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12.22.2003
Originally featured on BroadcastEngineering.com
FCC grants Rupert Murdoch control of DirecTV

By a one vote majority, the FCC has approved giving Rupert Murdoch’s News Corporation control of the DirecTV direct-to-home satellite broadcast system.

In a huge win for Murdoch’s News Corporation, the FCC removed the final obstacle to the $6.6 billion media mega-merger that will combine Hughes’ DirecTV with the Fox motion pictures studios, the Fox News and Speed pay television networks, its Fox television network and 35 owned television stations. Murdoch’s Fox News Channel is headed by former GOP political operative Roger Ailes.

The deal will give Murdoch control of the largest global conglomerate of media businesses ever assembled. His holdings include a 40 percent interest in the UK’s British Sky Broadcasting, as well as pay television systems in Australia, Japan and Latin America. If all goes as planned, the DirecTV deal could close in a matter of days.

The FCC majority adopted conditions to the deal intended to limit News Corp.’s ability to use two of its most potent bargaining chips—its local Fox stations and its Fox regional sports networks—to secure higher programming fees from cable systems and other satellite companies.

The rising cost of the Fox regional sports networks, which control exclusive broadcast rights to many local sports events, had become the subject of intense criticism by some cable companies. News Corp. fought hard to dissuade the FCC from imposing any restrictions.

The FCC, in issuing its decision, concluded that the combined control of DirecTV with the Fox television programming businesses could enable News Corp. to drive up the fees that other cable or satellite companies pay for its programming.

To address the situation, News Corp. must agree to arbitration to solve disputes with companies that carry its broadcast and cable channels. News Corp. must also treat all stations equally, and not favor its Fox broadcasting network and cable properties.

The commissioners ordered that during an arbitration, the local station or sports network must remain on the air, limiting potential harm to cable operators. Either side can appeal arbitrations to the FCC.

“Cable and satellite customers will continue to have access to programming from a diverse source of media outlets,” said FCC chairman Michael Powell after the vote. “With these conditions, I believe the transaction serves the public interest.”

Murdoch expressed no concern over the conditions. “The conditions, as we understand them from the public notice, will not adversely affect our future plans for the operation of the business,” Murdoch said after the FCC’s action.

However, despite conditions imposed by regulators, analyst Jimmy Schaeffler, chairman and chief executive of The Carmel Group, an industry consulting firm in Carmel, Calif., in an interview with CBS MarketWatch said that Murdoch still has virtually limitless options due to News Corp.’s combination of programming and distribution power.

The New York Times reported that Powell had worked hard last week to win the vote of one of the two Democrats on the commission. But in the end, Jonathan Adelstein pulled away in a dispute over News Corp’s initial pledge to provide local television signals to DirecTV subscribers. Local stations are not available over satellite television services in many rural markets.

In an interview with the Times after the vote, Adelstein called the company’s pledge “a sham” because it intended to honor the promise by incorporating conventional antennas into its devices rather than providing true satellite transmissions. He said the Republicans on the FCC were going to “roll over” and let the Murdoch-controlled DirecTV get away with it. “If they don’t put it on the satellite, some people are not going to get it (the signal),” he said.

In response to Adelstein, News Corp. said it had never ruled out using conventional antennas where needed to provide “the best service.”

Democratic commissioner Michael Copps said the deal would reduce competition, not enhance it. “Where is the logic — where is the public interest benefit — of giving more and more media power to fewer and fewer players?” Copps asked.

Consumer groups lamented the FCC action, saying it will further reduce competition by shrinking the number of media companies, and will drive up the price of cable and satellite services.

The FCC last year rejected a proposed merger between DirecTV and its chief competitor, EchoStar Communications Corp., ruling it would unfairly limit consumer choices.

For more information visit www.fcc.gov.

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