Cable Operators

Breathing Room for Voom

3/13/2005 7:00 PM Eastern

Charles Dolan, Cablevision Systems Corp.’s chairman, bought some time last week in his quest to keep the fledgling Rainbow DBS direct-broadcast satellite venture afloat.

The parent MSO said it would postpone shutting Rainbow’s Voom-branded DBS service down until March 31.

Dolan, facing the imminent demise of Rainbow DBS, has until the end of the month to secure financing.

He also agreed to personally fund any costs above and beyond what Cablevision would pay to shut down Voom by that date.

Last Thursday, Dolan agreed to pledge about $10 million of his personal cash and Cablevision stock to cover Voom’s expenses until March 31.

Now, Dolan needs to find an estimated $1 billion to $1.5 billion to finance Voom for the next few years.

Cablevision had planned to shut down the service — it pulled the plug on financing on Feb. 28 — but met strong opposition from Dolan, who stressed to Voom’s 46,000 customers that the service would remain alive. Dolan went as far as ousting three Cablevision board members who had opposed him on Voom and bringing in Liberty Media Corp. chairman John Malone, former Century Communications Inc. CEO Leonard Tow and former ITT Corp. chairman Rand Araskog.

Dolan also appointed his son-in-law, Cablevision senior vice president of electronic business Brian Sweeney, to replace deceased board member John Tatta.

In a report, Fulcrum Global Partners analyst Richard Greenfield said the latest moves show the new Cablevision board won’t simply rubber-stamp Dolan’s actions, and that Dolan is willing to part with at least some Cablevision stock to keep Voom alive.

“We believe Mr. Dolan is likely preparing (or will shortly come to the conclusion) that the only way to fund Voom long-term is to put Cablevision up for sale,” Greenfield added.

Most analysts expect Dolan to approach EchoStar Communications Corp. — which agreed in a separate deal in December to buy Voom’s Rainbow-1 satellite for $200 million — to work out some kind of arrangement to either buy back the satellite or lease space on the bird for the Voom service.

EchoStar spokesman Steve Caulk declined to comment on Voom.

EchoStar has its own distractions. Bloomberg News reported last week that the company’s audit committee launched an internal investigation of certain accounting practices after auditors KPMG LLP questioned the accounting of several transactions with suppliers, as well as consulting payments made by the company to a friend of chairman and CEO Charlie Ergen.

Bloomberg said the securities regulators have launched an inquiry into Ergen’s role in EchoStar’s accounting. Caulk also declined comment on the Bloomberg report.

EchoStar closed at $28.72 on March 10, down $1.87 (6.1%).

Oppenheimer & Co. cable and satellite analyst Tom Eagan said any deal between Voom and EchoStar would likely be short-lived. EchoStar has said in the past that it needs additional satellite capacity to provide local HD channels, a need the Rainbow-1 satellite partially fills.

“Even if they carve out some space [on the satellite], I would imagine it would be for under one year,” Eagan said. “EchoStar needs that space to compete with DirecTV.”

Voom also has a contract to lease transponder space on an SES Americom satellite.

Janco Partners cable and satellite analyst Matt Harrigan said Dolan could buy the satellite back at a stiff premium, but at considerable cost to both his reputation and his pocketbook. “If he [Dolan] buys it back even for $25 million or $50 million more [than Cablevision paid for it], he still looks like the biggest ass in the world,” Harrigan said.

September