PrimeStar deal looks promising
Consumer swap to DirecTV may prove costly
Details of the deal could not be learned, but Wall Streeters said DirecTV agreed to pay $200 million to PrimeStar upfront and $750 for every PrimeStar subscriber who converts to DirecTV. PrimeStar has 2.3 million subscribers, so full conversion would cost DirecTV $1.7 billion in addition to the upfront payment.
PrimeStar offers a medium-powered service, compared with DirecTV's high-powered service, so customers would have to switch dishes to change services, and the cost of handling that transition is significant.
DirecTV is also said to be willing to pay $500 million for the Tempo satellite licenses owned by PrimeStar. But EchoStar is reportedly also interested in these licenses.
PrimeStar faces pressure from its bondholders to reorganize its finances. People close to the bondholders said any deal with DirecTV would be acceptable as long as the cash stayed in PrimeStar and was used to pay down debt.
Both PrimeStar and DirecTV spokesmen declined to comment on specifics of the deal. "At this point, it is rumor and speculation," said DirecTV's Bob Marsocci, director, public relations.
PrimeStar is controlled by five major cable companies: Time Warner, Cox, Comcast, MediaOne and TCI spinoff TCI Satellite Entertainment.
The medium-powered satcaster has been struggling since the Justice Dept. blocked its bid to enter the high-powered satcasting business through the purchase of DBS licenses controlled jointly by MCI and News Corp. EchoStar has since completed a deal with MCI/News Corp. to purchase those licenses, and the Justice Dept. has already asked the FCC to approve that deal.
In recent days, stock of TCI Satellite Entertainment, whose stock is seen as a proxy to PrimeStar's value, has spiked but the stock fell 34¢ Thursday to $2.56 amid a general market selloff. General Motors Hughes' stock also fell $2.75 to $44.75.
(Christopher Stern in Washington contributed to the report.)
