to Thompson Software to Flex tronics
  • Intell and Microsoft – enable remote access to Directv programs through PC’s, Laptops and other handheld devices
  • To do this we will approach as all have look at what makes DIRECTV's offering a good product, a better menu of services for its customers and more cost effective in doing so.
  • Business according to the company is differentiated two ways: Geographically there is DIRECTV US & DIRECTV Latin America Direct TV uses differentiation in their line ups and delivery methods than their competitors and strategically focuses on how to do this. Their competitive strategy is a dynamic between these two types
  • They compete in the rapidly expanding HD market. The Cap EX expenditures are huge in this growth Process Important in the HD expansion is that prior to the Satellite launch you could only get channels broadcast in your home market. Fast Note: Boeing gets the satellite up into orbit and once it is parked in its geosynchronous position control is passed to DTV. Sea Launch platform is shared by a consortium of Satellite providers including Dish and XM-Sirius Radio using a coopetitive model.
  • Mix channel allows both sports such as NFL and News to have up to 8 live games or news broadcasts on one screen Nascar Hot Pass: Unique set of 5 channels allowing fans to follow 4 different drivers with multiple camera angles, real time stats, and live communication between drivers and pit. With NASCAR’s popularity and fan base this is a strategic focus while it differentiates with this exclusive programming right Intl: Underserved markets in the U.S by competitors-They have the lead in Cantonese, Filipino, Russian, Vietnamese and Spanish language programming.
  • We saw content and service as the differentiator and here we see the delivery method is focused strategically Tech is important in their ability to introduce service connections that are easy to use, subscriber friendly while reducing costs. What do we mean? Simply-advancements in technology will drive subscriber demand for enhanced digital video, DVR, HD and whole house solutions Antenna’s increase footprint and therefore the competitive advantage: psychology of the incumbent Wholehouse: Speak more to this in four blocks of competitive advantage. Suffice it to say it means access other than TV for service
  • As we learned in Marketing…customization is an essential key to leadership position and brand building. Gives customers what they want at the price they want to pay when they want it. Call centers have 4700 phone reps available Installers follow uniform guidelines insuring professional and trustworthy appearance Highest customer satisfaction scores on the TV services market: the average is 62 and DTV scored 65 and above since 2002. 67 in 2007 First in JD Powers Cable/Satellite TV Customer Satisfaction in 2006. From best prices for services to customer support.
  • Innovation is not just the key to competitive advantage but to survival for players in the Home Entertainment Industry. Competition comes from UHF/VHF Broadcasters going digital, Bell Companies, Internet Providers, Cable, and a plethora of competing technologies seducing discretionary income from each. By July of 2008 after release earlier in the year…it hit 1 million milestone and is gaining ground…
  • Performance: During storms that would otherwise disrupt cable or telephony providers, natural disasters that take out cables or down phone lines…this doesn’t happen. Durability : Satellites are good for 15 years expected life…they just launched this year, boxes are programmed and updated from centers, swapped out if problems by techs so it is a non event. Serviceability we spoke to and was included in
  • Technicians are all professionally dressed and in company trucks. Know what to expect. Uniformity. Quick response and turnaround time. Pack up remotes and take then with you. Time being the commodity we are usually most short on is saved=efficiency. Large discounts for partnership programs offered with ATT and Qwest for example… Online scheduler is streamlining efficiency with users for entertainment value proposition
  • Inbound : Programming vis-à-vis Satellite, fiber optic cable, special tape Transmissions via conventional terrestrial transmission, microwave, satellite uplink, fiber optic OPS: (1) Content digitized, encrypted, transmitted; (2) Systems built to minimize service interrupts (3) Piracy of signals are costly and significant revenue risk as is conditional system access compromises by smart cards TECH: Efficiency of customer response orders for service
  • Sats: 10 owned, 1 leased. The 11 th was put into orbit Q1 08 as mentioned earlier: Dish has 6. Channels : Their differentiator discussed earlier has 1800 channels available if you include XM, Premium, and Pay Per View, and Foreign Language packages offer more options MKTNG-SALES:
  • HQ are located in the entertainment capital of the world among leading content production companies and distribution. Corporate pushpins on map are east west and middle of country: Covered support availability as competitive advantage component – note their dominance in licensing Insurance only covers 1.52 billion of 1.3 billion in orbit. However all launches of them are insured—greatest risk.
  • Active Human Capital management firm: Highly tech skilled force needed they pay attention to them Good working relations w/Unions in Latin America Competitive strategy and Innovation in Technology find home here finally—Superior
  • Procurement takeaway : excel at guaranteed minimum commitment attainment base on subscriber #’s. Healthy relationship with Boeing Liberty Media is where the Chairman served as CEO and Chairman prior to DTV as well as TCI which he sold to ATT. Vince will speak to this.
  • I am going to speak to the historical perspective on expansion as it is fairly recent and the models used now are quite similar to those used then
  • Strategic: Offense and Defense—other competitors were launching into Latin America right with or just behind DTV. Decided to go already but had to go or lose.. Economic motives: Great market share to seek here. And their prospective Foreign partners were very hungry and successful.
  • Economic Soundness- Evidence suggests proper biz decision to enter Mexico GDP is very healthy Growth is also healthy
  • Exports are healthy and spread across all major economic sectors North America constitutes 84% of all their exports…Germany comes in 3 rd under 2%...Others are spread thin FDI is almost equal to gross exports … and banked gold keeps their trading partners happy Openness… NAFTA says it all and has launched Mexico’s population into higher standards of living and a more valuable currency role in the world.
  • Comparison of Peso to the Dollar. We can see the valuation of the Peso increasing which is good for the customers ability pay for discretionary services. THE present financial crisis will change this chart somewhat.
  • Hughes communications subsidiary of Hughes electronics which is a unit of General Motors Strategic options- begging for entry
  • New broadcast concept in the US, let alone going into a new country. Unproven for paying consumer audiences, dealing with 45 years of satellite broadcast experience-NatDef. Backorder on dishes: 500,000 in US alone Support service infrastructure in new coutnry…can it be ramped to handle the move. Borrowed money: What we mean is IMF and World Bank loans were proliferating in South america at the time to build economies…and w/in two years would begin to fail.
  • So, though not as simple as it appears here…here it is …simply laid out. Equity venture from the funding standpoint. So it is a ¼ billion dollar FDI for all intents and purposes.
  • We had a choice of several and very recent mergers to choose from. We chose their first overseas merger model, a simple equity interest joint venture in 1995 The great granddaddy of them all. IT was efficient, simple, equity driven and planted Direct TV's flag in the Pan-America's. We will look at some recent closed deals at the end of this section . Partner Selection Viewer markets for Cisneros Group,Televisao Abril & MVS Multivision already in place. Captive audience for solictiation. Value added of Direct TV for viewers on other side equation. How did they see and subject their partners to the 6 C score card approach? Goals were compatible . They offered DTV Media distribution and programming experience and expertise overseas. Capacity is the Key to the Key of the right partner selection: Examine from its three components: Read them off.
  • DirecTV was being overseen by some of the most savvy and successful media moguls, conglomerates and corporations on the planet. The selection of the 3 sizeable, most aggressive and visible Media players was far from accidental. Vince will speak to the tangled web of relationships from the BOD down… Risk Assessment : Research is weak … only that all players in media and entertainment are cut throat, self interested and opportunistic. The names on the BOD, the ownership by Hughes and the deep pockets of DTV suggest their Latin American partners knew better than to bite a hand this big...Murdoch, Malone, etc. commitment to not losing Spoke to the ½ billion at stake for all… Complimentary Skills: content providers meet potentially unlimited distribution reach…Got a dish?
  • The reporting structure is interesting for DTV . Appears at first look they use a multi-domestic as they enter each global market they stand alone such as DirecTV Latin America Some requisites for Multi domestic however is No collaborations or sharing in place. This is simply not true or feasible in Direct TV’s case as my group mates have pointed out. They participate in joint ventures using several formats but the DTV share is managed via word from HQ or BOD’s.
  • The Board currently has three committees: Audit, Compensation and Nominating and Corporate Governance. Membership on such committees is limited to Independent Directors (as determined in accordance with the Company's By-Laws and the Corporate Governance Standards of the New York Stock Exchange). The Board retains discretion to form new committees or disband current committees depending upon the circumstances, subject to the Company's Certificate of Incorporation and By-Laws and applicable law. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities for the financial reports and other financial information provided by the Company to the stockholders and others, the Company's system of internal controls, the Company's compliance procedures for the employee code of ethics and standards of business conduct, and the Company's audit, accounting, and financial reporting processes generally. The Nominating Committee is responsible for taking a leadership role in shaping the corporate governance of the Company and is responsible for developing and recommending to the Board a set of corporate governance guidelines applicable to the Company and to periodically review and recommend changes to those guidelines, including an annual review of the Company's Code of Ethics and Business Conduct and Code of Ethics applicable to the Chief Executive Officer and Senior Financial Officers. It also researches and recommends candidates for membership on the Board and whether to nominate incumbent members for reelection, makes recommendations to the Board as to the determination of director independence and recommends to the Board retirement policies for Directors. The Nominating Committee also makes recommendations concerning committee memberships, rotation, and chairs, and sets the agendas for the executive sessions of the Board of Directors. The Compensation Committee determines the compensation of the Chief Executive Officer and other elected officers of the Company, and approves and administers all equity based plans. It assists the Board regarding recruitment of elected officers and development of succession plans. The Compensation Committee reviews the compensation of directors for service on the Board and its committees and recommends changes in compensation to the Board. The Compensation Committee periodically reviews the adequacy of its charter and recommends any proposed changes to the Board for approval. Except for the standard compensation received in connection with service on the Board and its committees, the members of the Compensation Committee are not eligible to participate in any of the compensation plans or programs it administers.
  • Local-into-Local Service and Limitation on Retransmission of Distant Broadcast Television Signals. Copyright issues Must Carry Requirement . If you take advantage of copyright waiver, you must show all qualified locals Public Interest Requirement . Political and educational programming Emergency Alert System .
  • Independent auditor: A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
  • Share based payment Annual performance-based awards Restricted stock units and common stock options Compensation expense equal to the fair value of the stock-based award at grant over the course of its requisite service period Reported on a straight-line basis over the service period of up to four years based upon the value of the award on the date approved, reduced for estimated forfeitures and adjusted for anticipated payout percentages related to the achievement of performance targets.
  • Corp Governance Guidelines: Responsibilities and Compensation of the Board Board Committees Senior Management Board Committees Senior Management IV. Information for Board and Committees V. Director Qualification Standards VI. Board and Committee Meetings VII. Performance Evaluations; Succession Planning By-Laws: Discusses the rules and expectations surrounding each of theses groups and individuals. Example: Under BoD, Defines the Number, Election and Term of Directors. Code of ethics: Code requires that employees must (examples): 1. Conduct all dealings with customers, contractors or subcontractors, suppliers, and competitors with honesty and fairness, exercising good judgment and high ethical standards in business or personal interactions that may reflect upon the Company in any way. 2. Avoid conflicts of interest between personal and professional relationships, including, but not limited to, any investment, interest or association that interferes, or potentially could interfere, with independent exercise of judgment in the best interest of the Company. 3. Know, understand and comply with all applicable U.S. and non-U.S. laws, regulations, rules, and policies governing the conduct of the Company's business, both domestic and foreign, including trade, import and export activities, employment issues, marketing activities and insider trading restrictions.

Transcript

  • 1. Irma NegroniIrma Negroni Mike KostoffMike Kostoff Vince RubieraVince Rubiera Wayne AndermanWayne Anderman Adam BerkAdam Berk Steve SherwoodSteve Sherwood
  • 2. IntroductionIntroductionIntroductionIntroduction • The DIRECTV Group is a world-leading provider of digital television entertainment services. in the United States and Latin America. • Two business segments, DIRECTV U.S. and DIRECTV Latin America, which are differentiated by their geographic location, are engaged in acquiring, promoting, selling and/or distributing digital entertainment programming via satellite to residential and commercial subscribers. • DIRECTV Group provides digital television service to more than 17.1 million customers in the United States and over 5.3 million customers in Latin America. • The DIRECTV Group reported revenues of $4.81 billion in the second quarter of 2008. • The DIRECTV Group is composed of two main operating units - DIRECTV U.S., and Latin America. Source: www.Directv.com
  • 3. MissionMissionMissionMission “To deliver the best television experience in the United States to higher quality subscribers. “
  • 4. Major BusinessMajor BusinessMajor BusinessMajor Business “DIRECTV is dedicated to defining the best TV experience in the world through a mix of : (1) content, (2) technology (3) service DIRECTV has contributed to the evolution of TV with HD programming, interactive features, digital video recorder (DVR) services, quality customer service, and electronic program guide (EPG).” Source: www.Directv.com
  • 5. Major Business/ Core ProductsMajor Business/ Core ProductsMajor Business/ Core ProductsMajor Business/ Core Products • Content: – Access to over 250 channels – 100% digital picture and sound, exclusive programming – Access is offered to homes, airports, hotels, restaurants, hospitals, office buildings, airplanes, automobiles and portable electronics. – Currently offer over 90 National HD channels. • Technology: – More than 7,500 employees operate DIRECTV’ – DIRECTV is the first to deliver an interactive on-screen program guide and pay per view ordering by remote control. – Their innovations have led to hundreds of filings for US patents as DIRECTV has introduced must- have technologies to the TV viewing experience. • Service: – For the seventh year in a row, DIRECTV scored higher in customer satisfaction than every cable company measured in the American Customer Satisfaction Index. – More than half of their employees primarily work to deliver the highest level of service to customers – An entrepreneurial spirit is alive in all that DIRECTV does, reinforcing values of leadership, innovation, decisiveness, agility, teamwork and integrity. – Thanks to their employee’s abilities and innovative thinking, DIRECTV is competitive in a rapidly changing industry. Source: DirecTV 10K
  • 6. Major MarketsMajor MarketsMajor MarketsMajor Markets
  • 7. Major MarketsMajor MarketsMajor MarketsMajor Markets DIRECTV U.S. Gross Additions Mix
  • 8. Corporate History DevelopmentCorporate History DevelopmentCorporate History DevelopmentCorporate History Development • 1990: Founded • 06/1994: Launched Service • 10/1994: National Availability • 11/1995: One Millionth Customer • 07/2001: Ten Millionth Customer • 12/2003: News Corp. acquires 34% interest in DIRECTV • 10/2005: 15 Millionth Customer01/2006: 100% Ownership of DIRECTV Latin America acquired • 10/2007: High definition revolution begins with more than 70 national HD channels* Source: DirecTV 10K
  • 9. External Environment
  • 10. Threat of New Entrants –Threat of New Entrants – LowLow Threat of New Entrants –Threat of New Entrants – LowLow • DirecTV has achieved effect of Economies of scale • DirecTV prides itself on its differentiation strategy • Capital requirements are very high • Switching costs are high while in contract • Access to distribution channels is limited • Other cost disadvantages • Strict FCC policies and regulations • DirecTV will be expected to retaliate
  • 11. Bargaining Power of Suppliers –Bargaining Power of Suppliers – Low/MediumLow/Medium Bargaining Power of Suppliers –Bargaining Power of Suppliers – Low/MediumLow/Medium • Many suppliers offering many substitutes • DirecTV suppliers: – Hardware (set-top boxes): Thompson, LG, Pace Micro – Satellite: Boeing, Loral, Hugh Electronics – Content: ABC, NBC, CNN, NFL, HBO, Showtime • DirecTV is in important customer to suppliers • Content suppliers’ product critical to DirecTV’s customers • Content suppliers’ product is differentiated • Low switching cost for suppliers’ products • Suppliers do not pose credible threat of forward integration
  • 12. Bargaining Power of Buyers –Bargaining Power of Buyers – MediumMedium Bargaining Power of Buyers –Bargaining Power of Buyers – MediumMedium • DirecTV buyers: – Residential – Business – Mobile (RVs, cars, boats, and aircrafts) • Subscriptions are critical for DirecTV sales • Important product differentiations • Buyers locked in contract • Affordable competitive pricing • Buyers do not present credible threat of backward integration • Quality is important for customers • Customers are well informed
  • 13. Threat of Substitute Products –Threat of Substitute Products – HighHigh Threat of Substitute Products –Threat of Substitute Products – HighHigh • Internet • Rental Video (Blockbuster, Netflix) • Video on Demand (Apple TV, XBOX360) • Movie Theaters • Video Gaming • Blu-Ray DVD
  • 14. Rivalry Among Competitors –Rivalry Among Competitors – Very IntenseVery Intense Rivalry Among Competitors –Rivalry Among Competitors – Very IntenseVery Intense • Numerous of competitors (Satellite, Cable, Fiber) • Matured industry • High fixed costs for all competitors • Low differentiation • Moderate switching costs • High strategic stakes for DirecTV • High exit barriers
  • 15. Industry Life CycleIndustry Life CycleIndustry Life CycleIndustry Life Cycle Embryonic Growth Shakeout Maturity Decline Time Demand
  • 16. Broadcasting and TelecommunicationsBroadcasting and Telecommunications Industry 1987-2006Industry 1987-2006 Broadcasting and TelecommunicationsBroadcasting and Telecommunications Industry 1987-2006Industry 1987-2006
  • 17. Demographic SegmentDemographic SegmentDemographic SegmentDemographic Segment US population size: 305 Million
  • 18. Economic SegmentEconomic SegmentEconomic SegmentEconomic Segment • Inflation rate: 4.9 % (September 2008) • Average for the last 12 months: 5.5% • Interest rate: 1.0% (October 2008) • Trade deficits: $59.1 billion (August 2008) • Personal savings rate: 2.8% (August 2008) • Gross domestic product: -0.3% (October 2008)
  • 19. Political/Legal SegmentPolitical/Legal SegmentPolitical/Legal SegmentPolitical/Legal Segment • FCC- Federal Communication Commission regulations: • Leasing of satellites, assignment of frequencies, avoidance of interference • Communications Act • SHVIA- Satellite Home Viewer Improvement Act • SHVERA- Satellite Home Viewer Extension and Reauthorization Act • ITU- International Telecommunications Union regulations • State telemarketing and advertising rules • Subscriber privacy rules • Theft of satellite programming signals
  • 20. Socio-cultural SegmentSocio-cultural SegmentSocio-cultural SegmentSocio-cultural Segment • Women comprise 46% of the total U.S. labor force • 75% of employed women work full-time • Diversity in the workplace: Racial minorities represent 32.3% of workforce. – African-Americans: 14.2% – Asians 5.2% – Hispanic: 12.3% • Growing interest for environmental initiatives in the private sector
  • 21. Technological SegmentTechnological SegmentTechnological SegmentTechnological Segment • Fiber optics lines to home to deliver video services. • Digital video compression over phone lines. • Growth of providers of digital media Satellite operators. • Video-on-Demand over the Internet • High Definition growing demand
  • 22. Global SegmentGlobal SegmentGlobal SegmentGlobal Segment • Critical Markets: South America, Central America, Caribbean • Emerging markets represent large opportunity for DirecTV growth • Economic downturns could lead to: – Decrease in consumer demand – Subscriber credit problems – Longer payment cycles or higher default rate • Political factors-growth of populism in Venezuela, Brazil could lead to: – Changes in regulatory environments – Difficulty in obtaining approval for important transactions
  • 23. Summary of ThreatsSummary of ThreatsSummary of ThreatsSummary of Threats • Narrowing difference between service providers • Increasing programming costs • FCC requirements • Economic slowdown
  • 24. Summary of OpportunitiesSummary of OpportunitiesSummary of OpportunitiesSummary of Opportunities • Strategic Alliances • Growth of HDTV market • Increasing broadcasting market
  • 25. Internal Environment
  • 26. Financial CapabilityFinancial CapabilityFinancial CapabilityFinancial Capability Ratio Type 2007 2006 2005 PROFITABILITY Gross Profit Margin 0.155 0.171 0.066 Net Profit Margin 0.088 0.099 0.027 Return on assets 0.183 0.188 0.051 Return on Equity 0.287 0.309 0.099 LIQUIDITY Current Ratio 0.873 1.089 1.037 Quick Ratio 0.809 1.037 0.930 Inventory to net work. cap -0.507 0.588 2.889 LEVERAGE Debt-to-assets ratio 0.276 0.291 0.324 Debt-to-equity ratio 0.716 0.776 1.035 Long term debt-to-equity 0.706 0.774 1.033 ACTIVITY Inventory Turnover 70.187 81.400 40.561 Fixed-asset turnover 2.952 3.414 4.432 Aver Collection Period 32.605 33.648 29.756
  • 27. Organizational CapabilityOrganizational CapabilityOrganizational CapabilityOrganizational Capability • Vision: “We are defining the best TV experience in the world through a compelling mix of content, technology, and service.” • Leadership capability: DTV is capable of quickly seizing opportunities by identifying customer needs and trends and capitalizing on them in record time. Example: growth in demand for HD technology and interactive programming.
  • 28. Organizational CapabilityOrganizational CapabilityOrganizational CapabilityOrganizational Capability • Corporate Citizenship: DIRECTV's Corporate Citizenship department is responsible for developing and maintaining the company's strategy for philanthropic giving and public affairs. . • Diversity: DTV seeks to meet federal diversity guidelines, and also seeks diversity of backgrounds for its employee workforce.
  • 29. Organizational CapabilityOrganizational CapabilityOrganizational CapabilityOrganizational Capability • Human Resource Management 12,000 employees: 11,300 full-time, 1,000 part- time. Pension plan, 401k, and standard benefits package. No labor unions in US. Some labor unions in Latin America. • Organizational Control: DIRECTV Home Services: DTV sets the quality of installation and service standards, performs quality control, manages inventory and monitors the overall service network performance.
  • 30. • Research and Development R&D 2005: $16.0 million 2004: $49.0 million 2003: $54.6 million DTV invests heavily in technological firms that can provide cutting edge products, such as remote controls, set-top boxes, and smart cards. • Patents: Over 1,650 issued patents worldwide Over 710 registered trademarks, including over 465 foreign registrations Technological CapabilitiesTechnological CapabilitiesTechnological CapabilitiesTechnological Capabilities
  • 31. Technological CapabilitiesTechnological CapabilitiesTechnological CapabilitiesTechnological Capabilities • Products: Set-top receivers that incorporate DVR and HD technology. • Constant upgrades: 2006- New HD-DVR capable of receiving and recording new MPEG-4 HD signals. Interactive and video-on-demand functionality. 2008- Ability to remotely schedule DVR recordings via the Internet or cell / mobile phone. Significantly increased the recording capacity of HD-DVR. Plans to introduce HD versions of interactive applications, and Whole-House and Portable Services. • Young satellite fleet: 11 satellites, 5 uplink facilities, 3 broadcast centers.
  • 32. Technological CapabilitiesTechnological CapabilitiesTechnological CapabilitiesTechnological Capabilities • Licenses: Licenses to broadcast services from 46 of 96 assigned Direct Broadcast Satellite frequencies in the Ku-band spectrum. Licenses in three orbital slots in the Ka-band spectrum. • Optimum orbital slots: Reduce obstructions and effect of rain. Allow single-dish solution for all customers
  • 33. Operational CapabilitiesOperational CapabilitiesOperational CapabilitiesOperational Capabilities Customer Service: • Online services: view billing statements, add packages, make payments to account, user manuals. • 31 Third-party owned care center inside and outside of U.S. • Subsidiary DTV Customer Service LLC: 5 locations in US. 4,700 reps. 24/7 phone assistance. Differentiation of Brand name: • Brand name recognition almost universal 93%
  • 34. Organizational CapabilitiesOrganizational CapabilitiesOrganizational CapabilitiesOrganizational Capabilities Quality control: • Efforts to improve equipment quality (boxes, Connectors, Switches) • Improve Field Technician Quality (Dish pointing, trouble shooting skills, repeat visits) • Revamp repair facilities • Standardize connectors and cables to simplify installation process • Implement hand-held devices across the network.
  • 35. Organizational CapabilitiesOrganizational CapabilitiesOrganizational CapabilitiesOrganizational Capabilities Efforts to Reduce Churn: • Focus on quality customers • Limit risky subscribers • HD and DVR penetration • Improved customer service • Continued steady improvement
  • 36. Organizational CapabilitiesOrganizational CapabilitiesOrganizational CapabilitiesOrganizational Capabilities Efforts to improve subscriber quality: • Stricter Credit policies for accepting new clients, new fraud management system • Extending term commitments from 12 to 18 months for basic equipment and 2 years for advanced equipment • 2005 high risk was 28%, 2007 high risk was 10%.
  • 37. Organizational CapabilitiesOrganizational CapabilitiesOrganizational CapabilitiesOrganizational Capabilities Supply Chain logistics initiatives: • Lower cost of recovered boxes -Multi-pack kit, HSP pick-up • Revamp repair process- Implement auto testers, Built-in Self Test (BIST) • Remove cables from boxes • Full production of recycled cards- Increase to 400-500K cards per month
  • 38. Core CompetenciesCore CompetenciesCore CompetenciesCore Competencies Leading Brand Name: • Over 93% of consumers in United States are aware of the DIRECTV service. Substantial Channel Capacity and Programming Content: • Delivers one of the widest selections of local and national programming available today in the United States • Substantial capacity in the Ka-Band spectrum
  • 39. Core CompetenciesCore CompetenciesCore CompetenciesCore Competencies High-Quality Digital Picture and Sound, Including HD Programming: • Video and audio programming is 100% digitally delivered • DTV offers the most comprehensive selection of HD programming in the United States. Strong Customer Service: • Top rankings in customer satisfaction for the industry for seven consecutive years • Minimizes subscriber disconnection (“churn rate”) and attracts new subscribers.
  • 40. Core CompetenciesCore CompetenciesCore CompetenciesCore Competencies Technology Leadership and Valuable Orbital Slots and Satellite- Based Technology: • DTV’s holds authorizations by FCC to use desirable orbital slots and broadcast spectrum. • DTV holds licenses to broadcast from 46 out of 96 available DBS frequencies in the Ku-Band spectrum • DTV holds hundreds of patents and constantly updates its hardware, offering customers the best and newest systems in the market.
  • 41. Summary of StrengthsSummary of StrengthsSummary of StrengthsSummary of Strengths • Leading Market Position • Strong Financial performance • High customer satisfaction
  • 42. Summary of WeaknessesSummary of WeaknessesSummary of WeaknessesSummary of Weaknesses • Continuing Churn Rate • Patent infringements
  • 43. Corporate Level Strategy
  • 44. HistoryHistoryHistoryHistory • 1932 Hughes Aircraft • 1963 1st Communication Satellite into orbit • 1976 Acquired by GM • 1992 Acquired General Dynamics Missile • 1994 Direct TV Launched in U.S. • 1997 Sold Defense electronics unit • 1998 Majority Stake PanAmSat
  • 45. HistoryHistoryHistoryHistory • 1999 Hughes Electronics bought US Satellite Broadcasting & Primestar • Began building Spaceway Broadband Satellite Network • 2003 agreement to construct 2 new satellites
  • 46. HistoryHistoryHistoryHistory • 2003 DirecTV Latin America Chapter 11 • 2004 Emerged from Chapter 11 • Acquired Pegasus Satellite Television • 2005 Launched two satellites - HD
  • 47. DivesturesDivesturesDivesturesDivestures • Sale of of HSN set-top receiver manufacturing operations • Sale of 55% ownership in Hughes Software Systems • 2005 sold 50% ownership in Hughes Network systems • 2006 remaining 50% sold • Transferred 3 satellites to Telesat for use in Canada
  • 48. Recent HistoryRecent HistoryRecent HistoryRecent History • 2006 Intel and Microsoft agreement • Acquired the interests of news corporation and Liberty Media in Sky Brazil • Merged with Directv Brazil • Acquired Darlenes Investment of 14% in Directv Latin America
  • 49. Level & Type of diversificationLevel & Type of diversificationLevel & Type of diversificationLevel & Type of diversification • Dominant level Strategy Primary Goal is to provide subscribers with best T.V. experience in the U.S.
  • 50. Type of DiversificationType of DiversificationType of DiversificationType of Diversification • Geographic Diversification into Central America, South America and the Caribbean • Interrelated with DTV USA through Technology • DTV is the leading provider of DTH digital T.V. services throughout Caribbean, South America and Central America
  • 51. Latin AmericaLatin AmericaLatin AmericaLatin America • High Quality Digital picture & Sound • Large Subscriber base • Relationship with DTV – international programming – 65 international channels • Leading Brands – Strongest in each territory – Spanish Soccer League
  • 52. Recent HistoryRecent HistoryRecent HistoryRecent History • 2007 1st full year of performance that combined DTV and Skyplatforms in Latin America • March 2008 Combined Platforms of DTV with Pan Americana – Sky Brazil – and Sky Mexico • Passed 5 million subscriber level
  • 53. Means of DiversificationMeans of DiversificationMeans of DiversificationMeans of Diversification • Growth mode – Ownership • 74% Sky Brazil 1.5 Million • 41% Sky Mexico 1.6 Million • 100% Pan Americana 1.7 million • Pan Americana includes Venezuela, Argentina, Chile, Columbia, Puerto Rico and others
  • 54. FutureFutureFutureFuture • Prepaid Service – Point of Differentiation – Access new segments – Venezuela in 2007 – No one offers service
  • 55. Strategic Advantages to Pre PaidStrategic Advantages to Pre PaidStrategic Advantages to Pre PaidStrategic Advantages to Pre Paid • Access to Subscribers in cash based economies • Competitors not able to offer Pre Paid – Analog based • Protects & limits churn in case of economic slowdown
  • 56. DIRECTV Business Level Strategy Acquiring Market Share, CustomersAcquiring Market Share, Customers and Building Competitiveand Building Competitive AdvantageAdvantage
  • 57. Competitive StrategyCompetitive StrategyCompetitive StrategyCompetitive Strategy Cost Leadership Subscription prices to home media services are competitive to point of commoditization Not the Competitive Strategy Chosen
  • 58. Competitive Strategy:Competitive Strategy: DifferentiationDifferentiation Competitive Strategy:Competitive Strategy: DifferentiationDifferentiation Geographic Differentiation Service Based-Content Based Differentiation is Strategically Focused Offering exclusive content Compelling programming Interactive services Expanded International Programming Video On Demand
  • 59. Competitive Strategy:Competitive Strategy: DifferentiationDifferentiation Competitive Strategy:Competitive Strategy: DifferentiationDifferentiation • Expanded High Definition – Launched DIRECTV 11 this year • Boeing 702 Model Satellite • Increased channels to 1500 local stations • Increased HD to 150 National Channels • Exclusive Content – Offerings not available on other MVPD – NFL Sunday Ticket, NCAA March Madness – Select Concerts Live, Original Series Programming – Championship Gaming Series: Viewer inside game!
  • 60. Competitive Strategy:Competitive Strategy: DifferentiationDifferentiation Competitive Strategy:Competitive Strategy: DifferentiationDifferentiation • Enhanced and Interactive Services – Mix Channel Functions – NASCAR Hot Pass • Introduction of Video On Demand – Access by set-top box: 1000’s movies, cable, network programming – Downloaded over broadband with DTV’s HD-DVR • Expanded International Programming
  • 61. Competitive Strategy: FocusedCompetitive Strategy: Focused StrategyStrategy Competitive Strategy: FocusedCompetitive Strategy: Focused StrategyStrategy • Technology Leadership • DVR & HD Equipment – Cornerstone of their strategy as discussed at Board level – Set top receivers incorporate both – Remote Scheduling DVR: Web & Cell Phone • Leaving Antenna’s on Buildings • Whole house and Portable services
  • 62. The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage • Superior Customer Responsiveness – Mass Customization of subscription services – Customer call centers operate 24/7 – Highest industry satisfaction awards including JD Powers – Rankings give DTV a competitive advantage over its competition by protecting market share
  • 63. The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage • Innovation – DVR and HD box built into one – Whole House & Portable services: • D/L of content for transfer to PC-Laptop from DVR • Media Share: Allows for content form PC to be displayed on DTV (Music Videos Pictures) • Home Media center that allows access to all stored content (Video Music Pictures)seamlessly to any set – Interactive game channel: puts viewer in games – Remote Schedule for DVRs via internet/cell phone
  • 64. The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage • Superior Quality and its Dimensions – Performance: Satellite over cable for Natural disaster or storm related Terra Damages – Features: Digital Picture and Sound , up to date technology, programming now remote – Durability: Satellites and Set top boxes. – Serviceability: Real Time Remote Servicing from centers of technicians are same day to 24 hour turnaround. – Aesthetics: Boxes are sleek and home theater designs…cutting edge
  • 65. The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage The Four Building Blocks ofThe Four Building Blocks of Competitive AdvantageCompetitive Advantage • Superior Efficiency – 1000’s of Uniformed Outsourced and In sourced Installers – Moving Programs: Keep service when you move. Seamless transition. Call-its handled. – Service Bundling: Voice, Data, Media, Web – HD & VOD scheduler back again! – Support area of website: Do it all online
  • 66. Support EfficiencySupport EfficiencySupport EfficiencySupport Efficiency
  • 67. Value Chain AnalysisValue Chain Analysis Primary ActivitiesPrimary Activities Value Chain AnalysisValue Chain Analysis Primary ActivitiesPrimary Activities Inbound Logistics – Programming received from Content providers – Local Channels transmitted to uplink centers – 5 major uplink facilities provides HD local channels Operations – Content “uplinked” to satellite – System Redundancy – Signal theft precaution—compromised Smart Card – Technician, Call Center, Work orders
  • 68. Value Chain Analysis Primary ActivitiesValue Chain Analysis Primary ActivitiesValue Chain Analysis Primary ActivitiesValue Chain Analysis Primary Activities Outbound Logistics Superior – 11 geosynchronous Satellites to transmit – 1800 channel availability system wide – Programming range by competitors weaker (e. g. Exclusive sport packages elusive to Dish) Marketing & Sales Superior – Brand Awareness 93%, 140+ markets, – Direct sales generates 40% of new subscribers—Web—800 – Bundled packages; Strategic partners: ATT & Quest Service – Customer Satisfaction Index leader • Industry average 64 2008; DTV 68 – Proactive Sales and Help 31 Domestic centers – Online interactivity for al l aspects of business
  • 69. Value Chain Analysis: Support ActivitiesValue Chain Analysis: Support ActivitiesValue Chain Analysis: Support ActivitiesValue Chain Analysis: Support Activities Infrastructure – Offices • HQ Located El Segundo-Los Angeles, • Corporate offices in Denver & NY • 2 Digital Broadcast Centers: Colorado and L.A., Ca. • 5 uplink facilities for local programming delivery – Care Centers: Call and Technical Diversification • 31 in 16 states, 25 cities—19 in 9 countries outside US – Licenses: 46 of 96 broadcast frequencies in Ku spectrum – Orbital satellite slots: 3—increases channel capacity – Satellite risk management: Launch and orbit insurance – Installation: Home services performed 94% of all in home
  • 70. Value Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: Support HR Management – 12000 employees, Benefits, Pension, 401k – High recruiting efforts for technicians – No labor union’s US—Latin America does • DSH is in collective bargain with two field offices Technology Development – Interactivity; Set top boxes; TiVo Alliances for software upgrade – Portable satellite systems (think XM) – PC and whole house experience.
  • 71. Value Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: SupportValue Chain Analysis: Support Procurement – Purchase obligations in Programming commitments – Launch agreements with Boeing: Sea Launch Consortium – Service contracts: Billing, Telemetry, Control Services, BC center services – Transfer of control-Liberty Media-Chairman’s old company
  • 72. International Level Strategies
  • 73. Global expansionGlobal expansionGlobal expansionGlobal expansion • Latin America 1995 - Historical perspective on expansion • Radical – $500 million on new, unproven market share – “Hail Mary” entry approach • Market motives – Offensive (primary) • First movers • Little infrastructure development • High revenues/Low cost • Competition moving into Latin America
  • 74. Global expansionGlobal expansionGlobal expansionGlobal expansion • Strategic motives – Capitalize on system technologies already in place at home – Existing cold war technologies converted into value chain – First mover • Economic motives – Capital • Ability to charge recurring fee revenue for sat service • 77 million households – Resource exploitation • Existing aggressive prominent partners
  • 75. Macro Business Level AnalysisMacro Business Level AnalysisMacro Business Level AnalysisMacro Business Level Analysis • Country Selection: Mexico – Economic Soundness • GDP (purchasing power parity): $1.353 trillion (2007 est.) • GDP - real growth rate: 3.2% (2007 est.) • GDP - per capita (PPP): $12,400 (2007 est.) • GDP - composition by sector: agriculture: 4%, industry: 26.6% , services: 69.5% (2007 est.) • Labor force: 44.71 million (2007 est.) • Unemployment rate: 3.7% • Household income: lowest 10%: 1.2% highest 10%: 37% (2006)
  • 76. Macro Business Level AnalysisMacro Business Level AnalysisMacro Business Level AnalysisMacro Business Level Analysis • Country Selection: Mexico –Finance • Mexican pesos per US dollar - 13.5 (2008), • Debt – external: $179.8 billion (31 December 2007) • Solvency – Revenues: $227.5 billion – Expenditures: $227.2 billion (2007 est.)
  • 77. Macro Business Level AnalysisMacro Business Level AnalysisMacro Business Level AnalysisMacro Business Level Analysis • Country Selection: Mexico – Internalization • Exports: $271.9 billion f.o.b. (2007 est.) • Exports – commodities: manufactured goods, oil and oil products, silver, fruits, vegetables, coffee, cotton • Exports – partners: US 75.9%, Canada 6.3%, Germany 1.7% (2007) • Stock of direct foreign investment - at home: $260.9 billion (2007 est.) • Reserves of foreign exchange and gold: $87.19 billion (31 December 2007 est.) • NAFTA
  • 78. Macro Business Level AnalysisMacro Business Level AnalysisMacro Business Level AnalysisMacro Business Level Analysis MXN to USDMXN to USD
  • 79. Location Selection (Micro)Location Selection (Micro)Location Selection (Micro)Location Selection (Micro) • Locations: Major urban areas of Mexico • Firm strategy, structure and rivalry – Rivalry: Main competitor is Cable • Pay-TV only has 28% market share – Strategy: Differentiation • Demand condition – Purchasing Power is low – Few alternatives – Income is increasing as the economy improves – Primary segment: TV Watchers • Governmental, Industrial/FDI Policies – NAFTA
  • 80. Timing of Entry (Returns)Timing of Entry (Returns)Timing of Entry (Returns)Timing of Entry (Returns) • Entry into Brazil: 1995 (DTV owned by Hughes) – Market power • Teamed with top 3 LA media companies • New proprietary satellite systems • Same + Enhanced content – superior quality • Hughes had relationship with military and government – Preemptive opportunities • Establish brand recognition through co-branding • First mover – Strategic options • Access to existing infrastructure and content via partners • Few homes have to access conventional cable • Urban populations • Low Competition
  • 81. Timing of Entry (Risks)Timing of Entry (Risks)Timing of Entry (Risks)Timing of Entry (Risks) – Environmental uncertainty • New unproven technology (1995) – Operational risks • Backorder on dishes • Low call centers • Small base of installers • Markets operating on borrowed money – Extra operational costs • Hiring & training phone representatives (language) • Hiring & training installers • Signal theft
  • 82. Entry ModeEntry ModeEntry ModeEntry Mode • Entry mode: Latin America – Equity joint venture • $500 million joint venture • Hughes 50% • Cisneros Group 20% • Televisao Abril & MVS Multivision 30%
  • 83. Joint Venture BuildingJoint Venture BuildingJoint Venture BuildingJoint Venture Building • Partner selection – Compatible goals • Capture viewer market share – Capacity • Strategic attributes – All partners with industry experience – Technological skills in media delivery – Partners held prominent media market share • Organizational attributes – Based in Latin America – high experience in those foreign markets • Financial attributes – Selection based on profitability and efficiency
  • 84. Joint Venture BuildingJoint Venture BuildingJoint Venture BuildingJoint Venture Building • Partner selection – Cooperative culture • Entrenched market share – behemoths – Commensurate risk • Research is weak – Continuous commitment • Millions at stake – Complimentary skills • Content providers
  • 85. Global IntegrationGlobal Integration Strategy/StructureStrategy/Structure Global IntegrationGlobal Integration Strategy/StructureStrategy/Structure • Integration - The global strategy – All decisions were coordinated from domestic HQ • Structure – One company international division – DTV’s international joint venture interest’s are managed as units reporting to a international division within the domestic DTV HQ
  • 86. Corporate Governance
  • 87. Ownership ConcentrationOwnership ConcentrationOwnership ConcentrationOwnership Concentration • 474 institutional shareholders = 57% – Ranging from Mutual Funds, Hedge Funds, Pension Funds, and Banks • 50% of shares held by all insiders and > 5% owners. – SEC requires listing of all owners with > 5% holdings Holder Shares % Out Value* Reported Barclays Global Investors UK Holdings Ltd 56,789,297 5.12 $1,471,410,685 30-Jun-08 PRIMECAP MANAGEMENT COMPANY 51,260,210 4.62 $1,328,152,041 30-Jun-08 SOUTHEASTERN ASSET MANAGEMENT, INC. 49,914,782 4.5 $1,293,292,001 30-Jun-08 STATE STREET CORPORATION 29,139,692 2.63 $755,009,419 30-Jun-08 VANGUARD GROUP, INC. (THE) 21,730,018 1.96 $563,024,766 30-Jun-08 FMR LLC 20,927,363 1.89 $542,227,975 30-Jun-08 AXA 18,524,298 1.67 $479,964,561 30-Jun-08 JANUS CAPITAL MANAGEMENT, LLC 18,454,639 1.66 $478,159,696 30-Jun-08 THORNBURG INVESTMENT MANAGEMENT INC. 16,244,491 1.46 $420,894,761 30-Jun-08 MACKENZIE FINANCIAL CORPORATION 13,759,623 1.24 $356,511,831 30-Jun-08 TOP INSTITUTIONAL HOLDERS Holder Shares % Out Value* Reported Barclays Global Investors UK Holdings Ltd 56,789,297 5.12 $1,471,410,685 30-Jun-08 PRIMECAP MANAGEMENT COMPANY 51,260,210 4.62 $1,328,152,041 30-Jun-08 SOUTHEASTERN ASSET MANAGEMENT, INC. 49,914,782 4.5 $1,293,292,001 30-Jun-08 STATE STREET CORPORATION 29,139,692 2.63 $755,009,419 30-Jun-08 VANGUARD GROUP, INC. (THE) 21,730,018 1.96 $563,024,766 30-Jun-08 FMR LLC 20,927,363 1.89 $542,227,975 30-Jun-08 AXA 18,524,298 1.67 $479,964,561 30-Jun-08 JANUS CAPITAL MANAGEMENT, LLC 18,454,639 1.66 $478,159,696 30-Jun-08 THORNBURG INVESTMENT MANAGEMENT INC. 16,244,491 1.46 $420,894,761 30-Jun-08 MACKENZIE FINANCIAL CORPORATION 13,759,623 1.24 $356,511,831 30-Jun-08 TOP INSTITUTIONAL HOLDERS
  • 88. Ownership ConcentrationOwnership ConcentrationOwnership ConcentrationOwnership Concentration • Major direct holders
  • 89. Board Size and CompositionBoard Size and CompositionBoard Size and CompositionBoard Size and Composition John Malone Chairman Chase Carey President and CEO Neil R Austrian Director Ralph H Boyd Director Haim Saban Director Peter A Lund Director Gregory B Maffei Director James M Cornelius Director Charles R Lee Director Nancy S Newcomb Director Non-Executive Executive
  • 90. CommitteesCommitteesCommitteesCommittees
  • 91. Government RegulationsGovernment RegulationsGovernment RegulationsGovernment Regulations • International Telecommunication Union – United Nations: • Private sector telecommunications – Latin American regulatory agencies – Legislative bodies in all countries DTV operates – Local Authorities
  • 92. Government RegulationsGovernment RegulationsGovernment RegulationsGovernment Regulations • FCC – Communications Act and other related acts – The licensing of satellites, earth stations and ancillary authorizations – The assignment of frequencies and orbital slots, the relocation of satellites to different orbital locations or the replacement of an existing satellite with a new satellite – Compliance with required timetables for construction and operation of satellites – Avoidance of interference by and to operations with operations of other entities that make use of the radio spectrum – SHIVA AND SHERVA
  • 93. SEC RegulationsSEC RegulationsSEC RegulationsSEC Regulations • Rule 13a – 15(f) – In their 2007 10k DTV States they have claimed: • The effectiveness of their internal control over financial reporting • Assessments were made using the criteria from the Internal Control- Integrated Framework by the COSO – Independent audit firm used to perform internal audit – Reviewed and by approved by the Audit Committee
  • 94. Executive CompensationExecutive CompensationExecutive CompensationExecutive Compensation • Base Salary – Compensate for day-to-day performance at the executive’s level of responsibility. • Annual Bouns – Variable with performance, Paid in cash, short term • Long Term incentives – Paid in stock, long term • Employee Benefits • Perquisites – Fixed, indirect, short-term • Post-Termination – Both Fixed and variable, cash & stocks
  • 95. Ethical Codes and ProgramsEthical Codes and ProgramsEthical Codes and ProgramsEthical Codes and Programs
  • 96. Ethical Codes and ProgramsEthical Codes and ProgramsEthical Codes and ProgramsEthical Codes and Programs
  • 97. Recommendations
  • 98. Summary of unique strategiesSummary of unique strategiesSummary of unique strategiesSummary of unique strategies • Differentiation – Geographic – Content based – Competitive advantage • Think globally act locally – Expansion into Latin America
  • 99. Generalizable Lessons to OthersGeneralizable Lessons to OthersGeneralizable Lessons to OthersGeneralizable Lessons to Others – Be a first mover in emerging markets when your strengths meet opportunities – Carry Unique and exclusive programming – Customer satisfaction is your lifeblood in this industry • Loyalty goes so only far though – Competitive price – New products / services to further differentiate – Subscriber growth over short term profitability
  • 100. RecommendationsRecommendationsRecommendationsRecommendations • Competing with other MVPDs: – Coopetition with RBOCs where video footprint is limited – I.e. Future contract with AT&T – 75% of all satellite customers will use RBOCs for voice and data • Emerging digital media competition could materially adversely affecting DTV – Need portable services sooner • Carriage requirements may negatively affect our ability to deliver local broadcast stations, as well as other aspects – Increase lobbying power with RBOCs
  • 101. RecommendationsRecommendationsRecommendationsRecommendations • Leveled playing field – Need higher investment in R&D – Increase differentiated services – Exclusive licensing agreements • Build a bundle programming – target segments with suggested configurations • Baby boomers – Completely customized line-up • Churn rate – Contact customers at end of commitment – Local Pre-paid service – Stricter credit policies
  • 102. RecommendationsRecommendationsRecommendationsRecommendations • Target High Density/Low infrastructure emerging markets – All you need is a box and a view of the sky • Target MDU’s with greater strength • Stock issuance for high debt reduction – Lowers cost of debt service coverage – Increase free cash flow – Recent buybacks of equity at depressed prices mitigating dilution effect
  • 103. ReferencesReferencesReferencesReferences • www.Forbes.com Monday Matchup: DirecTV vs EchoStar, Aude Lagorce 8-16-2004 (Technology) • www.engadgethd.com "Tussle over DirecTV Latin America's Future" by Darren Murph 9-21-2008 • www.newyorktimes.com "Hughes in Venture to Expand Direct TV" by Andrea Adleson March 10, 1995 • www.newyorktimes.com "A Satellite Empire: News Analysis; Murdoch Gets Upper Hand in Deal on Cable with Hughes Deal" by David D. Kirkpatrick April 10, 2003 • www.directvlatinamerica.com Pirmary Source Various • www.direcTV.com Various Sources on site • DataMonitor: Company Profile DirecTV April 24, 2008 • www.yahoo.com Financial sections • 2007 DirecTV Annual Report & DirecTV 2007 10k • Los Angeles Business Journal "Local Outifts Jump into Latin American TV: Fox and Hughes go after Spanish Language Viewers" August 7, 1995 • Global Advertising Strategies Corporation: www.ethnicusa.com DirecTV Case Study • Zuckerman, Sam. "Commerce reports big drop in nation's GDP." San Francisco Chronicle 30 Oct. 2008. • DirecTV Annual Report 2006 • DirecTV Annual Report 2005 • U. S. Department of Labor • U. S. Department of Commerce • Bureau of Economic Analysis • www.pcworld.com - “Early IPTV Uses Only a Little of Its Fat Pipe” • www.verizon.com • www.att.com • www.dishnetwork.com