Communications Satellite Corp. yesterday announced that it is abandoning its efforts to launch a direct-broadcast, satellite-to-home television network, ending five years of dwindling expectations, an inability to find partners and millions of dollars in losses.
The move comes several weeks after the company's sale of its stake in Satellite Business Systems to International Business Machines Corp. and Aetna Life & Casualty Corp. It apparently ends Comsat's ambitious diversification plans to grow into a billion-dollar company by the end of the decade.
Citing "unacceptable" market and financial risks, Comsat Chairman Joseph V. Charyk also said the company is terminating negotiations with Prudential Insurance Co. and United Press International co-owner Douglas Ruhe to acquire United Satellite Communications Inc., which transmits sports and entertainment programming to roughly 10,000 customers using rooftop satellite receiver dishes. Comsat had said in September that its Satellite Television Corp. subsidiary would merge with USCI.
Comsat said it will take a pretax write-down of about $24 million for the nonsatellite assets of Satellite Television Corp. The company would not disclose how many people would be laid off as a result of that decision.
The announcement casts a deeper pall over the emergence of a direct-broadcast-satellite television industry, which many analysts once predicted might rival cable television as a form of pay-television distribution. Numerous companies ranging from CBS Inc. and RCA Corp. to Rupert Murdoch's News Corp. had hoped at one point that a satellite-based network beaming programs to homes and apartments equipped with special satellite antennae would grow into a multimillion-dollar business.
However, high costs and the rapidly changing pay-television marketplace -- where rising sales of videocassette recorders began eating into pay-cable-television revenue -- saw companies drop out one by one from the satellite TV market. Comsat was the last to drop out, although the company says it will keep its Federal Communications Commission license and continue building its two high-powered, direct-broadcast satellites. Presumably, these satellites could be sold to European satellite companies or other aspirants to the American market. Comsat already has paid RCA Corp. more than $70 million for the satellites' construction.
Comsat, with roughly $450 million in annual revenue, had hoped the direct-broadcast-satellite market would enable it to diversify from its main business as the gateway to Intelsat, the global satellite telecommunications consortium that carries the bulk of the world's international telephone and television traffic. Comsat has a regulated monopoly over access to Intelsat's network.
However, the direct-broadcast-satellite and business-satellite-systems diversification efforts cost Comsat more than $100 million in losses.
"Based on history, you'd have to argue that it was not a well-managed company from a diversification standpoint," said Steven Chrust, an analyst who follows Comsat for Sanford C. Bernstein in New York. "In terms of significant areas of revenue opportunity, it leaves you wondering where diversification opportunities will come from."
"The burden of proof is still on them that they can successfully diversify," said Paine, Webber analyst George Dellinger. "But to the extent that the stock is driven by quarterly earnings rather than speculative froth about satellite television earnings in 1990, this is a good move."
Analysts generally praised Comsat for cutting its losses, and said Comsat will continue to look for opportunties to diversify into nonregulated businesses.
"The avoidance of the additional financial commitments and losses that would have been inherent in the proposed venture will enable Comsat to pursue other major business opportunities," said Comsat's Charyk. He would not elaborate on what those opportunities might be.
Comsat stock closed yesterday at 25 1/8, up 7/8.