Despite a chorus of Wall Street naysayers, Chuck Dolan continues to gamble big on his startup satellite-television venture.
Voom – the offshoot of Dolan’s Cablevision Systems empire – signed a $740 million deal to buy five satellites from defense contractor Lockheed Martin.
The plan is to expand Voom’s current high-definition channel lineup of 39 channels to more than 70, and add almost 200 channels to its standard-definition lineup of 88 channels.
Earlier this week, Voom also said it would use satellite capacity it leases from SES Americom to expand its channel package.
“This means he’s pretty damn serious about Voom – and you can quote me on that,” said Jimmy Schaeffler, an analyst at the Carmel Group, a cable and satellite consulting firm.
Since launching Voom a year ago, Dolan has struggled to silence critics of the venture, which has been slow to sign up subscribers and has had its share of technical and marketing glitches.
The money-losing venture is trying to carve out a niche by emphasizing high-definition television, which is still in an infant stage, while battling far more entrenched cable and satellite providers.
“What will it take to get consumers to buy into that and can it be done?” asked Carmel’s Schaeffler. “That’s the real $740 million question.”
Voom actually lost customers in the latest quarter. It had 26,000 as of Sept. 30, down from 28,700 a month earlier.
That figure seems paltry when compared to DirecTV and EchoStar’s Dish network, which have a combined 24 million customers and 18 satellites circling the skies. News Corp. owns both DirecTV and The Post.
Voom also is competing with cable giants such as Comcast and Time Warner, and possibly telephone companies such as Verizon and SBC that have announced plans to deliver video over fiber optic lines.
Dolan plans to step down as Cablevision’s CEO and chairman to head Voom, handing Cablevision’s reins over to his son.
Meanwhile, analysts question whether the fledgling Voom can survive on its own. Cablevision plans to spin off the business by the end of this year, easing what many on Wall Street view as a major cash drain.
Analysts estimate Voom has about $650 million left out of $1.4 billion raised through bonds and bank loans, and will run out of money some time between 2006 and 2007.
“Management needs to put an end to the Voom ‘money pit,’ ” Rich Greenfield, an analyst at Fulcrum Partners, opined in a report.
Until it turns a profit, Voom will rely on cash from three cable networks included in the spinoff – AMC, IFC and WE: Women’s Entertainment.
Voom said it has enough cash on hand to make an estimated $48 million of payments under the Lockheed satellite contract through the first year, but it didn’t say how it would pay down the line.
If Voom runs into trouble, there is one possible out: The company has the right to cancel the entire agreement or the purchase of individual satellites at any time, though it would be required to make an undisclosed termination payment, according to a regulatory filing.
Cablevision, based in Bethpage, Long Island, closed yesterday at $21.72, down 46 cents, or 2.1 percent.
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Star wars
Voom
6 satellites
88 channels*
26,000 customers
Sales: N/A
Service cost: $50 per month
DirectTV
9 satellites
13.5M customers
130 channels*
2003 sales: $10.12B
Service cost: $40 per month
Echostar Communications Corp.
9 satellites
9.4M customers
180 channels*
2003 sales: $5.74B
Service cost: $45
* Comparable offerings