Audio Video News

General Motors has agreed to sell DirecTV parent Hughes Electronics, but upstart buyer EchoStar may face opposition in Washington. The unanswered question: Is direct broadcast satellite (DBS) cable's competitor or an industry unto itself? How this issue is resolved will determine the fate of the merger.

Synopsis as of November 4: In late October, shortly after Rupert Murdoch's News Corporation abandoned all hope of acquiring direct broadcast satellite service DirecTV, General Motors' board of directors voted to sell the DBS's parent company, Hughes Electronics, to rival satellite service EchoStar in a stock-and-cash transaction reportedly valued at $25.8 billion.

Regulators at the Federal Communications Commission are considering approving the deal, but with some misgivings about encouraging a "monopoly in the sky." On October 31, FCC chairman Michael Powell convened a special interagency forum to review the merger. "Given the significant concentration that would result from this transaction, it will be rigorously scrutinized by this team and the commission," Powell stated.

Although more than two-thirds of the viewing public get television service via cable, viewers in rural areas are almost completely dependent on DBS. The merger would combine EchoStar's more than six million subscribers with DirecTV's more than ten million, creating one of the biggest video entertainment distribution systems in North America. It would also create a single satellite service without any significant competition—in essence, establishing a captive market for EchoStar.

Company chief Charlie Ergen hopes that the feds will overlook the obvious and instead focus on the competition between satellite and cable. His pitch will be that whatever steps are taken to loosen cable's grip on American consumers will be to the benefit of the entire economy. It certainly will be to EchoStar's shareholders, but Washington's loyalty may lie elsewhere. Cable systems are owned and operated by some of the biggest media conglomerates on the planet.