Satellite strategy

News Corp., TCI make new play for Primestar

NEW YORK — News Corp. and Tele-Communications Inc. are moving forward on a new plan to take control of satellite-TV concern Primestar Partners, but Washington insiders remain skeptical that the latest deal has a chance of being accepted by antitrust regulators.

People close to the situation confirmed reports Tuesday that News Corp. and TCI affiliate United Video Satellite Group have reached an agreement with four of Primestar’s five cable partners for the purchase of their stakes.

But the deal is only preliminary because it needs to pass scrutiny of the Justice Dept., which sued last May to block News’ proposed sale of its high-powered satellite assets to Primestar.

The Justice Dept. did not want a cable-owned satellite company getting a high-powered satellite license, because it believed the cablers would “have no economic incentive to use this valuable (direct broadcast satellite) capacity to steal their own cable subscribers,” it said in a complaint filed in federal court.

To try to get around the Justice Dept.’s opposition, News Corp. chairman Rupert Murdoch and TCI chairman John Malone propose buying out four of the cablers in Primestar: Time Warner, Cox Communications, MediaOne and Comcast Corp. The other partner is TCI Satellite Entertainment (TSAT), controlled by Malone.

These cablers have agreed on a price to sell, sources say, but they acknowledge that it is uncertain whether Justice will like this deal any better than the first one.

“The theory is that Malone is no longer in the cable business,” said one observer, because TCI has agreed to be acquired by telco AT&T. As part of that deal, Malone will retain control of Liberty Media which will indirectly control United Video Satellite Group.

And it will be United Video which jointly controls Primestar with News in the latest version of the deal, sources say.

Doubt arises

But there is plenty of doubt about the Justice Dept.’s likely reaction, as Malone will remain an affiliate of the TCI cable operations, because he will join AT&T’s board.

One communications lawyer predicted the Justice Dept. would reject it. “My gut says no.”

The lawyer said it would be unthinkable for the Justice Dept. to declare that TCI Satellite Entertainment Inc. is not a cable industry subsidiary or that John Malone’s influence is somehow neutralized by TCI’s merger with AT&T.

“I’ve heard that argument, but I don’t think that its correct. Anyway you look at it, AT&T is the second-largest television provider.”

Observers also note that one of the big issues worrying Justice Dept. lawyers about the original deal was the close relationship between Murdoch and Malone — a relationship which is reinforced by the new deal.

In their complaint against that deal, filed in federal court in May, the Justice Dept. quoted from affidavits provided by Murdoch, Malone and TCI president Leo Hindery to argue that Malone almost single-handedly orchestrated the deal between Primestar and News Corp. in an effort to ward off further competition from the DBS industry.

Murdoch’s hand was forced, according to Justice, because the cable industry began boycotting his programming. According to the Justice Dept., Murdoch went to Malone for advice on how to win carriage for his cable channels. “Malone told Murdoch that his plan was ‘lunacy,’ to which Murdoch replied, ‘well, then, help me get out of it; help me find something else to do … what is plan B?’ ”

Plan B, of course, was Primestar’s partnership with News Corp., which almost immediately resulted in the carriage of Fox News Channel on major cable systems around the country, according to the complaint.

While Primestar may argue that TSAT is not technically a cable industry entity, the Justice Dept. did note that Malone is the chairman of both TCI and TSAT. In addition, “Malone also controls a majority of voting power of both TCI and TSAT,” the complaint said.

People involved with the deal acknowledge the uncertainties. “It’s worth trying to get this through. Is it a slam dunk? No,” said one exec.

One source close to News Corp. said, “We don’t have something perfect in place yet; it’s evolving. We are looking for a solution that is going to work for everybody.”

The Media Access Project’s Andrew Schwartzman, who has opposed the deal since it was first proposed, predicted the Justice Dept. would have a difficult time finding a reason to approve it.

Schwartzman said Justice Dept. lawyers would want to take a close look at any programming contracts, noncompete clauses and agreements on program exclusivity.

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