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Super Mario Not Fazed by Media Roller Coaster

When the cable industry began the wiring of America in earnest in the 1970s, Wall Street shunned the sector because the huge upfront capital investment necessary to build franchises meant steep quarterly losses. But then-stock analyst Mario Gabelli saw that cablers were building a long-term asset, so he evaluated cable stocks by what he estimated their cash flow would be once built-out, which looked beyond their growing pains of adolescence.

That was smart thinking. The cable industry prospered and so did Gabelli, whose company today manages $29 billion in assets and has made him one of Wall Street's biggest names. Gabelli founded his own company in 1977 that in 1999 went public and that today is known as Gamco Investors (also known as GBL, its New York Stock Exchange ticker symbol).

Gamco and its affiliates are significant shareholders in Cablevision Systems, Viacom, News Corp. and Time Warner. They also have investments in the relatively out-of-favor broadcast TV sector in Acme Communications, Gray Television, Journal Communications, LIN Television and Media General.

Broadcast TV stations “have some obvious challenges,” Gabelli says. “And the [stock] market overreacts. I've seen this before.”

He recalls that TV stations “were practically being given away” in the 1991-1993 recession, so in 1994 one of his investment vehicles bought a stake in the closely held owner of WOI, the ABC affiliate in Ames, Iowa, and WHBF, the CBS affiliate in Rock Island, Ill. Today, that TV station partnership remains with Philip Lombardo's Citadel Communications.

“He was part of what I would call the original 'media mafia,'” says another institutional investor, Gordon Crawford. “There wasn't a lot of [investment] coverage of media years ago, and those of us who did would bump into each other at conventions and companies. There are very few of the originals around today.” Los Angeles-based Crawford is a longtime media sector investor who works at Capital Group, which manages a staggering $1.4 trillion in assets across all industries.

While many fund managers have a reputation for a quick buck, Gabelli is particularly well-known to be patient, waiting years for his positions to pan out. He is a proponent of the “value investment” theory, looking for out-of-favor stocks with rebound potential.

Though earnings may be weak at the moment, Gabelli buys when he sees beneficial regulatory changes, an emerging class of buyers or other catalyst on the horizon—then takes an early position. The Gabelli organization holds a trademark on its proprietary Private Market Value With a Catalyst methodology.

Not marching in lockstep with Wall Street thinking has resulted in Gabelli's investors achieving a sizzling 17.4% net annual return over the past 30 years. His company, with 200 persons, is known for its fund brands Comstock, Gamco Mathers, Gamco Westwood, Gabelli Woodland and Gabelli Enterprise Merger and Acquisition Fund.

Gabelli's institutional clients range from a half-dozen university endowments to corporate retirement funds to pensions for Asbestos Workers Local 32 and Major League Baseball players.

Besides media telecom (including wireless), Gabelli's investment firm is noted for its research expertise in the health-care, consumer goods, capital goods (including automobiles) and industrial sectors.

Gabelli himself holds 95% of Gamco voting power from his 73% equity stake in GBL. Though Gabelli declines to comment on his personal net worth, Forbes magazine puts it at $1 billion to rank him as America's 346th-richest person.

Gabelli lives in Connecticut. A bit of a workaholic, the only TV channels that he watches regularly are ESPN, CNBC and Fox News. He does like sailing, which is convenient given Gamco is headquartered in suburban Rye, N.Y., a coastal community on Long Island Sound.

Gabelli is also a well-known commentator. Besides being quoted in financial publications, he's a frequent guest on business TV news programs, and also appeared on Wall Street Week With Louis Rukeyser in that PBS show's heyday.

After decades of analyzing the media industry roller coaster, Gabelli is nonchalant as he ticks through the pluses and many minuses for today's broadcast TV business. “The big question is what they are going to do with their digital spectrum,” he says, “whether it's a local weather channel or local sports. And they can get new revenue streams more than just local advertising.”

Gabelli believes the TV broadcast sector will undergo another round of consolidation, which would mean stock prices popping up for takeover targets. The sector's investment in digital equipment is finished, so capital expenditure costs should ease. But there's a dose of bad news as networks likely grab for a share of stations' retransmission revenue and advertising demand deflates in 2009 after this election year.

Gabelli was a ringleader of a shareholder revolt that in October 2007 voted thumbs-down on a proposed $10.6 billion buyout of Cablevision Systems by the cable giant's founding Dolan family, which holds a 20% equity stake. Gabelli says he would have supported the sale last year if the Dolans had allowed shareholders to get bonus payments—or “claw-back”—if the company's 3 million-subscriber cable unit was resold within three years. “They weren't willing to do that,” Gabelli says with a what-else-could-I-do shrug.

The child of Italian immigrants, Gabelli grew up in The Bronx, for which he still holds ties through his considerable charity work and philanthropy. He is a former trustee of Fordham University (from which he graduated) and current patron's committee chairman for the Immaculate Conception parochial school—which are both in The Bronx.

He and his company also contribute to hundreds of charities and non-profits, particularly education and youth groups. “Meritocracy is fundamental to our system,” he says, “so you have to take an interest in the next generation of leaders.”

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