The Carmel Group

High-Flying Multichannel TV Financials: The Impact of Dr. Malone’s DirecTV Acquisition

By The Carmel Group’s Jimmy Schaeffler

The first annual ISIS-NYC, circa 2006, is an opportune time to address one of the satellite industry’s premier developments, albeit one that has not yet occurred. That event is the pending sale of Rupert Murdoch’s controlling interest in DirecTV to his opponent and sometimes ally, Liberty Media’s Dr. John Malone. That transfer of ownership will mean a lot of change for the satellite industry and for consumers across the multichannel universe.

In this analyst’s view, the likelihood that the Murdoch to Malone DirecTV control occurs is quite high. That is because it works well for just about all of the players. Murdoch does not want to lose the DirecTV gem that he sought for so long, but if giving it up means he gets a tighter grip on his parent company, News Corp., than so be it. Malone wants very much to get back into the multichannel operator business, having run the cable company, TCI, with Bob Magness for many years during until sale to AT&T in the late 1990s. Malone also covets tax free sales, and this exchange of Malone’s News Corp. stock for Murdoch’s DirecTV stock appears to he headed that way.

Once the transfer occurs, it is this observer’s view that the ultimate merger of DirecTV and its rival in the satellite video business, EchoStar, becomes more likely and hastens the time when such a merger will be accepted by the federal government. In fact, the Malone control of DirecTV speeds that merger process by at least 12 months. The reason is that Dr. John Malone is much less threatening to the DOJ and the FCC than would be Rupert Murdoch. Plus, it is important to remember that one of the keys to approving this merger-of-duopolists-to-a-single satellite-monopolist is the growth of viable and significant competition by telephone video suppliers such as ATT and Verizon. That begins occurring sometime in the period of mid-to-late 2008.

As of 2009, looking across this market place, the U.S. multichannel pay TV industry ends up with a three-player set of satellite TV, cable and telephony monopolists competing aggressively in most TV markets across the nation.

The play-out of this scenario is one of the topics addressed during at least one of the panels during the Tuesday, November 26 ISIS-NYC ’06 satellite finance conference, not the least of which should be the Wall Street panel, “Analysts’ Corner: Cutting The Hype and Making The Grade,” moderated by Jones Day partner Del Smith, Esq., and made up of Wall Street analysts Bob Peck (Bear Stearns), Steve Mather (Sander Morris Harris), Tom Watts (SG Cowen), Ben Swinburne (Morgan Stanley) and Robert Kubbernus (Balaton Group).

Jimmy Schaeffler is chief service officer and senior analyst at The Carmel Group, a Carmel-by-the-Sea, Calif.-based conference organizer, publisher and consultancy. He can be reached at (831) 643 2222 or at jimmy@carmelgroup.com
.