Dolans to Drahi: Cash and Carry

Cablevision’s Founding Family Finds Its Buyer
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RELATED:A Cable Empire Grows — Fast

In the end, it took a foreigner to do what no domestic cable company could do for the past two decades — convince the Dolan family to sell Cablevision Systems.

Altice’s purchase of Bethpage, N.Y.-based Cablevision for a hefty $17.7 billion marks the end of an era that was begun by Cleveland native Charles Dolan 42 years ago. Dolan, who started out in the TV business by splicing together sports clips for local television stations in his kitchen, had a hand in developing the modern cable industry.

It was Charles Dolan who first thought of a cable channel that showed uncut movies (which later became HBO); who wired Manhattan for cable TV; who developed regional sports channels; and who took a small cable system in Long Island and built it into one of the top performers in the industry.

When Dolan’s son Jim took the helm as CEO in 1995, that growth continued. Cablevision had the highest penetration of advanced services; pioneered the triple play of voice, video and data; and dedicated the capital to build an unparalleled WiFi network when other MSOs were concentrating on cellular service.

Despite its success — and some say because of it — Cablevision has stumbled of late. Slim growth prospects and tougher competition from a reawakened Verizon FiOS, as a well as threats from over-the-top competitors such as Netflix and Hulu, have forced the company to rethink its strategy.

Lately, that has meant focusing on connectivity. The company has made some landmark deals with Netflix, Hulu, HBO Now and others; launched a WiFi-only phone service called Freewheel; and offered a package of high-speed data service and a digital antenna, dubbed the “cord-cutter package,” for cost-conscious millennials.

But that hasn’t been enough to stem subscriber losses. According to MoffettNathanson principal and senior analyst Craig Moffett, competition with FiOS has been worse than expected. Citing U.S. Copyright Office statistics, Moffett said in a recent report that in the second quarter Cablevision had lost about 6% of its subscriber base in the Bronx and 8% of its base in Brooklyn. It seems like the Dolans, who have been known for their scrappiness and refusal to quit, have had enough.

The family said almost as much, saying a statement that nearly half a century after the company was founded, “the time is right for new ownership of Cablevision and its considerable assets.”

“We believe that Patrick Drahi and Altice will be truly worthy successors, and we look forward to doing all we can to affect this transition for our customers and employees,” the statement read. “We expect that Cablevision will be in excellent hands.”

The Dolans also will be well-compensated for their troubles. According to a proxy statement filed with the Securities and Exchange Commission, CEO Jim Dolan will receive a package worth $128 million in severance, bonus and stocks awards if he is not kept on as CEO.

There has been speculation concerning a Cablevision sale for more than 20 years. In the early 2000s, the Dolan family, taking advantage of cheap debt, tried to take Cablevision private three times, only to be thwarted by minority shareholders. After that, Cablevision embarked on a divestiture strategy, spinning off its programming assets into AMC Networks and its sports and arena business into The Madison Square Garden Co. MSG is set to be split yet again, into separate sports and entertainment companies, later this year.

Other analysts weren’t too surprised the Dolans decided the time was right to sell. They pointed to comments Jim Dolan made at the INTX show in May, in which he called for the New York market, his market, to be consolidated.

“They found a buyer,” Telsey Advisory Group media analyst Tom Eagan, a longtime Dolan watcher, said. “If it’s not him [Drahi], who is it going to be next year? It’s unlikely it’s going to be anybody local, and private equity probably isn’t as attractive as it used to be because of the lower cash-flow growth. They’re kind of lucky that they have Drahi in the company.”

RELATED:A Cable Empire Grows — Fast

In the end, it took a foreigner to do what no domestic cable company could do for the past two decades — convince the Dolan family to sell Cablevision Systems.

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