More on His Dish : Murdoch's Latest Deals Shake Up Satellite, Cable TV

By SALLIE HOFMEISTER

June 12, 1997 12 AM PT

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TIMES STAFF WRITER

Rupert Murdoch, the fastest-moving mogul in the entertainment business, sealed two billion-dollar deals Wednesday that changed the landscape of the satellite television business and provided a shot in the arm to the cable industry.

In a busy day of deal making, Murdoch clarified how his News Corp. media conglomerate will enter the U.S. satellite TV market and bought a lucrative network that plugs a hole in his cable empire.

News Corp. agreed to fold its U.S. satellite assets into Primestar Partners for $1.1 billion worth of nonvoting securities. In a separate transaction, a News Corp. affiliate agreed to pay $1.9 billion for International Family Entertainment, the owner of the Family Channel, which reaches 69 million cable households.

Analysts said the satellite TV deal is likely to intensify competition by making No. 2 provider Primestar a more formidable challenger to industry leader DirecTV, potentially driving prices down for consumers.

Murdoch recently backed out of a billion-dollar merger with the fledgling satellite provider EchoStar Communications Corp. that had been perceived by the cable industry as a virtual declaration of war by the cable industry. Wednesday’s announcements bring him back into line with the interests of the industry.

The Family Channel fills a hole for News Corp. by giving it a much-sought-after channel for its children’s programming while improving the prospects of wider distribution of its other networks, which include several regional sports networks, the Fox News Channel and FX, an entertainment service.

“The big question hanging over News Corp. has been ‘What is its North American strategy for rolling out content and how much money does it have to spend to get there?’ ” said Christopher Dixon, an analyst at PaineWebber Inc. “What happened today is that all the pieces have fallen into place.”

As part of the deal, Primestar, which is owned by a combination of major cable operators, agreed to carry Fox News and FX to its 1.8 million subscribers. But analysts expect cable operators to be generally more eager to carry News Corp. channels now that Murdoch has abandoned his intention to launch a satellite competitor with EchoStar. In fact, if the Primestar transaction is approved by regulators, the largest five cable operators that own the satellite service will now be Murdoch’s partners.

“Murdoch is now sitting on the side of his former competitors--at the kids’ table instead of the parents’ table because of his nonvoting stake, but still at the table,” said Dixon.

As part of the agreement, Primestar would buy News Corp.’s valuable orbital slots and two satellites for just about what Murdoch and his partner MCI paid for them. The assets and a restructuring also announced Wednesday could make Primestar a tougher challenger to DirecTV, the El Segundo-based subsidiary of Hughes Electronics.

Analysts said Wednesday’s restructuring, under which the partners agreed to convert their shares into a new publicly traded venture, would make it possible for the company to become a nationally branded competitor.

So far Primestar has concentrated mainly on rural markets where cable service is poor and customers are more likely to switch to satellite. The owners said they would make a more aggressive push into urban areas once it begins using News Corp.’s orbital slots, which would allow Primestar to reduce the size of the receiver dishes it uses to 18 inches, from the current 36 inches.

While Murdoch’s aborted attempt to launch a satellite service with EchoStar was an embarrassment to the media maverick, Wall Street generally applauded the sale to Primestar as a strong recovery from the debacle. Investors drove down News Corp. stock after the merger announcement with EchoStar, figuring that launching a Sky satellite service would be costly--upward of $5 billion.

News Corp. shares rose 25 cents Wednesday, closing at $18 on the New York Stock Exchange.

“He’s lucky to get out,” said John Aronsohn, an analyst at Yankee Group. “He was entering late in the game, and at this point his best bet was to stop the losses and move on.”

Analysts were even more bullish about the purchase of International Family Entertainment. While investors have been nervous about News Corp.’s spending spree on sports rights, TV stations, sports teams, a coupon business and satellites, they were relieved at the clever structure of the International Family deal, which would not tarnish the company’s balance sheet.

That is because the purchase is to be made by Fox Kids Worldwide, the 50-50 joint venture between News Corp. and Saban Entertainment. To finance the purchase, analysts said, Fox Kids would borrow $1.3 billion.

“News Corp. stock will be popping because of this tomorrow,” said Derek Baine, an analyst at Paul Kagan Associates.

Baine said the purchase price is in line with other cable sales resulting from bidding wars. Though News Corp. has been negotiating the deal for months, Walt Disney Co. stepped in at the last minute with an offer that some analysts saw as an attempt to drive up the price for a competitor and protect its Disney Channel franchise. Sources said Disney was interested in using the Family Channel as an alternative to the Disney Channel, which is commercial-free.

Before Disney stepped in, News Corp. was agreeing to a price of about $29 a share, compared with Wednesday’s $35.

The transaction was drawn out because of issues over control with Pat Robertson, who heads International Family and plans to use the $136.1 million in proceeds to fund a global evangelical program.

With the Family Channel, News Corp. would have a service in all five major cable formats: movies, news, entertainment, sports and children. No other media company has such a complete set, with Time Warner Inc. lacking an all-sports channel and Disney lacking news. Fox’s channels are not as strong as Time Warner channels such as HBO and TNT, Disney’s ESPN or Viacom’s MTV.

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Two Deals, Two Industries Changed

Rupert Murdoch, right, announced billion-dollar deals on Wednesday, changing the landscape in two different industries. For starters, Murdoch found a partner, Primestar, in his effort to enter the U.S. satellite television business, ending months of turmoil surrounding Murdoch’s strategy. Then Murdoch announced that he is buying the owner of the Family Channel, which would join sports, news and entertainment channels as part of News Corp.’s array of cable offerings. Here’s a look at the two deals and the impact on the industries affected:

SATELLITE TELEVISION

Wednesday’s deal: Murdoch’s News Corp. will fold its ASkyB satellite unit into Primestar Partners, which was formed by the nation’s biggest cable companies and ranks as the country’s second-largest direct-satellite broadcaster after DirecTV.

The Impact: The deal, valued at $1.1 billion, will make Primestar a formidable challenger to DirecTV and should drive prices down in the satellite television business.

The players: Here is a chart listing the subscribers, in millions, for each player in the U.S. direct satellite market as of April:

DirecTV: 2.58

Primestar: 1.89

USSB 1.56*

EchoStar: 0.55

* More than 90% of USSB subscribers also get DirecTV because the two are marketed together.

CABLE TELEVISION

Wednesday’s deal: News Corp. plans to buy the parent of The Family Channel for nearly $1.9 billion. The channel, the nation’s ninth-largest cable network, reaches 69 million homes.

The impact: Murdoch would merge The Family Channel with Fox Kids Network and give News Corp. a leg up in the business of selling cable programming around the world.

The players: A handful of companies own an array of cable channels that place them in the top ranks of the cable-programming business. They include:

WALT DISNEY:

ESPN (80% owner)

Disney Channel

Lifetime (50% owner)

A&E; (37.5% owner)

VIACOM:

MTV

VH1

Nickelodeon

TV LAND

USA NETWORK (50% owner)