Copyright 2003 Gannett Company, Inc.
November 20, 2003, Thursday, FIRST EDITION
Top communications regulators are convinced conditions should be placed on News Corp.'s proposed takeover of DirecTV to prevent the combined company from withholding its Fox channels from cable systems or raising fees.
The Federal Communications Commission is leaning toward a proposal that would force Fox to enter binding arbitration if it can't agree with a cable system on pricing or on which channels should be carried on the system, say people involved in the matter. That is considered the most practical of several options being reviewed by FCC Chairman Michael Powell and agency staff. A staff recommendation could be sent to the other four commissioners as early as Friday. A decision is expected by year's end.
The Justice Department and FCC are expected to approve the $ 6.6 billion deal, which would give News Corp. a 34% controlling stake in Hughes Electronics, parent of DirecTV, the No. 1 satellite TV service with 12 million subscribers.
But some cable companies and consumer advocates have called for strict conditions on the deal, noting it would, for the first time, give a national broadcaster a nationwide video distribution system. News Corp. owns the Fox broadcast network, as well as Fox News, FX, Fox regional sports channels, National Geographic and Speed, among other channels.
That could give News Corp. unprecedented clout, especially in the 35 markets where it owns Fox broadcast stations. If cable systems refuse to pay higher fees for such popular fare as the sports channels or to carry less popular channels, News Corp. could threaten to withhold the Fox broadcast station, if only temporarily. The threat of losing that or the sports channels would carry more firepower, with News Corp. able to heavily promote those offerings on DirecTV.
Bottom line: Cable systems would be more likely to capitulate to News Corp. demands. "Rates are likely to go up for both cable and DirecTV customers," says Jeffrey Chester of the Center for Digital Democracy. Fox declined comment but has said it would lose more revenue than it would gain from hardball tactics.
Under the proposal before the FCC, News Corp. and the cable operator would enter baseball-style arbitration if the two sides could not agree on price or on channel carriage. Each side would make a final offer. The arbitrator would choose the most reasonable – a setup aimed at discouraging outlandish demands.
The FCC is also considering:
A price index that would set channel fees based on market averages.
Letting cable systems place Fox sports on a separate a la carte tier if negotiations stall.
Requiring Fox to revert to its previous deal with the cable system in the event of a stalemate.
But Powell and FCC staff are concerned that those options could be tough to implement.