CableWorld’s selection of Cablevision as our 2006 MSO of the Year will be obvious to some but no doubt surprise others.

The company habitually shuns press coverage but often finds itself the object of media scrutiny due to the father-son battles of chairman Chuck Dolan and president and CEO James Dolan. Of course, news reports alleging that stock options had been backdated to a dead executive didn’t help keep Cablevision off the front pages, and neither did an early October bid by the Dolans to take the company private. Such boardroom machinations would seem to make Cablevision an obvious candidate for operational mismanagement. Nothing could be less true.

The Long Island-based MSO leads the cable industry in penetration across voice, video (basic and digital) and high-speed data products. You could almost stop there in terms of selecting an MSO of the Year, but there’s quite a bit more. Cablevision’s third quarter of 2006 was its 10th consecutive quarter of basic video subscriber gains, net revenue growth and adjusted cash flow growth (see “3’s a Charm”), and COO Tom Rutledge says Cablevision had the highest percentage growth rate by revenue this year of any cable operator, but had the smallest rate increase at 2.3% (the 2007 hike will be just 1.1%).

“Cablevision’s [2006] results—led by Tom Rutledge—are the best synchronized operating and financial growth that we have witnessed in the cable sector,” says analyst Aryeh Bourkoff, managing director of cable, satellite and entertainment at UBS.

Cablevision’s growth is even more impressive since it’s achieving much of its success in territory coveted by Verizon, which has been waging ground warfare in the New York metropolitan area, attempting to lure Cablevision subs to FiOS TV. The FiOS TV product is offered in more than 50 communities in Cablevision’s Long Island footprint, plus Westchester and Rockland counties. HOW THEY DO IT
As with most strong companies, the keys to Cablevision’s success are numerous. Naming them depends on whom you ask. An obvious key to Cablevision’s success is its $90 per month triple-play offering, plus new products (such as a flat-fee international calling plan for its voice product) and related marketing.

Sanford C. Bernstein cable and satellite analyst Craig Moffett credits Cablevision’s overall aggressiveness. “Cablevision’s writing the playbook on how to compete,” Moffett recently told USA Today. “They’ve started playing offense while the rest of the cable industry is still playing defense.”

That offense this year includes the following industry-leading innovations:

1. Deploying switched digital video across its footprint (the first cable operator to do so). The project will be completed by the end of December, enabling it to offer 60-plus multicultural channels and more targeted marketing.

2. Getting certified by the Metro Ethernet Forum, a nonprofit organization promoting the adoption of carrier-class Ethernet networks and services, for its Lightpath business services division (another MSO first). Cox Communications and other operators that have recognized Ethernet as the future for commercial services are following suit.

3. Expanding its Optimum Homes and Optimum Online VOD classified ad channels.

4. Converting to all-digital across its footprint by mirroring its entire expanded basic analog lineup in digital. Other industry observers point out that such innovation and aggressiveness can take root only in a particular corporate culture.

“Cablevision is on the cutting edge because they’re nimble,” says the CEO of one of Cablevision’s technology vendors, who requested anonymity. “The execs seem happy and empowered to make decisions. They’re also damn smart. They’re on top of the big changes coming down the pike and want to know what they can be doing now to get in front of them.”

“Tom Rutledge clearly has brought to Cablevision a steady hand intensely focused on performance,” says Rob Stoddard, SVP of communications and public affairs at the National Cable & Telecommunications Association. “His low ego and no-nonsense management style have won him praise and respect throughout the industry and beyond. In a few short years, with the support of the Dolans and a great management team, he’s made Cablevision a leader in many categories, including the triple play and VoIP service. And he’s injected into his team a sense of optimism, pride and joie de vivre that you don’t see very often in a big business.”

OTHER EXPLANATIONS FOR SUCCESS
Echoing others, James Dolan attributes Cablevision’s operational success to his “superb operating management team,” led by Rutledge and John Bickham, president of cable and communications. Rutledge, in turn, is quick to credit Dolan and the board of directors for the company’s strategy. “The things we’re doing—taking care of our customers, launching new products, developing those products and continuing to enhance those products and doing that well operationally—are clearly working,” Rutledge says.

Rutledge also deflects the spotlight to Bickham and Patricia Gottesman, EVP of product management and marketing; Kathleen Mayo, EVP of customer service; David Pistacchio, EVP and general manager of the Lightpath business services arm; Reggie Workman, EVP, network management; and the rest of his management team. At Rutledge’s insistence he appears on our cover with nine others. In typical Cablevision fashion, the company insisted on using its own photographer for the shot.

Another source of Cablevision’s success is its mix of family and corporate values, Rutledge says. “We’re an entrepreneurial company founded by a family and still controlled by the founding family,” he says. “We have a small-family feel in some respects, but at the same time we’re aggressive, vibrant operators of the most sophisticated cable operation in the country. That marriage of family values and entrepreneurial spirit with a modern corporate structure is the unique thing about Cablevision.”

Bickham adds: “There really is a shared vision of what this company’s trying to do.” There’s also a sense of “ownership in the results of the business. I can’t overemphasize how important that is for the success of a cable company, to have supervisors and managers who are very close to front-line employees and really understand what it is the company’s trying to accomplish.”

UP AHEAD: MORE COMPETITION
Putting the private/public issue off to the side, a major operational challenge for Cablevision is the relentless efforts of Verizon, whose scrappy marketing tactics are geared toward smearing Cablevision’s name in the eyes of its 3.1 million subscribers.

“Verizon’s FiOS TV and Internet services are quickly grabbing the attention of consumers,” says Verizon spokesperson Heather Wilner. “Every day, we have more and more customers making the switch to FiOS. Consumers recognize the quality of our products, the benefits of Verizon’s FTTP network and the overall value. As for Cablevision, we think they’re under the gun, because the competition that we’re bringing is something new for them.”

Bear Stearns estimates that Verizon’s inroads won’t be felt until 2010, when Cablevision customer losses to FiOS could be in the neighborhood of 2.1%. That gives Cablevision a short window to fight Verizon’s guerrilla marketing efforts in its backyard.

Here’s a peek at Cablevision’s competitive playbook, which is designed to keep the telcos and DBS providers on the defensive:

Empower Customers: Integrating call center operations within the footprint and promoting self-service on the Web and service upgrades by interactive iO digital cable already gives more control to customers. The company handles about 30,000 calls (or 25% of inbound call traffic) from customers through an automated voice-response menu and about 100,000 live calls per month.

Stay Entrepreneurial: “We have a pretty nimble decision-making process,” says Rutledge. “We’re not very bureaucratic. But we think about lots of issues and we’re exploring new frontiers with all of our opportunities in the business. By being involved in the day-to-day business and looking at future opportunities at the same time, we can make practical decisions” to deploy cutting-edge services such as switched video.

Focus on Business Services: In Cablevision’s service area, small business pays more to telcos than the company makes as a residential cable business, “so the upside just in the business area is bigger than our whole cable business,” says Rutledge. The two-pronged strategy: Its profit-turning Lightpath commercial services arm targets big business (hospitals, schools, government) while the residential cable side of the company pursues the small-office/home-office market.

Create Advertising 3.0: Rutledge is such a believer in the future of ad sales that he spoke at the Cabletelevision Advertising Bureau’s conference this year to tout the company’s advanced platform and ad sales. With on-demand and interactive advertising already augmenting Cablevision’s traditional ad sales, the company is planning new applications so customers can order from advertisers by using a remote, billed to an e-wallet, much as they can now with the online Optimum Store virtual mall.

Remain Watchful on Wireless: Cablevision is not in the MSO consortium with Sprint. “We’re still considering joining it,” says Rutledge. The company has deployed hotspots and WiFi zones and is firming up its wireless plans for ’07. “It’s still a developing opportunity for us.”

Tout the Triple Play: “Each one of our products as a stand-alone product is better than our competitors’ products,” Rutledge argues. “If you put it all together with having all three of those superior products at a better price, the value proposition is incredible. We talk about how good our products are and we spend our energy trying to make them better. Our competitors spend most of their ad dollars talking about us.”

ON THE FRONT LINES, BEHIND THE SCENES

Ego problems don’t seem to be part of Cablevision’s corporate culture. President and CEO James Dolan told us via an emailed quote that the MSO’s success should be credited to the top management team led by Tom Rutledge, which in turn suggested that it would be an omission on our part if we didn’t highlight a representative sampling of behind-the-scenes employees. Below, four such staffers list their keys to the company’s success.

THE SOUND AND THE FURY

There’s the enviable part of the Cablevision story and then there’s the eyebrow-raising portion. The latter keeps the notoriously press-shy company and its owners perpetually in the news.

Last year saw the internecine battle over Voom, which caused company founder and chairman Charles Dolan and his son James, Cablevision’s president and CEO, to fall out over the costly HD satellite programming service and draw battle lines in the boardroom over the direction of the Long Island-based company.

Family spat settled by the new year, the Dolans (who declined to be interviewed in person or over the phone for this story) revealed in an SEC filing in March that the company was seeking the board’s approval for a $3 billion dividend or payout. By August, Cablevision was embroiled in a widening stock options backdating scandal involving “about 100 companies,” according to The Wall Street Journal. Cablevision has since appointed two attorneys to its board to “comprise a new Special Litigation Committee,”  according to a company press release.

Cablevision also made headlines by taking on Hollywood studios and TV programmers across the country with its plan to launch a network-based DVR service (or RS-DVR, for remote storage, as the company prefers). Content providers promptly sued to halt the service, Cablevision filed a countersuit. The case is pending in the courts.

To top things off, on Oct. 9 the Dolans announced a bid to take the company private, perhaps fed up with the public skirmishes and scrutiny (and perhaps, some observers speculate, as a precursor to a buyout offer from Time Warner Cable or Comcast). Charles and James offered $27 per share to acquire 100% of the Cablevision shares they don’t own—a move deemed laughable by Wall Street analysts such as Pali Capital’s Rich Greenfield.

“It is incredibly hard to perceive the [board of directors’] special committee allowing this bid to go through,” Greenfield says. “We believe the Dolans will need to raise [the bid to] at least $30 [per share], if not $31-plus. If the Dolans buy it all for $31 and can sell to Time Warner or Comcast in 12 to 18 months, for let’s say $40, they make an extra $2 billion [as opposed to] simply selling to Time Warner directly now.”

Of course, it’s hard to tell with the Dolans how this will play out. They went down the privatization path last year but abandoned it after a special shareholders’ committee said their bid was too low.