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DirecTV : company profile

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DirecTV is the #1 satellite TV broadcaster in the US, and also has a footprint which stretches across much of Latin America. It has passed through the hands of several owners since its inception. The DirecTV service was originally launched in the 1990s by the satellite communications division of General Motors. In 2001 it became the the subject of a long, bruising takeover bid by Rupert Murdoch. Yet after months of negotiations, GM agreed to sell the business not to Murdoch but to US rival EchoStar/Dish. That deal was subsequently blocked by regulators, allowing Murdoch to capture the business on the rebound. As a result, DirecTV became an effective subsidiary of News Corporation's Fox Entertainment Group. As competition from cable broadcasters became increasingly intense mid-decade, Murdoch began moves to offload DirecTV once more. Control was assumed in 2008 by cable group Liberty Media, but this stake too was largely divested during 2010 leaving the business effectively independent. Finally in 2014, AT&T agreed to buy the business for almost $50bn. That deal was approved in July 2015. The DirecTV brand name is gradually being phased out in favour of AT&T corporate branding.

Competitors

See Media Sector index for other companies.

Advertising

Who handles advertising? Click here for agency account assignments from Adbrands.net. In 2014, the company declared net advertising expenses of $578m, after contributions from programming partners.

Brands & Activities

AT&T boosted its flagging U-verse streaming video service by buying DirecTV for a whopping $48.5bn. That deal was agreed in May 2014, and approved by DirecTV shareholders later the same year. It was finally approved by regulators more than a year later in July 2015.

Direct TV's strengths include a substantial subscriber-base and a strong brandname, as well as a commanding range of digital services and strong customer service. The core business within the group is the DirecTV digital television entertainment service in the US, broadcast via a fleet of satellites positioned above the country. It is the largest satellite broadcaster in the country, and the second largest multi-channel video programming service by subscribers (behind Comcast). The service now distributes more than 285 video and 1,500 audio channels offering sports, entertainment, news and music, including more than 120 foreign language services including channels in Spanish, Hindi, Russian, Vietnamese, Chinese and Italian.

Unlike most cable providers, who are limited to a regional footprint, DirecTV has virtually blanket national coverage of the US. There are various other advantages that have long provided the core of different marketing campaigns promoting DirecTV over cable. One such incarnation offered different comical nightmare visions of the consequences facing customers who chose cable over DirecTV. Another featured actor Rob Lowe in a series of bizarre alternative guises. The real Rob Lowe has DirecTV of course; less appetising alternate versions have cable. DirecTV's main advantages over the satellite rival Dish Network are cheaper subscription rates, a wider national footprint and enhanced sports content. Other services include video-on-demand, DVR personal video recording, more HD channels than any rival and exclusive pay-per-view movies and sports events. One cornerstone of the latter coverage is the hugely popular NFL "Sunday Ticket", offering coverage of games that would otherwise only be available regionally on local affiliate stations. in 2014, DirecTV secured a renewal of this contract for a whopping $1.5bn, 50% higher than its previous term. (Renewal of the contract had been a key condition for AT&T's proposed acquisition of DirecTV).

Like other entertainment channels, DirecTV has been involved with regular skirmishes with channel and content owners over carriage fees and contract terms. In July 2012, it was obliged to black out all Viacom-owned channels, including Nickelodeon and MTV, to all US subscribers for a little over a week as a result of a dispute over carriage fees. Another row over fees erupted in 2014 with The Weather Channel. As a result, DirecTV has also begun to develop or acquire its own exclusive entertainment content, both sports coverage and scripted drama, broadcast on its own Audience Network channel. In a bold escalation of this strategy, AT&T agreed a deal in 2016 to acquire media group Time Warner for a mammoth $109bn including debt.

The takeover by AT&T followed several years of strategic partnerships with telecoms providers. In 2005, the group agreed a strategic alliance with Verizon under which new DirecTV subscribers could have their subscriptions bundled into a single bill with their Verizon account, with the added bonus of high speed internet access. Similar alliances followed with AT&T and CenturyLink. In 2007, DirecTV signed an agreement with Current Group to offer that company's high-speed internet and VoIP telephony service under the DirecTV name. However that arrangement was later ended, and the company no longer offers its own broadband service, although it does allow subscribers to access its video-on-demand service online via their own third-party broadband supplier.

By the end of 2014, DirecTV had 20.4m subscribers in the US (compared to under 14.1m at rival Dish Network). US revenues for 2014 were $26.0bn.

At the end of 2016, the group unveiled its own "over the top" streaming service under the banner of DirecTV Now. At launch this offered around 100 streamed channels as well as on-demand without contract or cable box for prices starting at $35 per month.

DirecTV Latin America is a separate division, broadcasting to a total of 19m customers across 28 Latin American and Caribbean countries via three separate platforms. The main branded DirecTV PanAmericana service broadcasts to Venezuela, Argentina, Chile, Colombia, Puerto Rico and certain other countries in the region. In addition, the company has management control of two other units inherited from Fox which operate under the Sky brand: Sky Brasil (in which DirecTV now has a 93% stake) and Sky Mexico (a joint venture with Televisa, in which DirecTV has a 41% holding). DirecTV Latin America had revenues of $7.06bn in 2014.

The AT&T buyout marked the latest in a series of takeovers and buyouts. Until now, DirecTV's most recent controlling shareholder had been Liberty Media. Under the terms of an arrangement with Rupert Murdoch in 2007, Liberty took over News Corporation's 41% shareholding in DirecTV in exchange for the investment stake held by Liberty in News Corp. The group raised its stake to around 57% in 2008. Just over a year later, however, Liberty announced a further restructuring of its portfolio. Under this arrangement, some of Liberty's other part-owned holdings including cable channel GSN, or Game Show Network, some regional sports channels and a sizeable amount of debt were sold to DirecTV in return for a reduction in Liberty's holding. As as result, Liberty Media's stake in the business had reduced to under 4% by mid 2010.

Financials

For 2014, its last full year as a standalone company, DirecTV's combined revenues rose 5% to a record $33.26bn. Net attributable income peaked in 2012 at $2.95bn before slipping back in each of the following years. The figure for 2014 was $2.76bn.

Following completion of the AT&T takeover, DirecTV's performance is now split between the parent group's Entertainment and International divisions. As of Dec 2015, AT&T reported 19.78m satellite connections in the US, and 12.5m in Latin America.

Background

DirecTV was originally the creation of Hughes Electronics, the business formed in 1985 from the merger of General Motors' substantial electronics division with Hughes Aircraft, the engineering empire built by Howard Hughes. Long before he became famous as America's most eccentric billionaire, Hughes was a brilliant but obsessive engineer. He was not yet even 20 when he inherited control of Hughes Tool Company after his father's death in 1924. Leaving the company's highly capable executive team to manage the company, Hughes turned his attention instead to the movie business. His main interest in the industry was the access it gave him to glamorous actresses, and he became a notorious ladies' man in Hollywood, although he also found time to produce a number of films, and later owned RKO Studios during the 1950s. He had also developed an obsession with flying and launched Hughes Aircraft in 1932 to design experimental racing planes. Later, Hughes himself acquired control of US passenger airline TWA. During WWII the company's fortunes boomed with a series of sizeable government contracts. However Hughes devoted his personal attention to the design of an enormous troop-carrying seaplane, nicknamed the Spruce Goose. It was a huge folly. Too big to be practical, the plane wasn't completed until two years after the war ended, and flew only once, for just one mile.

Although Hughes himself became increasingly eccentric in the years that followed, the company prospered, becoming a pioneer in the rapidly developing world of defence electronics, and later in space technology. During the 1950s, Hughes Aircraft was closely involved with the US secret services, and several senior executives were implicated in CIA plots, including plans to assassinate Fidel Castro. Hughes himself was a friend and financial backer to Richard Nixon. In 1960, the company developed the world's first working laser in 1960, launched the first modern satellite in 1963 (in time to relay live coverage of the 1964 Tokyo Olympics), and developed Surveyor, the first spacecraft to land successfully on the moon (in 1966). Hughes himself had less and less to do with the company, famously becoming a recluse for many years before his death in 1976. At that point Hughes Aircraft became the property of the Hughes Medical Institute, a private foundation, until its sale to General Motors nine years later.

GM was already heavily involved in aerospace projects. During World War II, the company's Delco Electronics division had won government contracts for weapons systems, and these culminated in the development of space guidance and navigational systems, including involvement in the Apollo space programme of the 1960s and 1970s. In 1985, GM acquired Hughes Aircraft for $5.2bn, and merged it with Delco to form GM Hughes Electronics. By the 1990s, the group was principally focused on commercial electronics, developing communications satellites, mobile phone networks and aerospace control systems. In 1990, a year after the launch of Sky Television in the UK, the group was part of a consortium that attempted to launch a US satellite broadcasting service. It failed as a result of the complex relationship between the partners, so in 1994, Hughes launched its own service, DirecTV. The group spun off its Electronic Data Systems subsidiary in 1996 (later EDS), followed by its defence division in 1997. Instead Hughes took control of satellite communications company PanAmSat in 1996, building a stake of 81% by 1998. In 1999, it added two further satellite broadcasters to its portfolio, buying United States Satellite Broadcasting and Primestar. The company also spread its wings internationally, with an ill-fated launch of a similar service for Japan. DirecTV Japan launched in 1998, but was merged with the larger, Murdoch-controlled SkyPerfecTV in 2000. (The combined service was later discontinued).

In early 2000, as communications became an ever more lucrative field, GM announced the sale of its satellite systems and manufacturing operations, including Hughes Space & Communications, to Boeing for $4bn. However the group retained the PanAmSat satellite services division and refocused operations towards high-growth entertainment, information and business communications. Also that year GM issued around 70% of Hughes as a tracking stock, although it retained full control of all assets, and a majority of voting rights. Towards the end of 2000, the group began talks with News Corporation to discuss the merger of DirecTV with News's projected Sky Global Networks business. These discussions stalled repeatedly during 2000, but were revived when Murdoch threatened negotiations with rival service EchoStar, the #2 satellite service. Peeved at being regarded as second-choice, EchoStar then turned the tables on Murdoch by opening their own negotiations to buy DirecTV with an offer then worth $29bn.

In May 2001 Michael Smith, Hughes' chairman & CEO, and the brother of GM chairman Jack Smith, resigned unexpectedly. Smith had been for some time an opponent of any deal with News Corp. It was thought at first that his resignation would greatly increase News Corp's chances of a successful bid. But the negotiations continued to drag on for several more months. By October 2001 it was looking more than likely that Murdoch's offer would win the support of the General Motors board, especially as EchoStar was struggling to piece together the funding necessary to back its own offer. GM promised to resolve the matter at its October board meeting. However in a surprise turnaround, during the course of the meeting, the board swung back in favour of EchoStar. Although it had promised a definitive answer to News Corporation, the GM board decided instead to postpone any decision to allow EchoStar more time to resolve its funding issues. Annoyed by this apparent betrayal, Rupert Murdoch withdrew his offer. The following day, GM agreed to sell Hughes to EchoStar for $25.8bn in stock and cash.

However the deal faced several hurdles. The combination of DirecTV with EchoStar's Dish service would have created a complete monopoly in areas not served by cable TV suppliers. In October 2002, after a year of deliberation, US regulators appeared to be on the verge of blocking the EchoStar deal. Hughes and EchoStar rushed to prepare significant concessions in a last-ditch effort to win approval, but were eventually forced to abandon their suit. This led to widespread speculation that News Corporation would end up the eventual owner of DirecTV. A new obstacle appeared in early 2003 when US telecoms company SBC Communications was also reported to be looking at the business. However it subsequently dropped plans to bid. In April, a triumphant Murdoch agreed to acquire GM's 20% holding, as well as a further 14% stake of publicly held shares in a deal worth $6.6bn.

Following takeover, Hughes Electronics was renamed The DirecTV Group. News Corp merged its existing Sky-branded businesses in Latin America with DirecTV's own subsidiaries there, and invested substantial sums in the US business, strengthening content and generating strong growth in subscriber levels. At the same time, the company's technical operations were divested. PanAmSat was sold in 2004 to private equity group Kohlberg Kravis Roberts for around $3bn, and was merged with rival IntelSat just over a year later. Hughes Network Systems (HNS), which had manufactured the company's set-top boxes and receiving equipment, was broken up and mostly sold off.

In 2006, speculation increased that a merger could be negotiated between DirecTV and its EchoStar rival. Rupert Murdoch confirmed that talks were possible, but said that negotiations would likely be very painful, centring on who exactly would run any merged business. Later Murdoch was said to be discussing the transfer of his DirecTV stake to Liberty Media, in return for the latter's shares in News Corporation. That deal was eventually agreed in December 2006 and completed in February 2008.

Last full revision 13th December 2016

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