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HIVE EXCLUSIVE: Booming Video Stocks Buck Market Trend

28 Sep, 2001 By: Stephanie Prange

While broad entertainment stocks have continued to suffer losses since the Sept. 11 terrorist attacks, video retail stocks have gathered steam during the same period.

Blockbuster Inc. stock rose 10.5% from its closing price Sept. 10, the day before the attack, to $20.28 at close of market last Thursday. The second-largest video chain, Hollywood Entertainment Corp.,saw its stock leap 35.5% to $11.65 during the same period. And the No. 3 chain, Movie Gallery, rose 32.2% to $20.63 during the period.

But video retail stocks are only adding to gains since the beginning of the year. From close of market Dec. 29, 2000, to Sept. 27, Blockbusterstock leapt 142.1%. Movie Gallery shares gained 870.80uring the period. And Hollywood's stock rose 996.5%.

Greg Durkin, research director for New York-based research firm Alexander & Associates, says in addition to video retailing'straditional ability to weather tough economic times, the reason for the big three video retailers' stock gain this year is simple: DVD rental.

Unlike the often cash-strapped independent stores, the major chains have enough pocket change to build up their DVD catalogs.

“They were able to capitalize on the growing popularity of DVD because they have deeper pockets — they can instantly form a catalog in theirstores, where the mom-and-pops didn't have the resources to do that,”Durkin says.

Also, the return on investment on DVD, a sellthrough product, is muchquicker than it is with VHS, with higher retailer costs and copy-depth programs, he says.

Meanwhile, as video retail has hit a winning streak, broad entertainment companies with advertising, travel and tourism exposure have taken big hits in the market post-attack and for the year. Walt Disney Co. stock reached a six-year low falling to $17.55 at the close of market last Thursday, sparking takeover speculation. The stock dropped 25.6% from Sept. 10 to close of market Sept. 27 and fell 39.4% fromclose of market 2000. Viacom during that post-attack period sank 11.9% and is down 28.9% since the beginning of the year.

Vivendi Universal shares inched up 2% to $46.80 from Sept. 10 to close of market last Thursday but dropped 34.4% from the beginning of the year. AOL Time Warner sank 6% from Sept. 10 toSept. 27 and fell 7% from the start of the year.

Additional reporting by Enrique Rivero.

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