* In Q2, adds 14,000 data customers, a 2-year high

* Loses 16,000 video subscribers vs est. 30,000

* Higher programming, marketing costs dent margins

* Shares fall as much as 7.8 percent

(Adds CEO comment; updates shares)

By Devika Krishna Kumar and Sai Sachin R

Aug 7 (Reuters) – Cablevision Systems Corp’s
transition to a « connectivity company » seems to be paying off as
it added more Internet data customers and lost fewer video
subscribers than expected in the second quarter.

But the company, controlled by New York’s Dolan family, had
to sacrifice margins to stem the loss of video subscribers.

Cablevision’s shares fell as much as 7.8 percent on Friday.

Cablevision has lost video subscribers for about three years
as people opt for lower-priced bundled services from telecom
companies such as Verizon Communications Inc and Internet
streaming firms such as Netflix Inc and Hulu.

Nagging investor concerns over viewers « cutting the cord » on
cable TV were proved well founded over the past two days after
results from Walt Disney Co and other cable companies.

Cablevision has aimed to capture some of those « cord
cutters » by marketing a package that bundles broadband service
and a digital antenna for broadcast stations.

The company also incurred higher programming costs, the
biggest expense in its cable business.

The moves paid off as it lost 16,000 net video subscribers,
far less than the 30,000 analysts had expected, according to
market research firm FactSet StreetAccount.

Still, it was « nothing to write home about, » said
MoffettNathanson Research analyst Craig Moffett, pointing to the
higher costs and Verizon’s weak FiOS results.

« The Verizon FiOS effect, if there ever was one, in our
opinion, is over » Chief Executive Jim Dolan said.

Cablevision’s adjusted operating cash flow, an indicator of
margins, in the cable division fell 3.4 percent to $462.7
million in the quarter ended June 30.

« In general, it appears that CVC was more aggressive with
promotions which had the impact of better subscriber trends at
the expense of lower-than-expected margins, » Evercore ISI
analyst Vijay Jayant said.

Cablevision has moved to offset its cable subscriber losses
by offering HBO’s streaming service, HBO Now, and Hulu’s video
streaming service to its data customers.

Data, not video subscribers, were Cablevision’s « most
valuable » clients, Dolan said.

Indeed, Cablevision reported net additions of 14,000
customers for its data services, blowing past analysts
expectations of 4,400 losses.

Cable revenue rose 1.8 percent due to higher rates. Net
revenue rose 1.6 percent to $1.65 billion, in line with analysts
estimates.

Net income attributable to stockholders fell nearly 20
percent to $75.6 million, or 27 cents per share. That beat
analysts expectations of 25 cents.

Cablevision’s shares were down 7 percent at $24.66 in
afternoon trading.

(Editing by Don Sebastian and Savio D’Souza)