Market Turmoil Hits Most Entertainment Firms

The current stock market turmoil hasn’t pummeled just tech stocks. With the exception of Walt Disney Co., shares of the entertainment conglomerates have suffered a gut punch in the last month.

Seagram Co. and News Corp. stocks have fallen 20% to 30% from their highs. Time Warner shares have been choppy, while Viacom’s are sliding.

Ironically, the stock holding up best is Disney, which for the better part of the last two years has lagged other entertainment stocks because of soft earnings.

After January’s announcement of the Time Warner-America Online merger, these stocks set new highs amid lofty, cliched proclamations that “content is king.” But just as the recent market uncertainty has squeezed the hype from many “new-economy” stocks, it’s also squeezed it from shares of “content providers.”

For Seagram Co., the drop reflects investor skepticism that Chief Executive Edgar Bronfman Jr. will sell the company any time soon. Bronfman had been fishing for potential merger deals, despite his cryptic denials. But as secretive as the Seagram heir is, it’s clear now he’s got nothing cooking.

Wall Street continues to like Seagram, with most analysts recommending the stock. They believe Bronfman recognizes that the company is being marginalized in a world where its competitors own TV networks and its biggest rival, Time Warner, is merging with the premier Internet company, America Online. So a deal is still possible.

And bulking up on music may prove to be a wise bet. Bronfman could win the long race should the marriage of music and the Internet turn out to be a gold mine. Things also have been looking up for its formerly loss-plagued film division.

News Corp. shares barely reacted this week to news that Chairman Rupert Murdoch is being treated for low-grade prostate cancer. Investors are taking the company at its word that Murdoch’s health isn’t in danger. They have welcomed Murdoch’s efforts to spin off part of his satellite assets, and still see him as the mogul with the best global vision in entertainment and media.

But News Corp.’s stock is off about a third from its high earlier this year, partly out of concern over the dismal ratings of its TV network.

Viacom’s Class A shares have drifted down 20% amid uncertainties over how its merger with CBS will play out. Delays in government approval haven’t helped, nor have nagging questions about how well Viacom’s Sumner Redstone will mesh with CBS Chief Mel Karmazin. Still, Wall Street likes the combination and loves Karmazin, with most analysts bullish on the stock.

Time Warner’s stock has been spiking up and down, riding the recent Internet stock roller coaster because of its pending merger with AOL.

Earnings remain solid from HBO, its studio and its cable operations, although profit in the most recent quarter took a hit from problems related to its Columbia House record club.

Wall Street remains bullish on the AOL deal, and AOL’s better-than-expected earnings should improve Time Warner’s stock prospects.

That leaves Disney, for two years the market laggard of the group. With “Who Wants to be a Millionaire” driving a recovery at ABC, earnings have proved better than expected.

It helps that Disney shares tend to climb in the months before the company opens a new major theme park attraction, as it will next year with California Adventure in Anaheim.

But results are still soft in Disney’s consumer products and home video units, and the strategy for its expensive Internet ventures remains murky.

Taxing problem: In an industry in which folks try to write off as tax deductions everything from massages to custom-made Prada suits, Edward James Olmos stands out for his efforts to broaden the Internal Revenue Service definition of a business expense. He wants to deduct the cost of a personal feud.

Olmos is fighting the IRS over whether he can deduct $215,613 he spent to defend himself from allegations made in 1994 by lawyers for actor Harvey Keitel.

The allegations, which at one point included unproved allegations of inappropriate sexual conduct with a minor, were part of a bitter, seven-year child custody battle between Keitel and his ex-girlfriend, “The Sopranos” actress Lorraine Bracco. She married Olmos in 1994, although the two reportedly have separated.

In court papers, Olmos claims that in the 1994 tax year he risked being ostracized from the entertainment community and losing work with producers and studios because of the feud with Keitel.

According to U.S. Tax Court records, Olmos is arguing that his Olmos Productions should have been allowed to deduct his legal fees because Olmos needed to maintain his “extremely favorable reputation.” Had he not spent the money, Olmos argues, “there would have been a devastating, irreparable impact” on his image. Olmos’ tax lawyer, Charles P. Rettig, declined to comment. So did the IRS.

Bad exposure: John Lotter, whose murder of Nebraska youth Brandon Teena is chronicled in the current film “Boys Don’t Cry,” has become a media star.

Awaiting execution in the Nebraska electric chair for killing Teena and two witnesses, Lotter is one of the death row inmates featured in a controversial anti-capital punishment campaign by Italian clothier Benetton.

Lotter’s picture appeared in a highly touted photo essay supplement that accompanied a recent Talk magazine issue. Benetton now is rolling out the ad globally.

An interview with Lotter in the publication doesn’t mention Teena. But he does say that he believes people favor capital punishment because “people like seeing other people suffer and killed.”

Benetton spokesman Mark Major said prisoners were selected from a pool available in seven states that allowed access to death row inmates, of which Nebraska was one.

“We didn’t pick any one inmate for any particular reason,” Major said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

That’s Show Biz--On Wall Street

Entertainment stocks, which had been setting new highs in the wake of the proposed Times Warner-America Online deal, have retreated amid the market turmoil. Viacom, Seagram and News Corp. are all off, but Disney has held its ground. Monthly closes and latest:

*

Disney stays hot ...

* Disney: Its long-languishing stock has risen as “Who Wants to Be a Millionaire” drives ABC’s recovery and earnings are better than expected. In the past, Disney’s stock often has climbed before the company opens a new attraction, as it will next year with California Adventure. Results are still soft in Disney’s consumer products and home video unit, and its Internet strategy remains unclear.

*

Disney on Thursday: $42.25

*

... but most studio and network shares take a slide.

* Seagram: The owner of Universal Studios has been betting on the marriage of music and the Internet. But it’s been marginalized by its competitors, which are cutting deals such as Time Warner’s merger with America Online. No merger deal appears imminent for Seagram.

*

Seagram on Thursday: $53.63

*

* Viacom: After a steep climb, its stock has been flat pending its merger with CBS. As with other companies that own networks, one concern is whether the turmoil among Internet companies will reduce the amount of “dot-com” TV and radio advertising.

*

Viacom on Thursday: $51.38

*

* News Corp.: The company’s stock enjoyed a big run-up but has retreated by about 30% this year, in part because of poor ratings at its Fox television network. Investors welcome Chairman Rupert Murdoch’s efforts to spin off part of his satellite assets. The stock has barely reacted to news that Murdoch will undergo treatment for low-grade prostate cancer.

*

News Corp. on Thursday: $44.81

*

* Time Warner: The company’s stock has been choppy, in part because its pending merger with America Online is making it highly sensitive to fluctuations in Internet stocks. Earnings remain solid, although profit has been hurt by problems with Columbia House record club. AOL’s better-than-expected profit should improve

the company’s stock prospects.

*

Time Warner on Thursday: $89.94

Source: Bloomberg News