Tuesday, February 10, 2009

How to Lose 60% in Less Than a Year, Without Bernie Madoff

Cablevision Taps Debt Market Again

In another bid to bolster its balance sheet, Cablevision Systems Corp. returned to the junk-bond market Monday to raise an additional $500 million in debt….

Cablevision also said it expects to take an impairment charge of between $350 million and $450 million for its newspaper group. The group includes newspaper Newsday, which Cablevision acquired for $650 million last year…
—The Wall Street Journal

Who in their right mind thought spending $650 million for Newsday—a marginal newspaper in a media-saturated market, being peddled by a desperate seller into a fatal newspaper down-cycle—was a good idea?

Nobody outside Cablevision that we know of—not even one of Wall Street’s Finest—thought for one minute Cablevision had a shot at even getting its money back, let alone making a reasonable rate of return.

But Cablevision does what the Dolans want to do, and so the poor non-Dolan Cablevision shareholders must now watch as their company absorbs a $350-to-$450 million write-off on last summer’s Newsday purchase, before the next year’s baseball season has even begun.

We here at NotMakingThisUp have some familiarity with Cablevision, aside from writing a here-we-go-again piece on the Newsday purchase last May (see “Hold the Presses: Rupert Outbid!” from May 11, 2008).

First, we’re a captive customer of Cablevision thanks to the non-efforts of our state’s wildly popular and entirely incompetent attorney general, who seems more comfortable going after brutally competitive but politically unpopular businesses like gasoline retailers—while leaving consumer-mauling monopolies like Cablevision to take care of themselves, at the expense of those who can least afford it.

Second, we’ve studied the economics of the business, as well as rapidly emerging—and free—alternatives, enough to believe that the cable monopolies have left themselves as vulnerable to the internet as the music companies were when Napster came along. Lest you think we’re making this up, ask the nearest teenager if they’ve ever heard of, and used, Hulu.com. You’ll be astonished what they’re watching.

For free.

So perhaps the Dolans really do now have shareholders’ interests at heart—at least that’s the refrain we hear every time “Jimmy” buys something stupid, or write down the value of something stupid he bought, or meets with Wall Street’s Finest, or fires another Knicks GM.

But even if the Dolans really do “get it”, they might have gotten “it” far too late to matter.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Anonymous said...

Hulu would be watched on your broadband connection...from Cablevision. And it is hard to envision people in America giving up their TV in full to watch free programing on the Internet on a smaller lap top computer. People have not and likely will not discontinue using the massive number of flat screen TVs they've collectively purchased in the past few years. The music analogy seems misplaced - content and not distribution has been the vulnerable side of the equation. So maybe the cable networks and not the cable MSOs are vulnerable. But I doubt that the monopoly cable companies, short of AT&T becoming a good company, are in trouble.

Anonymous said...

How are those teenagers going to get to Hulu.com? Through Cablevision's "series of tubes". If Hulu starts negatively impacting cable TV profitability, Cablevision, and any other monopoly cable company, can shut it off.

The only way to fight this is to have Net Neutrality.

Jeff Matthews said...

Actually, teenagers don't generally subscribe to Cablevision. There are plenty of other "tubes" with which to access Hulu, thanks to Wifi.

Which, at most colleges, is free.


Unknown said...

Jeff, FYI. Funny you should mention free internet TV. Check out the Miro 2.0 release - open source HD online tv viewer. It's Free. LOL http://getmiro.com/

Anonymous said...

At first glance your arguments appear sound but I am one example that defeats your argument. I ditched my cable tv well over a year ago. I bought a projector that I hook up to my laptop so screen size is not an issue. Crappy sound you say? I hook up my bose wave radio. Projector won't work in a bright room? Aluminum foil and tape fix that problem albeit in a ghetto fashion. My point is that once the content makes it to your computer the workarounds for acceptable to outstanding experiences go through the roof. Hulu is an excellent site but if you go to ovguide.com you can get anything. I use netflix for the streaming movies more than the red mailer side. Music had comparatively easy workarounds but video will probably breakout in roughly the same fashion as mp3's, it will just take a little longer.

Anonymous said...

I tried Hulu after reading this, it's very good. It certainly has limitations and I won't be giving up cable for it. I also have no idea how quality programming will be funded out of a few thirty second ads per episode (maybe advertisers will pay more for these slots, I could see it but who knows).

Regardless I think I get your message here - younger people are developing different habits in how they access entertainment. Hard to know how that will affect cable revenues down the road but it can't be good.

Anonymous said...

I am captive to the Cablevision monopoly. I hate them. I am waiting for the day Fios comes to my neighborhood. To access the channel guide I have to go through 2 screens. After I hit a button there is a few second delay before the box responds. The DVR service is crap. Customer service is rude and non responsive. I want to short the stock but I am probably too emotionally involved to make a rational decision.