CABLE READY : Maverick CEO Charles Dolan’s Vision Makes Cablevision a Powerhouse
In the cable television industry few players try to trump industry giant Tele-Communications Inc. But Charles F. Dolan, founder and chairman of Cablevision Systems Corp., is often an exception to the rule. In the last year, Dolan has twice outfoxed mighty TCI, walking away with the prize when the two companies vied first for the American Movie Classics network, and then Madison Square Garden.
With an estimated net worth of $715 million, Dolan, 68, outranks even TCI Chief Executive John C. Malone in Forbes magazine’s most recent accounting of wealthy Americans--yet he’s scarcely known outside of cable TV circles. He doesn’t hobnob in Hollywood, and he has been running his company from the same suburban office park on New York’s Long Island for 15 years.
Within the industry, Dolan is regarded as a maverick and visionary who pioneered urban cable systems by wiring Lower Manhattan and creating Home Box Office. He is the quintessential risk-taker who lost control of two earlier businesses before launching Cablevision in 1973, and he has continued to borrow and bid daringly.
This year, Cablevision completed four acquisitions totaling $822 million. When the company completes deals now pending, including the Madison Square Garden acquisition, debt may exceed $3 billion, but analysts such as Morgan Stanley’s Richard Bilotti have said Cablevision’s cash flow is improving rapidly enough to handle that debt.
Although Dolan offered shares to the public in 1986, he still owns 51% of Cablevision’s voting stock and has the power to elect three fourths of its board. The company is the nation’s fifth-largest cable operator.
“I have to admire the way Chuck has built his company and retained control. It’s really miraculous,” Malone said from TCI’s headquarters in Denver. “His portfolio is greatly diversified. There is no single mistake that could ever take him down.”
Beginning with a handful of franchises on Long Island, Dolan has built an empire of systems clustered around New York City, Cleveland, Boston and Chicago that are the envy of the industry. With shrewd marketing of its services, Cablevision makes more money per subscriber than almost any competitor. And Cablevision’s populous markets are ideally situated for the company to profit from the introduction of telephone service to cable customers.
Cablevision employs 52 people in a fledgling telephone operation that already serves 60 or 70 corporate customers. “We’re probably the first cable company with a telephone switch,” Dolan said in an interview at his headquarters here.
Cablevision is spending $350 million this year to build state-of-the-art cable systems intended to last several decades. “I think we’re pretty far ahead of the curve,” Dolan said.
But programming is Dolan’s real passion, and that is how he has made his reputation nationally. Although he lost control of HBO with the sale of an earlier company to Time Inc. in 1973, Dolan went on to launch the American Movie Classics, Bravo! and SportsChannel networks. An ardent believer in regional sports coverage and news, Dolan invested in the Courtroom Television Network and eight regional sports networks, and his executives continue to dream up new offerings.
Since 1992, the Rainbow programming unit has been run by Dolan’s son James, 39.
“We’re in the editorial business,” the elder Dolan explained. “What we must accomplish is to produce a branded product that people will identify and will want to have in their homes, however it may be brought to them.”
Cablevision’s programming unit launched the Independent Film Channel this summer; the Singles Network is to go on the air in 1995, offering national programming and regional dating services. Later in the year, another service, Romance Classics, will make its debut, offering movies and some old TV series of that theme.
Although the new Independent Film Channel has fewer than 1 million subscribers, the well-established AMC network reaches about 45 million of the nation’s 59 million homes with cable TV. Cablevision, as a programmer, could see its revenues jump as cable operators across the country upgrade their systems to 200-plus channel capacity.
In recent years, Dolan has toyed with the idea of spinning off his programming investments into a separate company. Wall Street expected him to retain control of that entity for his family, and perhaps sell his cable systems outright. But Dolan confounded Wall Street by not selling his cable systems last winter, despite reported offers from GTE Corp., U.S. West and Time Warner. Instead, he has purchased more systems and acquired more programming with the AMC and Madison Square Garden deals.
“Chuck is such a contradiction,” marveled one cable TV executive. “He has this veneer as a cordial, easy-going, accepting person . . . (but) he is absolutely a lethal competitor. He’s like Darth Vader dressed up in a Howdy Doody outfit.”
During the summer bidding for Madison Square Garden, for example, debt-laden Cablevision received scant notice. The company appeared outgunned by TCI, which had declared owning the Garden its “manifest destiny.” But Dolan teamed up with cash-rich ITT Corp. to make a $1.075-billion offer in a partnership arrangement that required Cablevision to put up only $110 million the first year.
Dolan’s modus operandi is to come up with the winning bid--and worry about paying later.
On occasion, he does fail. In 1984, Cablevision couldn’t raise the $34 million required to keep its stake in a Sacramento franchise, which it had won the previous year in a joint venture with Scripps-Howard Cable. And in 1989, Dolan and Hollywood entrepreneur A. Jerrold Perenchio tried but failed to mount a hostile bid for Time Inc. But such defeats are rare, according to Perenchio, who serves on Cablevision’s board and has been a Dolan fan for 20 years. “I call him Bulldog Dolan. He’s been after Madison Square Garden for 30 years.”
The son of an inventor, Dolan grew up in a Cleveland household accustomed to risk. His father’s inventions for the automotive and aviation industries brought “great prosperity” in the early 1930s, but left the family “broke” by the end of the decade, Dolan said.
Dolan worked at a radio station during high school, then served briefly in the Air Force at the end of World War II. He returned to Cleveland to enroll at John Carroll University, where he met his future wife, Helen. After marrying, Dolan abandoned his studies to concentrate on a business he and his wife ran from their apartment, assembling footage of sports events for 15-minute reels sold to television stations around the country. When that business failed Dolan sold his accounts to Telenews, a competitor in New York, in exchange for a job.
In 1954, Dolan joined Sterling Television, which had been marketing some of the Telenews product. Dolan helped start a new venture that eventually spawned Sterling Manhattan Cable. After wiring some of Manhattan’s hotels in the early 1960s for news and visitor information, Dolan’s company won the cable franchise for Lower Manhattan in 1965.
Dolan soon concluded that he needed unique programming to attract subscribers. In 1967, he negotiated a deal with Madison Square Garden to offer New York Knicks and Rangers games on his fledgling service. In 1972, he started Home Box Office as a nationwide pay TV service in order to recoup the cost of acquiring the movies and sporting events he wanted for his Manhattan subscribers. He hired Gerald Levin--now Time Warner chairman--to get HBO up and running.
The costs of building an urban cable system were crushing, however. Dolan took his company public, sold bonds and took in partners such as Time Inc. By 1973, Time owned 80% of Sterling Communications and decided to liquidate the company, keeping only HBO. With his profits, Dolan bought the Long Island franchises from Time.
Some associates, such as Sterling’s John Tatta, joined Dolan and prospered after Cablevision went public in 1986. In Hollywood, however, Perenchio said he couldn’t afford the $150,000 investment back in 1973, something he said he regrets to this day.
“No one but Chuck Dolan ever thought cable would ever amount to anything outside poor reception areas,” Perenchio said.
Dolan himself was stricken with doubt in 1975, when HBO quit offering a new movie each night, cutting back to just seven new titles a month. Angry subscribers overwhelmed Cablevision with cancellation orders, and Dolan wondered whether he had misjudged cable TV’s viability in the suburbs. It was his lowest moment. But the cancellations ebbed, and Dolan bought a package of movies from Universal Pictures to bolster his service.
By 1985, Cablevision could make more sweeping deals. Marc Lustgarten, the Cablevision vice chairman who was running the programming unit at the time, negotiated with MGM/UA Entertainment Co. to air as many as 1,450 films on pay television through 1995. The deal soon posed an obstacle to Turner Broadcasting System’s acquisition of MGM/UA. Cablevision collected $50 million from Turner and MGM/UA for bowing out. “It was a great contract,” Dolan said.
Conversely, Cablevision lost $50 million on the disappointing “Triplecast” of the 1992 Olympics. But by 1993, Cablevision was better able to absorb such a blow. And Dolan still defends the pay-per-view offering, which he undertook with NBC, a partner in a several programming ventures.
“The Triplecast was a great product,” Dolan said. In his view, the venture was undermined by the limited number of addressable converters in cable homes, and by opposition from some conventional broadcasters who feared audience erosion. Dolan said he would like to see pay-per-view coverage attempted again in the year 2000, when many more homes will be equipped to receive it.
Both Dolan and NBC Chairman Robert C. Wright describe the 5-year-old partnership as solid, although NBC recently passed up a chance to invest in the Madison Square Garden venture. Because of ITT’s role, NBC would have only a minority stake, a prospect believed to hold little appeal for the broadcaster. Still, Dolan insists that NBC is welcome to participate at any time.
“Chuck has never seen a deal that he didn’t like most of it,” said Wright. “He’s an excellent partner. We don’t always see eye to eye on everything, but he’s consistent.”
Elaborating, the NBC chairman said: “We’re two different kinds of companies. . . . He operates on an asset-building kind of basis,” whereas NBC is most concerned about its profit-and-loss statement.
Under terms of their partnership, NBC could force Cablevision to purchase its interests in SportsChannel (New York) Associates and Rainbow News 12 for $92 million. “We haven’t made a final decision yet,” Wright said.
Indeed, the proposed acquisition of Madison Square Garden is still being studied by a federal antitrust agency. Cablevision has been asked for extensive documents, presumably because it controls so much regional sports coverage in New York and will be gaining control of the competitive Garden networks.
But Cablevision and ITT say the deal is still on track, and an ITT spokesman refuted a New York Post story claiming that ITT shareholders are in revolt over the steep purchase price. Dolan says he is confident that Cablevision will raise its portion of the purchase price over the next year.
For 15 years, the task of financing new Cablevision ventures has fallen largely upon William J. Bell, the company’s chief financial officer. By his estimate, he has worked on more than 100 deals.
“The thing I learned from Chuck is, you cannot raise money unless you have the deal in place,” Bell said. “I’m like the street cleaner, as he moves his parade down the street.”
The “parade” has been extended from 319,000 Cablevision subscribers in 1985 to nearly 2.6 million today. By comparison, industry leader TCI has nearly 11 million subscribers.
Although John Tatta retired from daily operations in 1992, and former Cablevision President James Kofalt resigned early this year, many of Cablevision’s key executives have stuck with Dolan since the 1970s, including Bell and Lustgarten, who are regarded--along with son James (known as Jimmy)--as his closest advisers.
“Chuck is just a wonderful person to work for. He’s been very generous; it’s also a fun place to work,” Bell said. “He’s never raised his voice in 15 years. He’s a very demanding guy, in a very understated way. His style is not to berate or intimidate people.”
Perhaps because of that low-key style, employees and partners occasionally misread Dolan, Bell said.
Last year, TCI appeared to miscalculate when it pulled the trigger on a buy-sell agreement governing their shared ownership of American Movie Classics.
“John Malone felt that there was no way (Dolan) could come up with the kind of money that Cablevision needed for it, and (TCI) would end up owning all of AMC,” Perenchio said. “Surprise, surprise!”
Dolan made a counteroffer, then found a group of banks willing to lend most of the $181.5 million needed to buy out TCI’s 50% stake.
Despite their occasional competition, TCI and Cablevision continue to work as partners in seven cable services, so the executives know each other well.
Malone, as do some Wall Street analysts, suspects that Dolan would be happy to sell an equity stake in Cablevision for a premium--so long as he retains control.
“He would love to have a Santa Claus buy a big block of stock at a premium,” the TCI chief executive said, but if Dolan “cedes control, he’ll be totally out . . . at a record-setting price.”
Dolan is invariably described as a family man who would travel to distant cities to watch daughter Debbie ride in horse shows as she worked her way up to world-class competition. He sails on the family’s 73-foot racing sloop, Encore, which Jimmy Dolan has skippered in international ocean-racing events.
All three of Dolan’s sons work for the company, but Dolan said he has not tapped anyone as his heir-apparent. When the time comes for a new chief executive, Dolan said, the decision will be made by the board.
Perenchio, for one, does not expect Dolan to quit any time soon. “He loves what he’s doing; he loves the company. He loves the challenge,” Perenchio said. “He’s a young 68; he sails; he takes very good care of himself.”
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Founded in 1973 by cable entrepreneur Charles F. Dolan, Cablevision Systems now ranks as the nation’s fifth largest cable TV operator. Dolan, the creator of Home Box Office, has pioneered the concept of regional sports and news coverage. In partnership with ITT Corp., Cablevision recently outbid industry leader Tele-Communications Inc. for the Madison Square Garden complex.
Figures in millions of dollars, except for subscribers
Operating Net Year Revenues Cash Flow Loss Subscribers** 89 475.9 205.2 157.3 1,274,000 90 542.6 241.3 275.7 1,628,000 91 578.4 268.7 231.7 1,721,000 92 543.4 247.7 251.4 2,081,000 93 633.2 252.2 247.7 2,232,000 94* 808.7 354.6 228.4 2,582,600 95* 1,056.2 464.6 214.5
* Estimated. Actual 1994 results for nine months ending Sept. 30: Revenues: $591.6 million, up 19.6% from similar period a year earlier; Operating cash flow: $245.9 million, up 17.5%; Net loss: $178.1 million.
** Including affiliates
Headquarters: Woodbury, N.Y.
Chairman and CEO: Charles F. Dolan
Primary Markets: Greater New York City area, Boston and Cleveland suburbs
Employees: Approx. 6,000
Major programming Ownership interests Percentage Subscribers American Movie Classics 75% 44.9 million Bravo! 50 12.6 Courtroom Television Network 16.7 12.1 News 12 Long Island 50 0.7 Prime SportsChannel Networks 25 43.6
Rank among biggest cable operators, as of April 30:
Basic Subscribers Company in millions 1 Tele-Communications Inc. 10.6 2 Time Warner Cable 7.3 3 Continental Cablevision Inc. 2.9 4 Comcast Corp. 2.7 5 Cablevision Systems Corp. 2.3
Sources: Morgan Stanley, Standard & Poors; Paul Kagan Associates