Chuck Dolan last week finally began taking the wraps off his new HDTV-centric direct-broadcast satellite service, announcing its executive team and its Oct. 15 launch date. Satellite pioneer Mickey Alpert will head up the venture, called Rainbow DBS.
Dolan's Cablevision Systems Corp. also provided bare-bones information about the service's programming lineup, whose centerpiece will be "Voom", an exclusive package of 21 HDTV channels.
All in all, Cablevision chairman Dolan didn't appear to have allayed doubts — on Wall Street or within the cable industry — about this foray into DBS.
"I still would have preferred it [the Rainbow 1 satellite] blew up on launch," Fulcrum Global Partners analyst Richard Greenfield said.
While hiring Alpert as Rainbow DBS's chief operating officer and senior vice president shows Cablevision is serious about the service, according to Greenfield, "To me, the best thing would be to shut it down or sell it to somebody."
In terms of cable's reaction, skeptical insiders still questioned whether Cablevision can overcome the enormous challenges it faces as Rainbow DBS takes on two entrenched rivals, DirecTV Inc. and EchoStar Communications Corp.
First and foremost, Rainbow DBS needs to provide HDTV content that is truly compelling.
"They need to be very aggressive in their programming," said Mark Cuban, chairman and president of high-def programmer HDNet. "It has to be clearly differentiated and complete. If they are, they can get subscribers. If they aren't, it will be easy to sell against them using price and content they don't have."
Some naysayers were already doubting whether the Voom HDTV channels, which will be created by Cablevision's Rainbow Media Holdings unit, will be anything more than repurposed fare from the unit's existing networks and libraries.
Rainbow includes AMC, WE: Women's Entertainment and Fuse.
Secondly, Cablevision will have to be very savvy about the way it sells Rainbow DBS to consumers, industry-insiders repeatedly stressed.
While the company remained mum about how it plans to market its DBS offering, sources confirmed earlier reports that it will use Sears as its national retail outlet. That tack has been met with skepticism, since Rainbow DBS is targeting affluent consumers. And they are not Sears's typical customers.
"It's a high-end product, yet it's at Sears?" said one programmer.
21 HD exclusives
Rainbow DBS, according to Cablevision, will offer as many as 39 HDTV channels, with 21 of them part of the exclusive Voom package. Rainbow president Josh Sapan, the architect of Cablevision's Mag Rack VOD offering of special-interest channels, has been involved in creating Voom's proprietary HDTV networks, a source said.
Voom will include a dozen movie services, possibly getting films from MGM for some of them, according to that source. The Voom package will also include sports, music videos and a "monster" horror channel, apparently leveraging off the kind of programming that has aired on AMC, namely its hallmark "Monsterfest" of horror flicks.
So despite Cablevision touting the exclusivity of the Voom networks, one programmer said, "I don't think it's [Voom] going to be the big driver for Rainbow DBS."
Cablevision expects its DBS service to have 1 million subscribers and to hit break-even before the company has invested $1 billion in it.
Alpert, who reports to Cablevision chairman Dolan, is leading Rainbow DBS's quest to attract high-end consumers. He has been with Alpert & Associates since 1986, and consulting on Rainbow DBS for several years. Prior to that, Alpert served as a senior officer of Comsat, where he led the development of the first U.S. DBS service.
Rainbow DBS apparently has not nailed down deals yet with all the programmers it wants. Cuban, for example, said he has yet to strike agreements for his networks, which include HDNet and HDNet Movies.
Jimmy Schaeffler, chairman and chief service officer for The Carmel Group, a research and consulting firm, said he was surprised to learn that Rainbow Media will be providing so much of Rainbow DBS's HDTV content.
But overall, he said Rainbow DBS — which will offer up to 88 cable channels in standard-definition format, as well as local digital over-the-air programming — is "a hell of a package."
"This is going to be the answer for that high-end consumer who has already plopped down a very considerable amount of money for the [HDTV] hardware and has been part of the pent-up demand for the software. All of a sudden, somebody is really addressing that need," Schaeffler said.
Nonetheless, Rainbow DBS is facing formidable competitors and must find a way to stand out, according to Schaeffler.
"They're working against an entrenched base of 20.5 million DBS subscribers between EchoStar and DirecTV…and 64 million cable television households," he said. "That multichannel universe is incredibly penetrated. … Voom, in order to succeed, has to be a quantum leap better in at least one category than anything that is out there today."
In addition to Alpert, last week Cablevision unveiled the names of other Rainbow DBS executive-team members. Bill Casamo, executive vice president of marketing and sales, held a similar post at DirecTV and was also a vice president of sales for Thomson Consumer Electronics.
Jay Aldrich, named Rainbow DBS's executive vice president of finance, is formerly a senior vice president with Alpert & Associates. He was also an executive with PrimeTime 24, a satellite program provider.
Cablevision plans to make other major announcements about Rainbow DBS on Oct. 15.
Cablevision stock rose 99 cents per share (5.5%) to $19.09 apiece on Oct. 1. Oppenheimer & Co. cable analyst Tom Eagan said that the rise was mostly because Cablevision was finally ending its silence regarding the DBS service. But he still saw Voom as being a complement to existing cable service, rather than as a standalone DBS competitor.
"It's an expensive proposition for people to use as a complementary service," he said.
It could get costlier still. In August, Cablevision applied to the Federal Communications Commission for licenses for five more satellites to expand its reach. Its existing satellite, Rainbow 1, cost the MSO about $250 million and only covers between 80% and 90% of the country. Each new satellite could cost $250 million to build and launch.
"It makes less sense," Eagan said of the desire to win more satellite slots. "They're spending a lot of capital on a business that has limited returns. They have some of the best demographics in the country in terms of their cable markets, they have a plant that is nearly built out in terms of digital and high-speed data and video on demand and high-definition.
"Instead of focusing on the returns in that part of their business, they're putting money after a market that is going to be much more competitive and have a lower chance of creating returns."
Cablevision plans to invest another $564 million in the DBS service — $114 million through the planned spin-off of the venture and $450 million after the spin-off in 2004. But if the MSO goes through with those plans, thus removing future expenditures from Cablevision's balance sheet, Greenfield said it should be of little concern to Cablevision shareholders.
"As long as it's spun off, I don't care," Greenfield said. "It's already been factored into the stock price."
Cablevision's fellow MSOs remain perplexed by its DBS initiative.
In an interview last month, Comcast Cable president Steve Burke was asked what he thought of Cablevision's DBS plans.
"They are either way ahead of us, or on a different page," Burke said. "To be the third guy in [to DBS], that's not a business I'd want to pursue."
In terms of fearing Rainbow DBS as a competitor, Burke said, "We worry about everybody, but right now we're more worried about DirecTV and EchoStar."
DirecTV, citing its plan to expand its HD lineup and boasting about its superior retail distribution, wasn't phased by the Rainbow DBS announcements.
"With its investment in Voom, Cablevision apparently has recognized what former cable customers have been telling DirecTV for years: that satellite TV is a superior service than cable TV," a DirecTV spokesman said. "Nonetheless, Voom is coming to market more than nine years after DirecTV's launch, and we firmly believe that DirecTV has, and will, continue to have for the foreseeable future enormous and unbeatable competitive advantages."