Cablevision Sells Satellite to EchoStar
By ANDREW ROSS SORKIN and GERALDINE FABRIKANT The New York Times January 21, 2005
Ending a father-son boardroom battle, Cablevision Systems Corporation dismantled its struggling satellite business last night by selling its satellite to EchoStar Communications for $200 million in cash.
The sale comes just two days after Cablevision's 78-year-old founder, Charles F. Dolan, lost a showdown with his son James L. Dolan, the company's 49-year-old chief executive, over the fate of the satellite business.
The younger Dolan and the board voted to sell the satellite business, which had been criticized by investors as a black hole, despite vehement opposition from his father, who has heralded the business as the future of the company.
The family rift has renewed speculation among some on Wall Street that the Dolans could be driven to put Cablevision up for sale.
The schism became so great that there were times when the elder Dolan stopped speaking to his son, according to executives close to the company.
Even as late as yesterday, the elder Dolan and other members of his family including his other son, Thomas Dolan, executive vice president of the company, had been trying to hatch their own plan to buy the satellite business, called Rainbow DBS, according to the executives.
A recent memorandum distributed to employees said, "Potential bidders for RDBS include members of the Dolan family."
A spokesman for Cablevision declined to comment. Cablevision stock rose $1.10 yesterday, or 4.5 percent, to close at $25.48.
The sale of the satellite business to EchoStar ends Mr. Dolan's dream to create his third major media sensation.
In addition to creating Cablevision, Mr. Dolan founded HBO, the subscription-based cable network now owned by Time Warner. Mr. Dolan often compared his fledgling satellite business to HBO, frequently reminding investors that skeptics had belittled his early efforts to start that network, too.
Mr. Dolan had tried to create a niche in the satellite market by specializing in broadcasting more high-definition television programming than the other satellite providers or cable operators. But his vision may have been ahead of its time. Sales of high-definition televisions and demand for programming to match have not materialized as fast as he and many analysts had predicted.
The service, called Voom, which started in 2003, has only 26,000 subscribers and has lost more than $76 million. The company said it would continue to provide service to its current customers during a transition period, but did not elaborate on what would eventually happen to them.
Under the terms of the deal yesterday, EchoStar will pay $200 million in cash for Cablevision's satellite, called Rainbow 1, as well as federal licenses to construct, introduce and operate satellite services over 11 frequency channels. In addition, EchoStar will buy the company's ground facility in Black Hawk, S.D., and related assets.
EchoStar, which operates under the Dish brand, said it was "assessing how the Rainbow satellite's flexibility can best be utilized to enhance Dish Network's existing service."
Cablevision, which is based in Bethpage, N.Y., said it would continue to explore strategic alternatives for its remaining Rainbow DBS-related assets, including programming, equipment and spectrum.
Cablevision originally said in October 2003 that it planned to spin off the satellite business into a company called Rainbow Media Enterprises, which was also supposed to include three of Cablevision's networks: American Movie Classics, the Independent Film Channel and Women's Entertainment. But after those plans were delayed twice, Cablevision shelved them and began exploring alternatives for the business.
Besides their own infighting, Cablevision and the Dolans are enmeshed in a public fight over the construction of the proposed $1.4 billion football stadium on the West Side of Manhattan. Cablevision, in addition to operating a cable television service, owns Madison Square Garden and Radio City Music Hall, and it views the stadium as competition. It has spent millions of dollars in advertising to oppose it and is also part of a lawsuit against the city seeking to block the building's development.
The Wall Street Journal story:
EchoStar to Buy Voom's Assets
By PETER GRANT and ANDY PASZTOR Staff Reporters of THE WALL STREET JOURNAL
January 21, 2005; Page A3
Cablevision Systems Corp. will shut down its Voom satellite service and sell most of the assets of the money-losing business to EchoStar Communications Corp. for $200 million in cash.
The deal amounts to a major defeat for Cablevision Chairman Charles Dolan, who has championed the service for more than 10 years. It also marks the climax of a family and financial drama that pitted Mr. Dolan against his son James Dolan, Cablevision's chief executive.
Yesterday's announcement follows a tumultuous month in which James Dolan sided with a majority of Cablevision board members in trying to sell Voom or shut down the service that had little hope of seeing a profit for years. Charles Dolan at one point threatened to use his controlling stake in the company to force directors off the board who opposed continued funding. Earlier this week, Charles Dolan indicated in a memo to Voom employees that family members might buy the service themselves to keep it operating.
"It closes the book on what has been a relatively unhappy chapter in Cablevision's history," says Craig Moffett, analyst for Sanford C. Bernstein & Co.
EchoStar will purchase Voom's only satellite, launched by Cablevision in 2003, and other equipment. Cablevision will continue trying to sell Voom's other assets, including valuable slots for satellites to orbit, which could fetch tens of millions of additional dollars. But the cable operator is unlikely to come close to recovering its investment in the business, estimated at more than $500 million.
Cablevision said in a press release that it would continue to provide service to Voom's roughly 26,000 subscribers "during a transition period." A spokesman declined further comment. James and Charles Dolan couldn't be reached.
EchoStar, the country's second-largest satellite-TV operator, has long been seen as the most logical buyer of Voom's assets. Charles Ergen, the company's chairman and chief executive, for months has been weighing alternatives to compete more effectively against the deeper pockets of DirecTV Group Inc., the largest satellite operator.
The deal with Cablevision could alleviate the concerns of investors worried about EchoStar's ability to keep up with DirecTV in providing additional high-definition programming.
Mr. Ergen negotiated what industry officials said was a surprisingly low price for a powerful, two-year-old satellite with no known defects and more than 16 years left in orbit. It cost about $250 million to build and put the satellite into orbit, while EchoStar has avoided the risk of a launch failure and early operational malfunctions.
Voom began selling its service in late 2003, but it got off to a bad start, burning through $75.3 million in cash in the third quarter of last year. Voom's strategy was to offer more high-definition channels than cable companies and other satellite operators. But this failed to attract much demand, especially as competitors added more high-definition offerings. Crutchfield Corp., a large retailer of television and audio equipment, recently stopped selling Voom.
Cablevision, the nation's sixth-largest cable network, also owns Madison Square Garden, the New York Knicks and the New York Rangers. Its shares continued to rally yesterday on investor confidence that the company will soon stop funding Voom's deficits. In 4 p.m. composite trading on the New York Stock Exchange, shares were up $1.10, or 4.5%, at $25.48.
The decision to sell Voom marks the first time that James Dolan has publicly stood up to his father after working for years in his shadow. Until now, James Dolan was primarily known for the ho-hum performance of Cablevision's sports teams and his high-profile battles with other prominent New Yorkers. Most recently he has fought New York Mayor Michael Bloomberg over the city's efforts to build a new stadium on Manhattan's West Side that would compete with Madison Square Garden.