Cablevision Makes an Old-Fashioned Mistake

Cablevision (NYSE:CVC) is in the right industry at the right time. But the company may be regretting its recent foray into the newspaper business.

Its telecommunications services -- digital video, high-speed data, and telephone -- did well in the quarter, as did its cable-operator brethren Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC). In fact, Cablevision has added more than half a million revenue-generating units -- one customer buying one service -- since last year.

Cable net revenues grew nearly 5% during the quarter amid a sloppy economy, and customer counts for high-speed data and telephone usage rose both sequentially and year over year. Moreover, Cablevision's Rainbow unit, which includes a host of popular networks, saw a big 40% jump in its operating income.

There's just one catch …
Last July's purchase of Long Island's daily newspaper Newsday remains a thorn in Cablevision's side. After the company had to write off $400 million of its $650 million purchase price last quarter, the Newsday unit checked in this quarter with a $7.2 million operating loss.

That shouldn't come as a big shock to anyone. Even Warren Buffett, whose Berkshire Hathaway (NYSE:BRK-A) has owned shares of Washington Post (NYSE:WPO) for decades, isn't excited about the prospects for newspapers. Earlier this month, Buffett said: "For most newspapers in the United States, we would not buy them at any price. They have the possibility of going to just unending losses."

That's certainly been the case with Tribune Company, which was privatized not long ago and is already in bankruptcy. The opening months of Cablevision's experience with newspapers seem to be going equally poorly.

At the same time, Cablevision apparently is considering a spinoff of its Madison Square Garden complex, which includes the famous sports and entertainment complex in the middle of Manhattan, along with Radio City Music Hall and a couple of theaters.

Beyond all this, and like its peers, Cablevision faces tough ongoing competition from the offerings of telecomm companies such as Verizon (NYSE:VZ) and AT&T (NYSE:T). While I remain confident Cablevision can handle that challenge, it doesn't need the distraction of a struggling newspaper operation right now.

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