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NEW YORK -- Until recently, few would have included Eddy Hartenstein in a list of the media world's most-sought-after dealmakers. The jovial one-time engineer has spent the years since 1990, when he founded DirecTV, preoccupied with the nuts and bolts of building a mostly rural business with a technology that had a questionable future. While he toiled, cable operators spent billions of dollars on preparing to offer glitzy interactive services.

But a lot has changed over the past year. The number of satellite players has shrunk from four to two: DirecTV and Echostar. They're doing surprisingly well in rounding up new subscribers and revenue since the federal government gave them the right to retransmit local stations, which they do for an extra fee.

And over the next few months, satellites will take the lead in offering interactive digital TV services, as well as two-way high- speed Internet connections, coast to coast.

"Cable is just now, six years after we launched, getting to digital transmissions," says Hartenstein, 49. "We're already several steps beyond that in enhancing an already good digital platform."

That has made Hartenstein -- a senior executive vice president at Hughes Electronics, parent of DirecTV -- the go-to guy for a series of recent deals with power players including America Online, Microsoft and Blockbuster, and programmers from the National Football League to Walt Disney. They're attracted to DirecTV because its 8.7 million subscribers account for about two-thirds of the satellite market. It expects to end this year with nearly 10 million customers, up 20% over last year.

As a result, it reaches more homes than anyone except AT&T and Time Warner, and it's on pace to pass the cable giants around 2005. About 70% of DirecTV's new customers come from areas served by cable.

No wonder investment bankers are so tantalized by the possibility that General Motors, which owns Hughes, is ready to fundamentally change the media landscape with an outright sale of the property. Analysts say it would cost a buyer about $50 billion.

"It makes sense," says Lehman Bros.' Robert Peck. "They have great assets that you could see News Corp., a European company, or a DSL company wanting. The killer app is the pipe to the home. So you hear rumors every day."

It's more than idle chitchat.

"Almost everyone has come talking to us," Hartenstein says. "I would like to see DirecTV become larger. Do you do that organically, or do you do that with other alliances? We're looking at all those kinds of things."

Hughes Electronics CEO Michael Smith adds: "We have an open mind."

Cable vs. satellites

Meanwhile, Hartenstein is galvanizing DirecTV to take advantage of its opportunity to offer interactive TV and high-speed Internet connections nationwide while cable operators work out the kinks in their own digital and two-way services.

He must keep the pressure on. DirecTV is on the cusp of profitability, and the domestic satellite service accounts for about 64% of the $7.5 billion in revenue Hughes is expected to generate this year.

And cable operators are determined to block DirecTV, or anyone, from wooing away users in the 66 million homes they serve.

They're busily deploying their most potent weapon to close the gap between the 50 or so channels they typically offer and DirecTV's 225 channels, which include pay-per-view offerings. In many communities, cable companies are starting to push more channels through their pipes by transmitting some digitally, a process that requires a system upgrade and a new decoder box.

In markets where cable offers digital channels, satellite providers sign up only about half the subscribers they get elsewhere.

Operators make the case that cable is more economical for families wanting to hook up two or more TVs. Satellite subscribers who want to watch different channels simultaneously on several sets would need a special dish and receiver, at $150, with additional receivers for each TV at about $90 apiece.

The typical cable subscriber pays about $30 a month. DirecTV's most popular service costs $32 for 70 national basic channels, access to pay-per-view and 31 ad-free audio music channels. Subscribers must pay an additional $6 to receive the local stations offering ABC, CBS, Fox and NBC shows in the areas where DirecTV offers them.

Cable operators point to that, and the broader array of local stations they offer, as other competitive advantages.

"All that has to happen with satellite is for a signal to go out and a customer needs service. There's no one to call," says Doug Seserman, AT&T Broadband's senior vice president for marketing and sales. "There are a lot of customers who went to satellite and aren't 100% satisfied."

His company impressed its cable brethren recently when it persuaded 1,000 satellite customers in Denver and 1,000 in Salt Lake City to switch to cable by offering them 200 hours of free programming on its new digital service.

The second part of cable's one-two punch will come when operators roll out attractive two-way services -- including interactive TV, high-speed Internet and phone connections.

"Their pipe, where they have it, is a little more robust," Hughes' Smith says. "But our advantage is economic. They have to spend billions to catch up to where we are. We only have to spend a few hundred million to upgrade features" nationwide.

DirecTV faces a different kind of challenge from satellite rival Echostar, which is growing even faster than DirecTV. It's suing DirecTV, claiming that it has a monopoly stranglehold over the business. The lawsuit alleges, for example, that DirecTV pays retailers such as Circuit City for exclusive access to their customers.

Hartenstein says the lawsuit is "fundamentally without merit."

Investor jitters

All this uncertainty, though, makes Wall Street nervous about Hughes. "The market is concerned about there being too much competition in video," says PaineWebber analyst Tom Eagan.

As a result, Hughes stock has slid 39% since March, closing Friday at $28.56.

Some investors are concerned about Hughes' hefty spending to keep DirecTV on top. Last year, it paid $1.6 billion for USSB, a satellite service that featured premium channels, and $1.8 billion for Primestar, a cable-controlled satellite service.

And it now spends about $510 on each new subscriber in the form of marketing and subsidies -- usually by offering free installation of the 18-inch dishes or a few months of free programming. Customers have to stick with DirecTV for about 18 months before the company makes a profit.

Executives insist that it's a solid long-term investment. Because DirecTV subscribers tend to order a lot of premium channels, such as HBO and Showtime, and in many cities pay extra to get the local stations, the average bill runs $58.50 a month.

That figure could grow if videophiles warm to the interactive TV services DirecTV will roll out this fall -- a run-up to the holiday season, when satellite companies land nearly one-third of the new customers they enlist each year.

DirecTV is about to introduce America Online's AOL-TV, Microsoft's Ultimate TV -- which provide e-mail, shopping and programming information -- and Wink, which lets users call up additional information from certain shows and ads.

In October, subscribers also will be able to buy DirecTV receivers with TiVo's digital video recording capability, allowing them to store 30 hours of programming.

Hartenstein says these services, most of which require a special set-top decoder, will give him a big boost in his competition with cable.

"They're still in a catch-up game," he says.

And cable's big talk about its dazzling new services, he adds, may sound hollow for as much as half of all TV viewers -- particularly those who don't live in the biggest and richest markets. They may not be upgraded to digital in the next decade because it isn't economical to do so in many small cable systems with 500,000 or fewer subscribers.

Investors, however, aren't ready to bet just yet that DirecTV will score big with the new services.

Hooking up with phone players

There's more optimism about DirecTV's effort to position itself as a national provider of high-speed Internet services for personal computers.

Beginning in October, DirecTV -- in concert with sister company DirecPC -- will transmit Juno Online's Internet service at 400 kilobits-per-second to subscribers who buy a special 30-inch elliptical dish. The big change here is that users will also be able to wirelessly transmit data, so they don't have to tie up a telephone line.

While it's a vast improvement over today's conventional 56 kbps telephone modems, it's still far slower than cable modems or phone digital subscriber line (DSL) services. They often transmit at least three times faster.

"We could go faster if we wanted to," Hartenstein says. But 400 kbps "is more than adequate to service probably 90% of customers' needs," he says.

It'll be hard to miss DirecTV's initiatives. Later this month, the service will be sold in about 4,000 Blockbuster outlets, which serve about 40 million customers a year.

And telephone company allies including Verizon (formerly Bell Atlantic and GTE), SBC Communications and Cincinnati Bell are starting to offer DirecTV in packages designed to compete with cable.

Hartenstein has been frustrated by phone companies' slowness to bundle DirecTV with their other services. In fact, BellSouth plans to offer its own satellite service using 36-inch dishes, instead of teaming with DirecTV.

Until now, video "has not been a core part of their business, but it will rapidly become that," Hartenstein says. When cable companies start offering phone service, "that's the call to action."

'New frontier of interactive services'

As sales take off, DirecTV is ready to take a page from cable companies' books and take equity positions in interactive- programming services in exchange for giving them instant national carriage.

"We see this as the new frontier of interactive services coming down the pipeline, where there's no proven 800-pound gorilla yet," says Executive Vice President Steven Cox. "There's a real opportunity, with the platform we're deploying, to aggressively stake out positions in interactive services."

While Hartenstein gamely promotes his new services, he seems genuinely surprised by the extent to which DirecTV -- which got its start serving rural areas that had trouble getting cable -- has evolved into a favorite perk among the elite.

He has a full-time assistant to handle special emergencies, for example actors who demand a hookup for their trailers or CEOs at remote corporate retreats who don't want to miss their CNBC and Bloomberg TV.

He's also intrigued by the opportunities he'll have offering DirecTV to fliers. It's available now on seat-back monitors on Legend Airlines and JetBlue Airways, and will be on Alaska Airlines next year.

"That's just huge, when you think about it," he says. "If you're on a transcontinental flight of five-plus hours and you want to get caught up, entertained or just veg, it's a terrific amenity to have. It's going to be a differentiator on which airline you're going to fly."

Besides, it's nice to have at least one place where he never has to worry about competition from cable.