Cablevision Changes Channels

Three months ago, shares of Cablevision (NYSE:CVC) jumped markedly when the New York cable operator postedtens of millions in third-quarter losses. Today, the company announced a fourth-quarter shortfall in the hundreds of millions ($305.8 million to be exact), and again the stock is advancing solidly. The drop is roughly 50% wider than last year's loss, but shareholders are cheering anyway. Why? Just like three months ago, there is a bigger story underneath all that red ink in the bottom line.

For starters, a non-cash impairment charge of $354.9 million stemming from the company's satellite operations was booked in the quarter. This writedown marks Cablevision's departure from the money-hemorrhaging venture ($450 million in operating losses during the fourth quarter alone). An earlier decision to spin off the Voom subsidiary, along with a handful of popular cable networks, was scrapped in December. Instead, the company will sell its satellite to Echostar (NASDAQ:DISH) for $200 million, and founder Charles Dolan (who has spearheaded the project since its inception) has agreed to acquire any remaining assets.

The sale will aid Echostar in its ongoing battle with nemesis DirecTV (NYSE:DTV) and will allow Cablevision to bypass substantial shutdown losses for the service that it might have otherwise incurred. Adjusted operating cash flow -- which is probably a truer measure at this point -- increased 5% to $261.4 million (driven by a 20% gain in the core cable segment) on revenues that jumped 11% to $1.4 billion. Both measures are forecast to grow in the mid-teens this year.

The commitment that Cablevision made to upgrade its network has yielded some of the highest penetration rates for premium services in the cable industry. About 145,000 digital video customers were added during the quarter, and the company ended the year with about two-thirds (577,000) more subscribers than it had at the beginning of the year. It also picked up 93,000 new high-speed Internet customers during the quarter, and the total number of Internet-based digital phone users soared to more than 273,000 from just 29,000 a year ago.

The aggressive marketing of competitively priced ($90) promotional bundles helped drive subscriber growth across all three services. More than half of Cablevision's basic video subscribers have made the switch to digital cable, and nearly one-third of the company's market has enrolled in its high-speed data service. By comparison, industry-leader Comcast (NASDAQ:CMCSA) has far more overall customers, as it operates in a much larger geographic footprint, but its penetration rates of 40% and 17.5%, respectively, trail Cablevision by a wide margin.

Separately, Cablevision announced that it has simplified the ownership structure of its sports-related properties by agreeing to an asset swap with former partner News Corp. (NYSE:NWS). Until now, the two have shared ownership of sports and entertainment assets worth more than $3 billion.

Under the agreement, News Corp. will get full ownership of Fox Sports Net and Cablevision will assume full ownership of Madison Square Garden. This is how it will work: Cablevision will give News Corp. its 60% interest in Fox Sports Net and several FSN networks. News Corp. will give Cablevision its 40% stake in Madison Square Garden -- a portfolio that includes the New York Knicks and Rangers, FSN Chicago, MSG network, and Radio City Music Hall.

Some see the decision as the opening gambit in a move to put Cablevision on the auction block. Dolan himself seems headed away from his cable roots and toward a satellite foray in the skies. If so, today's stellar subscriber growth numbers would be frosting on the cake to any potential suitor -- Time Warner (NYSE:TWX) perhaps -- looking to get a foothold in the desirable New York market.

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Fool contributor Nathan Slaughter owns none of the companies mentioned.