News/DirecTV Swap -- What's John Malone Smoking?

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John Malone's Dubious Deal by Mark Veverka

Highlighted companies: News Corp. (NWS), Liberty Media Capital (LCAPA), DirecTV Group Inc. (DTV)
Summary: According to rumors last week, News Corp. (NWS) will ink a deal to swap Liberty Media Capital's (LCAPA) $11b stake in NWS for News Corp.'s 38.6% stake in DirecTV Group Inc. (DTV). This leaves Veverka, an outspoken DirecTV bear, scratching his head. While it's true DTV has sharply boosted free cash flow and earnings, its documented customer service shortcomings point to a fundamental problem: satellite TV presents greater obstacles and expenses than digital cable. Subscriber growth has slowed recently because of a shortage of receiver boxes with digital video recording, causing DTV to delay dish installations and push potential customers towards cable. Liberty CEO Greg Maffei told investors last week that Liberty wanted the stake in DTV to compliment its cable content channels (QVC home shopping network and Discovery Channel), and that satellite provides a "national footprint" compared to cable's regional networks. Still, Veverka wonders, what's his boss, LCAPA Chairman John Malone -- the king of cable -- doing betting on the dish?
Related: News Corp. and Liberty Media Looking to Wiggle Out of as Much as $4.5 Billion in Taxes, News Corp-Liberty Media DirecTV Share Swap Nearly Complete, Making Sense Of The Liberty Empire: Part I, News Corp. Looks to Dump DirecTV, News Corp F1Q07 Earnings Call Transcript