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More on His Dish : Murdoch's Latest Deals Shake Up Satellite, Cable TV


Rupert Murdoch, the fastest-moving mogul in the entertainment business, sealed two billion-dollar deals Wednesday that changed the landscape of the satellite television business and provided a shot in the arm to the cable industry.

In a busy day of deal making, Murdoch clarified how his News Corp. media conglomerate will enter the U.S. satellite TV market and bought a lucrative network that plugs a hole in his cable empire.

News Corp. agreed to fold its U.S. satellite assets into Primestar Partners for $1.1 billion worth of nonvoting securities. In a separate transaction, a News Corp. affiliate agreed to pay $1.9 billion for International Family Entertainment, the owner of the Family Channel, which reaches 69 million cable households.

Analysts said the satellite TV deal is likely to intensify competition by making No. 2 provider Primestar a more formidable challenger to industry leader DirecTV, potentially driving prices down for consumers.

Murdoch recently backed out of a billion-dollar merger with the fledgling satellite provider EchoStar Communications Corp. that had been perceived by the cable industry as a virtual declaration of war by the cable industry. Wednesday's announcements bring him back into line with the interests of the industry.

The Family Channel fills a hole for News Corp. by giving it a much-sought-after channel for its children's programming while improving the prospects of wider distribution of its other networks, which include several regional sports networks, the Fox News Channel and FX, an entertainment service.

"The big question hanging over News Corp. has been 'What is its North American strategy for rolling out content and how much money does it have to spend to get there?' " said Christopher Dixon, an analyst at PaineWebber Inc. "What happened today is that all the pieces have fallen into place."

As part of the deal, Primestar, which is owned by a combination of major cable operators, agreed to carry Fox News and FX to its 1.8 million subscribers. But analysts expect cable operators to be generally more eager to carry News Corp. channels now that Murdoch has abandoned his intention to launch a satellite competitor with EchoStar. In fact, if the Primestar transaction is approved by regulators, the largest five cable operators that own the satellite service will now be Murdoch's partners.

"Murdoch is now sitting on the side of his former competitors--at the kids' table instead of the parents' table because of his nonvoting stake, but still at the table," said Dixon.

As part of the agreement, Primestar would buy News Corp.'s valuable orbital slots and two satellites for just about what Murdoch and his partner MCI paid for them. The assets and a restructuring also announced Wednesday could make Primestar a tougher challenger to DirecTV, the El Segundo-based subsidiary of Hughes Electronics.

Analysts said Wednesday's restructuring, under which the partners agreed to convert their shares into a new publicly traded venture, would make it possible for the company to become a nationally branded competitor.

So far Primestar has concentrated mainly on rural markets where cable service is poor and customers are more likely to switch to satellite. The owners said they would make a more aggressive push into urban areas once it begins using News Corp.'s orbital slots, which would allow Primestar to reduce the size of the receiver dishes it uses to 18 inches, from the current 36 inches.

While Murdoch's aborted attempt to launch a satellite service with EchoStar was an embarrassment to the media maverick, Wall Street generally applauded the sale to Primestar as a strong recovery from the debacle. Investors drove down News Corp. stock after the merger announcement with EchoStar, figuring that launching a Sky satellite service would be costly--upward of $5 billion.

News Corp. shares rose 25 cents Wednesday, closing at $18 on the New York Stock Exchange.

"He's lucky to get out," said John Aronsohn, an analyst at Yankee Group. "He was entering late in the game, and at this point his best bet was to stop the losses and move on."

Analysts were even more bullish about the purchase of International Family Entertainment. While investors have been nervous about News Corp.'s spending spree on sports rights, TV stations, sports teams, a coupon business and satellites, they were relieved at the clever structure of the International Family deal, which would not tarnish the company's balance sheet.

That is because the purchase is to be made by Fox Kids Worldwide, the 50-50 joint venture between News Corp. and Saban Entertainment. To finance the purchase, analysts said, Fox Kids would borrow $1.3 billion.

"News Corp. stock will be popping because of this tomorrow," said Derek Baine, an analyst at Paul Kagan Associates.

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