Cablevision Systems Corporation

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Cablevision Systems Corporation

One Media Crossways
Woodbury, NY 11797
U.S.A.
(516) 364-8450
Fax: (516) 364-5314

Public Company
Incorporated: 1985
Sales: $603 million
Employees: 5,400
Stock Exchanges: American
SICs: 4841 Cable & Other Pay Television Services

Cablevision Systems Corporation is the fourth largest cable systems operator in the United States, providing service to about 2.08 million subscribers in 19 states. Through its subsidiary, Rainbow Programming Holdings, Cablevision has also been an innovator in cable television programming, offering movie, news, and sports channels.

Charles F. Dolan, the founder and chair of the board of directors of Cablevision, entered the cable television business in its infancy. A maker of industrial films, he became a pioneer of cable television in 1960 when he began wiring hotels in New York City for reception of his cable news service. In 1965 Dolan’s company, Sterling Manhattan, won a franchise to operate a cable television system in the southern half of Manhattan. Sterling had wealthy partners—Time, Inc. in particular—and was able to raise money for the cable system through a stock offering, but he was unable to amass enough funds to complete the system. Sterling’s debts multiplied until 1973 when Time, having become the owner of 80 percent of the company, decided to liquidate. Time bought the Home Box Office (HBO) channel—the first nationwide pay-TV channel in the United States, which Dolan had founded in 1970—from Sterling, and HBO went on to become the leading pay-TV channel in the United States.

Although Time had lost faith in the marketability of cable service on Long Island, where many free television channels were already offered, Dolan firmly believed that people wanted the commercial-free television with programming alternatives that cable offered. Using part of the $675,000 he received from Time for his Sterling stock, he bought back the Long Island cable franchises from Time and quickly created another cable company, Long Island Cable Communication Development Company. The company offered a free month of HBO to its 1,500 Long Island customers, and was rewarded when over 90 percent of them opted to continue the service for six dollars a month.

Early successes like this enabled Cablevision to begin raising venture capital and attracting more customers. The densely populated Long Island proved an especially auspicious market. Its proximity to Manhattan made it easy to pick up the microwave signals HBO and other transmitters were still using. Dolan won still more customers by gaining the rights to New York Mets, Islanders, Nets, and Yankees games that were blacked-out locally. Cablevision received the highest revenue per subscriber in the United States, partly because Long Island provided an affluent customer base, and partly because of its strategy of selling pay-TV channels in blocks for a lower sum than they would bring individually.

While Cablevision produced significant cash flow, there was little profit due to the capital intensive nature of the cable business. To keep the company afloat and expanding, Dolan turned to limited partnerships, attracting business magnates such as Hugh Hefner and Milton Friedman as investors. Cable-vision slowly expanded, adding systems in Yonkers, New York, New Jersey, and suburban Chicago. By 1980, at about the time the cable industry began receiving significant nationwide attention, Cablevision had 155,000 customers and $14 million of cash flow. It was worth $250 million and had a debt of $45 million. The 50 miles of cable it had owned in 1973 grew to 4,000 miles.

In 1980 Cablevision formed a subsidiary, Rainbow Programming Services, to create cable programming. This programming soon included the American Movie Classics channel, which showed vintage Hollywood films, and Bravo, which showed classic American and foreign films, exclusive Broadway plays, music and dance performances, and educational presentations. In 1983 Cablevision began offering the Newsday Channel, a 24-hour news and information channel produced in conjunction with the New York newspaper Newsday. The station did not attract enough viewer support to survive long, however. Cable-vision also started SportsChannel, which broadcast New York Nets basketball games, and Islander and Devils hockey games, in addition to Yankees and Mets games. The channel received revenue from advertisers and subscribers, and became one of the cable industry’s most successful sports services.

In 1984 Cablevision moved aggressively to win a cable franchise in Boston. It won the bidding with a basic cable fee of two dollars a month, considered low for the cable industry. The firm planned to make up for the lost revenue by tiering pay services like HBO. It ran into construction problems in laying the cable, however, delaying completion of the system—and its capacity for bringing in much-needed revenue—for years. Cablevision was also expanding into New York City, where it won franchises for The Bronx and two-thirds of Brooklyn. Although there were more setbacks—in 1985 Cablevision lost its 47.5 percent stake in a Sacramento cable system when it was unable to pay off a $34 million obligation to partner Scripps Howard Inc.—Cable vision became the fifteenth-largest cable systems operator in the United States in 1986, with 595,000 subscribers.

In 1986, with the price of cable televisions systems at an all-time high, Dolan decided to create a publicly held company with 390,000 of Cablevision’s subscribers. The systems going public were in Long Island, Westchester County, New York City, and New Jersey. Systems in Boston and Chicago that had not yet become profitable were not included in the new company until they went into the black. The initial stock price worked out to about $1,700 per subscriber. The stock offering was structured in such a way that it left Dolan with a large percentage of the company’s voting rights and control of 75 percent of the board of directors. Dolan received some criticism because the systems he was taking public were believed to have grown about as large as they were going to. Cablevision’s debt stood at about $290 million from acquisitions and the buying out of limited partners. Dolan reportedly wanted to use the $80 million he raised through the offering to pay off part of this debt. Dolan also wanted to spend $25 million on further cable construction in New York City.

In July 1986 Cablevision agreed to acquire two cable systems from Scripps Howard Inc. for $175 million. The systems were also partly held by Dolan, though how much each party owned was not revealed. The systems were located in Fairfield County, Connecticut and added 120,000 subscribers to the Cablevision system. Later in the year Cablevision acquired the portions of Rainbow Programming Services it did not already own for about $57 million. In 1987 Cablevision bought Adams-Russell Co., a cable TV company based in Waltham, Massachusetts.

Cablevision also expanded its programming services. In December, 1986, Cablevision tried again to offer a 24-hour local news channel. News 12, offered on all Long Island cable systems, not just Cablevision’s, won numerous awards for its news coverage, and has become Long Island’s premier news service.

In early 1987, Cablevision joined a group of cable operators and investor Kirk Kerkorian in investing $550 million in Turner Broadcasting System Inc. (TBS). The investment in TBS allowed chair of the board Ted Turner to keep control of his company. Cablevision and the other investors desired this because Turner Broadcasting was an important source of programming, and they wanted it to maintain its independence. The group of investors were allowed to name five of TBS’s 11 board members.

Increasing its involvement with cable programming, Cablevision bought the Washington Post Company’s interests in four of California’s SportsChannels in June 1987 for six million dollars. At this point, Cablevision had sports channels in Chicago, New York, New England, Philadelphia, and Florida. The firm also increased its expansion out of the Eastern seaboard when it bought First Carolina Communication cable systems in Cleveland and Toledo, Ohio.

In 1988 Gulf & Western outbid Cablevision for the rights to Yankees games. To protest, Cablevision dropped Gulf & Western’s Madison Square Garden Network, which broadcast the games as part of its regular service. The move angered many of the 400,000 Cablevision subscribers in New York, New Jersey, and Connecticut, who were unable to watch the games. It also upset many cable systems operators, who worried that the controversy would attract unwanted attention from the U.S. federal government. Congress had just deregulated cable in 1987, and as consumers complained about cable service, some lawmakers considered reregulation. Cablevision settled with Gulf & Western in 1989, agreeing to offer the Madison Square Garden Network as an option in its service package, priced and promoted equally to its own SportsChannel.

In 1989 Cablevision and the National Broadcasting Co. (NBC) formed a joint venture to market a national cable network as well as regional news and sports networks. They also agreed to offer the first pay-per-view Olympics coverage of the 1992 Summer Games in Barcelona. It was the first time that a broadcast network and a cable system had cooperated in a programming venture, and many industry analysts had doubts that it would work. NBC and Cablevision had competing interests: cable television was a threat to the audiences of NBC’s affiliate stations, and cable operators were suspicious of NBC’s forays into cable programming. NBC received a 50 percent stake in most of Rainbow’s programming services, while Cablevision took 50 percent of NBC’s cable venture, Consumer News and Business Channel, and $137.5 million to develop programming for it. The two companies also intended to create a series of regional cable news stations and 10 sports channels in addition to the five already operated by Cablevision.

Cablevision had borne a high debt load since its inception, having borrowed heavily to lay cable and buy other companies. In the late 1980s the firm’s debt increased significantly as it made a number of large purchases. Cablevision bought a regional sports channel in Los Angeles for $18 million. It also bought two cable systems in suburban Cleveland and Long Island from Viacom Inc. for $549 million. Cablevision also received 20 percent of another system under construction in Cleveland and a five percent stake in The Movie Channel and Showtime, two Viacom pay channels. The sale added 120,000 subscribers to the 310,000 Cablevision already had in Long Island and added 75,000 subscribers to the 85,000 it had in Cleveland. Cablevision became the eighth largest cable systems operator in the United States, with over 1.3 million customers in 11 states. But with rising interest payments on its significant debt, Cablevision lost $22.6 million in 1988 on sales of $493 million.

In February 1990 Cablevision announced it would invest one billion dollars with three other media companies in Sky Cable, a direct-broadcast satellite service that was to offer up to 108 channels. The plan fell apart in little more than a year, however, due to conflicting interests among the partners.

In the meantime, Cablevision continued to create new programming. It announced plans for a channel that would cover important or sensational court trials. The In Court channel was hampered by a lack of unused channels on most cable systems, as well as a rival channel to be started by American Lawyer Media. Tentative plans to merge the channels were announced before either went on the air. In 1991 the Cablevision and NBC partnership agreed to start a sports-news cable channel. The channel was to be distributed through the SportsChannel America network. Critics pointed out that sports fans wanted to see the games themselves, and that sports news was already covered by a variety of media outlets.

Cablevision and NBC spent $40 million on marketing their pay-per-view Olympics service, and $60 million producing it, but the actual sales were disappointing. The cost of the service to the consumer was high, starting at $95 for weekend coverage, and 160 hours of Olympic coverage was already available on free television. Far fewer subscribers signed up than expected and Cablevision lost $50 million on the venture. Partly as a result of this, Cablevision lost $82.7 million in the second quarter of 1992.

In 1992 Cablevision’s debt was more than one billion dollars, and the price of its Class A stock declined to the extent that the company canceled a public offering that had been scheduled. But business analysts observed that Dolan continued to think big, and despite its heavy debt, Cablevision continued to grow. In 1991, for instance, Cablevision bought Gateway Cable, a 42,000-subscriber system serving Newark and South Orange, New Jersey. By 1992 Cablevision owned 23 cable systems and had a total of about 2 million basic subscribers.