Cablevision Has High Hopes for HDTV - TheStreet

The slow-motion train-wreck-in-the-making that is Cablevision's (CVC) new satellite service chugged closer to its inevitable moment of impact Wednesday.

Cablevision, the New York-area cable-TV system operator, officially launched on Wednesday a high-definition television programming service called Voom -- a long-shot venture of great interest to Cablevision Chairman Charles Dolan, but one that has provoked near-universal dismay on Wall Street.

Unfortunately for Cablevision shareholders -- for whom Voom's only silver lining has been Cablevision's promise to limit the money it pours into the satellite service -- nothing at Voom's official launch hinted at a success in the making.

In fact, numerous factors surfacing at Voom's debut -- odd programming, intense competition, costly hardware and a questionably helpful retail channel, for starters -- serve only to make one more pessimistic about Voom's chances as an ongoing concern.

Given the unlikelihood that Cablevision's venture into a direct broadcast satellite service will turn out better than the company's failed efforts in owning a consumer electronics retailer (the now-shuttered The Wiz) and operating a chain of movie theaters, about the best that Cablevision shareholders can hope for appears to be a sale to entrenched DBS operators

EchoStar

(DISH) - Get Report

and

Hughes Electronics

(GMH)

.

Cablevision's shares, having recovered from a 52-week low of $7.33 in 2002, when pessimists believed the company was facing a funding shortfall, were down 22 cents Wednesday to trade at $21.05.

Def Jam

In theory, Cablevision's Voom -- a service the company says it expects to spin off to shareholders -- gives U.S. TV viewers something that they can't get elsewhere: a multichannel programming service devoted to the wide screen and sharp picture of HDTV. Voom is "the world's first, most comprehensive HDTV service," Dolan said Wednesday. And with U.S. households with HDTV sets forecasted to hit 12 million in 2004 and 40 million in 2007, the demand for HDTV programming will grow. "We believe we're on the verge of an exciting new era -- the era of HDTV," Dolan said.

Indeed, with greater numbers of broadcast stations and cable services broadcasting signals in high-definition, the HD audience will undoubtedly grow. But Voom faces hurdles nonetheless.

One of them is price. The necessary hardware package for a Voom system, with installation included, costs $750. Meanwhile,

Best Buy

(BBY) - Get Report

is currently selling a complete HD-capable system for Hughes' DirecTV at a cost of $569, no installation. Cable systems have started offering high-definition channels at a much lower price. It seems like an uphill battle for Voom, a virtually unknown service, to steal away current DirecTV customers, who could simply upgrade their equipment to HD and continue to get video from the same company. It doesn't seem any easier for Cablevision to get people who aren't currently satellite customers to plunk down more money for a lesser-known system.

That hesitancy could, of course, be overcome by the quality of Voom's programming. Indeed, part of the Voom package looks appealing: 10 movie channels showing HD-format movies simultaneously, plus channels devoted to horror movies, epic films and soccer matches in HD.

On the other hand, other channels among the 21 exclusives Voom is offering look like real head-scratchers. A high-definition channel devoted to collectibles? A channel devoted to art galleries? A high-definition channel devoted to fashion and dining? A collectible channel seems like a stretch no matter what format you broadcast it in. Viewers may decide that simply getting HBO from their cable system or satellite operator will suffice.

Softer Side

Not too reassuring is the retail partner for Voom that Cablevision announced Wednesday:

Sears

(S) - Get Report

. While having a nationwide retail channel can't hurt -- and a Sears executive said the company does a good business in selling HDTV sets -- Sears doesn't immediately spring to mind when one thinks of early-adopter purchases. That's so even though the company was a co-founder of the old Prodigy online service, and once was the exclusive retailer for

AT&T

(T) - Get Report

home computers.

On Wednesday, however, Dolan wasn't fazed by any naysaying, even though he cheerfully admitted to reporters he had no idea how much it would really cost to launch the service or how consumers would react to Voom. "The whole period going forward, especially the next three months or so, is going to be a great learning experience," he said.

And he dismissed the competitive threat posed by the already-established multichannel video operators who are already offering HDTV as part of their programming. "We have the opportunity to be there first with the most," he said. "There's a creative opportunity that isn't there for the others."