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Comcast-Netflix partnership, M&A implications drive sector stocks

After the Brexit vote roiledmarkets in a high-volume spin cycle, indexes began cooling off with some positivemovement through the week ended July 8.

The S&P 500 gained about a percentage point over the fivetrading days before the week closed, and the SNL Kagan media indexes each gainedabout 2 points.

The big news of the week came from an alliance between the largesttraditional video distributor and the largest digital distributor. After years atodds over the future of content delivery, NetflixInc. and Comcast Corp.agreed to work together in a tenuous truce.The companies struck a deal to put Netflix's over-the-top app on Comcast's X1 set-topboxes, giving Comcast customers direct access to Netflix's robust library and Netflixaccess to Comcast's 22.3 million domestic video subscribers.

Analysts were largely positive on the arrangement, noting thatwith growing consumer reliance on OTT services, a more digital-friendly attitudefrom traditional multichannel video programming distributors and important set-topbox rules being considered by the FCC, the move is a timely one.

Looking forward, Mizuho Securities analyst Neil Doshi said ina July 5 note that he believes Comcast could begin integrating Netflix into digitalpackages in the future, as it is already experimenting with various digital bundlingstrategies.

"Given increasing competition from Amazon Prime Video, Hulu,YouTube and other streaming services, we believe that this deal could give Netflixa potential leg up when competing for subscribers," Doshi said in the note.

But after some initial exuberance, it seems investors decidedto take a wait-and-see approach to the news. Netflix's stock dropped on the morningof July 5, then jumped up almost 4% above the prior trading-day close, then settleddown again July 6. Over the five trading days ended July 8, Netflix's shares gainedless than 1% on spiking volume, closing the week at $97.06. For its part, Comcastshares also dipped and rolled, but ended the week up about 2.9%, closing July 8at $67.11

Looking at a different kind of entertainment content, got a pop in trading duringthe week after it announced a new mobile game launch. Shares jumped after the June 30 announcement of CSRRacing 2, the sequel to a popular car-racing game. With few other catalysts to speakof, Zynga shares trade heavily on game releases, and this was no exception. Sharesclimbed steadily through the week to leave Zynga with a whopping 14.0% boost toclose July 8 at $2.85.

Looking at the M&A market, investors seemed keenly attunedto actions related to the pending mergerof Starz and

For the five trading days ended July 8, Starz stock lost somemomentum after it traded up 4.5% in the prior week. Not helping the company, S&PGlobal Ratings on July 1 loweredthe corporate credit rating for the company, and shares of the network operatorslipped down early in the week only to recover for a modest gain by the July 8 close.

Lions Gate also absorbed some negative commentary from a ratingsagency, and its stock continued to crater after the week of the announcement. Moody'sput the company on review for downgrade after the deal announcement. After sheddingalmost 4% in the prior week, investors continued to question issues like leverageand deal cost to push the company down further. Shares fell another 5.0% duringthe week ended July 8, closing that day at $19.09.

Digital video solutions company Rovi Corp. pleased its investors after weeks in the doghouse.From the March 24 rumorsthat the company would purchase DVR company TiVoInc., Rovi shares are down about 17%. However, the company managed tomake some incremental gains in recent days.

Investors seemed to like the June 6 announcement that it had no intentions of exiting the consumer-facingbusiness after acquiring TiVo, rebuffing rumors to the contrary. Rather, it is lookingto accelerate growth in the segment.

Shares began climbing in June, but then on July 5 Rovi announcedthat it renewed a licenseagreement with communications giant VerizonCommunications Inc. to continue utilizing Rovi's entertainment discoveryplatform. Discovery tools are considered increasingly important in the digital videoecosystem, and investors seemed to cotton to the stability with such a high-profileclient. Rovi shares jumped about 8.7% for the week ended July 8, closing that dayat $17.05.