NEW YORK – Investors applauded Cablevision System Corp.'s (CVC) decision to jettison its money-losing venture into the satellite TV business, which marked a defeat for Cablevision's chairman Charles Dolan (search), a media industry pioneer who built Cablevision into the nation's sixth-largest cable company.
Cablevision shares jumped $3.27, or 13 percent, to $28.75 in heavy trading Friday afternoon on the New York Stock Exchange, after the Bethpage, N.Y.-based company announced late Thursday that it was selling its broadcast satellite and several related assets to EchoStar Communications Corp. (DISH), owner of the DISH satellite network, for $200 million in cash.
Cablevision investors had long been skeptical about prospects for the service, which was marketed under the name Voom, because of the high startup costs and stiff competition from DISH as well as DirecTV Group Inc. Voom's service was geared toward owners of high-definition TVs and was having trouble signing up customers.
Thomas Eagan, an analyst with the Oppenheimer & Co. brokerage, told investors in a note Friday that the sale was a "positive event" for Cablevision because "it ends a costly and ultimately misguided venture into the satellite broadcasting business."
Mario Gabelli, a media investor whose funds are the largest shareholder in Cablevision outside the Dolan family, also said the sale was positive for the company, but not because Voom was necessarily a poor business idea.
"From my point of view, high definition is coming," Gabelli said. "I think Dolan had a vision, and you needed to finance it, (but) my clients are not in the venture capital business."
Last month the company said it was suspending plans for an initial public offering of stock in the satellite unit and would consider other options. Cablevision said in a regulatory filing that the sale would result in charges against earnings, but it did not say how large. A Cablevision spokesman declined to comment on the sale beyond a statement the company released late Thursday.
Voom has struggled since its launch in late 2003. As of the third quarter of last year, the service had just 26,000 customers and an operating loss of $75.3 million on revenues of $5.9 million. Merrill Lynch analyst Jessica Reif Cohen estimates that Voom burned through about $477 million in 2004.
The decision to shutter Voom came after a struggle between Dolan, who supported the project, and his son James, the president and CEO of Cablevision, who sided with independent board members who wanted to sell it.
For EchoStar, gaining another satellite could help the company ease a crunch on its broadcasting capacity, analysts said. EchoStar shares rose 99 cents, or 3.1 percent, to $32.97 in afternoon trading on the Nasdaq Stock Market (search).
At the same time that it was involved in an internal struggle over Voom, Cablevision has also been waging a high-stakes showdown with New York's Mayor Michael Bloomberg over his proposal to build a football stadium in western Manhattan, which would compete with Madison Square Garden (search), a large venue owned by Cablevision just a few blocks away.
The sale of the satellite assets raises the question of what Cablevision may do with its cable networks, AMC, WE and IFC. The company had originally planned to bundle those properties into the spinoff of the satellite unit, but now they could be highly desirable to another company with a portfolio of cable networks such as Viacom Inc., Time Warner Inc. or NBC Universal Inc., a unit of General Electric Co.
Cablevision is sometimes the subject of takeover speculation because of its highly desirable 2.9 million cable subscribers in the New York area. It also owns Radio City Music Hall and the teams that play in Madison Square Garden, the Rangers of the NHL and the Knicks of the NBA.