News Corp has had a double boost in the last week. Its deal to merge Telepiu and Stream in Italy is expected to be approved by the European Commission. It also appears to be the odds on favourite to clinch to acquire a controlling interest in Hughes Electronics’ DirecTV pay-TV business in the United States.

It has been reported that potential DirecTV bidders’ SBC Communications and Cablevision have now pulled out the race, leaving News Corp is the only viable bidder. It has been reported that News Corp is planning a bid of between $5 billion and $7 billion to buy DirecTV, a deal that would give Australia-based News Corp is first presence in the U.S. satellite TV business.

A deal now looks increasingly likely. David Gibson, a media equity analyst at MacQuarie, told Interspace: “I think there is an 80 to 90 per cent chance of a deal being done by News Corp.” George Colman, a media equity analyst at Salomon Smith Barney, told Interspace: “News Corp should be in a good position to negotiate a pretty reasonable outcome, ending up with management control for a deal well within range in terms of finance.”

Cablevision’s deal seemed unlikely from the start because a major cable player owning a satellite TV platform would likely raise antitrust issues. Gibson said: “If I were [Hughes owner] General Motors, I would be very concerned about trying to do a deal [that would require] several steps and regulatory issues when you have already been burnt once by the EchoStar deal. Everybody is right in saying there is only one main buyer. News Corp is going to be the main game here without a doubt.”

For News Corp, the deal has a number of attractions. Gibson observed: “From an immediate profitability standpoint, it is not that important for [News Corp] to get [DirecTV]. From a long-term strategic standpoint, from News Corp’s point of view, there are two main reasons why they want to buy it. Firstly, they think they can run the business more like BSkyB [News Corp’s British satellite TV unit], as well as rationalize the operations in Latin America. This will create value. Secondly, DirecTV has important strategic value to protect the content that Fox [News Corp’s U.S. broadcaster] produces by leveraging the access DirecTV has with 11 million subscribers across the U.S. out of a possible 105 million homes.”

Owning a 80.6 per cent stake in the Fox Entertainment Group gives News Corp a better position in terms of extracting the maximum value from its content. Colman said: “I think that what is far more important is to be able to have a much stronger influence of television distribution in an environment of rapidly consolidating ownership, cable in particular, within the U.S. market. This is much more about the company acting to ensure maximum long-term margins for the Fox cable channels. They will also be able to pursue, what the management sees, as an upside opportunity within the DirecTV platform.”

Italian Job Just About Done

While News Corp ponders its next move in the United States, it can now start planning on executing its growth strategy in Italy, one of Europe’s bigger pay-TV markets. On April 2, the EC authorised the merger with a number of conditions, mainly related to access to content, such as football and movies. The EC said in a statement: “The deal creates a quasi-monopoly in Italy, with a market share of more than two-thirds of the Italian pay-TV market.” With very little cable infrastructure in Italy, News Corp will now have a very strong position in Italy with its Sky Italia platform.

The EC’s conditions are not considered deal breakers, and the deal is expected to be completed soon. Both Telepiu and Stream have struggled financially in recent years. It seems pretty clear that the market in Italy could only sustain one profitable satellite TV platform, although the EC clearly would have preferred for two to co-exist and compete.

–Mark Holmes