QUOTE AND NEWS
TheStreet.com  12 hrs ago  Comment 
NEW YORK (The Deal) -- French private equity shop Astorg Partners is in exclusive negotiations to sell its smart-card connectors maker Linxens SAS to Luxembourg-based buyout heavyweight CVC Capital Partners Group, after four years of ownership. A...
Forbes  Jun 29  Comment 
In afternoon trading on Monday, Services stocks are the worst performing sector, showing a 1.9% loss. Within that group, Gannett Co Inc (NYSE: GCI) and Cablevision Systems Corp. (NYSE: CVC) are two large stocks that are lagging, showing a loss of...
Reuters  Jun 25  Comment 
European private equity fund CVC and Singaporean sovereign wealth fund Temasek are seeking to keep an existing $700 million leveraged loan financing for Alvogen in place to back...
Reuters  Jun 25  Comment 
Private equity funds CVC [CVC.UL] and KKR are studying a bid for a sizeable stake in Endesa , the Spanish subsidiary of Italian energy group Enel , sources with...
Reuters  Jun 24  Comment 
Private equity firms Affinity Equity Partners, Carlyle Group and CVC Capital Partners were among 7 to 8 preliminary bidders for Tesco's South Korean unit, a Korean newspaper...
Financial Times  Jun 23  Comment 
Miami Dolphins owner and Gulf investors in pursuit of CVC stake
New York Times  Jun 22  Comment 
The consortium, which includes Vatera Healthcare Partners and Temasek Holdings, will acquire a controlling stake in the New Jersey-based drug maker.
Yahoo  Jun 22  Comment 
European private equity fund CVC and Singaporean sovereign wealth fund Temasek [TEM.UL] are to buy a controlling stake in the pharmaceutical firm Alvogen, its chairman and chief executive said. Robert Wessman, former CEO of Actavis, founded the...
Financial Times  Jun 19  Comment 
European buyout group buys majority stake in Stage Entertainment from Dutch media mogul van den Ende
Jutia Group  Jun 18  Comment 
[Reuters] - Cablevision Systems Corp has dropped a lawsuit against Verizon Communications Inc as it sought to combine the case, involving a television commercial that had targeted Verizon's FiOS, with another between the rival companies....




 

Cablevision Systems (NYSE:CVC) is the fifth largest largest cable operator in the United States based on the number of basic video subscribers.[1] As of December 31, 2009, CVC served approximately 3.1 million basic video subscribers in and around the New York City metropolitan area. In addition to national and regional cable networks, Cablevision owns diverse assets including Madison Square Garden, the Clearview Cinemas movie theaters, and the New York Knicks team.

The company's cable television segment is its largest, thus making trends in the advertising industry--both total spending and the the growth of Internet advertising--key influences on financial performance. The industry's trend towards bundling telecommunication services such as cable TV, broadband access, landline phone services and Voip has helped fuel the company's growth, and it enjoys the highest revenue per customer in the cable TV industry, earning over $115 in monthly fees per customer.

Company Overview

Business Financials

In 2009, CVC earned a total of $7.77 billion in total revenues. This was a substantial increase from its 2008 total revenues of $7.23 billion in 2008. As a result, CVC's net income was positively affected by the increase in revenues. Between 2008 and 2009, CVC's net income increased from a net loss of $227 million in 2008 to a net profit of $285 million in 2009.

The company owes its profitability to remarkably high penetration rates in its markets. Penetration refers to the number of homes serviced by the company relative to the number that could potentially be connected to its network without further extending transmission lines. For television service, this rate reaches nearly 70%; for internet service, the penetration stands at 45%.

Key Trends, Risks and Forces

Consumer Adoption of VoIP

Since Cablevision's penetration rates in television and internet services are very high, VoIP, or Voice over Internet Protocol, offers the most growth potential for the company. Subscribers to VoIP can use their broadband internet connection to make phone calls, substantially lowering costs without sacrificing call quality. VoIP is a rapidly growing market, expected to reach $10 billion by 2010 as businesses--only about a quarter of which currently use VoIP--join consumers in adopting the technology.[2] As with any new technology, however, providers such as Cablevision must overcome initial mistrust and reluctance to change from customers to convince them to replace their landline phones.

Shift of Advertising Dollars from Traditional Channels

The share of total U.S. advertising spending devoted to Internet advertising has increased rapidly over the past few years. Advertising on cable television grew only 10% annually in the same period.[3] The Internet offers advertisers a high level of flexibility in presenting their message to the consumer at a lower cost than traditional 30 second TV spots.[4] Cablevision's television services segment, the company's largest with 46% of total revenues, depends heavily on proceeds from advertising, thereby putting a significant portion of CVC's future revenues at risk. The continued growth of online advertising at the expense of traditional media threatens Cablevision's profitability.

Impact of an Economic Slowdown on Advertising Spending

Spending on advertising is highly correlated with general economic growth, which makes such macro factors as oil prices and the U.S. housing market key concerns for Cablevision. As Cablevision's penetration in television services is already very high, future revenue growth from new subscribers cannot continue at the same pace the company has seen over the past few years; thus, advertising will become an increasingly important source of revenue growth for the television segment.

State and Local Regulatory Decisions Relating to Franchising Requirements

Cablevision is subject to strict regulation of most aspects of its business, ranging from the rates it may charge to the programming it is allowed to broadcast. A key area of regulation is franchising; in order to offer its services in a particular area, a cable provider must create a franchise with the local government, which then imposes franchise fees and certain administrative requirements on the company. Both the federal and state governments have considered relaxing such franchising requirements for telephone companies and other competitors of the cable industry.

Competition

Cablevision’s main service, the “triple play” combination of television, Internet access, and phone services, currently competes with similar bundles offered by Comcast and TimeWarner Cable. Telephone companies, such as AT&T and especially Verizon, are actively developing television and internet services to compete with Cablevision as well. Digital satellite TV providers such as Echostar and DirecTV compete with Cablevision’s cable offerings.

  • Comcast (CMCSA) The largest cable company in America, Comcast faces saturation in the video market, and is now focusing on marketing its triple play package to existing customers. The company introduced VoIP later than competitors; its penetration rates in that area are about 5%.
  • Time Warner Cable Time Warner Cable, the second largest cable provider in the US, serves 13.5 million customers in 33 states. The first in the industry to offer customers new services such as VoIP, caller ID on television, and web clips on television, Time Warner's commitment to continuous technological innovation is a threat to Cablevision. [5]
  • AT&T (T) & Verizon Communications (VZ) Threatened by Cablevision’s VoIP offerings, AT&T and Verizon are actively investing in fiber networks in order to provide a similar triple-play bundle of services. The companies already offer VoIP and Internet service, and face a favorable regulatory environment as they prepare to launch their video services. Verizon especially is a threat, as the company has traditionally provided telephone service in the New York metropolitan area. Currently, Verizon’s existing infrastructure makes it possible for the company’s television services to reach 20% of Cablevision customers; this number projected to grow in the future. [6]
  • The DirecTV Group (DTV) and EchoStar Communications (DISH) DirecTV and EchoStar are the two primary digital satellite television providers in the U.S.; they account for 27% of the total market for multichannel television programming services. Due to a wider content offering (over 300 channels and exclusive arrangements such as DirecTV’s partnership with the NFL) and less strict regulation, these companies are formidable competitors to Cablevision. [7]

Although Cablevision is smaller than many of its competitors, the company has been able to lead the industry on metrics such as revenue per customer and penetration. Cablevision’s foothold in the New York metropolitan area is an important competitive advantage, providing the company with one of the wealthiest and most technologically savvy customer bases in the nation. The New York market is also characterized by high population density, which allows Cablevision to reach customers with minimal infrastructure, keeping operating costs low. [8]

The company’s bundling strategy is key to its success. Bundling refers to offering customers several complementary services at a discounted price. For instance, two thirds of Cablevision’s video customers are also subscribers to its broadband Internet service, while over 40% of video customers use its telephone services; the industry averages for these metrics are approximately 50% and 12% respectively. Bundling also allows Cablevision to effectively compete with satellite television providers, who offer only television service, and telephone companies, who have not yet developed the capability to offer the triple-play combination.[9]



Footnotes

  1. CVC 10-K 2009 Item 1 Pg. 1
  2. "Us National Telecom - VoIP Market Continues Explosive Growth." Market News Publishing. 7 December 2007
  3. Impact of Internet Advertising http://www.wikinvest.com/concept/Impact_of_Internet_Advertising
  4. Kate Bulkley. "The digital persuaders." The Guardian 24 September 2007
  5. Time Warner Cable Corporate Website www.timewarnercable.com
  6. CVC 2006 10-K Item 1 Business p. 13
  7. CVC 2006 10-K Item 1 Business p. 13
  8. CVC 2006 10-K Item 1 Business p. 12
  9. CVC 2006 10-K Item 1 Business p. 13
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