Why Vivendi Did the Dish

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USA Networks CEO Barry Diller and Vivendi CEO Jean-Marie Messier

So, a former French utility company, Vivendi Universal, has paid $10.3 billion for the entertainment assets of USA Networks, hired Barry Diller to run them, and then bought 10 percent of EchoStar-Hughes to get those entertainments coursing over five Universal channels into some 16 million U.S. homes.

In other words, we have a new (and French) vertically integrated media behemoth. The small group of big companies — AOL Time Warner, Disney, Fox — fighting not only to produce but deliver their sports, music, movies, TV shows and "interactive programming" to the U.S. couch potatoes that love them has a new member. Just a year after swallowing Universal Studios (and its theme parks), the former French water utility now figures it's ready to, in the words of former Fox TV creator Diller, "compete in the first tier of entertainment."

And they're going to try to do it with satellite. Why? Vivendi chairman Jean-Marie Messier settled on EchoStar-Hughes (which owns DirecTV) for the same reason Rupert Murdoch wanted Hughes before EchoStar moved in. Most of the nation's cable lines are in the hands of rivals like AOL Time Warner (parent company of this writer) and half-rivals like AT&T Broadband and Comcast who have plenty of content-distribution deals already inked — making reasonably priced access via cable into the U.S. couch-potato market hard to find. Making EchoStar-DirecTV and its control of 90 percent of the current satellite-TV market a perfect partner.

Besides, Vivendi, like News Corp. (which dominates satellite in Europe and China), hails from a part of the world where owning cable lines doesn't seem so important. Right-out-of-the-box satellite is getting a fast start in the infrastructure-deprived Third World, and only half of European households are wired for cable — with most of the wiring on the Continent yet to be upgraded to carry the broadband content that movies-on-demand dreamers are waiting for. In the U.S., meanwhile, a full 90 percent of homes are wired for cable, and as for broadband capability — the U.S. has more of that than it can currently use.

But the cable guy has his weak spots. Despite the best efforts of AOL, AT&T and the like, cable networks are still diverse and geographically splintered — 7,500 of them have less than 3,000 subscribers — while satellite is a unified nationwide network as soon as you pull the dish out of the box. And while satellite-TV service, with an average rate of $27 a month (plus the dish), is still more than the $16 for analog cable, digital cable averages $49 a month. EchoStar knows full well that cable rates have gone up 35 percent since 1996, and it knows the cable-operator M.O. — get people hooked up to basic, and then tantalize them with add-ons. That's why it's been aggressively targeting cable-dissatisfied markets with low-end, $9-for-100-channels deals and free dishes and installation.

Now EchoStar has a cozy content provider/programming partner, something it said it was having trouble finding (for the same reasons as Vivendi was having trouble getting on cable systems) with a big library, and an extra $1.5 billion to help the war of attrition against cable. Vivendi, for only $1.5 billion (a heck of a lot less than, say, AT&T Broadband and its 18 million homes are going for these days), gets a direct pipeline into 16 million U.S. homes (6 million, if the EchoStar- DirecTV deal gets spiked) with none of the hassles of actually owning things like cables stretching through suburban areas.

What do U.S. couch potatoes get, besides the five extra channels of Baywatch reruns and "The Mummy Returns"? Well, maybe a wake-up call for the cable guy. Vertically unchallenged AOL, for instance, might hurry up with long-promised goodies like (Warner Brothers) movies on demand (in Time Warner cable homes). Or Cablevision, which raised rates in suburban New York by 12 percent last year alone, might slow down on the price hikes. Or they might both sic their lobbyists on Washington — Murdoch will come along for the ride — and bust up the EchoStar-DirecTV union, putting satellite TV back in infighting mode and Vivendi back in the U.S.-distribution minor leagues.

Or, a decade or two from now, Vivendi could turn out to be right about satellite TV and the wired by wireless future of the world, and the cable guys will be begging for access on its superhighways. Leaving open the possibility of a truly nightmarish entertainment future — 20,000 channels and nothing but Jerry Lewis on.