Cable Operators

Bull-Headed Mavericks

9/23/2005 8:00 PM Eastern

Audacity provides a common theme through Chuck Dolan’s history. Those who know Cablevision Systems Corp. chairman Charles Dolan say they aren’t surprised he’s taking the cable operator private. They’re just surprised it’s taken him so long to do it.

Dolan is a man who takes pride in not following the crowd. That philosophy has led to vast achievements in revenue generation, new programming and technological advancements. But it has also vexed and frustrated analysts and investors who prefer safer, more proven routes to financial success.

“Chuck is a guy who shouldn’t run a public company,” says Trygve Myhren, CEO of Myhren Media, a veteran cable executive and a longtime Dolan friend. “His vision isn’t shared by the majority, even though he’s usually right. He can see around corners and is always ahead of the curve.”

“Being privately held will enable him to be more experimental and cutting edge, which suits his personality and style,” adds Liberty Media chief John Malone, who has known Dolan for over 30 years. “Every industry needs mavericks and independent thinkers. Chuck fills that role very well.”

Or as Que Spaulding puts it: “Chuck Dolan has the single biggest set of balls in the industry.” Spaulding, who worked at Rainbow Programming Services in the early 1980s and who retired as president of distribution for Starz Encore Group LLC in 2004, credits Dolan with saving the cable industry when he created Home Box Office in 1971.

Dolan had already defied conventional wisdom by then, proving cable wasn’t just a rural business. His Sterling Communications was one of three companies selling cable service to residents in New York City. Still, he instinctively knew the key to his success was going to be unique programming, not wires.

Without question, Dolan is a cable operator, as well as a programmer. Most cable executives fit into one category or the other, but not both. He has been credited with creating some of the most innovative programming services in the history of cable. At the same time, he is one of the most successful operators in the business.

“We’ve always considered Cablevision a content company with the best and most technologically advanced system in the world for delivering that content … to our customers,” Dolan says.

Dolan’s son James, Cablevision’s CEO, has certainly made his own mark on the company. He played an important hand in the purchase of Madison Square Garden, the New York Knicks basketball team, New York Rangers hockey team, New York Liberty women’s basketball team, Radio City Music Hall and Entertainment, Clearview Cinemas, the Hartford Civic Center and Hartford Wolf Pack minor-league hockey team.

The younger Dolan currently oversees Cablevision’s telecommunications services and is MSG’s CEO. When Cablevision goes private, his father will run that company, and he will head the publicly traded Rainbow Media Holdings LLC and MSG.

MSG played an important role in Chuck Dolan’s business well before he bought the venue, the teams and the network in 1994. He struck a deal with MSG in 1970 to televise blacked-out Knicks and Rangers games. The games were popular, but Dolan was just getting started.

BIRTH OF HBO

On vacation with his family in 1971, he crafted a plan for a national network that would deliver movies and sporting events not available elsewhere. His partners at Time Inc. gave him tepid approval to move forward.

From the start, it was a struggle. The studios balked at providing programming. Operators resisted carrying the network. And no one could come up with a decent name for the channel.

Dolan and his team eventually settled on Home Box Office, although no one liked it much. They figured they could change it later. Universal finally licensed a small package of movies, and Service Electric Co. agreed to carry the channel in Wilkes Barre, Pa. They split the revenue: $3.50 went to HBO and $3.50 went to the operator. It was a formula that changed the industry forever.

“If it weren’t for HBO, the cable industry would’ve totally collapsed,” says Spaulding. “You have to remember, at the time many cable operators were barely hanging on. Some were close to bankruptcy. HBO provided the revenue that cable operators used to survive, pay off their creditors and give customers something different.”

It didn’t take long for Time’s lukewarm attitude about HBO to turn red hot. Time and Dolan were partners in Sterling, which owned Manhattan Cable and HBO. But the venture was bleeding financially.

By 1973, Time’s equity and debt in Sterling gave it an 80% stake. The company decided to consolidate both assets on its balance sheets. Dolan was out. But not before he convinced Time to sell him its Long Island, N.Y., cable properties, which served 1,500 customers: Cablevision was born. Today, the MSO serves 3 million customers in the New York metropolitan area.

Long Island had some of the best TV reception in the country, but Dolan knew he could win over customers with programming. He cobbled together a $5 package of services that was the precursor to Rainbow. Dolan’s audaciousness was on full display, recalls long-time cable analyst and financier Paul Kagan. In particular, he remembers Cablevision’s decision to televise a New York Jets-Buffalo Bills football game.

“The [Federal Communications Commission] said you couldn’t import signals at that time,” Kagan says. “But Chuck did it anyway, and people in Long Island went bananas. It was against the rules, and Chuck knew it. But he gambled that the penalty wouldn’t be huge, and it wasn’t.”

Kagan says local congressmen actually praised Dolan for doing it, even though it was illegal. “He couldn’t do it again, but he did it that time. And he gained the loyalty of a lot of people who have stayed with him.”

Cablevision didn’t craft programming packages like other operators either, says Jerry Maglio, who served as Rainbow’s first president and is currently Starz Encore executive vice president of marketing.

“Chuck taught me that you don’t package programming to please accountants,” he says. “You do it in a way that will please and attract new customers.”

DELAYING DIGITAL

Dolan passed on some buck-the-trend genes to James, who says one of things he is most proud of was his determination to hold off going digital in the late 1980s when other operators were charging ahead with digital tiers and service. “We held back and built our networks to higher specs than other operators,” he says. “I think it paid off because it allowed us to do all things we’re doing today with the triple play that other operators haven’t been to do.”

Both men have made decisions that were good for Cablevision, yet both have made mistakes as well. Jim Dolan says some good things came out the company’s purchase of The Wiz electronics stores in the 1990s. For example, the company’s self-installation promotions took Cablevision from having the lowest high-speed data penetration in the industry to the highest in three years. But bottom line, it was a business Cablevision should’ve eschewed. “The retail electronics business beat us,” he says. “We shouldn’t have been in that business.”

Chuck Dolan is typically low-key when asked to describe himself and his proudest achievement. “I’m proudest of the fact that we started from scratch, and we built a business that employs thousands of people and delivers essential communications and entertainment services to millions,” he says.

“We have never lost our willingness to take a risk if we thought there was a return in the end for the company and our customers,” Dolan adds.

New Yorkers became well aware of that over the last year when Jim Dolan took on the city over a West Side development project. After a bitter fight, it looks like Cablevision has prevailed, Dolan says.

Chuck Dolan’s daring often trumps even the bravest executives. When Turner Broadcasting created Turner Classic Movies, Malone, who’s Tele-Communications Inc. was at the time a 50/50 partner in American Movie Classics, believed Turner would trounce AMC. “I chickened out and asked Chuck to buy us out. But he knew better and AMC has gone on to become one of cable’s most successful networks. I clearly sold too low,” Malone says.

Not all of Dolan’s pet projects have been home runs. For instance, Dolan had high hopes for delivering the 1992 Summer Olympics in a way that had never been tried before. Cablevision partnered with NBC to create the Olympic Triplecast. But the undertaking was beset with logistical problems. Operators balked at every turn, and the project tanked. Cablevision took a $50-million loss.

“A lot of Chuck’s ideas have required that the industry really market something and, when it came to the Olympic Triplecast, he confronted people who weren’t willing to put their shoulder behind the project in the way he was,” says Tom Rogers, TiVo Inc. CEO and formerly NBC Cable chief. “The Triplecast wasn’t a bad idea. He thought everyone would sell it like Cablevision was selling it, and that didn’t happen. He’s proven he’s right more times than not.”

FRACAS OVER VOOM

Dolan has recently taken heat over his desire to launch a direct-broadcast satellite service offering a slate of HDTV channels. Voom cost hundreds of million of dollars before Cablevision’s board forced Dolan to shutter the project. The schism between the two Dolans was heated and ugly. Shortly after that dispute, Dolan announced he wanted to take Cablevision private.

“My father and I have always had open discussions about the company,” Jim Dolan says. “This wasn’t the first time we have disagreed about something. But it was the first time the public got to see one of our disagreements play out … Dad still has a tremendous amount of influence on me. We continue to work well together.”

The Voom project is a classic example of Dolan’s dogged determination to realize an idea he truly believes in.

“Chuck has always loved the DBS business,” Malone says. “We all did. Chuck saw it as an augmentation to cable [not as] direct competition.” He recalls how Dolan teamed up with NBC, News Corp. and Hughes Electronics Corp. to form Sky Cable in 1990, but the project never got off the ground. Hughes eventually went it alone with DirecTV.

Despite his reputation for tenacity, several executives say Chuck Dolan is probably one of best and most solicitous listeners in the business. He is also known as one of the industry’s most genteel and polite executives.

“The thing that struck me the first time I met Chuck was his graciousness. Even when we disagreed, he was always kind to me,” says James Mooney, a former National Cable Television Association president.

Bresnan Communications head Bill Bresnan recalls the first time he met Dolan in 1968: “I went to New York to pick Chuck’s brain about operating cable systems in New York. It was raining cats and dogs. I came from Los Angeles and had no rubbers or rain coat. I was soaked to the bone … At the end of the meeting, he offered me the only umbrella in his office. I told him I couldn’t take his only umbrella. After all, I was already wet. He insisted I take it. We’ve been good friends ever since.

“I have a lot of love and respect for Chuck,” Bresnan adds. “He’s not a big talker, but he’s a very good listener.”

Maglio agrees. “He can sit in a meeting that can last for hours and not say a word. But when he does speak, every word is worth listening to. He is attentive to everyone in the room. He always starts out by praising people for their thoughts, research and insights. But he can quickly distill an issue, interpret it with his own thoughts and have plan in place that’s unique and visionary.”

Some industry experts expect Dolan to sell Cablevision once the company goes private.

After all, he is 79-years-old, and his Long Island cable properties are worth a bundle, especially to Time Warner Cable, which sold him the systems in the first place. But many of his peers think he has a few more rabbits up his sleeve.

“Guys who buy their stock back do it because they see more value in the future than the Street does,” Kagan says.

“I don’t think Chuck’s ready to retire or sell out just yet,” adds Malone. “What’s he going to do with more money? He’s got plenty of that already. He still has a lot of good ideas to execute first.”

September