Published on Wednesday, December 31, 2003 by the Houston Chronicle
Mogul Behind the Mother of All Media Buyouts
by Edward Wasserman
In the spirit of giving, just before Christmas regulators approved a proposal from Rupert Murdoch that will make him the country's mightiest media baron. By a 3-2 vote, the Federal Communications Commission gave Murdoch's News Corp. permission to buy control of DirecTV, the No. 1 U.S. satellite broadcaster.
Like the FCC's plan to scrap key protections against concentrated media ownership, which sparked heated protest when it was made final in June, Murdoch's DirecTV buyout has consequence way beyond what its passing mention on the country's business pages would suggest.
News Corp. is huge. Even before the $6.6 billion DirecTV deal, its U.S. holdings included:
· 35 TV stations, reaching more than 44 percent of the U.S. population (in nine cities, it owns more than one station);
· A major broadcast network: Fox;
· Eleven national and 22 regional cable and satellite channels (including Fox News, FX, National Geographic);
· The New York Post, Weekly Standard and HarperCollins Publishers;
· Production studios including Twentieth Century Fox;
· PanAmSat Corp., the satellite owner that most U.S. cable systems (DirecTV's competitors) rely on for the signals they relay to homes.
With all that, the DirecTV deal puts Murdoch in a different class of mogulhood. The breadth of News Corp.'s holdings now exceeds even Time Warner's, whose cable systems lack national reach and which owns no local TV stations.
But it's not just size. DirecTV gives News Corp. a stunning degree of vertical integration. That means it controls the entities that it buys from, the entities that it sells to and now the channels through which programming flows into homes. It will have enormous power over pricing, lowering rates to build audiences or starve competitors, raising prices to reap profit.
There was a time when antitrust policy frowned on vertical integration. In 1948 authorities forced the Hollywood studios to sell off their theater chains. It was deemed intolerable to empower moviemakers to favor the screens they owned with preferential deals on top films.
Now free-market anti-regulators profess boundless faith in unconstrained competition. So News Corp. will preside at every level of media operation: from creation and production, to distribution and exhibition on TV screens (and the hot new industry of set-top middleware).
The DirecTV deal didn't come easy. At first News Corp. was outbid by Echo-
Star, the No. 2 U.S. satellite broadcaster. Murdoch responded with a ferocious lobbying campaign to get regulators to block the EchoStar deal on antitrust grounds.
Murdoch is reported to have spent $10 million in lobbying from 1999 to 2002, and gave lavishly to political campaigns, more than $1.7 million in the 2000 and 2002 election cycles. That outreach was in the context of Murdoch's own emergence as a major force in the right-wing ideological regency, with his New York Post a persistent pro-Bush voice in the country's most influential media market and Fox News -- the top cable news channel -- the most faithful TV megaphone for conservative opinion and commentary.
In October 2002, the FCC rejected the EchoStar bid, clearing the way for Murdoch's DirecTV takeover -- at a substantial savings off the price he offered when he bid unsuccessfully against EchoStar.
The FCC's conservative majority attached conditions to its approval intended to force News Corp. to deal fairly with cable systems, which are DirecTV's rivals, when they buy programming from News Corp. entities. But those conditions, inexplicably, expire in six years.
By then we will have entered a new era of media ownership. Stay tuned.
Wasserman is a writer and consultant who lives in Miami.
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