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Chase Carey, chief executive of the satellite TV broadcaster, has begun to restructure the group and aims to improve control of outsourced operations. He argues that innovation will boost subscriber numbers and put the company out of the reach of rivals.

In early March, Rupert Murdoch summoned senior executives from across his media empire to a summit in Carmel, a picturesque seaside town in California. Their mission: to find ways to turn the mogul's loose-knit network of satellite television assets into a global media force.

During two days of intensive meetings at a hotel and at Mr Murdoch's nearby ranch, those present - including Mr Murdoch's youngest son, James, recently installed as chief executive of British Sky Broadcasting - debated the latest developments in set-top boxes and personal video recorders and compared notes on everything from electronic programme guides to the best call-centre software.

For the 73-year-old Mr Murdoch, the gathering realised a long-held ambition. For years he had coveted a pay-TV business that spanned the globe but he lacked a foothold in the US. Last December he finally achieved his goal when federal regulators gave the green light for News Corp to buy a 34 per cent stake in DirecTV, the largest US satellite broadcaster.

"We now have 27m subscribers around the world, making News Corp the biggest pay-TV operator in the world," Mr Murdoch said during a conference call with investors last month. "Because we have the largest subscriber base, we would be foolhardy if we did not have ambitious plans."

DirecTV is central to that aim. Its 12m subscribers give News Corp a guaranteed outlet for TV programming in the US and help to counter the growing reach of cable operators such as Comcast and Time Warner.

The satellite group also gives Mr Murdoch a chance to shape the future of the TV business in the world's largest media market, offering viewers the chance to watch personalised programming and see Hollywood films at home shortly after they have been released in the cinema.

In attempting to revive DirecTV - in need of strong leadership after years of neglect by General Motors, DirecTV's previous parent group, and uncertainty about its ownership - Mr Murdoch is drawing on lessons learnt from two decades of building satellite TV interests that began in 1983 with his purchase of the fledgling UK satellite group Sky TV. That company has become BSkyB, Europe's largest pay-TV operator, and is part of an empire which has expanded to include Star TV in Asia, Sky Italia in Italy and Australia's Foxtel.

But Mr Murdoch's global vision is still a long way from being a reality. In the US, DirecTV is battling for subscribers against cable operators who have invested an estimated Dollars 80bn in their networks and are offering products such as high-speed internet access and video on demand. Meanwhile, DirecTV's efforts to co-operate with other parts of the News Corp empire will be subject to scrutiny from competitors, industry regulators and independent shareholders who are ready to cry foul if the broadcaster does not maintain an arms-length relationship with its minority shareholder - or does not fulfil what they see as his duties to it (see below).

The person charged with realising Mr Murdoch's US ambitions is Chase Carey. The long-serving News Corp executive was installed as DirecTV's chief executive in last December, but has been preparing for the job ever since Mr Murdoch started eyeing a deal four years ago.

A former college rugby player with a distinctive handlebar moustache, Mr Carey was supposed to run Sky Global, a holding company that would have controlled all Mr Murdoch's satellite TV assets, including DirecTV. But News Corp abandoned the venture in 2001 when EchoStar, a rival satellite TV group, won the battle for DirecTV. Mr Carey announced his retirement, only to be lured back by Mr Murdoch when the EchoStar deal ran into opposition from regulators in Washington.

In an interview at News Corp's headquarters in Manhattan, Mr Carey acknowledges the potential power of a global network of satellite broadcasters. But he stresses that his priority is to bring DirecTV's operations up to scratch. "For the first few months we've got our hands pretty full," he says. "We want to make sure we've got things on the right track."

Over the past five months, more than half of the top 15 executives have been replaced, Panamsat, the satellite operator, has been sold and other non-core assets, including parts of its Hughes Network Systems satellite services division, are up for sale.

In an attempt to improve customer service, DirecTV's call centres, which were run by outside companies, have been brought back in-house. The company has launched a direct sales operation to compete with dealers and retailers. Responsibility for installing new dishes has been handed to a small group of approved contractors. DirecTV has also ended a fractious relationship with Pegasus Communications, the satellite company that controls most of DirecTV's 1.5m subscribers in rural areas, forcing Pegasus to file for bankruptcy.

Mr Carey says the company is aiming for more direct control over its operations. "DirecTV had an engineering legacy where they created the infrastructure but let manufacturers build the boxes, left it to retailers to sell it and left it to third-party call centres to service it," he says. "Each of these we view as things that are really core to what we do."

He has set aggressive targets, including signing 3m new subscribers in the next three years. In the longer term, Mr Murdoch believes the company could have 20m customers, an achievement that would see it rivalling Comcast, the largest US cable group, in terms of subscribers.

The early signs are positive. In the first three months of the year, DirecTV added 460,000 net new subscribers, beating even the most optimistic forecasts. Mr Carey seems confident that, despite increased competition, DirecTV will continue to lure customers away from cable. "Since early 2003 (the cable companies) have been spinning that satellite is maturing, but if anything our growth has accelerated for the last four quarters," he says.

To keep expanding, however, DirecTV will have to move quickly to introduce new products. In the past, satellite broadcasters have won over subscribers by offering more channels for a lower price than cable. Now the battleground has shifted to new technologies.

Some argue that cable operators have the edge. Having upgraded their networks, they are offering services such as high-speed data and will soon add internet telephony. "Satellite only has a one-way system," says Dave Watson, executive vice-president of Comcast. "Ours is a very scaleable platform that can deliver data, video and voice to the computer, the television and the phone."

Mr Carey counters that, while cable operators are busy launching broadband and telephony, DirecTV will concentrate on delivering a better TV service, including high-definition television and services that give viewers greater control over what they watch.

"People say whatever you can do, cable can do too," he says. "But we view this as a television business first and foremost and will develop it as such. My goal is to be perpetually a year or two ahead of cable so that people are saying to their neighbours: 'You've got to get DirecTV, they did this or they did that and it was great'."

Personal video recorders, or PVRs, are central to this approach. The devices, which allow viewers to record their favourite shows, pause live television and skip past commercials, are proving popular. But ultimately DirecTV plans to offer subscribers a range of personalised programming by downloading it to on to their PVRs. Mr Carey says fans of American Idol, the hit talent show broadcast annually on News Corp's Fox Network, could request additional clips of their favourite participants.

Hollywood studios could offer blockbuster films on demand to customers willing to pay an extra fee. Advertisers could pay to offer commercials on viewers' PVRs according to individual preferences.

Many of these innovations depend on co-operation from other arms of the News Corp empire, particularly Fox's broadcast network and film studio, and BSkyB in the UK.

News Corp is exploring ideas for new channels that it could launch on DirecTV, ranging from a Hispanic service to a channel devoted to reality TV. But Mr Carey says the main focus will be on adding new services and interactive features to existing programmes. He rules out buying sports rights, such as BSkyB's deal to show Premier League football, arguing that broadcast rights have become too expensive to be monopolised by any one broadcaster.

However, DirecTV may take other ideas from BSkyB, for example its on- screen electronic programme guide and an interactive button that enables viewers to vote with their remote control. Mr Carey, who sits on the UK broadcaster's board, compares the button to an idea Fox had when it became the first broadcaster to display the score in a corner of the screen during American football games. "I would love to find 100 of those little changes that just are truly an enriching part of the experience," he says.

DirecTV will be able to combine its set-top box orders with those of BSkyB and Sky Italia, and get a better price from manufacturers. In the longer term, Mr Carey argues, such a large installed base will give News Corp a competitive edge in developing new products.

Such innovation will be crucial if DirecTV is to keep growing in the face of intensifying battles with cable operators. "Most cable operators in the US have huge difficulty avoiding the erosion of their basic subscriber base," says Pascal Volle, a consultant at Mercer Management Consulting. "There is a very small untapped market for new connections. So the only way to keep the existing base (of cable TV customers) is through satellite winbacks," Mr Volle says.

When it comes to luring customers, one of cable's main advantages is its ability to offer broadband alongside pay-TV. In response, DirecTV and EchoStar have signed deals to bundle their products with broadband services being offered by large telecommunications groups. But it is not clear whether the package will have widespread appeal.

The question for investors is what the competition for subscribers will do to DirecTV's business. In the first quarter, the cost of signing up a customer rose as it installed multiple set-top boxes in subscribers' homes. Concerns that the company will spend some of its cash pile to reach its subscriber targets is one reason why DirecTV's shares still trade at the price they did when the News Corp deal closed last December. There is also a lingering worry that Mr Murdoch will at some point choose to put the interests of News Corp ahead of those of DirecTV's public shareholders.

Mr Carey dismisses these concerns. While he acknowledges that DirecTV will offer ever more sophisticated boxes, he argues that technological improvements will reduce costs. By the end of this year, the cost of manufacturing a PVR box will have fallen by Dollars 50, even though its storage capacity has increased, he says. "If anything, I expect our margins to improve."

Mr Murdoch's critics argue that the media tycoon is moving into the US satellite TV business just as the competitive tide is turning in favour of cable. But Mr Murdoch is also a far-sighted entrepreneur who has a habit of proving his detractors wrong. Anyone who has followed his moves in the UK, where BSkyB overcame intense opposition and huge losses to become the dominant pay-TV operator, and Asia, where Star TV is now profitable after years in the red, will think twice before writing him - or DirecTV - off.

As DirecTV's chief executive, Chase Carey faces a dilemma: how to persuade competitors and regulators that he is not getting too much help from Rupert Murdoch, and at the same time convince investors he is getting enough.

As far as regulators are concerned Mr Murdoch controls DirecTV through News Corp's 34 per cent stake in the company. He is chairman of both companies and must therefore be prevented from using his clout to favour DirecTV unfairly over its rivals. According to investors, however, News Corp's interest is not a controlling stake and DirecTV's public shareholders need protection from undue interference by any other large minority investors.

Over the years, Mr Murdoch has thrived by using complex corporate structures and by sometimes sacrificing the interests of shareholders to his long-term strategic vision. Nevertheless, the competing demands of regulators and independent shareholders could further complicate DirecTV's efforts to take its place in News Corp's global network of satellite interests.

When regulators started investigating the News Corp-DirecTV deal, rival media groups and cable operators complained that, if left unchecked, News Corp could discriminate in favour of DirecTV when negotiating carriage agreements for its programming. As a result, DirecTV and its new parent agreed to programme access rules, which prevent News Corp from offering programming to the satellite operator without giving all other cable and satellite groups the same terms.

But shareholders were worried that Mr Murdoch might sacrifice the interests of DirecTV in favour of News Corp, which he controls. "When you look at how the ownership stacks up, why would you invest anywhere other than with Rupert?" says one News Corp shareholder, explaining why he favours the parent company over shares in DirecTV. Mr Carey insists there is no conflict. "There are structural protections and strategic protections, and a logic that ultimately the real success for News Corp is to create financial and strategic value in the success of DirecTV just as it did with BSkyB," he says.

To address concerns about independence, DirecTV has agreed that transactions with News Corp will be vetted by three independent non-executive directors on the company's audit committee. Mr Carey has also agreed to address doubts about his allegiance by exchanging his News Corp share options for DirecTV ones. "I don't want every time we do a deal - even if it's good for DirecTV - to have shareholders turn around and say: 'Aha, are you doing this because you think it's benefiting News Corp and you still have options?' "

Mr Carey, who also sits on the board of BSkyB, will no doubt be keen to avoid the kind of shareholder row that broke out at the UK satellite broadcaster when Mr Murdoch decided to install his son, James, as chief executive. However, shareholders in DirecTV are unlikely to forget that, despite objections from a number of large investors, Mr Murdoch got his way. (ft.com)