Murdoch Expands Satellite Empire
Rupert Murdoch’s effort to find a new partner for his U.S. satellite business has brought him together with Primestar, but left the media baron in the unusual position of a backseat investor.
The deal, announced Wednesday, folds most of Murdoch’s 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 behind DirecTV.
Murdoch has been seeking an established partner for his nascent American Sky Broadcasting unit since May, when a deal to merge it with EchoStar Communications fell apart.
The combination of ASkyB with Primestar will come through a restructuring of Primestar into a publicly traded company. It gives Murdoch a way to expand his global satellite empire, which currently operates in Europe, Asia and Latin America. His News Corp., however, will have little say in management of the new company, called Primestar Inc.
“While they will be an investor, they will not be a significant force,” James L. Gray, chairman and chief executive of Primestar Partners and the man who will run Primestar Inc. through its transition, said at a news conference. “This is meant to be a passive investment.”
For Primestar, the deal will help it move ahead with its advance into pizza-sized high-powered satellite dishes, which DirecTV and others already use. Primestar made its initial mark with larger, medium-powered dishes.
Primestar customers will receive nationwide service with more channel capacity under the new high-powered system. The smaller and more easily installed dishes, to be rolled out in the first half of 1998, will allow Primestar to compete more effectively in cities, where cable tends to be strongest.
By acquiring ASkyB, Primestar is initiating a major step in a consolidation of the industry analysts have expected.
“There’re certainly too many players,” said Tom Wolzien, a media analyst at Sanford C. Bernstein & Co., a brokerage firm.
Deeper pockets and combined resources may be necessary to compete with the entrenched cable companies. While the satellite industry has only about 5 million subscribers - Primestar has 1.8 million of those - cable stands at about 65 million.
“It gives them more channels. It gives them more space. It gives them more birds,” Wolzien said. But, he added, Primestar’s cable-company owners may have scored their greatest coup in simply taking Murdoch out “out of the picture as a wild card.”
With the EchoStar deal, Murdoch had threatened to beam local TV signals directly into homes, competing directly with the local programming cable systems can offer. That combination was so onerous it took on the moniker “Death Star.”
Gray said there are no plans for Primestar to get into local TV programming business right away.