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Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

News Corp., Liberty Weigh a Swap

  • Summary: After taking control of DIRECTV (NASDAQ:DTV) in 2003, News Corp. (NASDAQ:NWS) is now in negotiations with Liberty Media (LCAPA) to swap its interest in DirecTV for Liberty’s stake in NWS. This will enable NWS Chairman John Malone to strengthen his control of News Corp. Murdoch currently controls about 30% of News Corp.’s voting shares, and Liberty has increased its stake to 18%. Liberty Chairman John Malone recently said, “I had always coveted being in the satellite business,” and this transaction will be a homecoming of sorts. A few years ago he sold his stake in Tele-Communications, Inc.
  • Comment on related stocks/ETFs: As previously posted on SeekingAlpha, both Murdoch and Malone have been looking for a way to get rid of each other. The WSJ article mentions that both DIRECTV and EchoStar (NASDAQ:DISH) are experiencing rising customer acquisition costs and slower subscriber growth. The question then, is why Malone wants to go (back) into this business? The deal from News Corp.’s side makes a lot more sense; aside from enabling Murdoch to solidify his control on the voting shares, News Corp. can get out of a slowing business and concentrate on areas it believes have greater potential, like myspace.com and rolling out WiMax networks. Here is another angle: News Corp’s subsidiary NDS (NNDS) is developing IPTV technology – technology which enables local telcos to provide “Electronic Program Guides (“EPG”), interactive TV applications (“iTV”), Video on Demand (“VOD”), digital video recorder (“DVR”) or network DVR capabilities, and interactive games, in either standard (“SD”) or high definition (“HD”)…”. In addition to the slowing growth problem, satellite TV companies are burdened with the high expense of launching new satellites. Cable companies have been offering “triple play” packages (phone, TV, internet access), while telcos have had to team up with either DirecTV or Echostar to offer a competing product. Utilizing IPTV will remove the telcos dependence on satellite TV providers – and transfer that dependence to News Corp’s (i.e., Murdoch’s) NDS.
    Related: Q2-2006 earnings conference call transcripts for News Corp. & DIRECTV.

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Source: News Corp. Looks to Dump DIRECTV