NEW YORK – News Corp. is planning a public offering for its yet-to-be launched satellite TV business, American Sky Broadcasting, sources said Friday. But the response from Wall Street to such an IPO doesn’t look promising.
Murdoch was quoted in the London Financial Times on Friday saying he would “probably” do an IPO to sell the 30% stake being given up by News Corp.’s telco partner MCI Communications, which said recently it wants to reduce its shareholding in the venture from 50% to 20%. Murdoch did not return calls seeking comment Friday, but News Corp. sources confirmed that an IPO was in the planning stages.
News Corp., which owns the other 50% of ASkyB, might have a hard sell on its hands. Satellite TV companies have fallen out of favor on Wall Street in recent months, as the growth rate of existing services like DirecTV and Primestar Partners has slowed and new competitors like Echostar and Alphastar have joined the field. ASkyB doesn’t even plan to start operations for another 12 months, putting its service well behind the rest of the market.
“What is he thinking?” asked Curt Alexander, a sat TV analyst with Media Group Research. He said ASkyB has “substantially fewer assets” than TCI Satellite Entertainment, whose stock has dropped 35% since it was spun out of TCI in early December.
Tough times for satcasters
Other operators, like Echostar and U.S. Satellite Broadcasting, have also had a rough time on the market lately. Echostar is down 45% from its high of the year, while USSB is down 63% in the past five months. The biggest operator, DirecTV, is part of defense and electronics conglomerate General Motors Hughes, so it doesn’t have a separate stock.
Murdoch gave no sign of concern about the market conditions facing ASkyB in the Financial Times interview, although he insisted ASkyB would have “better pictures, better technology” than the other satellite operators. ASkyB, for one, plans to include local broadcasters’ signals with its service, unlike any other sat-TV services.
But investors are likely to focus on the amount of money the services will lose before breaking even. ASkyB paid more than anyone else for its satellite license, and the growing competition in the sat TV market has forced most operators to subsidize dish sales, increasing losses.
Media Group Research’s Curt Alexander predicts ASkyB will be a “colossal loser” because it won’t start until late next year or early in 1998, when DirecTV and the other operators have had a chance to sign up even more subscribers “and the cost of playing has only gotten bigger.”
Alexander said Murdoch’s decision to take ASkyB public made sense, however, because it would limit the cash drain of the venture on News Corp. TCI spun off its satellite business for just that reason. Indeed, some institutional shareholders in News Corp. are known to have been pressing Murdoch to spin out the sat-TV businesses Star and ASkyB in recent months.
The disclosure about the IPO also suggests Murdoch’s attempts to find new telco equity partners will take a long time to move forward. If they don’t come as equity partners, News Corp. is believed to be hoping to bring telcos into the venture in some other capacity.
News Corp. is still in talks with many telcos, including Nynex, which is currently part of Tele-TV with Pacific Telesis and Bell Atlantic. However, the telcos have pulled the plug on Tele-TV (Daily Variety, Dec. 9). Ideally, ASkyB would like to partner with telcos in their respective service areas. In other words, Nynex would be able to sell ASkyB to its telephone customers. The telco would also obviously be a big boon in marketing the service.
ASkyB insiders are also said to want to do business with telcos Ameritech, Bell South, GTE and SBC Communications. Those four are involved with Disney on Americast, another program distribution system. However, as of yet, Americast has not made any sort of mark or serious plans for a business. News Corp. execs are said to be waiting for Disney to find a graceful way to ease out of Americast so Murdoch & Co. can pounce on the telcos for partnership.
ASkyB also will likely have to find or create a new holding company for the license MCI now holds to offer satellite service in the states. That’s because in November, British Telecom struck a deal to buy the long distance company for $20.1 billion. FCC rules could bar foreign ownership of DBS licenses. If the BT deal goes through, it will likely do so with a separate holding company to avoid FCC scrutiny.
Exactly how much ASkyB will raise in the IPO is hard to judge. Investment bankers say it depends on projections about future cash flows, which in turn are estimated on projections of how much the sat TV market will be worth over the next few years.
One banker said that given Wall Street’s valuation of Echostar, ASkyB is likely to be valued at $1.5 billion to $2 billion at least.