Thrills! Chills! Spills!

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

surface in terms of motion picture and television programming in Asia, especially China. And despite the glut of programming in the U.S., Bannister says entries into new formats like the Internet and DVD are necessary if firms want to keep growing their bottom lines.

She cites Burbank, California-based Disney as a good example. The firm, well known for its animated films, enduring characters like Mickey Mouse and theme park Disney World, has already repackaged a number of its top-selling films in DVD format in order to generate additional sales. She also notes the kid factor: children have the desire to possess the latest incarnation of a beloved movie and the ability to cajole parents into buying it.

Bannister does see short-term problems with Disney, however. Its acquisition of ABC hasn’t been the coup once envisioned by management; in fact, ratings at ABC have declined since Disney purchased it. Licensing of new Disney Stores has also been sluggish. Further, ABC’s high-priced purchase of the rights to broadcast NFL games “didn’t help profitability at the network,” she says.

Part of a Disney comeback, analysts say, depends on the company shedding assets that are extraneous, such as its Mighty Ducks hockey franchise, then reinvesting that capital into growing its core entertainment business, including expansion into new formats and overseas markets.

Bannister cautions that any Disney rebound is likely to be slow. She rates the stock a “buy” and projects it will earn 68 cents per share in 1999 and 77 cents in 2000. She also recommends Seagram Co. (NYSE: VO), the Montreal-based conglomerate. Seagram, which owns Universal Studios, is best known as a producer of alcoholic beverages, but in recent years the company has positioned itself as a movie and music producer.

Seagram’s music division, Universal Music Group, is “the whole story” behind its future growth, she says. Bannister adds that consumers’ ability to digitally download music from the Internet will be “the main driver of growth” for the stock. She rates Seagram a “buy” and her 1999 and 2000 earnings-
per-share estimates are 52 cents and 18 cents, respectively.

Some market participants think it’s not just the media outlets that are positioned for growth, but the companies that deliver the content as well. Steve Singleton, director of research at Robert Van Securities, an African American-owned broker-dealer in Oakland, California, is betting that companies like Time Warner and AT&T will be big winners in the reshuffling entertainment world. “Content is key, but access is as well,” says Singleton. “The players are still the big guys.” For that reason, he likes AT&T’s acquisition of cable giant TCI, which will change investors’ perception that AT&T is just a long-distance telephone carrier.

Singleton adds that AT&T’s acquisition of TCI will give it the ability to offer Internet access and other services through cable lines. This way, AT&T will be able to compete with Baby Bells like Bell Atlantic (NYSE: BEL). How? Federal Communications Commission regulations forbid AT&T from offering local phone service-the purview of the Baby

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