MEDIA WATCH: How will EchoStar's purchase of DirecTV affectconsumers?

When General Motors agreed to sell its Hughes Electronics

subsidiary to EchoStar, USA Today (October 29) said the deal "could be

the most important media merger since America Online combined with Time

Warner."



Reporting noted that the sale of Hughes and its DirecTV business had

been a protracted affair, with GM in negotiations with Rupert Murdoch's

News Corp. for 18 months. When Murdoch suddenly yanked his bid off the

table in frustration, GM quickly sold Hughes to Charlie Ergen's

EchoStar, which had made an unsolicited bid in August.



Media writers across the country agreed that the $26.2 billion

deal would create the nation's largest satellite TV company, one that

would be intensely scrutinized by regulators in DC.



Sen. Ernest Hollings (D-SC), the chairman of the Senate commerce

committee, told The New York Times (October 26), "I'm troubled by the

prospect of the two largest satellite companies becoming one. That kind

of consolidation would leave consumers with few, if any, choices."

Although reporting frequently noted that the deal would face tough

regulatory scrutiny, none of the stories analyzed by Carma suggested

that the deal would be blocked.



Coverage suggested that there could still be a way for the deal to gain

approval, despite the fact that the two leading competitors in an

industry are trying to merge. As explained on CNNfn (October 26), "The

FCC has to make a decision on whether they look at the satellite

business individually, (in which case) EchoStar combined with Hughes is

a 90% monopoly. If they look at it and combine it with cable and DSL and

other ways to get information quickly into a household, then the

percentage shrinks considerably."



EchoStar appears to be trying to take advantage of the latter angle,

arguing that consolidation within the satellite TV industry would form a

strong competitor to cable television. Furthermore, EchoStar is

promising a national pricing plan so rural areas without cable

alternatives do not suffer from EchoStar's monopoly. A number of media

outlets have shown some degree of support for EchoStar's argument.



USA Today (October 29) observed, "Ergen says he'd have the freedom to

lower prices because he can squeeze as much as $56 billion by

eliminating duplication (between DirecTV and EchoStar) and launching new

services. And while analysts differ over the size of the savings, many

agree with the point."



A number of reports described the deal as a defeat for Murdoch. The Wall

Street Journal (October 29) wrote, "A come-from-behind victory by

EchoStar Chairman Charlie Ergen, a maverick, penny-pinching businessman,

over Mr. Murdoch, the Australian media mogul renowned for his savvy

negotiating, is sure to go down as one of the biggest upsets in the

media business."



It remains to be seen how regulators will view the case or what

conditions they will place upon the deal in order to give their seal of

approval. But the Los Angeles Times (October 27) has already predicted a

review would last a year or more, further dragging out an already

lengthy process of restructuring.



Evaluation and analysis by CARMA International. Media Watch can be found

at www.carma.com.



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