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Tickers in this Article: CVC, TWX, CMCSA, DTV, WIN, WPO
Cablevision Systems Corp. (NYSE:CVC) reported profitable earnings last week of $20.2 million, or 7 cents a share, up from a $31.6 million loss, or 11 cents a share in the year ago quarter, on an 11% increase in revenue to $1.902 billion. The larger news, though, was that the company said it may spin-off its Madison Square Garden unit.

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The MSG unit has been a money loser, though one analyst said MSG valued separately might be worth $750 million to $1.5 billion and maintained the value of the MSG properties is not reflected in Cablevision's current stock price. The potential of the spin-off of MSG might not be the only important change for Cablevision.

Competitive Terrain Shifts
A few years ago, cable companies were straightforward providers of cable TV, though some were in closely related businesses, usually entertainment. Cablevision, largely controlled by the Dolan Family through a dual-class stock structure, also has its sports interests, and last year purchased Long Island newspaper Newsday. Cablevision's bundling options, with cable, telephone and high-speed internet for customers, has become the industry main play in the last few years.

Time Warner (NYSE:TWX) and Comcast (Nasdaq:CMCSA) are also powerful bundle players, yet there is some indication there are more big changes on the horizon in the businesses. Time Warner, which spun off its Time Warner Cable (NYSE:TWC), may be spinning off its AOL unit and returning more to a "pure entertainment" play.

The most interesting speculation on Cablevision's strategy comes from Pali Capital's Richard Greenfield, who suggested that that Cablevision may sell its cable operations instead to either Time Warner or Comcast and concentrate on its prestigious, though not as profitable, sports empire. Greenfield also pointed to the Dolan Family's ties with the live-entertainment industry, so a merger with its sports properties might take place there. Such moves would be huge changes, not only for Cablevision and the Dolan Family's holdings, but would concentrate even more strongly cable subscribers with Time Warner and Comcast. (Do you know why companies merge? Here we'll take a look at three successful company acquisitions and why they succeeded What Makes An M&A Deal Work?.)

Beyond the Bundle
Added to the possibility of asset sales, shifting alliances and a different look to the cable industry in the next couple of years is the possibility of un-bundling services due to new technology. With Cablevision's introduction of a 101-megabits-per-second super high-speed internet, reportedly twice as fast as Verizon's new FiOs service, customers may be itemizing and going ala carte again.

So what was cutting edge in service just a year or two ago, bundling, may be unwound before it ever reaches its full bloom. Time Warner, Comcast and most other major cable players have been joined by such smaller players as Windstream (NYSE:WIN) in the bundling game. Yet Windstream's recent earnings showed a profit decrease and indicated the costs to gain subscribers have to be absorbed over time. Satellite competitor DirecTV (NYSE:DTV) gained 460,000 subscribers in the recent quarter, yet earnings per share fell by 38%. It does indicate that cable and satellite companies are paying to play in terms of gaining subscribers, as well as feeling the usual capital intensive costs of implementing infrastructure. Yet rapid changes may not allow these companies to fully recover their investment before the cable industry moves on to its next act.

A Sports and Newspaper Empire? Why?
In a retrograde move that would have been more suitable twenty years ago, Cablevision's addition of Newsday seems in every way a bad business idea. Even Warren Buffett, an old-school believer in newspapers and a champion of the Washington Post (NYSE:WPO), said recently he would "not buy newspapers at any price" now. Cablevision's plan to put Newsday online as a subscriber service would seem to fly in the face of the free-content rage that has become the internet, so it's hard to see revenue gains there.

Which Stock are We Talking About?
Cablevision as cable, or as the bundle phone-internet-TV company, is still a booming franchise and would be a good investment, perhaps not as good as the more focused Comcast, but still a profitable company in a healthy cash flow industry. Even the drag of Newsday can't weigh it down that much. If, however, Cablevision divests itself of MSG, they'll be more streamlined as a cable entity and might even rattle the cages of Time Warner and Comcast that much more.

It's a completely different ballgame, however, and it will be a ballgame company, not a cable company, if it sells off its main product in order to become a sports-and-entertainment entity. This would of course shift the axis of the Dolan holdings and Cablevision's fate dramatically. Sports franchises have been more vanity plays than moneymakers, so investors take note, and that move might also take MSG private.

Then again, if all the speculation is wrong and Cablevision keeps its assets and continues on as is, it will still be viable, though not in a position to do as well perhaps as a more laser-focused near-pure cable company. And if they come up with some other combination, then that will render all this analysis and speculation moot. (This ever-changing industry can leave investors scratching their heads. Find out which metrics matter in Dial Up Choice Telecom Stocks.)

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