"Up" is not just Hollywood's latest blockbuster-in-waiting, it's also the direction media stocks — and, many hope, the overall fortunes of studio congloms — are headed after a decidedly downbeat period.

This earnings season, U.S. entertainment execs have started to sound cautiously bullish on the ad market and the overall economy. No doubt that's because stocks have been so buoyant since early March, in many cases outpacing gains in broader markets.

"Commentary from management on second-quarter calls was virtually unanimous that the bottom is in for the economy and advertising growth," says Steve Birenberg of Northlake Capital Management and SNL Kagan's media blogger.

The key questions now are: Is the stabilization for real, and how can the congloms best position themselves for the stock rally to continue?

Indeed, the bounce might be a temporary bear-market rally, as evidenced by declines this week and persistent skepticism from European and Canadian execs at ad-reliant media companies. Most analysts still expect that sector biggies will not return to ad revenue growth until sometime next year.

"If GDP growth improves steadily or more rapidly than expected, then the rally is real and plenty of upside remains," Birenberg says.

But if it doesn't, studio execs will have to think ever more creatively for ways to avoid another slump.

Analysts have suggested everything from Time Warner selling off its troubled AOL division and using the money to buy Lionsgate (which is relatively cheap right now at about $530 million) to CBS offloading its radio division to raise its dividend.

Most agree that News Corp.'s Rupert Murdoch should stop buying newspapers, and one analyst, Laura Martin from Soleil, suggests Sumner Redstone should sell Paramount to make Viacom more of a pure TV content company.

"Paramount has lousy margins, and they'd get a good price for it from another studio, which would basically shut down current production and distribute the library through their existing channels," Martin says.

Most observers think such drastic measures can be avoided by an improving economic outlook, which multiple moguls say could be on its way.

GE chairman and CEO Jeffrey Immelt told Reuters this week that the credit picture is improving, "and that's really one of the fundamentals to getting the broader economy doing better." He argued that "things certainly have stabilized," but he added that it remains unclear when growth will return.

Media stocks aren't alone in recent gains. The broad-based S&P 500 index recently hit a seven-month high, and the Wall Street Journal ran a story Monday with the headline: "By most measures, stocks no longer look cheap."

Among U.S. media conglomerates, shares of CBS have seen the biggest jump from their lows in early March, which has led some to warn that the stock might have overheated.

"Management appears confident that the bottom has been touched and that a recovery is near," Barrington Research analyst James Goss says. "But it also seems that the process will take time to work out, and the recent leg upward for the stock likely discounted some of this potential."

Not so, says Martin of Soleil, who has a $9 price target on CBS shares, which closed Thursday at $6.84. "CBS refinanced most of its nearest term debt maturity, adding five to 10 years of breathing room," she says. "This seems like a big positive valuation upside to us as it lowers the risk of financial distress for CBS."

Across the industry, "I have been expecting some form of pullback for this rally since the returns off the early-March lows have been phenomenal," Miller Tabak analyst David Joyce says. "But by the end of the year, I do expect media stocks to be higher than where they are now."

Most stocks Joyce follows could double or triple over the longer-term, given they had hit historic lows before March. But first, depressed stock price multiples must expand "to lift the stocks to a point where earnings comparables are improving again, showing that we are emerging from a recession. In the next year, we are generally expecting a median range of roughly +15% to +40% for the bulk of our stocks."

Vogel Capital Management president Hal Vogel is much more bearish. He expects the markets and entertainment stocks to go a bit higher from here before dropping to the ground again. "The decline to come will be swift and shocking to most," he says. "Advice: Sell into the rally."

Sanford C. Bernstein analyst Michael Nathanson also warns that "some of this recent enthuasism could dissipate if the duration of the recession turns out to be longer than some bulls think."

Plus, many sector biggies have various company-specific challenges to address, which could continue to keep a lid on stock prices once the rebound excitement abates.

"Even excluding the recession, media was facing challenges from user fragmentation, digital distribution, technology maturity, etc.," Birenberg adds.

For example, News Corp. "on the surface appears well-positioned to benefit from a cyclical upturn," UBS analyst Michael Morris says. "However, we maintain some concern in the face of investor optimism as challenges at MySpace, newspapers and Sky Italia won't easily disappear."

The fortunes of the entertainment biz also depend on the state of the broader economy. Yet an increasing number of economists point to recent indicators that suggest the U.S. recession will bottom out in the coming months and return to growth late in the year. Even President Obama has expressed hope that the recession, which last month became the longest downturn since the Great Depression, could end by the fourth quarter.

But economists and even the International Monetary Fund have suggested that while the U.S. could emerge from the doldrums first, given its aggressive stimulus spending and faster layoffs, Europe's recovery is likely to lag the world's largest economy.

"The Euros are maybe one or two quarters behind the U.S.," Vogel estimates.

This might explain the more pessimistic outlook among Euro media execs.

Italy's Mediaset might have predicted a better second quarter, but several other Euro broadcast biggies have lowered their 2009 outlook in recent days, citing the recession and rising unemployment, which they expect will keep a lid on ad and consumer spending.

Further accentuating the differences between Europe and the U.S., RTL and ProSieben wouldn't provide a specific full-year earnings target because of the uncertain state of the ad market, and CBS Corp. issued guidance that signalled improving ad trends in the back half of the year, which reassured U.S. analysts.

In fact, many U.S. entertainment biggies started cutting costs and realigning operations last year, which helped some to better-than-expected bottom line results in their film and other units during the first quarter.

Joyce said this could well lead to a boost in earnings guidance later this year. "A second-half rebound in guidance would appear to exhibit textbook recession emergence," he says. "In prior recessions, media stocks have led the emergence by one to two quarters."

But Nathanson expects that underlying media business trends could remain sluggish even if GDP starts rising again.

"We still believe — and we may be the only ones left — that the recovery in media fundamentals will lag the improvement in the economy by several quarters," he says.

Georg Szalai reported from New York; Paul Bond reported from Los Angeles. Etan Vlessing in Toronto contributed to this report.