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Cablevision: Spinoff Documents This Week

5/10/2004 9:06 AM Eastern

Cablevision Systems Corp. said it will file the necessary documents for its planned spinoff of its Rainbow DBS subsidiary within days, paving the way for the separation of the company into two separate units.

Cablevision said it will file its Form 10 registration statement for the spinoff this week. Businesses remaining with Cablevision following the spinoff will include its cable and telecommunications businesses; Lightpath; Madison Square Garden and its teams; Radio City Music Hall; and certain other businesses including Fuse, News 12, MetroChannels and Rainbow's interests in regional sports networks around the country.

Rainbow Media Enterprises Inc., as the new entity will be called, will include Rainbow DBS; Rainbow Programming, which will include national movie channels AMC, WE: Women’s Entertainment and The Independent Film Channel, as well as Mag Rack, sportskool, World Picks and other video-on-demand services; and Rainbow Movies, the corporate name for the theater group that will continue to do business as Clearview Cinemas.

Cablevision had said in its 10-K annual report that Rainbow DBS would need about $399 million in additional funding, $237 million of which would come from Cablevision.

In a conference call with analysts discussing first-quarter financial results, vice chairman William Bell said the Cablevision portion of the funding would not change. “There are not going to be any surprises when the Form 10 comes out,” he added on the call.

The Rainbow DBS unit, doing business as Voom, reported a larger-than-expected loss in the first quarter -- $45 million -- but for the most part, Cablevision reported strong results.

Revenue increased 19% in the period to $1.2 billion on strong growth in digital, high-speed Internet service and cable telephony.

Adjusted operating cash flow was up 13% to $275 million, slightly below expectations. Cablevision said the first-quarter figure includes $13.5 million of legal and indemnification expenses and retroactive 2003 programming-cost increases related to the MSO’s agreement with Yankees Entertainment & Sports Network.

Cablevision added 42,000 new subscribers to its voice-over-Internet-protocol product, finishing the period with 71,000 Optimum Voice customers.

Optimum Online, its high-speed-Internet offering, added 72,000 customers in the period.

Cablevision’s digital offering, Interactive Optimum, added 150,000 new subscribers in the period. Basic subscribers dipped by 850 in the quarter.

On a conference call with analysts, chief operating officer Tom Rutledge said the MSO was moving toward a self-install model for the voice product later this year, which should help to improve profit margins, currently in the 40%-45% range. He estimated that Cablevision spends about $135 per customer for the voice product.

Rutledge said self-installation of the voice product would occur later this year. He added that there are no short-term plans to make the voice service available to non-high-speed-Internet customers.

“We have not unbundled the product,” Rutledge said. “We think that a lot of functionality that you can get out of this product ultimately derives from having a high-speed-access service. We think we can drive more value out of combining the service and making it surpass what the public-switched network does, rather than limiting it to traditional telephony.”

Cablevision stock was down 3% (72 cents each) in afternoon trading to $20.90 per share.

 

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