Hughes Electronics' Japanese pay-TV platform, DirecTV, is merging with SKY PerfecTV in a move that marks DirecTV's effective withdrawal from the Japanese market after an unsuccessful three-year struggle to catch up with its larger rival.

The deal was negotiated by DirecTV majority shareholder Hughes and the leading shareholder group of SKY PerfecTV, which plan to complete the merger by the end of 2000. Hughes and other DirecTV shareholders will take a 10% stake in the merged entity.

DirecTV started broadcasts in December 1997 and had nearly 400,000 subscribers by the end of January, compared with nearly 1.5 million for SKY PerfecTV.

According to company sources, SKY PerfecTV will issue Y9bn ($81.8m) in new shares at the end of March, to be purchased by Hughes and other DirecTV shareholders, giving them a 10% stake in the business. Once the merger is complete, DirecTV subscribers will be able to migrate to SKY PerfecTV without any additional cost. Hughes will dispatch a director to SKY PerfecTV.

DirecTV carries about 150 channels of which nearly 30 are exclusive. Some of the exclusive channels are expected to shift to SKY PerfecTV, boosting its current channel total of nearly 170. DirecTV subscribers will receive new tuners allowing them to watch SKY PerfecTV broadcasts and switch to the service by the end of the year. SKY PerfecTV will then clear its books, taking a one-time loss of Y100bn ($900m).