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Cablevision Systems Corporation (NYSE:CVC)

Q3 2006 Earnings Call

November 8, 2006 10:00 am ET

Executives

Hank Ratner - Vice Chairman

Jim Dolan - President, CEO

Tom Rutledge - COO

Mike Huseby - EVP, CFO

John Bickham - President of Cabling Communications

Josh Sapan - President, CEO Rainbow Media

Pat Armstrong – IR

Analysts

Craig Moffett - Sanford Bernstein

Aryeh Bourkoff - UBS

Doug Shapiro - Banc of America Securities

Jeff Wlodarczak - Wachovia Securities

Vijay Jayant - Lehman Brothers

Doug Mitchelson - Deutsche Bank Securities

Katherine Styponias - Prudential

Richard Greenfield - Pali Research

Jason Bazinet - Citigroup

Matthew Harrigan - Janco Partners

Jessica Reif Cohen - Merrill Lynch

Operator

I would like to welcome everyone to the Cablevision third quarter earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Pat Armstrong. Ma'am, you may begin your conference.

Pat Armstrong

Thank you. Good morning and welcome to Cablevision's third quarter 2006 earnings conference call. Joining us this morning are members of the Cablevision executive team including Jim Dolan, 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 Communications.

Following a discussion of the company's third quarter 2006 results, we will open the call for questions. If you do not have a copy of today's earnings release, you may obtain one from our website at Cablevision.com. This call can also be accessed through our website.

Please take note of the following: this discussion of Cablevision's results and any discussion of the company's 2006 outlook 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 and 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.

As always, we have provided certain consolidated operations data and a reconciliation of adjusted operating cash flow, or AOCF, to operating income which can be found on page 6 of today's earnings release. As previously disclosed, on October 8 the Dolan family group submitted a proposal to acquire all the outstanding shares of Cablevision's common stock, except for the shares held by the Dolan family group. In response to this, Cablevision's Board of Directors has appointed a special transaction committee which is currently evaluating the proposal. As I am sure you can understand, we will not be commenting further on this proposal or responding to any related questions during today's call.

I would now like to introduce Jim Dolan, President and CEO of Cablevision.

Jim Dolan

Good morning. For the third quarter Cablevision's consolidated revenue grew more than 13% to $1.4 billion, and AOCF increased 16% to $439 million. This was largely fueled by yet another quarter of excellent growth in our cable business which reported its highest year-over-year gain in net revenue since the launch of our voice product in 2004.

This impressive growth continues to be driven by subscriber increases in all our service offerings including basic video, which recorded its tenth consecutive quarterly gain. The company surpassed 500,000 high-definition, or HD, video subscribers in the third quarter. The unmatched value of our product offerings is why Cablevision continues to enjoy industry-leading penetration rates across every one of our cable services.

Now I would like to turn the call over to our Chief Operating Officer, Tom Rutledge, who will discuss the results of our telecommunication segment.

Tom Rutledge

Thank you, Jim and good morning. Once again the cable business produced outstanding financial results for the quarter delivering revenue growth of 19% and AOCF growth of 18% as compared to the third quarter of 2005. This growth was fueled by solid RGU adds as well as higher average revenue per subscriber. The addition of 288,000 new RGUs for the period was a significant driver of our financial growth.

The company's average monthly revenue per subscriber, RPS, also helped fuel this quarter's growth. RPS exceeded $111, an increase of $2.12 for the quarter, and an increase of $14.44 or 15%, as compared to the third quarter of 2005. This represents our 14th consecutive quarter of year-over-year double-digit percentage RPS growth.

Cable television capital spending totaled $184 million for the third quarter. Consumer premises equipment accounted for the majority of the capital expenditures, followed by scalable infrastructure and support capital.

Let me now touch briefly on the results and accomplishments of each of our services for the third quarter. As a reminder, the third quarter is seasonally affected by the impact of homes in beach communities on the New Jersey shore and Long Island closing at the end of the season, unlike most of the cable industry. As Jim mentioned, the third quarter marked our tenth consecutive quarter of basic customer gains as we added almost 10,000 video customers, roughly three times as many as we gained in the same period in 2005.

Our digital video service, iO, added more than 93,000 customers for the quarter. This increased our digital penetration by 2.8 percentage points sequentially, resulting in an industry-leading 76% penetration of basic video subscribers. At this level of penetration, we've reached a point where we can seamlessly market switch digital video services. In fact we've begun and almost completed throughout our footprint a number of international video programming packages which are delivered using this switch digital technology.

Jim also touched briefly on our HD video subscribers which continued to grow as well. At the end of the third quarter we had more than 525,000 HD customers, up 16% from the second quarter. This is more than double the number of HD video customers we had in September of 2005. As part of the continued expansion of our high-definition lineup, we added WOR TV to our offering in September. We now have 22 HD channels at no additional cost to our digital cable customers.

Now turning to Optimum Online, our high-speed data service, added over 72,000 customers for the third quarter, more than a 22% increase from the 2005 prior period. Optimum Online as a percentage of video customers is 63% and our penetration of homes passed at the end of September was more than 43% companywide. Our Optimum Voice service added 113,000 new subscribers in the quarter and exceeds 24% of homes passed at the end of September. Today more than 56% of our Optimum Online customers now take Optimum Voice as well.

Together, these services have seen dramatic growth. Just three years ago we launched Optimum Voice on Long Island, and at the time, high-speed data penetration was at 40% on Long Island. To give you a sense of direction, in the place where we've been in business the longest, Long Island, at the end of this third quarter, Long Island's voice penetration was 34%, and Optimum Online's penetration surpassed 60%.

Optimum Voice continues to be a principal driver of the success of our three product offers. In fact, today more than half of new customers that sign up to subscribe to Optimum services buy all three: digital, video, voice and data. We continue to enhance our Optimum Voice service with new offerings such as World Call, the international calling product which we launched in May, and very soon a new multi-line voice service for all those customers who need a second line, which should further broaden the market for Optimum Voice.

We've mentioned in the past the opportunities we foresee in the small and medium business market. In the near future we will start serving businesses with up to eight lines which will enable us to target a broader segment of this business market. We look forward to extending our reach by offering voice and data services with competitive price in this commercial space, complementing the strategy already in place at Optimum Lightpath as they pursue the larger business sector.

Looking ahead, we expect our solid performance to continue during the remainder of 2006. Today we're reaffirming our outlook for 2006 annual metrics for cable television as follows: basic video subscriber growth of 3.5% to 4%; revenue generating units of approximately 1.5 million; and capital expenditures of approximately $750 million. Total revenue and AOCF percentage growth rates in the high teens.

I would now like to turn the call over to Josh Sapan who will discuss Rainbow’s results.

Josh Sapan

Thank you, Tom. Let me begin with AMC, IFC and WE, the Rainbow national services. For the third quarter both net revenue and AOCF were essentially flat compared to the prior year period at those services. However, as we mentioned last quarter, third quarter 2005 results included certain affiliate revenue attributable to the second quarter of 2005 that was not recognized until the third quarter of 2005, when a contractual dispute was resolved. Excluding that item, revenue at AOCF would have increased 5% and 11%, respectively, compared to the prior year period.

This quarterly increase in revenue was principally due to a 15% increase in advertising revenue driven by higher sellout rates. Operating expenses were slightly lower than prior year period, principally due to lower programming and production expenses. During the third quarter AMC secured a distribution agreement with Shaw Communications, a Canadian MSO, for analog carriage throughout its customer base, adding 1.8 million subscribers.

Let me give you a brief update on ratings, if I may. AMC and WE achieved a number of record results in the quarter, and I would like to mention a few. AMC had its best overall primetime ratings for any third quarter in households and in target demographic delivery. AMC posted its best September and third quarter performance ever, and weekend household ratings and WE performed at its highest third quarter ever across all day parts.

Our ongoing investment in original programming has helped to foster this rating growth, and I am pleased that we will continue that effort with the release in 2007 of a series called Madmen. It is a 13-episode weekly series about the lives of New York advertising executives in the early '60s. The series is being produced by the team responsible for The Sopranos, reflecting the level of quality we have sought for this type of programming.

Regarding 2006 outlook, our performance in the third quarter was largely as anticipated, and looking ahead to the full year we are confirming our expectation of revenue and AOCF percentage growth rates at AMC, IFC, and WE in the high single-digit range.

Turning now to Rainbow's other programming businesses, which primarily include our Fox Sports network, Bay Area, Regional Sports Business, Fuse, our music-based service, News 12, IFC Entertainment, the VOOM HD networks and our VOD services, Mag Rack and Sportskool. For the group overall, third quarter net revenues rose 9% to $78 million, and the AOCF deficit was essentially flat at $22 million.

The increase in net revenue was primarily driven by higher revenue at the VOOM HD networks, Fox Sports Network, Bay Area and Fuse. AOCF results were unfavorably impacted by a higher loss at the VOOM HD networks due to a planned increase in programming and production spending, offset by better performance at most of the other programming services.

I would now like to turn it back over to Jim Dolan who will discuss the results of Madison Square Garden.

Jim Dolan

Thank you, Josh. For the third quarter MSG Entertainment continued to book an unrivaled slate of special events. This included the return of MTV Music Awards to Radio City Music Hall and high-profile concerts such as Jimmy Buffett and The Who. This momentum helped both MSG and Radio City Music Hall take the number one spot in their respective categories on Billboard's mid0year ranking of top grossing venues.

Next week we expect to have an announcement about adding the legendary Beacon to our lineup of world-class venues. This more intimate showplace will provide us with a full complement of venue choices in New York City.

As part of the rebranding of MSG Network as both a sports and entertainment network, on October 31st MSG previewed the 50 Greatest Moments at Madison Square Garden, a documentary celebrating the epic history of MSG. This important rebranding effort has started positively, and that bodes well for the future of MSG Network.

Regarding our teams, thanks to last year's strong showing, Ranger fans enthusiastically embraced their team this season with a 95% renewal rate for season ticket holders. The Knicks began their season last week with a continued focus on youth and speed. While we are still in the rebuilding process we hope and expect the team will show significant improvement over last year.

Turning now to MSG's operating results, third quarter revenue declined 5% to $129 million compared to third quarter of 2005, and operating loss increased for the quarter to $24.6 million. However, the third quarter of 2005 included a $13.2 million in retroactive MSG Network affiliate fees. Adjusting for this out of period item, MSG's third quarter 2006 net revenue increased $6.5 million, and operating loss decreased $4.3 million compared to the prior year period, reflecting higher revenue for MSG Entertainment at Radio City Music Hall, as well as lower net cost for team personnel transactions.

We would now like to turn the call over to Mike Huseby who will address the Company's financials.

Mike Huseby

Thank you, Jim. First a few comments on our overall financial position at September 30th. Our net debt balance at September 30th was $11.2 billion, resulting in a consolidated leverage ratio, or net debt to AOCF, of 5.9 times. The CFC Holdings restricted group leverage ratio was 5.4 times. Our net available cash position was $400 million, which is net of approximately $120 million set aside for expected future payments of a $10 per share special cash dividend on certain equity securities issued under the Company's equity plans.

The year-to-date operating performance described by Tom, Josh and Jim translated into strong revenue and AOCF growth and modest free cash flow of approximately $8.5 million for the nine month period. The amount of free cash flow for the comparable prior year period was $106.5 million. The difference is primarily attributable to higher capital expenditures of $160 million, higher net interest expense of $99 million which was primarily due to the issuance of debt to fund the special cash dividend, and higher working capital of $12 million offset by higher adjusted operating cash flow of $173 million.

Going forward, the level of consolidated free cash flow will continue to depend on a number of variables in addition to our operating performance, including the timing of certain working capital items, the level and timing of capital spending, our leverage and associated interest expense, as well as the impacts of any future transactions.

Also, in early July, Rainbow National Services entered into a replacement bank facility providing for an $800 million senior secured credit facility, which consists of a $500 million term A loan facility and a $300 million revolving credit facility. The ratio under RNS' bond leverage test as of September 30th was 4.9 times.

Before we open the call for questions, I would like to emphasis that we will not be able to address any questions related to any litigation matters or the Dolan family group proposal at this time. The status of such matters will continue to be disclosed in our SEC filings. Operator, we would now like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Craig Moffett - Sanford Bernstein.

Craig Moffett - Sanford Bernstein

Good morning. This may skirt close to one of the more minor litigation matters, but I am wondering if you could update us a little bit on your thinking of digital video recorders since it seems like your network DVR court hearing may linger for a while and not have any resolution right away.

John Bickham

The case is under consideration by the judge right now, so I don't know what his timing will be. You are correct. But in the meantime, we continue to deploy physical DVRs, and that is an integral part of our business strategy. If we are successful in our litigation, we will pursue that opportunity.

Craig Moffett - Sanford Bernstein

Can you talk about what your DVR penetration is as with the boxes themselves?

John Bickham

We have not released that, and we are not going to now.

Craig Moffett - Sanford Bernstein

Okay. Thank you, guys.

Operator

Your next question comes from Aryeh Bourkoff - UBS.

Aryeh Bourkoff - UBS

A question first on the fundamentals. Obviously you are now in your tenth straight quarter of basic subscriber growth. Tom, can you talk about where that is coming from? Are you see satellite in some markets that you're facing have slower positive growth, or actually are they losing subscribers and you are taking those subs?

Secondly, I wanted to ask a question of Jim. Last time we had the call here I asked about Rainbow and potential strategic initiatives around Rainbow. Could you update us on that? Do you think that Rainbow is going to be core to your strategy, or would you look for possible partners there? Thank you.

Tom Rutledge

On the first part of your question, Aryeh, yes we think that in general satellite subscribers are most of our growth. The number of multi-channel homes is not expanding significantly in our service area, and you noticed that our penetration year-to-date has actually increased. So I think while some of it is new passings growth, there is a share shift going on between us and satellite, though small.

Jim Dolan

Hi Aryeh. I don't really have anything new to report on the Rainbow front. We are, as always, looking for strategic options that enhance those assets. We consider them, of course, very important to the overall strategy and to the entire group of assets that we own. But I don't really have any update beyond really what I had for you last time.

Aryeh Bourkoff - UBS

Okay. Thanks.

Operator

Your next question comes from Doug Shapiro - Banc of America.

Doug Shapiro - Banc of America

I had two things, I think probably both for Tom. The first one is that you mentioned that triple play sell-in is more than 50%. I was just wondering if you could tell us what the VoIP sell-in is as a proportion of data gross connects?

The second thing was that my recollection on the $90 bundles that there was a step-up after the 12th month and the 24th month, and presumably you should have seen some of the impact of that this quarter for the first time. Just curious if you're seeing any kind of pattern develop as you cycle through the 24th month of the bundle.

Tom Rutledge

That 24th month notion is not correct, and there is no step up in the rate. We have a permanent pricing program for triple play customers after they step up after the first year. So there is a discount there that is an ongoing discount as part of their programming package.

When we initially launched it we said there would be a step up in the 24th month and chose not to do that with our rewards program. That program also ties the customer to us through a variety of inducements, including a discount, but also free tickets to Clearview Cinemas and other things of that nature for customers.

The first part of your question, I don't believe that we have given that information specifically the way you asked it, but obviously all triple play customers take voice and data and more than half of all new connects are triple play.

Doug Shapiro - Banc of America

Right. I was looking for what the data sell-in alone is, just trying to get if you have 56% VoIP penetration of your data sub base, just trying to get a sense of what that is on a gross connect basis.

Tom Rutledge

Yes, and we have not released that.

Doug Shapiro - Banc of America

Okay. Thank you.

Operator

Your next question comes from Jeff Wlodarczak - Wachovia.

Jeff Wlodarczak - Wachovia Securities

Good morning. Tom, can you talk about the third quarter data result, a bit below expectation? Any hint of a slowdown or is that just related to seasonality in the third quarter?

Can you talk about the Optimum Online Boost product, the World Call product? How many consumers are taking that? If you can't answer that, is there a lot of demand for a willingness to pay more for speed in the Optimum Online Boost product? Thanks.

Tom Rutledge

Well there is seasonality in the third quarter, and as we said, we have more churn in the third quarter and more activity than any other part of the year due to people moving within our footprint. If you look at our high-speed data growth this year over last year, it is actually up. What was the second part of your question?

Jeff Wlodarczak - Wachovia Securities

Just how many people are likely to Optimum Online Boost and the World Call products?

Tom Rutledge

Well we haven't released that, I'm sorry, but the World Call has been very well received, and is a real differentiator for us throughout our footprint. We're finding good success with it.

Jeff Wlodarczak - Wachovia Securities

There seems to be a lot of demand for Optimum Online Boost in regard to paying more for higher speeds as well?

Tom Rutledge

Well, we haven't released that. I would say that the World Call is actually a more significant product. Our lowest speeds for high-speed data are very high. In fact, they are higher than almost any, if not any company in the world. 15 megabits down and 2 up. That is our slowest speed, so it is a very quick service and relatively superior to what most PCs can even process.

Operator

Your next question comes from Vijay Jayant - Lehman Brothers.

Vijay Jayant - Lehman Brothers

Thanks. In the high-speed data and voice numbers can you tell us any impact from the business opportunity in those numbers?

Tom Rutledge

There is business activity in those numbers but we have not released that in separate breakout.

Vijay Jayant - Lehman Brothers

But in general, in trend, is it contributing more or less at least?

Tom Rutledge

We haven't said.

Operator

Your next question comes from Doug Mitchelson - Deutsche Bank.

Doug Mitchelson - Deutsche Bank

Thanks a lot. Two questions for me as well. Tom or Mike, after three quarters in a row with margin expansion in the cable operations, and 3Q had a bit of margin contraction, can you talk what is driving the compression in 3Q?

Tom, can you give us a broader discussion of the small and medium-size business opportunity? What areas do you think require greater OpEx or CapEx investment to pursue the market more aggressively? When do you think we will see significant traction in terms of customer acquisitions?

Tom Rutledge

As far as 3Q margin goes, if you look at last year 3Q margin, it also sequentially was down from 2Q and part of that is the seasonality effect and the effect of churn on the operating cost of the business. So quarter-over-quarter the only other factor would be a continued strategy of spending marketing dollars to grow the business. Generally the margins are seasonally pretty much in line.

With regard to business, there is a tremendous opportunity in terms of current revenue dollars being spent by businesses. In the small business area there is $3.6 billion currently being spent by small businesses on telecom services and in the larger enterprise service area there is $2.2 billion. So the $5.8 billion spend currently going on there, and we are trying to approach that from a variety of ways.

Our Lightpath operation goes after the $2.2 billion segment, and we have an all Ethernet optical strategy, a very simple product that we sell to medium and large businesses, and the number of buildings that we have inside our footprint actually has doubled the number of buildings that Verizon connects with optical services. So it is a significant presence and there is a significant upside in that marketplace, we think, to replace traditional telephony with Ethernet services.

In the small business area, there are about 600,000 businesses inside our footprint spending $3.6 billion a year on telecom services. We have been selling a four-line service through most of this year, ramping that up in a very manual way to go to scale the business like we did with our residential business and we just decided and will start rolling out an eight-line product to that universe, which expands the potential for us and allows us to scale a variety of products to fulfill the needs of that area.

We don’t have any numbers yet, but we think that we have a similar opportunity against that business passings universe to what we did in our residential universe. It is more complex. There are more products that you have to have to do that, all of which we are developing and putting into an operating plan that allows us to scale those fairly rapidly.

Doug Mitchelson - Deutsche Bank

Thanks. That's helpful. Just a clarification on the margins. Are you saying the seasonality is actually getting bigger each year since the seasonality is already in the base margin that you are comparing to?

Mike Huseby

No. The quarterly margin for the third quarter is affected by seasonality because there are incremental costs that only occur in the third quarter as a result of all the transaction activity.

Doug Mitchelson - Deutsche Bank

I was thinking year to year, but that's fine. Thank you.

Operator

Your next question comes from Katherine Styponias - Prudential.

Katherine Styponias - Prudential

Thanks. My question is actually for Josh. Josh, I just want to make sure I am understanding your press release correctly. On an apples-to-apples basis it looks like AMC, IFC and WE's revenue was up about 5%, and of that component 15% was an increase in advertising revenue? Or is that for all of your content properties?

If it is the latter, what was the advertising revenue growth at AMC, IFC, and WE? If it is lower than their overall revenue growth rate what is going on with affiliate fees there? Thanks.

Josh Sapan

I think I understood your question. The advertising revenue growth rate is 15%, and so that is what creates the apples-to-apples numbers that I mentioned. The affiliate rate of growth has been constant, as planned, in the low single-digit range.

Operator

Your next question comes from Rich Greenfield - Pali Research.

Richard Greenfield - Pali Research

Just a question in terms of your new service penetration rates, your industry peers are really nowhere near where CVC is today. Many of those peers seem to indicate this is simply a function of your demographics. I was wondering then could you just speak to your penetration rates and some of the weakest demographics across your 4.5 million homes passed and give us a sense of how that compares to your own average? Thanks.

Jim Dolan

I'll put it this way: our penetration in the Bronx is better than any MSO's national penetrations in every service category.

Richard Greenfield - Pali Research

Does it dramatically differ, though, from where your average is?

Jim Dolan

It varies, yes. Demographics do impact penetrations. But in general, even in our weakest performing areas from a financial perspective, in other words the poorest communities we serve, we exceed the average national penetration in every product category of all the publicly traded MSOs.

Operator

Your next question comes from Jason Bazinet - Citigroup.

Jason Bazinet - Citigroup

Real quickly The market appropriately views you guys as the most capable of demonstrating efficacy of bundling, and in that context I was wondering if you could just comment on your decision not to participate in the spectrum auction and just give us any update on what lessons you've learned with respect to your Sprint arrangement. Thank you.

Mike Huseby

We didn't participate in the spectrum auction although a member of the Dolan family did.

Jim Dolan

We have a good relationship with Sprint. It is a different relationship than the other MSOs have and it is simply a sales type relationship. We are experiencing some success with it. But it is a relatively small idea. It is just helping sell their products and have them help sell our products with discounts.

Our strategy going forward in terms of what we would like to do wirelessly is not fully formed, but we are pursuing a variety of activities that we think puts us in a position where we can take advantage of the marketplace when it works to our favor, and we are building some hot spots with WiFi throughout our service area. We are learning how to manage WiFi businesses and transition of voice across WiFi and cellular networks. While we are not ready to make any announcements about where our strategy is going, we are actively involved in the wireless space in terms of thinking about how our business evolves.

Jason Bazinet - Citigroup

Can I slightly just recast the question? The Street's view broadly is that wireless is irrelevant or small in the context of bundling opportunities. Do you subscribe to that deal?

Jim Dolan

I find it hard to concede that a wireless add-on to a triple play would cause someone to rip out all of their home services. At this point in time, I don't think it is a significant driver. Obviously nobody is really doing it in any meaningful way.

Jason Bazinet - Citigroup

Thank you.

Operator

Your next question comes from Matthew Harrigan - Janco Partners.

Matthew Harrigan - Janco Partners

One business you touched on in the past that is really a function of your really better than anyone else in household reach relative to TV and newspapers at this point is Optimum, real estate in the Optimum which seems like it could address a very large sink of dollars. I know it is not meaningful dollars yet, but can you give us a sense on how that business is developing according to your expectations?

Tom Rutledge

Yes, we are actually very pleased with those businesses. They are brand-new vehicles to sell advertising, and we've done that. We've also had a successful VOD advertising business on our footprint with a variety of vendors selling them VOD advertising space.

We think that there is about $1,000 per home passed spent locally in our service area on all media advertising: radio, television, newspapers. If you look at what the trends are in those areas, you've got declining readership, viewership and listenership, and you've got the same need for small businesses and big businesses to reach consumers with products and ideas.

So we think as the major media forum in the New York market that we can restructure the advertising business through time, develop new products that create new revenue opportunities that come ultimately from our subscriber relationships.

So we've done that with Optimum Voice and Optimum Homes and with our VOD advertising strategy. We are pleased with the response we are getting in the marketplace. People that advertise on older media are interested in new forms of advertising and so we are getting good volume from the business community. Yes, it is not a material driver today, but we think in the long run it will be significant.

Operator

Your final question comes from Jessica Reif Cohen - Merrill Lynch.

Jessica Reif Cohen - Merrill Lynch

Thank you, I have a couple of questions for each of the speakers. Tom, can you elaborate on the cost of switch video and where you are in the process, are you almost done on the spending?

Tom Rutledge

Yes, we are almost done. We spent about $8 million this year to launch another 60 channels of foreign language programming by switch video and it is almost entirely launched throughout our footprint as of this moment.

Jessica Reif Cohen - Merrill Lynch

Where will you be in terms of HD channel capacity next year and beyond?

Tom Rutledge

Well, we have ultimately the ability to carry hundreds of HD channels and we are in the process of architecting our system to grow with the growth of HD. As our digital penetration gets deeper, it is now in the mid '70s, we have the ability to move channels from analog to digital and clear that spectrum and use it for HD. We've been doing that throughout the year. We've discontinued all of our analog paid TV distribution this year. We have moved several analog channels to digital spectrum with good consumer results, and freed up spectrum.

So we don't see a crunch. We look at the switch video launch of 60 channels of standard definition foreign language programming as a way to use our network efficiently. You can add more channels in switch video if we need to. We can add HD to switch video and essentially we have unlimited channel capacity and can carry everything on it simultaneously to all of our customers.

Jessica Reif Cohen - Merrill Lynch

And then to Mike, your CapEx guidance implies only $50 million of spending in fourth quarter, why would you have such a deceleration?

Mike Huseby

I don't think it is $50 million for cable. You have to look at cable separately, but in general your question is, why has the CapEx spending been somewhat front loaded in the year, and as we discussed in the first two quarters, particularly the first quarter, we spent a substantial amount of capital on scalable infrastructure for the Boost product and also for deployment of ubiquitous current 15mb speed on the World product.

So while it has been front loaded, I think we are still comfortable with the guidance for $750 million for capital spend for cable.

Jessica Reif Cohen - Merrill Lynch

What do you think of the Beacon Theater and how much will you spend to refurbish it?

Jim Dolan

I don't think we released those numbers, Jessica. I will tell you that our business plan supports it. We think it is a financially viable venue for us. We will invest to improve the Beacon, to restore it much as the way we did Radio City Music Hall although I do not expect to have near the same kind of spend as we did at the Hall. That pretty much says it.

Jessica Reif Cohen - Merrill Lynch

On VOOM, the losses have gone up so much and I am just wondering if you guys could comment on what the commitment is from here?

Josh Sapan

We are proceeding with VOOM, EchoStar is our partner as you know, Jessica, and they are increasing their number of HD customers which grows our base, and so that is the state of the business.

Pat Armstrong

Thank you for joining us this morning. This conference call will be available on Cablevision's website and on StreetEvents.com through November 15th.

Operator

Thank you. This does conclude today's Cablevision third quarter earnings conference call.

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