Movies On Pc Could Make This Stock Boffo

Want to watch a film on your computer? That day may come sooner than expected--probably by October. That's when Image Entertainment plans to roll out its optical laser product: video CD-ROMs--sometimes called CD-ROM: The Movie. Some pros have started buying into Image, a major producer of laserdisks, which is 41%-owned by financier John Kluge.

"CD-ROM: The Movie will provide affordable video products for computer applications, the market for which is potentially explosive," says Steven Christenson, director of research at Dallas Research & Trading. The rumor is that Image will soon sign contracts with studios for rights to recreate their films on CD-ROM. Already, Image makes and distributes laserdisks of movies for Walt Disney, Orion Pictures, Playboy Home Video, and Tur- ner Home Entertainment.

Presumably, Image Entertainment Chairman and CEO Marty Greenwald will get the same studios to sign up for CD-ROM videos. Talk is that The Terminator, Dances With Wolves, The Silence of the Lambs, and RoboCop will be among the first movies on CD-ROM.

Apart from Kluge, big Image stakeholders include Disney, which owns warrants to buy 6% at $6 a share, and Twentieth Century Fox, which also owns warrants to buy 6% of the stock. Japanese giants Mitsubishi Electrical Industrial and Mitsui each own stakes of less than 5%.

SOLO ROLE. Christenson thinks the stock, now at 8, up from 5 in February, "is substantially undervalued." Image, he says, is the only pure equity play in video laserdisks--larger versions of CDs, encoded with both visual and audio effects. And soon, Image will be the sole stock play in CD-ROM movies.

Image, which distributes more than 5,000 laserdisk movie titles to some 2,500 outlets in North America, will market the CD-ROMs in video stores, in music stores, and through PC makers. "CD-ROM: The Movie should have an immediate, positive contribution to Image's revenues and should account for 50% of sales in three years," says Christenson.

Without the CD-ROM product, he sees Image making 25 cents a share this year on sales of $67 million vs. 1993's loss on revenues of $60 million. In 1995, assuming CD-ROMs kick in 11 cents a share, he sees 73 cents on a volume of $89 million. He thinks that with the type of stakeholders involved, Image is a potential takeover target worth $20 a share.

Before it's here, it's on the Bloomberg Terminal.