AEG Deal Breaks Down

The Setting: Cablevision Systems stock took a pounding earlier this month after published reports said that it was considering buying a stake in concert promoter AEG Live. According to those reports, Cablevision would pony up as much as $150 million for 35% of AEG, with IAC/InterActiveCorp's Ticketmaster online ticketing unit contributing $50 million for a 14% stake. Speculation was that the operator could make a big push into live entertainment, partly in an effort to bolster its sagging music channel, Fuse. The news sent Cablevision stock down $1.28 per share on March 3 to $25.51 per share.

The Update: Last week, a report in The Wall Street Journal said talks between Cablevision, Ticketmaster and AEG Live broke down, mainly because Cablevision and AEG couldn't agree on control and strategy. That sent a muted cheer through Wall Street, as Cablevision stock rose 5 cents to $23 per share on March 12.

The Skinny: Most analysts looked unfavorably on the deal, fearing Cablevision would use its free cash flow to buy concert venues and related businesses. In a research report March 13, Miller Tabak media analyst David Joyce noted that investors have sold down the stock mainly because the operating cash flow margins in live music (about 5% to 8%) are much lower than its core cable business (possibly 39% in 2008).