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.
