It seems that all operator services in the US tends towards a monopoly and when policed by an administration that looks the other way, then every major player on the block gets back to what it’s best at, setting up situations where it just cannot lose.
It’s starting to become obvious that this is exactly what John Malone has been angling for throughout his long deliberations over the fate of DirecTV, which reached fruition when he convinced Rupert Murdoch, through share holder pressure, to sell control of the business to his Liberty Media.
And this week it became clear just how long, detailed and vehement the objections are to this deal going ahead, with EchoStar perhaps the most put out by the deal, having had its own fate co-mingled in the press with wide speculation that the first thing that Malone might do ‘post deal’ is buy EchoStar. And it must irk EchoStar that once upon a time its move to acquire DirecTV was stopped by the FCC. All the responses to the US Federal Communications Commission are now filed on its web site.
There were other vociferous objectors, including the Hispanic Information and Telecommunications Network, RCN Telecom Services, The National Cable Television Cooperative, the American Cable Association and the National Association of Broadcasters.
In essence what they are all saying is that when the Liberty Media content holdings were part and parcel of TCI back in 1991, Malone wielded humungous power in the US media markets, because he had both the content and the network to deliver it, and used that power to buy his way into the best cable channels and even more content.
If he is granted the same route to market control for his content once more, the clock will have been turned back 16 years and he will be able to use the leverage of controlling a national footprint TV operator to continue his dominance over US media.
The EchoStar submission reminds us that Liberty was established to avoid regulatory scrutiny around vertical integration within media, with Liberty created as the media arm of the operator TCI.
Since that time and stripped of a direct network since 2001 Liberty has, by its own admission, been less able to dictate programming carriage and its terms have been greatly reduced to the point that some of its content has had to be ‘re-evaluated.’
The deal creates yet another vertically integrated player. News Corp doesn’t lose its ability to reach the US national market with content, because it owns Fox, but by selling its ‘second’ network to Liberty they can, through co-operation between themselves, keep their content offerings on both networks, giving them both an unfair advantage.
While the ideal outcome for EchoStar would be for the deal to be turned down by the FCC, what it hopes to have are at least the conditions that apply to News Corp continue to apply to Liberty.
It also wants the applications by Liberty to reduce those obligations to be denied, especially in respect of sports resources, that at present have to be offered to other channels and which have external arbitration set up to manage disputes.
But for Liberty suddenly it would be under many new obligations, the same obligations that curtailed News Corp, which would apply to content it already owns and which today don’t have to observe such obligations. Much of its content would have to be offered to networks like EchoStar, on fresh and largely improved terms, which would include third party arbitration for deals done with existing content.
EchoStar also wants the same rules to apply internationally, whereas Liberty has requested that they do not apply abroad.
But it also wants new conditions to apply. One such request is that Liberty should not be permitted to enter into any additional exclusive programming contracts and that all existing content conditions should also apply to internet delivered content. It also calls for the company to divest it cable holdings in Puerto Rico.
We’re not sure if the EchoStar lobby is particularly strong at the FCC, the FCC’s recent record, including the re-establishment of much of the original AT&T, suggests that it will pay little more than lip service to the provision of conditions for the purchase by Liberty of the 39% stake that News Corp uses to control DirecTV.
But there is some upside, some rationale if you like, for the FCC not placing strong controls on Liberty. The video market has fragmented substantially since Liberty was formed and there is more competition currently, even if not all of it will survive long term. Because of this we doubt that all of the conditions that were imposed on News Corp over content availability on other networks, will or should be transferred to Liberty.
In fact the world that Malone is now chasing may no longer exist. His rivals picture Liberty holding sports and film content and demanding advantageous deals, or else using it to leverage big market share swings in pay TV.
Wait until Malone realizes what a fantastic turnaround Murdoch has completed at DirecTV and how little scope there remains for continuing to drive down churn in a market that has less and less interest in pay TV services, as it looks to the internet more and more for entertainment.