Cablevision’s Next Move

The Dolan family has done it again. After reporting first quarter results that saw Cablevision’s net losses grow, the company’s controlling family turned around and made a deal that apparently baffled Wall Street.

Cablevision reported net losses of 11 cents a share, or $31.6 million, compared with $26.3 million, or 9 cents per share, in the same period last year.

And now, along with Cablevision’s cable, telecommunications and entertainment divisions that include a handful of programming networks, Madison Square Garden, the New York Knicks and New York Rangers, the company has acquired Tribune Co.’s Long Island, N.Y., newspaper, Newsday.

The baffling part of the Newsday deal was the price the Dolans paid for the paper – $650 million – which outbid News Corp.’s Rupert Murdoch and the Daily News’ Mortimer Zuckerman by $70 million, the New York Times reported.

A source reportedly close to the negotiations told the paper that the Dolans’ interest in Newsday couldn’t be entirely economic "because there’s not a business rationale to spend what they’re willing to spend."

So what exactly was the rationale?

"Both Cablevision and Newsday are in the content, customer relationship and advertising business and we see this as a wonderful fit," James Dolan said in a statement.

"Adding Newsday Media Group’s superb assets to Cablevision’s portfolio presents a multitude of opportunities: to provide consumers with additional quality content on multiple platforms; expand advertising opportunities for both entities and attract a larger audience than either company could on its own."

Outsell Inc. analyst Ken Doctor agreed that there is a "huge upside" to the deal.

"The synergies are real here," Doctor told MarketWatch. "If you put together the list of advertising clients Cablevision has with the list of accounts Newsday has – and the combined contacts the sales teams have – that’s significant."

The Newsday purchase could very well provide a regional advertising boost to Cablevision’s entertainment operations.

The company was weighed down by its Madison Square Garden operations in the first quarter. While MSG revenue grew 7 percent to $265 million compared with $248 million in the same period last year, operating losses increased from $4.6 million to $19.7 million in the same time.

MSG’s operating losses stemmed from fewer concerts in the first quarter and increased costs for entertainment events, sports team personnel and sports team operating expenses, according to the Q1 report.

In the Cablevision earnings call, MSG chair Hank Ratner also discussed the venue’s upcoming $500 million renovation, which is not expected to impact the Knicks or Rangers sports teams, but could lead to the venue being closed for one or two summers.