DirecTV: How This Dish Got Reheated

In a tightening market, its big subscriber base is a huge plus

DirecTV (GMH ) is suddenly looking like hot property. In recent days, local telephone giant SBC Communications Inc. (SBC ) has emerged as a potential bidder for General Motors Corp.'s DirecTV satellite service. General Electric Co.'s NBC unit (GE ) is also taking a look at it, say people close to the company. Then there's Rupert Murdoch's News Corp. (NWS ), which has lusted after the service for much of the past decade. He also wants to make a bid, says News Corp. President Peter Chernin.

That's a lot of action for a company that only 16 months back was down to a single bidder--Charles Ergen's EchoStar Communications Corp. (DISH ), whose $26 billion offer for DirecTV was rejected by federal antitrust regulators. What has changed? A lot. For starters, DirecTV's value has fallen by nearly one-third. And Comcast Corp.'s (CMCSK ) $50 billion merger with AT&T's cable unit created a behemoth that has left other media and cable giants worried.

As a result, whoever wins DirecTV and its 11 million subscribers could reshape the media and telecommunications worlds. Should SBC win, it could hasten the long-sought convergence between telecom and TV distributors. If either NBC or News Corp. grabs the prize, it would suddenly join AOL Time Warner Inc. (AOL ) and Comcast as the only media companies that control both content and the means to distribute it to homes.

SBC's surprise entry shows how much it has been crippled by the loss of local customers to rivals like AT&T (T ) and WorldCom Inc. A bigger threat may come from the cable companies, which are siphoning off customers by offering telephone and data services bundled together with TV reception. All told, the increased competition cut SBC's customer base by 4.1% last year. SBC, under Chairman and CEO Edward E. Whitacre Jr., hopes to blunt the losses by combining phone service and Net access with DirecTV service. Wall Street has different ideas: News of SBC's interest sent its stock falling 8% in three days. Telecom analyst Susan Kalla of Friedman, Billings, Ramsey & Co. says it's a "fallacy" that consumers want to buy their services from a single provider. Instead, industry experts say, telecom companies should offer deeper discounts on wireless service, which cable doesn't offer.

Why is NBC taking a look now? The company isn't saying, and has resisted big deals before. But with cable distribution in ever fewer hands, Tom Wolzien, a former NBC news executive and Sanford C. Bernstein & Co. media analyst, figures GE wants DirecTV to ensure that MSNBC and its other cable channels, including the newly acquired Bravo!, don't get shut out of viewers' homes. Wolzien says GE could also take advantage of new rules for goodwill amortization that would allow it to write off goodwill from the purchase in one quarter rather than over several years.

DirecTV may still be Murdoch's to win or lose, especially if GE, under CEO Jeffrey R. Immelt, gets cold feet again or SBC buckles to Wall Street critics. "We think it has advantages for us," says News Corp. President Chernin, "but we will not be drawn into a bidding war." Murdoch associates say he likely will up the $4 billion bid he floated late last year for GM's 30% DirecTV stake. A new offer could come in late February, when GM unit Hughes Electronics meets with News Corp. and other potential bidders. How many suitors will show is the question for a suddenly very popular dish.

By Steve Rosenbush and Tom Lowry in New York, with Ronald Grover in New York and Roger O. Crockett in Chicago

— With assistance by Ronald Grover, and Roger O Crockett

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