Rob Black's Media Stock Report

Includes: SNE, VIA
by: Rob Black

Citing Tom Cruise’s yearlong metamorphosis from pure box-office phenomenon to pop-culture punch line, Viacom’s (NYSE:VIA) Sumner Redstone, said that Paramount was ending its 14-year relationship with the actor’s production company. Mr. Cruise insists that he quit. Either way, the parting of the ways was anything but amicable. And it came as the latest sign that the media conglomerates that control Hollywood are growing impatient with the megastars who earn the highest salaries.

Tom Cruise joins Lindsey Lohan and Mel Gibson as being the objects of scathing public attacks from their studios. Mr. Cruise has already obtained commitments from two hedge funds, one in New York and one in Los Angeles, for $100 million in revolving credit to make movies, and now all they need is for a new distribution deal. Hollywood is changing as stars abandon the media conglomerates and turn to Wall Street for project financing, whereas the studios won't put up with bad behavior from the spoiled movie stars.

Sony (NYSE:SNE) has acquired Grouper Networks for $65 million. The deal marries one of the biggest and most powerful movie studios with a Web site that provides free access to short and often inexpensively made videos on topics like pets, sports and music. The bet is that material posted by users will continue to be a big draw online. Despite sharing homemade videos, many of the most popular clips on Grouper are slick short productions, including music videos and commercials.

The star of the Web video sites is YouTube, which in July had 30.5 million unique visitors. Grouper is getting eight million visitors a month, up from a million in March. The move is also a new outlet for promoting Sony movies and television shows and gains content so that they can introduce a device to challenge Apple’s video ipod. What will be interesting is whether Apple makes a move as Apple and their strigent Digital rights management angle might dampen deals.