It's nice to see media and entertainment stocks come out, fly high and defy expectations of continued disruption. Unfortunately, the exuberance is already irrational.

Consider Demand Media Inc. The Santa Monica, Calif.-based company, which last week closed its initial public offering, takes umbrage at being called a content farm. It hates being cast, in other words, as an online journalistic operation that doesn't nurture a few good stories but chooses instead to grow them by the ton and on the cheap. It's also worth noting the provenance of these content pieces is not the fertile mind of an assignment editor but, to quote the company, "actual consumer demand."

As Demand Media's proxy explains: "Through our innovative platform -- which combines a studio of freelance content creators with proprietary algorithms and processes -- we identify, create, distribute and monetize in-demand, long-lived content." Others, less delicately, call it gaming the search engine system.

Call it what you will, but the market already values Demand Media more than it does the New York Times Co. The $1.74 billion market capitalization of the former significantly exceeds the $1.56 billion of the latter. And when it comes to enterprise-value-to-Ebitda, at 39.9 times, Demand Media appears to be living in 1999. By comparison, at 5.1 times, the New York Times is stuck in 2009.

This discrepancy, however, overlooks a Demand Media vulnerability: The company has bet its farm on search algorithms devised, and often revised, by Google Inc. And Google, you can be sure, is not trying to lower citations of New York Times stories when it whips up another algorithm revision.

Another M&E company exhibiting exuberance is Nielsen Holdings NV. Demand Media's fellow IPO'er came out Jan. 26 at $23 per share after indicating a range between $20 and $22. But is the premium justified? The New York-based company deserves kudos for posting net income of $193 million for its trailing 12 months.

Yet that's no guarantee Nielsen is completely past the three preceding years, in which it posted net losses of $489 million for 2009, $589 million for 2008 and $354 million for 2007. And while, to its credit, all $1.6 billion raised in the IPO will pay down debt, the fact that the company's prepaydown leverage ratio topped 6 didn't leave it much choice.

There's vulnerability here, too. Nielsen may have a near monopoly as a disseminator of media and marketing information, but segments of this industry still seem ripe for disruption. Remember how TiVo Inc. entered the ratings business in 2007 merely by compiling second-by-second viewer data its DVRs were already collecting in statistically significant samples? Can one be sure that Comcast Corp. and Time Warner Cable Inc., in a ceaseless quest to convince advertisers of their greatness, will refrain from doing the same?

Of course, on looking up exuberance in the dictionary, one confronts the logo of Netflix Inc. A market cap greater than $11 billion, EV-to-Ebitda of 35 times and a 52-week appreciation in its stock of 220%, is there any way this Los Gatos, Calif.-based highflier can stay aloft? Not really when you think, again, of vulnerabilities.

Netflix's destiny is the movies studios' to control. They can continue to supply content to this leading video streamer, or they can contract it to someone else. Better yet, the studios can exploit technological advances to give themselves a direct path to end users of their collective libraries. That is, they can form a consortium -- with or without Netflix. Or they can partner with Hulu LLC, Amazon.com Inc., a post-bankrupt Blockbuster Inc. or even a nascent digital locker like UltraViolet.

Indeed, if Netflix wants to keep its stock price up, it could do worse than assemble a joint venture and embark on a strategic retreat. The JV would be with the studios, which would exchange access to their content for equity stakes -- five years of library use, say, for 5% of Netflix. Then, after a suitable but not overly disruptive period, the studios would control a video-streaming apparatus that, one way or another, is theirs to own.

Meanwhile, for these and other overvalued M&E companies, time's a wastin'. They should be exploiting their exuberant valuations by making select acquisitions. Netflix might want to pick up a studio before the lot of them band together and pick on it. Nielsen could chase an up-and-coming competitor like comScore Inc. or Rentrak Corp. And heck, since content farms may never see a better season, what's Demand Media have to lose by talking to the New York Times Co.?

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Richard Morgan covers media for The Deal magazine.