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Computers & Technology Cablevision Tries Clustering In Quest For New Business
Investors Business Daily, Thursday, March 26, 1998 at 14:07
Cablevision Systems Corp. is becoming an 800-pound gorilla in East
Coast circles. Now the question is whether it can compete with the
giants of the cable industry.
Cablevision closed a deal March 4 to buy 10 Tele-Communications
Inc. local cable systems serving 820,000 subscribers in the New York
area. That gave the Woodbury, N.Y.-based company 2.5 million
subscribers in a prime market, and the largest cluster of subscribers
in the nation.
Cablevision has been leading a movement to cluster local cable
systems, and the strategy is paying off. The company reported two
consecutive profitable quarters in the last half of '97, in an
industry notorious for failing to turn a profit. Cablevision also
reported fast-growing sales throughout the year.
"You've got to matter in the community," said Ray Katz, an analyst
with Bear Stearns & Co. "Cable is ultimately a local business.
(Cablevision's strategy) is a manifestation of that."
Clustering is just one of several moves that Cablevision has made
in recent years. Cablevision has broadened its scope in other areas,
as well as focused on local needs. Cablevision currently ranks sixth
in market share among U.S. cable operators, according to Paul Kagan
Associates of Carmel, Calif.
But it is Cablevision's clustering strategy that is having the
greatest impact right now.
"In the past couple of years there's been tremendous activity in
swapping and selling systems so that cable operators can cluster
themselves," said John Mansell, an analyst with Paul Kagan.
"Clustering enables the cable operators to more efficiently promote
their services . . . and tailors offerings for special zones within
the community."
Clustering also streamlines the delivery of new technologies such
as phone service, high-definition television and high-speed Internet
access over cable wires.
"Our subscribers can expect to have new products and services on a
quicker timetable than if the cluster were operated by multiple
operators," said Jim Dolan, Cablevision's chief executive.
There's still a handful of cable operators keeping Cablevision
from complete coverage of the New York metropolitan area, most
notably Time Warner Inc. and Comcast Corp.
"But we certainly have an interest in making (our) cluster
larger," Dolan said.
Dolan comes from a family of cable pioneers. His father, Charles,
who founded the company and is now chairman, spearheaded many
advances in the industry.
In the mid-'60s, the elder Dolan founded the first urban cable
system in Manhattan. In the '70s he started Home Box Office, the
first premium cable network, which he later sold. In the '80s, he
launched News 12 Long Island, the first 24-hour regional cable news
service.
Cablevision lately has been acquiring what it needs to become a
telecommunications, media and entertainment powerhouse. The company
owns networks, sports teams, theaters and retail stores.
The company was rumored to be engineering a deal to buy the New
York Yankees, but reports of a proposed $500 million purchase could
not be confirmed. Dolan would not comment on the rumored deal.
Cablevision also owns the majority of Madison Square Garden
Properties, the Bravo and American Movie Classics channels, the New
York Knicks and the New York Rangers. The company also manages the
operations of Radio City Music Hall.
And last October, Cablevision aligned itself with At Home Corp. in
Redwood City, Calif., to deliver Internet service.
In January, Cablevision offered to buy Nobody Beats The Wiz Inc.,
a consumer electronics retailer, for about $100 million. The 36store
chain, should the deal go through, will sell Knicks, Rangers and
Radio City tickets.
The Wiz is integral to Cablevision's marketing plans. It marks
the first time a cable operator will have stores at which it can sell
services as well as products.
"Traditionally, cable was sold via telemarketing, direct mail and
door to door," Dolan said. "Those have worked well for us, but the
Wiz is more friendly when it comes to having the consumer play with
and touch new products and services."
It's not such a bad idea, analysts say.
"It's a great marketing tool," said Jessica Reif Cohen at Merrill
Lynch & Co.
Cohen says the deal doesn't pose a large financial risk for
Cablevision if the company finds someone experienced in retailing to
run the stores.
Cablevision is also in the midst of rebuilding its system to a
hybrid fiber-optic/coaxial cable. The upgrade from analog to digital
is necessary in order to compete more effectively against satellite
television.
"But we're not really concerned about (satellite) as a competitive
threat," Dolan insisted. "We still provide the best value and
service. That's why we've experienced little (loss of business) to
satellite providers."
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