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Early Christmas for New Media

Hollywood Reporter

'Tis the season on Wall Street for satellite radio, music downloads, gigantic movie screens and interactive television -- save for TiVo. That's why during November, the Nasdaq notched a 6.2% gain while the stock of many new-media companies fared much better.

Sirius Satellite Radio passed 800,000 subscribers and signed media mogul Mel Karmazin as CEO during the month, and its shares zoomed 70% to $6.49, hitting new 52-week highs on the way.

Sirius, long considered the "smaller" of the two sat-radio providers, now sports a market capitalization better than that of rival XM Satellite Radio, which gained 14% to $36.91 in November.

With Sirius closing the month with a market cap of more than $8.3 billion and XM at more than $7.5 billion, they're each worth more than double what traditional radio companies Westwood One and Cumulus Media are worth combined.

Some analysts say shares of XM and Sirius may not be done running this year. ChangeWave Research analyst Bryan Perry, for example, thinks XM has a hit on its hands with its XM2go radio, a small TiVo-like device that stores hours of radio programming digitally.

Speaking of TiVo, it was one of the rare new-media firms that took it on the chin in November, with a 30% decline to $4.71. Analysts remain worried that the company can't sign up enough standalone users and that it won't sign up as many DirecTV users once that firm begins offering an alternative personal video recorder from NDS Group next year. They also worry that TiVo doesn't make enough money from each DirecTV user to begin with.

Another interactive TV company, however, OpenTV Corp., which makes the technology needed for playing games, buying products and gambling via TV screens, saw its shares rise 24% in November to $4.02. The company, controlled by John Malone's Liberty Media and run since May by CEO Jim Chiddix, the former chief technology officer of Time Warner, might eventually benefit from the billions of dollars cable companies spent to upgrade their networks so that they may offer the kind of iTV that is so popular in Europe, observers say.

Shares of giant movie screen company Imax Corp. rose 27% in November to $8.30, which didn't surprise analyst Perry. While a disappointment in regular theaters, " 'The Polar Express' is getting hot reviews at Imax theaters," he said.

Perry said that several events are pointing to a 3%-5% overall stock market Santa Claus rally yet to come. Two of those catalysts, which also include a fluctuating oil price and the like, are:

1. Of the $5 trillion that was sidelined while investors made sure that the Nov. 2 presidential elections went off terror-free and without recount delays, only about $2 trillion has so far been invested.

2. Hedge and mutual funds that have been under-invested -- on fears the market would continue the summer's downward slant -- need to make up for lost time and will chase stocks that have been moving higher.

Leading such a Santa Claus rally will be new-media companies, Perry predicts. "Tech tends to be strongest in the fourth and first quarters, and the Internet is strong all year long," he said.

Perry said Pixar Animation Studios, DreamWorks Animation, Google and Yahoo! should all finish the year strong.

The catalyst for Google could be a stock split, some observers predict.

As for DreamWorks, the company's stock is behaving the way a new issue should: It went up following the initial public offering and has now consolidated a bit. It finished November 5% lower at $36.97, but shares are still well ahead of the company's $28 IPO price.

"Typically, you don't go public unless you expect to post at least two strong quarters in a row," Perry said, predicting that DreamWorks will impress Wall Street when it reports quarterly earnings for the first time Wednesday. "And Pixar has been such a big winner. Where do you go next? DreamWorks is the obvious play," he said.

Perry and others also like the digital music scene, and Wall Street concurred in November, with shares of Napster parent Roxio climbing a whopping 53% and RealNetworks shares rising 29%. Loudeye, a business-to-business play on digital music, even advanced 69% during the month.

Perry's favorite new-media pick, though, is Audible Inc., which also earned an upgrade to "market perform" from Piper Jaffray at the tail end of November. Audible, which sells downloadable spoken-word content, was up 36% during the month, and many see additional upside.

"Internet books will be huge," Perry said. "And they have very little competition."

All in all, new media and technology investors seem set for a very merry holiday season this year.