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."
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George Mannes
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