Cable TV is dying — and can still be a very good business.

3 hours ago 5

By Peter Kafka Chief Correspondent covering media and technology

What do you do if you're a big media company that owns a bunch of cable TV networks?

In many cases, you try to get rid of them. Just this week, Disney dumped its half-ownership of A&E and other networks for $1.2 billion,

Versant CEO Mark Lazarus doesn't have that option: The bulk of his company is a collection of cable networks, spun out of Comcast earlier this year. Has to run them, not sell them.

So Lazarus has to do three things at once: Manage his declining cable business, use the cash it still generates to build new businesses for a post-cable era, and write checks to shareholders to keep them interested while he does it.

We got a progress report Thursday, and it highlights both the challenge and potential upside of what Lazarus is doing.

Start with the old TV business: It is declining, as expected. Versant's distribution revenue fell 6.3% from a year ago, mostly because it has fewer cable subscribers. Advertising is also down, but just barely, in large part because individual cable Versant channels, like CNBC and MS NOW, are still attracting eyeballs. And the company raised its full-year revenue and profit forecasts.

That matters because Lazarus doesn't need cable to start growing again. He needs its decline to be gradual enough that the company can keep extracting cash from it.

Meanwhile, Versant's non-cable TV businesses are growing. If you strip out the performance of SportsEngine, a youth sports business the company sold earlier this year, its "platforms" business — which includes Fandango, the movie ticketing company, and GolfNow, which sells tee times — grew 9.3%. It is also building up digital subscription businesses that tie into its TV properties, like an MS NOW service launching this fall.

Even in the best-case scenario, none of that is going to replace the decline in Versant's core business in the near future. But it is a sign of where the company wants to go.

And in the very near-term, Versant has another plan to keep investors happy: Hand them cash.

The company says it will generate up to $1.2 billion in free cash flow this year, which gives it the ability to pay quarterly dividends, and to buy back stock: Versant had already bought back $100 million worth of its shares this spring, and on Thursday, it told Wall Street it would buy back another $100 million.

Which is the most likely reason Versant stock shot up nearly 10% after the company's announcement Thursday morning. Investors may believe that MS NOW has plenty of life left in it, or that Fandango can benefit from Hollywood's kind-of revival. But they can also benefit from the current business, even if it has a sell-by date.

That's the appeal of Versant's pitch: Lazarus doesn't have to convince investors that he can make cable grow again, or that he has already built its replacement. But he does have to show that the old business can keep producing cash. And that investors can get their hands on some of it, no matter what happens in the long term.