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Other interactive-TV plays also jumped after announcing their own deals. Wink Communications (WINK), which provides technology that allows viewers to respond to programming and ads, rose 30% in late August, partly on excitement about its plans to provide real-time scores from the U.S. Open tennis tournament. ACTV (IATV), which has technology that allows broadcasters to synchronize their Web sites with TV programs, is up 40% since late August. And WorldGate Communications (WGAT), which enables cable companies to offer Internet access over the TV, jumped 16% on an analyst upgrade on Sept 1. But before you jump, keep this in mind: These are all money-losing companies with tiny revenues, and they're still struggling to implement their fledgling technologies. For all the market's recent euphoria, many are still trading at fractions of the prices they reached earlier this year, before they were caught in the tech downdraft. GUESSWORK. Oh, you can find plays here, all right. Interactive TV will undoubtedly enrich a great many investors as these technologies reach into the 900 million homes worldwide with TV sets, generating an estimated $20 billion in revenues by 2004. "But that doesn't mean that every interactive-television company is going to be successful," warns John Corcoran, digital new media analyst at CIBC Oppenheimer. Not only might it take years for the ITV rollout to generate real profits for the companies involved but to invest in one of these stocks now is to make a bet on which technology or business model will win out. Investors need look no further than the current Internet stock shakeout to see the risk. Momentum players may have plenty of trading opportunities, but most analysts see picking a winner in interactive-TV software and services as guesswork at this point. "We're headed for three years of deals before this gets sorted out," says Sanford Bernstein media analyst Tom Wolzien at an ITV conference hosted by research firm Myers Reports last July. "I do think it is too early," agrees Pat O'Neil, manager of the Loring Hedge Fund. Even if you pick right, it may take years before large institutions buy in. "You could get a pop on the emotions of the moment," he says. "But then it might not do anything for two years because the serious money doesn't go in until the real opportunity is nearby" -- and revenues and earnings start to ramp up. "CONTENT AND CREATIVITY." If you're ready to take on the risks, one of Wall Street's favorite ITV pure plays now is arguably Gemstar-TV Guide International (GMST). It has a patent on technology for an electronic program guide that now has limited interactivity but will eventually allow users to "channel-surf on steroids," says Corcoran, who sees it becoming users' "portal of choice" for TV viewing, shopping, and Web surfing. Gemstar stands to profit by advertising on the guide, taking a cut of e-commerce (or t-commerce as it's often called), and licensing fees. The volatile stock fell from over $100 to the $30s in March, but it has climbed steadily back to reach the high $80s. That stock has plenty of risk if ITV fails to take off, or another technology supplants it. Less risky, but still likely to benefit from the trend, are media companies that are taking steps to prepare for an interactive future. Wolzien advises: "Invest in content and creativity," citing stocks such as Disney (parent of ABC, which is a pioneer in providing interactivity between Web sites and TV shows); Viacom (VIA.B), which is experimenting with interactivity through its CBS, MTV, and Blockbuster units; and America Online (AOL), which is acquiring Time Warner (TWX). Of those, AOL stands to gain the most from growth in ITV. It's rolling out AOLTV, which is now a limited product but has potential once the offering is improved to appeal to its massive customer base. AOL is also buying Time Warner's cable assets, which reach a potential 20% of U.S. homes. PORTAL PLAYS. Gordon Hodge of Thomas Weisel likes USA Networks (USAI), owner of Home Shopping Network, which he sees as a precursor to ITV since it requires users to interact with the program via the telephone. USA also has large stakes in Ticketmaster and Hotel Reservation Network, which can benefit from t-commerce. Liberty Digital (LDIG), which has an assortment of infrastructure and content companies, is another company Hodge thinks is well positioned for ITV. Greg Kyle, president of Pegasus Research, takes a different tack. He looks at Internet companies that are preparing for a broadband environment as the ones that will be best positioned when the Web and the tube converge. Yahoo!'s (YHOO) new broadband channel "Finance Vision" is showing how video and Web content can be integrated. "It puts Yahoo at the leading edge of the new convergence in media technology," he says. Likewise, he thinks Lycos (LCOS), which is merging with Spanish Internet company Terra Networks, has a strong global ITV opportunity. Excite@home (ATHM), which is regaining some investors confidence and has signed a deal with Cox to provide the portal content for its interactive-TV services, is a second Kyle favorite. BIRDS ABOVE. Another way to invest in a sector that stands to get a slice of ITV revenues, without betting on one technology, is to go with a satellite company. They've been much swifter in rolling out interactive services than cable companies have been, in part because they don't need to upgrade to digital infrastructure to implement the new services. William Kidd, an analyst with C.E. Unterberg Towbin, recommends Hughes Electronics (GMH), which offers DirectTV, and EchoStar Communications (DISH). Of the two, he thinks GMH has an edge because of its cheaper valuation. Expectations for interactive TV are just starting to fuel a new rally in the volatile crop of stocks that are direct plays on the trend. But if you look around, you'll find plenty of less speculative ways to invest in TV's future. Stone is an associate editor of Business Week Online EDITED BY BETH BELTON |
