As Voom Sheds Subs, Street Stays Skeptical

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Last week, three of the few remaining constants in the cable industry were evident after Cablevision Systems Corp. released its third-quarter results: its Rainbow DBS direct-broadcast satellite venture shed subscribers; CEO James Dolan tried to defend those losses; and Fulcrum Global Partners analyst Richard Greenfield didn’t believe Dolan for a second.

Rainbow DBS, which launched its Voom-branded HDTV satellite service a little more than a year ago, continued to bleed subscribers — dropping from 28,700 customers in August to 26,000 at the end of September.

Though virtually every analyst that follows Cablevision has called for the company to shutter Voom, none has been as vocal as Greenfield, who followed up his research note with a letter to press contacts.

“I do not believe there is one investor (beyond those with the last name Dolan) who owns or does not own the stock who believes this is a good idea,” Greenfield wrote in the letter.

In a conference call with analysts last Tuesday to discuss Cablevision’s third-quarter results, Dolan tried to put a good face on the Voom service.

“There is a vision there, and this company has been built on vision such as Voom,” Dolan said on the conference call. “We understand that not everyone agrees with that vision, but not everybody agreed with my father’s [Cablevision chairman and founder Charles Dolan] vision of [Home Box Office] or even of suburban cable.”

Greenfield wasn’t buying it. The HBO argument is not valid, he wrote, because it was a unique service that changed the TV landscape, while Voom is late to the HDTV game. And Voom appears to be offering little compelling new content — its 21 proprietary HD channels include genres ranging from horror movies (Monsters HD) to extreme sports (Rush) to weird, squiggly shapes set to music (Moov).

The success of Cablevision’s terrestrial HD offering perhaps best illustrated those points. The MSO gained 19,000 sequential HDTV subscribers in the third quarter, finishing with 102,000 customers.

While subscribers flee, Voom continues to suck up cash. It has already burned through $400 million, and could need between $1.4 billion and $2.4 billion over several years to finance new satellites. During the first nine months of 2004, Voom reported revenue of $9.6 million and operating losses of $211.6 million.

On the Cablevision conference call, Rainbow Media president Josh Sapan said Voom’s focus would shift to creating a new marketing plan, rather than subscriber growth. Voom placed an ad in the The Wall Street Journal for a chief marketing officer/head of sales, to replace two top executives who resigned this summer. It said the ideal candidate “must be a creative executive with entrepreneurial drive and passion for this new enterprise.”

Greenfield couldn’t resist: “Job applicants have no idea how creative they’ll need to be.”