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Sweetening the DirecTV Deal

Making his third appearance on Capitol Hill since April, Rupert Murdoch told lawmakers he would consider sweetening the deal to win government approval of his bid to gain control of DirecTV.

The News Corp. chairman had already pledged not to charge cable MSOs more for News Corp.-owned cable nets than he will charge DirecTV. Last week, under pressure from key senators, he agreed to at least consider making the same nondiscrimination pledge for deals to carry News Corp.-owned Fox TV stations. "That's a reasonable request, but I would want to study it," he said during an Antitrust Subcommittee hearing on the $6.6 billion deal. "I would have to see how that would apply to competitors" ABC, CBS and NBC in the broadcast-network business. "It's a different world" from cable, he said.

Wisconsin Sen. Herb Kohl, the Antitrust Subcommittee's ranking Democrat, said he concluded that these and other terms (see below) are necessary after cable operators convinced him Fox would have the power to deny local cable operators both Fox cable and broadcast channels by moving all of the extensive News Corp. programming stable to DirecTV unless they pay drastically higher prices.

"This combination of content holdings with worldwide distribution will create a media powerhouse of virtually unmatched size and scope," Kohl said. "The overriding fear is that News Corp./DirecTV will take advantage of their global distribution system and must-have programming to raise prices and squeeze out competition."

Murdoch's willingness to consider extra conditions may have been nothing more than a way to cut short lawmakers' aggressive questions, but it's unlikely his response will be forgotten.

Robert Miron, chairman of Advance/Newhouse Communications, said that, without adding local stations to the antidiscrimination pledge, News Corp. could use broadcast retransmission-consent contracts to bargain higher prices for all its programming. "If cable companies don't go along, we'd definitely lose subscribers," he said, speaking on behalf of three operators besides his own: Cox Communications, Cable One and Insight.

Murdoch scoffed at the notion of cable as victim, saying cable typically controls 80% of the pay-TV customers in a market. The companies Miron represents also own major broadcast stations, market-dominating newspapers, and cable systems, he noted: "We're not dealing with a bunch of virgins here." Denying programming to four-fifths of a market, he added, "would be totally self destructive."

Kohl, seconded by Sen. Patrick Leahy (D-Vt.), said News Corp. must:

  • Make all its cable and broadcast programming available to cable operators and satellite competitor EchoStar on the same terms that DirecTV will get.
  • Shun "unreasonable" price increases in the cost of News Corp. programming.
  • Provide News Corp. programming rivals equal access to DirecTV with regards to channel placement, tiering and pricing.
  • Set specific dates for rollout of local broadcast carriage and broadband access in specific markets.

Committee Chairman Mike DeWine (R-Ohio) didn't call for specific conditions but did join Kohl in asking the FCC and the Justice Department to scrutinize the deal. "This acquisition raises important vertical-competition issues worthy of serious consideration," they wrote in June 18 letters to FCC Chairman Michael Powell and Justice Department Antitrust Chief R. Hewitt Pate.

News Corp.'s competitors and critics are full of ideas for conditions.

Besides adding broadcast to the antidiscrimination pledge, the National Association of Broadcasters wants to prohibit News Corp. from transmitting its Fox-network feed over DirecTV in any market already served by a Fox affiliate, as well as require it to carry broadcast channels on DirecTV in all 210 markets by Jan. 1, 2006.

NAB's suggestions were among a host of suggestions and petitions to block the merger submitted to the FCC last week.

Cable operator Cablevision Systems urged the FCC to make News Corp. waive its right to elect retransmission-consent contracts for cable carriage. That would mean that Fox Television would not be able to add terms for cable carriage of Fox cable nets into the stations' cable contracts. Instead, the stations could demand only must-carry, the right for carriage without compensation.

Public broadcasters asked FCC to clarify that no local stations can be carried on the DBS operator's so-called wing satellite, which necessitates a second dish.

The Center for Digital Democracy and the American Cable Association called for the deal to be blocked on grounds that the company's combined holdings of broadcast, interactive and pay-TV distribution, coupled with its popular programming networks, will have unprecedented power to dictate expensive terms to local operators and subscribers.