Primestar has News seeing red

NEW YORK — News Corp. chairman Rupert Murdoch made big concessions to win a sat-TV deal from Primestar Partners and will likely take a loss on the price paid by News to buy a satellite license, sources said.

As expected (Daily Variety, May 22), News reached a tentative agreement to merge its ASkyB sat-TV business into Primestar — a joint venture of major cablers led by Time Warner Inc. and Tele-Communications Inc. — after Time Warner dropped its objections late last week. Neither Time Warner nor News Corp. would comment Tuesday.

The deal is not yet signed, however, and already federal regulators are hinting it will face tough scrutiny. FCC chairman Reed Hundt, who announced his resignation Tuesday, refused to comment on the News Corp.-Primestar deal at a press conference but noted that the Clinton administration has a pro-competitive policy, which means “no monopolies or oligopolies.”

The News Corp.-Primestar alliance reduces the number of competitors in the sat-TV field to two or three, as DirecTV-USSB is the only other sat-TV operator sure to survive. Murdoch’s decision to pull out of his joint venture with EchoStar Communications Corp. has left a cloud over EchoStar’s future.

The Primestar deal ensures Murdoch won’t be left carrying a huge financial burden from his U.S. sat-TV venture, which is a critical issue for News Corp., given its spending commitments elsewhere in areas like sat-TV in Asia, Australia and Latin America and its startup cable network.

But Time Warner extracted its pound of flesh from Murdoch, who had to give up on his demands for carriage of his Fox News Channel on Time Warner cable systems and is also not getting the price he wanted for the transfer of ASkyB assets.

News Corp. and its telco partner, MCI Communications, paid $682.5 million for a high-powered license, but the terms of the Primestar-ASkyB merger put a lower value on the license, sources said.

Murdoch had little choice, however. Having backed out of the joint venture with EchoStar, his only options were to do a deal with DirecTV or to go it alone — which would have been expensive and cost him further support on Wall Street.

Despite the concessions, News Corp. shareholders will be pleased, analysts said. “It quarantines their cash commitment (to the sat-TV business) and gets them into the market sooner,” Natwest Securities analyst Gary Farber said.

And by allying itself with the cable industry’s sat-TV venture, Murdoch begins to repair his relations with cablers damaged by the EchoStar venture. News Corp. execs had promised to go after the cable industry’s customers more aggressively than existing sat-TV operators. News Corp. stock fell 62¢ to $17.25, while Time Warner stock rose 37¢ to $48.87.

The Primestar deal is not yet finalized, however, and won’t be announced for at least a few days. Among the deals that were tied to the Primestar alliance was News’ acquisition of TCI’s 50% stake in the Fox cable sports venture, although Wall Streeters said last week the terms of the TCI side-deals were agreed.

Primestar also has to finalize its restructuring from a partnership into a public company. TCI Satellite Entertainment is expected to be the vehicle for the restructuring, which has been on hold while the News Corp. talks were under way.

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