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The Madison Square Garden Company (NASDAQ:MSG)

F1Q12 Earnings Call

November 4, 2011; 10:00 am ET

Executives

Hank Ratner - President & CEO

Bob Pollichino - Executive Vice President & Chief Financial Officer

Mike Bair - President, MSG Media

Melissa Ormond - President, MSG Entertainment

Scott O'Neil - President, MSG Sports

Ari Danes - Vice President of Investor Relations

Analysts

Bryan Goldberg - Bank of America Merrill Lynch

Ben Swinburne - Morgan Stanley

Robert Routh - Phoenix Partners

David Joyce - Miller Tabak & Company

Ben Mogil - Stifel Nicolaus

John Tinker - Maxim

Vasily Karasyov - Susquehanna Financial

Rick Tullo - Albert Fried

Martin Pyykkonen - Wedge Partners

Operator

Good morning. My name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to The Madison Square Garden Company, fiscal 2012 first quarter earnings conference call.

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 will now turn the conference over to Ari Danes, Vice President of Investor Relations for The Madison Square Garden Company. Please go ahead.

Ari Danes

Thanks Melissa. Good morning and welcome to The Madison Square Garden Company's fiscal 2012 first quarter earnings conference call. Joining us this morning are members of the MSG management team, including Hank Ratner, President and CEO; Bob Pollichino, EVP and Chief Financial Officer; Mike Bair, President, MSG Media; Melissa Ormond President, MSG Entertainment; and Scott O'Neil, President, MSG Sports.

Following a discussion of the company's financial results we will open the call for questions. If you do not have a copy of today's earnings release, it is available in the Investor’s section of our website at www.themadisonsquaregardencompany.com.

Please take note of the following: Today's discussion 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 and that actual results or developments may differ materially from those in the forward-looking statements as a result of various factors, including financial community perceptions of the company and its business, operations, financial condition and the industry in which it operates and the factors described in the company's filings with the Securities and Exchange Commission, including the sections entitled ‘Risk Factors’ and management's discussion and analysis of financial condition and results of operations contained therein. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call.

Let me point out that on page four of today's earnings release, we provide consolidated operations data and a reconciliation of adjusted operating cash flow or AOCF to operating income.

I would now like to introduce, Hank Ratner, President and CEO of the Madison Square Garden Company.

Hank Ratner

Thank you Ari. This morning we released our first quarter results as we have shifted to our new fiscal year, which covers the period from July 1, 2011 through June 30, 2010. Most notably we delivered adjusted operating cash flow of approximately $46 million, up 9% versus the prior year period. We were able to achieve these solid results despite the Garden being unavailable for events for the entire quarter due to the transformation project.

To put the impact of the fall season shut down in context, for the quarter ended June 30, 2010, we generated approximately $20 million in event related revenues and $10 million in AOCF contributed for events held at the Garden. While we can’t precisely determine the number of events, which would have taken place if the Garden had been open this past quarter, our results clearly would have been significantly stronger if the venue had been available for events.

Turning to our business segments, our MSG Media segment drove our company’s overall AOCF increase for the quarter due, primarily to continue growth in our affiliate fee and advertising revenue base. With the respect to Fuse, we continue to see the network as a significant growth opportunity for our company. As our programming strategy at the network is gaining traction, we plan to strategically invest in Fuse to drive long-term growth.

Turning to our MSG Entertainment segment; this week drawing on the depth of our executives, we announced that Melissa Ormond has been named President of MSG Entertainment. Melissa had been serving as the interim Head of MSG Entertainment since earlier this year and had been the division's Chief Operating Officer since 2008. With 24 years on industry experience, strong leadership skills and long standing relationships, Melissa is ideally suited to lead the MSG Entertainment Division as we seek to expand our core business and grow our brands.

In terms of our first quarter fiscal, we experienced exceptionally strong results at both Radio City music hall and the Beacon Theatre, as we remain focused on maximizing utilization of our theatres. These positive results firstly offset the impact of the off-season shutdown of the Garden.

As we had previously disclosed, we made significant enhancements to the 2011 Radio City Christmas Spectacular, which is designed to attract new customers and increase attendance frequency among our peak customers. We have also formed key marketing partnerships to drive awareness of this year’s production. We are looking forward to the show opening next week.

Turning to our MSG Sports segment; the 2011 and ‘12 initial season is underway, with the Rangers getting off to a 5-3-3 start. We are confident that the team is positioned for near and long term success with a young core of homegrown talent and the addition of all-star forward, Brad Richards.

As you know, the NBAs canceled pre season games and the first four weeks of the regular season. In terms of our contingency plans, we are exploring opportunities to bring other live events to the Garden to replace any cancelled Knicks home games. While the limited lead-time makes this endeavor challenging, we have had some initial success, including two additional concerts this month with respect to our regional sports networks MSG and MSG Plus.

We’ve already broadcasted a deep slate of live sporting events, including the NHLs New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres. Our sports networks also feature a broad array of critically claimed original programming, leveraging our unique access to our teams. And as Mike Bair will discuss shortly, we continue to launch additional exclusive programming on MGS Networks, including shows that utilize our deep archive library.

While we understand that there’s significant interest in better understanding how an NBS work stoppage might impact our various contractual agreements with our customers, partners and affiliates, in light of the lieu restrictions and uncertainty surrounding the outcome of the current work stoppage, we can not provide these details at this time.

Turning to The Madison Square Garden Transformation, we have completed the first of three consecutive off-season shutdowns in the Garden and reopened the building on schedule in late October. Our customers are now enjoying new Lower Bowl seating, the first phase of the Madison Lower Concourse, which is city views and has nearly doubled the previous size; the 20 event level suites, the Delta SKY360° Club and The 1879 Club presented by J.P. Morgan. We were also able to advance certain Upper Bowl work, including building out the new open areas on the 8th and 10th floors, which provide fans with direct views into the arena bowl, as well as new seating, walk ways and concession stands.

We also have announced that chefs Jean-Georges and Andrew Carmellini, restaurateur Drew Nieporent and Aquagrill's chef and owner Jeremy Marshall will each create exclusive culinary options as part of the MSG Signature Collection for the transformed garden debuting in late November and December. In addition, food offering throughout the arena will be upgraded as the transformation continues, including items from restaurants Carnegie Deli and Hill Country Barbecue.

Transformation work will continue behind the scenes year around. The next off season we plan to continue transforming the Upper Bowl of the arena, including new Upper Bowl seating with significantly improved sidelines and expanded A4 Garden Concourse, the 58 Madison Level Suites and the Madison’s Club, which is a premium seating area with high end food and dining options that will be available to businesses and individuals looking to entertain at our events.

When the Garden reopens after a third off-season shutdown in 2013, we plan to have transformed the main seventh avenue entrance of the arena, which will be named The Chase Square. We also plan to have built two spectacular bridges sponsored by Chase, which will be suspended above from east to west, parallel with the ice end (ph) court, with seating for a one of a kind viewing experience. In addition, we also plan to have debuted the 10th floor Budweiser Fan Deck, remodel the 9th floor suites, install the new state of the art scoreboard and restore the Garden’s world famous ceiling.

We have incurred total transformation related construction costs of approximately $500 million through the first quarter of fiscal 2012. Prior to this first off-season shutdown, we had disclosed that for planning and liquidity purposes we are factoring in a 15% reserve over the high end of the previously provided range of $850 million. With the first off-season shutdown now behind us, we remain on plan and on schedule. In other words, we are still planning for the total transformation project construction costs not to exceed $980 million, inclusive of the various reserves for contingencies.

I’ll now turn the call over to Bob Pollichino, to take you through the specifics of our financial results.

Bob Pollichino

Thank you Hank. For the first quarter of fiscal 2012, revenues and AOCF reflect the first full quarter impact of the scheduled shut down of both the Garden and the Theatre at Madison Square Garden, due to the transformation project. As a reminder, the theatre at Madison Square Garden was also closed for the three months ended September 30, 2010.

To reiterate what Hank just said, for the quarter ended September 30, 2010, we generated approximately $20 million in event related revenues and $10 million in AOCF contribution for the events held at the Garden and while we cannot precisely determine the number of events which would have taken place if the Garden had been opened this past quarter, our results clearly would have been significantly stronger if the venue had been available for events.

Total revenues for our fiscal first quarter were $177.6 million, a 6.9% decrease versus the prior year period. Consolidated AOCF was $46.1 million, a 9% increase versus the prior year quarter. Operating income of $26.4 million and net income of $21.3 million was up 0.4% and 10.5% respectively as compared to the prior year quarter.

Now turning to the fiscal first quarter results for our business segments, our MSG Media segment generated $138.6 million in revenues, an increase of $5.2 million or 3.9% as compared to the prior year quarter. Affiliate fee revenue increased $4.5 million versus the prior year period, primarily attributable to higher affiliation rates, with the overall increase being significantly offset by the impact of previously disclosed expiration of certain affiliation agreements. Our advertising revenue increased $1.2 million versus the prior year period.

MSG Media segment AOCF of $63.8 million was up 14.6% versus the prior year period, due primarily to the increasing revenues and to a lesser extent the decrease in SG&A expenses. The decrease in SG&A expenses was primarily attributable to lower marketing costs associated with our programming.

Now looking ahead, as we discussed on our last earnings call we continue our plan to strategically invest in finished programming. Based on the timing of planned programming, we expect these cost increases to be reflected in MSG Media segment results during the remainder of fiscal 2012.

Turning to entertainment, our MSG entertainment segments generated $27.6 million in revenues, a 27.7% decrease versus the prior year period. The decrease in revenues was primarily driven by lower event related revenues at the Garden due to it’s off season shutdown, as well as the absence of a co-production. These decreases were partially offset by increased event related revenues at Radio City Musical and The Beacon Theatre.

MSG Entertainment AOCF loss of $13.8 million increased by 26.2% versus the prior year period. The increased losses primarily attributable to lower event related results at the Garden, partially offset by improved results at Radio City Musical and The Beacon Theatre.

Turning to sports, our MSG Sports segment generated $28.8 million in revenue, a 21.9% decrease versus the prior year period. The decrease in revenues was primarily due to the off season shutdown of the Garden, including lower pre season and regular season ticket related revenue, event related revenues from other sporting events and suite rental fee revenue.

MSG Sports AOCF, a negative $0.5 million was down $2 million from the prior year period, due primarily to the decrease in revenues, partially offset by lower direct operating and SG&A expenses.

With regard to MSGs liquidity position, total net cash and cash equivalent as of September 30 was $228.6 million, down approximately $76 million from June 30. Construction cost incurred for the transformation project for our fiscal first quarter were approximately $168 million, while project to date cost incurred through September 30 were approximately $509 million.

We continue to monitor all the dynamics of our business, including the NBA work stoppage and believe we have sufficient liquidity to fund the arena transformation project and our other initiatives from our substantial level of cash on hand, cash flow from operations and if necessary, our revolving credit facility. The $375 million revolver remains undrawn, with our borrowing availability as of September 30 at approximately $368 million, as there were approximately $7.2 million in letters of credit outstanding.

I will now turn the call over to Mike Bair to provide highlights from our MSG Media segment.

Mike Bair

Thanks Bob. The NHL season is off to an exciting start, with MSG networks continuing to serve as the local broadcast home of hockey, featuring games of the New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres. We also remain focused on delivering the rich and broad array of additional content on MSG Networks. This includes Hockey Night Live, the only comprehensive hockey show in the New York area, which initially returned for it’s sixth season.

In September, we telecast the Traverse City NHL Prospects Tournament for the first time, which included four rangers prospects game, an exclusive behind the scenes access. In addition, following the Rangers Home Opener last week, we watched our original series beginning, which features a behind the scenes look at how various sports and entertainment figures got their start, with the first four episodes dedicated to the Rangers and the subsequent episodes planned to feature entertainers who performed at the Garden during their career.

We also continue to leverage our extensive library to create original programming related to the Knicks. Including the mid September debut of 1994 March to the Finals. The 20-part shoot is looking back to the Knicks run to the NBA finals. This fall, we will premier Knicks greatest rivalries, a 25-part shootage that spotlights the most unforgettable Knicks rivalries of the 1990s. We also plan to debut the six part shootings of First Person, which will focus on professional athletes and their personal insights and the classic games in which they played.

And in December we will debut the documentary, The Garden Transformed-Year One, which takes an inside look of the first phase of Madison Square Gardens transformation. The series will continue over the next three years as we unveil each phase of the Gardens transformation.

New York Giants football programming made up of five weekly shows recently returned for its second season. Over this past September MSG networks was the exclusive local broadcast partner for the Quicksilver Pro New York, the first ASP World Tour Pro Surf competition on the East Coast.

To put the breadth and depth of MSG Networks programming in context, MSG and MSG Plus have already broadcast over 430 live sporting events and over 1,900 hours of original programming over the first nine months of calendar 2011.

Turning to Fuse, our programming strategy continues to gain traction, as we continue to create and acquire compelling programs and provide our viewers with a warm robust line up of programming options throughout the day. Along with tent pole shows like Fuse Presents Concert Series, we are forming a predictable and consistent readings platform of which we plan to launch additional original prime time programming.

In terms of our fall line up, Hoppus on Music recently returned with new episodes, while its host Blink-182’s Mark Hoppus was named the best host in the music category of the CableFAX Program Awards in October. This show joins other returning series such as Fuse Top 20 Countdown, the Nation’s most comprehensive weekly music countdown show; Hip Hop Shop, hosted by music and pop culture insider Toure and Artistic Takeover Mondays, which has recently featured artists such as Chris Brown and Drake.

Joining these shows next month, it’s a new primetime program, Funny Or Die's Billy On The Street, which is a unique music quiz show hosted by comedian Billie Eichner between new episodes of returning shows, a new original and a quite programming, we plan to air over 300 hours of new content on Fuse starting this fall.

As the only major programming network exclusively dedicated to music, Fuse also possesses the unique and strategic advantage through its access to both our iconic menus and MSG Entertainments industry relationships. This advantage allows us to create exciting programming in collaboration with MSG Entertainment, including the Fuse Presents Concert series, which returns this December with Z100’s Jingle Ball, telecast from Madison Square Garden, with performances by some of today’s hottest artists including Lady Gaga, Pitbull, Kelly Clarkson and Demi Lovato. Preceding the telecast, Fuse will also air exclusive backstage interviews with some of Jingle Balls biggest performance.

As we mention the success of our new shows, we will continue to thoughtfully invest in Fuse’s programming to increase ratings, drive advertising revenue and enhance the value to our affiliates.

I will now turn the call over to Melissa Ormond, to provide highlights from our MSG Entertainment sector.

Melissa Ormond

Thanks Mike. During the fiscal first quarter we continued to focus on maximizing theatre utilization by leveraging strategic partnerships and driving multi market and multi night appearances at our venues.

For example, our value partner Cirque du Soleil recently completed the debut engagement and its large-scale acrobatic theatrical production Zarcana at Radio City Music Hall. Zarcana, which ran from June 9 through October 8 will drive a significant increase in the number of events, attendance, revenues and AOCF contribution at Radio City in our fiscal first quarter. We look forward to the shows return in June of 2012.

In terms of multi market concert, we hosted artists including Steely Dan, Alison Krauss, Chris Tucker and Celtic Thunder at more than one of our venues in New York, Chicago and Boston during the quarter. We also saw further traction with our multi night concert strategy at the Beacon Theatre where over 50% of the concerts there reported were multi night engagement.

In terms of our fiscal second quarter, many high profile artists have performed or are scheduled to perform at our venues, including Sting, Duran Duran, Jay Z and Kanye West, The Foo Fighters, Katy Perry, Taylor Swift, Z100's Jingle Ball, Hitch and Conan O'Brien's Night time television return to New York.

As we discussed on our last earnings call, the 2011 Radio City Christmas Spectacular, which begins at the Holiday Season run on November 11 will be one of the most innovative and contemporary productions in the show setting nine year history.

We have made significant enhancements, including new rocket performances, new scenes and musical numbers, dazzling new costumes, never before seen 3D live technology and state of the art digital mapping technology, the latter of which will create a more immersive experience for our customers. The show also continues to feature classic scenes and the loved production numbers.

We’ve also secured two broadcast specials to boost awareness and build excitement for this year’s production, including a 30 minute special on WABC TV in New York on November 19, which will feature a behind the scene look of the making on the 2011 Christmas Spectacular and a one hour nationally televised Thanksgiving night special on HDTV, where we will feature the holiday season before the Radio City Music Hall.

We have also partnered with luxury retailer Henri Bendel. The Rockettes will be featured on the cover of the retailers holiday catalog and will receive exposure in the window at its flagship fifth avenue store in Manhattan starting next week. And as some of you in the New York City area may have recently seen, Chase is featuring the Christmas Spectacular promotion on its ATM network through November.

We recently completed a month long advertising campaign in 10 station and GrayLine continues to the feature the Christmas Spectacular with 15 fully wrapped tour business advertising the show.

Last holiday season approximately one million customers saw the New York production of the Christmas Spectacular, a testament to its enduring popularity. With respect to this holiday season we are cautiously optimistic about ticket sales, given the positive results that we have seen so far.

In addition the theater version of the Christmas Spectacular will play at the Wang Theatre in Boston as well as in Durham and Nashville, all featuring significant production enhancements. The show in all three markets will be enhanced by the utilization of existing touring production assets not currently in use.

Finally Peter Pan, starring Cathy Rigby comes to a theater in Madison Square Garden, and a Christmas Story comes to the Chicago Theater this December for multi-week engagement.

I will now turn the call over to Scott O'Neil to provide highlights from our MSG Sports segment.

Scott O'Neil

Thanks Melissa. The New Your Rangers opened the 2011 – ‘12 seasons on October 7 and 8 in Stockholm Sweden as part of the 2011 Compuware NHL Premiere. The Rangers home opener at the Garden took place last week against The Toronto Maple Leafs, with fans experiencing the transformed Lower Bowl and transformed portions of the Upper Bowl of the arena for the first time. Fan interest in the team remains strong with the Rangers having now played four consecutive home games to near capacity crowds.

In addition, the NHL announced the Rangers will play in the fifth annual winner classic against the Philadelphia Flyers at Citizens Bank Park on January 2, 2012. We are excited that the Rangers will be competing at what is typically the NHLs most highly watched game of the regular season. HBOs popular series 24/7 will also feature the Rangers in four episodes leading up to the winner classic.

Turing towards Transformation suites, our 20 event level suites, which are sold out, came online in last October when the Garden reopened. The suites provided world class experience that is a first in professional sports and initial feedback from our customers has been very enthusiastic. Our 58 Madison Level suites are expected to come online for the 2012 – ‘13 NBA and NHL seasons. 70% plus of the Madison Level suites are under contact or have agreements that have been finalized.

We will soon start the sales process for the Madison Club, which is a premium experience location, the size of 10 suites and which sits on the same level of the Madison Level suites. The Madison Club is expected to come online for the 2012 – ‘13 seasons and we plan to go to market with two to four seat packages for all Knicks, Rangers and collage basket ball games.

With the Garden now open, MSG Sports will host a variety of marquee sporting events in the months ahead. WWEs popular survivor series takes place later this month, while collage basketball returns for the 77th consecutive year, featuring many elite programs including Duke, Georgetown, Kansas, Kentucky, Illinova and Michigan State and prominent collage basketball tournaments such as the Jimmy V Classic and the Big East Championship. As far as our collage lineups, St. John's Red Storm, which retuned to the NCA tournament last year will also play at the Garden.

Boxing returns to the arena on December 3 with Miguel Cotto defending his WBAs Super Welter Weight title against Antonio Margarito. This follows the recent fight between Omar Narvaez and Nonito Darnaire at the theater in Madison Square Garden two weeks ago.

Finally, the BNP Paribas Tennis Showdown returns to the Garden for its fifth consecutive year on march 12, 2012m featuring several of tennis top stars, including Maria Sharapova against Caroline Wozniacki and Roger Federer against Andy Roddick.

I’ll now turn the call back over to Ari Danes

Ari Danes

Thanks Scott. Melissa we’d now like to open the call for questions.

Questions-And-Answer Sessions

Operator

Thank you. (Operator Instructions) Your first question comes from Bryan Goldberg of Bank of America Merrill Lynch.

Bryan Goldberg - Bank of America Merrill Lynch

Hi, thanks for taking the question. I got one quick one on the transformation and a follow up on the lockout impact at media and the entertainment strategy. On the transformation, the new Lower Bowl has been opened for just a few weeks now. We know some of the higher end food options have yet to open, but what signs of change have you observed in per-cap spending at the Garden, particularly in the Lower Bowl.

Hank Ratner

Bob, you want to take that.

Bob Pollichino

So as you said, our concessions will be opening over time. They are not all open as we sit here and so its hard to draw firm conclusions, but looking at the first three Ranger games that we had and it has a little bit of an anomaly in there, because one of the games was a 3 o’clock afternoon game, but the signs are good, because what we see is that the per-caps are higher than they were last year, and in addition they are higher than we have in our plan at this point in the roll out of the concession plan. So the signs look promising.

Bryan Goldberg - Bank of America Merrill Lynch

Okay thanks. And on the MBA lockout, I was wondering if you can give us some more color on how the organizing is working around it, particularly at media? How would your television advertisers reacted to November’s game cancellations? Have budgets simply gone elsewhere in search of the New York’s sport fan or have you been able to hold market share with alternative programming or better selling at Ranger games.

Hank Ratner

Mike, you want to take that.

Mike Bair

Yes, at it relates to the media side, you know it really, its pretty difficult to kind of determine the ideal outcome is just to give the lack in clarity in the work stock, but what we have found so far is it definitely has an effect on us; the cancellation of the Knicks games.

Past history tells us that we have been able to secure some of that money and clearly some of it will go in other places, but I think what’s also been interesting for us is that the vitality of the market for hockey has been slightly better than what it was last year and better than our plan as well, so we are excited about that.

But on a national basis, it really has no effect for Fuse. Fuse continued to see weightings growth and continued to see healthy ad shells groups as well and we are pleased with that development.

Bryan Goldberg - Bank of America Merrill Lynch

Okay thanks, and just one last one for Melissa. Congratulations on the new position. We’d love to hear your big picture view of the path to higher margins in entertainment. So when you look across the resources of the company, where will you be most focused in the next year of two in terms of driving higher AOCF contribution?

Melissa Ormond

Well we do believe we have a significant opportunity to reach positive AOCF and well because its on the current operations of the business, the multi-night, multi-market strategy which we are seeing great benefit from in the Beacon, Chicago and Wang will continue.

Strategic partnerships like Cirque du Soleil and Varcanca (ph) saw very favorable results in the summer of this year and we look forward to Varcanca (ph) returning in the summer of ‘12. You are aware of the enhancements of the New York Christmas Spectacular as well as the Theater Christmas Spectacular shows and we are confident, we are positively up, we are cautiously optimistic currently with sales to date and have already received some very favorable reviews on the enhancement.

Then we continue to explore strategic expansions of our venue network in select major markets and finally we look for opportunities to grow the production business, which also benefits our utilization.

Bryan Goldberg - Bank of America Merrill Lynch

Good, thank you.

Operator

Your next question comes from Ben Swinburne of Morgan Stanley

Ben Swinburne - Morgan Stanley

Thank you. Good morning. I have two questions; I guess also for Melissa. I wanted to ask, there is a comment on the live nation call yesterday about replacing NBA with concerts and Hank mentioned at the outset it was challenging to do that, but they made a comment yesterday that as we move into next year, so that after Christmas they think there’s an opportunity for things to open up more.

I wondered if you guys would give a comment if that – if you see it the same the way. Do you think next year you get to a point where you can just try to fill more of these dates with content? And then on the affiliate revenue side, I think this is the last quarter of the dish loss comp; I just wanted to confirm that with you and as a result, what should we expect. It looked like total revenues grew about 3.5% in the quarter.

Does that get better or does that get worse in Q2 since you have the dish-comp going away, but obviously you might have some impact from the lack of NBA games.

Hank Ratner

I’m going to take the first question. As we know and I’m sure Live Nation spoke about, most concerts go on tour and you know they are scheduled to go throughout the nation. And what our job is when dates up is to do our best to fill those dates, but you know we have to see the way things go here.

All that we know is what’s been canceled at this point, and we can’t really speculate beyond that, other than knowing that we are going to use the influence we have as Madison Square Garden, the relationships we have with the artist community to do the best we can, to book as many dates as we possibly can. I think Bob won’t you…

Bob Pollichino

I think having lots of dish comps in this quarter.

Hank Ratner

The dish is not in the comparable numbers, I think. Yes, this is the last quarter that dish – you will see the quarter-over-quarter impact of the dish issue.

Ben Swinburne - Morgan Stanley

Okay, thank you.

Operator

Your next question comes from Robert Routh of Phoenix Partners.

Robert Routh - Phoenix Partners

Hi guys. A couple of quick questions; first when it comes to the NBA lockout, I know you can’t speak any more than you have about that. When it comes to the suite sales, especially the 2011 suites that are open, in the event that the Live wants to go the whole season, half seasons, is there any impact on those long terms contracts you have already signed that most people would purchase suites back out as a result of this or are they basically locked into those contacts regardless of what happens with the NBA situation.

Hank Ratner

I think Scott is going to take this one.

Scott O'Neil

Yes, first off I would tell you, we haven’t had a change to tour the building and to see the suites; it’s worth the effort. They are absolutely incredible. I can’t overstate the impact that its had on our suite holders and corporate partners as they tour the building, its in – it’s a virtual of whose who of Corporate America that’s there every night, so its been a lot of fun.

But to answer your question directly, I can tell you that while we don’t discuss any specific terms of contracts with any of our partners across the business, that’s not a concern of ours. You know we have fortunately one of the busiest buildings in the world. We have a slate of concerts that’s unparalleled. We have an incredible – you know if you look at collage basketball we got 30 increasable games, the tournaments are amassing.

We have tennis, boxing, family show, it goes on and on and then we are out in the market and we are talking to suite holders while the mix is certainly a key component of that and they are a tremendous brand and they have an incredible support base here. What we are actually selling is the experience of Madison Square Garden and the 250 plus events that are here.

Robert Routh - Phoenix Partners

Okay, so its safe to say that basically we shouldn’t worry about that as it obviously kind of looks like it sits on the issue. Also, is there any impact as it relates to sponsorships or any of the signage contracts that you have, on the same basis as those in the prior question.

Scott O'Neil

I’ll take that one as well, this is Scott. Yes, I’ll give you a painful similar response and that we don’t discuss any of the specifics of any of our contracts. I will tell you, at least in our business, this is a relatively big and wide business for the business that we are in on the sports and arena and marketing partnerships side and we blessed to have an array of assets.

So our partners understand when they buy into Madison Square Garden Company, that the sports teams are terrific and certainly a draw but when you are out in the market and you can talk to the Radio City Christmas and the Beacon Theatre and the Chicago Theatre, and its incredible networks we have and Fuse.

I think a lot of the magic and some of the details we have been doing is kind of integrating them all together. So when there are some changes in the schedule which come up from time-to-time, you know in various different aspects our business, the good news is we have a tremendous array of assets with various target markets that we seem to find. So we are not concerned on that front either.

Robert Routh - Phoenix Partners

Okay great. And just one last quick one; you mentioned in the original program we are doing all of that. I was just trying to get a sense as to how much you plan to spend on original programming going forward, obviously it makes a lot of sense and I think defiantly you are increasingly going in to the lib, but do you already have a library, and if so how many hours do you have and what do you plan to spend going forward on that?

Hank Ratner

Well I mean, look, first of all you know we love being and approving the content because of the scalability in its economies and we really believe that investment and program than drive long term meaningful revenue in an AOCF growth in the medium segment.

As it relates to spending on Fuse, we’ve been thrilled I think with the ratings increased that we’ve seen as a result of the spending I think that I mentioned in the past. But when we do this we are far from prudent about the way we do these investments. We measure everything that we do to make sure that there’s a return.

The big part of this is again its pretty much consistent, stabilized sort of day part that allows us to launch the new and original programming as I mentioned before. Like one of your guys, they don’t do it in the street which will launch out some of our new programming as well as often the Fuse Presents Concert around single, but those are very powerful for us.

The other piece of the certainly programming investment is important and it continues to allow us to extend our relationship with the iconic menus. The MSG Entertainment for example has levels with the sports teams beginnings, which is an investment against the teams, just to create various sort of programs that promote the players of the team, which helps sponsors, but also helps the profile the brand themselves. That comes from library content that we have.

Again, very deep, very efficient to create and easily fundable through advertisers. At the end of the day, all we are trying to do is consistently support and drive the messaging and the brands that we are related to, as well as to create value for the advertisers and ultimately for the affiliates.

Robert Routh - Phoenix Partners

Okay, great. Thank you very much. Congratulations on a great quarter and I completely agree, it sounds like you have an hidden asset in the liberally that people don’t see.

Operator

Your next question comes from David Joyce of Miller Tabak & Company.

David Joyce - Miller Tabak & Company

Thank you. There are a couple of questions. First, I was wondering on the spending for the Fuse during the year. What kind of seasonality for that could we expect? Do you say there is 300 hours that’s here in the second quarter that will be able to step up? What should we expect there? And then secondly on capital expenditures, how much – you recognize $147 million of cash CapEx here in the first quarter. What’s the remaining amount? What’s been done to-date? Thanks.

Bob Pollichino

Let me take the – this is Bob and let me take the second question first, which is so what we said is the project to-date is $509 million has been incurred and we said in the quarter $168 million has been incurred, just to make sure that everybody understands what we are saying, we are trying to communicate the level of work that has been completed, irrespective of whether we cut the check to pay for it year.

So with respect to that last piece, which is what I think you are asking about, last quarter we were around $90 million was in our liabilities unpaid and we are in about the same position. So as you pay off prior incurred amounts and you keep building, then that sort of gets replenished, so that’s sort of where we are today.

With respect to the first question about programming I think the best way for us to sort of communicate it is that I think what we have seen in the quarter-over-quarter really is the timing and that as Fuse continues to invest in its plan, I think we are going to see that level of increased cost move back into the balance of this fiscal year.

And of course we have some little bit of lumpiness, because you know one of the great programming strands that we have on Fuse is called Fuse presents and those are concerts that we do and the timing of those concerts are hard to predict period-over-period, so you’re seeing a little bit of that as well. So I think its predominantly a timing related issue.

David Joyce - Miller Tabak & Company

Thanks and finally, I think I missed it, do you have any comment on the update on the Forum?

Hank Ratner

No, we are pretty much the same. We continue to do our work on the forum, make sure that we put the right amount of investment in up-front and then the panning and you know we continue to have our contract subject to certain conditions to closing and we are still working on it.

David Joyce - Miller Tabak & Company

Okay great, thank you.

Operator

Your next question comes from Ben Mogil of Stifel Nicolaus.

Ben Mogil - Stifel Nicolaus

Hi guys, good morning and thanks for taking my question. Two questions, and because the Q isn’t out yet; in you are putting expenses in media was the fact that you weren’t sort of airing any MBA or any MBA pre-games towards the end of the quarter. Did that help you a little bit in terms of you know license payments to the Knicks.

And then second of all and I know you obviously can’t talk much about the stick given the league rules, if the strike were to continue into the first calendar quarters like I suppose into the New Year, on the media side you know can you talk us through just without numbers, but just conceptual what the impact would be, you know not just on rations, but potentially on affiliate call backs etcetera.

Hank Ratner

Okay, Bob will…

Bob Pollichino

So on the first piece Ben, there is nothing in this quarter related to the lockout. So, we had no impact because the pre season and the cancelled games are all prospective for this quarter, so there is really nothing going on in the quarter related to that. And the second part of the questions was…

Hank Ratner

That’s in court related to the affiliation agreements and impact from the…

Bob Pollichino

I think you said it in your question, it is really – with the lack of clarity of the work stock it is hard to predict the – what I can tell you about the affiliate world for us is that every affiliated agreement is different and they generate all the produces that deal with these work stocks. So we are going to deal with each individual based of what those provisions require us to do or unless they come along, but beyond that there’s really not much more that I can provide you with.

Ben Mogil - Stifel Nicolaus

Yes, you might want to give us some color as to the program that will be on the air, the library that we all discussed.

Hank Ratner

We don’t talk about that. What we let people know is the fact that we have already put on about 430 events this years in 1900 hours of original programming. We have four hockey teams, around which all have fan basis, so we produce an extraordinary number of live events. We are also able to again create an awful lot of programming around the mix and around the Rangers, (Inaudible) and those do get ratings and viewer ship.

So you know we – but we like the mix, we actually love the mix, but the fact is they represent a portion, well it’s an important portion. The full volume really comes from a lot of our other content.

Ben Mogil - Stifel Nicolaus

When you look at your MSO agreements, are they just, you have to provide ex-number of hours of originally programming you know month or quarter or year or it needs to be coming from certain specific sports?

Hank Ratner

You know its really – its something that I really just can’t give you details on at this point as much as I’d love to.

Ben Mogil - Stifel Nicolaus

Sure and then one last question back to Bob; in terms of the media cost reduction in the quarter, and you may have said this earlier, I many have missed it. Is a lot of it – I mean is it because Fuse costs were a little bit lower because there were fewer live events, than you expect that to switch towards the back half of the year like you talked about earlier.

Bob Pollichino

Yes, and it was related to marketing of that programming you know. So it was both, programming and the marketing.

Ben Mogil - Stifel Nicolaus

And sort of looking at it from the full year, not just the one quarter, expect that to sort of get back up to some more normalized levels in the second half of the year as you have more programming and more advertising around that programming.

Bob Pollichino

Yes I think again its timings, so I think that’s what you are going to see.

Ben Mogil - Stifel Nicolaus

That’s fare enough, thanks a lot guys.

Operator

Your next question comes form John Tinker of Maxim.

John Tinker - Maxim

Hi thanks. This may be a simplification, but it basically looks after all the noise and the concern about what the transformation would cost you that, the entertainment and the sports side basically were about $5 million less on AOCF this quarter than last quarter. So is that – it is simplifying it – is that a fare way of looking at what this actually cost you. It is the first full quarter, last quarter I think was only 2.5 months.

Hank Ratner

Let me catch up with you for a second. John it’s probably not exactly fare to look at it that way. You know as we disclosed in the press release and in the script, obviously there was an impact that the Garden due to the shutdown that was partially offset by what happened at Radio City, with Zarkana what happened at the Beacon Theater. So you can’t just look at the look at the year-over-year variance and add it up to look at it that way. Yes, you will see in the Q which we will be filing later today, there was a larger impact due to the off season shutdown of the Garden.

John Tinker - Maxim

Okay. As we go forward in the next – well we’re now comping the like with like which should make that a little easier to quantify.

Hank Ratner

Correct, I think that’s there.

John Tinker - Maxim

Great. Thank you. Great quarter.

Operator

Your next question comes from Vasily Karasyov of Susquehanna Financial.

Vasily Karasyov - Susquehanna Financial

Good morning, thank you. I’m sorry if I missed it, but did you comment on the sell out rates of season tickets after you raised the prices.

Hank Ratner

We haven’t on this call, but Scott will update you.

Scott O'Neil

Sure, so a good proxy for fan interest and season tick holder. Impact of the price increase is typically renewal rates and so I’ll start on the Knicks or in the 90s and Rangers in the mid-80s. I will tell you kind of on top of that on the Knicks side, you know I’m willing to hear thee years. I have spend several years, almost a decade in the MBA and I haven’t seen demand like this for Knicks tickets. So I can tell you that that’s been very positive.

Vasily Karasyov - Susquehanna Financial

All right, thank you.

Scott O'Neil

And then I have a – I’m sorry…

Vasily Karasyov - Susquehanna Financial

I’m sorry.

Scott O'Neil

No go ahead, that’s fine. I can just tell you on the ranger side, the proof is in the putting. We are four games in and we are playing to near capacity crowds, season ticks have been strong and individual tickets good and solid. So we are well on our way.

Vasily Karasyov - Susquehanna Financial

Thank you and then you can please zoom in on the swing factors on the revenue side and cost side for the December quarter with the Christmas Spectacular please. I know you had some storm issues last year and you had more touring products. So can you please help us quantify what we should expect?

Hank Ratner

I think as Melissa said, you know we’ve put a significant upgrade into this show, an investment into this show and the intention is for that to drive increased dependence. Most of our ticker sales occur from this point going forward. We are happy where we are right now and…

Bob Pollichino

And then the other point just on that investment to clarify, that investment will be amortized through AOCF over five years. So that investment will be not hit you know in the period. So that will help smooth out the results of the show.

Melissa Ormond

And then on the theater, the theater percent of this year, you know we decreased a number of markets from 25 last to 30 this year. We’ve enhanced all three shows that we’ll play this year by utilizing existing assets and while there will clearly be an impact on the top line. We expect a several million dollars and confirm with ASCF.

Vasily Karasyov - Susquehanna Financial

Thank you very much.

Hank Ratner

If we could actually – we are running a little short on time, so if each caller could limit it to one question we’d appreciate it.

Operator

Your next question comes from Rick Tullo of Albert Fried

Rick Tullo - Albert Fried

Hey, thank you very much guys for taking my questions, especially in light of my crazy rating system. To me it looks like you did very well during the quarter. What was the resulting growth while we also saw a reduction in operating expenses and are any of the expense reductions or margin improvements due to efficiencies, due to the transformation, perhaps you know making the media center there, operating more efficiently and also during the quarter did you include any Verizon related revenue?

Hank Ratner

I think the media segment is the last quarter was not effected by transformation, and we do have Verizon revenue. They are a customer of both MSG, MSG Plus and Fuse, so their revenue has been there for years now.

Rick Tullo - Albert Fried

I was reading to the high definition affiliate negotiations I guess.

Hank Ratner

Right. As far as HD is concerned, there is still a legal process under way, so we are not going to comment on that.

Rick Tullo - Albert Fried

Fair enough, fair enough. Thank you very much for taking my question and great quarter you know and excellent execution by everyone.

Hank Ratner

Thank you.

Ari Danes

Thanks Rick. Operator we will take the next and last question. Martin Pyykkonen

Operator

Your final question comes form Martin Pyykkonen of Wedge Partners.

Martin Pyykkonen - Wedge Partners

Yes thanks. Good morning, nice quarter too. I wanted to ask you, in terms of the scope of the impact on cash flow AOCF in the event of a lockout that continues to drag on the whole season and I guess what I’m particularly wondering is from your season ticket holders, what is the process in terms of refunds, credits and so forth. You’ve obviously sold season tickets; the renewal rates are good and so forth.

But you know from a timing and you used some games now. Have you already refunded or given credits or when did that kick in and you know maybe kind of a worst case, if there is no NBA season this year, can you scope out what the cash floor impact is and as best you can by timing in the quarter, you know again from the consumer side of refund credit so forth.

Hank Ratner

Scott, will take you through refund.

Scott O'Neil

That’s a hell of a question. You know I’ll try to tackle what I can tackle here. You know first off, several quarters ago we talked about building out our service team and in somewhat of a kind of throwaway line, but it’s really turned out to be quite a smart move.

You know we have this dedicated team of 12 people who’s jobs are – is to make sure we are in constant contact with our C&T holders, both in arena and also speaking to them kind of throughout the week and updating them on things to come. Its been proved very fruitful as there have been some uncertainty about around the waiver situation.

And as you also likely know, this is an extremely passionate and extremely knowledgably fan base, which has actually played to our strengths and so we’ve had pretty good dialog and good communication. To answer your question a little bit more specifically, you likely know that NBAs canceled games through November 30, which is eight mix home dates. So that’s three dates in October that are all for season games and the five home games in November.

The refund policy is relatively simple and it’s been public; it’s the NBA dictated policy. So essentially NBA teams provide refund or they just want to see the subscribers or those who don’t opt to keep the money on account, which about a third have opted on our end to keep the money on account.

The season ticket holders earn a simple interest rate of 1% that’s retroactive and effective on October1. So to answer your question directly and we are supposed to give you that – to send out the money within 10 business days of the close of the month and so in the next couple of days we’ll be sending our checks out, our refund check outs and that 1% is really annual rate not a periodic rate, so its fairly modest.

Martin Pyykkonen - Wedge Partners

I guess I’ll follow up to that. If again there is no season and if we’re keeping on account as you said then you kind of keep it at normal phase. Is there any risk of your needing to use of maybe deciding what you use the revolver in terms of the transformation work that’s going to go on through next winter or do you not get to that point even if there is no NBA season.

Bob Pollichino

Well you we were very thoughtful when we launched this company and took it public and it’s paying its dividends today. Because after the shutdown, you know we have really no change in our perspective on our liquidity and plan, because what we basically did was make sure that we could fund the transformation out of the cash that we had on hand, our cash flow from operations and if necessarily, the $375 million revolver that we put in place and we continually monitor the incredible number of scenarios of the NBA lockout and other initiatives and we think we are just in the same place and we are fine with our liquidly under those facts.

Martin Pyykkonen - Wedge Partners

Great. Thank Bob.

Operator

I will now turn the call back over to Ari Danes for closing remarks.

Ari Danes

Thanks for joining us and we look forward to speaking with you on our next earnings call.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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