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News Corp.: No DirecTV Bidding War

News Corp. last week warned General Motors that it will resist any auction for the auto company's DirecTV unit, in order to avoid getting burned again.

The declaration by News Corp. COO Peter Chernin came after word broke that telco SBC Communications had expressed interest in acquiring the direct-broadcast satellite unit, extending its existing marketing agreement with DirecTV into complete ownership of the company.

SBC's interest was greeted with heavy skepticism by investors, who are aware of the string of telco video ventures that SBC Chairman Ed Whitacre has unwound or closed over the past decade. That ranges from the shuttering of its own cable overbuild system in suburban Dallas to the sale of an extensive overbuild by SBC takeover target Ameritech.

But Chernin wants to be sure GM knows that News Corp. Chairman Rupert Murdoch won't stand for a rerun of their last dance together. After almost two years of negotiations, GM, which controls DirecTV parent Hughes Electronics, pitted Murdoch against EchoStar Communications Chairman Charlie Ergen. In the end, GM chose EchoStar.

Then Ergen's takeover was blocked by the Department of Justice and Federal Communications Commission on anti-trust grounds, no small thanks to lobbying by Murdoch, of course.

"We continue to believe that having such a platform would be a great advantage to us in a rapidly consolidating world, but let me add this one caveat: We will not be drawn into a bidding war in order to acquire it," Chernin said. "Having gone down this path before, we have a very clear sense of what we believe these businesses are worth, and we are not going to be pulled into a process that would inflate that value."

Chernin's comments came as News Corp. posted a strong earnings report for the second fiscal quarter ended December. For the quarter, operating cash flow surged 69%, partly because the year-ago quarter was so terrible but also because of huge strength at cable network Fox News, more-modest gains at FX and a jump at its 20th Century Fox studio.

The exception was the Fox Broadcasting network. The ratings surge fueled by January's Joe Millionaire
and American Idol
triumphs couldn't overcome the flops taken from the network's fall schedule, with its expensive, now-canceled series like Girl's Club
and Firefly. Fox Network's losses swelled from $125 million in 2001 to $149 million in 2002, including an estimated $50 million write-off for canceled series.

The Fox network's new strength should boost the company's station group, suddenly blessed with better lead-ins to their late newscasts.

However, Morgan Stanley media analyst Richard Bilotti cautions that ad rates on the reality shows haven't been as high as on scripted shows, so the immediate financial benefits to the network may not be as dramatic as the final showdown on Idol.

The TV stations posted a 24% gain in operating cash flow to $320 million, almost double the 13% rate of revenue growth (to $593 million). In addition to the rebound from the 9/11 downdraft a year earlier, News Corp. CFO David DeVoe cited cost savings from the company's four duopolies created by the takeover of Chris-Craft. Margins hit 54%.