Cablevision's Q4 expenses add up

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NEW YORK -- Cablevision Systems swung to a fourth-quarter loss on higher interest expense, and management on Tuesday predicted slower cable subscriber growth this year after a record 2006.

In a conference call, president and CEO James Dolan declined to comment on the likely future of Cablevision's Rainbow cable channels unit and a potential new bid by the Dolan family that controls the firm to take it private.

"No comment," he said when questioned by an analyst if Rainbow could be sold. Wall Street observers have mentioned Liberty Media and other media and entertainment firms as possible buyers should Rainbow come on the auction block.

Asked if the family could attempt another going-private deal after failing in the past, Dolan said: "I am not talking for the Dolan family today."

Bethpage, NY-based Cablevision reported a loss of $23.9 million, compared with a year-ago profit of $64.6 million. Revenue rose 13.4% to $1.69 billion.

In the company's core cable unit, revenue rose 18.6% year-over-year in the latest quarter as Cablevision continued to sign up new customers.

The firm added 16,000 basic cable subscriber gains in the fourth quarter - marking its 11th consecutive quarter of gains. It also signed up 82,000 net new digital cable users, 75,000 high-speed cable customers and 109,000 telephony subscribers. Advertising revenue increased 26% for the quarter.

For the full year 2006, Cablevision added 100,000 basic cable subscribers, a 3.3% gain over its year-end 2005 base. Overall customer relations grew by more than 1.4 million for the year.

For 2007, the firm projected a 1%-2% gain in basic cable subscribers, the addition of 850,000-950,000 overall new customer relationships, as well as mid-teen percentage gains in revenue and adjusted operating cash flow in its cable unit.

Capital expenditures should come down to $600 million-$650 million for the year from $777.4 million in 2006.

"For our cable business, 2006 marked the most successful year in the company's history with our largest annual revenue gain ever," president and CEO James Dolan said. "We like our competitive position going forward."

Asked about the slowing subscriber growth outlook for the current year, COO Tom Rutledge cited Cablevision's "extremely high" digital penetration.

The Rainbow unit saw revenue rise 12.4% to $236.7 million in the latest quarter, with operating income declining 21.9% to $19.2 million.

Cablevision's Madisan Square Garden unit, which includes arenas and performance spaces as well as sports teams, had essentially flat revenue at $339.6 million, while operating income fell 53.2% to $35.2 million on higher personnel costs at the New York Knicks basketball franchise and other factors.

Rutledge Tuesday also told analysts that Cablevision has held some talks with other cable operators about a potential cooperation on national interactive advertising sales.

Analysts gave mixed reviews to Tuesday's Cablevision update.

Merrill Lynch analyst Jessica Reif Cohen highlighted some sluggishness in the firm's growth outlook, entitling her report Tuesday: "Subscriber growth begins to moderate." She also called the 2007 outlook "mixed" and suggested Verizon's FiOS TV video service may have started to negatively impact Cablevision a bit.

But other focused on the positive.

"While the (customer growth) guidance was lower than we had expected, the company indicated that mid-teen cable revenue and operating cash flow growth will be driven by other revenue services," Oppenheimer & Co. analyst Thomas Eagan said. "To us, what is compelling is that Cablevision financials and operational metrics continue to lead the industry."

Pali Research analyst Richard Greenfield raised his expectations for Cablevision's free cash flow production in the coming years, saying this could allow the Dolan family to launch another bid to take the firm private.

"Given the stronger than expected free cash flow dynamics of Cablevision in 2007/2008, it may be possible for the Dolan family to revisit their offer to take Cablevision private," he said, adding they could now afford to "pay at least $33" per share.
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