NEW YORK — From Hollywood to Wall Street, media execs with wallets full of stock options and investors with sinking portfolios are panicking as entertainment congloms face the prospects of a slowing economy and potential actors and writers strikes.
A plunging stock market knocked the wind out of media shares and has fund managers struggling to figure out where to put their money. Last week, lots of them took it and ran.
Maybe they were too hasty.
“People don’t stop going to the movies or renting videos; they don’t turn off their TV or cable,” said Jeff Logsdon of Gerard Klauer Mattison. “These are the lowest-cost entertainment components in people’s budgets.”
Studio safety net
Hollywood studios can weather strikes that last three to six months just fine, Logsdon and others insist. Ironically, it’s the film studios — whose Byzantine finances Wall Street loves to hate — that may help the congloms hit their numbers during lean times ahead.
The reason: They’re not advertising dependent.
Added ABN AMRO’s David Londoner: “Whenever you own a studio and you have enough advance warning — which there is in this case — there are ways to manage your business to accelerate income, like an important library sale.”
A soft ad market prompted a handful of analysts to cut earnings estimates for showbiz congloms, yet many of them still have buy recommendations on AOL Time Warner, Viacom and Disney.
The former is the least exposed to advertising woes of the group. And it has a big position in cable TV, which is just where investors are turning for defensive plays in the media sector.
Cable companies are “the safety stocks. Whether things slow down or not, your cable bill is going up 7%,” said Barry Hyman, a market strategist with Weatherly Securities.
“I love that stock,” he added. “That doesn’t mean it can’t go to $30 or $35. This market can take anything down. It’s relentless.”
AOL Time Warner is trading under $40 — way off its 52-week high of nearly $75 a year ago. It fell 7.9% last week to $39.49.
Other media shares also changed hands at or near their lows as the Dow Jones Industrial Average (which includes Disney) and the Nasdaq slumped.
Disney and Viacom both lost 6.7% for the week to close at $27.72 and $46.20, respectively. Vivendi was down 8.9% to $59.98 and News Corp. was off 7% to $32.45.
MGM, which slipped 5.6% to $17.69, has started attracting admirers. “There’s a lot of value in their library. At this level, every time it takes a tick down, it gets more interesting,” said one analyst.