Now that the dust has settled over Cablevision's (NYSE:CVC) contentious dispute with the YES network, the company is free of distractions, and focused on growing its core cable subscriber base and cross-selling ancillary services such as video-on-demand, high-speed Internet, and residential Voice over Internet Protocol(VoIP).
First-quarter earnings released yesterday seem to indicate the company has done precisely that. Backing out discontinued operations and other onetime items, the company reported a first-quarter net loss of $0.39 per share, narrower than the prior year's restated $0.47 loss, on a 19% increase in revenues to $1.19 billion. Forget about the red bottom line for the moment, and examine the bigger picture.
As the undisputed leader in New York, the nation's largest market, Cablevision claims two-thirds of available viewers, the highest penetration rate in the industry. The company operates two distinct business segments: telecommunications, which is further subdivided into consumer and business divisions, and Rainbow Media Holdings.
Growth along all key consumer product lines help drive telecommunications revenues 17% higher in the first quarter, to $740.1 million. Nearly 72,000 signed up for Cablevision's Optimum Online high-speed Internet services, lifting the total to 1.1 million. Cablevision also now boasts one million digital-video subscribers. Over one-third of all viewers have switched to digital, compared with just 13% a year ago. Demand for the new residential VoIP service, Optimum Voice, also accelerated, with 3,200 new customers enrolling weekly. Total revenue generating units, an aggregate measure of all consumer-related services, grew 23% to 5.2 million.
Cablevision also serves the business world, offering integrated voice, data, and Internet services through its Lightpath venture. Revenue and adjusted operating cash flows grew 9% and 17% respectively, driven by a 51% increase in the number of business-class Internet customers. Together, adjusted operating cash flows (a non-GAAP measure widely used within the industry) were up 13% to $275 million, with operating income soaring 80%.
Performance at Rainbow Media Holdings was solid as well, with strength in both advertising and affiliate fee revenues lifting operating income in core networks by 47% on a 59% surge in revenues to $222.4 million.
The wholly owned subsidiary operates both national and local programming, and maintains a controlling interest in Madison Square Garden, and thus the New York Knicks, the New York Rangers, and Radio City Music Hall. Rainbow Media also owns the Clearview Cinema chain, half of Fox Sports Net, and the recently launched VOOM satellite television.
Cablevision is clearly at a crossroads, and in the midst of a massive corporate restructuring. A large stake has been placed ($150 million or so last year) on the future of the VOOM satellite network. In the short term, the move is hurting margins and doing nothing to stem the company's ballooning debt. Also, three profitable national cable networks -- AMC, IFC, and WE -- will go out the door with a planned spinoff of Rainbow Media.
On the other hand, the spinoff will allow Cablevision to get back to basics. Furthermore, the popular sports networks left behind earn premium rates, and programming revenues should continue to rise. With accounting troubles largely in the past, rising penetration rates in the telecommunications sector, and expectations for positive free cash flow by the fourth quarter, the beleaguered company may finally be on the right track.
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Fool Contributor Nathan Slaughter owns none of the companies mentioned.
