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DirecTV Is Carey’s to Run

3/13/2005 7:00 PM Eastern

Following the surprise resignation of CEO Mitch Stern, DirecTV Inc. is turning to satellite expert Chase Carey and Fox Sports chairman David Hill to lead its battle against cable operators and rival EchoStar Communications Corp.

Carey, named CEO of DirecTV parent The DirecTV Group in December 2003, will now run day-to-day operations at the top DBS provider, which added 1.7 subscribers last year. Hill, a News Corp. star who built Fox Sports from scratch and ran Fox Broadcasting Co. in the late 1990s, will look to help develop unique content for DirecTV, a source said.

DirecTV announced Stern’s resignation last Monday.

Officials at the DBS provider wouldn’t confirm that Hill will play a role at DirecTV. But a source said he would retain his position at Fox Sports, and might or might not have an official title at DirecTV.

Hill was managing director of News Corp.’s Sky Sports division in the United Kingdom before moving to the United States in 1993, after Fox obtained its first television-rights contract with the National Football League.

DirecTV has used exclusive sports programming — namely its prized “NFL Sunday Ticket” out-of-market game package — to grow its subscriber base.

Hill built a reputation at Fox for keeping a sharp eye on expenses. That may help DirecTV, which saw its subscriber-acquisition costs rise 5% during the fourth quarter to $669 per customer.

Carey led News Corp.’s first attempt to crack the U.S. satellite television market in 1997, when the company planned to merge its American Sky Broadcasting satellite assets with EchoStar Communications Corp. The merger would have created a 500-channel satellite service, which was dubbed “Death Star” by industry executives at the time.

Dish Network parent EchoStar sued, saying News Corp. reneged on the deal. EchoStar chief Charlie Ergen claimed in the suit that Carey told him during a meeting at Denver International Airport in 1997 that “the only way [the merger] would go forward was if Ergen resigned as CEO of EchoStar” and was replaced by a News Corp. designee.

News Corp. ended up selling its ASkyB assets to cable-backed PrimeStar later that year. DirecTV bought the struggling PrimeStar in 1999 for $1.3 billion, creating a duopoly in the U.S. DBS market.

Stern’s resignation came about one year after the former Fox Television Stations chairman was named CEO of DirecTV. His employment contract, which provided a $2 million annual base salary plus annual target bonuses of $2 million, wasn’t set to expire until Dec. 31, 2007.

“It was a mutual decision between Mitch and Chase for Mitchell to leave the company,” DirecTV spokesman Bob Marsocci said.

Stern will collect a windfall for his year at DirecTV, beginning with an immediate $6 million payment after his official termination date on April 1, according to a DirecTV securities filing. Stern will also receive additional payments totaling about $10 million over the next two years, according to the filing.

Oppenheimer analyst Tom Eagan in a research note last week called Stern’s resignation a “slight negative” as Stern was viewed as the day-to-day operator at the company, while Carey was more of a strategist.

“We would characterize Mr. Carey as being more friendly toward News Corp. and therefore, perhaps more willing to grow DirecTV’s subscriber base, potentially at the expense of DirecTV’s [average revenue per unit] and cash-flow margins,” Eagan said.

September