There was something surprising about McCain's remarks in this age of massive media consolidation and cross-ownership. In the current climate, it's newsworthy when a high-profile politician even raises doubts about a multibillion marriage. "It's a pretty sad commentary," notes Gene Kimmelman, co-director of the Consumers Union in Washington, which has argued that these sorts of consolidations often don't aid the public.

For the multifaceted McCain, his emerging role as Murdoch's regulatory nemesis seems a curious one, not to mention perhaps largely symbolic, since the Department of Justice and the Federal Communications Commission would have final say over any DirecTV deal. (Last year Senate Commerce Committee members passed a nonbinding resolution opposing the merger between United Airlines and US Airways; the deal was nonetheless approved.)

By most accounts McCain and Murdoch have a cordial working relationship. After all, Murdoch's Weekly Standard magazine was among McCain's most vocal supporters during the senator's 2000 presidential run. Murdoch's News Corp. has been a generous financial supporter of McCain's campaigns. And when McCain made his recent Hearst comparison, he quickly added, "Mr. Murdoch is a man I admire greatly. I have the greatest respect for him."

Indeed, in his ongoing campaign against the marketing of violent Hollywood films to teens, McCain rarely mentions Murdoch's name, despite the fact that his studio, 20th Century Fox, is one of the industry's biggest players. And McCain is currently working with broadcasters to loosen restrictions that prevent any TV network from reaching more than 35 percent of the U.S. audience -- a cap that is also being challenged by News Corp., which wants the FCC to raise that limit to 50 percent.

In fact, in 1999 Mother Jones magazine reported that the high-level staffer on McCain's Commerce Committee who drafted the original proposal to ease that 35 percent cap was actually in business with a News Corp. lobbyist.

On the flip side, Charlie Ergen, CEO of the smaller satellite service EchoStar, and DirecTV's only real American competitor, has been a longtime McCain supporter. The Arizona senator helped Ergen and EchoStar lead the fight on Capitol Hill to gain access to local affiliates. For years satellite companies could not offer viewers their local NBC or ABC affiliate, a restriction that kept some viewers from switching from cable to satellite. Thanks to the Satellite Home Viewer Act, those local stations are now included on satellite menus.

Letters McCain wrote on behalf of EchoStar to federal regulators to help it gain access to local channels sparked controversy during the presidential primary, when critics suggested the senator used heavy-handed tactics on behalf of his contributors.

Murdoch's proposed merger with DirecTV could cause real problems for EchoStar, says Kimmelman at Consumers Union. "News Corp. could try to undercut EchoStar by not selling them the Fox network or sell them Fox regional sports channel for distribution." (Because of the extraordinary cost of entry, analysts doubt a third satellite player would ever launch in the U.S.)

Senate Commerce Committee spokesperson Pia Pialorsi denies that Ergen's support for McCain prompted the senator's comments. "He's simply expressing concern about a major merger."

If nothing else, the pending congressional showdown illustrates just how powerful direct-broadcast satellite television has become. Originally designed in America to service customers in regions where cable television did not reach, satellite TV today, by offering more channels and clearer digital pictures, is quietly eating cable TV's lunch.

In less than 10 years DirecTV and EchoStar have grabbed 21 million subscribers away from cable TV, which currently has 69 million customers. In fact, DirecTV trails only cable giants AOL Time Warner and AT&T when it comes to providing home viewers with channel-surfing pastures. Unlike cable, though, satellite TV's business is growing at a clip of 20 percent each year. Analysts suggest Murdoch could double DirecTV's 10 million subscriptions in just five years by heavily marketing the service over his Fox news, sports and entertainment TV outlets.

Satellite TV's allure comes from the endless stream of programming it provides -- everything to be found on the local networks and cable combined in addition to various packages offering up dozens of movie and sports offerings. And for consumers fed up with escalating cable fees, satellite TV -- or at least its most basic packages -- offers substantial savings.

From Murdoch's perspective, DirecTV would fit nicely with News Corp.'s BSkyB in Britain, Star TV in Asia, Sky in Latin America and PerfecTV in Japan. In all, there would be more than 70 million consumers in every corner of the world, paying subscription revenues to -- and buying entertainment, news and services from -- Rupert Murdoch.

Perhaps that's why Viacom president Mel Karmazin recently told a telecommunications conference audience that he was "not looking forward to the morning when I wake up and discover that the deal has happened. I hope it gets derailed."

That steady stream of satellite revenue would help Murdoch offset the up-and-down cycles of his other entertainment assets. For instance, last quarter News Corp.'s pretax profits fell 63 percent, thanks in part to its spectacular animated film flop "Monkeybone," which cost $70 million to make but brought in just $5 million at the box office.

But can Murdoch finally get his hands on an American satellite TV company? He's come close before. Murdoch was one of the original four DirecTV founders when it launched in 1990. Soon pressed for cash and teetering on bankruptcy, Murdoch's News Corp. pulled out of the deal. (Ironically, it was mounting losses from Murdoch's BSkyB satellite business that precipitated News Corp.'s near meltdown in the early '90s.)

Later, in 1997, Murdoch moved to join forces with EchoStar, only to back out at the last minute. (EchoStar's Ergen sued; Murdoch countersued.) According to Schaeffler, cable operators pressured Murdoch to drop the deal, suggesting they might not carry his News Corp.'s programming on their cable systems.

"He has regrets," says Schaeffler about Murdoch's aborted EchoStar deal. "There's a passion for satellite. It's a success that's eluded him here."

Now Murdoch is trying to shepherd the complicated DirecTV alliance, which involves owner Hughes Electronics' parent company General Motors; Microsoft, which would invest $3 billion and oversee the software side of interactive TV; and Liberty Media, which would invest $500 million. Murdoch thought he had a handshake deal with Hughes in February, but terms of the deal leaked out and when Hughes stockholders protested the small premium they would have received, the deal was scuttled.

Negotiations are reportedly back on track just as McCain is raising his red flag.

"When you own a media empire that large, the notion of expanding it extensively should raise competitive concerns, shouldn't be anything but a bumpy road," says Kimmelman, who suggests that with the possibility of hearings, a new wild card has been introduced into Murdoch's DirecTV saga. "Whenever the chairman of a committee steps out front, there's a chance other people will come out of the woodwork. You start with one afternoon of hearings and see where it goes. I think the more people who look at the facts, the more who will see a significant problem with it."

"When politicians start poking around multibillion business transactions," says Kimmelman, "you never know what'll happen."

No doubt that's just what Murdoch wanted to avoid.

Recent Stories