BOSTON -- Larry Haverty doesn't lack for confidence.
Given the executives he's talking to, that's probably good.
For a decade, Haverty, 54, has followed the media and entertainment business for Boston's
State Street Research
. In many ways, he's the East Coast counterpart to Gordon Crawford, the powerful, reclusive money manager for L.A.-based
Capital Research & Management
who has helped broker some of the decade's biggest media deals, including
1995 acquisition of
Crawford's war chest is bigger than Haverty's. But aside from that, the two have a lot in common. Both are veteran analysts who have been on the buy side since the early '70s. Both are well-connected, on a first-name basis with everyone from Barry (Diller,
chairman) to Sumner (Redstone,
chairman). And maybe most important, both have proven themselves as savvy long-term investors in the sometimes Byzantine world of media and entertainment, where bottom-line profitability is always just around the corner and a big enough hit can make any quarter look good.
Like Rupert Murdoch, Ted Turner and the rest of the tycoons and wannabes at the companies he follows, Haverty doesn't hide his brashness. "I know I'm watching the right things," he says. He compares himself to a skillful backgammon player who wins four-fifths of his games, losing just often enough to keep lesser players at the table.
Haverty, who oversees the roughly $2 billion that State Street has invested in old and new media companies through various funds, doesn't generally spend a lot of time talking to the press. But over lunch at State Street's downtown Boston headquarters, he recently offered his thoughts on the future of the media business. Here are some of the highlights:
- Haverty is trying to figure out how the growth of the Internet is going to affect traditional media giants like Time Warner. While he admits he's something of a technophobe (a press aide jokes that he's barely bothered to learn how to use voice mail), he's convinced of the Net's future, especially for consumer sales. Unlike many investors, Haverty is extraordinarily enthusiastic about the proposed combination of USA Network's
Home Shopping Network,
Lycos (LCOS) and
Ticketmaster Online-City Search (TMCS) . State Street is a USA Network shareholder.
"This has the potential to create a fabulous company. ... Marginal business through that
Home Shopping Network infrastructure is very profitable," Haverty says. "You've got to be able to complete the
online transaction," and Home Shopping gives Lycos the ability to do that.
Similarly, Haverty waxes eloquent about what
America Online (AOL) and Viacom could do if they joined, melding old media assets like Viacom's
Paramount studios and
Nickelodeon cable channel with AOL's audience of 16 million online users. Haverty admits that an AOL/Viacom deal might result in an immediate 30% to 40% hit to AOL stock but says that in the long run, it offers AOL a way out of the valuation trap in which the company now finds itself.
"As a media company last year,
AOL was very undervalued," Haverty says. "This year, as a media company, it's very overvalued. ... Somewhere along the line, the odds of the hero dying in this play are incredibly high."
But an AOL/Viacom deal would give AOL real assets and a huge boost to cash flow, as well as a chance to promote its services through Viacom's movies and cable networks to the majority of Americans who still aren't on the Internet.
"In order to make this work, you need mass-market promotion," Haverty says. (According to
Technimetrics, AOL and Viacom were State Street's top media holdings at Sept. 30. The company owned roughly 2.6 million AOL shares, worth close to $225 million at current prices, and 2.3 million Viacom shares, worth almost as much.)
AOL and Viacom declined to comment on a possible deal.
Haverty's two favorite media businesses at the moment: radio and cable networks. Like other analysts, he notes that consolidation has led to huge increases in profitability for radio companies. "The government gave them free money when they allowed one guy to own 40% of the market," he says.
And Haverty thinks that established cable networks will continue to be able to increase the fees they charge cable-system operators (which pass the fees along to subscribers), as well as keep taking market share away from the broadcast networks.
"Ratings are consistently going up, and they're making the product better," he says. "They can spend more on programming."
Haverty's favorite executives: Diller and Murdoch. He calls Diller the "smartest" person in media. Murdoch "is similarly brilliant. His problem is his time horizon is longer than most investors.
But when you look at what Murdoch has created with Fox, from nothing he has created the biggest TV reach in the country, a network with a brand identity."
One executive Haverty doesn't like is
Disney (DIS) - Get Report Chairman Michael Eisner. He won't say more than that, but Disney -- among the worst-performing media companies in 1998 -- is nowhere to be found among State Street's top 10 media holdings.
Haverty's top pick for 1999:
Mirage Resorts (MIR) , which operates several casinos in Las Vegas and is opening another in Mississippi this fall. (Casino companies, the unfortunate sons of the entertainment sector, have been out of favor for two years, since a building boom in Las Vegas began to depress the sector's profits. When Haverty made this call, Mirage stock traded around 15. Buoyed by good earnings news and a recent rise in visitor counts to Las Vegas, the stock has since risen more than one third.) His top pick for the next decade is Murdoch's
News Corp. (NWS) - Get Report. Murdoch will "win in 10 years," Haverty says.
If Murdoch does, Haverty will probably be there to see it.