Last week’s name change of Hughes Electronics to The DirecTV Group [DTV] is a clear signal that the future of the diversified El Segundo, Calif.-based company is on satellite television. The renaming of the parent company follows wholesale executive-level personnel changes since News Corp [NWS] bought it last December.

In addition, the former Hughes Electronics changed its ticker symbol on the New York Stock Exchange (NYSE) to DTV from HS. The company began trading under the new name and symbol last Wednesday but the transformation of the organization is more than cosmetic. The DirecTV Group also will receive a new corporate logo, and it will change its Web site URL to “directv.com.”

Chase Carey, president and CEO of the DirecTV Group, said the future of the company is centered on the DirecTV satellite television service and that business will drive the parent’s strategy and shareholder value going forward. From the sound of that brief description, anything other than a service of the DirecTV satellite TV operation appears to be a non-core business of the organization.

Chase aggressively seized control of what now is DirecTV Group after arriving in December 2003, once the acquisition was completed. He also brought in a series of new executives from the News Corp empire to help him direct the company.

“Our new name better reflects our commitment to building our business around DirecTV, the established leader in digital multichannel television service in the United States,” Carey said. “With more than 12.2 million customers, the DirecTV name and brand resonates with consumers and this name change reaffirms and reinforces that our future lies with this business.”

The parent company’s business units, DirecTV, Hughes Network Systems, DirecTV Latin America and PanAmSat [SPOT], will remain units of The DirecTV Group, its officials said. However, the status quo is unlikely to stay for long.

“Not three months into the new ownership, News Corp is able to accomplish what nine years and 12 million total subscribers under Hughes could not: Change the name and true focus of the company, to reflect what it does best,” said Jimmy Schaeffler, who heads The Carmel Group consultancy.

Thomas Eagan, a cable and satellite TV analyst with Oppenheimer, also liked the name and identity change. The move helps the new DirecTV Group to shed the legacy of the old parent company and its “stodgy management style,” he added.

The new thrust also embraces a strategy that is more innovative and customer-focused, as the “corporate family” becomes much better connected to the TV industry, Eagan said.

With DirecTV Group’s Carey making clear the company’s focus is satellite TV, any of its businesses that do not directly aid satellite broadcasting could be considered expendable.

The new name also is the latest chapter in an evolving story that likely will include the sale of Wilton, Conn.-based satellite operator PanAmSat [SPOT] in the coming months. News Corp officials have indicated they are assessing their plans for each of its companies and have described PanAmSat as a well-managed organization that is not a core operation of its new ownership.

News Corp completed its purchase of a 34-percent stake in the common stock of Hughes Electronics last December. The new DirecTV Group has business units with operations that include digital multichannel television entertainment, broadband satellite networks and services, and global video and data broadcasting.

It would not be surprising, based on public comments from News Corp officials, if the sale of PanAmSat is announced by the end of this summer. News Corp needs to pay off debt. PanAmSat is a cash cow, and it could fetch a handsome price. PanAmSat ended 2003 with free cash flow of $527 million, up from $463 million for 2002. PanAmSat’s 2003 operating profit before depreciation and amortization was $591 million, roughly flat with the prior year.

The company also has scaled back its capital expenditures to build and launch new satellites, after completing a major expansion of its in-orbit capacity during the past five years. Capital expenditures for the fourth quarter of 2003 only amounted to roughly $17 million, totaling $104 million for full-year 2003, compared to $294 million for 2002. Company officials offered capital expenditure guidance for 2004 in the range of $165 million to $195 million. That relatively modest investment for a global satellite operator would allow PanAmSat to continue generating a strong cash flow for a prospective financial buyer and potentially involve the payment of a healthy annual dividend until the company ultimately is sold for a second time in whole or in part.

PanAmSat also has been paying off its debt at a brisk pace to strengthen its balance sheet. The company made an additional optional prepayment of $300 million Dec. 29, 2003, from available cash on hand to its senior secured credit facility. In total, PanAmSat paid off $850 million in debt last year.

Latin Tango?

With News Corp owning the only two Latin American satellite TV operators, Sky Latin America and DirecTV Latin America, it would be no surprise if a merger between them took place. One strong satellite TV provider in Latin America competing with the cable operators in countries throughout the region might be the ideal way for News Corp to obtain the best return on its assets in the region.

Less clear is what the company may opt to do long-term with Hughes Network Systems (HNS). An investment is required by HNS to complete the deployment of the SpaceWay high-speed satellite broadband service that is expected to launch its first satellite later this year. Many observers consider SpaceWay a big risk, and they question whether News Corp will proceed with the investment.

If the previous $1.62 billion investment in SpaceWay is considered a “sunk cost,” an additional $180 million to deploy the system might well be worth the gamble to see if it can develop into a profitable business. Although the SpaceWay satellites could be used to support DirecTV’s satellite television business, the sophisticated spacecraft would be high-cost ways of doing so. The best incentive for News Corp to complete the funding of SpaceWay might be if the satellites could serve DirecTV as needed, while still pursuing its original purpose of providing high-speed, enterprise broadband services via satellite.

The $1.8 billion SpaceWay system is moving “full-speed ahead,” said Mike Cook, senior vice president and general manager of the project. “We have spent more than 90 percent of the total program cost. There are many reasons why this will be successful, compared to other projects.”

Other proposed systems, such as Astrolink, could not complete their financing. SpaceWay is virtually built, and the first two of its three satellites are already paid for, Cook said. In addition, HNS has an existing clientele of enterprise broadband customers that are expected to migrate to the next-generation SpaceWay service, Cook said in a phone interview Wednesday. HNS is planning to launch the first SpaceWay satellite at the end of the summer, and the system should be operational by this time next year, he added.

Further evidence of the commitment to SpaceWay comes from the fact that HNS already has paid more than 94 percent of the $1.3 billion total cost of building and launching the three in-orbit satellites that would be part of the SpaceWay service above North America, Cook said. One of those three satellites would be an in-orbit backup spacecraft.

Carey also recently confirmed in a conference call that SpaceWay is going ahead, and its primary purpose would be to support the enterprise business of HNS.

–Paul Dykewicz

(Bob Marsocci, DirecTV, 310-964-4656; Mary Phillips, Hughes Network Systems, 301/601-2672; Jimmy Schaeffler, The Carmel Group, 831/643-2222; Thomas Eagan, Oppenheimer, 212/668- 5769)