News Corp. Buying DirecTV

More than a year of relentless campaigning to acquire DirecTV ultimately put EchoStar exactly back where it started, but patiently waiting in the wings has paid off handsomely for News Corp. and its CEO Rupert Murdoch.

On April 9, Murdoch achieved what many claimed was a lifetime dream when his $6.8 billion bid for the direct broadcast satellite company was approved by the boards of both Hughes Electronics Corp., owner of DirecTV and of General Motors, parent of Hughes. News Corp. will acquire approximately 20% of Hughes that is owned by GM and the 14.1% of Hughes that is publicly owned. (News Corp. also wants to buy a 34% stake at $14/share in Hughes, which would give it control of that company's business communications division, Hughes Network Systems.) DirecTV has approximately 11 million US subscribers. The deal will make the combined company the second largest TV provider in the US, behind only cable service Comcast.

It could also deliver broadband interactive services to many customers throughout the US, something that Echostar CEO Charlie Ergen promised if his company's aborted merger with DirecTV had succeeded. News Corp. could adopt some of the interactive features offered by its British satellite service BskyB for use in the States. One of the communications industry's Holy Grails, interactive features let viewers shop for products seen in TV shows, pull up blocks of information, and, in the UK, bet on live sports. News Corp. may give favorable positioning to its Fox Network channels, reassigning them to easily remembered numbers lower on the satellite service's 500-channel lineup.

For the smaller but faster growing Echostar, the News Corp.-DirecTV deal means new challenges. Cable providers are slowly beginning to deliver digital signals, once the domain of DBS services, and DirecTV is likely to make a big promotional effort under Murdoch's leadership. For the past eighteen months, EchoStar has been very aggressive while DirecTV has been content to coast. EchoStar recently contracted for new satellite capacity that will let it offer broadband services to homes and apartments by 2005. The contest for "control of the sky" should soon get very interesting.