DirecTV: Murdoch Finally Pops the Cork!

23 December 2003

Rupert Murdoch is nothing if not patient. But patience pays. In spades.

After years of waiting, frustration and disappointment, the Australian-American tycoon has achieved his lifetime ambition -- control of the USA's largest satellite broadcaster, DirecTV.

It was confirmed Sunday that Washington regulators had finally approved News Corporation's $6.8 billion (€5.49bn; £3.85bn) acquisition of a controlling 34% stake in Hughes Electronics -- DirecTV's parent company -- currently owned by General Motors. To complete the deal, Hughes will now be spun-off as a separate company.

In a weekend statement, the US Justice Department confirmed it will not oppose the deal, already approved by the Federal Communications Commission.

The regulators' decision contrasts starkly with the stand taken last year against DirecTV's acquisition by rival satellite broadcaster EchoStar Communications -- against which NewsCorp lobbied long and vociferously.

Even though Murdoch's NewsCorp owns Fox, one of America's big four TV networks, the regulators were persuaded that its controlling stake in the satellite broadcaster would raise no insurmountable competition issues, subject to certain safeguards.

These include an undertaking to allow rival US broadcasters access to DirecTV's satellite transmissions. There will also be a non-binding arbitration mechanism to settle disputes between NewsCorp and cable companies.

The latter fear that NewsCorp might deny them programming (for example the popular Fox News network) to encourage their customers to switch to DirecTV. There is also concern that smaller operators could be forced by the threat of withholding programs to accept higher programming costs.

In a statement, NewsCorp's ebullient chairman proclaimed: "We're delighted to have received clearances from the FCC and DOJ and we intend to close this transaction with GM in the next few days."

Euphoria then took a backseat to commercial steel with confirmation that NewsCorp will seek annual savings and increased operating profits of $610m-$765m from DirecTV. In the immediate firing line are DirecTV's customer call centres, administration and installation operations.

Data sourced from: BBC Online Business News (UK) and Financial Times; additional content by WARC staff