The direct-broadcast satellite industry took a significant
turn toward further consolidation last Friday, when PrimeStar Inc. announced that it would
sell its assets to rival DirecTV Inc.
In a deal valued at $1.82 billion in cash and stock,
DirecTV stands to gain access to the high-power DBS assets of Tempo Satellite Inc., which
include 11 transponders at 119 degrees west longitude and two satellites -- one already in
orbit -- at 119.
DirecTV also plans to take over the operations of
PrimeStar's 160-channel medium-power satellite service at 85 degrees west.
DirecTV's goal is to convert PrimeStar's 2.3 million medium-power subscribers to
DirecTV's more robust, high-power service over a two-year period.
Although the deal already has the blessing of
Prime-Star's board of directors -- as well as the board of DirecTV's parent,
Hughes Electronics Corp. -- it still faces scrutiny from Hughes' parent, General
Motors Corp., as well as from certain PrimeStar lenders and several government agencies.
DirecTV president Eddy Hartenstein said he expects the
transactions to receive government approval by midyear.
Stanley E. Hubbard, president and CEO of U.S. Satellite
Broadcasting, said the deal will put DirecTV and the DBS industry as a whole in a better
position to compete against cable, and that is one of the regulatory hopes and
promises of DBS.
Rival EchoStar Communications Corp. is not expected to
combat the deal, Hubbard believes, because doing so would raise a red flag on its own
recent deal to acquire significant transponder space from News Corp.'s American Sky
An EchoStar spokesman declined to comment.
Once approved, the deal would bring DirecTV's
aggregate subscriber count to 7 million, counting its 4.5 million high-power subscribers,
the 200,000 incremental subscribers that it stands to gain through a pending deal with
USSB and the medium-power PrimeStar customers.
Not only would that put DirecTV well ahead of DBS rival
EchoStar -- which said last week that it had tallied its 2 millionth Dish Network
subscriber -- but it would put the company in position to be the nation's
third-largest multichannel-video provider.
DirecTV would trail only Tele-Communications Inc. and Time
Warner Cable, but it would have an edge with its national distribution reach and such
sports programming as the NFL Sunday Ticket National Football League package.
DirecTV's increased subscriber base could allow the
company to take advantage of significant volume discounts when it renegotiates its
While the deal was seen as a positive for DirecTV, the
value was less clear for those close to PrimeStar. Once investors in PrimeStar's
publicly traded holding company, TCI Satellite Entertainment Inc. (TSAT), realized that
the buyout didn't leave much money for TSAT shareholders, the price per share dropped
By midday Friday, the value of TSAT stock had dropped to
$1.16 -- less than one-half of the prior day's closing price -- in trading
that approached a volume of 20 million shares over three hours.
PrimeStar bondholders and creditors are likely to fare
somewhat better, although they may not see full value for their investments. PrimeStar
said in a prepared statement that the deal is conditioned on the successful restructuring
of its indebtedness.
It's too early to say whether PrimeStar's
bondholders will follow through with a threat to sue the company for breach of fiduciary
responsibilities, alleging that the board should have been able to come to terms with News
Corp. last year to restructure PrimeStar into a more profitable company.
Since PrimeStar gave up its bid for 28 high-power
transponders at 110 degrees west longitude late last year -- following an antitrust
suit filed by the Department of Justice -- selling its medium-power business seemed
the only logical move to many analysts.
PrimeStar CEO Carl Vogel said the company had tried for
years to offer its own high-power DBS service to its customers, but it was prevented from
doing so by the government. He added that he sees the deal with DirecTV as the next-best
way to do what's right for our subscribers.
Vogel also hopes to do well by his employees. He said that
over the next month or two, DirecTV will determine which PrimeStar workers it will keep on
staff during the two-year transition, and he is hopeful that DirecTV will offer long-term
opportunities to some PrimeStar staff, as well.
Vogel commended Hartenstein on the deal, saying that he
would do whatever it takes to help the businesses make a smooth transition. He added that
it would be premature to say whether he is likely to be offered a long-term position with
DirecTV. Some observers said Vogel was more likely to stay in Denver.
Prior to the announcement, PrimeStar's exclusive
full-service installation and distribution agents were said to be concerned
about the threat of seeing their commissions dwindle if PrimeStar continued its
medium-power operations but stopped putting new marketing dollars into the business.
The mostly rural distributor network has been busy in
recent months, installing about 100,000 new systems each month.
The new deal brings that exclusive installation and
distributor base to DirecTV, which will need the help in changing out PrimeStar's
larger dishes and incompatible boxes for new 18-inch dishes and high-power receivers.
After they're converted, DirecTV will allow former
PrimeStar customers to continue to lease their equipment, but they'll also have the
option to buy it outright. Hartenstein said he expects it to cost the company around $400
to convert each subscriber, split between new hardware costs and installation incentives.
On top of that, DirecTV will pay just under $600 per
subscriber to PrimeStar in a transaction separate from the $500 million that it will pay
for the Tempo high-power assets.
Although DirecTV will gain cash flow from the medium-power
subscribers and instant marketing access to them through on-air messages and customer
billing, there's no guarantee that all or even most of PrimeStar's subscribers
will ultimately convert to DirecTV's high-power service.
Not only has PrimeStar typically been plagued by heavy
churn, but there's wide belief that EchoStar will step up its efforts to poach the
medium-power subscribers to its own high-power service before DirecTV has a chance to
transition them all.
DirecTV hopes that the additional programming that it will
be able to offer -- including high-definition television and interactive services
-- will encourage PrimeStar subscribers to stay with DirecTV. The company plans to
develop new dishes and receivers that will accept signals from all three full-CONUS
(continental United States) orbital slots.
A spokesman for RadioShack, PrimeStar's only national
retail-distribution partner, said the chain would continue to sell PrimeStar service until
Weekly digest of streaming and OTT industry news
Thank you for signing up to Multichannel News. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.