EchoStar: Beware Liberty-DirecTV

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EchoStar Communications warned federal regulators to be wary about John Malone’s plan to re-establish Liberty Media’s “market power,” in terms of programming clout, by purchasing News Corp.’s stake in DirecTV, the nation’s largest direct-broadcast satellite provider.

EchoStar, the No. 2 DBS company, filed a petition last Friday asking the Federal Communications Commission to deny approval of Liberty’s $11 billion purchase of News Corp.’s 39% ownership of DirecTV unless there are commitments “to ensure that consumers and the programming market are not adversely affected.”

In its 34-page FCC filing, EchoStar cited the kind of tactics it alleged Liberty was able to engage in the past in when it benefited from an association with another distribution outlet -- namely Malone’s then-cable company, Tele-Communications Inc.

EchoStar claimed that “it is well-established that TCI and Liberty operated ruthlessly in acquiring and creating programming and in its treatment of unaffiliated MVPDs [multichannel-video-programming distributors] and programmers.”

In its filing, EchoStar charged that programmer Liberty and its sister companies have “determined that [the] additional ‘distribution muscle’ of DirecTV’s national platform is critical to its efforts to expand and enhance its programming assets.”

The net result of the Liberty-DirecTV transaction “is that Liberty will rejoin the ranks of vertically integrated major media conglomerates [including News Corp.] that can dictate the terms and conditions of programming -- e.g. higher price and less choice -- to MVPDs and consumers.”

Liberty, which couldn’t be reached for comment Monday, has ownership in programming services such as Discovery Networks, Starz Entertainment, QVC, GSN and Hallmark Channel. It will also get News Corp.’s stakes in three regional sports channels as a result of its acquisition of Rupert Murdoch’s piece of DirecTV, a powerful platform with 16 million subscribers.

At one point, when Malone still owned TCI, Liberty had stakes in a far broader range of networks, such as Court TV and E! Entertainment Television.

In its filing, EchoStar said, “A comprehensive list of TCI/Liberty’s excesses and abuses with respect to programming would be extensive,” including their attempt “to force increased programming costs on MVPDs by agreeing to ‘egregiously generous’ carriage terms for affiliated programmers.”

EchoStar also alleged that TCI/Liberty forced “prospective networks to alter their formats to avoid conflicting with TCI/Liberty-affiliated programming.”

The FCC imposed various conditions on News Corp. in 2003 in exchange for approving the media giant’s purchase of a stake in DirecTV. EchoStar asked that the FCC tweak those strictures so that they would be specifically tailored to Liberty taking News Corp.’s DirecTV stake.

For example, one of the 2003 conditions was that a distributor could take a dispute with a News Corp. regional sports network to arbitration. EchoStar argued that this arbitration right “should apply to any Liberty-affiliated RSN, including after-acquired or new RSNs.” Liberty’s attempt to “limit the condition to the three RSNs included in this transaction should be rejected,” EchoStar said in its filing.

EchoStar also maintained that program-access protections should apply to DirecTV-affiliated programming. “Efforts to limit the reach of those protections to a subset of Liberty’s holdings [Liberty Media] should be denied,” EchoStar said in its filing, adding that program-access protections should provide for third-party arbitration for all Liberty programming.

DirecTV should also be prevented from acquiring any additional exclusive programming rights.

“It is apparent that Liberty will capitalize on its reintegration with a MVPD and either acquire or create new programming, hence creating more vertical integration,” EchoStar said in its papers.

The American Cable Association also filed comments Friday with the FCC on the proposed Liberty-DirecTV deal. The ACA asked that the FCC impose several conditions on the deal, including ensuring that program access and nondiscrimination conditions cover Discovery’s networks.

And the National Cable Television Cooperative said News Corp. shouldn’t be allowed to “escape” its obligation to abide by binding arbitration for its regional sports networks after it divests its ownership in DirecTV.

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