Most executives would get fairly agitated in the face of Wall Street's crescendo of yowls over Cablevision Systems' Voom DBS plan. Despite his enthusiasm for the venture, though, Cablevision Chairman Chuck Dolan is anything but defensive, saying he understands investors' frustration.
Dolan addressed the criticism of Voom a week after restructuring the planned spinoff of the venture to shareholders. Initially, Cablevision bowed to shareholder fear of Voom's startup losses by spinning the venture off with $450 million in cash. But, two weeks ago, it surprised investors by adding its Rainbow entertainment networks in the spinoff, assets worth between $2.5 billion and $3 billion—a move investors widely believe will hurt the networks. Dolan is also leaving Cablevision to be chairman and CEO of the new Rainbow DBS. His son, Jim, will become chairman and CEO of Cablevision.
At the semiannual SkyForum DBS seminar in New York Thursday, Dolan said the reaction to the Voom moves is what he expected. Voom, he observed, "is viewed as being new and working against odds."
To some, that's putting it mildly. Prudential Securities analyst Katherine Styponias opined that Dolan and his executives are "willing to destroy Cablevision shareholder value in order to meet [their] own strategic and financial goals."
Voom is challenging DirecTV and EchoStar by aiming at high-end video users, loading up as much high-definition TV programming as it can secure. DBS services currently have little capacity to carry much bandwidth-hungry high-def product, and little even exists. Voom not only plans to carry high-def cable channels as they emerge but also is creating 21 home-grown channels, though of mixed program quality.
In restructuring the spinoff, Cablevision acknowledged that the initial plan would have left Voom short of cash. Dolan added that part of the rationale stems from the nature of Cablevision's programming assets. Voom will have a national footprint just like Rainbow's national networks: AMC, IFC and WE: Women's Entertainment. The networks tied to New York (News 12 and the regional sports networks), where Cablevision serves three million subscribers, will stay tied to the cable systems. "There's a fundamental logic to it," Dolan said in an interview. He did not explain why Fuse, a national music-video network, is being left behind with Cablevision.
Dolan said he still would like to be thought of as "a cable guy," but he shrugged over his planned departure from Cablevision to the rival DBS industry. "Cable is not the church we go to. It's not a religion. Cable is a delivery system. It's an efficient delivery system, but it's not the only one."
EchoStar CEO Charlie Ergen said, "Certainly Chuck Dolan and Cablevision have a track record for success," but added that the Voom plan ignores the possibility that "there may be a good reason we haven't thought of it. Maybe it's a stupid idea. Maybe we're asleep at the wheel."