Big year for major media as congloms rebound
EmptyTalk 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. The Walt Disney Co., News Corp., Time Warner Inc. and Viacom Inc. were each off about 10% 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 44.3%, 34.7% and 26.3%, respectively.
Sure, Sony Corp., one of 2005's few winners among the big conglomerates, rose only 5.5% last year and Viacom only rose a paltry 2.5%, but CBS Corp., split from Viacom early last year, climbed 22.3%.
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. In fact, as analysts do, they put their predictions in writing.
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%.
Likewise, Jessica Reif Cohen of Merrill Lynch named Disney and News Corp., along with Comcast Corp., as her top picks. Comcast shares advanced 64.7% last year. More recently she's been bullish on shares of DreamWorks Animation SKG, which advanced 20.1% last year.
By contrast, new-media leaders like Yahoo! Inc. saw its shares sink 35.3% on the year. Even shares of Google Inc., enjoying a modest 11% rise, were no match for old media. And shares of Netflix Inc., which surged an index-leading 121% in 2005, sunk 4.4% last year.
In fact, of the top 10 movers from The Hollywood Reporter's Showbiz 50 stock index, only one, RealNetworks Inc., is generally considered a new-media company. RealNetworks rose 39.8% last year.
The top movers on the index were Charter Communications Inc., up 148.4%, Dolby Laboratories Inc., up 81.9%, DirecTV Group Inc., up 76.4% and Marvel Entertainment Inc., up 65.1%.
Among the biggest losers were big-screen maven Imax Corp. and a host of radio companies.
Imax, which couldn't find itself a buyer last year so took itself off the auction block, sank 47.3% during the year. Among the Showbiz 50, only Emmis Communications Corp., owner of about two dozen radio stations, and radio content provider Westwood One Inc. performed worse, down 58.7% and 55.2%, respectively.
Rounding out the index's bottom five were Sirius Satellite Radio, down 47%, and XM Satellite Radio, down 46.8%.
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% 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 & Co. analyst David Joyce, for example, predicts that shares of Lionsgate Entertainment, which advanced 39.5% last year, will go up about another 21% in the next year, while Disney shares will advance about 11%.
Even after Charter's near-150% surge, the stock is not about to rest, according to Pali Research analyst Richard Greenfield, who sees about another 47% 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 will be worth about 24% 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."