Image: Bloomberg News

Elections don’t have consequences if you happen to be a favored board member overseeing Cablevision.

For the third time in four years, the cable company has decided to keep several board members that shareholders voted against.

Vincent Tese will keep his board seat despite the fact 54.8 percent of shareholders wanted to show him the door. Leonard Tow was given a thumbs-down by almost 52 percent of voters and Thomas Reifenheiser squeezed by with a margin of just 0.5 percent.

Tese and Reifenheiser failed to win a majority of shareholder support in 2010, 2012, and again last month, but they will keep their board seats because Cablevision’s other board members said so. The zombie board members may be dead to those who hold shares in Cablevision, but as long as the board can collectively override shareholder wishes, they can stay.

That prompted New York City comptroller John Liu to recommend shareholders vote against all five Class A directors this year, because they are responsible for allowing the losing board members to stay.

“Shareowners delivered a stinging rebuke to the five Cablevision directors we opposed for being ineffective and unaccountable, including majority votes against two of them,” Liu said. “Both Mr. Tese and Dr. Tow, should immediately step down. In Mr. Tese’s case, this is the third majority vote against his directorship in the past four years. Enough is enough.”

“As fiduciaries, we can’t sit by and let the board make a mockery of our fundamental right to elect directors,” Liu added. New York City owns more than 530,000 shares of Cablevision stock, part of the pension fund portfolio Liu oversees. “Share owners need accountable directors who will ensure the company isn’t being run for the benefit of insiders at our expense.”

The New York Times reports shareholders have plenty to grumble about:

Over the last two years, while the Standard & Poor’s 500-stock index has rallied to a new high, Cablevision shares have dropped from more than $36 a share to under $15, where they were trading this week. Yet Cablevision’s chief executive, James Dolan, earned $16.9 million last year, and his father, Charles, earned $16.6 million as chairman — an unusually high amount for a chairman who is not serving as chief executive. Both payments were about 50 percent higher than the year before. In addition to their compensation, the two Dolans get a full-time car and driver as well as access to a helicopter and jet for personal use. Institutional Shareholder Services noted there was a “disconnect” at the company between performance and executive pay.

Mr. Tese, Mr. Ryan and Mr. Reifenheiser make up the compensation committee of the board, which approves the Dolans’ compensation.

Mr. Tese, a former chief executive of the New York State Urban Development Corporation and former director of economic development for New York State, was also Bear Stearns’s lead director before its collapse in 2008 and served on its finance and risk committee. “Given the significant lack of oversight provided by Mr. Tese during his tenure at Bear, particularly in the area of risk management, we believe he should not continue to serve on any public company board,” the proxy advisory service Glass, Lewis & Company said last year. Mr. Tese is a member of four boards, including that of Madison Square Garden, which was spun off by Cablevision and is also controlled by the Dolan family.

Mr. Ryan and Mr. Reifenheiser were both members of a special committee that approved an ill-fated proposed buyout of the company by the Dolans in 2007. Independent shareholders blocked the deal on grounds that the Dolans’ offer was self-serving and too low. “Its improvident support by the special committee is among the reasons we have lost confidence in Messrs. Reifenheiser and Ryan,” Mr. Liu wrote in his recent letter to the company.

Last year, Cablevision paid Mr. Tese $233,967, Mr. Ryan $247,508 and Mr. Reifenheiser $220,786 in cash and stock, according to the company’s proxy statement.

Not so fast, says Cablevision spokesman Charles Schueler.

“These directors have served Cablevision shareholders well and we look forward to their continuing contributions. Our shareholders know that Cablevision is a controlled company and they understand the rules by which our directors are elected.”

What is the best way to win a big promotion at Cablevision? Be related to the Dolan family that founded the cable system.

Cablevision Systems CEO James Dolan suddenly announced a shuffling of executives at the helm of the cable operation that serves suburban New York, Connecticut, and parts of New Jersey.

Dolan’s wife got the biggest promotion: president of Optimum Services. That represents a big jump for Kristin Dolan, who was last seen helping revive the long dead career of Michael Bolton in a marketing and rebranding exercise that turned the faded pop musician into a de facto Cablevision mascot. Under her leadership, Cablevision managed to put its most important product — broadband, dead last in its triple play marketing campaigns.

Brian Sweeney, Dolan’s brother-in-law, also scored a new title – senior executive vice president of strategy.

Dolan called the management shifts a pro-customer effort that would refocus and streamline the company’s decision-making processes. Since both executives will report directly to Dolan, some industry insiders believe James Dolan intends to tightly consolidate his control over management decisions at the company.

Kristin will keep her role as chief of brand positioning and expand her oversight into the company’s sales and promotional activities. Sweeney will serve as the “long-term strategy” guy, overseeing planning, customer retention, and winning customers away from Cablevision’s biggest competitor — Verizon FiOS.

A large number of former Cablevision executives defected from the cable company in 2011, most heading with former chief operating officer Tom Rutledge to Charter Communications.

Compare Optimum/Cablevision’s Marketing Campaigns: Before <- Kristin Dolan -> With

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Cablevision Ad 2008.flv[/flv]

Cablevision’s ‘Before Kristin’ Advertising (1 minute)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Cablevision Bolton 2-15-13.flv[/flv]

Cablevision’s ‘With Kristin’ Advertising (1 minute)

Cablevision’s executive suites are filled with intrigue and family politics. — Phillip Dampier

Cablevision’s quarterly results conference call last week was an exercise in obfuscation.

Senior management at the cable operator that serves parts of New York, New Jersey and Connecticut announced some difficult financial results, including the fact the company lost at least 39,000 customers during the last quarter — a significant number considering Cablevision only serves 3.6 million customers as of the end of December. At least 11,000 of those customers stopped paying their bills and disappeared, presumably because their homes and businesses were victims of Hurricane Sandy. But company officials admitted they also lost high-speed Internet customers because of a recent price increase and ongoing heavy promotional activity from their biggest competitor — Verizon FiOS. The phone company has offered triple play packages as low as $89 a month with $300 debit card rebates, which makes hiking rates untenable.

Cablevision CEO James Dolan has been ducking hard questions from Wall Street analysts concerned about the company’s spending and marketing, the loss of subscribers, and fallout from a 2011 management shakeup. Richard Greenfield, an analyst at research firm BTIG, has been frustrated getting answers from the Dolan family that has controlled Cablevision for decades, tweeting Cablevision executives stopped taking his questions on regular conference calls after he began asking some of those hard questions.

Cablevision’s Upgrades Will Continue; Company Wants an Improved Subscriber Experience

Greenfield

One of the problems Verizon FiOS’ fiber to the home network brings Cablevision as its largest competitor is fiber technology is superior to Cablevision’s cable network infrastructure. Verizon has been a formidable challenger. This has forced the cable operator to make dramatic improvements, particularly in its broadband product, to stay competitive. But some of these upgrades have been delayed by the effects of Hurricane Sandy, which affected 60 percent of Cablevision’s subscribers in the tri-state area.

Cablevision has been forced to offer customers service credits, substantially curtail sales and advertising efforts, and suspend the non-pay collection rules and disconnect policy.

Cablevision has also committed itself to an expensive robust Wi-Fi network to differentiate itself from Verizon. Cablevision has an extensive Wi-Fi presence in its service area, offering unlimited free service for its customers. Verizon does not. Cablevision ended 2012 with more than 67,000 installed hotspots, with more than 30% of Optimum Online customers using the service in 2012.

At the same time, cable television programming costs have skyrocketed, but Cablevision has generally avoided raising prices fearing Verizon would poach unhappy subscribers.

Drama Surrounding Executive Changes

Internet comes last?

In 2011, Cablevision accepted the resignation of Tom Rutledge, former chief operating officer. Richard Greenfield dismissed Cablevision’s statements about his departure as “spin,” and claims the real reason Rutledge left for Charter Communications is that Jim Dolan became dissatisfied with Rutledge’s performance. But that poor performance could also be attributed to some of the company’s own decisions, particularly when it engaged in multiple battles with programmers during 2010 that forced popular cable networks and broadcasters temporarily off Cablevision lineups. Greenfield suggests the biggest impact was felt when the cable operator dropped the local Fox station right in the middle of the World Series. BTIG believes subscriber losses accelerated for these reasons (and Verizon’s aggressive marketing efforts) and helped the company see its earnings and subscriber trends hurt.

Jim Dolan has reportedly taken a more hands-on approach at Cablevision and even appointed his wife Kristin to assume a stronger role in how Cablevision markets itself to customers.

The result was a Cablevision rebranding that Greenfield criticized in September as “firmly entrenched in the past,” because it emphasizes television and phone service over broadband.

Avoiding Tough Questions

Several of the questions Greenfield wanted answered, but could not, dealt with the transformation of part of Cablevision’s service area thanks to Sandy and some of the company’s earlier missteps:

• Permanent System Loss: How many Cablevision homes in the service area will no longer exist or take years to rebuild?
• Recapture Suspended Accounts: At least 24,000 video subscribers disappeared after Hurricane Sandy. Has this number changed recently and are there plans to win these customers back?
• Verizon FIOS was back up and running in storm-damaged areas before Cablevision. How has this affected your operations?
• Marketing Missteps: Are there plans to correct the marketing deficiencies from the 2012 campaign in 2013, particularly for broadband?
• Onyx Guide and Network DVR: Neither are well-received by customers. The Onyx on-screen Guide has been slammed for not working properly, being cumbersome to use, and difficult to read. The remote DVR has been criticized for its poor quality and reliability over traditional in-home DVRs. What will Cablevision do to address these complaints?
• Why is Cablevision challenging Viacom in court over cable network programming costs when sports programming is where the real costs are?

Press “1” to talk to James Dolan, CEO of Cablevision.

Cablevision has filed a lawsuit against the Communications Workers of America District 1 and its Local 1109, which represents area workers, in Nassau County Supreme Court.

The cable operator is accusing the union of launching harassing robocalls which have given customers the chance to pester CEO and president James Dolan.

At least 20,000 robocalls were made to Cablevision subscribers in three days, from Jan. 31 – Feb. 2 which the cable company alleges were designed to cost the company money and its reputation.

If customers pressed “1” during the call, they were automatically forwarded to a Cablevision call center to complain about recent rate increases and recent job losses at the company. On Feb. 3, Cablevision alleges the robocall campaign was adjusted. Now if customers press “1” during the call, they are directly connected to the phone sitting on Dolan’s desk. In just two days, Cablevision alleges Dolan’s line received 1,193 calls.

The following day, the union was also accused of sharing Dolan’s direct number on social media websites.

“The union will no doubt claim that their telephone harassment scheme is designed to allow customers to communicate substantive messages to the CEO, but such an argument cannot sustain the slightest scrutiny,” reads the complaint. “The unions knows full well that no Fortune 500 CEO can possibly handle a concentrated barrage of one-on-one phone calls with subscribers and others, and that companies like Cablevision have designated and publicly known call centers established precisely to handle such calls in an orderly, responsive manner – including mechanisms for escalating certain such calls to the CEO, if necessary.”

The CWA and Cablevision have fought over an effort to unionize cable company workers in Brooklyn, N.Y.

A year ago, Cablevision workers in Brooklyn voted to form a union, but Cablevision/Optimum management has allegedly stonewalled the unionization effort.

On Jan. 30, about two dozen workers sought to speak with Cablevision management under the company’s “open door” policy, specifically about the lack of progress in completing a contract. Cablevision terminated the 22 employees on the spot, deeming them “permanently replaced.”

Cablevision’s suit requests court costs and an injunction ordering the union not to harass it, aid or abet harassment, or falsely and deceptively display any Cablevision phone number on robocalls.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CWA Fired Cablevision Workers 2-2013.flv[/flv]

 The Communications Workers of America produced this video highlighting what they consider the unfair termination of 22 workers after seeking an “open door” meeting with Cablevision management.  (2 minutes)

Dolan

Cablevision Systems CEO James Dolan warned cable executives the combination of rate increases and the poor economy could spark a consumer revolt, driving a legislative agenda that could force a-la-carte pricing on cable companies.

“At some point you reach a point where the consumer rebels,” Dolan said. “You’re likely to see that in a reaction in Washington on the government side because it will become a politically easy issue for politicians to jump on and a-la-carte [pricing] is an obvious answer. But the impact of a-la-carte on the programming industry would be devastating. It behooves all the participants to exercise restraint.”

Dolan pointed to high unemployment and a deterioration in earnings among those still employed combined with continuing rate increases as a potentially dangerous combination.  Dolan was especially concerned about payments for local broadcasters and major broadcast networks which have sparked high-profile carriage battles.  Earlier this year, Cablevision briefly dropped programming from ABC and Scripps Networks’ HGTV and Food Network.

Dolan was speaking at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Newport Beach, Calif.

His comments come at the same time Cablevision is preparing for yet another carriage battle, this time with News Corporation.

On October 15th, Cablevision’s contract to carry FOX’s television stations in New York (WWNY 5 and WWOR 9) and Philadelphia (WTXF 29) will expire. Unless Cablevision renews its agreement with FOX, Cablevision may no longer carry the three over-the-air stations. Also impacted are several FOX Networks’ cable channels: FOX Sports en Español, Nat Geo WILD and FOX Business Network.

News Corporation’s website, KeepFoxOn, turned its attention to the dispute, urging viewers to contact Cablevision.  Viewers are being warned of the potential loss of the channels through advertising messages that began last weekend.

The issue of a-la-carte pricing, which allows cable customers to pick and choose individual channels, has been the nightmare scenario for cable systems and programmers, who fear it would force most niche channels out of business and dramatically cut earnings for cable systems.  The industry also warns it would force every cable subscriber to rent set top boxes to manage channel lineups for every television in the home.

But as programming costs continue to exceed the rate of inflation, relentless rate increases and restrictive contracts that keep most networks out of specialty programming tiers makes cable television a service many Americans are contemplating doing without.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Keep Fox On.flv[/flv]

FOX has begun informing Cablevision viewers they could lose access to their local FOX stations and several FOX-owned cable networks.  (30 seconds)