Commentary: Hot August for media stocks

New and traditional media companies participating in rally

Media stocks outpaced the general markets in August for only the third month this year, with new and traditional media companies both participating in the rally.

The S&P 500 rose 1.2% and the Nasdaq was up 1.8% in August, while The Hollywood Reporter Showbiz 50 index jumped 3.5%.

Having an unusually good month was Time Warner, up 14.8% to $16.37. That's good news for Stanford analyst Frederick Moran, who again told clients to buy the stock on Aug. 6 at $14.77 after TW reported what he called a "solid" second quarter.

The analyst, bullish on TW's plans to separate from its 85%-owned Time Warner Cable in favor of a $9.25 billion dividend, figures TW stock should rise another 22% in the next 12 months.

"New CEO Jeffrey Bewkes seems keenly focused on driving financial results through cost cuts and the strategic realignment of assets," Moran said.

On the new-media front, several stocks trounced the averages, including Electronic Arts and its intended takeover target, Take-Two Interactive Software, up 13% and 10%, respectively.

Apple easily overcame a short-lived rumor that CEO Steve Jobs was dead and the stock rose 6.7%.

Other new-media gainers were Activision Blizzard, up 9%, Amazon.com, up 6%, and DTS, up 13%.

A Canaccord Adams report late in August noted that, of the 14 digital media companies it follows, eight of them reported a quarterly earnings-per-share upside surprise.

For the quarter ending in June, said analyst Steven Frankel, "earnings proved to be much less painful than we had feared."

Frankel also was enthusiastic that, according to DisplaySearch, worldwide shipments of TVs grew 11% year-over-year with 52% growth in plasma and a 47% surge in LCD. Those healthy gains offset a 52% plunge in old-fashioned CRT's and a dramatic 85% drop in rear-projection units.

He also noted that Amazon.com temporarily cut its prices on some Blu-ray titles by as much as 50%. He added, though, that "we continue to believe the inflection point for Blu-ray players and media is more likely to be mid-2009, rather than this holiday season as some have hoped."

Hollywood Media shares gained 13% in August, boosted by the decision that the company would sell Hollywood.com and some other assets to CEO Mitchell Rubenstein and president Laurie Silvers. Hollywood Media will retain Broadway.com, its stake in MovieTickets.com and other properties.

TiVo rose 10% in August, helped by the company reporting its third quarterly profit since going public nine years ago. Investors also might be bidding TiVo shares higher in anticipation of what could be a favorable decision at a court hearing scheduled Sept. 4 in the ongoing patent dispute between TiVo and EchoStar.

Leading new-media stocks that went the other direction included Midway Games, which fell 40%, wiping out July's inexplicable gains, and Sirius XM, which fell 17%.

Also falling was Imax, down 6% in August. While the giant-screen company has been enjoying unprecedented success with Warner Bros.' "The Dark Knight," that same studio said a few weeks ago that it was delaying the release of "Harry Potter and the Half-Blood Prince" until July 2009, leaving a hole in Imax's Christmas schedule. Imax, though, quickly expressed confidence that the hole would be filled.
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