Good DirecTV. Better DirecTV.

For the past few years, cable has faced a formidable rival in DirecTV, led by controlling shareholder News Corp., the $25.3 billion global media conglomerate. Its chairman, Rupert Murdoch, is no pushover.

But John Malone and his $8.6 billion Liberty Media collection of programming assets might prove to be even tougher competitors to cable operators when Liberty takes control of the satellite provider.

Liberty, whose cable stable includes the QVC home-shopping network and the movie-focused Starz premium cable and online entertainment company, could be much more aggressive than News Corp. ever was in leveraging DirecTV as a distribution outlet.

“That whole platform, as well as EchoStar's, has been underutilized by any prior players,” said Jimmy Schaeffler, chairman of The Carmel Group, a firm that has consulted for DirecTV and EchoStar Communications, owner of rival satellite platform Dish Network.

Malone — once head of the nation's largest cable company, Tele-Communications Inc. — is likely to take full advantage of DirecTV's sweeping national footprint, which is more than 16 million subscribers strong, several cable-industry veterans believe.

DirecTV, which generates $14.8 billion in annual revenue, immediately becomes Liberty's largest operation and a foundation for the future growth of its assets.

With the satellite provider in hand, Liberty will gain a potential launch pad to create new networks or other services; a platform to secure additional distribution for its existing holdings; a base to become a player in the regional-sports business; a potential home for exclusive content; and millions of subscribers nationwide, giving it the leverage to negotiate favorable network-affiliation deals.

In an $11 billion deal, Liberty is swapping its 19% voting shares in News Corp. for Murdoch's 38.4% stake in DirecTV. As part of the agreement, Liberty is also getting $588 million in cash and three regional sports channels: FSN Pittsburgh, FSN Northwest and FSN Rocky Mountain.

When News Corp. acquired its stake in DirecTV in December 2003, cable-industry executives speculated that Murdoch would act aggressively, initiating offerings at the satellite provider that he'd pioneered in Europe, like interactivity. But it never quite happened, perhaps because DirecTV was never a linchpin in the plans of giant News Corp., according to a number of industry executives.

“I never got the sense that they [News Corp.] really put all their might behind DirecTV,” one affiliate-sales chief said. “I think it was a nice asset to have, but not a necessity. Maybe Rupert was coming around to [Viacom chairman] Sumner Redstone's point of view that in the end, content will be king if there's all these distributors out there.”

In contrast, the DirecTV deal “represents a critical step” in Liberty's ongoing quest to turn its passive programming assets into “a well-positioned, focused operating company,” Liberty CEO Greg Maffei said when the deal was announced.

“With Malone coming in, [DirecTV] will certainly be as formidable as if it was with News Corp., and potentially, even more so,” said one cable-network chief. “DirecTV was never at the core of the News Corp. strategy, whereas I think you can make the argument that DirecTV is more at the core of the overall Liberty strategy. And Malone is aggressive, he's very sharp.”

It's a far different era today than in Malone's heyday of the early 1990s, when he led not only Liberty — which had direct stakes in Discovery Channel and Black Entertainment Television, and other top programming networks — but also TCI, which he used to distribute them.

Indeed, Liberty could use DirecTV as an outlet for startup services — be they linear networks or forays into new media, like interactive offerings, electronic commerce and online services.

Creating new networks is “something that we'd look at,” Maffei said (see interview, p. 40).

Overall, the DirecTV deal “puts Malone in an even stronger position to rebuild Liberty into a bigger operational player and flex his muscle,” according to one former cable operator.

For example, Malone could use his regional sports networks in Denver, Pittsburgh and Seattle as a stepping stone to build a new sports-programming dynasty.

“Sports programming is very interesting programming, obviously,” Maffei said.

Or Malone could choose to just leverage the RSNs as “great trade bait” in exchange for something else he wants, perhaps flipping them to a buyer such as Comcast, which operates a collection of regional sports channels in Philadelphia and elsewhere, the affiliate-sales chief said.

Programming companies, including cable operators that own networks, may have to beware of a Liberty-controlled DirecTV. Three cable-industry insiders predicted that under the new regime, DirecTV will try to strike much harder bargains in contract talks with programmers, holding out for cheaper license fees, smaller rate hikes or equity stakes in the networks it carries.

“I think you'll see much tougher negotiations with networks going forward,” said one network affiliate-sales chief.

DirecTV has never taken full advantage of the clout that its huge subscriber base, second only to No. 1 distributor Comcast, should afford it at the negotiating table, according to several cable-network executives. But they expect that will change with Liberty.

“John [Malone] has never paid retail in his life,” said one cable-industry veteran.

DirecTV and the No. 2 satellite provider, EchoStar, have been criticized for their lack of their own broadband play, a disadvantage when trying to compete against cable's wildly successful triple-play — voice, video and high-speed Internet access.

But alliances the two satellite companies have struck with telcos, to craft bundles to mimic those offered by cable, are making some inroads, according to Bruce Leichtman, president of Leichtman Research Group.

“They [DirecTV and EchoStar] have a triple-play today: It's called phone companies,” he said. “The majority of people who have [digital subscriber line Internet service] now get DBS. Whether it's an actual bundle, or just a combination of the services, it's happening already today. It used to be that over 50% of people who had DSL also had cable service. Now it's about 40%.”

Maffei has also played down DirecTV's lack of its own in-house broadband play, citing its arrangements with Verizon, Qwest and Bell South. He believes there is as yet no service that actually works across the Internet and TV and telephone that requires actual physical bundling — i.e. integration — of the three services.

When News Corp. first acquired its stake in DirecTV, it tried to quickly boost the satellite company's distribution by going after lower-end customers, the price-sensitive consumers that Dish Network appeals to, Leichtman said.

After signing up a lot of bad-credit-risk customers, DirecTV changed its approach, targeting higher-end subscribers — potential cable customers — instead of competing head-to-head against Dish Network.

“The fact that DirecTV is now not directly going at EchoStar, as it did two years ago, might actually make it tougher [for cable],” Leichtman said.

DirecTV's aggressive expansion of its HDTV offerings is squarely aimed at more-affluent consumers.

Liberty's programming stable now includes stakes in or full ownership in services such as Starz, Discovery Communications, QVC, GSN and Hallmark Channel. Since the DirecTV deal was announced, Liberty has further solidified its control over Discovery, with Cox Communications divesting its 25% stake for $1.275 billion in cash and assets. As a result, Liberty's Discovery Holding Co. will see its 50% share in DCI increase to 66%.

Once the DirecTV deal closes, Malone could try to increase distribution for Liberty's networks by trading carriage on the satellite service for additional launches for his channels, cable officials said. Comcast or Time Warner could get distribution for one of their networks on DirecTV in exchange for launching or giving additional carriage for a Liberty network on their cable systems.

In its filing in opposition of the Liberty-DirecTV deal, EchoStar told the Federal Communications Commission that Malone and Liberty are trying to re-establish their “market power” in terms of programming clout. EchoStar also charged that Liberty and TCI had a history of acting “ruthlessly in acquiring and creating programming,” and in their treatment of distributors and programmers.”

Liberty called EchoStar's allegations “page after page of scurrilous speculation and innuendo.”

Liberty promised the FCC that neither it nor DirecTV “will discriminate against unaffiliated programming in the selection, price, terms or conditions of carriage.”

Wall Street analysts such as Sanford C. Bernstein & Co.'s Craig Moffett have pointed out that Liberty — with only partial ownership in DirecTV — doesn't have carte blanche to advance its own interests.

In theory it can't, for instance, use DirecTV to launch new networks, if that's to the detriment of the satellite company. Liberty would have to answer to DirecTV's board on such deals, a restriction that News Corp. also faced.

That said, News Corp. still succeeded in using the satellite provider as a launch pad for a couple of its networks.

“Was it good for DirecTV that it launched Fox Reality to all its subscribers?” one network chief asked rhetorically.

News Corp.'s Big Ten Network, which debuts later this year, also has a carriage deal with DirecTV.

Liberty, in its FCC filing, alluded to its own track record for developing networks – and hinted at some of its plans.

“There is no basis for prohibiting exclusive agreements with third-party programmers or otherwise restricting Liberty Media from acquiring and creating programming,” Liberty told the FCC.

“Liberty Media has a long history of creating and developing new programming services, such as (regional sports networks) and other offerings,” Liberty said in its filing. “Liberty Media's leadership in the areas of video programming services, interactive commerce and advanced distribution technologies will complement DirecTV's video offerings and state-of-the-art technological features and will benefit DirecTV's subscribers.”

While Maffei said that the opportunity to launch new networks “is probably not as easy as it once was,” he added that it is something Liberty will consider.

Unique programming has been a cornerstone of DirecTV's strategy, and Liberty could expand on that, using the platform to distribute additional exclusive content.

Liberty's film studio, Overture, and its TV, movie and animation production house, the Starz Media unit of Starz, could conceivably produce movies and TV programming just for DirecTV.

Even pre-Liberty, DirecTV has used its distribution of exclusive content — such sports properties as the “NFL Sunday Ticket” out-of-market game package, a mosaic channel tied to the U.S. Open tennis tournament and some regional sports programming — as a major marketing tool to attract sports fans as subscribers.

DirecTV also carries the feed from most regional sports networks — minus live game telecasts — and offers exclusive sports-based interactive services for a number of its sports properties.

And in the past few months, DirecTV's hunger for exclusive content has accelerated, if anything. It made a failed attempt to secure exclusivity for Major League Baseball's “Extra Innings” package of out-of-market games, and recently acquired the soap opera Passions, which will move over to DirecTV from NBC this fall.

“[Malone] has a big commitment with NFL Sunday Ticket, so DirecTV's sports strategy is already in play. So when he looks at acquiring it, he's going to weigh that in and say, 'How do I enhance it and what components can I bring to leverage it?,' ” said one executive with an East Coast regional sports network.

One sports-programming executive said Malone could look to purchase or actually create new, DirecTV-exclusive sports and programming services.

Malone could team up with a college conference looking to create its own regional sports network, similar to what Fox Sports has done with the Big Ten Conference and Comcast with the Mountain West Conference.

By offering such content exclusively on DirecTV, Malone might create a cluster of regional-sports networks that would appeal to a significant number of viewers.

“I think he will do just what he did in cable and find a way to leverage DirecTV into equity and distribution and expand into different media,” said the executive. “He will have to come up with some exclusive programming, because he doesn't have the ability right now to compete with cable on the telecom and Internet side.”

The American Cable Association, a lobbying group for small, independent cable companies, is among those predicting that Liberty will create networks that it will want to offer exclusively to DirecTV. And it could do so legally, according to the ACA, shutting out cable operators.

That's because as federal program-access rules are written now, only vertically integrated cable companies are required to sell satellite-delivered networks to their pay TV rivals, according to ACA president Matt Polka. There are no such restrictions on satellite companies, he said.

“After the deal, DirecTV will actually be a vertically integrated satellite provider, and the program-access rules don't cover DirecTV and Liberty,” Polka said.

So the ACA has filed comments with the FCC asking that the program-access rules, which are set to expire Oct. 5, not only be extended but also be expanded to include vertically integrated satellite companies, “to cover any vertically integrated satellite programming that would be developed by a DirecTV with the benefit of a Liberty,” Polka said.

There is a contrarian view about Liberty and exclusive content. Some cable-network officials claimed, and Maffei suggested, it doesn't make much financial sense for Liberty to offer its networks via DirecTV exclusively. It might give the satellite provider an edge, but it limits the distribution and potential financial upside for the startup networks.

One affiliate-sales chief said even though DirecTV lost exclusive rights to Extra Innings, the MLB deal is a better business model for Liberty, because the satellite provider negotiated a 13% equity stake in the league's planned network.

“I think in the long run, they wanted cable to participate, because the more cable participated, the more this asset [the MLB Network] is going to grow,” he said.

April Horace, an analyst at Janco Partners, said that whether Malone decides to keep his three new RSNs “depends on how well they perform.”

According to Maffei, Liberty may seek to acquire additional regional sports channels. But several sports executives who have worked with Malone in the past are not convinced sports will be a major component of the cable cowboy's future content acquisitions.

Malone has not demonstrated an appetite for the regional-sports business in the past. In the mid-1990s, Malone partnered with News Corp. to link up regional networks together to create a national footprint large enough to compete against sports juggernaut ESPN. But Malone pulled out the deal in 1999.

“Malone has never shown a big interest in sports-programming properties, so I would be surprised if sports are his ultimate play with DirecTV,” said a former Fox Sports executive who worked with Malone and Liberty in the mid 1990s.

But DirecTV's strategic investment in exclusive sports programming, such as NFL Sunday Ticket and some content, may force Malone to play ball and keep a hand in sports programming.

But one regional sports executive believes that Malone will most likely divest the three regional sports networks in Pittsburgh, Seattle and Denver.

“It wouldn't surprise me if he turned around and sold those services to Comcast in return for carriage of one of his other networks,” he said. “Malone is the master of non-cash currencies. He has a lot of sports clout — not only on the distribution and consumer side, but on the buying side.”

Malone could also dangle his existing regional sports networks in front of Comcast, he added, in an effort to gain access to local sports programming in Philadelphia.

Currently Comcast SportsNet is taking advantage of a provision in the 1992 Cable Act's program-access rules to keep the Comcast SportsNet Philadelphia service from DirecTV.

By DirecTV selling one or all of its three-owned regional sports networks to Comcast as part of a deal that includes access to the two other Comcast SportsNet services, Malone could close a major hole in the satellite provider's sports lineup.

Liberty has to keep its three RSNs for at least two years in order to avoid major tax implications.

“That's a chit that [Liberty is] going to play later,” a cable-network chief said. “Unquestionably, once the tax period comes up in three years, Comcast will certainly aggressively move forward to acquire those. If I forced to make a bet today, I think they're Comcast-owned in four years.”

Longer-term, the big question is whether there will ever be a DirecTV-EchoStar merger. It might make financial sense, but there a number of barriers. Those include whether such a deal would pass muster in Washington, and whether EchoStar chairman Charlie Ergen is interested in cashing out.

Tom Steinert-Threlkeld contributed to this report.