Major Media Stage Comeback

LOS ANGELES Talk about a turnaround story.

About this time a year ago, executives at most large entertainment companies were coming to terms with stock performances that couldn’t keep pace with the major averages. Walt Disney, News Corp., Time Warner and Viacom were each off about 10 percent in 2005. Investors looking for healthy returns more likely found them in new media than old.

Last year, new media was a mixed bag, while Disney, News Corp. and TW advanced 44.5 percent, 35 percent and 26 percent, respectively.

Sure, Sony, one of 2005’s few winners among the big conglomerates, rose only 5.5 percent last year and Viacom only rose a paltry 2.5 percent, but CBS Corp., split from Viacom early last year, climbed 22 percent.

Some of it was predictable, given the unfavorable environment for media stocks in general—not just in 2005, but also for the two years before that.

William Drewry of Credit Suisse, for example, wrote a year ago that “the biggest disconnect in market performance in 2005 was the underperformance of Disney and News Corp.,” and he predicted Disney shares would climb as much as 65 percent.

Likewise, Jessica Reif Cohen of Merrill Lynch named Disney and News Corp., along with Comcast, as her top picks. Comcast shares advanced 65 percent last year. More recently she’s been bullish on shares of DreamWorks Animation SKG, which advanced 20 percent last year.

By contrast, new-media leaders like Yahoo saw its shares sink 35 percent on the year. Even shares of Google, enjoying a modest 11 percent rise, were no match for old media. And shares of Netflix, which surged an index-leading 120 percent in 2005, sunk 4.5 percent last year.

In fact, of the top 10 movers from The Hollywood Reporter‘s Showbiz 50 stock index, only one, RealNetworks, is generally considered a new-media company. RealNetworks rose 40 percent last year.

The top movers on the index were Charter Communications, up 150 percent, Dolby Laboratories, up 82 percent, DirecTV, up 75 percent and Marvel Entertainment, up 65 percent.

Among the biggest losers were big-screen maven Imax and a host of radio companies.

Imax, which couldn’t find itself a buyer last year so took itself off the auction block, sank more than 45 percent during the year. Sirius Satellite Radio and XM Satellite Radio suffered similar declines.

Analysts had been worrying the entire year about satellite radio companies’ growth prospects. Both firms reined in their subscriber-growth projections during 2006.

Sirius on Tuesday said it hit previously reduced numbers, ending the year with a little more than 6 million subscribers, 82 percent more than it had at year’s end 2005. Sirius, run by Mel Karmazin, also said it achieved its first-ever quarter of positive free cash flow in the just-ended fourth quarter.

On top of a banner year for media stocks last year, analysts remain largely bullish this year.

Miller Tabak analyst David Joyce, for example, predicts that shares of Lionsgate Entertainment, which advanced 40 percent last year, will go up about another 20 percent in the next year, while Disney shares will advance about 10 percent.

Even after Charter’s surge, the stock is not about to rest, according to Pali Research analyst Richard Greenfield, who sees about another 45 percent upside this year.

As for the world’s largest entertainment conglomerate, analysts see TW shares being boosted by AOL’s resurgence, brought about by a dramatic re-embrace of online advertising, as well as the company’s Time Warner Cable.

Prudential Group analyst Katherine Styponias, for example, said that TW shares would be worth about 24 percent more in the next year.

Part of the reason is that Styponias is more bullish on a TWC initial public offering than other analysts. That IPO, which she thinks could happen early this year, is, according to one of her recent research reports, “the place to be.”