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Question
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A . What was the historical background that led to the Echostar-DirecTV merger?
1. What industry are Echostar and Hughes Electronic Corporation in? How (at that time) did this industry use the broadcast spectrum? How does this industry relate to cable TV and to broadcast TV? How does this industry relate to C-band systems?
2. What is the history of DirecTV? How did the Dish Network compete with them? How many channels did they have access to? Where does this number come from?
Explanation / Answer
The Merger
It was started in June 2000, when News Corporation announced their motivated strategies to drift Sky Global Networks, a holding business for Rupert Murdoch's pay-TV assets in the UK and Asia. These tactics instantly catalyst the speculation that Murdoch will make an offer for a US satellite network to fill the keyhole in his worldwide coverage. The reverse takeover prospect of the bid for Hughes Electronics, which comprises DirecTV, is presented after Rupert delays the projected £28bn drift of Sky Global.
Being a trivial company as compared to its competitors, DirecTV was the major satellite broadcaster in the United States having approx. 9.5 million subscribers.
A few months later, it comes to the picture that Rupert was in complete takeover talks with Hughes, a subsidiary of General Motors. Planned deal would merge Sky Global Networks with Hughes and first company would progressively take complete control of the joint company. It was later realized that GM wants more than what was offered originally and claimed to be in negotiation with the contending bidders and hence the Hughes deal turns close to collapse. While GM was unable to attract rival bidders in the company, it’s hand was forced to accept a reduced stake of 30% at £27 Billion reasonably than the 35% originally offered.
In 25th May 2001, EchoStar begins its own muscles buyout discussions with GM and powers on the bid. EchoStar CEO introduced a final £22 Billion offer for the merger bid and recruits the antitrust consultants to convince GM board that the merged company would be able to clear the regulatory hurdles and dominate the satellite broadcasting. Later, Rupert furiously pulls out the deal.
On 10th October 2002, the United States officials officially block the deal, worth £12 Billion, with a growth in conjecture that Rupert will instate a new bid. The United States justice department deliberates filing a lawsuit to block the deal and thus the EchoStar’s bid drops into deeper misfortune. A few days later, EchoStar and DirecTV publicized plans to encounter the justice department's judgment in a law court. A month later, United States reports suggested that News Corp again started informal discussions with its financiers for an out of way method to crack the deal at DirecTV. On 10th Dec 2002, EchoStar formally abandoned its projected £12bn takeover and had paid £381 Million as termination fees. A few days later, a Wall Street Journal report put forward, “Murdoch's News Corp and Malone's Liberty Media are lining up a bid for Echostar, either separately or together”.
In April, a New York-based cable operator ‘Cablevision Systems’ drops out from the race for DirecTV which was the only remaining contrasting buyer to News Corp. It was after three years, on 9th April 2003 the News Corp lastly settles a £4.1 Billion deal to take control of Hughes.
1. EchoStar was established in Littleton, Colo. and owns the Dish Network whereas Hughes Electronics Corporation was established in El Segundo and owns DirecTV and also it is a unit of General Motors Corporation. In the USA, both the companies were country's # 1 and #2 satellite TV corporations, who were the only direct broadcast satellite(DBS) corporations that were providing a multi-channel video programming distribution(MVPD) facilities to the United States. The technology used for broadcasting was primarily Single Master Antenna Television (SMATV) where one needs to install a satellite dish and TV antennae to obtain programming from satellite TV companies. The SMATV uses C-band, ranging from 4 to 8 GHz, for the satellite transmissions as C-band is vastly related with TV receive-only satellite reception systems, generally known as "big dish" systems, as the small antennas were not ideal for C-band systems. Direct broadcast satellite (DBS) service commonly referred to the higher power broadcasts in the Ku-band (i.e. about 12.2 to 12.7 GHz). As per the law of transmission (i.e. wavelength is inversely related to frequency), the higher power and the shorter wavelength of these transmissions made possible the use of smaller receiving antennae than the one used in C-band systems.
2. DirecTV is an American direct broadcast satellite provider, was first founded in December of 1985. Hughes Communications, Inc., a company that began as a medical research company as Howard Hughes Medical Institute, and later developed into numerous subsidiaries including Hughes Communications, was given 27 frequencies in 1981, while competitor United States Satellite Broadcasting was given five by the FCC. Over time, the technology improved significantly and led to the development of high powered satellites. The development of digital compression standards, also known as MPEG-2, also developed and allows for multiple digital television channels to come through each frequency.
Old DirecTV receiver in 1990, the company launched DIRECTV as a separate division of Hughes Communications. Its name implies the direct broadcast satellite television service it was providing to its customers. After this point, Hughes Communications further developed the product offered by turning to Thomson Consumer Electronics to create a digital satellite system that would be able to receive 175 channels using just a small 18-inch dish. The innovative dishes were smaller and lighter receivers and they used a military technology called Global Broadcast System. The company continued to develop its services and products, merged with other companies, and formed new opportunities. In 2004, the company split with Hughes. On April 22, 2005, the company officially broke from its Hughes Network Systems into a separate company. At this point, the company was solely a satellite television service.
In mid-1999 DirecTV and EchoStar had shared rights to all the 96 available full-CONUS frequencies with EchoStar governing 50 and DirecTV governing the remaining 46. During the time of the planned merger, EchoStar had volume for 500 channels and DirecTV had volume for 460 channels in standard definition
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