News Corp. to Acquire 50% Stake in EchoStar

In a development that promises to vastly reduce the cost to consumers of satellite television, Rupert Murdoch’s News Corp. plans to acquire a 50% stake in EchoStar Communications Corp. for $1 billion in cash and assets to form a new U.S. satellite-television broadcaster.

The companies said they will invest $2.5 billion over the next 18 months and offer a new direct-broadcast satellite service called Sky.

Analysts expect the company to quickly become a formidable competitor to the top three satellite TV companies--DirecTV, Primestar and U.S. Satellite Broadcasting--driving down the cost of receiver dishes and programming services.

MCI Communications Corp. will be a partner with News Corp. in the venture and will own about 10% of the company.

Direct broadcast satellite is the fastest-growing competitor to cable delivery of television services. It beams television via high-powered satellite into homes that receive programming through pizza-sized dishes.

News Corp. has been the most aggressive company in offering satellite broadcasting around the world but has been a slower entrant in the U.S. market. News Corp. formed American Sky Broadcasting with satellite partner MCI Communications last year, but they were at least a year away from offering a service because they had yet to build and launch any satellites.

The investment in EchoStar jump-starts News Corp.’s entry into the U.S. market. For EchoStar, the move gives it the financing and deep-pocketed partners it needs to pursue expansion plans. EchoStar serves about 430,000 subscribers nationwide through its Dish Network.

“It makes a lot of sense. The two of them together will represent a potential force, with all the satellites they’ll control,” said Jerry Paul, a money manager at Invesco Trust Co., which owns EchoStar bonds.

Sky will beam more than 500 channels to viewers around the country, is expected to reach as many as 30 million customers by 2002 and generate $1 billion of cash flow by 2002, said Preston Padden, chief executive of ASkyB. Padden was named president of worldwide satellite operations for News Corp.

The new Sky service, scheduled to begin early next year, will use seven satellites, two of which are already in orbit and operated by EchoStar. Unlike its rivals in the satellite-TV industry, it will be able to offer local channels.

EchoStar shares rose $3 to $18 on Nasdaq before trading in the stock was halted Monday. News Corp. closed up 62.5 cents at $21.25 on the New York Stock Exchange.

Charles Ergen will continue to serve as chief executive of EchoStar, and Murdoch will serve as chairman.

In December, News Corp. and Softbank Corp., Japan’s largest distributor of personal computer software, started their JSkyB satellite broadcasting venture.