Rainbow Tracking Stock Set

In long-awaited move, Cablevision Systems filed preliminary proxy with SEC Aug. 9 to create separate tracking stock for its national and non-N.Y., regional programming assets. Cablevision, 7th largest MSO with 3.5 million basic subscribers, said it would set up Rainbow Media Group (RMG) tracking issue to enable investors to follow economic performance of its Rainbow Media Holdings unit's national programming networks, including American Movie Classics (AMC), Bravo, Independent Film Channel, MuchMusic USA, Romance Classics. New tracker also will cover Rainbow's 50% stake in national Fox Sports Net service and 6 Fox regional sports channels in San Francisco, Chicago, Cincinnati, Fla., New England and Cleveland, as well as Rainbow's new digital programming incubator, Sterling Digital. But it won't encompass Rainbow's N.Y. networks, which include Madison Sq. Garden (MSG) Network, Fox Sports Net New York, News 12 Networks, MetroChannels.

Rainbow, owned 74% by Cablevision and 26% by NBC, is big revenue generator for MSO, last year accounting for one-third of Cablevision's $3.9 billion in revenue. More recently, in company's 2nd quarter ended June 30, Rainbow produced $348 million in pro forma revenue, up 13.2% from year-ago period, on strong growth in subscribers, affiliate fees and ad receipts for AMC, Bravo, MSG Network.

Cablevision CEO James Dolan said MSO would retain its N.Y. programming holdings to spur its forthcoming rollout of digital cable services in metro area. In addition to "being great programming assets," he said, they "allow us to further our digital strategy without running into problems of cross-ownership." MSO plans to switch all of its 2.8 million basic cable subscribers over to Sony digital cable set-tops over 3 years, starting next spring. Besides its cable systems and networks, Cablevision owns Madison Sq. Garden, 3 pro sports teams, Radio City Music Hall and The Wiz consumer electronics retail chain in N.Y. area.

Move by Cablevision is one of first by major MSOs to boost their stock values by separating their content holdings from their distribution assets. With cable stocks falling in recent months, MSO executives have been seeking ways to spark investor interest. In conference call with analysts Aug. 9 in which they also announced company's 2nd-quarter earnings, Cablevision executives said they hoped new issue would do just that.

Under plan outlined in proxy, which still must be approved by Cablevision's board and shareholders, new RMG entity would be controlled by Cablevision founder Charles Dolan and his son James. NBC would get 34% share in RMG. Cablevision shareholders would receive one RMG share for every 2 shares of Cablevision stock they hold. New issue is to be listed on N.Y. Stock Exchange in 4th quarter.

In earnings results, Cablevision reported year-to-year gain of 13% in overall revenues to $988 million for 2nd quarter ended June 30 and 14% in adjusted operating cash flow to $250.5 million. MSO said it added 18,350 high-speed data customers to end first half with 93,350. It now expects to add at least 100,000 data subscribers in 2nd half, putting its year-end total over 200,000, up 50,000 from earlier projections.

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