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On The Sunny Side Of The Street


This is an era when widely held assumptions about media companies are trashed almost daily. So let's trash another, specifically the one that says traditional media are hopelessly out of favor with Wall Street. Because believe it or not, in 2006 Wall Street likes Big Media. Year to date, the Bloomberg Media Index, which tracks stocks in 27 companies ranging from Cablevision Systems (CVC) to XM Satellite Radio (XMSR), has far outperformed the Standard & Poor's 500-stock index -- 7.7% to 1.2%, as of June 9. News Corp. (NEWS) and Walt Disney (DIS), neither known recently for spectacular returns, are both up around 20%, as is cable titan Comcast (CVC). (Tribune Co.'s recent runup (TRB)over its stock buyback plan and subsequent hopes that it may end up in play had little effect on the index.)

Given the current tumultuous climate for media old and new, it's hard to imagine that these stocks' sudden vogue signals an end to the sector's turmoil. Many of the big players still lag -- Time Warner (TWX), New York Times Co. (NYT), and Viacom (VIA), to name but three.

STILL, RIGHT NOW THE MARKET is rewarding certain content-producing companies and is thus buying their PR, which goes something like: "There are many new channels and platforms for us to distribute and sell our wares. Therefore, all this new stuff is an opportunity, not a threat." For quite a while, the reaction to such thinking could be summed up in one word: riiiiiiight. But after several months of announcements regarding video iPods and new Web plays, this Pollyanna view is spreading. "The pendulum has begun to swing back from a fear that large-cap media companies would be hurt by a shift to digital," says Richard Greenfield, Pali Research's veteran media analyst. "Increasingly, content holders are being seen as beneficiaries as you look out over the next three or five years." Fittingly, companies matching Greenfield's description that made the best-received first moves into next-generation media -- Disney and video iPods, News Corp. and MySpace -- have gotten the biggest market bang.

Greenfield's stance is echoed by investor Morris Mark, president of Mark Asset Management, who likes companies heavily invested in what he calls copyrighted or proprietary content. "If you run radio or broadcast TV [stations], where you don't own much of what's yours, you can't expect things to be as good in the future as they were in the past. But if you create the content and sell it through iTunes, through ABC.com, through DVDs, and in Europe, if you can turn 24 into a movie, that's different." (Mark owns stock in News Corp., Disney, Viacom, and Time Warner.) Greenfield sees an upside for Viacom, owner of tons of cable and film content, which this year is down double digits. By this logic there's also an upside for Time Warner, home of Warner Bros. and HBO, but woes at Time Inc. and America Online could limit it in the near term.

Companies heavily invested in print, as in all newspaper company stocks, still fare poorly. Radio companies -- which spin CDs but don't own them -- aren't driving this rally either, with Clear Channel Communications (CCU) and Citadel Broadcasting (CDL) under water in 2006. Few new rivals to Comcast have ensured the cable giant's strong returns, says Mark, although Greenfield warns against the time when telcos fully ramp up their push into cable.

Of course, media stocks' current gains owe much to just how dreadful they were. The Bloomberg Media Index was down 10% in 2005. And at least one executive joked that Disney's uptick was due to nothing more than former CEO Michael Eisner's exit. (On second thought, maybe he wasn't joking.) But this is certainly a rare juncture for traditional media, which, if we remember correctly, had been pretty much left for dead not so long ago in favor of new media players like Yahoo! (YHOO) and Google (GOOG). Both, by the way, are down this year. The Old Media guys are outperforming them, too -- at least for the moment.

For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia

By Jon Fine


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