Murdoch bails on U.S. DBS business

Primestar Partners and News Corp. announced their much-anticipated direct broadcast satellite deal last week, but with an interesting twist - News Corp. head Rupert Murdoch is out of the picture.

Industry experts had speculated that Murdoch would supply Primestar with the satellite slot owned by his News Corp. conglomerate and MCI. In exchange, he would be guaranteed carriage of his programming by Primestar's cable partners.

But Murdoch was conspicuously absent from the picture painted by Primestar at a news conference last week. News Corp. will receive a $1.1 billion, 30% nonvoting stake in Primestar in exchange for the 110-degree slot and two satellites now under construction. There is no carriage deal, however, and Primestar will not use the conditional access system manufactured by News Corp. subsidiary News Digital Systems, said James Gray, chairman and CEO of Primestar.

"The News Corp. relationship with Primestar will be very passive from this point forward," Gray said. "I believe their intention is to redirect their resources in a sensible way back to their core businesses, which is their programming and content businesses.

Murdoch has officially pulled out of the DBS business in the United States, said John Aronsohn, an analyst at The Yankee Group.

"It's a tacit acknowledgment by Murdoch that there is no future for someone entering the DBS business at this point in time," Aronsohn said. "He was smart to cut his losses now, since every day he held onto those licenses, it cost him more and more money not to have a service up and running.

Gray incorporated the News Corp. deal as part of a briefing on Primestar's long-awaited restructuring into a publicly-held company. The new Primestar Inc. will launch three satellites into orbit in the high-power 110-degree slot - two operating 14 transponders each and one as a backup - once the deal receives regulatory approval, Gray said.

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