Murdoch’s EchoStar Deal All but Dead

Barely three months ago, the cable television industry seemed to quake at the prospect of media mogul Rupert Murdoch stomping on its turf.

But on Friday, Murdoch’s proposal to buy half of EchoStar Communications Corp. for $1 billion--and become a force in the direct-broadcast satellite business--seems all but dead.

Amid growing indications that Murdoch had soured on the deal, cash-strapped EchoStar asked a federal court late Thursday to force Murdoch’s News Corp. to loan it $200 million.

EchoStar on Friday said News Corp. had agreed to make the loan if the company needed it before regulators approved the buyout. But News Corp. vowed to fight the request, and sources close to the company said it believed the agreement was no longer valid because EchoStar breached it.

EchoStar stock dropped 11.4% on the news, down $1.75 per share to close at $13.625 on the Nasdaq Stock Market. News Corp.’s New York-listed shares were up 12.5 cents at $18.75.

Until now, Murdoch has faced opposition to his ambitious plan from Congress, broadcasters and the cable industry.

Murdoch and Charles Ergen, EchoStar’s chairman, proposed in February to combine their satellite operations and offer 500 channels of television programs. The service, to be called Sky, would also provide local broadcast stations--a direct threat to cable services. Nervous cable executives referred to the venture as “death star.”

But with EchoStar joining the disaffected ranks this week, Wall Street analysts and cable industry executives on Friday declared the deal too problem-ridden to salvage.

“It confirms what we already thought, which is that this deal is dead,” said Rick Westerman, an analyst with UBS Securities.

Previous problems already had darkened the deal’s prospects. Late last month, EchoStar announced that News Corp. may not go ahead with its investment because of a dispute over whether EchoStar will switch to News Corp.’s encryption cards for unscrambling satellite television signals.

But to many, the dispute appeared to be a smoke screen over deeper woes, including a rift between Murdoch and EchoStar’s Ergen. Analysts have said the two are hung up over voting control. Another explanation has been that Murdoch was having second thoughts about the deal and that it would take longer than he expected to break even.

Last week, News Corp.’s top U.S. satellite executive quit. In addition, Murdoch has been seeking changes to copyright laws on Capitol Hill that would allow News Corp. and EchoStar to pick up local signals without having to negotiate with hundreds of companies that hold the copyrights to TV shows aired on each local station. Thus far, he hasn’t succeeded.

To be sure, any end to the EchoStar deal doesn’t rule out Murdoch from the direct-TV satellite business. News Corp. and MCI Communications Corp., which in 1996 won the last remaining license to provide the service in the U.S., already have a direct-broadcast satellite business together.

The factors behind Murdoch’s ambitions are tantalizing. Of the nearly 100 million U.S. homes that have TV, about 65 million have cable. Just 4.5 million have direct-broadcast satellite.