Murdoch vs. Ergen, the Rematch

Does News Corp.'s chief want to prevent his nemesis at EchoStar from getting DirecTV? Just look at how hard his troops are lobbying against it

By Ronald Grover

When last we heard from Rupert Murdoch, News Corp.'s 70-year-old chairman had walked away from negotiations to buy DirecTV from General Motors subsidiary Hughes Electronics for $30 billion. At the time, Murdoch said he was tired of the 18-month talks and felt the auto maker wasn't going to sell to him anyway.

So, with his new wife about ready to deliver their first child, Murdoch seemed content to let Charlie Ergen's EchoStar Communications waltz off with DirecTV -- and its 10 million subscribers. "With this saga concluded," Murdoch said in a statement on Oct. 27, the day he backed out of the DirecTV bidding, "we will return with renewed vigor and sharpened focus to maximizing our worldwide media businesses."

No sooner did Murdoch bid goodbye than rumors started to fly: Was the crafty mogul waiting for trustbusters to scotch the EchoStar-DirecTV merger? After all, Ergen is an old Murdoch nemesis. DirecTV would add the missing U.S. piece to Murdoch's satellite empire that already includes Europe, Asia, and Latin America. Now, News Corp. lobbyists are swarming over Capitol Hill in a none-too-subtle effort to scuttle EchoStar's deal with DirecTV.


  Murdoch's interest in killing that agreement is no doubt even higher, following the Dec. 14 announcement that French media company Vivendi Universal would pump $1.5 billion into Ergen's company in return for a 10% stake. Should EchoStar win approval for its DirecTV merger, that would give one of News Corp.'s biggest rivals a guaranteed and growing audience in the U.S. for its movies and TV shows. And Vivendi is expected to expand its programming abilities soon, with a long-rumored acquisition of USA Network's USA and Sci-Fi cable channels and the USA Studio that makes Law and Order and other TV shows.

News Corp.'s stated position on the DirecTV deal is that, as a major producer of sports, entertainment, and news programs, it's lobbying just "as we would any issue that affects our company." Really? I'd say Murdoch is doing more than that. f Take a look at a document called "The Essential Guide to the EchoStar/DirecTV Deal" that is circulating widely on Capitol Hill. Distributed by News Corp., the 24-page primer includes not only several articles raising criticisms of EchoStar from the The New York Times and The Wall Street Journal but also letters of concern from several state attorneys general and the National Association of Broadcasters (NAB).


  More tellingly, it includes a point-by-point refutation of the key points that EchoStar makes in support of its planned merger. EchoStar says it needs to combine its 6 million subscribers with those of DirecTV to compete against cable TV. News Corp. attempts to rebut that, claiming that by combining the two satellite services into one, EchoStar would actually reduce competition. "In markets where cable is not available, typically rural areas, millions of Americans would be subjected to service from a monopoly provider," the report says.

The document also denigrates what it calls EchoStar's "newfound" interest in providing all local TV stations. EchoStar, the report points out, has been fighting in court against the requirement that it provide customers with every station they currently receive. And rather than providing new broadband services to consumers, the News Corp. briefing paper says, a combined EchoStar-DirecTV would "create a monopoly in the broadband satellite market, thereby potentially raising prices and reducing innovation for this technology."

Ergen, who has already been before a pair of House panels and will soon testify for the Senate Commerce Committee, is tackling the claims head-on. He has already promised to offer his service for one fixed price nationwide rather than tailor prices to individual markets, which should allay fears that rural customers who lack a local-cable alternative will end up paying usurious rates.


  There's more. News Corp. executives also have alleged that DirecTV intends to give EchoStar confidential information on its contracts with TV programmers before the merger is completed. "Your proposed disclosure of this competitively sensitive information may constitute per se illegal pricing fixing under Section 1 of the Sherman Act," Fox Cable Networks' Executive Vice-President Daniel Fawcett wrote to DirecTV in a letter that was obtained by the Hollywood Reporter. News Corp. has made sure that the letter found its way to federal regulators and members of Congress.

Murdoch also seems to have a fair number of folks in his corner. Former Federal Trade Commission Chairman Robert Pitofsky, who works for a Washington law firm that represents a smaller satellite company, testified before Congress that the EchoStar-DirecTV merger should be rejected because it would create a "virtually perfect monopoly." The NAB agreed, saying in its own testimony that the merger "would completely end the competition that currently exists between satellite companies, depriving consumers of future innovations and price battles that competition has otherwise yielded, particularly in rural America."

While the battle is being fought, Murdoch is keeping a low profile. He hasn't been lobbying politicians directly and has turned down invitations to testify before Congress. But he knows his way around Washington. According to the Federal Election Commission, in the last five years, News Corp.'s political action committee has contributed more than $200,000 to politicians of every stripe, from conservative Representative Christopher Cox (R-Calif.) to liberal Senator Edward M. Kennedy (D-Mass.).


  In coming weeks, Murdoch and his team will likely step up the pressure to kill the planned merger. EchoStar executives have always said it would take a year or longer to run the gauntlet of approvals -- from the Federal Communications Commission to the Federal Trade Commission -- needed for the merger to go through. And that process doesn't include all the congressional pressure that will be applied to the regulators.

Word around News Corp. is that Murdoch has been working out with a trainer. I'm sure his new daughter is strong incentive to keep fit. But I bet he also wants to be in fighting shape to once again take on Ergen.

Grover is Los Angeles bureau chief for BusinessWeek. Follow his weekly Power Lunch column, only on BusinessWeek Online

Edited by Patricia O'Connell

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