EchoStar merger plan raises media congloms’ hackles

Satcaster making few friends in bid to dominate skies

NEW YORK — EchoStar topper Charlie Ergen’s list of enemies is growing.

The exec has made ambitious plans for his satcaster, crowned by a $30 billion merger attempt with larger rival Hughes Electronics. The combination is necessary, he says, to compete with a rapidly consolidating cable industry.

But a string of run-ins with multinational media congloms — including most recently a high-profile spat with content giant Disney, may yet scuttle Ergen’s effort to dominate TV from the skies — particularly as he takes his merger case to skeptical federal regulators.

EchoStar has always portrayed itself as the scrappy upstart to cable’s lumbering giant, arguing that a merger with Hughes wouldn’t be so much a monopoly in satellite TV as a viable competitor to the entrenched cable players.

Ergen is working that underdog image in a fight with the Mouse House over carriage of its ABC Family cable net. He says the conglom’s demand for higher fees to carry ABC Family is tantamount to “hush money,” keeping Disney’s formidable D.C. lobby from opposing the Hughes deal.

On Jan. 9, ABC Cable Networks Group prexy Anne Sweeney returned fire, hosting a terse conference call to deny that she had made any new attempt to raise rates for ABC Family.

“The irony in EchoStar’s comments is that the company has benefited significantly from its relationship with Disney, which began in the mid-’90s when Disney was one of the few programmers willing to support the then-fledgling satellite system,” she said.

So far, the federal judge in Los Angeles mediating the scuffle has sided with Goliath, granting Disney a temporary restraining order until the dispute can be hashed out in a hearing Jan. 17.

And Disney isn’t the only threat to the Hughes deal, which most analysts are now giving 50-50 odds of passing government muster.

News Corp. chieftain Rupert Murdoch, who sports one of the longest memories in the biz, isn’t likely to forget that EchoStar’s 11th-hour bid last fall thwarted his own offer for Hughes, which would have given his Sky Global Networks a long-coveted U.S. presence.

Also piling on to oppose the pact is a group of Western legislators led by Rep. Chris Cannon (R-Utah) who argue that large swaths of rural land in their territories have no access to cable TV and would be held hostage to a combined Hughes-EchoStar.

“The result for rural America will be a monopoly with essentially no hope of future entrants in the marketplace,” they said in a letter to regulators.

And the Writers Guild of America, in a filing to the FCC bemoaning the consolidation of media in all its forms, said a mega-deal like EchoStar-Hughes “limits diversity and creativity.”

Ergen may also have damaged his credibility with regulators by selling an 11% stake to Vivendi Universal as part of a larger content deal.

Exec had said EchoStar-Hughes would be a pure-play distributor, immune to the potential conflicts of giants like AOL Time Warner that own both content and distribution.

Wall Street has been supportive of Ergen’s efforts to date, especially since the exec is facing more and more competition from cable behemoths like the recently merged AT&T Comcast, which will have more than 22 million subscribers if the deal clears.

“Charlie is doing what Charlie has to do when you see what the cable companies are up to,” says Ladenburg Thalmann’s John Stone. “EchoStar is getting to be a small fish swimming around with a lot of big sharks in the water.”

Still, Stone cut his investment rating on EchoStar last week, noting that the company has “assumed considerable risks” in its bid to own the skies. Among them are porn channels and violent movies, which have drawn the wrath of the Revs. Al Sharpton and Horace Sheffield.

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