NEWS’ PADDEN SKY DIVES

ASkyB chair exits as DBS deal with Echostar falters

WASHINGTON — ASkyB chairman Preston Padden, one of Rupert Murdoch’s top lieutenants, resigned Thursday, the first casualty of the News Corp.-Echostar direct broadcast satellite joint venture, which began to crumble earlier this week.

Padden, 48, resigned after becoming frustrated in recent weeks over his exclusion from recent negotiations held directly between News Corp. topper Murdoch and Echostar CEO Charlie Ergen regarding key components of the Sky business plan. Since News Corp. unveiled plans to merge ASkyB with Echo Star in February, Padden is said to have had repeated clashes with Ergen.

Padden denied as late as Wednesday evening that he was leaving News Corp., although rumors of his exit had begun to build at a furious rate in Washington and elsewhere. In a short statement released Thursday, he said: “I have tendered my resignation from News Corp., and I will spend a period of time considering career alternatives.” The statement went on to praise Murdoch as a “thoroughly honorable and inspiring media visionary.”

The resignation of Padden comes just days after News Corp. announced it would not meet its self-imposed deadline of May 1 for filing information about the Echostar-ASkyB DBS joint venture with the Federal Communications Commission. The companies said the filing deadline would not be met because of a disagreement over the use of an encryption system used to protect against the unauthorized reception of Sky’s DBS signal.

But sources close to the deal concede that with a $1 billion merger on the line, there is more to the dispute than a disagreement over whether Sky uses News Corp.’s or Echostar’s encryption technology. One source said the disagreement over the encryption system is a symptom of a struggle over who will control the company — Murdoch or Ergen.

Ergen has also clashed with his own staff. Six weeks ago, EchoStar president Carl Vogel resigned abruptly and was not replaced.

‘Cult’ environment

“It’s like a cult there,” said one exec familiar with the situation. “Nobody competent is staying, and Charlie Ergen makes every decision.”

Padden appears to be a victim of that struggle.

Padden joined News Corp. in 1990 as head of network distribution for Fox Broadcasting, serving also as Fox’s top D.C. lobbyist. He rose through the ranks, eventually becoming head of Murdoch’s efforts to launch a satellite service in the U.S.

The merger with EchoStar, however, clouded Padden’s future. Although Murdoch, sources said, offered to find a new home for Padden, the latter declined. Padden, who calls Washington home, has resisted moves to the West Coast.

“Preston is walking away,” said one colleague, who added that while Padden wasn’t pushed, “he did not get the support he thought he deserved.”

Even before the trouble over the encryption system emerged on Monday, Sky has experienced some very public setbacks. Foremost among those setbacks is the widespread resistance to its plan to provide a package of programming that includes local broadcast stations.

In order for Sky to offer that programming to its subscribers, Congress must adjust the copyright law. While Padden expected the cable industry to object to the change because Sky presented a direct challenge to its local monopoly, he was not prepared for the resistance from broadcasters.

Buoyed by a recent Supreme Court decision upholding the must-carry law, broadcasters are demanding that Sky retransmit every TV station in markets where Sky operated. But Sky’s capacity is limited and the company is reluctant to use up valuable channel space with TV stations with limited viewership.

Padden, who started as a switchboard operator at WTTG Washington when John Kluge’s Metromedia owned the station, went on to become the company’s assistant general counsel. He then joined the Assn. for Local TV Stations, which was then known as INTV, as its president.

From there he went to Fox, where as head of affiliate relations he became known as “Preston the Enforcer” for his hardball tactics when it came to dealing with affiliates. Although at times he wasn’t the most well-liked exec at Fox, he was respected, and rewarded heavily by Murdoch over the last seven years. When Murdoch visited Washington, he often stayed at Padden’s house.

After almost being wooed to Walt Disney to head up its efforts to partner with telephone companies and compete with cable, Padden was signed by Murdoch to a long-term deal that Padden said would keep him at News Corp. “for life.”

Inevitable ceiling

While clashes with Echo Star certainly were the major force in Padden’s decision to exit, other industry observers noted that over the years Murdoch has lost several key execs because, eventually, they face a ceiling at News Corp.

Speculation as to where Padden will go has already begun brewing. Some industry sources said he could end up at Disney in a senior post overseeing new businesses. With his strong corporate and regulatory background, Padden is not expected to be out of action long.

In the meantime, the fate of News Corp.’s satellite plans seems to change every second. If the EchoStar deal craters, there is speculation that Murdoch will look to PrimeStar, a DBS operator whose partners include Tele-Communications Inc. and Time Warner, the latter of which probably won’t be in business with Murdoch as long as Ted Turner is vice chairman.

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