News

Cablevision Uses Retail to Push Services

1/03/1999 7:00 PM Eastern

When Cablevision Systems Corp. took over then-floundering
retail chain Nobody Beats the Wiz early last year, financial analysts were skeptical.

And if looking at the purchase strictly as an incremental
revenue stream, they may have been right. Compared to cable, retail is a highly
competitive, low-margin business.

But owning the group of New York and New Jersey based
stores -- since renamed The Wiz -- gives Cablevision another chance to be in front of its
customers as much as possible, said Lehman Brothers analyst Bob Berzins.

Because the chain was operating under bankruptcy protection
at the time of the sale, analysts agreed that Cablevision was able to buy it on the cheap.

"The financial risk is minimal," said Goldman
Sachs analyst Lou Kerner. The bigger risk, he added, is that management might take their
eyes off the ball by devoting time on a "relatively minor part of the overall
business."

Cablevision now has more expert retail help. Last month it
hired Bill Marginson, who co-founded Yes Appliances and Furniture in 1995, as president
and CEO for The Wiz.

Marginson said the synergies involved in working with
Cablevision and its other properties helped "start the juices flowing" when he
was deciding whether to take the job. Cablevision also owns Radio City Music Hall, Madison
Square Garden, movie theaters, and several sports teams.

Marginson said The Wiz is redesigning its stores to be
"consistent with the synergies and strategies of Cablevision," including heavy
cross-promotion among the various Cablevision entertainment properties.

The Wiz can work for Cablevision providing it can leverage
the store to sell new services, such as cable modems, digital telephony and digital cable,
Kerner suggested.

Michael Bair, president of product management and marketing
for Cablevision, said the point in creating synergies among the various properties is to
create deeper relationships with its customers.

"In the world of data, telephone and video, if you're
in a commoditized world, that's very dangerous," Blair said.

While other MSOs have set up retail showrooms on a limited
basis, owning The Wiz allows Cablevision to market its wares at the same moment a consumer
is choosing a television or computer. It also gives consumers an opportunity to compare
direct-broadcast satellite and digital cable side-by-side for the first time.

Marginson said Cablevision continues to sell DBS as
aggressively as before it bought the retailer. Ultimately, it's up to consumers to decide
which service they want, Marginson said.

But some analysts were skeptical.

"Cablevision obviously does better if it sells digital
cable rather than DBS," said Barbara Sullivan, president of Denver-based B.G.
Marketing. "My notion is it's not overtly promoting cable over DBS," she added,
although she thinks The Wiz might be pushing cable covertly in some way.

Sullivan also suggested that DBS operators may be reluctant
to share marketing strategies with The Wiz because of its cable parentage. Losing DBS
sales shouldn't be a big problem for the chain if they make it up in digital cable
revenue, she said.

But The Wiz will still want to keep its hand in the DBS
category even if digital cable sells well.

"It needs DBS as a reference point," Sullivan
said. "It's an opportunity to take the pent-up demand for DBS and translate that to
digital cable sales."

The partnership between Cablevision and The Wiz opened up a
lot of eyes in cable about the need to go to retail, especially for cable modems, she
added.

The Wiz demonstrates Cablevision's Optimum Online
high-speed cable modem service in two of its Long Island, N.Y. stores and in Norwalk,
Conn., and plans to expand that store count to 20 in 1999.

At its Carle Place store, The Wiz recently closed 50 cable
modem sales in one day, said Marginson.

Roughly half of the Wiz's 40 stores are located within
Cablevision's service area. Time Warner Cable has a stronghold on Manhattan, where many
Cablevision subscribers commute to work.

"If Cablevision is successful in driving cable modem
sales, it would behoove Time Warner to strike a deal," said Glenn Friedman, president
of California-based Ideas & Solutions! Inc.

Marginson said partnerships with Time Warner were under
discussion.

Friedman also wondered whether other local New York
retailers would respond by pushing DBS and DSL high-speed data services if Cablevision
doesn't strike retail deals with them.

At year's end, The Wiz had about 12 of its stores wired to
receive high-definition television feeds from Cablevision, said Marginson. Next year will
be an interesting time for HDTV, he added, although he believes many consumers will
continue to buy analog sets because of the price differential.

In the long-term, HDTV sales could help further Cablevision
service sales.

"We could help you buy a digital set-top or a cable
modem to go with it," Blair said, and a salesperson might steer customers to advanced
video services from Cablevision so they will have enough HDTV programming to watch.

While analysts are giving Cablevision the benefit of the
doubt as far as its purchase of the Wiz is concerned, they don't see this as part of a
nationwide trend.

"Cablevision and The Wiz were just a good geographic
fit," said Berzins.

"You can't look at it as just The Wiz and the cable
company," said Yankee Group analyst Bruce Leichtman. "You've got to look at it
as part of a whole" New York conglomerate they're putting together.

March