Murdoch’s Urge to Merge

Hill Critics Unlikely to Stop News Corp. Takeover of DirecTV

Posted June 17, 2003 at 4:17pm

When the Federal Communications Commission opened the door to more media consolidation earlier this month, Democrats denounced the move as a power grab by News Corp. chief Rupert Murdoch and vowed to overturn the rule change on media ownership.

But with Murdoch about to gobble up an even larger share of the television market on another front, senior Democrats in the House and Senate say they have virtually no options to block News Corp. from taking over satellite provider DirecTV.

“I think he’s got it fairly well sewn,” said Rep. John Conyers (D-Mich.), the ranking member of the Judiciary Committee and a leading opponent of the merger.

Democrats and consumer advocates believe the $6.6 billion deal to combine News Corp.’s sports, news and entertainment programming with DirecTV’s nationwide distribution network would give the media mogul far too much power to jack up prices. But they can’t find a legal reason to block the deal.

“It’s merger mania out there … but we can’t find a legal reason” to stop it, said Sen. Fritz Hollings (D-S.C.), ranking member on the Commerce, Science and Transportation Committee. “If you can give me a legal reason, we’ll use it.”

Such comments by leading Democrats indicate that Murdoch will face little resistance in winning regulatory approval for the deal in Washington.

Still, Justice Department and FCC regulators, who will ultimately decide whether the merger goes through, could attach key restrictions to the deal. Members, meanwhile, pledge that they will continue to pressure Murdoch to accept certain conditions in exchange for their support.

At a Senate hearing today, for example, Sen. Herb Kohl (D-Wis.) is expected to press Murdoch to agree that he would not force competitors — such as rival satellite-television network EchoStar or cable operator Comcast Corp. — to pay more for programs provided by News Corp.’s Fox.

A spokesman said that Kohl, the top Democrat on the Judiciary subcommittee on antitrust, competition and business and consumer rights, is “concerned about [the merger] and wants to examine some implications.”

As a result, Murdoch has spent a large chunk of time in the past month meeting with key Members of Congress and their staffs on both sides of the aisle and in both chambers.

Last week, for example, Murdoch attended one of the Senate Democrats’ weekly policy lunches. He has also met with the staff on the Senate Judiciary and Commerce panels.

In the House, Murdoch met with Conyers and Energy and Commerce Chairman Billy Tauzin (R-La.). Tauzin has also spoken with Rick Wagoner, the chairman and CEO of DirecTV’s parent company, General Motors, about the merger.

In addition to his personal lobbying efforts, Murdoch has hired a team of well-connected lobbyists to help ease opposition to the deal on Capitol Hill.

Last month, Murdoch signed up former FCC Chairman Dick Wiley and former Rep. Steve Largent (R-Okla.) to work on the deal.

Ivan Schlager, a former Hollings aide now with Skadden Aarps, is already on News Corp.’s payroll, as is Jack Quinn and Ed Gillespie, who was named Republican National Committee chairman this week.

Mike Reagan, who once was a top staffer on the House Energy and Commerce Committee, runs News Corp.’s Washington office.

Another key reason why the merger is expected to win favor in Washington is the fact that many conservatives see Murdoch and his Fox News Channel as their savior from the long-denounced “liberal media” in America.

Sen. Trent Lott (R-Miss.), a member of the Commerce panel, said Republicans are fond of Murdoch because he has given the GOP a voice in the media. For the same reason, Lott said, most Democrats oppose the merger.

“What’s everybody hollering about?” asked Lott, who did, however, oppose the FCC’s move to permit more media consolidation. “I don’t see it as a big problem.”

On the other side of the aisle, Conyers suggested that concerns about what he perceives to be a conservative bias in the media have helped sour Democrats on the merger.

“This has not gone past our attention that the media is almost embarrassingly supportive of anything that comes out of the White House,” Conyers said.

But a Kohl spokesman stressed that the Senator believes that “ideology does not factor in” to his thoughts on the merger.

Rather, Kohl’s major concern is how the merger would affect competition and consumers.

The heart of the skeptics’ concerns is that Murdoch would gain control of both distribution and programming capabilities. Democrats claim that would allow Murdoch to raise the price on his programs, for both cable companies and consumers.

The brouhaha over Murdoch’s merger is further escalated by the FCC’s separate vote just a few weeks ago to permit Murdoch and other media moguls to snatch up more television stations.

“[W]ith the FCC moving to relax ownership rules, companies like News Corp./Fox will have the ability to control key sources of news and information in an unprecedented manner,” Consumers Union Director Gene Kimmelman testified last month at the Senate Commerce panel.

At the same hearing, Sen. Ron Wyden (D-Ore.) pointed out that the News. Corp./DirecTV combination would be an unparalleled merger of a major network and a distribution system.

In an interview last week, Wyden said the merger “could trigger a whole rash of similar efforts” that could explode into a “media concentration arms race.”

Opponents also fear that Murdoch’s new power could result in higher monthly bills for consumers.

With Murdoch’s new power, he could force rival cable companies to purchase an expensive package of Fox-owned channels — such as Fox News Channel, Fox Kids Channel, Fox Movie Channel, Fox Sports Network, FX, the Golf Channel and National Geographic — in order to carry Fox’s Washington, D.C., affiliate, WTTG.

Murdoch has “used every available option in its broadcast and programming companies to its advantage,” said Matt Polka, president of the American Cable Association, a group of more than 1,000 small- and medium-sized cable operators.

“Fox has also been a regular at tying and bundling its programming services, in addition to raising its programming rates far in excess of the rate of inflation,” Polka added. “Fox knows it has our members over a barrel, because our members need their services to be competitive. And now Fox [would have] the leverage and ability to give the programming only to DirecTV or give DirecTV a better deal, causing the loss of essential programming services to our members.”

But Murdoch, who in 2002 earned about $26 billion in revenue from his Fox Entertainment Group and News Corp., has promised to make News Corp.’s programming available “on a non-exclusive basis and on non-discriminatory prices, terms and conditions.”

He further agreed not to let DirecTV enter into an exclusive arrangement with a programmer, including News Corp., and not to let News Corp. offer any channels it controls on an exclusive basis to any distributor.

Murdoch also testified at the May 22 hearing that his merger would not be anti-competitive.

First, he argues, neither News Corp. nor DirecTV wields enough power in its respective market to act anti-competitively. Second, News Corp. wants its programs to reach as many houses as possible, so there is no incentive to restrict distribution.

On his way out of the private luncheon with Democratic Senators last week, Murdoch was quickly whisked away by his staff, who said he was not taking questions.

But when asked if he thought he would have trouble getting the merger approved, Murdoch answered: “I hope not. I don’t know — I hope not.”