DirecTV/PrimeStar Deal Takes Shape

The highly complicated structure for a DirecTV buy-out of PrimeStar assets should soon be finalized, and after weeks of speculation, the deal could be revealed today, according to sources close with the negotiations.

News of an impending deal, revealed by SkyREPORT.COM Jan. 5, may have been hampered by extended bidding from EchoStar - a move some say could have hiked up the price for the medium-service provider. There also was some reported last-minute bickering among creditors and PrimeStar's cable-backed partners.

A deal could focus primarily on PrimeStar assets. The New York Times reported that DirecTV would pay $500 million for PrimeStar's 11 frequencies at 119 degrees, and pay for its 2.3 million subscribers only as they are converted from medium-power to DirecTV's high-power service.

News of a pending agreement comes a month after DirecTV agreed to acquire longtime programming partner U.S. Satellite Broadcasting for $1.3 billion.

Royalty Fee Battle Surfaces In Court

The DTH industry and copyright holders took their battle over royalty fees to a U.S. Court of Appeals panel Thursday.

Last year, the U.S. Copyright Office raised copyright fees satellite subscribers pay for distant network signals and superstations to 27 cents per-month per-subscriber.

Attorneys representing DTH interests - including the Satellite Broadcasting and Communications Association - argued that fees should mirror similar rates paid by cable, which are 10 cents for superstations and 2.5 cents for imported TV networks.

As expected, copyright holders, which include movie studios and sports franchises, argued to keep the fees in place.

It will take some time for the three-judge panel to issue a ruling.

Meanwhile, Sen. Orrin Hatch, Utah Republican and chairman of the Senate Judiciary Committee, will hold a hearing next Thursday on a bill allowing DTH providers to retransmit distant network signals. The bill also addresses the copyright fees.

DISH Tops 2 Million Subscribers

EchoStar's DISH Network topped the 2 million subscriber mark, a milestone achieved in less than three years and only one year after the company reached the 1 million subscriber mark.

EchoStar added about 900,000 net subscribers in 1998, a 30 percent increase over the previous year. This expansion earned EchoStar over 37 percent of the DBS industry growth during 1998.

The company activated its first DISH network customer in March 1996, and added more subscribers in its first year than any of its direct-to-home satellite competitors added in their start-up year.

U.S. Satellite Broadcasting Reports Year-End Financial Results

U.S. Satellite Broadcasting reported improved financial results, on an operational basis, for fourth quarter and full 12 months of 1998.

For the quarter, revenues increased to $144.7 million, up 12 percent from $128.8 million fourth quarter 1997. The company's net loss was $30.9 million, or 34 cents per share, compared to a loss of $27.4 million, or 31 cents per share for the prior-year quarter.

The results of the quarter include special one-time charges of $20.7 million, or $.23 per share, related to the termination of contracts in connection with the pending acquisition of USSB by Hughes Electronics, DirecTV's parent company.

Net subscribers grew by 99,000 in the quarter to boost USSB's total customer base to approximately 2.028 million. Average monthly subscriber revenue for the quarter was $28.58.

For 1998, revenues increased to $550.8 million, up 20.6 percent from $456.6 million in 1997. The company's net loss was $56.6 million, or 63 cents per share, improved from $87.3 million or 97 cents per share for the prior year. Excluding the special merger-related charges, the company's net loss for the year was $35.9 million, or 40 cents per share.

The company achieved positive cash flow for the year after adjusting the impact of the non-cash component of the Manufacturer Incentive program and the special merger-related charges.

AT&T And TCI Sue Cities Over Open Internet-Access Issue

AT&T and Tele-Communications Inc. have filed a lawsuit against the first two municipalities, Portland, Ore., and Multnomah County, which denied the transfer of a TCI cable franchise to AT&T.

The municipalities said they would not grant the transfer unless AT&T opened it high-speed network to other Internet companies for a fee.

AT&T and TCI contend the open Internet access issue should be resolved by the Federal Communications Commission, however, the companies said the current lawsuit was filed to protect its interest in Oregon.

AT&T officials said 800 of the 969 TCI franchises in the U.S. that need transfer approval have achieved it without restrictions and that the recent difficulties will not hinder the merger.

PROGRAMMING:

• DOJ Takes Playboy Case To Supreme Court - The Department of Justice has asked the Supreme Court to decide whether cable operators have to block video and audio from adult programmers to protect children, a rule that is specified in Section 505 of the 1996 Telecommunications Act. A lower court ruled that Section 505, which forces cable operators to only air Playboy and other adult channels between 10 p.m. and 6 a.m if they cannot completely block the symbol to non-subscribers, was unconstitutional because it infringed on First Amendment rights.