Saw this posted on the Voom Yahoo Group but did not see it displayed on here. Thought it was really interesting.
Cablevision's New Frontier
TV maverick Chuck Dolan and his son, Jim, don't get much respect. To
prove their skeptics wrong, they are parting ways.
By Marc Gunther
Aside from biotechnology, no big business in America depends more on
genes than cable television. Sire a suitable heir, as did Ralph
Roberts, the founder of Comcast, and you end up with the estimable
CEO of the nation's biggest cable operator, Brian Roberts. Raise a
pair of ne'er-do-wells, as did John Rigas, the patriarch of Adelphia
Cable, and you get trouble—Rigas and his sons, Timothy and Michael,
are on trial for securities and bank fraud, and their company is
bankrupt.
And then there are the Dolans. Charles F. Dolan and James P. Dolan
are the father-and-son team who run Cablevision Systems Corp., the
$4.1-billion-a-year company that is the dominant cable operator in
New York City and its suburbs. Their family-controlled firm owns
several national cable networks, including American Movie Classics
and the Independent Film Channel; a brand-new satellite television
company; regional sports networks in San Francisco, Chicago, Boston,
Cleveland, and Florida (in partnership with Fox); regional news
networks; a chain of movie theaters; Madison Square Garden; Radio
City Music Hall; the New York Knicks; and the New York Rangers.
The Dolans make an odd pair. Chuck Dolan, who is 77, is one of the
cable industry's pioneers. Defying skeptics, he built the first
urban cable system in Manhattan in the 1960s. (Cable began as a way
to bring distant TV signals to rural areas.) He dreamed up the idea
for HBO, the first network designed for cable. He created the first
regional sports network and the first regional news network and,
more recently, the first suite of programs made for video-on-demand.
A soft-spoken, gracious man who shuns the limelight, Chuck Dolan
does not get near the credit he deserves for shaping the modern
cable industry.
Jim Dolan, who is 49, does not get credit for much of anything.
Partly that's because he inherited the job of Cablevision CEO, and
partly because he displays all the charm of a New York cabbie during
rush hour. A recovering alcoholic, Jim is as loud as Chuck is quiet.
He plays guitar and sings in a rock & roll band called JD and the
Straight Shot. He makes tabloid headlines by skating with the
Rangers, dissing former Knick Latrell Sprewell, and fighting over
rates with a pay-TV network owned by the New York Yankees and
Goldman Sachs. He owns up to being a demanding and emotional
boss. "I'm very passionate," he says. "As soon as I stop being
passionate, it's time for me to go."
Father and son are close. They live near each other on Long Island's
North Shore. Chuck and his wife of 53 years, Helen, have three sons—
all of whom work for Cablevision—three daughters, and 14
grandchildren, including a new set of triplets. But when it comes to
business, Chuck and Jim are going their own way. Not only that, they
will be competitors.
Here's the plan: This fall, Cablevision will divide in two. The new
Cablevision, which will be run by Jim Dolan as chairman and CEO,
will include the New York-area cable systems, the local arenas and
sports teams, and the regional news and sports networks. A spinoff
company called Rainbow Media Enterprises, which will be run by Chuck
Dolan as chairman and his 51-year-old middle son, Tom Dolan, as CEO,
will consist of the satellite TV venture, movie theaters, and the
national cable networks.
For Chuck Dolan, the spinoff is an opportunity to chase one more
dream. He has wanted a satellite TV company ever since the early
1990s, when Cablevision was a partner with Hughes Electronics, NBC,
and Rupert Murdoch's News Corp. in a startup that never got started
called Sky Cable. Sky Cable became Hughes's DirecTV after NBC,
Murdoch, and Cablevision couldn't agree on financing and strategy.
But like many entrepreneurs, Dolan has a stubborn streak. "We never
really quit," he says. Cablevision obtained its own satellite
licenses and launched a bird last year. (Murdoch didn't quit either—
he now owns a controlling stake in DirecTV.) Dolan's new satellite
service, which is called VOOM, is late to the pay-television game,
but it has set itself apart by offering more high-definition TV
networks—39 right now, as many as 54 next year—than any other cable
or satellite provider. If high-definition TV takes off, VOOM will be
poised to capitalize.
Jim Dolan, meanwhile, will get to run Cablevision on his own. His
timing looks good. Until now Cablevision has never made a dime. It
has plowed all of its earnings, and more, into rebuilding its
systems, as well as into acquisitions, new programming ventures and,
lately, VOOM. That is about to change. Its cable systems are doing
very well. The company says it will generate free cash flow by the
fourth quarter of this year, and net income not too long after
that. "We're finally going to deliver on the promises we've made for
25 years," says Jim Dolan. And he'll finally have the chance to
prove that he's more than the owner's son. "There are always those
question marks about 'Do you deserve to be here?' " he concedes.
Cablevision's stock has taken a wild ride. The share price topped
$90 in early 2001, when cable stocks got swept up by the technology
boom, and then it fell to below $5 after Adelphia went bust and
investors fled family-held cable firms. It has since climbed back to
about $21 as the Dolans cut spending, sold assets, and trimmed debt.
Over the past five or ten years, though, Cablevision's stock
performance has lagged industry leaders Comcast and Cox
Communications, as well as the S&P 500. By spinning off VOOM, the
Dolans hope to unlock the value of the cable company shares.
Investors in the new Rainbow, meanwhile, will be taking a flier on
Chuck Dolan's vision. They could do worse. The son of an inventor,
Dolan got an early start in media—he sold a column about the Boy
Scouts for $2 a week to the Cleveland Press, his hometown paper.
After college he ran his own sports television company; he hired
cameramen to take game films, which were shipped by plane to
Cleveland, edited in the Dolans' kitchen into a highlights reel,
voiced over by an announcer, and then sent to TV stations for
broadcast. Yes, this was ESPN, about 30 years ahead of its time. TV
sports was so primitive then that "you didn't have to buy rights,"
Dolan recalls. "Every team was glad to have you."
When Dolan requested permission to wire New York City for cable in
1964, no one knew what he was talking about. "The bureau of
franchises did not even know they had a franchise to give," he
says. "We had to explain it to them." To get subscribers, he needed
fresh programming. It was then that he devised the plan for what he
called the Green Channel, which he described as the "Macy's of
television," offering an array of movies, TV shows, and sports
for "some public, large or small." He took the idea to Time Inc.
(FORTUNE's publisher), where he teamed up with an ambitious young
lawyer named Jerry Levin to start HBO. Soon after, he sold his stake
to Time. He has hated selling assets ever since.
Under the Dolans, Cablevision has been a fertile seedbed for
programming. The company started a regional sports network, called
SportsChannel, in 1976. News 12 Long Island launched just after Ted
Turner invented CNN, paving the way for local all-news channels in
most big cities. (No one thought local news channels would work.)
MagRack, a more recent creation, offers dozens of niche magazine
shows, available on demand. Among them: Guitar Xpress, Wine World,
Yoga Retreat, and Motorcycle Freedom.
"Chuck may be the smartest visionary in the media space," says Tom
Rogers, the former Primedia CEO, who has done business with the
Dolans for years. "He's just way ahead of the crowd."
Certainly that's the case with VOOM. But will the crowd follow?
Chuck Dolan says that as the price of high-definition TV sets falls,
viewers will hunger for HD programming and VOOM will be ready. His
Rainbow programming unit has created 21 original HD VOOM channels,
devoted to movies, sports, and art. VOOM also distributes HD
versions of HBO, Discovery, Showtime, and Bravo, another channel
developed by the Dolans.
That's just the beginning, Chuck says. VOOM has enough satellite
capacity to eventually offer a virtually infinite number of
programs. Think of VOOM as the Amazon.com of television, he says,
with thousands of choices available at the push of a button. By
unbundling shows from networks, and networks from one another, VOOM
will appeal to viewers who are tired of paying ever-increasing
monthly rates for pay television.
"Let the customer decide what they want to pay, what their menu
should be, what they want and what they don't want, and all of that
aggravation will disappear," Dolan says. If this makes him sound
like an apostate in the close-knit cable industry he helped invent,
well, that's what happens to independent thinkers. "Cable's not a
religion," he has said. "It's a delivery system."
So far, Cablevision has spent about $600 million to launch VOOM,
which has around 13,000 subscribers. According to Chuck Dolan, VOOM
needs about $2 billion of investment and 1.5 million subscribers to
break even. This is much less, he notes, than the $5 billion spent
by Cablevision to rebuild its cable systems. The trouble is, much of
Wall Street thinks VOOM is a crazy idea. (Dolan notes wryly that he
has been called Chuck Full of Nuts.) Most analysts don't think Dolan
can compete against satellite firms DirecTV and Echostar, which
together have more than 22 million subscribers. Neither is
profitable. VOOM also must compete with cable operators, including
Cablevision, that offer digital services, such as high-speed
Internet access, telephony, and video-on-demand, that satellite
television cannot match. "We are skeptical about VOOM as currently
structured," says Aryeh Bourkoff, a cable analyst for UBS.
Raising further doubts is Chuck Dolan's decision to install Tom
Dolan as CEO. Tom is all but unknown outside Cablevision. He worked
for IBM, ran a cable system on Long Island, and is currently the
company's chief information officer. It's quite a leap from running
the IT department to leading a public company.
Then again, for smart people, the Dolans do some dumb-looking things
when it comes to mixing family and business. According to
Cablevision's proxy statement, a production company owned by the
Dolan family sold Cablevision $396,000 worth of programming in 2003.
(Cablevision won't say whether the production company has other
customers.) Cablevision leases a plane, as do the Dolans. The
company subleases its plane to the Dolans, and they sublease their
plane back, according to the proxy. The company also leases
helicopters and a hangar to an entity owned by Charles Dolan. And it
leases aircraft from entities owned by Charles and Patrick Dolan.
Patrick is Chuck's oldest son. Formerly a CNN producer, he now runs
News 12.
One might ask why Cablevision, whose New York-area cable assets are
reachable via taxi, subway, and commuter rail, needs an air force.
The company says that its sports teams travel widely and that its
national networks do business worldwide. Jim Dolan also notes that
the cable systems are spread far and wide across the tri-state
area. "We're able to operate in New York like it's Indianapolis or
Louisville," he says. "Those aircraft keep us connected." He also
says that Cablevision discloses all of its insider dealings and that
they are approved by the board of directors and "policed down to the
penny."
As a family-controlled company, Cablevision does not have to meet
Sarbanes-Oxley rules for board independence. The Dolans own about
26% of the equity in Cablevision—about $1.5 billion in stock.
Through a separate class of shares, they elect 75% of the directors.
Because the family's wealth is tied up in the company, Jim Dolan
says his interests are aligned with all shareholders'. Governance
advocates say he has a point; studies show that family-controlled
companies, as a group, outperform those with a dispersed shareholder
base. But Ric Marshall, the chief analyst for the Corporate Library,
a shareholder advisory firm, says the Dolans' modus operandi raises
some red flags. Marshall says: "I would argue that instead of being
exempt from the commonly held standards of good corporate
governance, firms like Cablevision should be held to even higher
standards of board independence and conflicts of interest to ensure
that the best interests of the minority public shareholders are
properly represented."
The composition of the Cablevision board provides little comfort in
that regard. Four of the 14 directors are Dolans. Another is a
lawyer whose firm works for Cablevision. Three more are current or
former employees. (One of them, John Tatta, 84, a former company
president, was paid $900,000 in consulting fees and bonuses last
year. He also sat on the board's compensation committee.) Pay
practices at Cablevision are generous. Jim Dolan made $4.4 million
in salary and bonus in 2003, and he was given another $11.6 million
in restricted stock, in exchange for (under-water) options, that
vests over four years. Chuck Dolan made $6.4 million in salary and
bonus, and traded his options in for $5.2 million in restricted
stock. Sheila Mahony, a director and executive who has worked for
the firm for 24 years, was given a $5.9 million severance package
and a three-year, $1.4 million consulting deal when she retired this
year. Remember, Cablevision has not yet made a profit.
To be fair, the Dolans have a reputation in the media industry for
square dealing. When, in partnership with NBC, they lost $75 million
on an ill-fated pay-per-view venture called the Triplecast during
the 1992 Olympics, Chuck Dolan paid his share right away. "He could
have dragged it out for years," says NBC chairman Bob Wright. "To
me, on a personal basis, it was very important." Last year,
Cablevision turned up accounting problems in its Rainbow programming
operation. The Dolans fired 13 people, immediately took the problems
to the SEC, and hired Wilmer Cutler & Pickering, a well-regarded
Washington law firm, to investigate. The company subsequently
restated three years of earnings, involving about $15 million of
errors. An SEC investigation remains open.
All those issues—the costs of VOOM, the governance and accounting
problems, and the tabloid headlines about Jim Dolan—have obscured an
important fact: Cablevision's core business is outperforming its
peers. Only Cablevision, among the big cable operators, offers
digital television, high-speed Internet access, telephony, and video-
on-demand to all the homes it passes. (It passes 4.4 million homes
and has 3.1 million customers.) The company generates more revenue
per subscriber—$79.02 a month—than any other big cable operator
does. About 40% of its subscribers buy its high-speed Internet
access, and the company is rapidly rolling out phone service that is
taking customers away from Verizon. "The Cablevision cable systems
are doing much better than anyone gives it credit for right now,"
says UBS's Aryeh Bourkoff.
The stellar performance has come about as the Dolans have steered
highly leveraged Cablevision through a storm during the past couple
of years. While other operators—notably Adelphia and AT&T—flopped or
were forced to sell as the market turned bearish, Cablevision stayed
afloat thanks to a series of shrewd maneuvers. It sold its Bravo
network to NBC for about $1.2 billion in a complex cash-and-stock
deal. It sold its majority interest in a cellular venture to Verizon
Wireless, generating a profit of $435 million for Cablevision. (Its
partner in that deal was John Dolan, Chuck's nephew.) The company
also eliminated about 5,000 jobs, shut down the Wiz, a money-losing
chain of electronics stores it had bought a few years before, and
refinanced its debt. The Dolans also demonstrated their smarts by
using derivatives to protect the value of shares of AT&T, Adelphia,
and Charter that the company had acquired when it sold them cable
systems outside New York.
Whether Chuck or Jim Dolan was at the helm during this period is
unclear. (Jim has been a competitive yachstman who knows a thing or
two about navigating rough seas.) Those who know both men say that
despite their outward appearances, Chuck is the maverick, risk-
taking dealmaker with a wild streak when it comes to business. "A
mad scientist" is how a fellow cable mogul describes him,
admiringly. The more flamboyant Jim turns out to be a pragmatic,
methodical, and detail-oriented executive. "The company was never
viewed as a great operator," says Tom Rogers. "Jim is all about the
operations and execution and details." Jim's pragmatism, for
example, saved the company from losing lots of money when others
wanted to bet big on the Internet. "I give Jim extraordinary credit
for saying 'Where's the beef?' " says his colleague Josh Sapan, who
runs the Rainbow networks.
Lately, Jim Dolan has been devoting lots of time to Madison Square
Garden and the teams. The New York tabloids blame him for the
performance of the Knicks and especially the woeful Rangers; he
urges fans to be patient. Making sense of the operations of the
teams, the Garden, and Radio City has been like untangling a "5-year-
old kid's fishing reel," he says. He's been hiring, firing, and
reorganizing, and now thinks he has the right people in the right
places. "These operations are not like the cable business because
they're not as predictable," he says. The teams and arenas don't
have a big impact on Cablevision's bottom line because they
contribute less than 5% of revenues, but the wins and losses affect
Jim Dolan's reputation.
Reputation matters to him. That's why people who know him dismiss
the idea that his plan is to sell the New York cable systems after
the split. The most obvious buyer is Time Warner (parent of Time
Inc.), which owns cable assets in New York and wants more. Analysts
would like to see a deal. Whenever the Dolans are asked, they say
that anything is for sale at the right price.
But Jim Dolan would like to quiet his doubters and critics first.
Then again, he says, "I've gotten to know those doubters and critics
pretty well, and I don't think they're going to be quiet. But this
company is going to be successful."
Cablevision's New Frontier
TV maverick Chuck Dolan and his son, Jim, don't get much respect. To
prove their skeptics wrong, they are parting ways.
By Marc Gunther
Aside from biotechnology, no big business in America depends more on
genes than cable television. Sire a suitable heir, as did Ralph
Roberts, the founder of Comcast, and you end up with the estimable
CEO of the nation's biggest cable operator, Brian Roberts. Raise a
pair of ne'er-do-wells, as did John Rigas, the patriarch of Adelphia
Cable, and you get trouble—Rigas and his sons, Timothy and Michael,
are on trial for securities and bank fraud, and their company is
bankrupt.
And then there are the Dolans. Charles F. Dolan and James P. Dolan
are the father-and-son team who run Cablevision Systems Corp., the
$4.1-billion-a-year company that is the dominant cable operator in
New York City and its suburbs. Their family-controlled firm owns
several national cable networks, including American Movie Classics
and the Independent Film Channel; a brand-new satellite television
company; regional sports networks in San Francisco, Chicago, Boston,
Cleveland, and Florida (in partnership with Fox); regional news
networks; a chain of movie theaters; Madison Square Garden; Radio
City Music Hall; the New York Knicks; and the New York Rangers.
The Dolans make an odd pair. Chuck Dolan, who is 77, is one of the
cable industry's pioneers. Defying skeptics, he built the first
urban cable system in Manhattan in the 1960s. (Cable began as a way
to bring distant TV signals to rural areas.) He dreamed up the idea
for HBO, the first network designed for cable. He created the first
regional sports network and the first regional news network and,
more recently, the first suite of programs made for video-on-demand.
A soft-spoken, gracious man who shuns the limelight, Chuck Dolan
does not get near the credit he deserves for shaping the modern
cable industry.
Jim Dolan, who is 49, does not get credit for much of anything.
Partly that's because he inherited the job of Cablevision CEO, and
partly because he displays all the charm of a New York cabbie during
rush hour. A recovering alcoholic, Jim is as loud as Chuck is quiet.
He plays guitar and sings in a rock & roll band called JD and the
Straight Shot. He makes tabloid headlines by skating with the
Rangers, dissing former Knick Latrell Sprewell, and fighting over
rates with a pay-TV network owned by the New York Yankees and
Goldman Sachs. He owns up to being a demanding and emotional
boss. "I'm very passionate," he says. "As soon as I stop being
passionate, it's time for me to go."
Father and son are close. They live near each other on Long Island's
North Shore. Chuck and his wife of 53 years, Helen, have three sons—
all of whom work for Cablevision—three daughters, and 14
grandchildren, including a new set of triplets. But when it comes to
business, Chuck and Jim are going their own way. Not only that, they
will be competitors.
Here's the plan: This fall, Cablevision will divide in two. The new
Cablevision, which will be run by Jim Dolan as chairman and CEO,
will include the New York-area cable systems, the local arenas and
sports teams, and the regional news and sports networks. A spinoff
company called Rainbow Media Enterprises, which will be run by Chuck
Dolan as chairman and his 51-year-old middle son, Tom Dolan, as CEO,
will consist of the satellite TV venture, movie theaters, and the
national cable networks.
For Chuck Dolan, the spinoff is an opportunity to chase one more
dream. He has wanted a satellite TV company ever since the early
1990s, when Cablevision was a partner with Hughes Electronics, NBC,
and Rupert Murdoch's News Corp. in a startup that never got started
called Sky Cable. Sky Cable became Hughes's DirecTV after NBC,
Murdoch, and Cablevision couldn't agree on financing and strategy.
But like many entrepreneurs, Dolan has a stubborn streak. "We never
really quit," he says. Cablevision obtained its own satellite
licenses and launched a bird last year. (Murdoch didn't quit either—
he now owns a controlling stake in DirecTV.) Dolan's new satellite
service, which is called VOOM, is late to the pay-television game,
but it has set itself apart by offering more high-definition TV
networks—39 right now, as many as 54 next year—than any other cable
or satellite provider. If high-definition TV takes off, VOOM will be
poised to capitalize.
Jim Dolan, meanwhile, will get to run Cablevision on his own. His
timing looks good. Until now Cablevision has never made a dime. It
has plowed all of its earnings, and more, into rebuilding its
systems, as well as into acquisitions, new programming ventures and,
lately, VOOM. That is about to change. Its cable systems are doing
very well. The company says it will generate free cash flow by the
fourth quarter of this year, and net income not too long after
that. "We're finally going to deliver on the promises we've made for
25 years," says Jim Dolan. And he'll finally have the chance to
prove that he's more than the owner's son. "There are always those
question marks about 'Do you deserve to be here?' " he concedes.
Cablevision's stock has taken a wild ride. The share price topped
$90 in early 2001, when cable stocks got swept up by the technology
boom, and then it fell to below $5 after Adelphia went bust and
investors fled family-held cable firms. It has since climbed back to
about $21 as the Dolans cut spending, sold assets, and trimmed debt.
Over the past five or ten years, though, Cablevision's stock
performance has lagged industry leaders Comcast and Cox
Communications, as well as the S&P 500. By spinning off VOOM, the
Dolans hope to unlock the value of the cable company shares.
Investors in the new Rainbow, meanwhile, will be taking a flier on
Chuck Dolan's vision. They could do worse. The son of an inventor,
Dolan got an early start in media—he sold a column about the Boy
Scouts for $2 a week to the Cleveland Press, his hometown paper.
After college he ran his own sports television company; he hired
cameramen to take game films, which were shipped by plane to
Cleveland, edited in the Dolans' kitchen into a highlights reel,
voiced over by an announcer, and then sent to TV stations for
broadcast. Yes, this was ESPN, about 30 years ahead of its time. TV
sports was so primitive then that "you didn't have to buy rights,"
Dolan recalls. "Every team was glad to have you."
When Dolan requested permission to wire New York City for cable in
1964, no one knew what he was talking about. "The bureau of
franchises did not even know they had a franchise to give," he
says. "We had to explain it to them." To get subscribers, he needed
fresh programming. It was then that he devised the plan for what he
called the Green Channel, which he described as the "Macy's of
television," offering an array of movies, TV shows, and sports
for "some public, large or small." He took the idea to Time Inc.
(FORTUNE's publisher), where he teamed up with an ambitious young
lawyer named Jerry Levin to start HBO. Soon after, he sold his stake
to Time. He has hated selling assets ever since.
Under the Dolans, Cablevision has been a fertile seedbed for
programming. The company started a regional sports network, called
SportsChannel, in 1976. News 12 Long Island launched just after Ted
Turner invented CNN, paving the way for local all-news channels in
most big cities. (No one thought local news channels would work.)
MagRack, a more recent creation, offers dozens of niche magazine
shows, available on demand. Among them: Guitar Xpress, Wine World,
Yoga Retreat, and Motorcycle Freedom.
"Chuck may be the smartest visionary in the media space," says Tom
Rogers, the former Primedia CEO, who has done business with the
Dolans for years. "He's just way ahead of the crowd."
Certainly that's the case with VOOM. But will the crowd follow?
Chuck Dolan says that as the price of high-definition TV sets falls,
viewers will hunger for HD programming and VOOM will be ready. His
Rainbow programming unit has created 21 original HD VOOM channels,
devoted to movies, sports, and art. VOOM also distributes HD
versions of HBO, Discovery, Showtime, and Bravo, another channel
developed by the Dolans.
That's just the beginning, Chuck says. VOOM has enough satellite
capacity to eventually offer a virtually infinite number of
programs. Think of VOOM as the Amazon.com of television, he says,
with thousands of choices available at the push of a button. By
unbundling shows from networks, and networks from one another, VOOM
will appeal to viewers who are tired of paying ever-increasing
monthly rates for pay television.
"Let the customer decide what they want to pay, what their menu
should be, what they want and what they don't want, and all of that
aggravation will disappear," Dolan says. If this makes him sound
like an apostate in the close-knit cable industry he helped invent,
well, that's what happens to independent thinkers. "Cable's not a
religion," he has said. "It's a delivery system."
So far, Cablevision has spent about $600 million to launch VOOM,
which has around 13,000 subscribers. According to Chuck Dolan, VOOM
needs about $2 billion of investment and 1.5 million subscribers to
break even. This is much less, he notes, than the $5 billion spent
by Cablevision to rebuild its cable systems. The trouble is, much of
Wall Street thinks VOOM is a crazy idea. (Dolan notes wryly that he
has been called Chuck Full of Nuts.) Most analysts don't think Dolan
can compete against satellite firms DirecTV and Echostar, which
together have more than 22 million subscribers. Neither is
profitable. VOOM also must compete with cable operators, including
Cablevision, that offer digital services, such as high-speed
Internet access, telephony, and video-on-demand, that satellite
television cannot match. "We are skeptical about VOOM as currently
structured," says Aryeh Bourkoff, a cable analyst for UBS.
Raising further doubts is Chuck Dolan's decision to install Tom
Dolan as CEO. Tom is all but unknown outside Cablevision. He worked
for IBM, ran a cable system on Long Island, and is currently the
company's chief information officer. It's quite a leap from running
the IT department to leading a public company.
Then again, for smart people, the Dolans do some dumb-looking things
when it comes to mixing family and business. According to
Cablevision's proxy statement, a production company owned by the
Dolan family sold Cablevision $396,000 worth of programming in 2003.
(Cablevision won't say whether the production company has other
customers.) Cablevision leases a plane, as do the Dolans. The
company subleases its plane to the Dolans, and they sublease their
plane back, according to the proxy. The company also leases
helicopters and a hangar to an entity owned by Charles Dolan. And it
leases aircraft from entities owned by Charles and Patrick Dolan.
Patrick is Chuck's oldest son. Formerly a CNN producer, he now runs
News 12.
One might ask why Cablevision, whose New York-area cable assets are
reachable via taxi, subway, and commuter rail, needs an air force.
The company says that its sports teams travel widely and that its
national networks do business worldwide. Jim Dolan also notes that
the cable systems are spread far and wide across the tri-state
area. "We're able to operate in New York like it's Indianapolis or
Louisville," he says. "Those aircraft keep us connected." He also
says that Cablevision discloses all of its insider dealings and that
they are approved by the board of directors and "policed down to the
penny."
As a family-controlled company, Cablevision does not have to meet
Sarbanes-Oxley rules for board independence. The Dolans own about
26% of the equity in Cablevision—about $1.5 billion in stock.
Through a separate class of shares, they elect 75% of the directors.
Because the family's wealth is tied up in the company, Jim Dolan
says his interests are aligned with all shareholders'. Governance
advocates say he has a point; studies show that family-controlled
companies, as a group, outperform those with a dispersed shareholder
base. But Ric Marshall, the chief analyst for the Corporate Library,
a shareholder advisory firm, says the Dolans' modus operandi raises
some red flags. Marshall says: "I would argue that instead of being
exempt from the commonly held standards of good corporate
governance, firms like Cablevision should be held to even higher
standards of board independence and conflicts of interest to ensure
that the best interests of the minority public shareholders are
properly represented."
The composition of the Cablevision board provides little comfort in
that regard. Four of the 14 directors are Dolans. Another is a
lawyer whose firm works for Cablevision. Three more are current or
former employees. (One of them, John Tatta, 84, a former company
president, was paid $900,000 in consulting fees and bonuses last
year. He also sat on the board's compensation committee.) Pay
practices at Cablevision are generous. Jim Dolan made $4.4 million
in salary and bonus in 2003, and he was given another $11.6 million
in restricted stock, in exchange for (under-water) options, that
vests over four years. Chuck Dolan made $6.4 million in salary and
bonus, and traded his options in for $5.2 million in restricted
stock. Sheila Mahony, a director and executive who has worked for
the firm for 24 years, was given a $5.9 million severance package
and a three-year, $1.4 million consulting deal when she retired this
year. Remember, Cablevision has not yet made a profit.
To be fair, the Dolans have a reputation in the media industry for
square dealing. When, in partnership with NBC, they lost $75 million
on an ill-fated pay-per-view venture called the Triplecast during
the 1992 Olympics, Chuck Dolan paid his share right away. "He could
have dragged it out for years," says NBC chairman Bob Wright. "To
me, on a personal basis, it was very important." Last year,
Cablevision turned up accounting problems in its Rainbow programming
operation. The Dolans fired 13 people, immediately took the problems
to the SEC, and hired Wilmer Cutler & Pickering, a well-regarded
Washington law firm, to investigate. The company subsequently
restated three years of earnings, involving about $15 million of
errors. An SEC investigation remains open.
All those issues—the costs of VOOM, the governance and accounting
problems, and the tabloid headlines about Jim Dolan—have obscured an
important fact: Cablevision's core business is outperforming its
peers. Only Cablevision, among the big cable operators, offers
digital television, high-speed Internet access, telephony, and video-
on-demand to all the homes it passes. (It passes 4.4 million homes
and has 3.1 million customers.) The company generates more revenue
per subscriber—$79.02 a month—than any other big cable operator
does. About 40% of its subscribers buy its high-speed Internet
access, and the company is rapidly rolling out phone service that is
taking customers away from Verizon. "The Cablevision cable systems
are doing much better than anyone gives it credit for right now,"
says UBS's Aryeh Bourkoff.
The stellar performance has come about as the Dolans have steered
highly leveraged Cablevision through a storm during the past couple
of years. While other operators—notably Adelphia and AT&T—flopped or
were forced to sell as the market turned bearish, Cablevision stayed
afloat thanks to a series of shrewd maneuvers. It sold its Bravo
network to NBC for about $1.2 billion in a complex cash-and-stock
deal. It sold its majority interest in a cellular venture to Verizon
Wireless, generating a profit of $435 million for Cablevision. (Its
partner in that deal was John Dolan, Chuck's nephew.) The company
also eliminated about 5,000 jobs, shut down the Wiz, a money-losing
chain of electronics stores it had bought a few years before, and
refinanced its debt. The Dolans also demonstrated their smarts by
using derivatives to protect the value of shares of AT&T, Adelphia,
and Charter that the company had acquired when it sold them cable
systems outside New York.
Whether Chuck or Jim Dolan was at the helm during this period is
unclear. (Jim has been a competitive yachstman who knows a thing or
two about navigating rough seas.) Those who know both men say that
despite their outward appearances, Chuck is the maverick, risk-
taking dealmaker with a wild streak when it comes to business. "A
mad scientist" is how a fellow cable mogul describes him,
admiringly. The more flamboyant Jim turns out to be a pragmatic,
methodical, and detail-oriented executive. "The company was never
viewed as a great operator," says Tom Rogers. "Jim is all about the
operations and execution and details." Jim's pragmatism, for
example, saved the company from losing lots of money when others
wanted to bet big on the Internet. "I give Jim extraordinary credit
for saying 'Where's the beef?' " says his colleague Josh Sapan, who
runs the Rainbow networks.
Lately, Jim Dolan has been devoting lots of time to Madison Square
Garden and the teams. The New York tabloids blame him for the
performance of the Knicks and especially the woeful Rangers; he
urges fans to be patient. Making sense of the operations of the
teams, the Garden, and Radio City has been like untangling a "5-year-
old kid's fishing reel," he says. He's been hiring, firing, and
reorganizing, and now thinks he has the right people in the right
places. "These operations are not like the cable business because
they're not as predictable," he says. The teams and arenas don't
have a big impact on Cablevision's bottom line because they
contribute less than 5% of revenues, but the wins and losses affect
Jim Dolan's reputation.
Reputation matters to him. That's why people who know him dismiss
the idea that his plan is to sell the New York cable systems after
the split. The most obvious buyer is Time Warner (parent of Time
Inc.), which owns cable assets in New York and wants more. Analysts
would like to see a deal. Whenever the Dolans are asked, they say
that anything is for sale at the right price.
But Jim Dolan would like to quiet his doubters and critics first.
Then again, he says, "I've gotten to know those doubters and critics
pretty well, and I don't think they're going to be quiet. But this
company is going to be successful."
