Cablevision Nears Rainbow Tracking Stock

New York-Cablevision Systems Corp. vice chairman William Bell said his company could launch its Rainbow Media Holdings Inc. tracking stock as soon as August, adding that Cablevision was still trying to figure out which assets to include in the new stock.

Bell, speaking at the Banc of America Securities LLC "Growth Telecommunications Media and Entertainment Conference" here, added that the new tracker might include only Rainbow's national programming assets, and not its regional sports networks and sports teams.

Rainbow's national programming assets include American Movie Classics, Romance Classics, Bravo, MuchMusic USA, The Independent Film Channel and National Sports Partners, a national sports network featuring Fox Sports Net, which provides national sports programming to regional sports networks.

NSP is 50 percent-owned by Rainbow and managed and 50 percent-owned by Fox Sports Networks LLC.

On the regional programming side, Rainbow owns 60 percent of Regional Programming Partners, which includes Madison Square Garden Network, Fox Sports New York and several other regional sports networks.

RPP also owns the Madison Square Garden arena, Radio City Entertainment (which operates Radio City Music Hall), the New York Knicks of the National Basketball Association and the New York Rangers of the National Hockey League.

"Rainbow falls into two categories-the New York-area programming assets and the non-New York-area programming assets," Bell said. "One school of thought is that we should keep all of our New York assets in one pot-both cable and programming-and put the national services as a tracker. The other is to have all of the programming services in the tracker. That's the decision we're trying to reach. We're leaning toward having the national services in the tracker."

Bell also said Cablevision continues to negotiate with its partners-AT & T Corp. and NBC-regarding the tracking stock. NBC is a partner in Rainbow, along with Liberty Media Group and News Corp. AT & T owns a 33 percent stake in Cablevision.

Bell said AT & T originally did not want to participate in the tracking stock, but quickly changed its mind after America Online Inc. announced its merger with Time Warner Inc.

Bell also hinted on how the tracking stock could be issued, but he said that, too, was still under discussion.

"I think it will be a distribution to shareholders, and then a small IPO [initial public offering]," he added, "but that hasn't been decided. We don't want to sell a lot [of Rainbow stock] to the public."

The Rainbow unit reported strong results in the first quarter ended March 31, with pro forma adjusted operating cash flow up 69.6 percent to $47 million and revenue up 16.2 percent to $361.5 million.

The Rainbow tracker will be issued during a period when cable stocks have been in disfavor with the investment community. Once the darlings of Wall Street, cable stocks have fallen about 30 percent year-to-date.

Adelphia Communications Corp. vice president of finance Jim Brown, also speaking at the Banc of America conference, said cable companies that have been on acquisition tears-like Adelphia-have been hit the hardest.

"Acquiring cable companies has become out of favor as a group. I don't think that should be," Brown told a group of investors and analysts. "We have more capital committed to the cable industry today than at the beginning of last year."

Another cable operator that has been hit hard in the downturn in cable stocks, Charter Communications Inc., also has plans to accelerate its upgrade schedule and increase deployment of new services.

Chief financial officer Kent Kalkwarf said Charter's goal is to add 12,000 new digital-cable customers and 2,500 new cable-modem customers per week. In addition, the MSO is working on a telephony trial in Wisconsin, and has started to roll out video-on-demand service through Diva Systems Corp. in its Los Angeles system.

Kalkwarf said the VOD service has a 40-month payback, but it is expected to generate free cash flow within 18 months of its launch.

Nowhere is the ability to derive free cash flow from new services is no more evident than at Comcast Corp., which generated $412 million in free cash flow in 1999.

Executive vice president and treasurer John Alchin said that despite the near doubling of capital expenditures in 2000 to about $1.2 billion-mainly due to acquisitions-Comcast expects to generate between $200 million and $300 million in free cash flow this year.

America Online Inc. president Robert Pittman kicked off the conference last Monday, saying the combined AOL Time Warner Inc. will have $40 billion in revenue, 30 percent growth in cash flow and 50 percent growth in free cash flow.

Pittman said the combination of Time Warner's and AOL's strong management teams will be a key component of that growth, especially as the lines between television and Internet services continue to blur.