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New Tech Drives Entertainment Sector

Bear Stearns & Co. analyst Spencer Wang reinitiated coverage on the entertainment sector with a “market overweight” rating, citing solid organic growth and the promise of new revenue from new technologies.

Wang, who took over the entertainment beat from longtime media analyst Ray Katz after Katz retired earlier this year, wrote that he expects the U.S. media business to sustain nearly 5% compound annual revenue growth over the next five years. But for content-centric companies, Wang sees new technologies representing a significant future revenue stream.

“The challenge, however, is to find new ways to monetize this demand beyond the traditional 30-second spot,” Wang wrote in his report. “It appears that the emerging model is to offer consumers the ability to pay for commercial free content. Our work finds that, even with cannibalization, this would, in theory, increase overall industry revenues.”

Wang placed “peer perform” ratings on The Walt Disney Co., News Corp., and Time Warner Inc., meaning he expects the stocks to perform in line with the rest of the industry over the next 12 months, Wang saved his highest rating for Viacom Inc. (“outperform), adding that with its stable of strong cable networks like MTV and Comedy Central, Viacom will outpace its peers with 9% compound annual revenue growth, 10% cash flow growth, 20% annual free-cash-flow growth and 18% earnings-per-share growth.