Cablevision (SYM: CVC) is in the middle of a nasty corporate war that has already had major implications for the future of the company.
- Mar 11, 2005
- admin
- Investing
IT’S TIME FOR THE F-A-M-I-L-Y F-E-U-D!
And I’m your host…DYLAN JOVINE!
Now it’s time to meet our contestants….
Our first contestant is the Crusty, King Lear-Style
founder and Chairman of Cablevision…
Ladies and Gentlemen meet…CHARLES DOLAN!
(WILD APPLAUSE)
Our next contestant has had the honorable distinction of
having spent his entire life toiling to win his fathers
approval.
A quest so difficult, so trying, that for most of his
life it appears that he never had an original idea.
Up until now that is…
When his first original idea was to vote against his
own father!
Ladies and Gentlemen meet our next contestant, the
President of Cablevision…..JAMES DOLAN!
(WILD APPLAUSE)
Ahhh, if this were only just a 30-minute game show.
Instead it seems that what shareholders are witnessing
is a corporate meltdown.
A family-style Freudian Psycho-Drama.
And not only is it painful to watch (like watching an accident),
but it’s bad for business.
Very bad for business.
Let me explain:
The Dolan Family runs Cablevision, one of the “premier”
cable companies in the country.
Located in New York, it has 3 million “affluent”
customers that pay above-average prices for below average
services.
Over the years the Dolan’s have run the company like a
personal fiefdom.
How is that possible you ask?
Although they own only 2.5% of the Class A Stock (what most
people own), they happen to own over 60% of the Class B stock.
That’s the “Super voting” stock.
The stock that controls the board of directors.
And it’s the board of directors that control the direction of
the company.
In other words they’ve been able to make investments that affect
the shareholders of the company without any interference.
Investments that put the strong and consistent cash flow from
cable into weak and inconsistent businesses like
“the Wiz” retail stores.
Or Voom, their satellite service.
How has this affected shareholders during the past decade?
Shares in cable company and Tycoon Recommendation Comcast
have outperformed Cablevision by 2-to-1.
As a matter of fact, an investor would have made just as
much money buying the S & P 500 ten years ago as buying Cablevision.
But that’s another story.
The real story is what’s happening now.
Right now were at the biggest pivot point in the history
of personal telecommunications.
It’s cable versus satellite.
Boxes versus dishes.
Even the baby-bells are jumping into the fight.
And every company is spending billions to:
A): Protect the core cash-cow business.
B): Expand into new areas.
That’s why companies like Comcast are spending tons of
money beefing up their networks.
They want to lock you in with golden hancuffs: digital
cable, movies-on-demand and telephone services.
This was you won’t leave them when you get offered a free
month from Verizon or Echostar.
In other words, Comcast is as focused as a laser on protecting
their home turf.
But Cablevision hasn’t really gotten the point.
As a matter of fact, company founder and Chairman Charles Dolan
is investing in satellite even before his core business is fully
protected.
A satellite service that Cablevision started several years ago
named Voom.
The same satellite service that only has 50,000 subscribers
and is losing hundreds of millions of dollars per year.
That’s money that could be spent investing in services that
protect their core cable business.
Services that create switching costs.
Services that lock in customers.
Services that build customer loyalty.
And that’s what the recent fight is about.
Charles Dolan, the father of both the Company and the President,
wants to keep investing in satellite.
For once in his life, James Dolan, his son and the President
of the Company, doesn’t agree.
He thinks they lost the satellite race to EchoStar and Direct TV.
And he’s right.
Why?
Because to play in the satellite game and compete effectively
against Echostar and Direct TV you need massive scale.
To get massive scale you need massive dollars.
I’m talking tens of billions of massive dollars.
In other words, it ain’t happening.
But that’s not whats suprising.
What’s suprising is that the light finally went on in
James’ head.
He finally figured it out.
Voted against the old man.
Turn the other cheek.
And that really pissed King Lear off.
In fact he’s gotten so pissed that he did something
that only somebody who controls a majority of Super voting
stock could do.
He did a “Michael Eisner.”
That means he fired all the board members that disagreed
with him and replaced them with “friends” who agree with him.
Not the kind of people I call “friends.”
The kind of “friends” who’ll end up eating your young.
Friends like Liberty Media’s John Malone – whose nickname
Darth Vader – has stuck to him like the diapers on King Lear.
Friends who will end up – in the long run – owning the very
same assets you’re trying to protect.
I guess it’s really quite sad when you think about it.
A family splitting apart so grotesquely in the public eye.
But than again that kind of thing happens every day in the
world.
The good news is that shareholders could sell the stock
and protect their own families.
Remember, you are what you read.
–Dylan Jovine