Thrills! Chills! Spills!

Fasten your seatbelts: entertainment stocks can take investors on a roller-coaster ride

To Colvin W. Grannum, CEO of Bridge Street Development Corp., a church-affiliated community development organization in the Bedford-Stuyvesant section of Brooklyn, there’s no business like show business-when it comes to stocks, that is. And the ones he likes are the ones he’s most familiar with. “I’m an adherent of the philosophy of buy what you use and buy what you know, especially if it’s a market leader with a demonstrated track record of success,” says Grannum.

This familiarity is one of his rationales for owning stocks such as diversified media conglomerate Time Warner (NYSE: TWX), which he bought in December 1998 at a split-adjusted price of $52.14, and cable firm Comcast (Nasdaq: CMCSK), which he purchased in January 1998 at a split-adjusted $29.63. Time Warner recently closed at $62.75 and Comcast at $39.81, up 20% and 34%, respectively.

Despite individual investors’ long-term confidence in big media conglomerates, their stocks have taken investors on a wild ride this year. Faced with a perennially fickle public, companies whose revenues depend on entertaining the masses, like the Walt Disney Co. (NYSE: DIS), Time Warner and Viacom (NYSE: VIA), have been whipsawed, as analysts have lowered their earnings estimates and investors have punished those shares in response. And like a roller-coaster, media stocks have reached some breathtaking heights before hurtling down in stomach-wrenching plunges.

BUYER BEWARE
If you decide to buy media and entertainment stocks, beware. Professional investors and financial consultants advise against loading up on such shares just because they’re in an exciting business. They recommend purchasing blue-chip media conglomerates like Time Warner, which has divisions devoted to movies, music, publishing and cable. Also good bets are firms that are aggressively expanding into new mediums like the Internet. They suggest shunning so-called “pure plays”-firms with a single, more volatile business, such as movie studios. In addition, merger fever is blurring the lines between entertainment, news, television and cable. Take, for example, New York City-based Viacom’s $37 billion blockbuster takeover of CBS Corp. (NYSE: CBS), announced Sept. 7.

Media companies, whether they are diversified entertainment conglomerates or cable TV firms, have the capacity to recover from earnings shortfalls and loss of the public’s interest in their latest offerings, experts say. For one thing, certain media firms have name-brand recognition, which will help them overcome temporary slumps in sales and viewership. While one summer of box-office bombs, a poor-selling album or a season’s worth of low television ratings might hurt a firm’s bottom line this year, there’s always next year’s potential hit to look forward to.

CONTENT IS KING
Analysts and some individual investors have confidence in the long-term prospects of these concerns, particularly those with access to a variety of media, from television to the Internet. And the pace of consolidation in the industry should accelerate as companies seek to stake out their territory. “He who has the content is the king,” says Marvin Roffman, president of Roffman Miller Associates, an investment firm in Philadelphia with $130 million in assets under management. Roffman, a veteran analyst who has covered media

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