FCC Approves Murdoch Purchase of DirecTV
By Frank Ahrens for the Washington Post.

The Federal Communications Commission and Justice Department today approved News Corporation Inc.'s purchase of Hughes Electronics Corp.'s DirecTV home satellite system, giving Rupert Murdoch the crucial missing piece of his global satellite empire.

By a vote of 3-2, the FCC commissioners allowed the $6.5 billion cash-and-stock purchase to go ahead with a number of conditions meant to keep News Corp. from using DirecTV as a lever to raise programming prices to rival cable and satellite companies. The merger gives News Corp. a controlling 34 percent interest in Hughes.

News Corp. is the parent company of the Fox television network, Fox News Channel, FX and Fox Sports regional cable channels. Opponents of the merger feared that News Corp. would raise its programming prices to cable rivals, such as Comcast Corp., or threaten to pull Fox programming in order to drive customers away from cable and to DirecTV.

The FCC ruled that the merger would improve service to DirecTV customers -- News Corp. has a history of adding channels and features, such as interactivity, to its other satellite systems -- would create a more muscular competitor to the cable industry, which has monopolies in most markets, and promote the agency's goal of localism, by requiring News Corp. to add local channels to the DirecTV system.

FCC Chairman Michael K. Powell joined fellow Republican commissioners Kevin J. Martin and Kathleen Q. Abernathy in approving the deal.

Dissenting were Democratic FCC commissioners Michael J. Copps and Jonathan S. Adelstein. The commission has been split along party lines on media issues since the rancorous June vote adopting new media ownership rules.

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FCC Approves Murdoch Purchase of DirecTV

By Frank Ahrens
Washington Post Staff Writer
Friday, December 19, 2003; 9:11 PM

The Federal Communications Commission and Justice Department today approved News Corporation Inc.'s purchase of Hughes Electronics Corp.'s DirecTV home satellite system, giving Rupert Murdoch the crucial missing piece of his global satellite empire.

By a vote of 3-2, the FCC commissioners allowed the $6.5 billion cash-and-stock purchase to go ahead with a number of conditions meant to keep News Corp. from using DirecTV as a lever to raise programming prices to rival cable and satellite companies. The merger gives News Corp. a controlling 34 percent interest in Hughes.

News Corp. is the parent company of the Fox television network, Fox News Channel, FX and Fox Sports regional cable channels. Opponents of the merger feared that News Corp. would raise its programming prices to cable rivals, such as Comcast Corp., or threaten to pull Fox programming in order to drive customers away from cable and to DirecTV.

The FCC ruled that the merger would improve service to DirecTV customers -- News Corp. has a history of adding channels and features, such as interactivity, to its other satellite systems -- would create a more muscular competitor to the cable industry, which has monopolies in most markets, and promote the agency's goal of localism, by requiring News Corp. to add local channels to the DirecTV system.

FCC Chairman Michael K. Powell joined fellow Republican commissioners Kevin J. Martin and Kathleen Q. Abernathy in approving the deal.

Dissenting were Democratic FCC commissioners Michael J. Copps and Jonathan S. Adelstein. The commission has been split along party lines on media issues since the rancorous June vote adopting new media ownership rules.

As a condition of approving the merger, the FCC requires News Corp. to beam local channels into 130 of the nation's markets by the end of next year.

However, Adelstein said News Corp. is not required to provide local channels to all markets by satellite -- the company can do so by attaching an antenna to its satellite dish, which, in the nation's most rural areas, will not receive local channels, he said.

"One of biggest public interest benefits of this merger turned out to be a sham," Adelstein said in an interview yesterday.

News Corp., however, pointed out that it said as early as September in an FCC filing that it may not be able to provide local channels to all markets via satellite. If residents live in very rural areas outside the boundaries of the top 210 markets and are not able to get local channels over the air, they will not get them via satellite, either, News Corp. said, because the high cost required to do so would raise DirecTV bills to all its customers.

News Corp. pledged to provide local channels to the top 210 markets "by whatever means make the most sense," said a company spokesperson. "From a business perspective, a technology perspective and the consumers' perspective."

Another condition imposes a baseball-style arbitration system if News Corp. cannot agree on programming prices with its rivals. If, for instance, News Corp. and Comcast cannot agree on how much Comcast should pay for a Fox channel, a cooling-off period is engaged during which parties can continue to haggle. If no deal is reached, each party submits their final offer to an arbiter, who chooses one of the two. News Corp. can appeal the decision to the FCC.

The system is designed to prevent News Corp. from threatening to pull its popular Fox network and Fox Sports regional programming from rival cable systems to extract higher payments. FCC studies show that pulling local channels and regional sports channels from cable systems drives customers to satellite services faster than any other factor.

The FCC had considered imposing a "benchmark pricing" condition on News Corp., but found the contracts regarding regional sports programming too complex and feared that hard benchmarks could eventually be maneuvered around.

"We support arbitration to limit NewsCorp.'s excess power in these transactions, but that doesn't prevent sweetheart deals between DirecTV and cable, where the end result is higher prices to satellite and cable customers," said Gene Kimmelman, senior policy director for Consumers Union. "While the commission imposed some helpful conditions on this merger, it offered no more than a Silly Putty patch on the crumbling structural pillars that ensure open democratic debate in our society."

Murdoch owns pay-satellite television services that serve Europe, Asia and his home country of Australia. DirecTV, the top satellite service in the United States with 12 million customers, gives him North and South America, as the company has a Latin American arm, which has been a money-loser.

Hughes is owned by General Motors, which has been trying to offload the satellite company, including a failed attempt last year to sell it to EchoStar Communications Corp., parent of Dish Network, the industry's No. 2 service with 8 million subscribers. That merger attempt was killed by FCC and Justice Department regulators, which said it would harm the public interest and violate anti-trust laws.

GM had hoped to get the purchase approved by the end of the year in order to book the sale's $4 billion in cash to this year's balance sheets and apply it to auto giant's pension fund.