Congloms put up ‘for sale’ signs

Wall Street-battered mega-companies comb through assets for quick cash castoffs

HOLLYWOOD — Their bottom lines hurt by the lost dream of convergence, depressed ad revenues and a general economic slowdown, media giants are looking to shed underperforming assets.

More than $300 billion has been wiped from the market value of the top 10 media companies alone.

Yet PricewaterhouseCoopers, in its global entertainment and media outlook report, says that while growth won’t be as strong for media companies over the next four years, Net companies will post the best results, as access is expected to be bundled with other consumer devices and content services. In fact, forecasters expect to see an uptick in e-business by 2006.

Thus, some argue that spinning off sinking Internet assets such as America Online may be a bit hasty.

“The jury is still out,” says Youssef Squali, who covers AOL Time Warner as an analyst for First Albany Corp. in New York. “Long term, I still see value merging content with medium.”

Squali isn’t alone in his thinking.

Media conglomerates would be better off holding Web companies at a loss than going back and buying them later at a premium, says Jeff Logsdon, media analyst at investment firm Gerard Klauer Mattison in Boston.

The problem is most companies took on too much debt to make acquisitions and now are faced with paring subsidiaries — Internet or not.

Cash-strapped Vivendi Universal is selling publishing house Houghton Mifflin, its stake in satcaster EchoStar and assets of Canal Plus, while rumors are buzzing that it will get out of showbiz altogether, with John Malone and Barry Diller teaming to buy Universal Studios, Universal Music and USA Networks . New Viv U topper Jean-Rene Fourtou is also dumping Internet portal Vizzavi.

AOL Time Warner is eyeing a sale of its book publishing division, certain television properties like Comedy Central and Court TV, and/or spinning off AOL.

Bertelsmann is also reassessing the Net agenda, put in place by former chief Thomas Middelhoff. In fact, the conglom’s new CEO, Gunter Thielen, recently assured his troops that the company was backing away from Internet ventures, although no one really knows what that means for music file-sharing service Napster yet. The company also has eliminated its chief operating officer slot in an effort to return Bertelsmann to its traditional, decentralized operations.

To be sure, there is a lot of finagling.

AT&T wants out of Time Warner Entertainment, which includes HBO, Warner Bros. Studios and sundry cable assets. Meanwhile, AT&T is set to merge its cable operations with Comcast, which would inherit the Time Warner Entertainment stake if it isn’t spun off or purchased outright by AOL Time Warner.

Once riding high on the back of stocks that were used to buy into complex deals just a few years ago, many top media companies have seen their total market values sliced by more than half over the past two years: AOL lost about $150 billion in value; Disney, about $30 billion; Vivendi Universal, $45 billion; Viacom, about $5 billion; News Corp., $14 billion; Sony, $20 billion; Cox, $12 billion; and AT&T, $37 billion.

And that’s just a partial list of losses. Among the Variety’s Global 50 media companies, TKTKTK75% are showing losses.

“There is still a long way for these companies to go to gain profitability,” says Mike Gallant, a media analyst at CIBC bank in New York. More direct ties to revenue and clearer business identities may help some companies gain speedier recoveries.

Logsdon says the diversified business approach — created in a careless manner — may be much to blame for some dips into the red.

For example, Vivendi Universal is suffering an identity crisis. “Who knows what they are?” he asks. “A water utility? A media concern?”

Even among mixed-media conglomerates, efforts are under way to make their businesses more understandable — like separating content from medium.

Cablevision could put cable channels AMC, Bravo and Independent Film Channel on the block as a way to raise money to meet its spending needs next year, analysts say.

Even the highly profitable QVC, some say, could be weaned from Comcast as a way to create more unit value.

Other companies may spin off subsidiaries to thwart adverse trends. Blockbuster, with the threat of video-on-demand looming, could be spun off from Viacom, says Gallant, adding, “But that’s way down the road.”

Squali says, “It all boils down to management and how effective they can be.”

Meanwhile, media companies are on a bumpy ride. And that’s when things inevitably fall off or get tossed aside. Given the current climate. Certain units are destined to become media castaways.

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