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FCC lists merger hurdles

Org's letter spells out News/DirecTV issues

It’s been strangely quiet on the DirecTV/News Corp. merger front during the languorous summer months.

The silence was broken briefly late Tuesday when the Federal Communications Commission asked News Corp. for more information on how it will safeguard the independence of DirecTV if the merger goes through.

The agency sent General Motors, parent company of Hughes Electronics, which owns DirecTV, a 10-page letter that asks the company to show just how the $6.6 billion deal will enhance DirecTV service, and why it will not erode competition in the satcaster and programming markets.

Among a host of questions, the FCC wants to know the criteria the companies would use to select independent directors and how easily they could be fired. The commission also asks for a comprehensive list of every U.S. multichannel-programming net News owns, as well as its subscription and advertising revenue. News also is asked to characterize its current and future ownership interest in Liberty Media.

Endorsement expected

Ultimately, most analysts expect Washington regulators to OK the deal, but some cablers and a handful of watchdog groups have launched a vocal campaign against it that will no doubt heat up this fall.

Insiders cite a laundry list of reasons for the somewhat muted opposition, which in no way compares to the hue and cry unleashed when EchoStar began an unsuccessful bid for a controlling stake in DirecTV.

Mainly, would-be opponents are discouraged by a widespread belief that the deregulatory bent of the Bush administration coupled with News Corp. topper Rupert Murdoch’s conservative credentials all but assure the merger’s success.

The FCC’s controversial June 2 media ownership rewrite also has sidetracked companies and consumer groups as they try to stoke a Senate effort to gut the new regs. It also doesn’t hurt that the merger would not eliminate a competitor in the direct broadcast sat market, the reason the Justice Dept. nixed EchoStar’s bid.

Changing sides

Perhaps the most significant reason for the lackluster opposition campaign so far: Murdoch, who was outmaneuvered by EchoStar for the first shot at the satcaster, was a huge behind-the-scenes force mobilizing companies and activists to derail that deal.

Now, the shoe is suddenly on the other foot. News Corp. lobbyists are making their own case for fair play. And they could benefit from companies’ fear of attracting the attention of Washington regulators if they raise too much fuss.

Big cablers such as Comcast and Time Warner Cable have decided to sit out this public fight, leaving midsize and smaller cablers, along with a handful of watchdogs, as the only public opponents as the review process enters its 55th day.

Opponents’ common antitrust complaint is that the combination of Fox programming assets and DirecTV distribution will give the combo undo power vis-a-vis its distrib and programming rivals — a so-called vertical foreclosure strategy.

Cost prohibitive

News Corp. argues that any attempt to make Fox channels exclusive to DirecTV would simply be economically irrational.

“The short-term cost of taking any of the Fox cable channels exclusive would necessarily involve the loss of over 60 million subscribers, so the cost to Fox would indeed be prohibitive,” Smith Barney analyst Jill Krutick said Wednesday in a research note.

But Cablevision Systems, with 2.9 million subs, wants some reassurance from the FCC. Last week it filed comments to the agency reaffirming its problems with the deal — namely, that Murdoch could withhold access to his satcaster to local TV stations unless cable companies agree to payer higher rates for News Corp. fare. (Cox Communications, Insight Communications and Cable One filed a separate complaint.)

Cablevision also wants the FCC to force News Corp. to give up retransmission consent in order for the deal to go through, a move Murdoch has opposed.

So far the FCC has remained mum on that request, although it gave opponents a small boost Tuesday when it asked for more info on how News intends to make the DBS broadcaster truly independent from Fox.

Vocal opposition

The query was the strongest commission action taken since the 150-day merger clock began ticking last month. But it did not satisfy Jeff Chester, who heads the Center for Digital Democracy, a D.C.-based watchdog group.

On Wednesday, Chester sent a letter to the FCC asking it to expand its inquiry to examine how Liberty and News Corp. will work together and how they plan to treat their related programming ventures. “Special treatment for Liberty-associated ventures must be identified and vetted prior to any decision of this proposed transaction,” he wrote.

Although a few other watchdog groups have voiced their concern, Chester has so far been the most aggressive.

Complaining that the proposed merger has not raised a whimper of opposition so far, Chester tried a more honest, direct approach. He wrote an article for the Nation’s Web site (to be published today) warning those on the left how Murdoch’s plans could hurt the progressive cause.

“Imagine, a torrential downpour of dozens of Fox News Channels targeting major U.S. cities; a super-broadband site continuously promoting the viewpoints of the Weekly Standard; and the ability to focus similar political messages simultaneously in Asia, Europe, North and South America.”

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