Cablevision Clearing Plate - TheStreet

Is

Cablevision Systems

(CVC)

throwing the baby out with the bathwater?

That's a question that Cablevision investors will have to figure out, following the New York-area cable operator's Thursday evening announcement that it's changing the terms of a satellite deal that's been in the works for months.

And giving them more news to puzzle over, Cablevision said Thursday that a major Cablevision investor was exercising its "put right" to sell back to the company the preferred stock he bought in Cablevision only a few months ago.

Cablevision's shares fell 7 cents in normal trading Thursday to close at $20.64, but fell 92 cents further amid the after-hours announcements.

Changing Course

Instead of simply spinning off its nascent direct broadcast satellite business dubbed Voom, Cablevision now says it will spin off a company that comprises not only Voom, but also three of its established programming channels: the AMC movie channel, the Independent Film Channel and WE: Women's Entertainment.

Rather than the $450 million cash contribution Cablevision had planned to make to the satellite company at the time of the spinoff, the company says it expects that the new entity -- slated to be spun out sometime next year -- will be able to finance its operations through the cash flow and borrowing power of its assets.

That being said, Cablevision says it will be spending $261 million on the satellite service this year, rather than the $193 million it had up until recently said was its satellite investment budget for the year.

Exactly how Cablevision investors should be regarding this deal isn't immediately clear.

On the one hand, skeptics of Voom -- and

there are many of them on Wall Street -- might look at this deal as akin to dressing up a pig. Yes, one must admit, it comes with nice accoutrements, but it still smells. Voom, which Cablevision touts as the first multichannel programming service devoted to high-definition television, faces numerous obstacles, including well-established DBS competitors --

EchoStar

(DISH) - Get Report

and

Hughes Electronics

(GMH)

-- expensive consumer equipment and a spotty programming lineup.

On the other hand, a spinoff of programming channels from a cable TV operator isn't a terrible idea. In fact, Cablevision has already done it itself: A few years ago, it spun off several cable channels into a tracking stock, Rainbow, which it subsequently reintegrated into the larger company.

More successful -- at least until 2000 -- was

Liberty Media

(L) - Get Report

, a programming subsidiary that cable baron John Malone spun out of Tele-Communications Inc., a cable colossus bought by

AT&T

(T) - Get Report

and now part of

Comcast

(CMCSA) - Get Report

.

Looking Smart

Investors might be heartened by the participation of Chuck Dolan, the cable veteran who founded Cablevision and now serves as its chairman. Dolan is expected to become chairman of the new entity. His son, James, already president of Cablevision, is expected to take on the chairman role as well at Cablevision following the spinoff.

While the elder Dolan has made plenty of smart decisions over the years -- for example, taking an early interest in cable TV in New York City and its environs -- he's also had a hand in some less compelling ones. In recent years, the company purchased the New York area consumer electronics chain The Wiz, in the hopes of creating synergies between the retail business and cable TV operations. The company recently closed the chain, however.

Cablevision also entered into the motion picture exhibition business by purchasing the Clearview Cinemas chain. But Cablevision has been trying to dispose of those assets as well.

Another piece of data to puzzle over is Cablevision's announcement Thursday night -- two hours after the spinoff press release -- that the private equity firm Quadrangle Group was exercising its right to sell back to the company $75 million in preferred stock that it purchased earlier this year. The purchase price is payable, at Cablevision's discretion, in cash or Cablevision common stock.

The managing principal of Quadrangle is Steve Rattner, a savvy media investor and former investment banker. Rattner joined Cablevision's board in March; Quadrangle's investment in Cablevision was first announced one year ago. Rattner couldn't immediately be reached for comment.