Cable Operators

Dolan on Dolan

5/18/2010 2:16 PM Eastern

It’s never easy to grow up in the shadow of a
famous father. But Cablevision Systems CEO
James Dolan, the 54-year-old scion of cable
pioneer Charles “Chuck” Dolan, has burnished
an image of his own over the past 15 years.
Named CEO of the Bethpage, N.Y.-based cable
operator in 1995, Jim has made some bold
moves in the past, like buying an electronics retailer
(The Wiz), which went bankrupt, but drove penetration
for high-speed cable modems. He spent
$4 billion to rebuild the network to fiber, laying the
foundation for phone service and off ering a $90
triple-play bundle for 12 months. And he isn’t shy
about disagreeing with his father, which he did when
he argued against the company’s HD service VOOM
a few years ago. ( It was later shut down.) He’s a sailor
and lead singer/guitar player for his blues-inspired
rock band JD and the Straight Shot. In late April,
Dolan, who rarely speaks to the media, gave a rare
interview to Multichannel News senior finance editor
Mike Farrell about his relationship with his father, his
sometimes-controversial past and what he envisions
for Cablevision’s future. An edited transcript follows.

MCN: Cablevision has been the top performer in the
industry for the past five years, and a lot of that success
has been built on decisions that you made that,
at the time, weren’t necessarily embraced by the rest
of the industry. Now, they all seem to be following
your lead. Does it feel good to finally be recognized
for things that historically the industry may have
questioned?

James Dolan:
You know, to be honest, I’m just happy it
worked. (Laughter.) I understand why they were skeptical.
I’m really just happy that it worked. We’re still
building off of that essential strategic brainwork from
the beginning of this decade, and it’s worked out great
for us. So, as a major shareholder, I’m really happy
about it. I’m happy it wasn’t the wrong decision.

MCN: With naysayers advising you against some of
these efforts, did some come down to a gut decision?

JD:
Well, you know, I have really excellent people
working for me, and at the time those decisions were
made, probably the most significant influence on me
in terms of making that decision, was [senior adviser,
engineering and technology] Wilt Hildenbrand,
who I consider to be basically a genius. I don’t want his head to get too big, but he had a vision of
what could be done. We talked about it, and
he convinced me that we could do it, and I
just took up the flag and ran it down.

MCN: What was he involved in specifically?

JD:
He is the architect for the first advanced
set-top box that we did with Sony, for essentially
the architecture for the fiber overlays,
fiber builds that we did, for the node sizes
that we had. I mean he really designed all
of that, and it all worked. I’m sure glad he
was right.

Cablevision CEO James DolanMCN: So now you’ve got pretty much the
highest penetration in every product metric.
Is there still room for growth?

JD: I think there is. I get surprised because
I wonder whether we are starting to go
through the whole marketplace. But [chief
operating officer] Tom Rutledge and his
team and Wilt, still, and now Jim Blackley,
who is the CTO, keep coming up with new
product enhancements and ideas that continue
to improve the product and, I think,
make it even more attractive for the consumer
and offer the company the ability
for deeper penetrations. [We’re] following
the strategy my dad started back in the ’70s,
which was to really push the value equation
with the customer base, pack in as much value
as you can, don’t worry necessarily about
the margins but go for the volume. And
that’s really been the mantra for Cablevision
since I was selling door-to-door back
in the ‘70s.

MCN: Is there any effort or thought that
you may have to expand past New York?

JD:
I don’t feel like we have to, but I do have
to say that I have a great operating team —
they really continue to hone the science of
running a telecommunications system. I
do think that they’re the best at it, that they
have lots of magic bullets that we use. And
I think, in a lot of cases, we’re the only ones
who use them, not because others don’t
want to but because maybe in some cases
they can’t, either due to size or because
of physical limitations, such as that they
haven’t built out their network operation
centers as much.
So I would like the opportunity to take
an operation that doesn’t have all those
efficiencies and all that advanced operating
plant and apply it there and see if
we couldn’t do the same things that we’ve
done in our own systems. I would have to
say we actually will look for opportunities,
but we haven’t honed in on any specific
ones yet, so I haven’t anything to
announce. So that was kind of a long ‘yes.’

MCN: You were the first major MSO that
had high-speed data and phone margins
outpace video. What is the significance of
that?

JD:
Well, it’s a direct outgrowth of the strategy
that I’d say has really been at Cablevision
since day one. We’ve also led in pay
penetration since almost really our inception.
I think we average over two pays per
home. Now not many people pay attention
to that anymore, and maybe rightfully
so. It doesn’t surprise me that, using that
strategy, that we’ve achieved what we’ve
achieved.

Does that mean you’re more of a
telecom company that a traditional cable
company?

JD:
I think we’re definitely headed in that
direction, if not close to being there at this
point. So much of what we do, in terms of
the product and the operation, occurs in
the NOC [Network Operations Center]. I’m
feeling more like a server company these
days than almost anything else.

MCN: Has being only in New York had an
impact on how you make decisions, how
you decide what gets released and what
stays in the lab?

JD:
It’s genetics.

MCN: Yeah?

JD:
Yeah. It’s all from my father.

MCN: He was pretty fearless back in the
day, too.

JD:
He was much more fearless than I was.
More than once, Dad put the entire company
on the line to go and pursue what he
thought was the right strategic direction.
Fortunately, I haven’t had [to make] those
kinds of decisions. I’m close with some
things, like the $4 billion build out of the
network. He’s always been a ‘if you believe
in it, go for it’ person, and I suppose I’ve inherited
some of that from him.

MCN: Is he still involved? Do you confer
with him? How is your business relationship?

JD:
Yeah. I would say sometimes it’s a couple
times a week, sometimes it’s daily and
sometimes it’s hourly. So yeah, he’s very involved
still, and we talk just about every
day. But sometimes it’s a lot more than once
a day.

MCN: He always seemed, even back when
he was much more involved with the company,
to be a very tech-savvy guy when not
everybody was. Is he still kind of a techie?

JD:
You know, I don’t think he’s techie.

MCN: No?

JD:
He’s much more product- and consumeroriented,
and the technology for him is just
a modus operandi to get to where he thinks
the consumer is going. So that’s why he gets
smart about it. But it isn’t for the love of the
technology. It’s because he loves bringing
new product to the customer, he loves being
disruptive. And so I think that’s what
sort of drives him. And to be honest, I think
I’m kind of the same way.

MCN: Cablevision has been one of the few
companies to take a stand against rising
programming costs, first with Scripps Networks
and then with ABC.

JD:
Yes.

MCN: How do you think Cablevision came
out of those disputes?

JD:
Well, there’s a lot of noise in the marketplace,
but my feeling is that I take a look at
what we ultimately reached for agreements
with those companies and would I have accepted
those agreements, say, two weeks
prior to all the fireworks going off — would
they have been acceptable to us? And my
answer to that is, ‘Yes, I would have.’ They
were the deals, essentially, that we wanted,
that we were fighting for.

I truly regret any disruption to the customers,
because you hate to see that, but at
the same time, I have a real concern about
expanded basic, the cost of expanded basic,
that it’s rising too rapidly and that it’s going
to drive the consumer to alternative technologies
and that it will sprout disruptive
alternatives to our business, which ultimately
will be disruptive to the programming
business, too. So I think it’s worth
fighting for.

MCN: I got the sense that in the latest round
of fights the strategy seemed a lot different.
Cable is starting to get its message out in
these disputes, where in the past the advantage
seemed to be with the programmer.

JD:
I think that might just be a reflection
of the consumer sort of reaching the end
of their rope in terms of price increases. I
think that’s worth paying attention to. I’m
not sure that, even though I’m sitting here
with one of my top public-relations people,
I’m not sure that the public relations was
exactly what won the day. (Laughter.)

MCN: But it seems that whatever ultimately
you did have to pay, that maybe more of the
value for you came in public perception.

JD:
Well, I don’t think that the public was in
any way enamored with our fight. So in the
end, you’re playing with a lose-lose situation,
and I think both sides understood that
in all of those battles that we had. I’m happy
that it didn’t last any longer than it did.
But I don’t know that we’re done with those
kinds of fights either.

I think what the programming industry
needs to recognize, including our own
programming division — although I think
they’re better at it than most, to be honest
— the expanded-basic bundle is a very rich
environment that they all live in. But it’s not
impregnable. As a wholesaler to a retailer,
you need to be concerned with the health of
your retailers and their relationships with
their customers. I think for too long that the
wholesalers and programmers have taken
that relationship for granted, between
the distributor and the customers. And in
some cases I think they may actually resent
the relationship. If ever we were to see that
environment move to an a la carte or on demand
environment, it would be devastating
to the programming business.

MCN: In the past, on the distributor side,
you haven’t been averse to a la carte. I think
you were one of the first to try a la carte, in
Yonkers, N.Y., in the early 1990s.
JD:
I don’t think that a la carte, per se, is that
lethal for the cable industry. I think it’s much
more lethal for the programming industry.

MCN: Cablevision has its own programming
arm, Rainbow Media Holdings. Does
that give you a different perspective? What
do you see happening with the programming
side of your business?

JD:
I think our group does a fairly good
job taking care of their relationships with
their distributors. They’ve done things
like make their programming available
on an on-demand basis, but only to those
that are cable subscribers, so you don’t see
it on the Internet — the most you see are little
two- and three-minute teasers, which
I think actually help viewership. I think
that’s a big part of it.

And then I think you have to use some
caution in how you price your product, and
I think that Rainbow’s products are priced
quite moderately and fit well into a bundle
and support a bundle. So from that point of
view, I think they’re doing the right things.

MCN: Even as Rainbow has scored some
pretty big hits on the originals side, how do
you moderate costs?

JD:
I think that the pricing, in terms of to
the distributor, I think has moderated fairly
well. That’s what I mean by exercising restraint,
because I think that when you’re
having a hit program like that, that’s when
you feel like you should have leverage with
your distributors. And instead of trying to
go for every last dime you can get out of your
distributor, you instead moderate and then
support the distributor. But it really has to be
an industry movement, and that does concern
me. I don’t know that we have that.

MCN: You’re very active in the The Lustgarten
Foundation. Exactly what do you do for
the organization?

JD:
Well, the most obvious spark was [former
Cablevision executive and Madison
Square Garden chairman] Marc [Lustgarten]
himself, who was a great fighter and
a mentor of mine. And as soon as Marc
learned that he had pancreatic cancer, he
began formulating his plan on how he was
going to beat pancreatic cancer. And he
left us with the legacy of that plan that he
had, and we’re still following it. [Lustgarten
died of the disease in 1999, at age 52.]
What the company does is, it underwrites
all of the expenses of operating the
foundation, which means that every dollar
that’s contributed to cancer research
through the Lustgarten Foundation goes
to pancreatic cancer research and nothing
else. We’re making a lot of progress,
and my hope is that we will find a cure. Every
year, I do a big Christmas bash, and we
raise some fairly significant dollars with
the help of our friends. And we play some
pretty good rock ‘n’ roll. And we have a lot
of fun, which is much better than a rubber-
chicken dinner.

September