(MONEY Magazine) – Whenever a couple of media titans are spotted having lunch, Wall Street analysts and the press start blurting out the "s" word. It happened most recently when CBS and Viacom announced their $36 billion merger in September. But "synergy" often works better in headlines than in reality. ABC is having trouble turning Disney shows into hits, and joint ventures between Time Warner's magazines (MONEY is one) and Ted Turner's cable empire haven't fared too well.

That doesn't mean media conglomerates are bad investments. As a group they should generate above-average earnings growth for years as an older, richer popuation demands entertainment. But to evaluate them, investors need to focus on the right issues.

These companies have three basic businesses: content production, from sitcoms to magazines to movies; broadcast TV networks; and other conduits for distribution, from cable to radio to the Internet. Networks remain crucial because they reach more Americans than other media--they're prestige properties that generate huge advertising revenues. But declining ratings, changes in government policy and rising production costs mean networks now function best as centerpieces for companies that can plow money into production and alternative distribution channels. What matters isn't how well those businesses work together, it's how well each one works, period. "In a world of increasing fragmentation, unless you control several pieces of the pie you're not going to be viable," says Salomon Smith Barney analyst Jill Krutick. Here's how the big boys stack up.

TIME WARNER. The biggest company is the most diversified: It produces content through Warner Bros. (ER, Friends) and Time Inc. publishing. Its TV assets include Turner Broadcasting's CNN and TNT (cash flow up almost 20% from last year), HBO (up 15%) and the hot start-up WB network. (Analysts often use cash flow, or earnings plus depreciation expense, to evaluate media firms.) And it owns Time Warner Cable, the country's second largest operator, which has upgraded its systems for broadband and is readying cable telephony with AT&T.

Poor results in the music division knocked the stock down last summer, but it's rebounded to $69.50. That's 10% off its high, but 76 times cash flow. Review: The best assets--and you'll pay for them.

VIACOM. Post-merger Viacom will also show diverse strength. Viacom's Paramount produces movies and TV shows; its MTV, Nickelodeon and VH1 are increasing audiences and ad sales at a double-digit pace. CBS is not only the No. 1 TV network; it also owns 63% of Infinity Radio, the No. 2 station owner, with cash-flow growth close to 20%. And CBS seems to have the best Internet strategy among the giants, scoring big with MarketWatch.com and SportsLine.com. "CBS not only has a number of Web outlets, it's avoided paying absurd amounts of money by trading ad time for ownership stakes," says Chris Ensley, an analyst at Lazard Freres & Co.

Of course, big mergers present big questions: What will Viacom do in markets where it owns both CBS and UPN (Viacom's fledgling network) stations, for example? The new Viacom should match Time Warner's growth rate but at a cheaper price: The current CBS and Viacom have a combined cash-flow valuation that's about half Time Warner's. Review: Despite post-merger issues, this combination looks like a buy.

DISNEY. With a 2000 P/E of 35 and five straight quarters of flat or declining earnings, Disney is a growth stock that isn't growing. Its core businesses of producing family movies, distributing home videos and running theme parks are sound. And its ESPN.com is a success. But ABC has sunk to third in network ratings, and CEO Michael Eisner has taken to shortening shows to make more room for ads--not exactly an exciting, high-growth strategy. Worse, operating income from Disney's Creative Content division, which produces TV shows and licenses merchandise, is in free-fall. Review: Wait for a turnaround.

FOX. Spun off by Rupert Murdoch's News Corp. in 1998, Fox is the top supplier of prime-time network shows; and it's had surprising success in cable, including F/X, Fox Sports and Fox News. Rising ad revenues at the 22 local stations Fox owns (profits up 14% last quarter) are helping to offset weak ratings for its broadcast network. Analysts see 21% annual long-term earnings growth, but the stock recently traded at $21.50, a price-to-cash-flow multiple of just 29. Why? News Corp. still owns 82% of Fox, and investors are wary of Murdoch's reputation for putting empire building ahead of shareholder returns. "The Rupert discount is pretty steep" but unjustified, says David Goldsmith, an analyst at Buckingham Research. Review: A smart play for contrarians. --PETER KEATING