AMC Woes Shock Industry

Jun 23, 2003  •  Post A Comment

Cablevision Systems saw its shares drop 6 percent in the two trading days that followed the company’s revelation that it had fired 14 executives at its AMC Networks unit for accounting improprieties.
However, several Wall Street analysts surveyed by TelevisionWeek said they remain largely unfazed by the Bethpage, N.Y.-based multiple-system operator’s problems, and believe any dip in the stock will be temporary.
“This is a quick tempest in a teacup,” said Matthew Harrigan, an analyst at Janco Partners. “Some have made some Charter comparisons, but that’s way overblown,” he added, referring to troubles at cable company Charter Communications, which this past spring restated nearly three years’ worth of revenue and cash flow due to capital expenses that had been improperly booked as advertising revenue.
Shares in Cablevision closed at $21.17 a share Friday, down 1.5 percent from Thursday’s close.
By comparison, the S&P 500 Index fell 1 percent during the same two-day period that Cablevision’s dropped the 6 percent. Richard Greenfield, an analyst at Fulcrum Global Partners, pointed out that all but $1.7 million of the $6.2 million in improperly booked expenses at AMC Networks has been reversed and the outstanding amount represents less than 1 percent of Cablevision’s estimated 2003 operating cash flow.
In response to concern that Rainbow had dismissed its most senior executives at AMC and WE, Mr. Greenfield added that the company had a number of underutilized executives left over after its Bravo cable network was sold to NBC last year who can step in to fill the void.
An executive at another cable network agreed. “The talent pool over there runs very deep,” the executive said, adding that Kathleen Dore, president of IFC Cos., and Ed Carroll, executive VP and general manager of IFC Television, could easily step up.
The reaction of analysts stands in stark contrast to the responses of many at rival cable companies, which could be best described as shock and awe, particularly in response to the news that AMC President Kate McEnroe was among the 14 who lost their jobs.
“The fact that Katie, who had been successful there, had to leave shows the severity of the situation,” said one former AMC employee. “She had `favored daughter’ status from [Cablevision Chairman] Chuck Dolan.
In addition to Ms. McEnroe, other executives who were let go, according to several press reports and multiple sources, include Melanie Griffith, senior VP of affiliate sales and marketing for both WE: Women’s Entertainment and AMC; Lee Heffernan, senior VP of marketing at WE; Ben Lines, assistant director of marketing at AMC; Isabel Miller, AMC senior VP of marketing; Noreen O’Loughlin, executive VP and general manager of AMC; Rorie Papsco, VP of finance and operations at AMC; and Martin von Ruden, executive VP and general manager of WE.
Spokespeople for Cablevision, Rainbow and its cable networks all refused to comment on any aspect of the dismissals or to confirm the names. Attempts to reach executives who were reportedly fired were unsuccessful, with assistants in several cases saying their bosses were unavailable or in a meeting. Calls to the homes of some of the fired were also not returned.
The entire affair left many within the industry scratching their heads about the depth and breadth of the terminations, and about why Ms. McEnroe and her team would cook the books in the first place. An executive at a rival cable company said it was well known that AMC spent “a ton” on marketing. A Wall Street analyst suggested the improprieties were committed to justify a “larger ad budget.”
In other words, one theory is that they moved ad expenses from one year to another to make the expenses for that year look lower, which helps profits in that fiscal year.
Some sources speculated that boosting profits was intended to pump up the value of the networks at a time when executives were considering a sale or merger. At least two of these sources wondered whether anyone at a level higher than Ms. McEnroe knew about the accounting improprieties.
A source close to the company denied that the impropriety had anything to do with inflating the valuation of the company. He pointed out it was the internal auditors who discovered the problem, which the company promptly addressed.
The accounting problems are surfacing at a time when Cablevision is preparing to join Vivendi Universal Vice Chairman Edgar Bronfman Jr. in a bid for Vivendi Universal’s U.S. entertainment assets. As part of that plan, Cablevision would contribute three cable channels, including AMC, to a new company that would be run by Mr. Bronfman in exchange for a 25 percent to 33 percent stake in the new company.
A person close to Mr. Bronfman said that the Bronfman investment team knew about the accounting troubles and that the revelation or any potential probe by federal regulators would not derail the team’s plans to make a bid for the assets by Vivendi Universal’s June 23 deadline.
However, David Joyce, an analyst at Guzman & Co. in Miami, said the accounting scandal could hurt a Bronfman/Cablevision bid: “Questions [about the accounting problems] will haunt a bid by Bronfman depending on Vivendi Universal’s perception of the situation,” he said. “But this news doesn’t damage WE or AMC. They are selling advertising, and getting ratings.”