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Malone Snags DirecTV

Liberty Media took majority ownership of DirecTV from News Corp. last week, agreeing to sell its 16.3 percent stake ownership in News Corp. in exchange for 38.5 percent of DirecTV, $550 million in cash and three regional networks. The deal--valued at $11 billion--makes Liberty Media CEO John Malone once again a major player in the pay-TV industry, a market he left after selling his TCI cable company to AT&T in the late 1990s.

The transaction--which had been anticipated for some time--also ends a long-running feud between Malone and Murdoch after Liberty acquired a large voting interest in News Corp two years ago. Liberty Media Corp., which has interests in electronic retailing, media and communications operations, including Discovery, Starz and QVC, will take control of Fox Sports Rocky Mountain, Northwest and Pittsburgh regional sports networks as part of the deal, which could close by mid-2007. Current DirecTV President and CEO Chase Carey is expected to stay. A breakup fee totaling $300 million could be imposed on News Corp. if the deal falls through, according to regulatory filings.

With Malone back in the subscription TV picture, speculation about the future of DirecTV revolves around Malone's ability to adapt his reputation as a cost-cutting maverick with the realities of today's media market in which DBS companies face increasing competition from cable and telco operators now offering "triple-play" services of voice, video and data.

DirecTV, the nation's largest satellite broadcaster with 15.6 million subscribers has been frustrated in its attempts to market broadband and currently partners with AT&T for the service. The company may also try to revive a merger with EchoStar, the only other major DBS provider in the U.S. The two companies attempted to merge several years ago but the FCC rejected the deal over antitrust concerns.

There's also some question about the future of DirecTV's PVR services. Under Murdoch's watch, the satellite broadcaster severed ties with TiVo in favor of set-tops from NDS, which is owned by News Corp. Subscribers have reportedly complained about the quality of the NDS boxes. Liberty Media was also an equity investor in TiVo.

Will Workman, who pens the monthly "Inside Broadband" column for TV Technology says the deal is an example of Malone's penchant for increasing value in assets he buys and then selling them off for a profit, as well as his ability to spot future trends.

"He always has an eye to what the future prospects are--he's always navigating towards what he sees as the technological horizons," Workman said. "This is an example of that."

Workman also said that Malone's interest in DirecTV may have been spurred by the FCC's recent decisions to support telco's ability to offer TV services. With more competition in the video marketplace, the FCC may be more amenable to a DirecTV-EchoStar merger, he said.

Gary Arlen, president of Bethesda, Md.-based Arlen Communications, says the transaction "opens new doors" for Malone's "convergence dreams."

"It also brings him new vehicles to distribute Liberty's content, such as the Starz brands, which now include a new production studio," Arlen said. "What's really interesting is Wild Blue, the broadband Internet satellite operator, in which Malone is a major investor. I expect we'll see some impressive overlap between Wild Blue and DirecTV: more convergence and more interactivity.