Cablevision Fans Eagerly Await Voom's Doom

Like William Hung singing "She Bangs," Cablevision's new satellite service just may be so bad it's good.

That's the theory being put forward by one analyst, who believes that the worse the fledgling Voom operation performs, the better off investors in Cablevision will be.

"The prospects for the Voom business are sufficiently poor," says Sanford C. Bernstein analyst Craig Moffett, "that it's unlikely that that business will sustain itself long enough to do any lasting damage to the asset values of the remainder of Cablevision."

Moffett upgraded Cablevision to an outperform rating on Friday, and raised his target price for the stock from $21 to $24.

Any good news, however bad, would come as welcome relief to cable industry investors. Cablevision's shares, which have fallen from a 52-week high of $27.70 in January to a low of $16.13 in August, rose 8.3% over the past three trading days to close at $19.81 Tuesday.

Stomach Churning

In fact, Wall Street has lost its enthusiasm for the entire cable sector in recent months. Shares in Comcast have dropped 23% since January, and Cox's fall has been reversed only by the decision of its closely held majority shareholder, Cox Enterprises, to launch a buyout offer inspired by the depressed share price.

Weighing particularly on Cablevision's shares has been Voom, which the company launched last fall as a service focusing on high-definition television.

While Voom has gotten a nice reception in the consumer press -- a columnist called Voom "like Christmas morning every day" for cinemaphiles -- Wall Street has taken a dim view of the service's ability to contend with the likes of DirecTV (DTV Quote) and EchoStar (DISH Quote), which have more than 21 million subscribers between them.

And as Cablevision has acknowledged, Voom has had plenty of growing pains. As of August, Voom had 28,700 "activated customers," the company said in a recent Securities and Exchange Commission filing, and an additional 1,200 customers awaiting installation.

But the loyalty and the profitability of those customers is unclear. Since Voom's inception last October, says Cablevision, 30% of the customers who have signed on for the service subsequently dropped it.

For purposes of comparison, EchoStar reported its service had an average monthly churn, or customer-disconnect, rate of 1.71% in its latest quarter. At that rate, EchoStar would have lost less than 19% of customers since last October. DirecTV's churn rate is lower than EchoStar's, and was even lower earlier in its history; the company reported monthly churn of about one-half of 1% in 1996.

Furthermore, Cablevision says Voom has "a large number of installed customers who have never made any payments to us or who are otherwise not current in their payments to us," though it indicates that it stopped counting as subscribers "customers who were sufficiently delinquent in payment that they ceased to be considered 'subscribers' under our internal guidelines."