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Cablevision Gets Good 4Q Report

Cablevision's financial crisis is pretty much over, but, despite strong cash-flow growth, investors remain nervous over many issues, including the company's DBS plans.

The company's fourth-quarter earnings report was generally good. Cable-system revenues grew more slowly than expected for the three months ended December, a sluggish 8% to $583 million. But axing 7% of its workforce in the third quarter meant that fourth-quarter expenses were lower. That combined with the high margins of strong local advertising helped drive cash flow up a sharp 17% to $235 million.

The Rainbow Programming unit performed well, benefiting from the retooling of the networks left after the recent $1.25 billion sale of Bravo to NBC. Rainbow's revenues rose 24% while cash flow grew 18%.

"In 2003, our focus will be on reaping the benefits of the strategies put into place in 2002, as we bring a multi-product digital offering to our 3 million customers," said Cablevision President James Dolan.

The cable systems continued to lose subscribers, though, dropping 6,000 basic customers during the quarter and 45,000 for the entire year. That's blamed largely on Cablevision's refusal to carry Yankees Entertainment and Sport Network (YES), the team-owned network that carries New York Yankees and New Jersey Nets games previously on Cablevision-owned networks. Fans, of course, just want to see the games, and some have defected to DirecTV.

Morgan Stanley media analyst Richard Bilotti believes an additional 30,000 subscribers have downgraded from expensive enhanced basic packages to $10-or-so-a-month "lifeline" tiers. Still, that's not nearly as bad as many industry executives had expected.

Another bad sign: a steady decline in monthly video revenues per subscriber from the second quarter ($36.72) to the third quarter ($36.54) to the fourth quarter ($36.35). That's not huge, but it comes at a time when Cablevision says it has been rolling digital cable services to 180,000 new customers and generating an average of $16 per month each. Somewhere, about $1 per basic subscriber is leaking out of the pipes. Analysts blame part of the dip on the elimination of pay-per-view channels on some systems.

The company has also surrendered in its consumer-electronics business, announcing that it will sell or close its remaining 17 The Wiz stores. It closed 26 stores in the chain last year. The chain was already in bankruptcy court when Cablevision bought it four years ago, saying it was central to its New York-market strategy of stitching together movie theaters, concert halls and retail outlets for cable equipment. Much of that strategy has been a bust.

But the scary specter is Cablevision's DBS service. The company is reportedly one of several considering a bid for DirecTV (Dolan wouldn't comment). More immediately, Cablevision plans to launch its own DBS satellite and start a service. It has $300 million into the bird and faces another $80 million in launch costs. (Remember, Bravo was sold because of a deep liquidity crisis last summer.) Dolan has said that starting a service could cost another $2.5 billion.

He has also said he will look for partners to launch the service. "We are still formulating the programming offering. It does look as if HDTV will be a part of it." But he would be willing to sell the satellite and license if the right deal emerged. "We will seek to maximize the value of this asset, and we will look to take advantage of strategic opportunities."