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October 03, 2007

Third Quarter Box Office Is A Blockbuster

The final totals are in on the third quarter box office and as I have chronicled the results are spectacular. According to data I pull from BoxOfficeMojo.com, the box office rose 15% in the third quarter. My spreadsheet goes back to 2004 and that is by far the best comparison for any quarter.

The strength was driven by blockbusters. Five films released since May 4th have grossed between $290 million and $336 million. Four of those films are over $300 million, a level now reached by just 26 films ever. A total of 17 films released since May 4th have grossed over $100 million. By contrast, in 2006, there were just 11 films released in the summer season that grossed over $100 million.

The 3Q strength this year was similarly built on blockbuster releases. In 2006, just 3 of the 11 $100 million summer movies were released on after the last weekend of June. This year 10 films released in the same period grossed over $100 million including Transformers ($315 million, #3 this year, #20 all-time) and Harry Potter and the Goblet of Fire ($290 million, #5 this year, #30 all-time, and #2 of the five Potter films so far).

For theater companies, the news is all good....

....Expect strong third quarter earnings with the possibility of upside surprises even though estimates have risen. For example, Regal Entertainment has seen its third quarter estimate rise 21%, from 24 cents to 29 cents, since the company reported its 2Q results. As I will outline in column going up later this morning, I expect growth in the 4Q box office but momentum will recede sharply. 2008 now looks like a down year assuming a 52 week year (for RGC, 2008 will be a 53 week year, which still might be down). This loss of box office momentum will be the challenge for theatre stocks over the next few months but I am staying long Regal for now given the 5% current yield and excess cash on the balance sheet.

Depending on their release schedules, the third quarter was good for studios as well. The real story for the studios however is that overall domestic box office is up 8% year to date putting the year on track for its biggest gain since back to back 9%+ growth years in 2001 and 2002. Even better for the studios is the fact that international box office is tracking 20% ahead of 2006. This is another testament to the large number of successful blockbuster releases this year.

Paramount, owned by Viacom, is the #1 studio this year, with market share up 700 basis points vs. full year 2006. Other market share gainers include Warner Brothers, owned by Time Warner, up 300 basis points, and Universal, owned by General Electric, up 200 basis points. The biggest losers are 20th Century Fox, owned by News Corporation, and Sony, each down 500 basis points. Disney is also a loser, down 300 basis points.

Posted by Steve Birenberg at October 3, 2007 02:12 PM in Box Office