Feds Ponder Safeguard For DirecTV Takeover

News Corp., MSO disputes would go to binding arbitration

An outside arbitrator would settle disputes between News Corp. and cable operators negotiating to carry the company's programming, under a safeguard that FCC commissioners might impose as a condition for approving the company's bid to acquire control of DirecTV.

"The incentive is to make sure News Corp. can't hold these guys over a barrel," said one Washington source familiar with the talks.

FCC commissioners this week are expected to begin reviewing proposed safeguards on the deal, in hope that the $6.6 billion transaction can be approved by the end of the year.

Separately, despite News Corp.'s initial contention that DirecTV management would remain in place, the company said Mitch Stern will move over to become president and CEO of the DBS unit. Currently chairman and CEO of Fox's TV-station group and its Twentieth Television syndication unit, he replaces DirecTV President and COO Roxanne Austin.

Officials at the FCC and Justice Department are concerned, sources say, that marrying News Corp.'s extensive cable and broadcast programming with a nationwide multichannel distributor like DirecTV would give the company power to demand above-market prices from other cable and satellite providers.

News Corp. has pledged to charge competing cable and satellite distributors the same price it charges DirecTV for company cable networks. But critics complain that the promise hasn't been extended to Fox broadcast stations, nor would it stop the company from charging DirecTV extraordinarily high prices as a way of jacking up costs for the entire industry.

The Media Bureau is planning to recommend that News Corp. and a multichannel provider at loggerheads submit their final offers to binding arbitration.

This option is considered the most likely of several choices to go in front of the commissioners because it will be easy to implement and gives both parties incentive to negotiate earnestly rather than trying to extract draconian terms.

Another option is a market-by-market price index that would set channel fees according to market data. But, one source said, FCC staffers worry that the pricing scheme would be "almost impossible" to implement.

Even less likely to be approved are safeguards that would let cable/satellite systems place Fox Sports channels on an à la carte tier if a deal can't be worked out. Cable operators complain that the escalating cost of sports nets is the primary driver of rate hikes.

To prevent News Corp. from extracting too high a price for carriage of its TV stations, impasses would be broken by requiring the company to retain its previous deal with the cable/satellite provider.

DirecTV CEO Eddy Hartenstein has promised to carry local broadcasters' channels in all 210 U.S. markets by 2008. That promise isn't good enough for rural viewers who rely on satellite TV for pay-TV, two Virginia congressmen said last week. Reps. Rich Boucher and Robert Goodlatte urged FCC Chairman Michael Powell to specify a "near-term" date for complete carriage of local stations.