Over the Rainbow

Joshua Cho

After more than a year of waiting, Cablevision Systems Corp. said last week that it had received a private letter ruling from the Internal Revenue Service that allowed it to make Rainbow Media Holdings Inc. a direct subsidiary of Cablevision. Rainbow is Cablevision's programming arm, which includes the operations of its cable networks, Madison Square Garden, regional cable television networks and live productions and entertainment venues like Radio City Music Hall. It is currently a subsidiary of CSC Holdings Inc., which itself is a subsidiary of Cablevision.

And while the statement seems mundane on the surface, the implications of the ruling could allow the Bethpage, N.Y-based MSO to save quite a bit on its tax bill.

But as of press time, the company hadn't said what it plans to do with the ruling. Cablevision spokesman Andy Grossman would not elaborate on the statement or give a timeframe as to when the company would make a decision.

However, one high-level Cablevision exec said as far back as Nov. 1998, "we've explored everything from a total spinoff to a tracking stock and it's still the subject of discussion in company."

And according to other comments made by Cablevision top brass, the company may not have much time to make a decision. As to the timing of a Rainbow spinoff, the exec said, "If we don't do any thing by the millennium ... we probably aren't going to do it. There are no guarantees that's going to happen."

But analysts discounted that statement, saying that the company had waited too long for the ruling.

"Bravo and Romance Classics need a secure source of movies and product," said Mario Gabelli of Gabelli & Co. "How does (Cablevision) market these great franchises? Do they offer them up to USA, use it as trading bait, or take it public? (The ruling) means that at some point they announce something."

David Goldsmith, an analyst at Bucking-ham Research in New York, said that the ruling helps Cablevision when it comes time to pay the Internal Revenue Service.

"It (the ruling) simplifies complicated tax structures," Goldsmith said. "If they hadn't got it they would have had to pay a huge tax liability if they changed Rainbow's (corporate structure). They wanted the flexibility to do that."

USA Networks Inc. chairman/CEO Barry Diller has been reportedly champing at the bit to buy the assets. Other possible interested parties include, Time Warner Inc. and possibly Viacom Inc. NBC, which already owns some 25% of Rainbow, could also be a possible fit, although that company has been said to be up for sale as well.