Few give thanks in November

Most new-media stocks go hungry; sat radio, TiVo buck trend

November was a turbulent month for stocks in general and new-media shares in particular, with the Nasdaq shedding 6.9%.

Examples of new-media carnage in November include RealNetworks off 15%, Gemstar-TV Guide down 14.4%, Napster down 14.5% and Yahoo off 13.8%.

Few equities were more volatile than TiVo, which bucked the downward trend and ended the month up 5%, even after being down 18% at one point in November.

TiVo's fortunes were raised at month's end by a better-than-expected quarterly earnings report, a few analyst upgrades and good news regarding its patent-infringement lawsuit against EchoStar Communications.

Last week, TiVo said the U.S. Patent and Trademark Office upheld its patent for digitally recording one TV show while watching another. That doesn't mean failure for EchoStar's appeal of a lawsuit TiVo won more than a year ago, but it was enough to warrant love from Wall Street. TiVo shares rose 25% on volume seven times normal the day of the announcement.

Even before the patent announcement, though, JPMorgan analyst Barton Crockett upgraded TiVo to "overweight" after engaging outside legal counsel to advise on TiVo's prospects in the EchoStar appeal. The legal experts concluded that TiVo has a 70% chance of victory.

If TiVo prevails, the stock should quickly be worth $10.59, Barton said, and that does not include TiVo's advertising and audience-measurement businesses, Those businesses aren't worth much now, but they will be valuable as TiVo grows, which it will do quickly with a patent-infringement lawsuit under its belt, Barton and other analysts said.

TiVo shot higher both trading days this month, as well.

A couple of other rare winners in the new-media sector in November were XM Satellite Radio and Sirius Satellite Radio, though both waited until the tail end of the month to surge higher. Helping them was a Friday report from Bear Stearns analyst Robert Peck that predicted an imminent decision from the Department of Justice regarding the pending XM-Sirius merger.

After the DOJ, an FCC ruling is expected. If the merger is approved, Peck expects XM to go to $20 and Sirius to head to $4.50. Sirius rose 14% to $3.83 in November and XM rose 17.5% to $15.60.

Sirius and XM gave some gains back Tuesday, though, after Goldman Sachs analyst Mark Wienkes downgraded XM to "sell," arguing the stock is overvalued, given that merger approval — if granted — likely will come with strings attached.

TiVo and the satellite radio companies aside, even good news wasn't enough to help most new-media companies in November.

Take Activision, which surged nearly 20% in the course of a few days but finished the month down 6.3%. The company raised its financial guidance last month thanks in part to huge sales of the latest in its "Guitar Hero" and "Call of Duty" game franchises.

Kaufman Bros. analyst Todd Mitchell figures Activision will sell 4.8 million copies of "Guitar Hero III: Legends of Rock" this quarter and 4.2 million copies of "Call of Duty 4: Modern Warfare."

The analyst, however, rates Activision a "hold" because he has "trouble seeing how it sustains momentum" next year. Mitchell prefers Electronic Arts and THQ, both of which he rates "buy." THQ and EA shares were down 9.7% and 8.1%, respectively, last month. Both fared better than Take-Two Interactive, which was off 20.2%.

That Netflix shares slid last month, too, probably was no surprise to analyst Alden Mahabir of Utendahl Capital Partners, who initiated coverage of the company last month with an "underweight" rating and $24 year-end 2008 target. Netflix shares closed the month down 12.7% at $23.10.

While Mahabir sees Netflix increasing its subscriber ranks from slightly more than 7 million now to more than 10 million by 2011, he also noted the troubling trend of revenue per subscriber declining.

He added that VOD is "a legitimate long-term threat" to Netflix, even though it "has evolved slower than most expected."