Cablevision Fans Eagerly Await Voom's Doom

Fox, Henhouse, Hens

While Cablevision's unique selling proposition for Voom has depended on its HDTV content, it appears that that particular distinction will disappear in the foreseeable future. DirecTV, now under control of Rupert Murdoch's News Corp. , said last week it would launch four new satellites in the coming years. Those launches would enable the broadcast of 500 local channels in HDTV in 2005 and an additional 1,000 local, and 150 national, channels in 2007.

But bad news for Voom, argues Moffett, is good news for Cablevision, which plans to shed Voom and other properties by the end of the month in a spun-off company known as Rainbow Media Enterprises.

Along with Voom in Rainbow -- a publicly traded company that will be controlled by the same Dolan family that's in charge of Cablevision -- will be three national programming services currently owned by Cablevision: American Movie Classics, The Independent Film Channel and WE: Women's Entertainment.

Moffett values the core networks at $1.4 billion, or at least $5 per Cablevision share. Post-spinoff, he values Cablevision at $19 per share. The combined $24 per Cablevision share is more than 15% higher than where Cablevision was trading Tuesday. One of the major weights on Cablevision asset valuations, indicates Moffett, is Voom.

Like other outsiders, Moffett gives Voom little chance of succeeding. DirecTV's announcement that it plans to launch four HDTV satellites "should put to rest any delusions of competitive advantage for Voom, and at the same time increase Voom's value to EchoStar, which will now be pressured to respond with its own HDTV strategy," says Moffett.

"Any indication that Voom might be shuttered would immediately unlock the full value of the networks," writes Moffett.

The likely failure of Voom to grow in popularity "will minimize cash drains and lead to a relatively timely closure of the business," Moffett writes. But there's a major risk, he points out: The Dolans may raise additional financing for Voom, "sustaining its losses and preventing realization of value for the core networks."

Moffett isn't the only analyst to hint that Voom is more of a burden than an opportunity. In July, Fulcrum Global Partners analyst Richard Greenfield noted that financing covenants for Rainbow prevented the company from spending more than $150 million annually on Voom and more than $600 million in total, barring a new financing.

That agreement, wrote Greenfield, "prevents Voom from completely destroying the value of the existing cable networks that are part of the Rainbow/Voom spin-off."