Murdoch Adds to Empire With Control of DirecTV

TRANSNATIONALE.ORG 10apr03

Completing the final piece in Rupert Murdoch's global satellite empire, the News Corporation agreed yesterday to buy control of Hughes Electronics and its DirecTV satellite operation from General Motors in a deal valued at $6.6 billion.

The deal will give Mr. Murdoch even more power in determining what programs are beamed to television sets across the United States and how much consumers pay for them.

With the addition of DirecTV, the nation's largest satellite operator with 11 million subscribers, the News Corporation will become one of only a few media companies in the nation, among them AOL Time Warner, that both create television programs and distribute them. The News Corporation owns the Fox Network and dozens of local affiliates as well as the increasingly powerful Fox News Channel and a clutch of heavily watched regional Fox Sports networks.

Mr. Murdoch, the chairman and controlling shareholder of the News Corporation, is expected to start a pricing war with cable companies that could benefit consumers. His control of DirecTV will also give him substantial leverage to defend his programming business against pressure from a consolidating cable industry and, critics contend, possibly even squeeze his cable rivals by raising the prices they pay for his programs.

"We can help make satellite TV a viable competitor to cable," Mr. Murdoch said on a conference call last night. "More programming options, richer content and compelling new technologies will give satellite TV the best chance to break cable's hold on viewers."

The deal ends nearly three years of bidding wars, changing alliances and regulatory jockeying as Mr. Murdoch has sought to take over DirecTV in an effort to make the News Corporation the dominant television distributor in the world, with satellite operations serving more than 100 million households in the United States, Europe, Asia and Latin America.

"I've always felt for years that if you're in the content creation business, you must be somewhere in the distribution business to make sure you're not wasting your efforts and your money," Mr. Murdoch said on Fox News.

In 2001, Mr. Murdoch lost a bidding contest for control of Hughes to EchoStar Communications, the nation's second-largest satellite operator. That deal was rejected by regulators late last year after Mr. Murdoch waged a behind-the-scenes lobbying campaign ? circulating a 123-page volume opposing the deal called "The Essential Guide to the EchoStar/DirecTV Deal" around Washington ? to block the agreement, giving him a second chance.

Of course, the News Corporation's deal for Hughes will also require the approval of regulators, including the Justice Department and the Federal Communications Commission, and some consumer groups are already calling for this deal to be blocked as well. But unlike the deal with EchoStar, which would have combined the nation's two largest satellite television companies, legal experts suggest that the deal with the News Corporation will be approved because the company does not already compete in the satellite distribution business in the United States.

The News Corporation's offer for Hughes is significantly lower than the amount it offered in the 2001 bidding war ? a deal worth about $22.5 billion ? calling into question the decision by General Motors, which controlled Hughes, to accept EchoStar's offer when it knew the chances of that deal's being blocked were high. This time around, there was only one bidder.

Rick Wagoner Jr., chief exective of G.M., contended in a conference call yesterday that "the economic value is roughly the same" from this deal with the News Corporation, compared with its offer in 2001, but he declined to explain his math. A banker who worked on the transaction laughed when he heard of Mr. Wagoner's comments.

Under the terms of the deal, which must be approved by Hughes shareholders, the News Corporation would buy G.M.'s 19.9 percent stake in Hughes for $14 a share, or $3.8 billion. Of that amount, at least $3.1 billion would be paid in cash, with the rest in News Corporation publicly traded securities.

The company would then make a tender offer for 14.1 percent of the publicly traded Hughes shares for $14 a share in cash or News Corporation securities.

The price represents a 22 percent premium over Hughes's stock price, which closed yesterday at $11.48, down 2 cents, before the deal was formally announced. The shares, which trade as a G.M. tracking stock, edged up to $11.60 after hours. The News Corporation's American depository receipts ended regular trading down 66 cents, at $27.22. G.M. closed down 25 cents, at $34.48.

G.M. is planning to use the cash it receives from the deal to reduce its debt and strengthen its balance sheet.

The News Corporation would end up controlling 34 percent of Hughes, while the General Motors Pension Trust, which is separate from G.M., would continue to own 21 percent and the public would own the remaining 45 percent. Hughes will eventually be folded into the Fox Entertainment Group.

It is unclear what the effect of the deal will be on consumers, but some are crying foul.

"Hold on to your wallet," said Gene Kimmelman, co-director of the Consumers Union, a consumer advocacy group that supported the EchoStar-Hughes deal. "Prices will go through the roof."

Mr. Kimmelman said he was worried that the News Corporation would raise programming fees for cable operators by threatening to pull his networks off their systems, pushing cable prices for subscribers even higher.

"He has no incentive to price-compete against cable as long they pay a hefty fee for his programming," Mr. Kimmelman said.

The News Corporation disputes that contention and says that any price increases will have to be passed on to DirecTV as well, making higher programming prices less attractive.

"We have every intention of being a fair player," Mr. Murdoch said.

The News Corporation already owns satellite networks around the world, giving it considerably more influence when negotiating to buy satellite-receiving dishes, set-top boxes and other gear. That could enable DirecTV to substantially lower the average cost of acquiring each new customer, now estimated at more than $500 a household.

Mr. Murdoch also expects to expand the DirecTV subscriber base by aggressively marketing the service through his Fox TV outlets. And he will be able to eliminate Hughes's middleman status and reap the revenue directly each time a DirecTV viewer watches one of the News Corporation's 20th Century Fox films on pay per view.

Mr. Murdoch is hoping to repeat the success he has had with British Sky Broadcasting with DirecTV. He has turned BSkyB into the largest pay television operator in Britain by offering exclusive programming, like soccer matches, and has led the field in offering interactive services, like different camera angles for sporting events. It also offers programmable video recorders like the popular TiVo service.

G.M. said that Mr. Murdoch would become chairman of Hughes and that Chase Carey, the News Corporation's former co-chief operating officer, would be president and chief executive. Eddy Hartenstein, senior executive vice president of Hughes, will be vice chairman of Hughes.

An army of investment bankers and lawyers worked on the deal, many for more than three years. Indeed, half a dozen investment banks have worked on the transaction for little or no money because they are paid only after a deal is completed. Citigroup and J. P. Morgan Securities Inc. acted as financial advisers to the News Corporation, while Skadden, Arps, Slate, Meagher & Flom; Hogan & Hartson and Harris, Wiltshire & Grannis provided legal advice.

Merrill Lynch and Bear Stearns acted as financial advisers to G.M., and Jenner & Block; Kirkland & Ellis; and Richards, Layton & Finger provided legal advice.

Goldman Sachs and Credit Suisse First Boston acted as financial advisers to Hughes Electronics and Weil, Gotshal & Manges; Latham & Watkins; Wiley, Rein & Fielding; and Jones Day provided legal advice. (Andrew Ross Sorkin, New York Times - 10/04/2003)

Last edited by jeulain on Thu Apr 10, 2003 4:03 pm, edited 1 time in total

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lansquenet

Joined: 06 Dec 2002 Posts: 243

Posted: Mon May 26, 2003 8:31 pm Post subject: Rupert Murdoch's Digital Death Star

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Even as Michael Powell and the GOP sweep away long-standing media ownership safeguards, media mogul Rupert Murdoch is mobilizing to further expand his TV empire beyond broadcast and cable. His plans to acquire the key direct broadcast satellite service (DBS) - DirecTV - will allow Murdoch to advance his conservative political agenda, creating new channels and services that disseminate the rightwing ideology now espoused by Fox News.

News Corp. wants to buy Hughes Electronics - the parent company of DirecTV - from General Motors. If the deal is allowed to go through, Murdoch will have a triple play when it comes to influencing U.S. television with his control of broadcast, cable and satellite channels. His News Corp now owns 35 broadcast TV stations and significant cable channels like Fox News, Fox Sports and even National Geographic TV. Add to that DirecTV's 11 million subscribers and Murdoch will be able to greatly shape broadcast and new digital television services. While both the U.S. Department of Justice and the FCC have to approve the deal, don't expect any significant opposition. GOP lawmakers in the House practically fell on their knees when Murdoch testified about the proposed buyout recently. And why not! Fox News essentially provides a 24/7 campaign contribution to the Bush White House.

The need to oppose the DirecTV acquisition is urgent. Contrary to his promises, Murdoch will use DirecTV as a "death star" to force his programming on cable companies by threatening a price war unless they give Fox favorable access. Since News Corp will control cable TV's principal multichannel competitor, it will easily create new channels - unlike anyone else in the TV business. Rather than engage in open combat and competition, cable powerbrokers such as Comcast and AOL-Time Warner will likely accommodate Murdoch and add his new channels to their own services. Imagine Fox News on steroids. Worse, with DirecTV's capacity to "spotbeam" channels to serve distinct communities, localized versions of Fox programs could be available in major cities across the nation.

The purchase of DirecTV will also enhance Murdoch's existing clout in the U.S. media market. First, News Corp. has already secured key technologies that will act as a virtual tollbooth for the emerging digital TV marketplace. For example, News Corp. subsidiary Gemstar , better known as TV Guide onscreen, allows it to influence viewer programming choices though its control of the key electronic program guide. Murdoch's NDS service , which provides set-top box software, will expand their clout into new broadband digital applications.

Finally, Murdoch's acquisition of DirecTV, as noted in News Corp.'s "public interest" filing at the FCC will greatly expand its global power. The document openly touts the "efficiencies" of the merger, since Murdoch already controls key satellite TV systems serving Europe and Asia. The U.S. deal will cap a long-standing quest by Murdoch to add this country's market to his immense media empire, and further his political influence all across the globe (for a link to his holdings and other information, go to the Center for Digital Democracy.)

Murdoch's determination to add a U.S. satellite service to News Corp's holdings was reflected in his campaign to defeat the takeover of DirecTV by its smaller DBS rival Echostar. Although the DOJ was correct in nixing the deal (for it would have merged the only two competitors), Murdoch scuttled the merger by orchestrating a political campaign hatched at the News Corp.'s offices (as reported by the Wall Street Journal and others).

The FCC is now taking comments on the merger. The official deadline to register formal opposition to the deal is June 16th. But critics and others will be able to weigh in - whether through congressional pressure or other means - through the late fall, when approval is expected. Murdoch has already promised not to discriminate against potential program competitors, such as Disney/ABC, GE/NBC, and Viacom/CBS, preempting any serious resistance from the heavy hitters.

Ideally, the merger should be denied, but such is the state of competition policy and anti-trust rules (let alone political corruption) that there is little likelihood for an outright rejection. But opposition is essential, covering a number of fronts, to develop some federally imposed safeguards on the deal. For example, Murdoch must be denied full control of the channel capacity of DirecTV. For groups left out of TV - including progressives, persons of color (there are no channels owned by African Americans, for example), women, nonprofits, and labor - this may be the time to seriously consider weighing in. Channels and bandwidth must be made available across the commercial and non-commercial spectrum. The union movement may have some influence in the battle, as GM-related pension funds will own 20 percent of the Murdoch-run DirecTV venture.

Furthermore, the new technologies under Murdoch's control, such as his electronic guides, also must be disarmed, permitting emerging and competitive programming services to flourish. Key Murdoch investor John Malone (another politically conservative media mogul) must be denied any influence as well.

But for any checks on Murdoch's DirecTV deal to be put in place, a strong and vociferous protest is necessary. If the U.S. (and the world) is to be protected from Mr. Murdoch's political agenda, the time to act is now. (Jeffrey Chester*, AlterNet, May 20, 2003)

*Jeff Chester is executive director of the Center for Digital Democracy.
source: http://forums.transnationale.org/viewtopic.php?t=1870 3jun03