12.29.2003 12:00 PM
DirecTV now under Murdoch’s control

Wasting little time, Rupert Murdoch’s News Corporation has completed the $6.6 billion transaction that gives the company control of DirecTV, the largest direct-to-home satellite pay television service in the United States.

The deal, which transfers ownership of DirecTV from General Motors to News Corp., has huge implications for the American pay television industry, both cable and satellite. It was finalized about 48 hours after a one-vote Republican majority on the FCC gave its regulatory approval.

As a condition of that approval, the FCC added conditions meant to prevent Murdoch and company from discriminating against competitors. But critics, beginning with the two Democratic FCC commissioners who dissented against the acquisition, said the conditions would not prevent abuse.

With control of DirecTV, Murdoch now has significant assets in satellite, cable and terrestrial broadcasting. In addition to a network of satellite systems across the globe, Murdoch’s News Corp. owns Fox Television Network—which reaches about 40 percent of the U.S. viewing public—plus 20 regional sports channels, various TV stations, 20th Century Fox and the New York Post newspaper. The acquisition makes News Corp. the second-largest provider of pay television behind cable operator Comcast, with an audience of 11 million U.S. subscribers.

The merger, critics contend, will enable News Corp. to use DirecTV to extract higher programming fees from competitors or to withhold content from providers that compete with DirecTV. To address those concerns, the FCC stipulated, as part of its approval, that News Corp. can’t use DirecTV to withhold programming from competitors, charge higher prices or refuse to carry competing programs. The provision extends for six years.

Regulators also stipulated that News Corp. submit to a neutral third-party arbitrator in case of program disputes with cable and satellite operators. The FCC dictated that DirecTV must offer local service in 130 markets by the end of 2004, 30 more markets than originally planned.

However, Michael Copps, a Democratic FCC commissioner who voted against the merger, called the conditions “band-aids” that won’t work to fix the agreement’s more fundamental flaw. The merger represents a concentration of power that is ripe for abuse, he said.

“In the end, it all comes back to this: to putting too much power in one conglomerate’s hands and creating opportunities for abuse that accompany such concentrated power,” Copps wrote in his dissent.

Similarly, Democratic FCC member Jonathan Adelstein warned that the deal gives News Corp. unprecedented control and increases the incentive and ability to act anti-competitively. He was also disappointed that News Corp. was not required to offer local broadcast programming in all 210 TV markets across the country.

After watching the FCC reject an earlier attempt by EchoStar Communications to acquire DirecTV for anticompetitive reasons, analysts told the Dow Jones News Service that they were surprised that the Murdoch approval went through with so few conditions attached.

Trying to maintain that appearance of “non-bias” will be one of News Corp.’s biggest hurdles, Sean Badding, an analyst for The Carmel Group. predicted. “I don’t think there will ever be a situation where they aren’t going to come up with disputes,” he added.

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