Skip to main content

Cablevision’s Banner Year

After 30-odd years and a handful of CEOs, Cablevision Systems Corp. is finally getting some respect. Once known for the eccentricities of its ruling Dolan family and their seemingly endless battles with programmers and other MSOs, Cablevision is churning out some of the best financial and subscriber numbers — and some could argue the best numbers — in the cable industry.

For example:

  • Cablevision has had five consecutive quarters of basic-subscriber gains and expects to end 2005 with 1.5% to 2% basic-customer growth. This comes at a time when other MSOs hope to either remain flat or keep losses to a minimum.
  • Adjusted operating cash flow grew 13% in the second quarter — the seventh consecutive quarter of double-digit cash flow growth — and is expected to end the year up in the mid-teens.
  • The MSO’s Optimum Voice product ended the second quarter with nearly 500,000 subscribers, reaching that milestone in about one year.
  • Average revenue per unit [ARPU] is the highest in the industry at $95 per month.
  • Even though it was the last MSO to roll out digital-cable service — in late 2001 — it has the highest digital penetration of any other MSO, at 57% of basic-video subscribers.
  • It continues to have the highest penetration of high-speed data services, at 34% of homes passed or 51% of basic-video customers.

So it’s pretty obvious why Cablevision was selected as Multichannel News’s 2005 Operator of the Year. What isn’t so obvious is that Cablevision’s story could have gone in a completely different direction. Just two years ago, Cablevision chairman Chuck Dolan was spending gobs of cash on a fledgling HDTV-centric direct-broadcast satellite offering called Voom, and was bent on spending even more to get the service off the ground.

That led to a boardroom battle earlier this year that pitted the elder Dolan against his son, Cablevision CEO James Dolan, who wanted to pull the plug on the cash-draining service. After Chuck Dolan fired three board members that had opposed Voom, replacing them with three long-time cable executives — Liberty Media Corp. chairman John Malone, former Century Communications Corp. chairman Leonard Tow and former ITT Corp. chairman Rand Araskog — father and son appeared to reach a compromise. Voom would cease to be a standalone service, but Cablevision would market its 21 original HDTV channels to other MSOs.

While Jim Dolan doesn’t get a lot of credit for Cablevision’s recent success, it was his decision to concentrate the MSO’s systems in one DMA (New York) by selling off its cable properties in Boston and Cleveland.

It also was Jim Dolan’s decision to buy bankrupt electronics retailer The Wiz, which Cablevision shut down in 2004 after heavy losses, but which was the driving force in the early days of marketing Cablevision’s high-speed data service.

And it was Jim Dolan who oversaw the launch of the phone product and its then-controversial $89.85 discounted package for digital video, high-speed data and voice service.


But perhaps his best move was luring former Time Warner Cable president Tom Rutledge to head up Cablevision’s cable operations. Rutledge joined Cablevision in 2002 as president of the cable division. Last year, he was promoted to chief operating officer, in charge of its Rainbow Media programming assets and Clearview Cinemas movie theaters, as well as the cable division.

Rutledge brought on another former Time Warner Cable executive — executive vice president John Bickham — to take over the cable division’s day-to-day operations about 18 months ago.

“Over the years, Cablevision has historically suffered from a very weak customer-service reputation and in some ways was bailed out by the inherent attractiveness of its footprint,” says Sanford Bernstein & Co. cable and satellite analyst Craig Moffett. “All that really seemed to change when Tom Rutledge took over. While perceptions are slow to change, Cablevision has what is today the best physical plant of any operator in the country; it has dramatically improved its customer-service functions; and it has moved to the front of the pack in deployment of virtually every one of the advanced services.”

Rutledge says improving customer service was a top priority when he joined Cablevision in 2002. But he took exception to the notion that Cablevision and the rest of the cable industry had a bad reputation for service.

“I wouldn’t say our perception was bad,” Rutledge says. “It was relatively bad compared to satellite. The industry had its issues; I won’t deny that.”

Rutledge says Cablevision created an operational structure designed to improve customer service — reducing the number of call centers from 15 to five, which are integrated into a virtual call center. The MSO invested in technology, providing CSRs and field representatives with training and monitoring capabilities to better measure the quality of services offered. And it invested in technology that allowed customers to solve a growing number of service issues themselves.

Bickham says Cablevision gets roughly 100,000 phone calls per day — one-third of which are handled electronically where the customer completes the transaction through an Interactive Voice Response system. The remainder are handled by CSRs, and the final third — so-called Level 2 calls, for high-speed data and voice issues — are handled by a crack team of specially trained CSRs.

“Employees that work in that call center are well-educated, sophisticated and do a really good job handling problems people have with their high-speed data or with their voice product,” Bickham says.

Bickham says the automation process doesn’t stop there. The company’s employees visit about 10,000 homes a day, providing 5,000 electronic devices. “To provision those 5,000 devices every day, with very few mistakes, this company has developed sophisticated software for order entry and provisioning systems that allows us to go very fast with minimum human interaction,” he says.


While Cablevision now leads the industry in digital and data penetration, it boosted its standing on Wall Street earlier on by developing a successful voice business.

But it wasn’t an easy road. In typical Cablevision fashion, the MSO ignored investor fears of imminent price wars between competing cable and telephone high-speed data services by launching a triple-play video, voice and data bundle priced at $89.85 per month. That one-year promotion was initially open only to new Cablevision customers. But analysts and investors saw it as a reckless move that would plunge the industry into an all-out price war.

Needless to say, that never happened. Not only did Cablevision sign on a record number of voice customers through that promotion — it is signing on 1% of homes passed a month to voice service — it is averaging about $115 per month from those customers as they take higher tiers of service. And equally surprising, the Cablevision model has become the benchmark for other MSOs just beginning to launch the service.

Janco Partners Inc. cable and satellite analyst Matt Harrigan says that while big MSOs like Comcast Corp. have traditionally been loath to offer extended deep discounts for products, other MSOs, like Charter Communications Inc., are likely to follow suit.

The service is showing no signs of slowing down, he adds, despite going up against one of the more aggressive regional Bell operating companies, Verizon Communications Inc.

“They’re cleaning Verizon’s clock,” Harrigan says.

Rutledge says that when the decision was made to go through with the promotion, he expected some backlash, but nothing like the company initially received.

“Cablevision has been a very successful investment for investors, but we do tend to make them nervous, because we tend to go for the long run,” Rutledge says. “Investors who have stuck with this company have done very well. Obviously we created some nervousness on Wall Street. They’ve now completely flipped around and said what we did was right, which is kind of interesting.”

Moffett says that Cablevision’s strategy has paid off in spades.

“It was the voice performance and also the boldness of the $30-$30-$30 pricing plan that really forced everyone to stand up and take notice,” Moffett says. “At the time, Rutledge and Jim Dolan were both on the hot seat for a pricing plan that Wall Street hated. To their credit, they stuck to their guns and proved the Street wrong, because the pricing plan has been a runaway success, strategically as well as operationally.”


Now Cablevision is aiming to turn its back on Wall Street with a $7.9 billion buyout plan by the Dolan family. As part of that deal, announced in June, the Dolans would pay about $33.50 per share — $21 in cash and $12.50 as part of a spin-off of Rainbow Media — for the shares the family doesn’t already own. That deal still needs shareholder approval.

Going private also has its controversial issues. Some analysts believe that Cablevision is assigning too high a value to Rainbow — which essentially has only one cash-flowing network, AMC — and should sell the programming assets outright and return the cash to shareholders. Cablevision would not comment on the spin or the privatization, citing Securities and Exchange Commission regulations.

Harrigan says a more reasonable valuation for Rainbow would be in the $11-per-share range, which would suggest that Cablevision should increase the cash portion of its offer. “Certainly it [Rainbow] is going to trade at a huge discount,” Harrigan says.

While it’s still unclear whether Cablevision will ultimately sell Rainbow, Moffett says the supposed synergies between cable and programming haven’t quite materialized.

“For that matter, it hasn’t knocked the cover off the ball at Time Warner [Cable] either,” Moffett says. “But Cablevision’s programming business, despite having some attractive properties, suffers from being significantly sub-scale. It’s not clear that there is particularly any mutual benefit in the cross-ownership of Rainbow and Cablevision. Separating them comes at relatively little strategic cost.”