Murdoch DirecTV Divestiture Shakes Up Late-Year Lull

But What Liberty Media Will Do With Rupe's Stake Is Anyone's Guess

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NEW YORK (AdAge.com) -- The holidays are anything but quiet for News Corp. CEO Rupert Murdoch, who made one of the bigger business headlines of the December lull by finalizing a long-awaited deal to shed DirecTV, the world's sixth-largest media company, from News Corp., the fourth-largest, according to Advertising Age figures.
Rupert Murdoch
Rupert Murdoch Credit: AP

Three days before Christmas, News Corp. gave Liberty Media controlling share of its DirecTV satellite system in exchange for John Malone, Liberty's CEO, giving up his 16% stake in News Corp. Additionally, News Corp. will give Liberty three regional cable sports networks -- FSN Northwest, FSN Pittsburgh and FSN Rocky Mountain -- and $550 million.

Longtime collaborators
News Corp.'s assets include the Fox broadcast network, Twentieth Century Fox movie and TV studio, the New York Post and major newspapers in the U.K. and Australia, Fox News Channel, several cable entertainment and regional sports networks and MySpace.com. News Corp. also has a 38.5% stake in DirecTV, although under this deal that stake will go to Liberty. Messrs. Malone and Murdoch have been longtime collaborators and competitors and this deal neutralizes what Mr. Murdoch saw as a major threat to his global empire: Mr. Malone's stake in News Corp. It also brings a longtime video-distribution executive, Mr. Malone, into the satellite game.

"During 2006 we converted many passive investments into strategic operating businesses, but this transaction is the largest and most important," said Liberty President-CEO Greg Maffei in a statement. "DirecTV and the regional sports networks represent a critical step in our efforts to transform Liberty Media into a well-positioned, focused operating company." DirecTV President-CEO Chase Carey is expected to remain in that role.

What to do?
What exactly Liberty will do with DirecTV remains a subject up for much debate -- especially considering that pay satellite TV is often considered an industry in decline. While cable is a two-way information-delivery system, meaning it can deliver voice and internet services along with TV, satellite is essentially a one-way, and thus limiting, means of distribution. Mr. Malone, many recall, was an early believer in cable TV and was head of the country's largest operator, Tele-Communications Inc. (TCI, sold in 1999 to AT&T) and its 13 million subscribers. At the time, he was so powerful in the cable-TV business that Al Gore once referred to him as "Darth Vader" on the floor of the U.S. Senate.

More recently, Liberty has operated QVC, GSN and Starz Entertainment and has invested in such properties as IAC/InterActiveCorp, Expedia, News Corp., Time Warner, along with younger digital startups such as Asian gaming company GoPets.
John Malone
John Malone

Broadband a priority
Analysts believe Mr. Malone will make a priority of adding broadband to DirecTV's stable of assets -- something necessary to compete with the cable operators' popular triple-play bundles. Both DirecTV and its smaller competitor, Echostar's Dish Network, have delayed announcing their broadband plans, although they have partnerships with several phone companies to resell satellite-TV services. Some industry watchers surmise Mr. Malone will partner with Echostar CEO Charlie Ergan to come up with a solution -- maybe even merging the two companies. Incidentally, both men and their businesses are based in Colorado.

The News Corp.-Liberty transaction still needs to be approved by regulators and a majority of News Corp.'s Class B voting shareholders. News Corp. expects deal to close in the second half of 2007. DirecTV has 15 million subscribers.
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