NEW YORK — DirecTV is shutting down its broadband subsidiary and laying off half the unit’s 400 employees as part of a drive to eliminate expensive, unprofitable units. Division was slated to lose some $110 million in 2002 and had been a drag on the whole company’s valuation.
The high-speed Internet service, marketed as DirecTV DSL, serves roughly 160,000 customers. The unit was acquired two years ago, but despite subscriber growth, would not reach profitability in the “foreseeable future,” the company said.
With the EchoStar courtship behind it, DirecTV may be getting into shape for the next round of beauty contests that likely will have suitors Liberty Media and News Corp. scrutinizing its books. Both have expressed interest in the direct broadcast satellite platform, but have suggested that the 10.9 million-sub service has declined in value significantly over the last year.
News Corp. has hinted that it would prefer to simply buy GM’s 30% stake in Hughes Electronics, corporate parent of DirecTV, which puts the onus on the company to boost its share price.
Hughes will record a fourth-quarter 2002 earnings charge of between $100 million to $150 million from the closure. The company also expects to write down some $108 million of goodwill associated with the broadband unit as required by accounting rules.
“When the merger agreement was terminated … we promised our shareholders and customers that we would move quickly to strengthen the profitability and efficiency of our company,” Hughes president and CEO Jack A. Shaw said in a statement explaining the decision to close the money-losing unit.
Hughes still offers its DirecWay satellite-delivered consumer broadband service, but will not heavily market it.
Hughes’ decision to shut down the broadband unit is a vindication for cable operators trying hard to differentiate their digital offering and prepare high-speed access. One of their strongest pitches in the battle for multichannel market share is that DBS can’t easily provide broadband like cable can.
Of course, DirecTV’s reduced expense enables it to be more aggressive on pricing and program purchases. The satcaster last week clinched a five-year extension and expansion of its exclusive deal with the National Football League for its Sunday Ticket package of 14 games a week.