传媒JP Morgan's Initial Research Reports Impact Media Valuations

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DoubleClick Acquisition By MaxWorldwide Finalized

MaxWorldwide, formerly L90, announced yesterday that it had completed its acquisition of DoubleClick Inc.'s North American Media business, making MaxWorldwide the largest online ad sales and representation company in the U.S. DoubleClick's Chairman, Kevin O'Connor, is expected to join the Board of MaxWorldwide. L90chairman Bill Apfelbaum will remain Chairman of the combined companies and Mitchell Cannold will be president and CEO of MaxWorldwide. MaxWorldwide has two divisions, MaxOnline and MaxDirect. As of market open on July 12, 2002 MaxWorldwide,formerly L90, will trade on the Nasdaq under the symbol MAXW.

several months. "In our opinion,"says the JP Morgan industry overview, "AOL Time Warner (Buy $24 12-month price target) offers the most attractive combination of asset value, exposure to secular growth businesses, and appealing valuation. We view Disney (Buy $26 price target) as an attractive vehicle for investors to play a cyclical recovery via the company's theme park assets at a relatively undemanding valuation. We view Viacom and Fox Entertainment (both rated long-term buy) as core holdings in the media sector,although their higher relative valuations limit our near-term enthusiasm. Although we believe MGM offers intrinsic asset value,the difficult economics of film production suggest caution, hence our Market Performer rating."

Following are summaries of reports published by JP Morgan H&Q earlier this week on AOL Time Warner, Disney, Fox and Viacom.

AOL Time Warner

? "We believe fundamentals are nearing a positive inflection point, with online advertising

programming, and cable TV). We also favor vertically integrated companies with the financial flexibility to pursue acquisitions to augment growth and with diverse revenue streams to shield against the sector's cyclicality and hit-driven nature." In an interview with JMR , Wang pointed out, "The goal is identifying the inflection points of performance and the catalysts that can close the valuation gap between a company's intrinsic value and public market value. Market forces today are being driven by perception and sentiment."

It's no surprise, based on these preferences, that Wang favors investments in AOL Time Warner and Walt Disney, whose stocks have been pummeled in the past

JULY 12, 2002 – At a time when equity research has come

under fire when issued by investment banks such as Merrill Lynch, the securities firm of JP Morgan has initiated coverage of the media and entertainment sector and this week published its first analyses of several leading media companies. Spencer Wang,formerly of ABN-Amro, is emerging as one of the most thoughtful and credible of the market analysts in this sector. The reports being issued by he and his colleague,John Blackledge, are already impacting on the market performance of companies, with their report on Viacom contributing to Wednesday's decline of nearly 12 percent of shareholder value.

Overall, Wang writes, JP Morgan is "positive on the long-term outlook for the entertainment industry. Spending on media continues to grow as a share of the broader economy, while time spent on media should increase in line with historical rates. Advertising,the 'oil price' for the media industry, is beginning to rebound,following a one-year hiatus from growth during 2001. However,"says the report, "our forecasts suggest that growth for media companies over the next five years will trail the heady rates of the second half of the 1990s. For the next five years we see a slow ad recovery and decelerating growth for most mature media businesses."

"In our view," adds Wang,"companies that will outperform are those with market leading positions and the right asset mix (exposure to online media, cable

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“AOL, with a dominant position and the benefit of cross-selling opportunities with the other Time Warner ad properties, is ready to capitalize on positive long-term trends.”

JP Morgan's Initial Research Reports Impact Media Valuations

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July 12, 2002

JP Morgan

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and improving (albeit choppy) consumer confidence, attendance growth should resume in fiscal 2003.”

? "The prospect of a second half 2002 advertising rebound bodes will for Disney, in our view, as it derives roughly 24% of its revenues from advertising. However, the company's participation in an advertising recovery will likely depend in large part on its ability to improve disappointing ratings at the ABC broadcast network. For modeling purposes, we assume essentially no turnaround at ABC in the next five years."

? "Disney boasts an impressive stable of intellectual property, including rights to much-loved characters such as Mickey Mouse, Donald Duck, and Winnie the Pooh. Disney has expertly maximized the value of its characters by harvesting them into new profit streams, such as direct-to-video sequels, consumer products,and stage plays. Quantifying the brand equity is difficult, but we remain believers that top-notch content in the entertainment business is a strategic asset."

? "Our positive investment thesis on Disney is highly predicated on the economic recovery continuing in the second half of 2002."

Fox Entertainment

? "Fox has created value by combining its studio production capabilities with broadcast distribution assets, ensuring carriage of its TV shows on its broadcast network, and the popularity of these programs has augmented the network's ratings. These programs are entering off-network syndication, fueling filmed entertainment earnings for the next five years."

set to turn in 2003 and clarity on strategic issues expected to emerge in the next six to nine months. Although we run the risk of being early on a turn in fundamentals, we regard the stock's risk/reward ratio very compelling."

? "Our analysis of AOL's ad and commerce backlog suggests that online advertising should bottom at year-end 2002. Moreover, we are believers in the long-term potential of the Internet as an advertising and marketing medium. AOL, with a dominant position and the benefit of cross-selling opportunities with the other Time Warner ad properties, is ready to capitalize on positive long-term trends."

? "Although dial-up Internet penetration in the United States is quickly maturing, we expect positive net additions through 2002, with AOL likely to maintain its 50% market share. Over the longer term, the development of multiple ISPs (MISP's) is critical. Progress on this front has been slow, but our analysis of the economics suggests that both AOL and the cable industry can benefit."

? "We foresee several near-term catalysts, with some clarity expected to emerge in the next 6-9months with respect to resolution of the Time Warner Entertainment partnership. We also anticipate announcements on MISP deployments in the next 12 months. AOL's investor day this summer should provide the Street with a better understanding of the online strategy."

? "We view AOL Time Warner's asset mix as very attractive. The company's business mix is skewed to some of the faster growing businesses of media (basic cable programming,online media, and cable TV."

? "In an industry where vertical integration matters, we believe AOL Time Warner boasts a complementary mix of content creation,packaging, and distribution assets."

The Walt Disney Co.

? "We believe Disney offers attractive leverage to a cyclical recovery with an appealing valuation."? "The Theme Parks division should lead the recovery in fiscal 2003. With continuing signs of better hotel occupancy in Orlando and Anaheim

“Disney has expertly maximized the value of its characters by harvesting them into new profit streams... we remain believers that top-notch content in the entertainment business is a strategic asset.”

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Page 3July 12, 2002 ? "Fox should be one of the sector's prime

beneficiaries of the recovery in the advertising

cycle, as we estimate that it derives 48% of its

revenues from ad sales. We project 1.9%

growth in total U.S. ad spending in 2002, which

should help Fox generate 3.4% revenue growth

in fiscal 2003. However, participation in an ad

recovery should, in part, be linked to an

improvement in ratings at the broadcast

network."

? "We believe the 'sizzle' in the Fox story is in the cable programming assets. Fox's nascent cable channels – Fox News, F/X, Speed Channel – are less mature than its rivals', where faster subscriber and ratings gains generate hyper EBITDA growth."

? "We think Fox is now ready to harvest the benefits of years of investing in its TV production business." Fox's owned-and-operated TV stations continue to gain share, reaching 21% for the third (March) quarter of fiscal 2002, up from 19% last year.”

Viacom

? "With a pristine balance sheet and top-notch media assets, Viacom should sustain at least 10% compound annual EBITDA growth for the next five years, while free cash flow should rise 15% per annum. However, Viacom's valuation and our belief that a recovery at Infinity may be lagging temper our near-term enthusiasm."

? "We think Viacom is the premier play on advertising, deriving around 45% of revenues from high-margin ad sales. Viacom should be a prime beneficiary of an ad recovery in the second half of 2002. With healthy ratings and market share, its ad revenues should outperform and increase 3.4% year to year in 2002." ? "We believe Infinity benefited from an increase in revenue and expense reimbursements from Westwood One in the March 2002 quarter.

Stripping out the related party transaction and assuming 100% flow through implies that Infinity EBITDA declined 22% year to year vs.

the reported 15% decrease. This may suggest that a recovery in Viacom's radio business could take longer than Wall Street currently expects."

? "Despite our positive long-term view, our near term enthusiasm is also tempered by VIA's valuation. We believe that Viacom shares already price in much of the anticipated ad recovery in 2002 and have benefited from a flight to quality."

? "We think Viacom's broad array of advertising platforms positions it well for the increasingly prevalent practice of cross media advertising, which should enable it to gain market share across all of its advertising platforms." ? "With regulatory relaxation, Viacom has been at the forefront of acquiring television duopolies (ownership of two television stations in one market). Viacom now boasts eight TV duopolies. We believe that the creation of duopolies allows for margin expansion….

Viacom's duopoly strategy will allow its station group to post above-average cash flow margins and growth."

? "Viacom should be considered a long-term core holding in the media sector. Viacom possesses an attractive portfolio of leading media assets, one of the best balance sheets in the entertainment sector, and bountiful free cash generation."

jack@https://www.360docs.net/doc/f05543359.html, “We think Viacom's broad array of advertising platforms positions it well for the increasingly prevalent practice of cross media advertising, which should enable it to gain market share across all of its advertising platforms.”

JP Morgan

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