While newly independent DirecTV is still a satellite television service, the man who engineered last week’s spinoff of the company has a vision to make it something more.
The El Segundo company left the umbrella of Englewood, Colo.-based Liberty Media Corp. in a deal that was completed Nov. 19, melding it with other Liberty properties. The spinoff marks the latest step by Liberty Chairman John Malone, who is also DirecTV’s chairman, to form a multimedia giant with a range of offerings.
The spinoff merged DirecTV with three regional sports networks, the Game Show Channel and an online game company.
The new company has a base of business that remains satellite television but now has additional content offerings that will allow it to better compete with its competitors, which include rival cable, satellite and broadband services.
“Malone understands better than anyone else how it’s possible to leverage the combined control of content and distribution to make it difficult for competitors,” said Harold Feld, legal director of Public Knowledge, a Washington, D.C., media advocacy group. “There’s a certain irony that Malone, who in the ’90s was kind of the poster child for wielding cable market power, is now finding himself on the other end and trying to figure out the right model to stay competitive.”
Among the fiercest competitors is Comcast Corp., the Philadelphia-based cable and broadband giant that is making a play to purchase a majority share of General Electric Co.’s NBC Universal, now 20 percent owned by Vivendi SA.
Malone has publicly voiced concern about Comcast’s efforts to get Vivendi to sell its stake in NBC Universal, which has a treasure-trove of television and film content, production facilities and pay TV channels. Any deal is likely to come under intense antitrust scrutiny, due to concerns that Comcast, the nation’s largest pay TV provider, could make it harder for competitors – including DirecTV, but also Time Warner Cable and others – to obtain NBC content.
It’s an issue that Malone has dealt with in the past: When he was running cable company Tele-Communication Inc., the company tried to get stakes in cable networks, but faced regulatory resistance. However, it’s not widely believed that Comcast will have problems closing the deal.
David Joyce, a media analyst at Miller Tabak & Co., said Comcast control over NBC wouldn’t pose a problem as long as other media companies had a fair shot at its content.
“A lot is going to depend on whether they are willing to sell NBC’s broadcast stations and make other concessions that ensure fair access to NBC and Universal Studios content,” Joyce said. “It could really open the door to a lot of other similar deals.”
DirecTV is now the nation’s largest satellite television service and the second largest pay TV provider behind Comcast. The satellite service added 136,000 U.S. subscribers in the last quarter, to a total of 18.4 million. With new production of sports shows and other programming, the company has worked to make itself more attractive to affluent subscribers so they are less likely to drop the service after introductory rates end.
Last week’s selection of Pepsico International Chief Executive Michael White as CEO shows that Malone and his board also hope to further expand DirecTV’s international operations, especially in Latin America.
And there has been widespread speculation that taking DirecTV out of Liberty Media was designed to make the company more attractive to a telecom suitor such as AT&T Inc. or Verizon Communications Inc., which already bundle DirecTV services with their telephone and broadband services.
Malone has avoided clear answers on whether an eventual sale was part of the spinoff plan, but clearly his concern over staying competitive is a key issue.
At the shareholder’s meeting last week, Malone emphasized how a larger and more independent DirecTV would be better able to make content deals and partnerships.
“Our relationship will continue to broaden and intensify,” Malone told Bloomberg News after the shareholders meeting.
However, Bruce Leichtman, president of Leichtman Research Group in Durham, N.C., questioned how much Malone can really change DirecTV’s business model.
“Companies are trying different models because of the economics of paying for content, but it’s not a given that all big media companies want to go the vertical integration route of Comcast,” Leichtman said. “Despite what it gained, DirecTV is still pretty much a pure distribution play.”
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