Watching the events unfold as the fate of Cablevision‘s Rainbow DBS direct-to-home satellite television business is being determined is in some ways as entertaining as the programs that are transmitted to the televisions of its subscribers every day.

Voom, the brand name under which Rainbow DBS offers service, has been a financial challenge on the company more or less since the service was launched back in October 2003, and earlier this year, Cablevision made the first move to step away from the financial burden when it sold Voom’s only in-orbit asset and some ground equipment to rival DTH service provider EchoStar Communications Corp. (SN, Jan. 24).

Cablevision then announced Feb. 10 that it singed a letter of intent to sell the remaining assets of Voom to Voom HD LLC, a new company formed by Cablevision Chairman Charles Dolan and Thomas Dolan, executive vice president of Cablevision Systems, if they were able to arrange financing. According to the terms, a deadline of Feb. 28 was set for the two companies to reach a definitive agreement. The deadline came and went without an agreement. That is when the drama really began to unfold.

Act I: Dueling Press Releases

On Feb. 28, Cablevision issued a press release acknowledging that it and Voom HD LLC ended discussions without reaching a definitive agreement regarding an acquisition by Voom HD of the business, assets and liabilities of the Voom service. Cablevision said in its announcement that Voom would close down at the end of March and the company would “seek to make the transition as smooth as possible for customers and [would] communicate directly with customers regarding those plans.” Cablevision followed up the announcement by posting a message on the Voom Web site stating it was no longer taking new subscribers and would be closing down operations.

Later that same day, Voom HD issued its own press release saying it is prepared to finance the continued expansion of the Voom satellite service and that it has advised Cablevision that it continues to be interested in completing a transaction on the terms and conditions of the Letter of Intent. In that release, Thomas Dolan said, “We are more than ever convinced of the viability of the Voom service. We believe our offer to Cablevision is in the best interest of Cablevision’s shareholders and Voom’s 46,000 subscribers across the nation.”

Cablevision did not return a call from Satellite News seeking comment on the life or death of Voom. A spokeswoman from Voom HD, who is still under the employ of Cablevision, told Satellite News that a gag order has been placed on her by Cablevision and because of that, she was unable to speak to the press regarding the circumstances surrounding the acquisition.

However, a source familiar with the situation and speaking to Satellite News on background offered some perspective on the deal and suggested the issues preventing the deal from going through may have more to do with personal animosity than with differences on the financial side of the equation.

“Why the deal fell apart, I don’t know the definitive answer,” the source said. “But from what I have been told and what you can kind of gleam from what’s been said, it was not so much the financing issue.”

The source cited an internal memo issued to Cablevision employees that stated Voom and it could not reach agreement and Voom would be shut down. The memo encouraged those working at Voom to seek other jobs within Cablevision and added that it will try to help with the transition.

“This was kind of a slap in the face to Charles Dolan and Tom Dolan because if anyone, they should be the people doing the transition,” the source said. “So then Charles and Tom Dolan issued an internal memo saying there is a lot of uncertainty but we have the financing in place and the Dolan family still believes in the viability of Voom and we are going to keep pushing for them to talk to us and agree to sell this to us.” Shortly thereafter they put out the press release.

But whether Charles and Tom Dolan will be able to take over Voom remains to be seen.

“The board of directors wants to shut Voom down and Charles Dolan says he is going to continue to fight it,” the source said, adding that he did not know if any negotiations were planned going forward. “From what I was told, even in the days leading up to yesterday’s deadline, there was so much animosity between both sides. It was extremely personal. Some of the demands from Cablevision were so far-fetched, knowing that these people had the weekend to get it all together to meet the deadline, which was [Cablevision’s] rational.” The source did not offer any specific details on what Cablevision’s demands were. “The two sides were just so far apart and I think Charles Dolan was hoping for an extension and they did not give it to him.”

Act II: Web Of Confusion

To add to the conflicting messages was some very ambiguous activity on the Internet. Once Cablevision announced it was closing down Voom, it put up a message on the Voom Web site (http://www.voom.com) to its subscribers announcing the service’s discontinuance as of the end of March.

But in what appears to be an act of defiance, Voom HD launched its own Web site shortly thereafter, http://www.voomllc.com, complete with a new telephone number and customer service representative ready to take on orders for new installation for anyone willing to gamble on Voom’s survival.

Act III: The Board Room

As the two companies traded conflicting messages on Voom’s survival via press releases and the Internet, Charles Dolan took further action by altering the makeup of the Cablevision board of directors.

On March 3, Cablevision reported in a Form 8-K filed with the Securities and Exchange Commission (SEC)that Charles Dolan said in a letter to the company that he was, on behalf of the holders of the company’s Class B Common Stock, removing William Bell, Sheila Mahony and Steven Rattner as directors of the company. They will be replaced with Rand Araskog, Frank Biondi, John Malone and Leonard Tow as directors to fill the vacancies created by the removals and the passing of Cablevision co-founder John Tatta. The filing also indicated that Dolan would ask Cablevision to increase the size of the board to allow for the election of Brian Sweeney, son-in-law of Dolan and senior vice president for eMedia. Dolan added that Class B holders will exercise their right under the company’s charter to elect 75 percent of the company’s directors at the forthcoming annual stockholders meeting.

It is unclear what role the new members of the Cablevision board will play in the ongoing Voom drama. Given the heightened scrutiny of public companies following the Enron scandal, it is unlikely that the new board members would serve as “yes men” to Charles Dolan. But on the other hand, why would Dolan want to bring in individuals that would be unsympathetic to his position?

At this point in time, it is worth noting that the same Form 8-K also disclosed that on Feb. 28, Cablevision was notified that the SEC is conducting an informal inquiry into trading in the company’s securities and has required certain information for the period Nov. 1, 2004 through Jan. 20, 2005, relating to Cablevision’s Dec. 21, 2004 and Jan. 20, 2005 disclosures concerning the suspension of the spin-off of Rainbow Media Enterprises and the agreement to sell assets of Rainbow DBS to EchoStar.

Act IV: Enter Charlie Ergen

The Form 8-K also disclosed that the closing of Rainbow DBS had been “delayed to allow Voom HD a further opportunity to explore its ability to present [Cablevision’s board of directors] a transaction for Voom HD LLC to acquire the assets and liabilities of the Rainbow DBS business on terms that are satisfactory to the board and a committee of independent directors. Charles Dolan is currently expected to report to the board on this matter by March 7, 2005. There can be no assurances that such a transaction can be structured or that any such transaction would be approved by the board or the committee of independent directors.”

And while the Form 8-K did not reveal any specifics on that transaction, a March 3 letter to Charles Dolan from Victor Oristano on behalf of the Independent Committee and the Class A Directors offered some insight as to what the Cablevision board is expecting in the March 7 report.

That letter noted that Charles Dolan told the board that he “intended to approach EchoStar to negotiate an arrangement whereby, with EchoStar’s agreement, Rainbow-1 could be brought together with the Voom business outside of Cablevision. You agreed that whether you were able to succeed in that effort or not, Cablevision would get out of the satellite business and you told us explicitly that you would not take any action to override any decision that the board took on or before Feb. 28.”

What was not clear in the letter, and was met with a “no comment” when sister publication CableFax Daily contacted Cablevision, was what role EchoStar would play in the survival of Voom. One possible scenario could be an agreement by EchoStar to sell the Rainbow-1 satellite to Voom HD, but this is an unlikely scenario because of its value to EchoStar. Rainbow-1 shares an orbital location with an EchoStar satellite and figures to play a key role in the continued expansion of EchoStar’s services. The more likely scenario is that Dolan and Voom HD will need to secure some transponder space on Rainbow-1 in order to satisfy the board.

The letter to Dolan reiterated the March 7 deadline and noted, “we agreed to support a delay in the shutdown of Voom for a short period while you engage in those discussions and if you are able to negotiate such an arrangement with EchoStar on terms satisfactory to us, we would be prepared to renew discussions with you for the sale of the Voom business, so long as the totality of such arrangements puts Cablevision in a significantly better position than it would be in, were it to close the pending transaction with EchoStar and engage in a shutdown of the Voom business.”

Oristano also attacked Dolan for launching the http://www.voomllc.com Web site, calling the action a “direct contradiction to the action taken by the board on Feb. 28 because they are an expansion rather than a shut down of the business, and they are being done with funds that have not been authorized by the board.” Consequently, the Voom HD’s recently launched Web site greets visitors with the message, “This site is temporarily unavailable. Please check back at a later time.”

What’s Next?

Given all that has happened, and because real-life does not offer a coming attractions teaser, it is difficult to predict what might happen March 7 when Charles Dolan brings his latest proposal to the Cablevision. For continuing coverage of this developing issue, tune into sister publication Satellite Today this week and Satellite News’ next edition.

–Gregory Twachtman