Aug. 7 (Bloomberg) -- Mario Gabelli, the third-biggest outside investor in Cablevision Systems Corp., said the company should sell or spin all off its assets and give the cash to its shareholders.

Cablevision should sell its Rainbow Media unit of cable-TV networks, spin off Madison Square Garden and explore a sale of its cable systems to Time Warner Cable Inc., Gabelli said today in an interview with Bloomberg.

Gabelli's breakup proposal is more far-reaching than one he made two days ago, when Bethpage, New York-based Cablevision said it would consider spinning off assets, buying back stock and paying a dividend. The Dolan family that controls Cablevision has come under criticism from investors, who rejected their bid to buy the company for $36.26 a share last year.

``They have made a commitment to follow through,'' said Gabelli, who two days ago called on Cablevision to sell Rainbow and use the money to buy back stock. ``If they don't, there are board seats available.''

Cablevision rose 72 cents, or 2.7 percent, to $27.87 at 11:11 a.m. in New York Stock Exchange composite trading. It has gained 31 percent since the company said on July 31 it would seek ways to boost the price.

Gabelli predicted the company will do ``something in between'' a full breakup and his Aug. 5 proposal. His Rye, New York-based Gamco Investors Inc. owned 8.3 percent of Cablevision as of March 31.

`Grand Slam'

Kim Kerns, a spokeswoman for Cablevision, declined to comment on Gabelli's remarks.

``I don't know what they will do,'' Gabelli said. The new proposal would be ``like hitting a grand slam home run in the bottom of the ninth inning of the seventh game of the World Series,'' he said.

Cablevision, which sells cable-TV, phone and Internet services in the New York area, has 15 directors, six elected by the Dolan family and nine by Class A shareholders like Gabelli, according to regulatory filings.

The directors serve for one-year terms and the company's 2008 annual meeting was in May. The family has enough Class B super-voting stock to control decisions on almost all issues.

Gabelli said he wants Cablevision to be ``making love with Time Warner Cable.'' Comcast Corp., the biggest U.S. cable-TV company, may also be interested in the business, he said.

A combination with Time Warner Cable is ``mechanically easy to do,'' Gabelli said today. ``But I'm not sure Comcast would allow that to happen.''

`Dolan Discount'

Investor criticism of the Dolans intensified this year with the company's purchase of the Sundance Channel and Long Island's Newsday newspaper. Gabelli said management may be acting now out of embarrassment over the ``Dolan discount,'' a lower stock price that reflects skepticism over company investments.

In July, Time Warner Cable downplayed speculation about a Cablevision deal, which has gone on for years because both companies do business in the New York area.

``Nothwithstanding statements people have made forever that it's our manifest destiny to own Cablevision because it's in our backyard, I think it's a long-shot deal,'' Chief Financial Officer Rob Marcus said at the time. ``When and if it ever comes on the market, will we look at it? Absolutely.''

James Dolan, 53, and his 81-year-old father, Chairman Charles Dolan, have offered to buy Cablevision four times, most recently last year. Critics led by Gabelli said at the time the bid undervalued the growth in cash flow from the main cable business.

Cablevision executives plan to meet with the company's top shareholders next week to repair relations that were frayed as investors resisted the family's buyout offers, Gabelli said.

``For three years, the Dolans tried to buy the company,'' Gabelli said. ``So they didn't put lipstick on and they didn't exercise.''

To contact the reporters on this story: Matt Miller in New York at mtmiller@bloomberg.net; Tim Mullaney in New York at Tmullaney1@bloomberg.net.

Last Updated: August 7, 2008 11:13 EDT