DJ Outlook For Cablevision's Voom Seen Challenging >CVC (1 Viewer)


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Sep 8, 2003
11 Aug 2004 17:07 ET =DJ Outlook For Cablevision's Voom Seen Challenging >CVC

By Ellen Sheng

NEW YORK (Dow Jones)--The second quarter was a great time for satellite TV companies, with one exception, Cablevision System Corp's (CVC) Voom.

While other satellite companies reported record subscriber and revenue growth, Voom's losses dragged on its parent company. Cablevision reported a 25% jump in overall revenue growth from a year ago, but the cable TV company posted a second-quarter net loss of $187.1 million, or 65 cents a share, dragged by $81.5 million in losses from Voom.

After nine months in business, Voom doesn't seem to be going anywhere fast. The second quarter showed that the new satellite business still has plenty of challenges and stiff competition, as well.

The nascent satellite service has been a liability to Cablevision's stock price for a while now. Wall Street observers have speculated that once Voom is spun-off from Cablevision later this quarter, along with some programming assets, the programming assets might make up most, if not all, of the new stock's worth.

Voom pulled in $2.7 million in revenue in the second quarter. Though Voom added 17,000 subscribers during the June quarter, ending the period with 25,000 paying users in all, Voom also reported a higher rate of defection than other satellite companies. Between October and April, the company lost about 21% of subscribers. By contrast, DirecTV (DTV), the nation's largest satellite TV provider, reported a monthly U.S. churn rate of 1.4%, which comes to 15% or 16% churn annually. EchoStar Communications Corp. (DISH) said its monthly churn rate was 1.71%.

Cablevision executives said annualized churn rate has since inched to below 20%, about half of what it was earlier in the year.

"Given that the service was launched last October, we would have expected a higher take up rate than what we've seen," David Mantell, analyst at Loop Capital, in a note. "This quarter's results confirm in our mind that this is a tough road ... and that Rainbow DBS has a long way to go to close the gap between operating losses and operating income."

Voom's timing is certainly one major factor playing against it as the gap between it and other national satellite operators is only widening. Combined, DirecTV and EchoStar now have 23.17 million subscribers. The rising popularity of satellite is giving even cable companies, the incumbents in the pay-TV market, a hard time.

Voom is attempting to break into the satellite TV market at this later stage by chiseling out a niche in high-definition programming.

"They have a great concept," said Jimmy Schaffler at the Carmel Group in California. But they are also at a distinct disadvantage by starting nine years after DirecTV, he added: "Voom is the tiny little guy way at the end of the tunnel trying to get out."

Some fear Voom's window of opportunity is closing fast.

Business Needs "Money, money, money"

As a newcomer, Voom has a long road ahead in building its subscriber base and expanding its satellite capacity.

For one thing, the service is currently running on just one satellite, Rainbow 1. The satellite can reach the entire continental U.S. but has a less-than-ideal location for reaching western states. To bolster its capacity, Rainbow signed an agreement with SES Americom to lease transponders starting this October, but this presents problems too, since in order for subscribers to receive signals from the different satellites, they will need to install a new, larger dish.

The company is also looking into building and launching additional satellites. Rainbow has authorization from Federal Communications Commission to launch five Ka-band communications satellites and recently won an auction for two Ku-band frequencies at two orbiting locations over the Pacific Ocean.

All of these improvements require investments. Cablevision announced an $800 million bond offering last week which should close "shortly." Proceeds from the sale will go to repay debt and invest in the business. But with satellites costing about half a billion dollars a pop, Voom will have to pick and choose its investments very carefully.

"It's just money, money, money that they're looking at ahead. They'll need to spend efficiently," commented Schaffler.

Adding capacity won't necessarily translate into additional subscribers. Expanding Voom's capacity will help, said Alan Bezoza, analyst at Friedman Billings Ramsey, but as cable and satellite companies ramp up their high definition offerings, Voom ability to crack the market as an exclusive HD provider will diminish.

The analyst figures Voom has the next 12- to 18 months to get its foot firmly in the door before competitors really start closing in.

Cablevision declined to comment for this story, citing a blackout period.

Long-Awaited Spin-off

Cablevision executives reiterated earlier this week the spin-off should be done by the end of the current quarter. Once the spin-off occurs, Cablevision class A shareholders will receive - in addition to their Cablevision holdings - one share of Rainbow Media for each of Cablevision.

It may not be much of a gift to Cablevision shareholders. Industry observers were unable to provide any guess as to Rainbow's share price, but noted concerns that spending on Voom would hurt Cablevision's core cable business have hung over the stock for months now. Cablevision shares are down about 27% year-to-date, recently trading around $17.45.

The separation will allow skeptical shareholders to get rid of their exposure to Voom, but it won't be able to eliminate lingering concerns that the company's infatuation with satellite is hurting its core cable business.

For one, Voom spin-off is taking some prized programming assets along with it. Once spun off, Rainbow Media will consist of Voom, AMC, The Independent Film Channel, Women's Entertainment and Consolidated Regional Sports. Combined, the programming assets saw net revenue increase 56% to $237.4 million in the second quarter. Operating income from the assets increased 44% to $70.7 million.

Friedman Billings Ramsey's Bezoza said he would have preferred not to see Cablevision part with its programming assets. "It's almost like playing two-on-two basketball and teaming your worst player with your best one," he said of the Voom-programming pairing.

Cablevision's satellite business will also be competing against Cablevision which, like other cable operators, has been working to bulk up its HDTV offerings.

"Absolutely we are going to compete," Cablevision Chief Executive Jim Dolan acknowledged at an investor conference in March when an audience member pointed out that Voom and Cablevision appear to conflict with each other.

Unhappy about the drain on resources and conflict of interest, some analysts wish Voom would cease to exist altogether.

"We would urge management to shutter Voom and focus on its high-definition efforts in its core cable business," said Richard Greenfield, analyst at Fulcrum Global Partners and long-time Voom critic, in a note. The same analyst said last year he'd hoped Cablevision's satellite would blow up on takeoff so it wouldn't use up any more money.

-By Ellen Sheng, Dow Jones Newswires; 201-938-5863;

(END) Dow Jones Newswires

August 11, 2004 17:07 ET (21:07 GMT)

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