New economy causing Cablevision Systems top ‘throttle back’ growth

New economic realities have pistol-whipped yet another family-run cable television company.

Cablevision Systems, which positions itself as a multimedia entertainment and information juggernaut in the New York City metropolitan area, is drastically cutting back, laying off workers, shutting down company-owned Wiz retail stores and, in a move aimed at placating a marketplace jittery about family-run cable businesses, adding independent seats to its board of directors.

Cablevision announced a second-quarter loss of $103.4 compared with a $121.7 million loss a year ago. Revenues climbed slightly from $1.06 billion a year ago to $1.07 billion this year, but the company continues to face a funding gap estimated to me as much as $1 billion, requiring a number of restructuring steps.

“Cablevision, like most companies today, must prove that it can produce a dependable growing return from money it has already spent before it can expect to receive additional investment,” said Chairman Charles Dolan.

This means Cablevision “must proceed at a more measured pace and we are less able to be patient with current operations that may be promising, but have not yet demonstrated that they can justify the continued investment that they require. The sad result is that we must lose some of our staff,” he said.

The company plans to lose 1100 workers, or 7% of its employee base in 2003. Additionally, it will shut down 26 of its 43 The Wiz stores and roll in other expenses.

Importantly, the company will restructure how it is governed. Cablevision’s board now includes four members of the Dolan family, four Cablevision staff members and four outside directors. That will shift as the company adds new outside directors, said Dolan.

“We do not have any particular number in mind,” Dolan said. “We’re going to respond to any requirement that is made to the company by any of the authorities that we work with.”

The move was an obvious response to the troubles facing another family-run cable company, Adelphia Communications, where members of the ruling Rigas family are facing numerous federal charges related to company financial dealings.

Dolan’s son James, the company’s CEO, said all the changes result from “this new environment” that demands returns on investment, rather than dramatic growth.

“Things have clearly changed,” James Dolan said. “Now it’s about disciplined growth. Now it’s about risk aversion and I will tell you that from a CEO’s perspective to go from one to the other is not something that can be done necessarily overnight and it’s almost a culture change at the company to do that.”

In addition to the obvious culture change that comes from slashing the retail operations, Dolan said there will be belt tightening across the board at the company’s multitude of properties, including Madison Square Garden, Rainbow Networks, cellular provider Northcoast Communications and a DBS venture in which the cable operator is involved.

The cable business, he said, will continue to emphasize its high-speed data strength, building on its network investment, but will curtail its digital deployments.

“We are not going to try to put millions of these [digital set-tops] into the marketplace all at once. We’re going to have a graduated strategy so that the revenue and cash flow follows quickly behind the investment required from the set-top boxes,” he said.

This will impact Cablevision’s relationship with Sony, which is developing the set-tops under a high profile $1 billion program.

Capital expenses, James Dolan said, are projected at $1.3 billion in 2002; $670 million to $780 million in 2003 “and then declining thereafter” as the cable operator strives for free cash flow in 2004. That goal will be met without requiring the sale of any assets, he said, other than those already in question, such as the Northcoast cellular operation.

“We will not be in a position where we are pressed to sell assets in order to fund our growth and fund our capital needs,” he said.

Northcoast is another matter. The New York City pilot is on hold and the Ohio operations are being reviewed.

“We intend to maximize value of this asset either through sale or strategic partnership,” Dolan said.

Finally, he said, the DBS venture has been funded through the end of the year and “we still believe that the satellite project can be a very important project for our company and is a project worth investing in.” On the other hand, “we will not let the DBS project affect liquidity or ability to achieve free cash flow in 2004.”

Liquidity and free cash flow are the new company mantra, he said.

“I think that Cablevision has shown over the years that we can move quickly and I think we’re going to show you now that we’re moving quickly,” he said.