Cablevision move on Newsday under fire


3:33 PM EDT, May 5, 2008

Wall Street’s disenchantment with Cablevision Systems Corp.’s effort to buy Newsday, the paper in its Long Island backyard, has roots in the concern that owning a property in a “failing” industry could hurt the cable giant’s free cash flow, one analyst said Monday.

In a report to investors Monday morning, Craig Moffett, who tracks Bethpage-based Cablevision at securities firm, Sanford C. Bernstein & Co. in Manhattan, expressed pessimism about the newspaper industry and Cablevision’s possible participation in it.

“Our recommendation of Cablevision shares rests on the prodigious free cash flow generation prospects of the Cablevision business, and — explicitly — on the return of that cash to shareholders,” wrote Moffett, who rates Cablevision shares “outperform” with a $45 per share price target. “It does not presume diversification into a failing industry.” Cablevision shares are up 14 cents Monday afternoon to $23.28.

The “failing” industry, Moffett wrote in a separate report released Monday, is the victim of free news on the Internet.

  •  “Put simply, the economic model of news gathering of maintaining costly overseas correspondents and news bureaus, of investigative journalists is being eviscerated,” Moffett wrote. “And it is being eviscerated by the Internet.”

    A Cablevision spokesman wasn’t immediately available for comment.

    According to sources, Cablevision last week made a $650-million bid to buy Newsday in a deal that includes the newspaper’s Melville headquarters. Rival bids by News Corp. chairman Rupert Murdoch andDaily News owner Mortimer Zuckerman, at $580 million each, do not include real estate, sources have said.

    In an e-mail, Moffet suggested a Newsday-Cablevision combination presented strategic challenges.

    “I have no idea how they [Cablevision] would integrate Newsday,” he wrote. “Beyond the synergies of overlapping local ad sales forces, there’s not much ‘there’ there.”

    He also addressed an assertion in his report that the Cablevision board “was presumably asked in advance to authorize the action . . . and it acquiesced” to management’s pursuit of Newsday.

    “In general,” he explained, “a transaction of this size requires board approval in advance.”

    In addition to cash-flow worries, Moffett predicted that a Newsday-Cablevision combination isn’t going to be the regulatory cakewalk some expect.

    “While the FCC’s media-ownership rules do not spell out cable company ownership prohibitions in the same way they do cross ownership of newspapers and broadcasters, a Cablevision-Newsday combination would nevertheless raise some important public policy concerns that would likely garner scrutiny from the FCC and Congress,” Moffett wrote.

    “As the primary distributor of television content on Long Island via its dominant position as a cable operator, and as the sole ‘publisher’ of TV news on Long Island through its ownership of News Channel 12, a Cablevision bid would be just as problematic as a News Corp deal,” he said.

    Another media market watcher explained Cablevision’s interest in Newsday as primarily a matter of control.

    “This acquisition does three things for Cablevision,” wrote Kevin Kamen, president of media appraisal firm Kamen & Co. Group Services in Baldwin.

    “It provides the Dolan family with full control over the editorial debate-news media agenda on Long Islandsince it already owns the dominant television station, cable’s News12.

    “Secondly, it gives them leverage to directly monopolize the advertising agenda on Long Island, whether via digital or print, by offering one-stop shopping and pricing.

    “Lastly, by acquiring the other properties that are part of the Newsday family . . . it corners the market and helps them to better market and promote their entire entertainment and sports portfolio in a structured cross brand technique.”