DIRECTV LIKELY TO CHANGE WITH MURDOCH IN CONTROL
As broadcasting industry waited to see whether News Corp.’s bid to take control of DirecTV (CD Feb 15 p8) was successful, industry analysts and officials speculated on whether placing control of largest U.S. DBS company in hands of big media company would help or hurt U.S. consumers. News Corp., Microsoft and Liberty Media Chmn. John Malone were launching joint bid for DirecTV that would create $75 billion global satellite giant. Final details of complicated transaction still were being worked out and final decision was “days away,” said attorney familiar with proceedings. Many of same issues that “cropped up” in AOL- Time Warner “are certain to be revisited” if sale goes through and company attempts to gain regulatory approval, satellite analyst said: “There are definitely some antitrust issues involved” in this deal.
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Potential impact on consumer market will be chief issue, broadcast official said. DirecTV has nearly 10 million customers, rival EchoStar has 4 million, DirecTV reseller Pegasus 1.5 million. New deal may place Pegasus in “great strategic position to launch new broadband initiative and come out of the shadow cast by DirecTV,” another analyst said. “If DirecTV is worth $35 billion and we control 17% of their customers along with most of distribution network, then what does that make Pegasus worth?” asked industry official close to Pegasus. If deal goes through, “this will be an opportunity for Pegasus and DirecTV to settle their differences” (see separate story). Added DBS executive close to Pegasus: “The future for Pegasus is clearly in broadband.”
This is 6th time News Corp. has tried to enter U.S. satellite market. Reported plans call for News Corp. to control operation while maintaining 35% stake, with GM retaining rest. Some analysts and rivals in broadcast industry believe News Corp., which owns Fox and satellite properties in Europe, Asia and Latin America, could turn DirecTV into “an even more formidable opponent” for cable TV in U.S.
“This would be the first time we'd have a major TV network and stations owning a separate distribution mechanism,” Consumers Union Washington Co-Dir. Gene Kimmelman said. “There are significant dangers in this transaction.” NCTA spokesman said organization planned to examine DirecTV deal “very carefully” if it went through: “It raises a lot of questions. This merger makes DirecTV even stronger. I'm sure the government will take a close look at this just like they did in AOL-Time Warner merger.” Another cable official agreed it was repeat of AOL-Time Warner debate: “All you have to do is look at all of companies (News Corp. Chmn. Rupert) Murdoch owns to see just how powerful they are going to be. Right now there are more questions than answers.”
Murdoch hasn’t discussed specifics of plan, but one industry analyst believes consumers may see immediate price increase for services because of high price paid for DirecTV and “token competition” from EchoStar, which he thinks will enter into strategic alliance with another broadcast company in near future to maintain foothold with competition. “Duopolies in industries where there’s price inelasticity don’t have price wars,” Precursor Group CEO Scott Cleland said. Others say Murdoch won’t cut prices because of strong allegiance to Malone, who is largest investor in AT&T, largest cable operator in U.S.
Programming, interactive TV offerings and on-screen guides also might change under new DirecTV ownership, analyst said. “You might see exclusive channels or special-event programs” for subscribers. “These are things that Murdoch has been successful doing in other mediums and he would be loathe not to try it again.” He also could offer first showings of Fox movies or move popular programs away from broadcast and cable channels while making bids for global sporting events such as Super Bowl, World Cup and Olympics, analyst said. Murdoch also owns pro sports teams, including L.A. Dodgers, analyst said: “He has the power to take this new worldwide platform to a new level. If he somehow manages to get exclusive rights to a major playoff game, consumers could be in trouble.”
Hidden gem in empire might be Interactive TV, but to launch those services new decoder boxes will have to be introduced. In U.K., OpenTV operated by Murdoch’s BSkyB has become one of top e- commerce companies with more than 10% of consumers using it to shop, said Jimmy Schaeffler of Carmel Group. Ownership of DirecTV will offer similar opportunities, he said: “One thing you'll see is an incredible speed to market for satellite broadband and interactive TV. BSkyB’s OpenTV is about 18 months ahead of us. And they're killer apps, especially when combined with personal video recorders like TiVo. They're bundling all of those enhanced TV services.”