Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Patricia Armstrong - Senior Vice President of Investor Relations

James L. Dolan - President, Chief Executive Officer and Director

Thomas M. Rutledge - Chief Operating Officer

Josh Sapan - President and CEO of Rainbow Media

Hank J. Ratner - Vice Chairman of the Management Board

Michael P. Huseby - Chief Financial Officer, Executive Vice President

Jonathan D. Schwartz - Executive Vice President, General Counsel

Analysts

Craig Moffett - Sanford C. Bernstein

Douglas Mitchelson - Deutsche Bank

Benjamin Swinburne - Morgan Stanley

Tuna N. Amobi - Standard + Poor's

Ingrid Chung - Goldman Sachs

John Hodulik - UBS

Jessica Reif-Cohen - Merrill Lynch

James Radcliffe - Lehman Brothers

Bryan Goldberg - Bear Stearns

Cablevision Systems Corporation (CVC) Q1 2008 Earnings Call May 8, 2008 10:00 AM ET

Operator

Good morning. My name is Jackie and I will be your conference operator today. At this time, I would like to welcome everyone to the Cablevision first quarter earnings conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Pat Armstrong, Senior Vice President of Investor Relations. Madam, you may begin your conference.

Patricia Armstrong

Thank you. Good morning and welcome to Cablevision's first quarter 2008 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 and Communications.

Following a discussion of the company’s first quarter 2008 results, we will open the call for questions. If you don’t have a copy of today’s earnings release, it’s available on our website at Cablevision.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 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.

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

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

James L. Dolan

Thank you, Pat. Good morning. Cablevision is off to a strong start in 2008 and we are pleased to share with you today our results for the first quarter. All three of Cablevision's key business, cable, MSG, and Rainbow continued to drive strong revenue growth for the company. For the first quarter, consolidated revenue rose more than 10% to $1.7 billion and AOCF increased 9% to $516 million.

In cable, we added subscribers to every one of our consumer products, including basic video. This ongoing demand led to Cablevision's industry leading penetration rates across all of our services for yet another quarter. We are extremely pleased with the performance of our cable operations. Tom will talk more about our products and the impressive milestones they reached in the first three months of 2008.

At Rainbow, our original programming strategy is paying off with improved ratings and impressive advertising increases, which led to double-digit revenue growth in the first quarter. As you all know, we announced yesterday that we have reached an agreement to acquire Sundance Channel. We believe this transaction is consistent with our vision to enhance long-term shareholder value and that Sundance Channel adds another valuable asset to Rainbow’s lineup of programming networks.

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

Thomas M. Rutledge

Thank you, Jim and good morning. I am pleased to report that our cable company generated double-digit growth for both revenue and AOCF in the first quarter of 2008 when compared with last year’s first quarter. The company gained 197,000 RGUs in the quarter, contributing to cable revenue growth of 10.5% and AOCF growth of 13% for the quarter, as compared to the prior year period. Our average monthly revenue per subscriber or RPS was $129.56 for the first quarter, an increase of $4.46 sequentially and an increase of $12.61, or 11% as compared with the prior year period. This RPS increase stems from continued demand for new services, as well as a rate increase which was implemented around the first of the year.

Cable capital spending totaled $158 million for the first quarter. Consumer premises equipment accounted for 71% of capital expenditures as we continue to support our RGU growth and deploy more and more DVRs and HD boxes.

Now let me address the results of each of our services. Basic video subscription grew by 2,000 in the first quarter. We added 41,000 new digital customers in the quarter, raising digital penetration in basic to 85%.

Our high definition video subscribers continued to grow as well. At the end of the first quarter, Cablevision had over 1.1 million HD customers, up 12% from December and up 56% in the last year.

At this time last year, we offered 23 high definition services. Just one year later, that number is now 45 and we intend to increase the number of HD services further throughout the year.

Our high-speed data service, Optimum Online, had a net gain of more than 61,000 customers in the quarter. We’ve also hit a new milestone for this quarter as the majority of homes in our footprint now subscribing to Optimum Online’s high speed data service. I believe that we are the first broadband provider to reach this milestone.

Speaking of milestones, our Optimum Voice service had quarterly subscriber gains of 93,000. A total of 1.7 million customers, Optimum Voice is now at 36% of homes passed. 72% of our high-speed data customers currently subscribe to Optimum Voice.

We did the initial launch of Optimum Voice on Long Island four years ago and as of this quarter, we are now the majority wireline voice provider on Long Island with more residential phone customers than Verizon. This growth is fueled by our ability to maintain consistently healthy sales results for our three product offering. At the end of the first quarter, [62%] of new video sales were three product sales.

At Optimum Lightpath, first quarter results were impressive, continuing on the trend established in the latter part of last year. Revenue growth was 12% over last year’s first quarter and AOCF growth was up 25% over the prior year period. There are now more than 2,7000 buildings on network, an increase of 24% over the last year and [the number of ethernet] services sold has increased by 81% in the last year.

A brief update on the [over builders] -- at the end of the first quarter, Verizon was capable of serving a little less than 1.3 million homes in our footprint. Of those homes, approximately 1.1 million are capable of receiving video. In areas where the telcos compete with us in video, their impact on us is still single digit, even after more than two years of head-to-head marketing. Our employees are doing a great job, continuing to improve our service and products. We have grown in all subscriber categories with double-digit growth in revenue and AOCF, where were all indicative of our intense focus on customers, good products, and strong customer service.

Now I’d like to take a minute and talk about our wireless strategy. As more and more devices become WiFi-enabled, whether they be laptops, iPhones, BlackBerries or other portable devices, we believe we can create a compelling broadband wireless network throughout our footprint for our Optimum Online high speed data service customers. This network is being built using our existing infrastructure overlaying a wireless mesh network.

When completed, any Optimum Online customer will essentially have service anytime, anywhere within our footprint at speeds up to 1.5 megabits, using any of their portable devices which are WiFi enabled. The service is [inaudible] to our Optimum Online service and is offered free of charge to our existing customers.

I should point out that WiFi exists today and we already have launched in numerous communities a WiFi zone inside our footprint. It’s an open standard technology so it can be accessed by our customers with whatever PDA or laptop they choose. Ultimately, it will be a mobile voice capable network.

[We’ve just] begun the build-out of this network and anticipate that it will be completed in about two years from now. With our Optimum Online high-speed data customers now at more than 50% of our footprint, we have the critical mass and we believe the demand for this service to be compelling.

Before I turn the call over to Josh Sapan, who will discuss Rainbow’s results, I would like to mention quickly that we are very pleased to add Sundance Channel to our Rainbow portfolio of networks and think that with Rainbow’s resources, we have a tremendous opportunity to build upon Sundance’s success.

Josh Sapan

Thank you, Tom. First, let me address the Rainbow national services -- for the first quarter, revenue at our national programming networks, AMC, IFC, and WeTV, increased 13% to $179 million, and AOCF for the quarter was $74 million, which was a decrease of 2% as compared to the prior year. The quarterly increase in revenue includes a 22% increase in ad revenue, driven by higher units sold at AMC and WeTV, and a 7% increase in affiliate revenue compared to the prior year period.

The decrease in AOCF was expected and planned, primarily driven by higher marketing expenses associated with our recent AMC original series called Breaking Bad, and the critically acclaimed new WeTV documentary series called High School Confidential, somewhat offset by our higher revenue.

Notably, the premiere of High School Confidential on WeTV was the highest rated premiere ever for a WeTV original series. I might also mention that AMC recently won a Peabody Award for Mad Men. We look forward to Mad Men’s second season premiere last this summer and we are pleased to announce that we recently renewed Breaking Bad on AMC for another season.

Turning now to Rainbow's other programming businesses, which primarily include the Voom HD networks, our VOD services Lifeskool and sportskool, News 12 and IFC Entertainment. For the group overall, first quarter net revenue increased 29% to $53 million and the AOCF deficit declined from $33 million to $24 million. These improved results were primarily driven by the Voom HD networks due to higher affiliate revenue, partially offset by higher operating costs.

Now let me address Sundance Channel -- both Jim and Tom have referred to yesterday’s announcement about Sundance. Of course, it is not yet a done deal with regulatory approval and other closing conditions still to come. That said, we could not be more excited about reaching this agreement with Sundance Channel and about working with Robert Redford, one of the most respected and admired people in the creative community.

We’ve experienced first-hand how original programming can help distinguish a network’s brand and we look forward to building on Sundance Channel’s impressive original programming lineup.

I would now like to turn it over to Hank Ratner, who will discuss Madison Square Garden.

Hank J. Ratner

Thanks, Josh. Turning to MSG’s operating results, which now include Fuse for all periods presented, first quarter revenue increased 7% to $265 million compared to the first quarter of 2007. AOCF for the quarter declined by $18 million. These results were primarily driven by the Network Group, which now consists of MSG, MSG Plus, and Fuse, which generate higher revenue and AOCF, which reflected higher affiliate fees for the quarter, offset by lower advertising sales and higher operating costs.

In March, Fox Sportsnet New York was rebranded to MSG Plus, capitalizing on the MSG brand value and establishing a stronger correlation between the two MSG networks. Our national music network, Fuse, which is the only network solely dedicated to music, is preparing to relaunch the network with a new national advertising campaign designed to generate greater brand awareness and it continues to expand its distribution.

In the next few months, you’ll see Fuse rolling out a series of new music-based shows, including major music event programming Fuse Rocks the Garden, and studio-based shows from Fuse’s flagship studio on Seventh Avenue, right across the street from Madison Square Garden.

Revenue from entertainment events, including sports property events, was higher, led by the boxing match between legends Felix Trinidad and Roy Jones, and a sold out tennis match between icons Roger Federer and Pete Sampras.

This favorable impact was partially offset by fewer concerts in the first quarter than we had last year. AOCF from our entertainment events was lower than prior year, primarily due to higher event costs.

Revenue from our professional teams was essentially flat in the quarter while AOCF declined in the period, principally attributable to higher player personnel costs.

The Rangers just completed their season, having made it once again to the second round of the NHL play-offs. The season was a commercial success with every game a sell-out and television ratings up 87% over last year.

The Knicks proved this season that they clearly have a passionate fan-based. Despite the on-court performance, the team still played before 96% of the Garden’s capacity. Last month, we hired Donnie Walsh as President of Basketball Operations. We believe that Donnie will help put the Knicks on track for long-term success.

Last month we also unveiled plans for a full-scale renovation of Madison Square Garden, which will transform the existing building into a state-of-the-art facility that appropriately reflects its preeminent position as the world’s most famous arena. We are planning to start construction early next year and complete it in time for the start of the 2011-12 seasons. The renovation will not impact the Knicks and Rangers but we will close for one, possibly two summers. The renovation will enhance the experience of going to the Garden and will be good for everyone, including occasional visitors, season ticket holders, suite holds, athletes, entertainers, and sponsors.

Renovation highlights include a dramatically redesigned entrance, significantly better sight lines, wider concourses, and new hospitality areas. In addition, we will have 68 new mid-level suites that are 50% larger than current suits and half the distance to the events, as well as 20 new floor level suites that are on the same level as the playing surface and will provide direct access to the best seats in the house.

I will now turn the call over to Mike Huseby, who will briefly cover the company’s overall financial position.

Michael P. Huseby

Thank you, Hank. Total company operating performance translated into healthy revenue and AOCF growth and free cash flow of $68 million in the first quarter. Higher net cash provided by operating activities as compared to the first quarter of 2007 was largely offset by higher capital spending of $193 million versus $156 million. This was principally due to the timing of CPE purchases as well as a number of smaller capital projects, such as HD expansion to serve our existing HD subscriber base.

Turning to leverage and liquidity, the company’s consolidated cash position at the end of the first quarter was approximately $400 million and net debt was $10.3 billion. Net debt has declined by $700 million in the past 12 months, with net proceeds from asset sales and free cash flow funding such debt retirements.

As of March 31st, the company’s consolidated leverage ratio was 4.7 times. The CSC holdings restricted group leverage ratio was 4.3 times. Currently, Rainbow national services has $1.1 billion of debt and $300 million available on its revolving credit facility. The ratio under its bond leverage test as of March 31st was 3.4 times.

Operator, we would now like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from Craig Moffett with Sanford Bernstein. Please go ahead.

Craig Moffett - Sanford C. Bernstein

Good morning. Two questions, if I could; first for Tom, the WiFi network that you described, can you tell us a little bit more about the experience that you’ve had in Westport, Connecticut and other markets where you’ve already deployed it? And what you are seeing there that made you want to go forward with a full footprint wide rollout? And can you talk a little bit about the CapEx that we can expect over the next few years as you build it?

And then a question for Josh; Josh, on the Voom channels, having just failed to get the injunction in court, in court you said that -- that is in the, with DISH Network -- in court you indicated that you would possibly have to discontinue the Voom channels if you didn’t get that distribution arrangement. I am wondering if you can comment a bit more on whether or not we can expect the Voom channels to continue if you don’t get that ruling reversed.

Thomas M. Rutledge

With regard to our experience, our customers -- we have found that half of our customers today have WiFi routers in their home and that the proliferation of devices like iPhones and iPods, devices that have WiFi capabilities in them, BlackBerries with WiFi and the projections for those kinds of products going forward are significant. Having a standards-based, widely distributed base of CPE equipment out there that we will not have to buy, by the way, as part of our network, means that we can extend our network to our customers throughout their home and throughout their neighborhoods and where they work and play fairly easily and inexpensively and create a lot of value for consumers.

The cost of doing it is about $70 a home passed, $100 a customer, and depending on your penetration and we think that given the fact that our customer revenue is approaching $1600 a year and cash flow of 650 a year per customer that creating this value proposition for customers will enhance our service and cement our relationships with our customers for the long haul.

Josh Sapan

And with respect to the Voom litigation with EchoStar, because this litigation is still pending in court, it’s not going to be appropriate for us to comment further at this time about what we might do.

Jonathan D. Schwartz

That was our General Counsel, John Schwartz, by the way, not Josh.

Operator

Thank you. Your next question is from Douglas Mitchelson with Deutsche Bank. Please go ahead.

Douglas Mitchelson - Deutsche Bank

I’m just curious if you could clarify for us your capital deployment strategy. I think there’s a lot of controversy about what acquisitions you might look at versus paying out dividends versus repurchasing shares, given your stock appears very cheap to a lot of investors. So I’m just wondering if you could give us your thoughts in today’s environment. Thanks.

James L. Dolan

I think we continue to study all options. We are inherently a growth company and we continue to pursue growth opportunities for the company, as well as opportunities to increase shareholder value and that really is a spectrum that’s very wide and there is not one particular direction that I would say that we are committed to over another.

Douglas Mitchelson - Deutsche Bank

I guess I’ll add on to that then -- do you see the kind of possibility over the next couple of years, given the free cash flow the company might generate that you would at some point consider dividends and share repurchases?

James L. Dolan

Certainly it is a possibility.

Douglas Mitchelson - Deutsche Bank

All right. Thank you.

Operator

Thank you. Your next question is from Benjamin Swinburne with Morgan Stanley. Please go ahead.

Benjamin Swinburne - Morgan Stanley

Tom, just to go back to wireless quickly, the $350 million you are spending on the mesh overlay, how much of that has already been spent and how much of that is ahead of you? And I think you said it was a two-year project. I just wanted to confirm that.

And then your video ARPU growth really accelerated in the first quarter over the last -- really the last four quarters. How much of that was price increase versus the advanced set-top adoption or premium tier stuff? It’s sort of a trend in contrast of what we’ve seen from your peers this quarter. I’d love to get your thoughts there.

Thomas M. Rutledge

Well, most of the spending for the wireless mesh network is in front of us, not behind us. We’ve been building it in small part over the last year -- very small part but the bulk of this project is in front of us, not behind us.

With regard to our ARPU, it’s a mix of continued sell-in of triple play and the step-up in promotional offers to pricing, along with pricing and we don’t break that out specifically.

Benjamin Swinburne - Morgan Stanley

And if I could ask one follow-up then on the voice adds, at this penetration rate what have you done in terms of the product offering or pricing or marketing to continue to drive this business? I mean, you pointed out yourself, you are the largest residential phone provider now on Long Island. Have you had to alter how you’ve gone to market with that product to keep the numbers growing this quickly or is this a function partially of how attractive the demo is that you guys cover?

Thomas M. Rutledge

Well, it’s not just a demo issue. I think the reason we are the most successful, or we’ve reached that milestone in Long Island is because we’ve been in business there the longest. We are successful with our voice product throughout our footprint and if you look at time in market, time in market is the most significant indicator of penetration, not the demographics.

It’s a great value proposition. We save customers a lot of money when they switch from Verizon to us. They get rid of their phone bill. If they have a satellite, they get rid of their satellite bill. So the consumer proposition is extremely favorable and the marketplace recognizes that through time and our penetration continues to grow.

We have a lot more phone customers to sell than we have sold.

Operator

Thank you. Your next question is from Tuna Amobi with Standard + Poor's. Please go ahead.

Tuna N. Amobi - Standard + Poor's

I guess I wanted to follow-up on one of the earlier questions on capital allocation, just to get a little bit more specific. Jim, I guess this if for you -- I want to know in your answer you said your capital allocation strategy is meant to increase shareholder value. So in terms of the New York Newsday reported bid of $650 million, I want to know how you think that enhances shareholder value. Where’s the synergy from that deal?

James L. Dolan

Well, we’ve certainly seen a lot of reports with regard to Newsday and all I can say on the subject today is that we have nothing to announce regarding Newsday. We have not spoken on it before and we really are not able to comment on the Newsday rumors, so I can’t really speak to it.

Tuna N. Amobi - Standard + Poor's

I hate to beat the issue up but you are not -- I mean, newspapers doesn’t seem to be an area where you know obviously critical mass and even though this -- I understand this is in New York and so -- without necessarily pushing the issue too much, do you think that getting into newspapers is something that you might contemplate now or any time in the future?

James L. Dolan

I can only give you the answer I gave you and so I think that -- I think we are pushing the issue too much.

Tuna N. Amobi - Standard + Poor's

All right, okay. Switching gears to Josh then, can you provide us an update on the current tone in the scatter market, what your expectations are in terms of the up-front?

Josh Sapan

We are presenting in the up-front now and people are responding well to our products.

Tuna N. Amobi - Standard + Poor's

Okay, so in terms of the scatter market, what kind of trends are you seeing there? CPMs last time I checked was still up strong double-digits. Is that still what you are seeing?

Josh Sapan

The market seems relatively healthy.

Tuna N. Amobi - Standard + Poor's

Is that all you’ve got -- I was hoping for a little bit more color, Josh.

Josh Sapan

It’s going fine. We had a good first quarter. Things are going well.

Tuna N. Amobi - Standard + Poor's

Thank you.

Operator

Thank you. Your next question is from Ingrid Chung with Goldman Sachs. Please go ahead.

Ingrid Chung - Goldman Sachs

Two quick questions, hopefully -- not to beat a dead horse, but maybe I’ll try a different tack in terms of the acquisition strategy. I was just wondering -- do you see certain businesses as higher return than others, and would you want to invest in those higher return businesses, and which businesses are those?

And then secondly, I think you’ve given churn statistics in the past. I was wondering if you could quickly review churn stats for us.

Michael P. Huseby

I’ll talk about the -- I’ll just try to give you a general answer on the first question about acquisition strategy. I think Jim already explained it. I think it’s opportunistic. It’s looking at what’s available in the market that will add shareholder value and that’s about --

James L. Dolan

I’ll interrupt -- or retain shareholder value. Sometimes you need to do both.

Ingrid Chung - Goldman Sachs

So would you get a higher return from live entertainment versus cable, or --

James L. Dolan

As Mike said, it’s somewhat -- it’s opportunistic, but the opportunity comes in a lot of forms. There’s growth opportunities, there’s opportunities that -- the company just a short time ago, relatively to the company’s history, issued a very large dividend. That was opportunistic at the time. So we continue to look at all of those options, and as well as strategic investments that help retain what is a very healthy business right now.

I can’t give you one specific directional answer.

Ingrid Chung - Goldman Sachs

Okay, and churn?

Thomas M. Rutledge

With regard to churn, we uniquely among the cable companies have historically reported churn and we thought that being alone like that made no sense going forward, so we decided to quite reporting churn. It’s not necessarily a good number to use because it differs by definition. I see the satellite guys report churn but not the cable industry and there are different components that go into it in each industry, and so we felt it was something we didn’t want to continue reporting and we are not.

Operator

Thank you. Your next question is from John Hodulik with UBS. Please go ahead.

John Hodulik - UBS

You showed some unexpected video strength in the quarter. Could you just comment about how you are seeing competition from FiOS unfold, especially as they opened up a large number of homes toward the end of ’07 in New Jersey?

And then getting back to the WiFi announcement, you gave us the capital but do you expect much dilution on the OpEx side? And then lastly on that, I thought you mentioned that this may evolve into some sort voice offering. Could you just elaborate on that, if that was the case? Thanks.

Thomas M. Rutledge

So how are we doing against Verizon -- I did report that in the text of my statement. We are doing quite well I think in general and in places where we have been in business two years against them, our losses are in the single-digit range. The territories that they’ve been activating actually at the end of ’06 were really significant, so ’07 was -- in terms of planned activation against us, a bigger year than ’08 will be. But nothing has really significantly changed in the marketplace against them since we began reporting on it.

In terms of operating costs against the WiFi network, the WiFi network is connected to the cable network and latched onto the plant and really has very little operating cost at all.

John Hodulik - UBS

And then the evolution of the service, it sounds like it’s -- obviously it’s going to be a focus on high-speed data but do you expect that to evolve?

Thomas M. Rutledge

Well, you know, the thing with a high speed data network is that on a high speed data network, you can do pretty much anything digitally. It’s capable of voice, it’s capable of video, it’s capable of data. And you see companies like Vonage selling voice services over the top of our data servers. Voice-over-IP can run on a WiFi mesh network, so it is a full service broadband network expanded from our wireline base into the air for the benefit if our customers.

Operator

Thank you. Your next question is from Jessica Reif-Cohen with Merrill Lynch. Please go ahead.

Jessica Reif-Cohen - Merrill Lynch

Thanks. Actually Tom, I just want to follow-up -- you said that 2008 ramp for FiOS will be less than ’07. Do you have expectations? Can you give us some numbers, what was ’07 -- what did they light up in ’07? What do you think will be ’08?

Thomas M. Rutledge

Well, I actually don’t have -- I’m not going to give you ’08 because we don’t -- that’s a forward-looking guess.

Jessica Reif-Cohen - Merrill Lynch

But you know what the build-out is. I mean, is it going to be a fraction of what it was in ’07?

Thomas M. Rutledge

Yes.

Jessica Reif-Cohen - Merrill Lynch

I mean, the worst is behind you, it seems like.

Thomas M. Rutledge

Well, if current trends continue, that’s correct.

Jessica Reif-Cohen - Merrill Lynch

Okay, and then for Josh on -- well, actually, one more for you, Tom; can you just talk about how you are going to charge for the wireless service?

Thomas M. Rutledge

Our intent is to give it to our existing customers at no additional charge. We think that that value proposition in the triple play will allow us to continue to grow the business rapidly and that we’ll create a return to the capital through growth.

For non-current customers, we will develop charges and we haven’t yet gone to market with those.

Jessica Reif-Cohen - Merrill Lynch

For Josh, I just wanted to go back to Sundance; how do you view this acquisition in terms of the benefits to you guys? Is it more of a cost-cutting opportunity or a revenue enhancement? Can you give us a little color on how you are thinking about it?

Josh Sapan

We think it’s an excellent channel, a great brand. We’ve always been of the opinion that having brands that have strong allegiance among discrete groups of people is a way to develop value and Sundance has a great beachhead there. They’ve developed original programming that further defines the brand. Iconoclasts and the Green are two notable examples. There are 28 million subscribers, so there’s growth opportunities. So we think it’s a very strong asset, smart for us with a lot of potential.

Jessica Reif-Cohen - Merrill Lynch

So is it more of a revenue opportunity than a [cost-cutter]?

Josh Sapan

I think the growth is the part that appeals to us, yes.

Jessica Reif-Cohen - Merrill Lynch

Okay, and I have just one last question; can you guys discuss, Tom or Jim, how you’ve changed marketing over the last year or two in terms of customer service? I mean, how you’ve changed marketing and customer service over the last year and what changes we might expect over the next year?

James L. Dolan

Jessica, can you be a little more specific about that question?

Jessica Reif-Cohen - Merrill Lynch

Well, in the last quarter a lot of the cable companies have ramped up marketing with different messages, whether it’s -- and you guys are definitely different and have different penetration than they do, so I was just curious about how much do you expect your marketing to change in terms of dollars and message in the coming year, and also the same kind of question in terms of customer service -- is there anything that you expect to be doing differently?

James L. Dolan

Tom.

Thomas M. Rutledge

Well, we’ve been fairly successful with marketing to get to these penetrations. We’ve continued to modify our marketing based on what works and what doesn’t work. But do I envision a wholesale change in our cost structure? No. We tweak around the edges and if we find something that works, we do it.

With regard to customer service, that’s a continuous improvement process and we’ve been working at that since I’ve been with the company and forever, and it’s something we’re doing better every day. We have 10,000 in the cable company who work on customer service and all of us are improving every metric that we operate on on a consistent basis. And it’s really about making small, progressive changes in your overall business practices until you have really excellent service

And we’ve come a long, long way. We have very good service today and we are going to continue to get better.

Jessica Reif-Cohen - Merrill Lynch

Thank you.

Patricia Armstrong

Jackie, we are going to take two more questions.

Operator

Thank you. Your next question is from James Radcliffe with Lehman Brothers. Please go ahead.

James Radcliffe - Lehman Brothers

Good morning. Two questions, first off on MSG; can you give us an idea of the timing of the $500 million investment spread across ’09 to 2011?

Hank J. Ratner

Yeah, it will be between 2009 and 2011, 2012. The project will be evolutionary over that period of time and so will the expenditures.

James Radcliffe - Lehman Brothers

Got it, so no color in terms of how you split up that money across the [three areas] at this point?

Hank J. Ratner

No.

James Radcliffe - Lehman Brothers

Okay. And secondly, I wanted to make sure I understood some of the accounting around RGUs. For an Optimum Voice business customer, say a doctor’s office with four lines, paying $160 a month, how would that appear in both RGUs and the impact on ARPU?

Thomas M. Rutledge

That’s a good question. That would show up as two units, a data unit and a voice unit, no matter how many lines it had. So we have not -- our RGUs are probably an indicator of the business that need to change through time. Passings growth, if you look at our passings growth, our passings growth is faster than the growth we are actually building plant against. So if you look at our capital expenditures against line extensions and look at how many passings we are actually building, and then look at the change in our passings, you will see that passings growth appears to be greater and therefore our penetrations fall. And the reason that is is because business customers, as they come on are counted as passings and they are counted as RGUs, as I just said, one data, one voice RGU. And all of that revenue gets divided into the video ARPU.

So it’s a number that is becoming less clear through time in terms of its meaning, but in historic terms, it shows you what the cable company is generating on a per video customer.

James Radcliffe - Lehman Brothers

Tom, did you say into the video ARPU?

Thomas M. Rutledge

Well, ARPU is against video customers.

James Radcliffe - Lehman Brothers

Okay, understood but they --

Thomas M. Rutledge

-- customer relationships, which we also report, it’s a bigger number.

James Radcliffe - Lehman Brothers

Got it. Thank you.

Operator

Thank you. Your final question is from Bryan Goldberg with Bear Stearns.

Bryan Goldberg - Bear Stearns

Two quick questions, first for Tom; do you have a FiOS win-back program in place and if so, did any of your gross adds on the video or data side come from FiOS this quarter? And then secondly on the MSG renovation, aside from more luxury boxes to sell at better prices, how should we think about the other economic benefits of this project? From a project IRR standpoint, will there be more restaurants, higher per caps? Will you raise all ticket prices? Are there going to be cost benefits or improvements like in the back office?

Thomas M. Rutledge

The answer to your question on win-backs is yes, we have a win-back strategy and yes, we get lots of win-backs and yes they are in our growth numbers and they are both against as and FiOS and AT&T U-Verse and any competitors that we face.

Hank J. Ratner

And on the Garden, we are introducing many, many new products that aren’t currently available in the Garden, some of which aren’t available in any building at all. And our restaurants, we currently have two. We’ll have four. We currently have 160 points of sales in the building. We’ll have 180. Those will grow by 20. Our suite numbers will go up by about 40 or 50. Twenty will be on floor level, 68 will be at mid-level. That doesn’t exist today.

So I think you are going to find a building that is full of all state-of-the-art amenities with new products and offerings to the marketplace that will create opportunity for sales

As far as ticket pricing, we haven’t made any decision on ticket pricing at this point in time.

Patricia Armstrong

Okay, I think that’s going to do it for us today. This conference call will be available on Cablevision's website and on streetevents.com through May 15th. Thank you all for joining us.

Operator

Thank you. This does conclude today’s Cablevision first quarter earnings conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Cablevision Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts