(these are old tips for reference, click
here and see separate page for new ones ...
go to end of page for a table of music companies.)
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Some media shares are already cheap, but Telekom-companies in Europe are still overvalued enormously. I see NASDAQ falling into the 1600 range, NEMAX to 1500 the DOW to around 9.000 and the german DAX to 5.500 or lower within 6 months.
The overall economic expectations are rapidly going down and the money spent on advertising something that can not bring money (mainly some websites dreaming of more advertising income and spending billions on advertising something with shitty content) was burnt completely. It is now in some pockets which will not spend it freely nor invest it.
Still as last month, there are some companies with better business models or sound concepts and business. I partially repeat January's recommendations with a few changes:
Intertrust - they are the aboslute market leaders in DRM protection systems and should go from their current levels of around US-$ 4.00 to more than 10 or 15 once people realize the potential. Currently these shares are trading around their IPO price of 1999 (after splits). Intertrust's "Rights-Points", which need to be widespread for the system to work and become the standard, will be made available to more then 200 Million people within the next months because they will be delivered with the new AOL-software and the new Adobe Acrobat. In addition Nokia has licensed the technology and bought 5% of the company, because they want to implement their system in mobile devices.
Realnetworks - the market leader in streaming media. They have been sucked down by panic selling even though they actually are profitable and have excellent growth potential. These shares should be back up at around 20 to30 within one or two years.
Vivendi-Universal - cheap shares at Euro 70, since the company is very well positioned with a vertical integration for the new economy. They own music and film rights as well as the distribution to the final consumer and the networks. Another plus is their strong managment with some excellent managers in the the music field. Last years numbers are bvery good too - and the outlook with their diversified structure including film, music, TV, Internet, cable-networks as well as water and envirenmental services is excellent.
Team Communications - very profitable media company producing TV-documentaries etc. A fair price would be around Euro 12 to 15 based on 2000 earnings and 2001 projections.There were some mess-ups and an extraordinary charge for last year, but the current price of below Euro 1.50 is a steal.
Intertainment - driven down by panic, but much more solid then other european film rights holders and dealers I see a fair value at 15 Euro and higher instead of todays prices around 5. The share price recovered after my last tip in January to around Euro 10, but has fallen back again
Worldcom - by now, this company is massively undervalued at the current rpices. It is starting to move up again against the trend, but can go a long way within a few years.
EMI Corp. - the share price has done badly in reaction to other entertainment shares falling, but the company should recover very well within a few years.
Apple and Motorola are also still undervalued.
Dt. Telekom - should go down to the mid-20s. Even then it would still be valued higher then AT&T and other US-phone companies. The company will most probably make an operational loss this year and has not really a good strategic positioning due to a very oldfashioned managment buerocracy.
Microsoft (mid-term goal: US-$ 50), Cisco, Nokia, Metro AG (german stock market), SAP (german stock market, my goal is below 100 Euro before it might start to recover) are all still overvalued based on their earnings.
Lycos Europe - they have fallen enough and are currently traded at about the price of their cash reserves at prices below 2 Euros.
Intertrust - they are the aboslute market leaders in DRM protection systems and should go from their current levels of around US-$ 4.00 to more then 10 or 15 once people realize the potential. Currently these shares are trading around their IPO price of 1999 (after splits)
Realnetworks - the market leader in streaming media. They have been sucked down by panic selling even though they actually are profitable and have excellent growth potential. These shares should be back up at around 20 to30 within one or two years.
Vivendi-Universal - cheap shares at Euro 70, since the company is very well positioned with a vertical integration for the new economy. They own music and film rights as well as the distribution to the final consumer and the networks. Another plus is their strong managment with some excellent managers in the the music field.
Team Communications - very profitable media company producing TV-documentaries etc. A fair price would be around Euro 12 to 15 based on 2000 earnings and 2001 projections. Current price is approaching a PE-ration 2 at US-$ 2.50.
Intertainment - driven down by panic, but much more solid then other european film rights dealers I see a fair value at 15 Euro and higher instead of todays prices around 5.
Worldcom - by now, this company is massively undervalued at the current rpices. It is starting to move up again against the trend.
EMI Corp. - the music giant has performed well against the overall trend and is still very cheap in the range of UK-£ 5.60 to 6. When shares climb again, this will be an outperformer.
Apple and Motorola are also undervalued.
Dt. Telekom - should go down to the mid-20s. Even then it would still be valued higher then AT&T and other US-phone companies. The company will most probably make an operational loss this year and has not really a good strategic positioning due to a very oldfashioned managment buerocracy.
Lycos Europe - while they have already fallen, I do not see any good product there yet - but lots of expensive TV-advertising in Germany without any serious income model so far. They should have saved their marketing money until they have something serious to market. Probably these shres will hit the Euro 2 mark soon.
Microsoft, Cisco, Nokia, Metro AG (german stock market), SAP (german stock market) are all still overvalued based on their earnings.
The downtrend /bear market is continuing and I expect both the Dow as well as the european exchanges to continue falling for at least another month. US-Telecommunications and media shares are probably at their lows now, so AT&T, Worldcom and some others are now interesting. Media and Internet stocks have in some cases reached very low levels as well and might begin rising again. But this only concerns selected stocks.
Regarding music oriented shares:
Buy:
see last tips and explanations below (because nothing has really
changed there). I add a buy recommendation for Team
Communications Group (traded both on NASDAQ as well as in
Germany). They are very solid, have a low PE-multiple and good
products. The current price of around Euro 7.50 is a steal and I see
them around 12 to 14 Euro within one year.
Vivendi with their Seagram merger progressing
well.
Sell:
mp3.com (if you really still have them! I wanred repeatedly against this share and now it is at new historic lows with a strong chance for a complete loss very soon.)
June 27, 2000
Most markets are in a slower downslide now, which will probably continue as a bear market for several months, since many shares in technology and telecoms are still heavily overweighted both regarding PE-ratios as well as PEG (PE divided by growth rate), which some people use. The worst are currently Deutsche Telekom shares, which are among the highest priced Telecommuniations shares worldwide. I also expect their earning this year to be even worse then expected by most analysts.
Regarding music oriented shares:
Not much has changed since last month, except that Realnetworks have already risen quite a bit since my recommendations.
Buy:
Intertrust (NASDAQ: ITRU) , EMI Corp (London, Germany), Edel
Musik (german new market), Realnetworks (NASDAQ), musicmusicmusic
(german new market)
Sell:
mp3.com (if you really still have them!)
The fall of the markets and especially the technology- and
internet-oriented shares is continuing. Still, lots of companies
including "Deutsche Telekom", Microsoft, SAP, Cisco, AOL and mp3.com
are heavily overvalued with price/earnings multiples of over 60 or 80
(if they make a profit at all) of the expected profit of the year
2000, which are not sure to be reached.
If you can buy put-warrants on these shares, this might be the best
investment right now.
Regarding music oriented shares:
Buy:
Intertrust (NASDAQ: ITRU) , EMI Corp (London, Germany), Edel Musik (german new market), Realnetworks (NASDAQ), musicmusicmusic (german new market)
Sell:
mp3.com (if you really still have them!)
Those of you who followed my advice to stay away from mp3.com or buy a put option on mp3.com did very well so far. The company lost its law suit, still behaves criminally (IMHO) and is issuing a flood of ridiculous press releases like "huge success with subscription model", which usually do not give exact or traceable numbers. Their press-agent is obviously the typical dot.com type - pushy, no information and more hype then even a kid can stand. In the latest case they celebrate a succes without quoting any figures except the (very low) subscription price of US$ 10,- per month and the one fact that the subscription is not a streaming music concept, but downloads. This is insanity and probably caused by desperation. The founders do not seem to be content with ripping off their investors as well as damaging musicians and the music industry alike, but really want to stay in power. Terrible losers!
Buy:
Intertrust (NASDAQ - ITRU and german exchanges - currently at US-$ 24), musicmusicmusic (german new market , at any price below Euro 10, currenlty valued at about Euro 7) , Realnetworks (NASDAQ as well as most german exchanges, currenlty around US-$ 40)
MP3.com (NASDAQ and german exchanges)
Intertrust (NASDAQ - ITRU and german exchanges), EMI Corp. (London and many other exchanges) , Edel Music (german new market), Das Werk (german new market), Realnetworks (NASDAQ as well as most german exchanges)
MP3.com (NASDAQ and german exchanges)
Well, the crash for technology and media has finally arrived. Last
week most shares in the TMT-field (Technology, Media, Telecom) fell
heavily.
Those of you who followed my advice to stay away from
mp3.com or buy a put option on
mp3.com did very well so far. The shares fell an additional 45% from
around 20 to around 11 US-$ on Friday.
Intertrust (NASDAQ - ITRU and german exchanges), EMI Corp. (London and many other exchanges) , Edel Music (german new market), Brainpool TV (german new market), Das Werk (german new market)
MP3.com (NASDAQ and german exchanges)
For european investors, the put-warrants issued by Lehmann Bros. a while ago might be an interesting choice to speculate against the mp3 shares.
Intertrust - around 75 after the very bad day on NASDAQ.
Since my last tip they went up to 200 before the stock split (2 for
1)and the current price is still cheap. Buy - the potential goes way
above 100 after the split.
The good news that most manufacturers of portable "mp3" players have
made a deal with them and that they now also have deals in
word-publishing protection is so far not really reflected in the
price.
EMI - after they reached my January goal way to fast (over 870
UK-pence were reached), they are now back around 600 pence. This is a
price to buy them back if you sold them in the meantime after
reaching my goal.
Seagram should continue to rise slowly but steadily as long as
they keep owning music and film businesses. Edel can now be
bought again. They went down in the 2 months after my advice to sell
them and are now in a range of the mid 30s (Euro). Since the are now
seriously starting to acquire rights (the key to their survival),
they might rise to above Euro 50 within this year.
I have added musicmusicmusic to my buy list. They seem to be
quite intelligent in their concepts and at the current relatively low
price of below 10 Euro, I will start building a position.
If you do have "mp3.com" shares, I suggest you get rid of them as fast as possible. The company is not only being sued by RIAA for copyright crimes (and most US-copyright specialists thinks mp3.com has no chance in the lawsuit) but they are also more and more unpopular even with musicians.
(Information provided by MEBIS - sponsored by the AMM Music Group )
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Vivendi-Universal |
Toronto, New York, Paris a.o. |
might be selling the entertainment assests soon, which would be a disaster for the remaining company within a few years. |
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AOL-Time-Warner |
New York |
huge integrated media , music and film company. Disastrous marriage between AOL and TW, mainly because of conflicts of interest and lack of cooperation between the different sides of the company |
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EMI Music |
London, also traded in New York and Frankfurt |
vertically integrated music company, owns huge publishing, record company, distributors and even stores - the company resulted from the split of Thorn EMI into the Thorn hardware company and EMI software company. |
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Sanctuary Group |
London |
mainly known for rock albums, company also includes services for musicians and is involved in live and TV entertainment based on music as well as in publishing and recorded music |
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Walt Disney |
New York |
in addition to the film , cartoon etc operations, Disney also has a music department and an independent music distribution operation in the USA |
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Grammy Enterianment |
Thailand |
Thai record and entertainment company |
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Edel Music |
Germany |
German music company suffering from its emphasis on distribution rather then content-value-building and rights ownership |
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Jack White AG |
Germany |
well-placed because this is mainly owning and developing content |
BMG is another of the leading software and media conglomerates - but the shares are privately held and there is only a kind of non-voting preferred shares available on the german exchanges.
All of the big companies cooperate with smaller labels - owner/marketer/developer groups - and have their core competencies in the fields of financial backing as well as administrative strenghts and distribution/sales/wharehousing infrastructure. They might be vulnerable in the coming years to the modern transmission and sales possibilities of the Internet.
Something that is not obvious in evaluating products and companies in the music field is a good look at the products and product pipeline - and its originality. When other fields of the economy are evaluated, one sign for caution is a heavy involvement in so called "me-too" products - meaning products who are more or less copying someone elses pre-existing products. Usually such products can be made reasonably successfull - with a heavy investment, which might make them good for overall sales, but problematic seen from a profit standpoint. In music, this kind of thinking is often missing. There are numerous examples of "very successfull" records and musicians of the last decade who were actually money-losing, because they were "me-too" products that were not original enough to really become economically viable.The tendency with many people in the middle managment of the major record companies is to develop "me-too" products, because they usually can not be blamed for accepting those products and therefore think that their jobs are safe if they don't make mistakes. They do not see the problem that exactly this behaviour - not going for innovative products - is a mistake in itself. With "me-too" products, the costs of marketing are much higher then with an original project. This tendency is not limited to music record companies - but can be found with musicians , radio station programmers and many others.
There are also some publicly traded companies supplying technology for the music business:
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Harman International |
New York |
one of the biggest manufacturering conglomerates in the field of audio equipment - mixing consoles, studio equipment etc. - they own the professional audio activities of Studer and many other companies in the field |
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Avid Technologies |
NASDAQ |
Liquid Audio, mp3.com and N2K are or were also publicly traded - they are Internet technology and sales companies and N2K even owns some rights and some distribution rights. We view mp3.com very negatively, since their business model is build on the lines of "vanity publishing" and therefore on ripping off musicians. They also strongly promote the use of an unprotected music format (MPEG Audio, Layer3) which recently has become popular in media, but which is not state of the art in compression (newer systems like AAC are much better) and is not acceptable to any established musician or record company.
Yamaha Electronics is also heavily involved in the music technology and musical instruments businesses. The electronics giants Sony and Siemens are also involved in professional audio equipment.
For a value oriented investor though, the real interest is in aquiring companies that actually own copyrights - because these will profit from the coming years when electronic distribution channels will multiply, while the supply of good products will stay about the same as today.Since musical copyrights are protected between 40 to 50 years (recordings) and over 70 years (70 years after the death of the composer in the case of musical compositions), they have a very long and lucrative lifespan if handled right and can be considered safer then real estate in some cases.
This is also the reason that today publishing rights are often
traded at between 15 and 25 times the yearly income of the publisher
from compositions (if the songs are available on CDs for at least one
or two years). A typical valuation for recording rights is in the
range between 5 times and 15 times the yearly net income (after
musicians share and manufacturing costs) that they create after 12 to
18 months from the introduction of an album. From the US comes a new
trend in "securitisation" of music recordings and copyrights - which
started by David Pullmann's huge successfull "Bowie Bonds". The
demand was so strong that now many more issues of bonds are being
created (or already sold in some cases). If the group of rights today
exceeds a value of about 5 Mio US-$, there can be solutions for bond
financing through some US-institutions.
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Last Updated: 09.19.2000