Las Vegas Business Press
April 20, 1998
Cable company should fetch a pretty penny

Basic cable in Las Vegas runs a little more than 130 a month, but a lot of people supplement that service with extra channels, at extra cost. Prime Cable's Las Vegas system has 300,000 subrcribers; it's a basic minimum of $9 million a month in gross revenues.
So why sell it?
Because the price is right, according to speeulation from industry analysts.
Charter Communications Inc, a multi-system operator from St. Louis, put in a bid to buy Prime's Las Vegas system, said Anita Lament, Charter's corporate communications director.
Lament didn't reveal the size if that bid, but trade publications have reported a sale of the Las Vegas system may command $1 billion or more for it and related businesses. Besides Charter. individuals familiar with the talks said the bidders are Comcast Corp., Cox Communications Inc. and Telecommunications Inc.
Brian Greenspun, who oversees his family's various business interests, including the Las Vegas Sun, did not return repeated telephone calls. Harris Bass, Prime's Las Vegas vice president and general manager, also failed to return a call for comment.
Prime, an Austin, Texas-based multiple-system operator, is a partner with the Greenspun family in the Las Vegas system. The Greenspun family owns more than 60 percent of the system; Prime manages it.
"I'm not surprised the system is on the block," said Paul Traudt, associate professor and telecomniunicatlons coordinator at UNLV's Greenspun School of Communication. "In today's media, fewer and fewer companies own more and more properties." Steve Effros, president of the Cable Telecommunications Association, a trade group, also noted a consolidation trend. "Despite what folks in Las Vegas think, you're no different than the rest of us." Ellros said.
"There is significant restructuring in the cable industry, said Ellros, whose Virginia based association represents companies serving between 85 percent and 90 percent of all cable subscribers. "Folks are deciding to refinance, change, get out of the business." Analysts also note that publicly traded cable companies are hot properties today. "Cable stocks are quite healthy. This is a good time (to acquire), said Stuart Brotman, president of Stuart N. Brotman Communications in Lexington, Mass. and a Harvard Law School professor.
As an example. Brotman pointed out an early April deal where Paul Allen, Microsoft's cofounder, paid $2.77 billion for a stake in Marcus Cable Corp., a Dallas based, family-owned company. "Marcus is a very successful, ongoing concern, similar to Prime Cable," Brotman said.
Cable stocks once weren't too popular among Wall Street types. Today, however, such stocks have shot back up in value; Microsoft Corp. mogul Bi11 Gates' June 1997 investment of $l billion in Comcast Is named as a catalyst.
Capital costs are also cited as a reason to possibly sell. Many cable television systems, including Prime in Las Vegas, are upgrading in order to introduce new programs and keep up with evolving technology, such as digital cable and Internet access via television.
"It's true that Vegas is growing and profitable: it's a market with tremendous potential growth," said David Bohmer, director of the Center for Contemporary Media at DePauw University In Greencastle, Ind. Bohmer is a former Las Vegan who worked at Sprint when it was known as Centel.
Bohmer, a former cable executive himself, said growth places pressure on operators. "Because you have to pour in continued capital dollars to keep up. It may take you longer to earn a full return on the system."
Talk about Prime Cable's Las Vegas system has circulated in the cable trade press for a while. It intensified when Broadcasting & Cable and the Wall Street Journal reported the bidding contest.
Reports have also indicated Prime Cable's Las Vegas operations may command a price of $4,000 a subscriber, or around 14 times cash flow. Many recent cable system deals have been for between $2,100 and $2,500 a subscriber, or approximately 10 times cash flow.
"If a family (or smaller) owner is looking to get out, now is a good time," said one cable stock analyst for a Midwestern brokerage house. "The valuations are coming up a lot better.... you can fake a profit and get out."
Prime Cable's large, concentrated subscriber base is also cited as a potentlal attraction for multiple-system operators. Prime Las Vegas also has an interest in a hotel cable business, the Hospitality Network.
"What motivates large MSOs to continue to acquire systems? They have a financial interest in cable network services," Traudt said. He said cable networks frequently get financing from multiple-system operator, and such investors are more attractive to cable networks if they can deliver a large base of subscribers.
Industry watchers speculate Prime's Las Vegas franchise is doing well because or its technological advances--it is bullding up its fiber-optic lines--and certain conditions in its franchise agreements with local governments.
"This system has a very healthy cash flow," said Brenda Trainor, a Las Vegas based director of the National Association of Telecommunications Officers and Advisors. Trainor is a former Clark County telecommunications official.
Prime's franchise fee of 3 percent of gross annual receipts is below the maximum allowable by federal law, which is 5 percent. Its county franchise agreement only requires it to provide one local origination channel.
There appears to be no standard, but some cable systems provide as many as eight local origination channels in their franchise agreement.
"Their community costs are minimal," Tralnor said. Government will also have a smallish role in any Prime Cable sale. Its franchise agreements say the franchise cannot be "sold, transferred, leased, assigned or disposed of, in whole or in part, either by forced or involuntary sale, or by the voluntary sale, merger, consolidation or otherwise" without consent by city councils and the Clark County Commission.
"This is fairly standard in any franchise agreement," said Jim Spinello, manager of Clark County Administrative Services' franchise division. Spinello's unit has oversight over the Prime agreements.
Brotman said very few franchise transfers have been denied by local governments. He said if a new cable operator commits to all promises made by a predecersor, it is "very unlikely" a transfer will be denied.
Prime's current Las Vegas-area franchise agreements were generally signed between 1979 and 1981, back when it was known as Community Cable TV. Most franchise agreements are for an 18-year period, with a two year option to renew. Although Prime Cable's franchise agreements are not exclusive, no large operators have emerged to challenge its hegemony in the area. By contrast, some of its suitors, including Cox and TCI, compete in selected markets. "It is very expensive to build a system," Bohmer said. He added allowing a second cable company in the market could cause political problems.
Prime Cable's franchise agreements with Clark County and the cities of Las Vegas, Henderson, North Las Vegas and Boulder City do not address profitability. The only allusion to money is the franchise fee.
Even though a $1 billion price has been bandied about in the cable trade press, accurate financial information on Prime Cable's Las Vegas system is difficult to come by. Prime Cable is privately held and is not obligated to discuss finances. Prime's Las Vegas syrtem is required, however, to report its gross annual receipts to Clark County's businers license department. The department audits the cable operator's gross annual receipts for all franchise grantors.
But the information isn't public. Clark County Code Section 6.08.090, which addresses record keeping, said gross receipts or gross revenue information reiceived from licensees is "confidential and available only to those officials concerned in such matters."
Tom Warden, the county's chief spokesman, said he didn't believe such information is even made available to the Clark County Commission.
Prime Cable is only one of the Greenspuns' diversified holdings in Las Vegas. American Nevada Corp., developer of the Green Valley and Green Valley Ranch master-planned communities, recentby announced it will develop a 600-room hotel and casino at the intersection of lnterstate 215 and Green Valley Parkway. The project's estimated cost is between $80 million and $100 million.
The company is also a partner in Sun Plaza, a $57 million Class A office building In downtown Las Vegas, with Nevada State Bank. Sun Plaza's ground breaking is scheduled for this rummer.
The Sun and Prime Cable are also partners in Las Vegas 1, a 24-hour cable news channel. Las Vegas 1 went on the air April 6: the channel's third partner is KLAS-TV, Channel 8. And to cover its bases in the telecommunications field, Greenspun Inc., the family's management company has tied into Nextlink Nevada.