Making sense of technology revolution

Andrew Leckey

November 03, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

So you say you fully comprehend the likely long-term outcome of the twists, turns and deals in a technology and communications revolution that's headed toward 500 cable channels?

Congratulations. You now qualify to be a charter member of the Liars' Club.

With names like Bell Atlantic, Tele-Communications, Liberty Media, QVC Network and Paramount Communications jangling in their heads, perplexed experts are also trying to make sense of the future. Stocks of many firms have gone sky-high despite less-than-clear prospects.

Some perspective is offered by T. Rowe Price, which has started the New Age Media Fund, a closed-end fund traded as a stock on the New York Stock Exchange. It's building a portfolio of logical best bets in this burgeoning revolution.

In wireless, where many stock prices have gotten out of hand, the fund is buying Vodaphone Group, a British cellular company. It also envisions strong prospects for the wireless division to be spun off from Pacific Telesis.

Regional Bell companies have been revived by the concept of phone lines delivering cable signals, so the fund is buying shares of Pacific Telesis, U S West and Bell Atlantic.

Because plenty of pictures will be needed once interactive computers and networks are in place, it's also buying shares of Playboy Enterprises and Enquirer/Star Group.

Meanwhile, the $200 million Fidelity Select Broadcast & Media Fund, up 39 percent this year, has shares of Walt Disney Co. in its portfolio because timeless programming will be in greater demand.

Perhaps most interesting is that both funds include a stock group once considered a technological dinosaur: the traditional broadcast networks.

CBS Inc. and Capital Cities/ABC (NBC constitutes a relatively small portion of General Electric) have recently run up in price. It doesn't look as if the run-up is over.

Investors stopped fretting over the fact that the networks' previously 100 percent prime-time market share has been eroded by cable to 60 percent.

Instead, they realized that only big broadcasters offer critical mass and high visibility to major advertisers, who face an otherwise fragmented viewing market.

Longtime government restrictions are also being lifted because of the ability of networks to produce and syndicate programming that will be necessary for all the new outlets of the future.

"Network stocks have good value and sell at a 50 percent discount to cable-TV stocks," noted Denise Jevne, portfolio manager of New Age Media Fund. "Among assets are many years of historical sports and news programming."

Remember that the networks, their owned-and-operated stations and their affiliates still represent the prime-time viewing choice of better than half of all U.S. households, noted James Goss, analyst with Duff & Phelps Corp.

Furthermore, in the profitable ownership of individual stations, the owned-and-operated station groups of ABC, CBS, NBC and Tribune Co. each reach more than 20 percent of the country.

"The logic of keeping networks out of programming is gone, for they're no longer the titans of the industry but are going up against the new titans," said Steve DuFour, portfolio manager for Fidelity Select Broadcast and Mass Media Fund.

Melissa Cook, analyst with Prudential Securities, predicts that "more volatility is ahead in broadcast stocks," but she believes the potential rewards will be worth it.

Stock in CBS is recommended by Cook, DuFour and Goss. Though it draws somewhat older viewers less attractive to advertisers, it's improving its demographics with moves like snaring David Letterman.

It's tops in prime-time ratings and has potential for improving profitability of its seven owned-and-operated stations.

Capital Cities/ABC is a favorite of DuFour, Goss and Jevne. It attracts younger, more desirable viewers, has seven financially strong owned-and-operated stations and is acquisition-minded. There's cable exposure with 80 percent ownership of ESPN and the new ESPN2, as well as interests in the Lifetime and Arts & Entertainment channels.

Among independents, stock of Tribune Co. (which, it should be noted, syndicates this column through its Tribune Media Services) is recommended by Cook and Goss.

Cook said, "The company has a strong newspaper franchise, and the fact its seven independent TV stations reach 22 percent of U.S. households gives it a strong advantage in buying programming and distributing Tribune Entertainment shows."

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