Murdoch’s not as big a threat to cable as people fear he’ll be

Byline: MIKE LUFTMAN

So, Rupert really did get DirecTV. As predicted here last January, the outcome wasn’t hard to imagine once Charlie Ergen got shot down by the Feds. Of course, if an overly aggressive Justice Department hadn’t pulled the plug on PrimeStar in the mid-90s, there would have been a third DBS competitor and, just maybe, Charlie might have been permitted to grab DirecTV. And, by the way, that’s one more reason why the Feds need to regulate less, at least in the communications business. Like any sector, communications is a moving target, and it’s one that moves faster than most. Regulators are forced to write rules for the future while looking at the past.

Anyway, what now for Rupert and DirecTV? And what does it bode for cable? Since it’s more fun to play the contrarian, let me predict the following: The impact will be less than most people think. No doubt Rupert will effectively use his new synergies (the dreaded “s” word) to extract the maximum leverage from his new prize. So the benefits to his businesses could be substantial. And it certainly means News Corp. will potentially have a sledgehammer at the negotiating table when deals are cut by that company’s programming networks with Dish and with cable operators. But that doesn’t mean that DirecTV will become a rejuvenated Death Star that will vaporize its cable competitors.

Why not? For starters, there’s a lot of damage to repair at DirecTV. Its staff has gone through more than a year of turmoil, not knowing who their new boss would be or even if they’d have jobs. The results are in the numbers: DirecTV is still bigger than Dish, but its customer growth has fallen behind. Certainly, News Corp. will install a talented staff. But momentum, once lost, is hard to get back.

This is especially true when your direct competition is Charlie Ergen, one of the most entrepreneurial guerrilla marketers in America or anywhere else. So the game between the two DBS companies will be like the fight at which a hockey game broke out, with lots of elbows thrown, along with crushing body checks. Both companies will leave blood on the ice, and red ink on the ledgers.

But what about cable? Won’t it end up getting hurt, too, if DirecTV and Dish end up in a price war? And won’t cable also be harmed if Rupert uses his new clout either to withhold programming or price it outrageously? Keep in mind that the ubiquitous Feds may have a role to play. The deal needs approval. News Corp. is on record pledging to offer its programming to competitors at the same price as it’s offered to DirecTV. But it’s hard to imagine the Feds will just take Rupert at his word and not require a consent decree, mandating a level playing field. And, while it’s uncomfortable for anyone in the industry to look for regulatory help, it’s also true that since many other companies have been forced to accept consent decrees, there should at least be some consistency where News Corp. is concerned.

No doubt there will be some impact on prices, but an all-out price war is unlikely. DBS prices are at loss-leader levels right now. Both DBS companies are thought to have existing program contracts that are pretty expensive, as well as equipment prices that are subsidized at artificially low levels in order to drive customer growth. The result is a cost structure that may not tolerate a price war without violating debt covenants. The main flexibility Rupert could have is that, as a CEO who also is a significant owner of his company, he can do what he needs to while ignoring the short-term screams of shareholders.

Finally, cable’s own competitive strengths shouldn’t be underestimated. Cable marketers are savvy and agile. Cable’s technology is stronger and much more versatile than DBS, which can’t offer true VOD, real broadband Internet service or any kind of telephony. DBS is pushing PVR technology for all it’s worth, but PVR is a lame excuse for real VOD. And when new, networked PVR services like Time Warner’s Mystro TV debut, current PVRs will not have the horsepower to provide a comparable service. No doubt technology will provide new ways to permit DBS to eventually offer some form of VOD along with true broadband Internet service. But it’s hard to repeal the laws of physics: Cable always will have more basic bandwidth than DBS. So any innovation permitting DBS to leverage its bandwidth also can probably be used to give cable the ability to offer even more.

Mike Luftman is an adviser to Time Warner Cable. He was VP of corporate communications for that company and held similar positions at American Television and Communications and Time Inc., the world’s largest magazine company. He is also a consultant to companies in the cable and communications sectors. He currently resides in Rye, N.Y., and may be reached at mike.luftman@twcable.com.

COPYRIGHT 2003 Access Intelligence, LLC

COPYRIGHT 2008 Gale, Cengage Learning

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