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Cablevision sheds video, Internet subscribers

By Liana B. Baker

(Reuters) - Cablevision Systems Corp turned in an earnings report showing fewer video subscribers, decreased cash flow and a surprise drop in Internet subscribers - all of which pushed the cable operator's shares down as much as 6 percent on Friday.

CEO James Dolan blamed the subscriber losses on the company's effort to crack down on customers who jump between cable companies, searching for the best promotion. The company has been avoiding extending offers to such fair-weather customers, which affected third-quarter results.

"So the customer that has been bouncing from one company to another on promotional discounts back and forth has hit a dead-end with us," Dolan told analysts on a conference call.

Cablevision said it lost 37,000 net video subscribers - which was worse than the loss of 17,200 customers Wall Street was expecting, according to StreetAccount. It also lost 13,000 high-speed data customers, when analysts were expecting it to gain 6,700.

"While the financial results were fine, the subscriber losses were troubling," said ISI analyst Vijay Jayant.

Cablevision also forecast that adjusted operating cash flow, its most closely watched metric, will be roughly flat to slightly up in the fourth quarter compared with a year ago, lower than expectations. Finance chief Gregg Seibert added that the adjusted operating cash flow figure would be down sequentially, which is "bad news" according to Brean Capital analyst Todd Mitchell.

Cablevision's adjusted operating cash flow fell 4 percent to $441.1 million in the third quarter compared with a year ago.

CONSOLIDATION RUMORS SWIRL

Since cable pioneer John Malone jumped back in to the U.S. cable market with Liberty Media Corp's investment in Charter Communications Inc earlier this year, analysts have predicted a wave of cable consolidation.

The cable service controlled by New York's Dolan family has been particularly hurt by competition from Verizon Communications Inc's FiOs service. Like other cable operators, Cablevision is also dealing with rising prices charged by media companies to carry their networks.

Cablevision has long been viewed as a takeover target. The Dolan family attempted to take the company private in 2007 before a deal was blocked by shareholders.

Reuters has previously reported that the Dolans appear to be in more of a selling mood this year.

When asked by an analyst on Friday about a potential merger or acquisition, Dolan said, "Well, I don't think I can comment on that."

Craig Moffett, a research analyst at MoffettNathanson, said that Cablevision's operating performance would turn off any potential buyers in the cable industry.

"Investors focused on the potential synergies of a Cablevision acquisition are missing the bigger picture; to any strategic acquirer, the core business is the problem," Moffett said.

Net income in the third quarter was $294 million, or $1.10 per share, compared with a loss of $3.8 million or 1 cent per share a year before.

Adjusted for discontinued operations, EPS was 22 cents per share, which handily beat Wall Street's view of 11 cents per share. The company raised its broadband Internet prices this year which helped boost the revenue it collects per subscriber.

Cablevision shares were down 1.3 percent at $15.43 on Friday afternoon on the New York Stock Exchange, off an earlier low at $14.65.

(Reporting by Liana B. Baker in New York; editing by Gerald E. McCormick and Matthew Lewis)

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