Cablevision Retrenches, But Not Fast Enough
Mark Lewis, 08.09.02, 12:28 PM ET
forbes.com
NEW YORK - Convergence is the media god that failed, dragging down several high-profile chief executives with it. The next CEO to be sacrificed on this altar might have been Cablevision Systems' James Dolan--except that the firm is controlled by the Dolan family. And the Dolans, it seems, are having trouble letting go of the dream.
Instead of fruitlessly calling for Dolan's head, investors have bailed out, pulling Cablevision's (nyse: CVC - news - people ) share price down to less than $6 from more than $50 a year ago. Few on Wall Street were reassured by Cablevision's second-quarter report, released on Aug. 8, which featured a net loss compared with a year-ago profit. Cablevision's revenue was essentially flat, and its subscriber base now is projected to shrink slightly for full-year 2002 rather than grow.
That subscriber shrinkage appears traceable to Cablevision's dispute with the New York Yankees, which has deprived Cablevision viewers of Yankee games this season. But Cablevision has a more fundamental problem, one all too familiar to media investors. The firm piled up the debt to upgrade its systems and expand into new businesses to profit from the anticipated benefits of media convergence. But convergence has not yet panned out.
Dolan said his core operations, which besides the cable systems include several telecommunications businesses, are showing higher revenue and cash flow. But investors in the post-boom environment are less willing to be dazzled by a firm on a piece-by-piece basis. The big picture for Cablevision seems cloudy--and it does not help that Adelphia Communications (otc: ADELQ - news - people ), another family-controlled cable firm, has recently been rent by scandal and driven into bankruptcy.
The fear on Wall Street is that Cablevision does not generate enough cash to service its debt. Dolan this week moved to address these concerns by saying he will sell his Clearview Cinemas chain, shutter more than half of his Wiz consumer-electronics stores and shed about 7% of his workforce in the process. "In the past, you invest as rapidly as you could for growth so you could stay on top," Dolan said, as quoted by Reuters. "Now, investment has to closely follow cash flow. It has to be a more measured sort of growth."
Well put, but will the Dolans follow through? Moody's was not impressed--the bond-rating service promptly downgraded some of Cablevision's debt. Merrill Lynch cut its rating on Cablevision shares to "neutral" from "strong buy," and Credit Suisse First Boston cut the stock to "hold" from "buy."
The concern is that Cablevision may not move aggressively enough to cut debt by selling off assets. Among the Dolans' remaining non-cable properties: the New York Knicks and Rangers sports teams, Madison Square Garden and Radio City Music Hall.
As it happens, the last two properties made news of their own this week because a group headed by Dolan and Miramax Films mogul Harvey Weinstein reportedly is trying to bring part of next year's Academy Awards ceremony to New York. If they succeed, a few of the Oscars may be handed out at a subsidiary ceremony held at the Garden or Radio City. But if Cablevision has not shed more assets by then, the Dolans will not be claiming any awards from Wall Street. |
