Dolan bets big on bird

CEO sets sights high for satellite

A correction was made to this article on July 21, 2003.

NEW YORK — Chuck Dolan’s five-ton, $225 million satellite achieved orbit Thursday evening, launching as many questions as answers about the Cablevision CEO’s plans for his much-ridiculed DBS service.

The Rainbow DBS 1 satellite rocketed into its celestial berth from Cape Canaveral Thursday night amid a wave of Wall Street jitters about the risky project and confusion about how, or even whether, the company truly intends to offer a national video service that could compete with rivals DirecTV and EchoStar, not to mention increasingly aggressive digital cable ops.

The Lockheed Martin-built A2100 series communications satellite launched at 4:45 p.m. West Coast time aboard a powerful Atlas 5 rocket and reached its final geosynchronous orbit about 6:30 p.m. A Lockheed Martin spokesman said the satellite will undergo a series of in-orbit tests during the next month.

Some investors on Thursday admitted that they actually had fingers crossed that the bird would find its way safely to the bottom of the Atlantic Ocean, while others were confident that it will be easier to sell the DBS bird and slots once the satellite is orbital and operational.

Charles Dolan has said he’s keeping all details under wraps until the service launches commercially Oct. 1. Insiders speculate that the bare bones nature of the project — it has no dedicated CEO or senior staff and only a minimal budget — suggest the goal is simply to meet the FCC’s satellite license requirement to have a service up and running by year’s end, in order to negotiate a sale.

Stock spinoff

Company last month announced a plan to finance the service by way of a stock spinoff of Rainbow DBS, along with the ailing Clearview Cinema chain, later this year. But some analysts questioned the feasibility of the financing scheme due to the ongoing SEC investigation into Rainbow Media accounting transgressions. The spinoff was to cap Cablevision’s investment in the service at around $460 million. That’s on top of some $250 million already invested.

“We are not in favor of the license or the planned spinoff of the satellite division, and would prefer they walk away from this completely and re-invest in their core business,” said Oppenheimer analyst Thomas Eagan, echoing the opinion of most Wall Street bird watchers.

Dolan, in fact, has limited options: Cablevision can sell the slots and bird to EchoStar, which transmits from a similar neighborhood and currently leases slots from Cablevision. It can go ahead and launch a competing service, possibly as a wholesale distributor of high-definition services. Or it can simply write the project off.

$1 bil breakeven

While investors prefer a sale or writeoff, Dolan — after more than a decade working on his dream — is evidently dead set on a full blown commercial incursion onto DirecTV and EchoStar’s turf. He’s maintained the service can break even at less than $1 billion in investment.

Eagan reckons Cablevision could fetch around $175 million for the bird, but EchoStar chief Charlie Ergen has already proved a tough negotiator, even though the satellite would provide useful additional capacity with which to offer local channels.

Rainbow 1 theoretically has capacity for 468 channels of standard definition television or roughly 180 of high def. Sources say the Rainbow DBS service (an official new brand name is said to be forthcoming) will launch with a nominal eight high definition channels, presumably based on some of Rainbow’s existing programming from IFC, AMC and WE: Women’s Entertainment and possibly some sports offerings. Dolan has said he’s also planning to offer broadband Internet via satellite, a service neither of his DBS rivals have yet mastered.

High def undefined

But the emphasis on high definition may not be enough to sustain even a niche service.

“High definition is still a service in search of customers,” Eagan noted.

In addition, Dolan is still trying to negotiate deals with program suppliers and technology vendors, as well as attempting to secure capacity to extend the satellite reach to the West Coast.

The service is being staffed mainly by Cablevision employees, though the company recently tapped ad conglom Interpublic Group to market the service. Motorola has been contracted to supply the digital set-top boxes.

“It’s really a non-player in terms of trying to compete with EchoStar, which is the low-cost DBS provider, or DirecTV with its premium packages, PVRs and high def options,” said Ergen.

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