Advance/Newhouse Communications chairman Robert Miron and News Corp. chairman and CEO Rupert Murdoch sparred before a Senate subcommittee last Wednesday over Murdoch's plan to take control of the DirecTV Inc., the largest satellite TV provider with more than 11 million subscribers.
The inevitable result of the merger, Miron said, is that Murdoch would have the ability and incentive to drive up retail cable and satellite rates by demanding higher compensation for his 35 TV stations, 18 regional cable sports networks, and national cable services, such as Fox News Channel.
Miron said Murdoch's TV stations were the "big dogs" he would use to make cable heel.
"We believe they have the incentive to do just that," Miron said. "Prices will go up for DirecTV customers, EchoStar [Communications Corp.] customers, and cable customers. We believe the impact will be substantial nationally."
No virgins here
Murdoch, making his third trip before a congressional panel to defend the deal in the last six weeks, said it cost him $640 million in payments to cable operators to launch Fox News Channel after tough bargaining with the MSOs, which he said are quite capable of fending for themselves without government help.
"We are not dealing with a bunch of virgins here," Murdoch said.
Miron and Murdoch squared off before the Senate Subcommittee on Antitrust, Competition Policy, and Consumers Rights, where lawmakers from both parties expressed some, but not terribly vocal, concern about Murdoch's taking control of DirecTV.
"Critics of this deal have raised concerns about whether News Corp. will use its additional leverage as an anti-competitive weapon to unfairly disadvantage other programmers and distributors," said Sen. Mike DeWine (R-Ohio), chairman of the subcommittee.
Also last Wednesday, DeWine and Sen. Herb Kohl (D-Wisc.) wrote the Federal Communications Commission and the Justice Department, asking them to give close attention to the concerns raised by Miron and others.
New merger wave?
Some lawmakers also wondered aloud whether the fusion of a broadcast power like News Corp. with a satellite company with national reach was just the beginning of a new wave of consolidation, as competitors try to match Murdoch's scale.
"I am surprised that [The Walt] Disney [Co.] and Viacom [Inc.] don't share this strategic vision," Precursor Group analyst Scott Cleland told the Senate panel. "I believe in the future, you will probably see a transaction that will involve EchoStar coming at you down the pike."
EchoStar, the No. 2 DBS carrier with more than 8 million subscribers, last year was blocked from acquiring DirecTV parent Hughes Electronics Corp. by the federal government. Murdoch lobbied hard against that deal.
Last week, EchoStar returned the favor, urging the FCC to disallow the News-Hughes combination unless a panoply of strict programming access and pricing conditions were applied.
Murdoch has already agreed to abide by FCC program-access rules, which would bar him from reaching exclusive deals with DirecTV.
But Miron noted that this commitment did not apply to Fox TV stations, the broadcast home of The Simpsons, American Idol
and National Football League games.
In his testimony, Miron predicted Murdoch would force cable operators to pay higher rates or lose News Corp. programming.
Cable operators refusing to accept Murdoch's terms would lose subscribers to DirecTV, which would not have the same difficulty as cable in reaching deals with Murdoch, Miron said.
Murdoch said it would be "totally self-destructive" to withhold programming from cable companies that collectively serve nearly 70 million subscribers.
Murdoch said he charges what the market will bear, and said the market doesn't always reward his company fairly, noting that Fox News Channel has higher ratings than Cable News Network, but has a much lower license fee. When Fox News comes up for renewal, Murdoch said it was reasonable to ask for more money.
Murdoch also balked when asked about waving exclusivity for his TV stations, claiming he wouldn't do that if ABC, CBS, and NBC didn't have to.
"All we ask for is a level playing field. If you want to change that statute on retransmission, let them go ahead and let it apply to everybody," Murdoch said.
Until Dec. 31, 2005, TV stations are barred from signing exclusive retransmission-consent deals.
But some cable operators are worried about paying higher rates now, and potentially losing Fox broadcast-television stations after that date.
As a result of these fears, Miron called for "appropriate conditions" on the merger, but was not more specific.
Support for Miron's view came from an unlikely corner: Gene Kimmelman, senior director of advocacy and public policy for the Consumers Union, a relentless cable critic.
"I hardly ever agree with the cable industry, but I believe Mr. Miron has it exactly right: Prices will keep going up," Kimmelman testified.
Miron testified on behalf of Cox Communications Inc., Insight Communications Co., and the Washington Post Co.'s Cable One Inc. — companies representing about 10 million subscribers.
The four MSOs filed merger comments at the FCC last Monday, where they were no more precise about the merger conditions they were seeking. A lawyer for the cable firms said they would be making recommendations soon.
Cablevision Systems Corp. was more direct, urging the FCC to require News Corp. to waive its retransmission-consent rights.
While five big MSOs and the small-operator American Cable Association filed FCC comments against the merger, the National Cable & Telecommunications Association did not participate.
In his testimony, Murdoch said Miron and the cable companies were less concerned about rising rates than about clinging to their huge market shares.
"The effort of Mr. Miron and his associates here is simply to try to stop us from being competitive any way they can," Murdoch said.
In that regard, Miron mentioned none of cable's advantages over satellite, including a nation-leading broadband data business and a promising future in the local phone business.
In fact, two weeks ago at the National Show in Chicago, Cox Communications Inc. CEO James Robbins referred to DBS as "a one-trick pony," having none of cable's capabilities, aside from multichannel video. But last week, Cox viewed the Murdoch-DirecTV combination as a real thoroughbred.
Cleland said that cable's anticompetitive predictions about the merger were off-base.
"I don't think this is an anti-competitive deal. It does not raise any more issues than the Comcast-AT&T deal did," Cleland said. [News Corp. is ] an insurgent. They tend to be very disruptive and very good for the marketplace."