Mike Farrell's blog

Help From an Unsung Source

By: admin Nov 12 2012 - 1:27pm

Sometimes it takes a disaster to bring out the best in people, or just to open their eyes to the kindness and compassion that is already there.

In the past few days, newspapers and TV newscasts in New York and New Jersey have been full of stories of local residents helping people in areas that were devastated by Superstorm Sandy and a subsequent nor’easter that together caused billions of dollars in damage, threw millions into darkness and claimed more than 100 lives.

Sometimes a Cigar is truly just a cigar.

By: Aug 28 2007 - 3:31pm

It was a pretty innocuous suggestion, a throw-away comment really, during a conversation with a stock picker a couple of weeks ago.

“Hey, did you see Time Warner’s announcement that they’ll release earnings on Nov. 7?”

“Sure,” I said. “So what?”

“But they usually release earnings on the first of the month,” the stock picker replied. “Maybe they’re waiting a week because they don’t want to take the big stock hit that normally follows earnings.”

That seemed pretty logical to me. The stock market has been relentlessly unforgiving lately when it comes to cable companies. Stock prices of the six publicly traded cable companies are down 4.2% overall so far this year – the decline grows to 10% if you back out Cablevision Systems, which is up mainly because of the privatization bid for the company. And after the last spate of earnings calls earlier this month, the sector took another big hit.  This despite consistent double-digit revenue and cash flow growth. And though subscriber growth was slower than expected, it should have come as little surprise given that the industry has been telling the market for years that the second quarter is seasonally weak as snowbirds and college students disconnect service.

Time Warner has traditionally been the second big cable company to report earnings – Comcast is usually the first. So who could blame them for wanting to wait a week?

Time Warner had a very simple explanation for the earnings date. Nov. 7 is the first Wednesday of the month. Time Warner always reports earnings on the first Wednesday of the month.

It didn’t take much effort to figure that out – looking back on third quarter earnings releases for the past three years, Time Warner has reported its third quarter results on Nov. 1, 2006; Nov. 2, 2005; and Nov. 3, 2004. All Wednesdays. And the same is true for first, second and fourth quarter results – all released on Wednesdays.

It’s no big deal really, but it just got me thinking about how everybody – not just reporter-types like me – is looking for the hidden agenda, the smoking gun, the tiny tidbit of info that leads to the larger, broader disaster scenario, especially when it comes to cable operators.

Now, I am by no means discouraging skepticism. And I have more often than not been on the receiving end of less than truthful information from cable companies.

But there is a point when the conspiracy theories are just, well, theories. And bad ones at that.

Remember last year, when a CableLabs report was leaked to the press and there were stories that the industry was heading for another massive rebuild?

It turned out that the “rebuild” was just a worst-case scenario. The report’s main thrust was that cable wouldn’t need to rebuild its network for years.

Sanford Bernstein cable and satellite analyst Craig Moffett had an interesting take on the conspiracy theory mindset in one of his weekly tongue-in-cheek Media Blasts earlier this month. Entitled “The Deep Distrust of All Things Comcast,” Moffett looks back at how the market has reacted to Comcast chairman and CEO Brian Roberts’ comments on everything from buying Sprint to abandoning the analog tier to go all digital (No and no, by the way). But despite Roberts’ denials, the market was sure that he was lying.

“Actually, it has never been entirely obvious to us why Comcast is mentioned in every (every!!!) take-over rumor that crosses the tape,” Moffett wrote. “Or why investors always (always!!!) seem to assume that Brian Roberts is lying. About everything. Maybe, just maybe, Brian’s telling the truth (gasp). That he is actually genuinely concerned about keeping a conservative balance sheet. That he means it when he says "Comcast is strategically complete." That he really believes wireless doesn’t fit. That the plant doesn’t need to be rebuilt.”

And maybe, just maybe, sometimes a cigar is truly just a cigar.

The Pellet with the Poison

By: Sep 13 2007 - 1:41pm

One of the things that have been kind of glossed over amid reports last month that Charter Communications chairman, Microsoft co-founder and really big yacht owner Paul Allen was considering, among other things, taking the cable company private, was the fact that Charter deemed it necessary to create a “poison pill.”

Allen, who formed Charter in the 1990s through the strength of his considerable wallet, controls 91% of Charter’s vote and 52% of its equity. Translation: Nothing gets done, let alone a sale or hostile takeover, without Allen’s say so.

Whenever a company initiates such an action – they’re usually called shareholders rights plans – it’s usually because of a perceived threat. Remember a few years ago, News Corp. initiated its own poison pill when John Malone’s Liberty Media quietly amassed a 19% voting stake in the media giant, which he recently agreed to sell back to News Corp. for its interest in DirecTV Group and some programming assets.

But the catalyst for the poison pill was the fear that Malone could eventually amass a voting interest in News Corp. that would surpass the 30% owned by chairman Rupert Murdoch and his family.

Some analysts on Wall Street who follow Charter were a little puzzled by the poison pill, mainly because Allen has such an iron grip on Charter’s voting stock. In a recent Securities and Exchange Commission filing, Charter offered a little more insight as to why.

In a nutshell: to protect their net operating loss carry-forwards, or NOLs.

NOLs are a valuable commodity, especially in the cable industry, because they basically allow publicly held companies to use their accumulated losses over the years to avoid paying taxes in the future. So in the event that Charter starts turning a profit in the coming years, they can use their NOLs to avoid paying taxes.

NOLs are no small piece of change either. Charter, according to its 10-Q quarterly statement filed with the SEC in August had about $7.1 billion in NOLs as of June 30.

The need to protect those NOLs centers on a section of the U.S. Internal Revenue Code that deals with ownership shifts. The IRS routinely measures the number of individually managed mutual funds that own 5% or more of a stock and if that total percentage exceeds a government-set benchmark, from a tax standpoint an ownership shift has occurred. That could mean that the amount of NOLs that a company can use in one year can be limited.

So, an ownership shift doesn’t necessarily mean a takeover attempt, but could be as simple as new funds buying 5% stakes in the company or existing holders – other than large mutual funds that spread their holdings across several different funds – adding to their 5% stake. The rights plan would require board approval of any fund or individual that buys 5% or more of Charter stock or currently owns a stake of 5% or more to add to its position. The thinking is that the plan would help prevent any shareholder from inadvertently triggering an ownership shift and doesn’t have anything to do with Allen considering any particular transactions.

And a true “change of control” can only be triggered by Allen himself. Charter has about 400.4 million shares of Class A stock outstanding as of June 30 each with one vote each, and 50,000 shares of Class B stock outstanding. Allen owns directly and indirectly all 50,000 of those Class B shares. According to the filing, each Class B share is entitled to 67,836.4 votes. That means Allen’s Class B shares alone entitle him to 3.4 billion votes.

Charter admitted in the filing that the chances of a hostile takeover of the company are slim.

“…because Mr. Allen owns 90.92% of the voting power of the outstanding stock, no person could acquire a controlling interest in the company without his consent regardless of the existence of the rights agreement,” Charter said in the filing. “Furthermore, because Mr. Allen indirectly owns all of our outstanding Class B Common Stock, he has the authority to rescind the rights agreement at any time.”

It’s all very complicated and as is usual with a lot of tax issues, probably unnecessarily so. It kind of reminds me of the classic exchange in that old Danny Kaye movie, The Court Jester: “The pellet with the poison’s in the vessel with the pestle; the chalice from the palace has the brew that is true.”

Or was it the flagon with the dragon?

What If They Held A Price War And Nobody Came?

By: Nov 30 2007 - 1:48pm

It seems that ever since Verizon and AT&T seriously began entering the video market, Wall Street and investors have been bracing for what they thought would be the inevitable price war between cable companies and telcos.

But according to a report by Sanford Bernstein cable and satellite analyst Craig Moffett, cable operators aren’t lowering prices to compete with telcos, they’re raising them. And the telcos are the ones that started it all.

Verizon set the standard earlier in November when they announced that prices for its FiOS voice, video and data service would rise 11.6% in 2008. That comes off a 7.6% increase in 2007.

That would have seemed to be the perfect opportunity for cable operators to either keep prices stable or lower them slightly, but they didn’t take the bait. Three of the top cable companies – Comcast, Time Warner Cable and Cablevision Systems all are raising rates in 2008, according to Moffett. And while cable rate increases are not as high as Verizon’s, for some they are their highest in years.

According to Moffett’s report, Comcast is raising analog rates by about 5.8% in 2008, slightly higher than the 5.4% increase in 2007. Time Warner Cable is raising monthly analog charges in the mid-single digit range and Cablevision announced earlier this year that analog rates will rise an average of 4.7% in 2008, their biggest increase in at least three years.

Only the Cablevision rate increase is a hard and fast number from the company. Moffett estimated the Comcast increases based on published reports from some key markets like Houston, San Francisco and Seattle. So increases could end up being materially higher (or lower) once major markets like Boston, Atlanta, Miami and Philadelphia report.

With Time Warner Cable, Moffett took the average of rate increases in two markets – 9.7% in New York City and 5% in South Carolina – to reach his mid-single digit estimate.

The Cablevision increase was the most significant to Moffett, mainly because that operator has the most exposure to Verizon – FiOS is available to about one in every 4 Cablevision subscribers – and because Verizon has been the most aggressive telco in the video market (they had about 700,000 FiOS customers nationwide at the end of the third quarter.

“Despite widespread expectations of a price war between Cablevision and Verizon, price increases appear to be accelerating,” Moffett wrote.

Moffett wrote that cable rate increases are mostly to cover rising programming costs. And he added that other services like DVRs and VOD are starting to experience increases too.

For example, Moffett wrote that Comcast raised rates for VOD movies in its Denver system by $1, is raising the cost of DVR service in Chicago from $11.99 to $13.99 per month and is raising late fees in Wisconsin by 40%. Verizon, Moffett added, is charging $79.99 for service calls that were previously free.

So the inevitable video price war doesn’t look like it’s coming this year either. But any long-time observer of the cable industry shouldn’t bee too surprised by cable’s stance. Years ago, when Verizon and other telcos were offering digital subscriber line service for $14.95 per month, cable held fast with its $49.95 monthly charge for cable modem service, claiming (and it appears, rightly so) that consumers would be willing to pay for quality.

And cable has long resisted getting into a price fight with satellite TV.

With cable losing basic subscribers at an alarming clip – those three aforementioned cable companies have lost a combined 183,000 basic subscribers in the first nine months of the year – you would think that operators would be more willing to bite the bullet at least for a little while to boost market share.

But maybe the pressure from the telcos is not as severe as everybody once thought, according to Moffett.

“Once again, these price increases are a signal that, at least, in many markets, cable is feeling less competitive intensity than many investors believe,” Moffett wrote, adding that the increases appear to reflect high marginal costs (i.e. programming) rather than “sunk cost economics (i.e. a price war).”

 

Jimmy Was Sending Signals

By: Oct 24 2007 - 1:30pm

BETHPAGE, N.Y.  – Jimmy Dolan looked a little uncomfortable standing at the podium Wednesday at the much anticipated special shareholders meeting to vote on the Dolan family’s $10.6 billion offer to take the cable company private. That, and the gloomy skies hovering over Cablevision’s headquarters here should have been the first tip on how that vote would eventually come out.

About 15 minutes later, senior vice president and corporate secretary Victoria Salhus let the cat out of the bag: the Dolans had not secured the necessary “majority of the minority” shareholder vote to approve the deal.

But prior to the announcement of the tally – the actual vote won’t be released for at least a couple of weeks, according to Cablevision – there were a few signs that all was not well in Dolan land. First off were Jim Dolan’s opening remarks to shareholders. 

“Before we begin with the business of today’s meeting, I would like to note how unusual and in many ways wonderful that is,” Jim Dolan said in opening the meeting. “Today we have a contested vote, but both sides have great optimism about the company’s future. On behalf of both the family and the company, we are grateful to all of our shareholders, no matter how they may vote, for their confidence in our product.”

Later, Dolan commented on the controversy that has surrounded the deal ever since the family made its latest offer in May.

“As you may know, there has been a lot of publicity surrounding this vote and many believe the proposal will not be approved,” Dolan said. “Accordingly, and in the interest of time, we will not have a formal question and answer period.”

About 10 minutes later the “many” were proved right.

Cablevision’s decision to forgo shareholder Q&A ticked off at least one shareholder who rose and called that decision “outrageous.” But it appeared to be in keeping with the unusually high – even for Cablevision – paranoia that seemed to envelop the meeting.

For example, reporters were each given a personal escort from Cablevision’s PR legions during the meeting (mine was Lisa Rogen, of Rainbow Media Holdings, who was as helpful as she could possibly be). The handful of reporters that actually showed for the meeting were herded into a small press room until the absolutely last minute – we were led to the meeting room at precisely 11 a.m. And one reporter mentioned that when he stepped outside the building before the meeting began to make a call on his cell phone, a beefy security guard tapped him on the shoulder to ask him what he was doing (Hello? I’m outside the building. On my own cellphone.)

Cameras and recording devices were prohibited from the meeting – this reporter had to remove the batteries from his tape recorder before being allowed entrance. That must have been wonderful for the Bloomberg TV and CNBC camera crews that were camped outside under white tents during the meeting.

And at one point during the meeting, while typing furiously on my laptop, another security guard tapped me on the shoulder, telling me to close my computer. Ms. Rogen, bless her heart, assured me that it was OK to keep typing, they were just worried that I might be text messaging out of the room. It just makes me wonder how trying to get information out of that company would be if in fact they were allowed to go private.

A few times during the meeting, Dolan fumbled and read the wrong page in his agenda – he kept wanting to move to the announcement of the preliminary vote, perhaps another sign that he just wanted to get out of the room.

After thanking shareholders for their time, that’s just what he did. 

Honoring Bill Bresnan

By: Mar 22 2011 - 7:29pm

Finding a way to honor a person like Bill Bresnan is not an easy thing to do. But I think The Cable Center got this one right.

To anyone who knew him - and that list is a long, long, long one - Bresnan was a wildly successful businessman, mentor, sage, friend and a man with an encyclopedic knowledge of Irish humor. So coming up with another run-of-the-mill [Insert Name Here] Outstanding Achievement in the Field of Excellence Award simply wouldn’t do.

Next Tuesday (March 29), the Cable Center closes nominations for its inaugural “Bresnan Ethics in Business Award.” The honoree will be named at the Cable Hall of Fame Celebration dinner at the Sheraton Chicago Hotel and Towers, in conjunction with the NCTA Cable Show on June 14, and will be an executive that exemplifies the ethical standards and integrity of the former Bresnan Communications chairman and founder. Bresnan died in 2009 after a long battle with cancer.

“Obviously we at The Cable Center and the industry appreciate the things that Bill Bresnan did for the cable industry and also the way that he did them,” said Cable Center CEO Larry Satkowiak “The family wanted to do something that would be in lasting memory of not only Bill but the way that he did business.”

The award is open to any cable executive that has been in the industry at least 15 years and has shown ethical leadership, done the right thing in the face of adversity - even if at the time it was an unpopular decision - and incorporated those ethics in their daily lives.

A 12-member committee appointed by The Cable Center will evaluate each nomination and make its decision based on those criteria. Nomination forms and complete details are available on The Cable Center’s website - www.cablecenter.org. An exhibit honoring the award recipients will be on permanent display at The Cable Center.

Bresnan Award selection committee chairman and retired A&E Television Networks CEO Nick Davatzes first met Bill Bresnan in 1980 when both worked at Warner-Amex Communications. He said that he jumped at the chance to head the award committee, adding that the award is a way for the industry “to honor him in the way he lived his life.”

Nominees have to show a track record of ethical behavior - no weekend philanthropists or one-time donors allowed. Davatzes pointed out that Bresnan wasn’t just a champion of one cause — he championed social causes like affirmative action - he was an early backer of the Emma Bowen Foundation - and educational initiatives - he was an early supporter of C-SPAN - just to name a few. On a smaller scale, his treatment of friends and employees fostered a loyalty that is practically unparalleled.

“In a real sense he reflects the value system of what in the recent past was called ‘The Greatest Generation,’” Davatzes said. “He was the first to help a community that was in trouble from a natural disaster and was a spokesman for civility when things got a little crazy in the industry.”

Satkowiak said that Bresnan’s guiding mantra was “do the right thing,” something that he stressed when talking to Satkowiak about his vision for The Cable Center. Bresnan had insisted that the information and resources at the Center be open to everyone and anyone who wants it. When Satkowiak mentioned that might be a tall order to fill, Bresnan had an answer.

“He said ‘Larry, just do the right thing and do the best you can,’” Satkowiak said. “‘This is a very good industry with very good people, and you’ll be successful at the Cable Center.’ …The guy was spot on.”

Davatzes added that Bresnan also had a knack for telling a joke - he had a vast repository - and for turning an old Irish phrase.

“He introduced me to a saying that I use to this day,” Davatzes said. “Every day is a good day when you’re on the right side of the grass. I just wish Bill was on the right side of the grass today.”

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