Sony, Matsushita Ride Multimedia Balloon

Anyone who still doubts the wisdom of the Hollywood forays made by Sony Corp. and Matsushita Electric Industrial Co. might want to take a look at the stock market.

With their core consumer electronics business stranded in a deep funk, the companies are trading at or near two- to three-year highs on the Tokyo and New York exchanges. Both conglomerates also have outperformed the Japanese stock market as a whole, which analysts say is at least partly due to the fervor for entertainment companies in the wake of the Paramount Communications bidding.

Much of that fervor is directly focused on Sony and Matsushita, with persistent rumors that they are courting investments in their Sony Pictures and MCA Inc. units to capitalize on the multimedia boom. Lisbeth R. Barron, an analyst with S.G. Warburg & Co. in New York, suggests that Sony and Matsushita may be late to the party because of their foreign ownership.

“The whole entertainment group is just trading up and up and up,” Barron said on Monday. “Since investors have already exploited the domestic stocks, they may be looking around for other stocks that haven’t made their run.”

Indeed, while the Japanese stock market has risen just 9% since the end of 1992, Sony’s stock in yen has leaped 53% from its 1993 low. Matsushita is up 57% in yen from the time it bottomed out in March.

The U.S. stocks have in part tracked the strong rally by Sony and Matsushita.

On the New York Stock Exchange, Sony’s American Depository Receipts closed at $52.625 Monday, up 87.5 cents, after trading at a new 3-year high of $52.75. Matsushita gained 87.5 cents to $139.38, just under its 1993 high of $141.50 and well up from a low of $87 last year.

Analysts say the surges also have a lot to do with the dollar’s weakness versus the yen in 1993: As the yen buys more dollars, Japanese stocks owned by U.S. investors automatically appreciate. But if entertainment holdings have played any significant role in strengthening the companies’ stock values, it would represent a dramatic turnaround in public perception.

Sony and Matsushita have come under steady criticism in the past for their entertainment investments: Sony on grounds that it paid too much for Sony Pictures (as much as $6 billion when debt and other costs are considered), even though its purchase of CBS Records is considered a steal; and Matsushita on grounds that it paid more than $6 billion for MCA just as that company’s Universal Pictures unit went into a slump, which was only recently broken by “Jurassic Park.”

The companies have also been pummeled by the global downturn in their bread-and-butter business, consumer electronics. A Japanese newspaper on Monday said Matsushita will report that operating profit is down 46% in the coming quarter. Its consolidated pretax income fell 14%, according to the newspaper report, which says the one bright spot was MCA’s revenue as a result of “Jurassic Park.”

For the three months ended Sept. 30, Sony also reported bad news. Operating profit fell 57.8% to $116 million. Sales dropped 8.7% to $8.9 billion.

Sources say both companies have gone to great lengths recently to ensure they’re not stranded on the information superhighway. There’s been more emphasis placed on exploiting their synergies--the melding of hardware and software. And Sony sources recently confirmed that the company is more than tripling its new technology division budget for the coming fiscal year--to $80 million. In another nod to entertainment, Matsushita last week announced plans to build a $1.5-billion Universal Studios theme park in Osaka.

Yet the subject that’s generated the most heat in entertainment circles is the possibility that the companies will sell a stake in their divisions to an outside investor. Sony went so far as to openly solicit interest in such a deal late last year, through the remarks of Sony of America chief Michael P. Schulhof. Matsushita has played it closer to the vest, though some outsiders speculate that the broad outline of such a plan is on the table this week, during meetings between MCA and Matsushita executives in Japan.

“Generally speaking, there is some speculation that Sony will do something in the M&A; arena,” said Jeff Logsdon of Seidler Cos. in Los Angeles. “That might encourage people to be owners of their stock. You hear the same thing about Matsushita.”

Both companies formally declined comment on the matter on Monday, as did cable TV kingpin John C. Malone. Malone is most often mentioned as a possible investor, but sources say talks on all fronts--including those involving other partners such as telephone and video game companies--are moving slowly.

“There are all sorts of discussions going on,” said one source. “But there’s nothing imminent.”

Meanwhile, both companies are said to be aware that the air could go out of the multimedia balloon any time. The tide of opinion already says Paramount has been bid up too high, and technology titans have started to make more conservative predictions about their futures, in response to the frenzy that greeted their initial pronouncements about the multimedia future.

“This has nothing to do with reality,” one trader said Monday of the Sony and Matsushita stock prices.

“It’s because people are building in value, largely based on the anticipated price for Paramount. But the big question is, what happens next?”

Times staff writer Tom Petruno and researcher Adam S. Bauman contributed to this story.