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Cablevision Systems Corporation (NYSE:CVC)

Q3 2008 Earnings Call

November 6, 2008 10:00 am ET

Executives

Patricia Armstrong – Senior Vice President Investor Relations

James L. Dolan – Chairman of the Board

Hank J. Ratner – Vice Chairman of the Management Board

Thomas M. Rutledge – Chief Operating Officer

Michael P. Huseby – Chief Financial Officer & Executive Vice President

Josh Sapan – President and CEO of Rainbow Media

John Bickham – President of Cable & Communications

Analysts

Ingrid Chung – Goldman Sachs

John Hodulik – UBS

Douglas Mitchelson – Deutsche Bank North America

David Joyce – Miller Tabak

Tom Egan - Collins Stewart

Craig Moffett - Sanford C. Bernstein

Jason Bazinet - Citigroup

Bryan Goldberg - J.P. Morgan

Benjamin Swinburne - Morgan Stanley

Jessica Reif Cohen - Merrill Lynch

Analyst for Vijay Jayant - Barclays Capital

Operator

My name is Raquel and I will be your conference operator today. At this time I would like to welcome everyone to the third quarter conference call for Cablevision. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) I would now like to turn the conference over to the Senior VP of Investor Relations, Ms. Pat Armstrong.

Patricia Armstrong

Welcome to Cablevision’s third quarter 2008 earnings conference call. Joining us this morning are members of the Cablevision executive team including Jim Dolan, our President and CEO, Hank Ratner, Vice Chairman, Tom Rutledge, Chief Operating Officer, Mike Huseby, Chief Financial Officer, Josh Sapan, President and CEO of Rainbow Media and John Bickham, President of Cable and Communications.

Following a discussion of the company’s third quarter 2008 results, we will open the call for questions. If you don’t have a copy of today’s earnings release, it is available on our website at www.Cablevision.com. This call can also be accessed via our website.

Please take note of the following: this discussion of Cablevision’s results may contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties that could cause actual results to differ.

Please refer to the company’s filings with the Securities & Exchange Commission for a discussion of risks and uncertainties. The company disclaims any obligation to update the forward looking statements that may be discussed during this call. Let me point out that on page 5 of today’s earnings release we provided consolidated operations data and a reconciliation of adjusted operating cash flow or AOCF to operating income.

I will now turn the call over to Cablevision’s President and CEO, Jim Dolan.

James L. Dolan

For the third quarter Cablevision’s consolidated revenue increased more than 15% to $1.7 billion as compared to the prior year period. This was driven by strong revenue growth in all three of our major business segments, cable, Rainbow and Madison Square Garden and includes the incremental impact of the Sundance and Newsday business.

Cablevision’s AOCF for the third quarter increased 16% over the prior period to $575 million. These results for the combined businesses are very encouraging especially in light of the current economic environment. During our second quarter earnings call at the end of July we talked about our desire to better align the market value of Cablevision’s common stock with the company’s underlying operating performance.

Shortly thereafter Cablevision’s board of directors authorized the company’s management to begin exploring potential strategic alternatives for achieving this goal. Since then we have spent substantial time and resources looking at various alternatives that could unlock this value. In August we declared a quarterly dividend of $0.10 per share and yesterday our board of directors approved another $0.10 per share dividend payable in December.

As you are all aware, since we began this process the capital market conditions and the overall economy have deteriorated. In light of these adverse changes in market conditions we are not actively pursuing any further strategic alternatives at this time and we are focusing on maintaining strong operating performance. Of course, we remain open to considering any compelling opportunities that may arise such as asset sales and stock repurchases.

We will also consider ways to preserve our liquidity without impeding the growth of our core businesses. Lastly, I want to mention that over the past three months we’ve received valuable feedback from our shareholders, we appreciate your support and look forward to actively continuing the dialog. I would now like to turn the call over to our chief operating officer Tom Rutledge.

Thomas M. Rutledge

Overall our cable television business continues to have solid results in the third quarter of 2008. The company gained approximately 96,000 RGUs in the quarter contributing to cable revenue growth of 9.8% and AOCF growth of 13.6% compared to the prior year period. Our average monthly revenue per subscriber was $133.11 for the third quarter, up $0.82 over the second quarter of ’08 and up $12.20 over the last year’s third quarter.

Cable capital spending totaled $208 million for the third quarter. Customer premises equipment was lower than the prior year reflecting fewer RGU adds while capital dedicated to the WiFi and wideband projects was approximately $22 million. Year-to-date we spent $521 million in capital, an increase of 11% over last year’s comparable period. Adjusted for the WiFi and wideband spend year-to-date capital spending was essentially flat with last year’s spending levels and, as a percentage of revenue, even including WiFi and wideband capital spending is flat as well.

As for our telco competition, we estimate that Verizon has built out [inaudible] is approximately 1.450 million homes as of September 30th. Of this total we believe they have approval to offer video services in about 1.3 million of these homes. Turning to the specific results of each of our services, we ended the third quarter with 3.11 million basic video subscribers reflecting the loss of 19,000 customers in the quarter.

Our basic penetration at the end of the quarter was 66.1%. Because we serve the Hamptons and Jersey Shore the third quarter is traditionally our weakest as customers [inaudible] properties for the season. The digital video service IO added 25,000 customers for the quarter, now past 90% digital video penetration. Our high definition video subscribers totaled 1.3 million at the end of the quarter, this is an increase of 50% over the past year reflecting the continued strong demand for our high definition product.

Today Cablevision provides 65 high definition programming services to our customer base and we expect the addition of HD channels to continue in the coming month. Turning to Optimum Online, our high speed data service, we had a net gain of 32,000 customers in the quarter. Our penetration of homes passed at the end of September reached 52% and now our high speed data customers as a percentage of our basic video customer base is 78%.

Optimum voice service had a quarterly subscriber gain of 58,000. At the end of the third quarter 75% of Optimum Online customers also subscribed to Optimum voice. JD Powers and associates recently ranked Optimum voice the best residential phone service and Cablevision service area for the second year in a row and ranked Optimum Online the high speed data service provider top award in the east region over all other providers including Verizon and AT&T.

During the third quarter 65% of new video sales were three product sales. The triple play is becoming the norm for our customers with more than 56% of our video customers now subscribing to all three services. As for our WiFi wireless project, we’ve made real progress to date. We’ve activated our WiFi network throughout commercial and high traffic areas of Nassau and Suffolk county on the island and Connecticut, Westchester and [inaudible] County service areas.

Customer response has been positive with the average customers utilizing the network multiple times a month. We remain convinced that providing our residential and business customers mobile internet access for a single price is a point of differentiation for Cablevision and a strong value add for our high speed data customer base. Optimum Business, our small business services provided through the cable company. While it’s still a small part of Cablevision’s financial results today, it’s growing nicely.

Revenue in the quarter from our business services grew 48% over last year’s third quarter. We are experiencing steady growth in both our data and voice each quarter and these business customers generate an attractive return. On average, a business customers taking both data and voice service has an RPS of $130 per month. They typically have lower churn than the average residential customer yielding a higher and solid margins. We’re still in the early stages of reaching this business market but we’ve surpassed the 20% milestone in penetration of the estimated 640,000 small businesses in our footprint.

In serving our larger commercial customers Optimum Lightpath continues to generate strong financial results. With the revenue growth of 13% and AOCF growth of 37% in the quarter as compared to the prior year period. We recently announced that Optimum Lightpath had activated it’s 3,000th building. Together with our recent acquisition of 4Connections based in New Jersey our reach in the residential marketplace continues to expand.

Wrapping up I’ll say that telecommunication segment is growing well in this tough economic environment. Our AOCF continues to grow at double digit rates as it has for 17 of the last 19 quarters despite some softness in advertising currently. We have products which to most consumers are highly valuable and we will continue to develop new services which will make Optimum products even more compelling.

Shifting to Newsday which we acquired on July 29th, we are reflecting results from that date. Total revenue for the two month period since acquisition was $73 million and AOCF was $8.5 million. I would now like to turn the call over to Josh Sapan who will discuss Rainbow’s results.

Josh Sapan

The third quarter revenue at AMC, WE TV and IFC increased 12.6% to $185 million and AOCF for the quarter was $81.8 million an increase of 5.1% as compared to the prior year. The revenue growth for the quarter includes a 17% increase in ad revenue driven by higher CPNs, cost per [thousands] and unit solds at AMC and WE TV in a soft ad market and a 9% increase in affiliate revenue compared to the prior year period.

The increase in AOCF was primarily driven by this higher revenue partially offset by higher marketing and programming costs versus the third quarter 2007. This investment represents our ongoing commitment to deliver quality programming to our viewers. As a result we’ve seen higher ratings at AMC and WE TV. WE TV saw 29% growth for the network and primetime ratings among woman 25 to 54 as well as total viewers for the third quarter.

Consistent with AMC’s strategy at having quality original programming that builds our brand and audience, AMC’s Mad Men became the first basic cable network to win an Emmy for best drama series as well as an Emmy for outstanding writing for a drama series awarded to Matthew Weiner and Bryan Cranston was awarded the Emmy for outstanding lead actor in a drama series for his role in AMC’s original series Breaking Bad.

Importantly Mad Men season two has just concluded had ratings that were up 57% over season one ratings. Turning now to Rainbow’s other programming businesses which primarily include Sundance Channel, News 12, the Voom HD networks and IFC Entertainment. With the inclusion of the Sundance Channel in the other programming category for the full quarter, revenue increased 47% to $73 million and the AOCF deficit improved by 29% to a loss of $19 million as compared with the same quarter last year. These variances were primarily driven by the addition of Sundance Channel results for the full period.

I’d now like to turn it over to Hank Ratner who will discuss the results for Madison Square Garden.

Hank J. Ratner

Turning to MSG’s operating results third quarter revenue was up 10% over the third quarter of 2007 totaling $158 million. AOCF for the quarter was $5 million compared to $12 million in last year’s third quarter. The third quarter results were principally driven by higher revenue at the networks of $10 million which was principally increased affiliate revenue and higher operating costs of $8.2 million.

This increase in costs was primarily attributable to programming costs of Fuse. Higher revenues in our payment division of $5.3 million offset by costs related to the events of $4.4 million. Higher marketing costs of $4.5 million largely due to Fuse’s rebranding efforts including launches a new music is campaign and higher administrative costs primarily related to compensation.

In addition we are pleased with the [inaudible] of our WNBA franchise the New York Liberty who advanced to the Eastern Conference Finals. The Rangers are off to one of their best starts in team history as one of the youngest teams we’ve ever had. The Knicks have begun their season with strong new leadership in Donnie Walsh and Mike D’Antoni. A new fast pace tempo and renewed excited on and off the court.

Our entertainment group had a very strong quarter with successful family shows and concerts including Walking With Dinosaurs, the Police, Jonas Brothers, Neil Diamond, Bon Jovi and Celine Dion. We’re looking forward to the excitement of the holiday season as we present our reimagined Wintuk, our joint venture with the Cirque du Soleil at the WaMu Theater at Madison Square Garden.

Our perennial holiday powerhouse, the Radio City Christmas Spectacular which will feature new elements and the first ever [inaudible] tour of the Christmas Spectacular which will capture the holiday spirit in 18 different cities across America. I’ll now turn the call over to Mike Huseby who will cover the company’s overall financial position.

Michael P. Huseby

During the nine months ended September 30th the company generated free cash flow of approximately $447 million compared to $74 million in the same period a year ago. For the third quarter our overall strong operating performance generated free cash flow of $130 million. Total company capital expenditures for the quarter were $250 million compared to $221 million for the same period of 2007. As Tom mentioned, this increase was principally due for our WiFi investment.

With respect to leverage and liquidity the company’s consolidated cash position at the end of the third quarter was $343 million and net [best] was $11.2 billion. At September 30th CSC Holdings $1 billion revolving credit facility was undrawn except for approximately $55 million restricted for outstanding letters of credit. Also at September 30th the Company’s consolidated leverage ratio was 4.7 times and the CSC Holdings restricted group leverage ratio was 4.3 times.

RNS, Rainbow National Services had approximately $1.3 billion of debt and $390 million undrawn on its revolving credit facilities at September 30th. The ratio under the RNS bond leverage test at the end of the quarter was 3.6 times. Looking forward in the near term we’re focused on managing our liquidity in recognition of the current capital markets and our capital structure.

In 2009 we have scheduled debt principal maturities of approximately $1.7 billion comprised of $1.4 billion of senior notes and approximately $300 million of term debt coming due. We believe that a combination of cash on hand, cash generated from operating activities and availability under revolving credit facilities should provide us with sufficient liquidities to repay our 2009 debt maturities.

We will continue to monitor the markets closely for opportunities to obtain external sources of financing at acceptable terms to satisfy such maturities. Operator we would now like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Ingrid Chung – Goldman Sachs.

Ingrid Chung – Goldman Sachs

My question is basically about debt maturities and the financial flexibility that you have for next year. While we do believe that you have enough liquidity to take care of all your maturities without accessing the debt markets if they continue to be basically closed, you’d be using the vast majority of your revolver availability at CSC Holdings. Do you think a move like that in terms of drawing down most of that availability makes sense? Or, do you think maybe slowing some of your capital initiatives such as the WiFi build out might make sense instead?

Michael P. Huseby

Well, I think it’s a combination of taking all steps to prudently manage the liquidity first off as I said we’ll continue to look at external markets. Our first maturities don’t come due until April 1st of next year and if we can access the external markets whether it’s a bond, bank financing or some other form of credit on acceptable terms, we’ll look to do that. If not, then we have the liquidity internally to satisfy those maturities.

One of the elements and ingredients in that formula of liquidity is managing the timing of discretionary capital and other expenditures to the extent that makes sense without impeding the growth and strong operating performance that the company has.

Ingrid Chung – Goldman Sachs

Then just very quickly, I know you don’t give out specific churn metrics but I was wondering Tom if you can give us some color as to year-over-year churn trends in the quarter?

Thomas M. Rutledge

Generally we’re not seeing changes in non-paid churn through the quarter compared to prior year periods.

Operator

Your next question comes from John Hodulik – UBS.

John Hodulik – UBS

Just basically seeing if we can get some commentary from you guys on what you’re seeing subsequent to the quarter similar to what Time Warner Cable said yesterday that they were seeing some issues in terms of volumes and in terms of purchases of higher end services within the video end piece. Have you noticed any change in the business in the sort of September/October time frame?

Thomas M. Rutledge

We’ll, we’re not going to speak to quarters outside the one we’re discussing but in the quarter through the first three quarters of the year the most significant impact on the cable growth businesses would be the change in houses constructed in the marketplace so there is that effect that is going on. But, other than that the cable business is quite strongly actually through the first three quarters of the year.

John Hodulik – UBS

In terms of competition again, it doesn’t look like there’s much of a change in sort of competitive pressures that you’re seeing. The video numbers seemed to have held up pretty well. Are you seeing anything in the market again, related to buyers getting more competitive or more aggressive offers in the market.

Thomas M. Rutledge

They continue to experiment with offers. There are more aggressive offers that come out from time-to-time. They did active New York City in the third quarter and they had constructed over 100,000 passings in New York City prior to that activations which they did market. There is that impact in these numbers but the overall competitive posture between the companies has not changed significantly.

Operator

Your next question comes from Douglas Mitchelson – Deutsche Bank North America.

Douglas Mitchelson – Deutsche Bank North America

A question for Tom, on the small to medium sized business you said you’re at 20% or surpassed 20% penetration of 640,000 small businesses so that’s actually pretty impressive relative to peers. I’m wondering, how are you defining small businesses and where are you at in terms of attacking medium sized businesses. Can you just define a little bit more what’s happening in the small to medium sized businesses.

Thomas M. Rutledge

Yes, we feel good about how well we’ve done in penetrating the small business marketplace. We really divided the marketplace in to two pieces. We’ve had a long run successful business with Optimum Lightpath which goes after the high end of the marketplace which is a $2.4 billion marketplace approximately inside our footprint. Lightpath restructured itself several years ago, went to an all Ethernet strategy and it goes after the high end of the market and its growing very rapidly from our numbers.

On the small business side, we have been gradually increasing our product and service capabilities starting at the very smallest end of the market. So, we’re coming at the market from the high end and the low end moving towards the middle. At this point the first 20% milestone that we passed has been the very tiny part of the market an average of 2.66 lines per business. We’re now selling a 12 line product and moving to a 24 line product which will take on the middle part and the most lucrative part of the marketplace going forward.

Douglas Mitchelson – Deutsche Bank North America

Can you just remind us how the subs are reported and then any kind of size you can give us in terms of revenue at this point for this business?

Thomas M. Rutledge

Well, I did say in my comments that in the small business sector the revenue per sub was approximately $130 per customer per month with very high margins by the way. There’s not a video component in that margin.

Douglas Mitchelson – Deutsche Bank North America

Then the subs are within the subs that being reported, right?

Thomas M. Rutledge

Yes, they are and we do report customer relationships and you can see they changed over the last year in a positive way so we have overall customer relationships and the actual units are in the data and voice units. Voice units are only counted though as single not multiple liens.

Operator

Your next question comes from David Joyce – Miller Tabak.

David Joyce – Miller Tabak

I had a question on the content businesses, I was wondering which programming services are still below breakeven and what kind of time frame do you envision them getting in to positive contribution?

Thomas M. Rutledge

We report our economics on a combined basis and all of our services are profitable and fine.

David Joyce – Miller Tabak

And separately again on the small business side you mentioned an averaged RPS of $130 per month. Can you give us a dollar range of the current customer base there?

Thomas M. Rutledge

No. We don’t break it out.

David Joyce – Miller Tabak

Finally, on wideband you mentioned something about it earlier, did I miss when you will be complete the rolling out of the DOCSIS 3.0?

Thomas M. Rutledge

We haven’t announced the product launch yet but that capability will be generally throughout most of our footprint this year.

Operator

Your next question comes from Tom Egan – Collins Stewart.

Tom Egan – Collins Stewart

Tom, we heard yesterday from Time Warner Cable that they have seen some increase in the wireless substitution and I’m wondering if you’re seeing that? Then, I have a follow up on WiFi.

Thomas M. Rutledge

Yes, there is some of that obviously going on but we’ve packaged the phone in our product mix in such a way that it’s approximately $20 for the customer for a full product. So it’s highly valuable and it is not under a lot of pressure. You can see that we continue to grow the phone business quite nicely.

Tom Egan - Collins Stewart

On WiFi what kind of expectations I guess in terms of reduced churn or increase in gross ads should we be thinking about for either the Triple Play or for broadband with WiFi? Is it a 15% reduction in churn? In terms of this being the glue, how should we think about the return on the investment?

Thomas M. Rutledge

We said in some previous calls that the cost per customer was about $70 per customer for our WiFi rollout. We have $133 average revenue per sub for residential customers today. If that were to increase by $2 a month, it would pay the capital investment in the WiFi project. I’m sorry. It’s $100 a customer and $70 a pass. But we said that if we could get a $2 value proposition in our overall mix of value that we give to the customer, this project would be worth it.

And you can get there in several ways. You can get there in your ability to price your product or in reductions in churn. We haven’t determined exactly how we’ll capture that value but it’s easily achievable if there’s any marginal perception on the part of consumers that having a free wireless service is part of their product makes it worthwhile subscribing to Cablevision.

Operator

Our next question comes from Craig Moffett - Sanford C. Bernstein.

Craig Moffett - Sanford C. Bernstein

Just following on to the question about the WiFi business Tom. Can you give us any early indications on the operating characteristics of that network as you get it built out and what kind of connect rates are you getting from your customers?

And then a question for Josh on the Voom litigation. I know you may not be able to comment specifically about issues around the litigation but I wonder if you could at least give us an update on the timetables involved and when we might hear something more about how the Voom litigation with DISH Network is progressing.

Thomas M. Rutledge

With regard to the WiFi network, the interesting thing we’re finding about it is that people use it in the daytime. If you think about your capital structure for a DOCSIS network, you’re investing capital based on your total customer base and their average usage. So the usage gets spread out in the day; it actually allows customers to use the network without any additional capital investment. So what we’re finding is that WiFi characteristic is to create new traffic on the network at times when the network isn’t being utilized. So that’s a good thing.

Craig Moffett - Sanford C. Bernstein

Is that coming from commute hours from your initiatives to put it along the training lines for example and the LIRR or do you think it’s coming from home usage?

Thomas M. Rutledge

It’s throughout the day because they’re in commercial places where people gather, people are sitting in restaurants and public places as well as in the commuting zones. So it’s throughout the daytime and part of the day mostly. Obviously if somebody isn’t in their home and they’re using the network and they use the network in their home, you’re just moving the traffic from one place to another.

John Schwartz

With respect to the Voom litigation, we’re not going to comment on the substance of the litigation and what its outcome might be. The only thing we can say is that in terms of its resolution in court in terms of the schedule that the court set itself, there won’t be any substantive resolution earlier than late ’09.

Operator

Our next question comes from Jason Bazinet - Citigroup.

Jason Bazinet - Citigroup

I just have a question on Rainbow. For the last couple of years I think there’s been premature use of cash as you guys have invested programming to help the ratings which have been quite successful. But my question is, going forward should we think about that being a current use of cash over the next one to two years or do you think the level of investment will moderate?

Thomas M. Rutledge

We have embarked on a program of producing original programming in different forms that series for AMC original movie, non-fiction programming for WE TV. So we manage it carefully and are mindful of the amount of cash that goes out ahead of when amortize the play content. I think we’ll see things largely consistent with what we’ve seen; perhaps some moderation.

Operator

Our next question comes from Bryan Goldberg - J.P. Morgan.

Bryan Goldberg - J.P. Morgan

I just want to follow up on the Voom and your questions about managing discretionary spending to deal with liquidity in ways that don’t impact core growth. Where does Voom fall within the context of managing the business for the liquidity? Is there room to pare back spending on Voom? Does the potential closure make sense and would it even be possible ahead of a court ruling?

Also secondarily, could you update us on how the network RSDVR testing’s coming along?

Thomas M. Rutledge

With regard to Voom we are in litigation there and we’re considering our litigation strategy. Voom is carried on Cablevision and differentiates Cablevision from its competitors but we’re mindful of the issues you raise and are considering our options as we go forward.

With regard to RSDVR we have a ruling in our favor on that and we are proceeding to test it on our campus currently, and are planning to roll it out next year.

Operator

Our next question comes from Benjamin Swinburne - Morgan Stanley.

Benjamin Swinburne - Morgan Stanley

Tom, I’d love to get your thoughts on Cox’s announcement around wireless and how you think about that opportunity, maybe not from a defensive perspective but as [inaudible] another revenue stream on top of your existing subscriber base either in terms of technology options or MD&O partnerships? I realize in the current credit market and everything this isn’t going to happen any time soon, but maybe looking out two to three years from now. Any comment you have on sort of opportunities would be interesting and helpful.

Thomas M. Rutledge

If you look at our wireless strategy, we’re putting out a network that works with existing equipment that people buy. Almost every laptop purchased today has a WiFi connection in it. Most blackberries being sold today have WiFi connections in them; cameras. So the consumer electronics industry is placing WiFi radios in almost every device sold. Our model allows us to bring the value of our network to consumers’ products without us having to own the electronics that the customer uses or to subsidize it or distribute it. We think it’s a way to put enormous value in the hands of customers quickly.

The Cox strategy is adding a more conventional cellular business onto the cable business and it may be an effective strategy; it’s just a more capital intensive marketing intensive way to go at the business.

I should say that the radios that we’re placing in the field with WiFi in them have drop-in slots for WiMAX radios as well so that were we to switch to a model like Cox using licensed frequencies and using [inaudible] ourselves that that would be an opportunity that the capital we’re investing now can be used with.

Benjamin Swinburne - Morgan Stanley

Is there a migration path from a technology perspective to adding traditional voice to either cell-fi or even in a WiMAX environment without having to go down the use for cellular or 3G 4G route?

Tom

Yes. These WiFi networks that we’re building have very high speeds associated with them, much faster than 4G is envisioning. The actual output of the radios is I think 54 megabits. It’s not practical on a consumer basis but you can have very high speeds with these networks. As you know, what Vonage is and what we sell; our voice over IP product is a voice service running on a data network. So any place you have a data network you can have a voice network. We see ultimately this WiFi network evolving into a voice network.

Benjamin Swinburne - Morgan Stanley

On the cap ex, how much of the WiFi product is behind you and how much is left? I may be behind on this but is the MSG renovation plan still on track for the next couple of years and just remind us of the capital there too?

Thomas M. Rutledge

We said we were going to spend approximately $300 million on the WiFi project and we’ve spent $47 million to date. The MSG project is very much on track. It continues to progress. I will say the lion’s share of the capital spending will occur after year 2009.

Patricia Armstrong

Operator, we’ll take two more questions.

Operator

Our next question comes from Jessica Reif Cohen - Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

Given the economy, did you see any impact on your live vendors?

Thomas M. Rutledge

Our vendors are still doing very well. We think we have unique venues and some of the best markets in the United States, and we’re obviously very mindful of the economic times and its potential impact. But given the products that we’re selling, we continue to be very optimistic.

Jessica Reif Cohen - Merrill Lynch

Program costs; what was the cost growth in the third quarter and could you give us your outlook for the next few years?

Thomas M. Rutledge

We don’t report that and we don’t forecast the next couple of years. I’m sorry.

Jessica Reif Cohen - Merrill Lynch

I mean obviously there’s a lot of stuff coming up; renewal and retransmission, but okay. That’s fine.

Operator

Our final question comes from Analyst for Vijay Jayant - Barclays Capital.

Analyst for Vijay Jayant - Barclays Capital

Can you talk about what if any cost synergies you’d be able to capture from the Newsday acquisition thus far and any outlook for what further opportunities there might be?

Thomas M. Rutledge

We bought Newsday because it has a strategic impact on Cablevision’s overall performance. Some of the things that we’ve been doing are selling newspapers through the cable system and we have now built an automated feature where customers can actually buy a newspaper through a click of their remote on their cable service.

That’s working nicely. It’s actually a major sales channel for Newsday already, and we intend to enhance that with also sophisticated interactive advertising technology through the coming months where people will be able to come right out of ads and programming and buy newspapers.

We’re also looking at how News 12 and Newsday can work together in continuing to develop electronic forms of distribution of news services that have meaning to consumers at the local level. Essentially what we bought with Newsday is a great traditional business with an opportunity to create a new form of electronic distribution of newsgathering services.

Analyst for Vijay Jayant - Barclays Capital

Now that you’ve passed 90% digital penetration, who’s left? Are they overwhelmingly broadcast basic or probably going to stay analog or are there significant numbers of analog family cable subs still on the system?

Thomas M. Rutledge

It’s not that significant a group of customers. We’re down below 10% in terms of who they are. Some portion of them are basic only. Some portion of them are viewers who just buy basic cable and pay TV and aren’t interested in expanded basic. It’s an odd mix when you really get down to it of unusual purchases.

Patricia Armstrong

Thank you all. That concludes our call for today. Thank you all for joining us.

Operator

This concludes today’s conference call. You may now disconnect.

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