Hollywood Media Must Unlock Value (HOLL)

May.12.06 | About: Hollywood Media (HOLL)

If you're Hollywood Media Corp (OTCPK:HOLL), here's what a $146M market cap will get you: Movietickets.com, Broadway.com, Hollywood.com, and a heap of other online-based info-entertainment solutions.

Hollywood Media operates consumer-driven entertainment properties. Too many, we think. No one seems to understand this company (only 2 analysts follow the stock, both of them just as clueless as the rest of the Street).

Our interest is in Movietickets.com. Here is how the company describes itself:

Formed in spring 2000, MovieTickets.com is a joint venture between AMC Entertainment, Hollywood Media Corp, National Amusements, Famous Players, Marcus Theatres, Viacom, and America Online, and leverages the collective exhibitor expertise to deliver consumers a premium movie ticketing experience.

Those are some big names. So why, even as Movieticket.com's theater base jumped 130% to 70 chains in 2005, is Hollywood Media's stock in the toilet?

Is it because Hollywood Media has developed a knack for building assets (machine gun acquisition style), but can't manage expenses? Movietickets.com, for example, is losing millions. Huh? There are only 2 major players in this space (the other one being Fandango) and they still can't generate cash? Movietickets.com has AOL, Yahoo, MSN, the New York Times, and Google in the dugout and it can't even hit a single?

Maybe the stock is in the gutter because management is uncooperative: HOLL's management is opaque on the conference calls (they refuse to spell out EBITDA for certain business segments). Or perhaps the stock's in trouble because no one can value it. It's too big. Too complex. Some services are monetized; others are not.

Whatever the case may be, shareholders must be tired of management giving them lousy treatment. That said, here's our-not-so modest proposal.

1. Poorly managed and gravely misunderstood, Hollywood Media has all the trappings of a merger/spinoff. Right now, Movietickets.com is a hot asset that generates $0 income for its parent -- it's time to monetize it.

2. Movietickets.com merges with Fandango. According to SeekingAlpha.com founder David Jackson, it'd make little sense for these two companies to continue competing head to head for moviegoer's dollars. After Movietickets won Yahoo as a client, Jackson postulated:

...the deal should also increase the pressure on Fandango to merge with MovieTickets.com. Fandango's distribution now looks anemic compared to that of MovieTickets.com. But each company has exclusive online ticketing relationships with roughly half the movie theaters in the US. That means that as portals and search engines partner with either Fandango or MovieTickets.com, they offer online ticketing to only half the available US movie theaters. A merger would create a company able to offer online ticketing to the vast majority of US movie theaters with a cost structure roughly the size of one of the two companies today.

3. After Fandango and Movietickets.com merge, the parents spin off their new child and create a pure play on the movie ticketing category. We all know we need one. Even your friends who don't know jack about the market ask you questions about these companies when you're both waiting for the previews to start.

4. Post merger-cum-spinoff and now with access to capital, the new Fandango/Movietickets.com revamps its sites (Hollywood.com's new site is already drawing in more traffic), expands internationally, and rolls out a plethora of complementary services. Think data mining and Amazon-like customer captivity.

The Bottom Line: Hollywood Media's stock has been absolute flatline for the last 18 months. The jury is out -- take it private. Break it up. Spin it off. Just do something. At $4 and change, the stock has our rifle-specific attention. The easiest way to make money on Wall Street is to find a story no one understands.

HOLL Last 18 Months


Disclosure: At the time of publication, the author was awaiting a fill on a small market order.