Thrills! Chills! Spills!

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

stocks for decades, says that as the merger activity continues within this sector, firms with toeholds in most forms of media will be the big winners, while those who don’t move quickly to take advantage of new markets and technology will stumble.

Since the announced Viacom-CBS deal, concerns over the merger of the two companies’ cultures have been raised, a problem Disney faced when it bought major broadcast-TV network ABC and its related properties. In fact, fallout from such corporate culture clashes has hurt Disney’s bottom line, industry observers say, and its stock is down from its 52-week high.

Viacom, seen as a brash media upstart, owns such cutting-edge channels as MTV and VH1, while CBS, the “Tiffany network,” is the home of such traditional fare as 60 Minutes, Touched by an Angel and Diagnosis: Murder. Also, Viacom CEO Sumner Redstone and CBS chief executive Mel Karmazin are seen by observers as hands-on, aggressive managers, and these experts wonder whether the two hard-charging executives will be able to work together.

But Roffman dismisses such concerns, saying Redstone and Karmazin have the experience to make the deal work. And the fact that the new conglomerate will have an even wider range of interests-in everything from cable to the Internet-will make it a formidable competitor. “I think this merger will create an entertainment juggernaut. It will have incredible power” in terms of production and distribution, Roffman says. He’s putting his money where his mouth is. His firm owns $5 million in Viacom stock, and the stock represents his largest personal holding.

Not all entertainment stocks have a solid story to tell, however. For example, investors have been skeptical of the plot holes in MGM/UA’s (NYSE: MGM) plan to milk its film library and offer its classic movies over digital cable lines and satellite systems. The trouble is that although MGM has 4,100 titles in its film library, both premium service and free channels already air a slew of old movies. And MGM no longer owns its best-known classics, Gone With the Wind and The Wizard of Oz. Time Warner acquired those titles when it bought Turner Broadcasting System back in 1997. But recently MGM recorded its first quarterly profit based on the strength of its television production arm.

The impulse to stuff your portfolio with stocks you’re familiar with is well known to Ted Reid, first vice president and financial advisor with Morgan Stanley Dean Witter in Voorhees, New Jersey. As a broker, Reid has cultivated sports, music and other entertainment types as clients for years, and they’re keen on having a piece of their industry. “Since I have a lot of clients in the entertainment industry, I tend to put a lot of focus on entertainment stocks,” says Reid, whose entertainment and sports clients make up close to 80% of his roster. “The other thing is that since many of them work with these companies, and they see what their competitors are doing,” they buy the stocks of

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