Los Angeles could take a noticeable economic hit if EchoStar Communications Corp. is allowed to acquire Hughes Electronics Corp. and its satellite television subsidiary, DirecTV.
Assuming the deal passes regulatory muster and it could be a year or more before that happens the marriage of the nation’s two largest satellite television companies will result in local job cuts and a diminished role for DirecTV’s Marina del Rey broadcast center, according to those following the $25 billion deal.
Had Hughes parent General Motors Corp. agreed to sell the unit to News Corp., which had been an active bidder until it pulled at the last minute, the cuts would have been much less severe, according to various sources. Its Fox divisions in Los Angeles and News Corp.’s dearth of U.S. satellite broadcasting facilities would have made a much stronger case for an L.A. presence.
Charlie Ergen, EchoStar’s notoriously penny-pinching owner, already has tipped his hat regarding potential cuts by telling investors that the companies’ “synergies” will allow for savings of up to $50 billion over five years.
“My sense is that DirecTV’s will evolve from a corporate headquarters into more of a support station,” said Jim Stroud, a senior analyst for the Carmel Group. “There’s going to be some job loss on both sides as they streamline the company.”
No specific numbers
Still unclear is how big those losses will be in the Los Angeles area, where more than one-third of DirecTV’s 3,500 employees work and where Hughes employs several hundred others. Officials of both EchoStar and DirecTV acknowledge that jobs will be lost, but with the deal facing major antitrust hurdles, specific announcements are a long way off.
“We are looking at how we can best combine resources to save money,” said EchoStar spokesman Marc Lumpkin.
Officials of EchoStar and DirecTV assert that the merger will allow the new company to battle the cable industry on even ground precisely because of the savings that will be realized by eliminating duplicated services.
Nevertheless, EchoStar and DirecTV executives have been critical of each other’s management practices and the two companies have cultivated vastly different corporate cultures. Although DirecTV Chairman Eddy Hartenstein is on the transition team, many expect much of DirecTV’s upper management to leave the company if the deal is approved.
Another local issue concerns DirecTV’s Los Angeles Broadcasting Center in Marina del Rey. EchoStar officials said no decisions have been made about the future of the facility, but Lumpkin acknowledged that “we think there are some cost savings to be had by combining our uplink centers.”
Together, EchoStar and DirecTV have nearly 15 million subscribers and 17 percent of the U.S. pay television market.
“They are adding a lot of subscribers with this transition, so they’ll likely need to add technological capacity in some way, but they don’t need to uplink in two places,” said one source familiar with the deal. The source referred to the process by which the companies feed digitized content to their satellites for distribution.
Joe Ducey, senior vice president of broadcast operations for U.S. Satellite Broadcasting Co. before it was sold to Hughes two years ago, said EchoStar will also try to reduce the cost of moving content from around the country to its uplink centers through fiber optic cables. To accomplish that, EchoStar might build several smaller regional broadcast centers around the country.
“It’s a lot of money to spend to get all these stations to one place in the country,” said Ducey, who now runs Wild Blue Communications, a Denver-based satellite and broadband distribution company.
Still, Ducey pointed out that DirecTV’s L.A. Broadcast Center is probably the most technologically advanced facility of its kind/
“It could be sliced and diced and its pieces moved around the country, but I don’t think it will disappear,” he said.
