Voom To Go Boom?
December 23, 2004
Cablevision has decided to suspend its spinoff of Rainbow Media Enterprises, which includes Voom, IFC, WE: Women's Entertainment and AMC networks. The new entity was
originally slated to spin-of in 2003, delayed twice, most recently to
Q4 2004. Voom was down by $75.3 million in Q3 2004, on revenues of
just $5.9 million. Cablevision filed this statement with the SEC
regarding the spinoff: "The board of directors has decided to suspend
pursuing the spinoff of its Rainbow Media Enterprises subsidiary, in
its previously announced form, and instead to pursue strategic
alternatives for its Rainbow DBS business."
The news had a positive
and immediate effect on the Cablevision stock, which closed at $25.06
yesterday, up by 13.3%. Based on the reaction of the market, could Voom go boom? I think so.
Consensus between the press coverage of Cablevision's announcement and industry analysts is that Cablevision wants to sell Voom, but there will probably be no takers, therefore the service could go bust.
What would you do if you were Cablevision, and you made a minor announcement like they did and the stock jumped by 13%? They have had to consider pulling the plug on Voom, or face a potential shareholder revolt. So in this age of shareholder value, mercy killing a money hemorrhaging service like Voom would only have three consequences:
1-Stop the loss
2-Increase share price
3-Piss off some 25,000 subscribers
Here's what we at DigitalTV think will happen: Cablevision will sell Voom for $1 to Echostar (owners of DISH & DirecTV), which will then offer each Voom subscriber a free replacement HD STB and dish with installation, but will keep the Voom service going until all Voom subscribers who want to switched have been switched.