The New Television: Dishing it out

Feb 3, 2003  •  Post A Comment

Revenge is a dish best served cold.
The Wall Street Journal reported last month that EchoStar chief Charlie Ergen may sell his satellite TV service to Rupert Murdoch and/or Liberty Media. If the deal goes through, EchoStar’s onetime merger partner, DirecTV, could be left out in the cold.
And that would suit Ergen just fine. Industry sources tell me Ergen feels that DirecTV and its parent company, Hughes Electronics, were not supportive in the final weeks of the federal government’s review of the EchoStar-DirecTV merger.
The Federal Communications Commission and the Justice Department rejected the deal late last year on grounds that it would create a satellite TV monopoly; the merger would have left the nation with just one satellite dish service. At the last minute, however, Ergen asked the feds to postpone their decision so he could revise the proposal. (EchoStar was negotiating to sell satellite spectrum space to Cablevision so the cable operator could launch a rival satellite TV business.)
But EchoStar’s plea was undermined when DirecTV Chairman Eddy Hartenstein publicly said his company would not extend its deadline for getting the merger approved. EchoStar had agreed to pay DirecTV a $600 million breakup fee if the deal was not finalized by Jan. 21, 2003. With the merger deadline approaching, there was no way that EchoStar could complete the Cablevision deal in time to appease federal concerns.
“They were running out the clock at DirecTV headquarters,” lamented one EchoStar official.
Hughes and DirecTV believed that the federal government would not approve the merger under any circumstances. Company officials concluded that their best strategy would be to wait until the feds killed the deal and then evaluate new bids from Murdoch or others. (In October 2001, General Motors, the parent of Hughes and DirecTV, rejected Murdoch’s offer to buy the two companies.)
However, Ergen may have beaten DirecTV to the punch. In January, General Motors said it might wait 60 days before deciding whether to put the satellite TV service back on the block. The announcement was seen as a negotiating ploy. Murdoch, who was bitter over the first rejection, was considered likely to try to bully General Motors into accepting a lower offer.
But if Murdoch buys EchoStar first, then GM could be strapped to find another buyer. And despite the public hesitancy the carmaker reportedly is anxious to unload the satellite TV service.
Of course, we don’t know the source of The Wall Street Journal story, or the seriousness of the negotiations. But it’s interesting to note that the article was published Jan 21. Yes, that was the deadline for the EchoStar-DirecTV merger, the deadline that DirecTV would not extend.
Did Ergen time the story to get back at DirecTV? EchoStar will not comment on the article other than to say that the company “continues to focus its efforts on maintaining its leadership position in the cable and satellite industry. Obviously, our board of directors would be required to consider any firm proposal that would benefit our shareholders.”
The latest chapter in this satellite soap opera is somewhat ironic.
Ergen dislikes DirecTV but he hates Rupert Murdoch. EchoStar and Murdoch’s News Corp. had planned to merge in 1997, but the deal fell apart after Ergen engaged in various shouting matches with News Corp. executives. Ergen’s distrust of all things Rupert grew last year when Murdoch lobbied behind the scenes to defeat the DirecTV deal.
However, Ergen knows that if Murdoch buys DirecTV, his company could be driven out of business. DirecTV already has 4 million more subscribers than EchoStar; Murdoch’s muscle and money would just widen the gap. Ergen may have decided it would be best to walk away with a pot of gold than to fight a Murdoch-led DirecTV.
As the negotiations proceed, there could be a way to monitor their progress.
EchoStar had planned to launch an interactive wagering service for the TVGNetwork, the horse racing channel owned by the partnership of Gemstar and News Corp. The service would permit dish owners to wager on the horses from home with their remote controls. Last summer, sources tell me, one EchoStar executive was so excited about its potential that he called it a “killer app” in a meeting with Gemstar. However, Ergen decided to put the wagering feature on hold, in part because he wanted to punish Murdoch for lobbying against the merger. (Murdoch’s News Corp. owns 43 percent of Gemstar.)
In the next several weeks, if EchoStar announces that it’s launching the TVG wagering service, you just might see a sale announcement from EchoStar and News Corp. later this year.
Phillip Swann is president and publisher of TVPredictions.com. He can reached at swann@TVPredictions.com.