Clouds may be gathering over Rupert Murdoch's attempt to beam down a deal for DirecTV Inc.
The News Corp. chairman admitted last week that his talks with General Motors Corp. about purchasing the direct-broadcast satellite assets of its Hughes Electronics Corp. subsidiary were "moving ahead slowly."
According to analysts and recent published reports, some larger Hughes shareholders are unhappy with the terms of a proposed deal with News Corp. that was leaked to the financial press several weeks ago. That deal valued Hughes at some $35 billion.
A News Corp. spokesman last Thursday denied talks with GM had unraveled.
"Our update is a pretty boring one," the spokesman said. "We're very much in talks, working our way through due diligence."
He also denied that Murdoch had given GM a deadline to complete a transaction.
Last Thursday, CNBC journalist David Faber reported that GM's investment bankers had started to contact other companies that had previously expressed interest in Hughes.
Analysts had earlier estimated that a News/Hughes deal could be announced by the end of February. Now, the timing is much less certain.
If Hughes shareholders don't see the immediate value in a transaction with News Corp., entertainment industry honchos do.
Speaking last Tuesday at the Variety
conference, where Murdoch declined to elaborate on the Hughes talks, USA Networks CEO Barry Diller called a possible News/Hughes deal "a transforming transaction" for the entertainment industry. Murdoch "competes with his foot to the floor," Diller added.
"Just the ability to spin sports around the globe is a tremendous opportunity," Sony Corp. of America CEO Howard Stringer said. "My hat is off to him."
Viacom president Mel Karmazin said a DirecTV run by Murdoch would be a stronger competitor than the one currently run by GM.
"My hope is that the deal gets derailed and doesn't happen," Karmazin added.
At the Variety
conference, Murdoch downplayed the importance of adding DirecTV to the company's SkyGlobal Networks satellite assets, noting that there is far more opportunity for growth outside the U.S. than within.
That said, Murdoch predicted the U.S. DBS market could ultimately double to 30 million homes, especially if the industry can improve its efforts to cut churn. He added that satellite still grows by about 3.5 million subscribers a year, while cable growth here is static.
"With satellite, you have a national footprint," Murdoch said, adding, "you can beat cable technology every time."
Murdoch last week also tried to minimize speculation that he would target EchoStar Communications Corp. if a deal to buy DirecTV did not materialize. He said EchoStar chairman Charlie Ergen was having too much fun running Dish Network.
"I'm a big fan of Charlie's," Murdoch said. "He's a good competitor, and I respect that."
Murdoch didn't detail his history with Ergen. In 1997, News Corp. made and then quickly withdrew an offer to merge with Dish. EchoStar in turn sued News Corp., resulting in a settlement worth over $1 billion in DBS assets two years later.
Speculation has also been circulating for the past few weeks that EchoStar and Pegasus Communications Corp. may be looking at a way to persuade Hughes to merge DirecTV with their companies to create one U.S. DBS mega-power. Hurdles include corporate culture clashes between DirecTV and EchoStar, and to a lesser extent, regulatory issues.
Following such a merger, the combined DBS company would also be challenged with swapping out millions of hardware systems to allow subscribers to access the new platform.
While an expensive proposition, it would allow DBS to deploy the latest in compression technology and interactivity.
Murdoch said last week that digital satellite receivers in Britain are more advanced than they are here because they were introduced a half-decade later. "That's why EchoStar has an advantage [over DirecTV]," Murdoch added. "They came out two or three years later."
A Murdoch entry into the U.S. DBS industry would likely accelerate the push of interactive television set-top boxes, Diller said, which would ultimately be good for companies like USA that have a stake in the category.
Citing Securities and Exchange Commission rules, Murdoch would not say at the Variety
confab whether he expects the talks to bring DirecTV to News Corp. will ultimately bear fruit. However, he did hint at his frustration with the lengthy negotiations. Noting that he will turn 70 on March 11, Murdoch mused about all the hours he had wasted in meetings over the years.
"I've got to see that each one of those [remaining hours] is more productive," Murdoch said towards the end of his one-on-one interview with PBS talk-show host Charlie Rose. "Hopefully I won't be spending all of that time talking to General Motors."
News Corp.'s boss is scheduled to keynote the upcoming SkyForum satellite conference in New York on April 5.
