Media shares were standouts Wednesday, for better and for worse: Walt Disney and AOL Time Warner weighed on the broader market, while Vivendi Universal shot higher.
Volatility reigns for showbiz stocks amid mixed signals for the health of advertising and the economy, with the effect seemingly unique to each company. Disney’s rally of past weeks hit a brick wall as its latest animated pic tanked — fueling investors’ slow-burning concerns over the future of its animation franchise and its relations with Pixar.
The only entertainment stock included in the Dow Jones Industrial Average, Disney fell 4.64% to close at $17.68. The Mouse had to lop $74 million off fiscal 2002 earnings after “Treasure Planet” tanked at the box office Thanksgiving weekend.
Probe not helping
A Securities and Exchange Commission investigation said to focus on potential conflicts of interests of Disney board members didn’t help matters. Disney has trimmed the size of its board and devised new regs for better corporate governance. Ironically, one effect of the push for objectivity was to erode the power of director Stanley Gold, a critic of chairman Michael Eisner.
“We applaud the changes … (but) we are disappointed to see that the new, more stringent rules on independence have resulted in Mr. Gold’s removal from several key committees. … We would note that recent concerns raised by Mr. Gold about the company’s profitability and direction certainly made him appear independent in practice, if not in definition,” wrote Prudential Securities analyst Kathy Styponias.
Wall Streeters still worry that geopolitical risks — i.e., war with Iraq — could further slam Disney’s theme-park business, and they hope no one else takes sick on a Disney cruise.
AOL Time Warner was punished for the second day running by news that America Online’s advertising and commerce revenue will fall as much as 50% next year. Many shareholders aren’t yet convinced of the Internet unit’s long-term growth prospects. Management promised a turnaround in 2004, and investors may wait until then to bid the stock higher.
AOL TW shares fell 2.6% to $13.84.
Morgan Stanley Dean Witter analyst Richard Bilotti downgraded the company to “equal weight” — or hold. In a note to clients, Goldman Sachs’ Richard Greenfield said his fear that continued decline at AOL would offset stronger Time Warner businesses “is now a reality.”
Ratings agency Standard & Poor’s also chimed in, expressing concern about a $2.1 billion cash payment AOL TW committed to as part of a settlement for Time Warner Entertainment. AOL TW plans to repay that with proceeds from an initial public offering of Time Warner Cable next year — but S&P said there could be trouble if market conditions don’t support an IPO.
News Corp. dipped 2.15% to $23.36. Viacom eased 0.56% to $44.70. These two media giants have managed to keep quiet, and keep their heads down.
Not so Vivendi Universal, where there’s always a story to tell. The stock bucked the media downturn, surging 5.5% to $16 as S&P backed its plan to buy control of telecom company Cegetel for $4 billion. That means S&P won’t cut Vivendi’s debt rating, at least for now — a big relief to shareholders. The agency helped push the conglom to the brink of bankruptcy by lowering its rating last summer.
S&P and investors may expect that a sale of Universal will more than make up for any cash spent on Cegetel. Vivendi chairman-CEO Jean-Rene Fourtou reiterated Wednesday plans to monetize the U.S. entertainment assets. Conglom has at least one standing offer of $20 billion from Marvin Davis and several investment firms.