New installment of "AS THE SKY TURNS". a.k.a. Life is stranger than fiction.
Time Warner a Wild Card In the DBS Poker Game
By Alan Breznick and K.C. Neel
Which way will Time Warner Inc. go? That was the big question last week as
Rupert Murdoch's News Corp. tried to wrap up a controversial DBS deal with
Tele-Communications Inc. that would merge MSO-backed Primestar Partners
with News Corp.'s fledgling ASkyB venture.
Sources said Time Warner, whose vice chairman Ted Turner loathes News
Corp. chairman Rupert Murdoch, was agonizing between going along with the
other Primestar members or leaving the partnership to cut its own deal with
upstart DBS provider EchoStar.
If Time Warner sticks with its four MSO partners, a merger with ASkyB could
create a new, much more powerful Primestar that would have the capability to
offer high-power service from News Corp.'s full, nationwide orbital slot at 110
degrees west longitude.
Any merger, however, also would raise major antitrust and other regulatory
issues in Washington, D.C., over cable industry and non-U.S. control of DBS
orbital slots.
Things would get even more interesting if Time Warner goes the other way, as
some sources said last week it might. Teaming up with EchoStar and probably
taking U S West Media Group with it, Time Warner could create a much
stronger DBS rival to both Primestar and market leader DirecTv. As a result,
the nation would have three robust DBS services with leading cable operators
on the opposite sides of two of them.
"It'd be terrific," said Mickey Alpert, a DBS consultant based in Washington,
D.C. "Let them all compete."
Time Warner, News Corp., EchoStar and Primestar executives declined
comment on last week's rumors and reports. But speculation increased
throughout the week that something would happen by early this week, if not
sooner.
"Something's definitely up," said one Wall Street analyst. "There is a deal on the
table."
Meeting with analysts in New York on May 19, TCI president Leo Hindery
hinted that some kind of merger deal with News Corp. "could be completed
soon." That agreement, sources said, calls for a desperate News Corp. to
contribute its DBS slot at 110 degrees to the Primestar venture in return for
non-voting stock in the new, publicly owned Primestar and, possibly, some
vague cable commitments to carry Murdoch's Fox programming services.
But News Corp. wouldn't receive any voting stock in the new Primestar, as an
earlier roughed-out deal stipulated. Nor would Murdoch's company get
long-term carriage agreements tied to its satellite slot or its two high-power birds
under construction.
"News Corp. has supposedly agreed to virtually everything Primestar
suggested," another analyst said. And Hindery reportedly told analysts that the
deal "would calm competitive concerns about satellite vs. cable."
Time Warner chairman Gerald Levin and vice chairman Turner still opposed any
deal with Murdoch last week, at least in public. At Time Warner's annual
shareholders' meeting in New York two weeks ago, Levin dismissed the notion
of News Corp. swaying his company as "a silly question."
Last week, a Time Warner spokesman reiterated that his company feels that
Primestar doesn't need any new partners to move forward with its planned
restructuring. "We haven't changed our position," he said.
But if TCI and the other Primestar partners want to sign a deal with News
Corp., Time Warner may not have the automatic veto rights that have been
assumed. Indeed, Hindery reportedly told analysts last week that Time Warner's
consent "was not necessary."
If so, TCI, Comcast Corp., Cox Communications Inc. and perhaps U S West
Media Group could move forward without Time Warner, leaving the recalcitrant
partner to tag along or breach the partnership. As EchoStar met with several
investment banks in New York to raise badly needed cash last week,
speculation grew that Time Warner might choose the latter course.
If that happens, Time Warner would acquire or receive Primestar's 11
high-power frequencies at the 119 degrees west longitude slot that Primestar
shares with EchoStar. The MSO would then contribute those frequencies to
EchoStar in return for a 40% stake in the EchoStar-led venture, while Time
Warner partner U S West Media Group would receive a 20% stake for joining,
too.
One major investor with stock in TCI and Time Warner said he was surprised
by Hindery's forthcoming comments about not needing Time Warner's approval
to do a deal with News Corp. But, he added, "that gives me confidence that a
deal is actually happening."
The shareholder doubted that Time Warner and U S West would extricate
themselves from Primestar to sign a deal with EchoStar if Primestar and News
Corp. hook up.
One investor questioned the wisdom of Time Warner leaving Primestar if
Murdoch teams up with the latter company. "It's a long stretch and I don't think
it's a good idea," the investor said. "Why give up distribution to your greatest
competitor? They already have cheap equity invested in Primestar and I'd advise
them against any such moves."
Meanwhile, EchoStar CEO Charlie Ergen met last week with Donaldson, Lufkin
& Jenrette Securities Corp., Bear Stearns & Co. and other New York
investment banks. While another equity offering is doubtful for the debt-ridden
company, a debt/bond/equity deal could be in the works.
(May 27, 1997)
copyright: Cable World |
