Market meltdown blasts caps

Entertainment firms see new 52-week lows Wednesday

NEW YORK -- In case anyone thought the Hollywood heavyweights were immune to the economic downturn, take a look at their market caps: They've been decimated amid this year's general market sell-off and a sluggish economy.

Wednesday's 427-point Dow slide pushed the shares of News Corp., Viacom, CBS and Sony to another round of 52-week lows, and Walt Disney and Time Warner closed near their lows for the year.

With a little more than a month of trading to go in 2008, sector biggies have lost tens of billions of dollars in market value, and some see their stock trading at prices in the single digits.

Amid the decline, Disney has cemented its lead as the most valuable entertainment conglomerate, followed by Time Warner, Sony and News Corp., which about a year ago was at the top of the table with a market cap of $68 billion. That is nearly twice Disney's $36.35 billion market value as of Wednesday's market close.

Late last October, when THR looked at market values, TW's topped $67 billion, Disney stood at $66 billion, Sony at $45 billion, Viacom at $27 billion and CBS at $21 billion.

Among the major conglomerates, stock price declines since the midyear point (before the start of the financial crisis) range from 36% in the case of Disney to 72% in the case of CBS, which along with corporate sibling Viacom has seen its market value drop below the $10 billion mark.

Technology giants Google and Apple have also lost more than half their market value this year, but their caps are well above those of media conglomerates at $88.2 billion and $76.7 billion, respectively.

Most of the entertainment biggies' share drops since midyear exceed the 44% year-to-date decline in The Hollywood Reporter Showbiz 50, which Wednesday closed at 630.06 after setting a all-time low of 590.13 earlier in the day. It had finished June at 1,117.32.

The decimation has largely been driven by pure angst.

"The market caps are not reflecting anything fundamental, other than fundamental fear of the recession," says David Joyce, analyst at Miller Tabak. "Portfolio managers have just been jettisoning positions for the past month and a half to sit on cash and wait out the rest of the year."

Sanford Bernstein analyst Michael Nathanson says the current levels are like a trip into the past. "We haven't seen these caps in two decades. Truly amazing," he said. "Stocks reflect a bleak outcome for ad and consumer spending and the reality that estimates are too high."

But media and entertainment business veteran Hal Vogel, president of Vogel Capital Management, said sector stocks might not have hit rock bottom yet.

"The share prices could still drop some more," he said. "Given that I've now been trading for 40 years, yes, I've seen these market caps much lower. But for most of the portfolio managers and analysts these days, it's all news to them -- if they still have a job."

The stock drops, accelerated by the financial crisis this fall and by the increasing realization that large parts of the world are entering recession, have also made many companies so cheap that one must wonder if any investor left with cash may sweep in to pick off a bargain.

Many on the Street, however, doubt that anyone in the space would sell at such low levels -- unless under real duress. At the same time, the credit crunch and broad financial pain have left few in shape to acquire major assets.

"Ordinarily, this would mean M&A activity," Vogel said. "But the private equity guys and banks are all immobilized and can't do anything for now."

Nathanson also points to regulatory and family ownership issues that make deals less likely. "The best case is for small independent cable networks," he suggested.

But others warn it may be wise to expect the unexpected. "Never say never," said Joyce, suggesting that there could be surprise buyers and sellers. "Things devolved so quickly, it's tough to know who might be sitting on a hoard of cash."
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