In The News

December 20, 2003

FCC Approves News Corp.’s DirecTV Bid

The agency imposes certain conditions on Rupert Murdoch's $6.6-billion takeover of the satellite TV provider.

By Jube Shiver Jr., Times Staff Writer

Federal regulators Friday narrowly approved News Corp.'s $6.6-billion takeover of DirecTV but imposed conditions aimed at limiting the ability of the nation's largest satellite TV provider to dominate media markets.

In a 3-2 vote along party lines, Federal Communications Commissioner Jonathan S. Adelstein joined fellow Democrat Michael J. Copps in opposing News Corp.'s purchase of a controlling stake in DirecTV. They said more stringent conditions were needed to prevent News Corp. Chairman Rupert Murdoch — whose empire includes Fox Broadcasting, two dozen cable channels and 35 television stations in 26 cities that reach 44% of U.S. households — from squeezing or retaliating against rivals that don't play by his rules.

"With this unprecedented combination, News Corp. could be in a position to raise programming prices for consumers, harm competition in video programming and distribution markets nationwide and decrease the diversity of media voices," Adelstein said in a statement.

Minutes after the FCC vote, the Justice Department, which had been conducting its own antitrust review of the deal, announced it would not oppose it.

For weeks, FCC officials had indicated that the deal would be approved with conditions. Most of the FCC commissioners, including Copps and Republicans Kevin J. Martin and Kathleen Q. Abernathy, had cast their ballots days ago.

On Friday, FCC Chairman Michael K. Powell began negotiating with Adelstein, who hadn't yet voted, in hopes of winning a bipartisan majority.

The talks lasted late into the evening, with Adelstein pushing for conditions that would require DirecTV to offer local stations in all its television markets by the end of next year. Powell rebuffed that suggestion and stuck with allowing News Corp. a longer timetable.

Still, several conditions imposed Friday had some analysts wondering just how significant a victory Murdoch had won.

Under the conditions, News Corp. must for the first six years submit to arbitration to resolve any disputes that could crop up withEchoStar Corp., Time Warner Inc. and other competitors that carry News Corp.'s broadcast and cable channels.

That is aimed at addressing concerns that Fox would yank its network programming off of rivals' outlets to encourage their viewers to defect to DirecTV.

Time Warner, the nation's largest cable TV provider, used such a tactic in 2000 against Walt Disney Co. It briefly dropped the programs of Disney's ABC television network after Disney sought to get the cable giant to offer the Disney Channel as part of its basic cable service instead of a paid premium channel. When FCC officials protested, Time Warner restored the programming and negotiated a new deal with Disney.

More recently in Florida, News Corp. pulled its Fox regional sports programming off Time Warner Cable's system as part of a rate dispute.

Some analysts say the arbitration provision is likely to give News Corp.'s powerful rivals leverage to blunt any potential move by News Corp. to get higher fees for its programming.

"News Corp. owns content as well as a distribution vehicle," said Ken Marlin, managing partner at Marlin & Associates, a New York-based investment banking firm specializing in media and technology companies. With the FCC conditions, "in most cases, you'll be having two very powerful and wealthy entities negotiating with each other. It won't be Rupert Murdoch against somebody's mother."

Some consumer advocates were skeptical that the conditions would protect consumers or Murdoch's business rivals.

"It's clear that the FCC favors the special interests of big media companies over the interests of the public," said Jeff Chester, executive director of the Center for Digital Democracy, a Washington media watchdog group. "Murdoch now has a 'triple play' in the U.S. TV marketplace: broadcasting, cable and satellite."

Under another FCC condition, News Corp. must offer local broadcast stations in 30 additional markets by the end of next year, as a way to make satellite TV more competitive with cable. Experts say cable prices have remained high in part because operators can more easily offer local broadcast channels over their cable lines. News Corp. will have to launch an expensive new satellite into orbit next year to get sufficient additional capacity to offer more local TV stations.

Consumer advocates were surprisingly divided over the FCC's vote, with some contending that the conditions imposed by the agency would provide at least some buffer against escalating cable prices.

"The conditions are helpful to prevent enormous [cable] price spikes, but unfortunately they do nothing to prevent the dominate satellite TV provider from cutting sweetheart deals with cable companies that slowly drive up programming prices for subscribers" over time, said Gene Kimmelman, co-director of the Washington office of Consumers Union.

In a statement Friday, Murdoch praised the FCC decision, saying it "will result in a company with unmatched entertainment and technological offerings."

News Corp. executives said they expected to complete the deal in the "next several business days."

DirecTV owner General Motors Corp. will split off its satellite subsidiary, Hughes Electronics Corp., which operates DirecTV. News Corp. will then buy GM's 19.8% interest in Hughes as well as the remaining 14.2% of Hughes' shares outstanding.

Hughes common stock will be listed on the New York Stock Exchange under the ticker symbol HS. The interest in Hughes acquired by News Corp. will be transferred to Fox Entertainment Group and News Corp. Murdoch will become chairman of Hughes.