After 18 months of trying to hammer out a deal with General Motors Corp. — the owner of Hughes Electronics Corp. and DirecTV Inc. — News Corp. lost. Charlie Ergen, the entrepreneurial head of EchoStar Communications Corp., claimed victory — even though he came late to the party, in August.
That outcome left a lot of people shaking their heads and wondering when the second shoe would drop. Many predicted Ergen would face a fierce battle to clear regulatory hurdles, given that a combined DirecTV-EchoStar would create a massive direct-broadcast satellite entity with more than 16.7 million subscribers.
The Federal Communications Commission responded quickly. Last week, it named a team to review the proposed $25.8-billion merger. Chairman Michael Powell appointed W. Kenneth Feree, chief of the Cable Services Bureau and the future Media Bureau, to head it.
Powell promised a timely and fair review. But in a prepared statement, he added, "given the significant concentration that would result from this transaction, it will be rigorously scrutinized by this team and the commission."
And that's what everyone is banking on: a regulatory process that will drag on and on, giving everyone — including News Corp. chairman Rupert Murdoch — a little breathing room and time to regroup. For Murdoch, that might mean just waiting it out and hoping for a verdict unfavorable to Ergen. He could then come back to the bargaining table with a lower bid.
For cable operators, an EchoStar-DirecTV deal would — if approved — bring about the most serious competition the industry has ever faced.
And Ergen seems to be relishing the challenge. He argued that his new company would have the scale to compete more effectively against "the dominant U.S. cable and broadband providers — a critical factor, given increasing consolidation in the cable industry," he said in a prepared statement.
And trying to cover all his bases, Ergen said the deal would not only spur competition for cable, but it would expand the satellite industry's ability to provide broadcast-TV signals to local markets and help to bring broadband access to rural America.
But will all of that really happen? Surely giant media companies must feel like trapped animals when just thinking about what it's going to be like to compete against such a powerful DBS entity. Will they rethink their strategies to be able to compete and thrive in a media landscape that continues to consolidate?
They likely will. Few actually know how to compete with the likes of Ergen, who in the past has clawed his way to where he is by slashing prices to increase EchoStar's market share.
Not that Ergen has an easy road ahead of him. After regulatory approval, assuming he eventually gets it, he still faces another hurdle: shareholder approval from Hughes Electronics Corp.
And that's where things could get dicey. According to reports in Business Week's online edition last week, since the deal was announced Hughes stock has fallen by nearly 14 percent. That could force Ergen to up the ante.
Ergen told Business Week
he'd be willing to look for strategic partners to complete the financing.
Whoa. Can you imagine that scenario? Although this has all the appearances of a very protracted process, few are underestimating Ergen's sheer will power to see this deal through. The question: Who, if anyone, wants to play ball with him?