FCC Staff Backs News Corp. Bid to Buy DirecTV

The Federal Communications Commission staff recommended Tuesday that the agency approve News Corp.’s $6-billion takeover of satellite giant DirecTV but proposed conditions to prevent Rupert Murdoch’s entertainment company from wielding too much clout, sources said.

The staff report -- circulated Tuesday evening to the five FCC commissioners -- warned that News Corp. might try to withhold its network of Fox television stations from local cable providers to push customers to DirecTV.

To offset the risk, FCC Chairman Michael K. Powell wants to give cable operators special rights to seek nonbinding arbitration if they believe News Corp. is attempting to unfairly limit their ability to carry Fox TV stations, sources said.

Ultimately, arbitration decisions could be appealed to the FCC.

“The idea is to put News Corp. in a position where they are no better and no worse than they were before the merger,” one FCC official said. “We don’t want to give these guys any incentive to pull their programming off cable and drive customers to DirecTV.”

Powell is hoping to approve the merger by Dec. 19, which would give News Corp. time to close the deal by year-end. But final approval will depend on when commissioners submit their votes.

Regulatory approval has been widely expected since News Corp. announced this year that it planned to buy a 34% stake in El Segundo-based DirecTV, which serves 12 million customers nationwide.

The deal came after federal regulators blocked an earlier merger between DirecTV and its satellite rival EchoStar Communications Corp.

News Corp. executives insist that the merger would strengthen DirecTV and make it a better competitor against cable, resulting in lower prices.

A News Corp. spokesman declined to comment Tuesday on the staff recommendation.

At the urging of the cable industry and consumer groups, FCC Media Bureau Chief W. Kenneth Ferree recommended a condition that would allow cable operators to seek private arbitration -- modeled after the arbitration system used by Major League Baseball -- in the event they believed News Corp. was being unfair in contract negotiations over the rights to carry a Fox TV station.

Critics also have warned that if News Corp. controls DirecTV, it might attempt to raise prices it charges cable operators to air its pay-television channels, including Fox News, FX and several regional sports networks.

In seeking FCC approval, News Corp. previously promised it would not discriminate against cable providers, charging them the same price it charged DirecTV.

The staff report recommends making such promises -- including a pledge by News Corp. to increase the number of markets where DirecTV offers local broadcast channels -- a formal condition of the merger.

Gene Kimmelman, director of the Washington office of Consumers Union, called the arbitration condition a “step in the right direction.” But he still worried that the merger could result in rate hikes for cable and satellite customers.

“If the FCC doesn’t do more to clamp down on potential pricing collusion between News Corp. and cable operators, all this just gets passed along to the consumer,” he said.

Consumers Union wants the FCC to tie future News Corp. programming price hikes to an index based on its past increases.

Some FCC officials fear such an index would be difficult to enforce and subject to manipulation by News Corp.