The Primestar Acquisition of the News Corp./MCI Direct Broadcast Satellite Assets

Abstract

On May 12, 1998 the Department of Justice filed suit to block Primestar Inc. (“Primestar”) from acquiring the direct broadcast satellite assets of The News Corporation Limited (“News Corp.”) and MCI Communications Corporation (“MCI”). Direct broadcast satellite (“DBS”) uses orbiting satellites to transmit video programming directly to subscribers’ homes. The Antitrust Division took the action because it believed that the consortium of owners controlling Primestar, which included five of the largest cable companies in the United States, would have “little incentive to use the satellite service assets to compete aggressively against cable television”. The possibility of higher (than otherwise) cable rates, less innovation, and lower quality in the highly concentrated cable industry was an immediate source of concern to the Division. The parties strongly disagreed, claiming that the acquisition would be procompetitive – it would introduce as quickly as possible a third vigorous competitor into the DBS business, a competitor that would have a strong incentive to compete against cable operators as well as DBS competitors. The parties eventually abandoned the proposed deal before the commencement of trial, leaving in question whether the Antitrust Division’s suit would have been successful, and how News Corp./MCI would have chosen to use its satellite assets.2