Was That "Voom," "Boom," or "Doom?"

It's been a slow-motion train wreck going on now for nearly a decade. Cablevision (NYSE: CVC  ) announced that it had decided to shut down its high-definition satellite television provider Voom to Echostar (Nasdaq: DISH  ) for $200 million. Thus is the denouement of a decade-long string of financial losses that Voom inflicted upon Cablevision, and closes the book on a howlingly interesting fight over the last month between chairman and largest shareholder Charles Dolan and members of the board including his son, James, who is the chief executive.

Echostar will receive the single satellite Cablevision put into orbit for Voom, as well as its ground support equipment. Cablevision will continue to sell Voom's other assets, including its slots for other satellites. These could net several million dollars, but the company will not come close to recovering its investment in the business, which over the full course of the project is estimated to have exceeded half a billion.

Echostar is certainly a winner here -- the company has been trying to buy Voom's satellite for some time so that it could more effectively compete with its biggest rival, DirecTV (NYSE: DTV  ) , the largest satellite operator. Echostar clearly gets a bargain in a satellite that is only two years old, and cost more than the purchase price to launch. Besides, beyond the cost of throwing a piece of iron into space is the substantial risk that it might not stay up there, or do so in a way that is usable. A satellite with no known defects and many years' more useful life that already happens to be in space is worth substantially more than one that still sits on the ground.

The Voom disaster marks a fairly ignominious mark on Charles Dolan's trailblazing career. He founded Home Box Office -- now owned by Time Warner (NYSE: TWX  ) -- and is regarded as a pioneer of cable television. As cable was generally considered to be an alternate method to broadcast to deliver service to areas with poor reception, Dolan was in the process of wiring New York City for service. Apparently Dolan was accustomed to skepticism before, so he was undeterred when his plans for Voom were widely panned. Things got a little more serious when the doubters included members of his own board, as well as his son.

In 2003, Dolan made the decision to spin off Voom, along with Womens' Entertainment, AMC, the Independent Film Channel (IFC), and some other assets into a new entity called Rainbow Media Services, much as John Malone has done with Liberty Media (NYSE: L  ) . But in a filing this past fall the company disclosed that subscribers for Voom had fallen precipitously, and that the churn was much higher than previously thought. Soon after, Cablevision shelved its plan, seeking instead to sell off Voom in its entirety.

Obviously this is great for Echostar, but it's not half bad for Cablevision, either. Voom promised years of upcoming red ink, and Charles Dolan seemed at one point willing to destroy the entire company in his dogged insistence that management and directors remain supportive of funding it. He may not be happy about the fact that he's been outvoted and outmaneuvered, but dismally poor results from the venture gave them added ammunition to stand firm in this instance. Voom may have succeeded wildly eventually, but it was turning into a bet-the-farm wager for Cablevision.

Bill Mann has no interest in any company mentioned in this article. For a complete list of his holdings, please check his profile.


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