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In a move that would bolster its position as the leading satellite broadcaster, Hughes Electronics Corp.'s DirecTV is close to signing a pact to acquire subscribers of PrimeStar Inc., sources close to the deal say. The accord, which comes just a month after DirecTV acquired its longtime partner, U.S. Satellite Broadcasting Co. for $1.3 billion, could be signed by the end of this week. It would cap a frenzied spell of dealmaking as the direct-broadcast satellite industry coalesces around Los Angeles-based DirecTV, which has 4.6 million subscribers, and Littleton (Colo.)-based Echostar Communications Corp., which has 1.9 million. On Nov. 30, Echostar acquired high-powered satellite slots from News Corp. and MCI/WorldCom. $1,200 A HEAD. PrimeStar, which is controlled by a group of major cable companies including TCI, Time Warner, Comcast, Media One, and Cox Communications, has been losing market share and running low on operating funds. It also has been hobbled because its medium-powered satellite service lacks the channel capacity and data-delivery features of DirecTV and EchoStar, which operate high-powered satellites. Yet its 2.3 million subscribers represent an attractive group of satellite converts. According to sources, DirecTV would give PrimeStar cash for each subscriber it helped to convert. DirecTV also would cover the costs of conversion and inject operating capital into PrimeStar, ensuring that the cable-controlled broadcaster stays afloat. All told, DirecTV would pay about $1,200 for each subscriber, far less than the $1,700 to $2,220 value implied in recent deals, analysts say. DirecTV is likely to get only about two-thirds of PrimeStar's subscriber base over a transition period lasting 18 months, sources say. Echostar, which already offers retailers a "bounty" of more than $200 for each PrimeStar subscriber conversion, is likely to get the rest, analysts say. Still, "this deal will enhance DirecTV's critical mass and is a winner for PrimeStar, too," says analyst Jimmy Schaeffler of Carmel Group, a market researcher. Left uncertain is the fate of PrimeStar's own service as well as its hard assets -- 11 high-powered transponders and an uplink facility. Shares in TCI Satellite Entertainment Inc. (TSATA) jumped 31% on Jan. 20. EDITED BY DOUGLAS HARBRECHT |
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