EchoStar Communications Corp. chairman Charlie Ergen told analysts Tuesday
that the pending merger of News Corp. and Hughes Electronics Corp. -- parent of
DirecTV Inc. -- would strengthen the satellite industry but could be very bad
news for cable.
Ergen -- whose bid for DirecTV was rejected by regulators in December -- said
the pending deal between News Corp. and Hughes would expand the U.S. market for
satellite service. But he warned that News Corp. would use its leverage in
broadcasting, cable networks and movie studios to force cable to do its
"It probably would be bad for those people in cable who don't go along with
what [News Corp.] wants them to do," Ergen said on a conference call with
analysts discussing EchoStar's first-quarter results.
Ergen said a combined News Corp./DirecTV would have more clout with cable
operators because it would have a strong distribution arm to go with its content
assets. DirecTV has more than 11 million subscribers.
While News Corp. has said it would make its programming available to all
distributors at comparable rates, Ergen said that could be a double-edged
"There is nothing in those program-access laws to prevent News Corp. from
tripling the sports-rights fees for Fox Sports," Ergen said. "They can make
DirecTV pay exactly the same price, and the rate would go up for everybody.
DirecTV wouldn't have to raise its rates. News Corp. could lose 35 cents on the
dollar with DirecTV and make 100 cents on the dollar from all of the other
distribution paths [for the network]."
While that scenario would also force higher fees on EchoStar, as well as
cable, Ergen said his relationship with News Corp. chairman Rupert Murdoch is
"I probably have a better personal relationship with Mr. Murdoch than I've
had with the Hughes folks over the years," he added.
EchoStar reported a strong quarter. Subscriber additions were about 350,000,
exceeding Wall Street expectations by 100,000. Revenue was up 23 percent to
$1.36 billion and cash flow rose 56 percent to $276.9 million.
Free cash flow -- cash flow from operating activities minus purchases of
property and equipment -- was $125.4 million in the quarter, a 40 percent
increase over the same period last year.
Investors were encouraged by the financial results, driving EchoStar shares
up 5 percent, or $1.54 each, to $32.17 per share in 4 p.m. trading