FCC Grants Conditional Approval to News Corp/Hughes Merger

And the winner is...Rupert Murdoch, chief of News Corp., which won federal approval in its bid to buy DirecTV.

In a 3-2 party-line vote, the FCC OK'd the deal in which News Corp. will take a 34-percent chunk of Hughes, parent company of DirecTV and PanAmSat, in an exchange of $6.6 billion in cash and stock. In addition to the Fox empire - a Big Four broadcast network, 35 O&Os, 11 national cable networks and 12 regional networks - the deal gives News Corp. a U.S. video distribution presence on par with Time Warner Cable's 11 million subscribers.

Considering the potential market leverage of such a behemoth, the FCC tacked on a few conditions to its approval. Among them, DirecTV will have to add local service in 30 more DMAs by the end of 2004, and Fox will have to abide by "baseball-style" arbitration in carriage disputes.

The fear of Fox among competing multichannel video providers is that it will price its regional sports programming off the chart to make it exclusive to DirecTV, or that retransmission consent of its O&Os will become a launch platform for yet another Fox cable network-as was the case with Fox News Channel. The arbitration clause is meant to allay those fears, at least for the six years before it expires.

Commissioner Jonathan Adelstein, who voted against the order along with fellow Democrat Michael Copps, blasted the commission for not requiring a review before the arbitration condition is summarily dropped in six years.

"The requirement for the Commission to undertake a full notice and comment proceeding would have provided the Commission valuable information to assess any harms of this merger, and would have kept a check on News. Corp's incentive to use its new leverage to harm consumers," he said in his dissent.

FCC Chairman Michael Powell indicated that he had no concerns about pressure on competing multichannel video providers, namely, cable.

"Enhanced competition will increase pressure to improve service and lower prices for both cable and satellite television subscribers," he said "This is a particularly compelling public interest benefit in light of continued cable rate hikes."

Cable's chief lobbyist Robert Sachs played along with Powell, saying his contingent would ramp up services DBS can't do, such as VOD, high-speed Internet service and VoIP.

Sachs also said the merger "should put to rest any remaining questions about the robustness of competition in the multichannel video marketplace."

With regard to the local service stipulation, Commissioner Kevin Martin joined the two Democrats in saying it didn't go far enough. Martin and Copps were particularly concerned that a request from public broadcasters not to get stuck on secondary satellite dishes was ignored.

Under the Satellite Home Viewer Improvement Act (SHVIA), a DBS operator who elects to carry a local broadcast station in a given market must carry all the local stations in that market on a non-discriminatory basis. In some markets, however, DBS providers have relegated certain local signals to a secondary dish.

"This is an unfortunate day for public television stations, religious broadcasters and Spanish-language broadcasters-the stations most often relegated to the second dish," Martin said.

Adelstein objected to leaving small markets swinging in the local service realm.

"This Order makes a mockery of the Commission's public interest test," he said. "[It] does nothing to even hold News Corp. to the shallow promises they made to the Commission to provide local channels to consumers in all 210 television markets across the country. Instead, it limply adopts the requirement that DirecTV provide service to the top 130 markets by the end of 2004, leaving the smaller markets in Rural America high and dry."