March 11, 2008

Weekend Box Office and Weather Channel Updates

The weekend box office fell by 33% against what is probably the toughest comparison it will face until May. The box office has now declined for 5 straight weekends but remains up almost 7% year to date. Comps may remain negative for a few more weeks but the rate of decline should moderate significantly. Analyst estimates for 1Q08 box office are in a range from a mid-single digit decline to a small gain. As a result, the slump should not cause estimates to fall and earnings misses. And to reiterate, a single month or even a whole year of bad comps does not mean that the box office is facing secular decline. Ticket sales are stable for the last ten years and we are coming off a two year run of higher box office including the all-time record year in 2007. I am glad I sold Regal Entertainment off its good 4Q and guidance increase but I won’t hesitate to buy it back if the current box office slump leads to another round of "the box office dying" stories. The next big film that could improve the outlook is Horton Hears A Who which debuts this coming weekend.

Separately, last week the Wall Street Journal and SNL Kagan provided an update on the sale of The Weather Channel and the website. Apparently initial bids were due last week and might be coming in under the hoped for sale price of $5 billion. Among the bidders mentioned were NBC, CBS, Comcast, and Liberty Media. I'd guess that the Liberty Media interest is probably referencing a bid from Discovery Communications. There is logical reason for each of these bidders to be interested. NBC already operates a weather business that could quickly gain scale. CBS is looking to diversify and like other owners of major market TV stations, they are already providing weather services. Comcast is also looking to beef up its content both online and on TV. is a very heavily trafficked portal and weather is an obvious draw for a company that already reaches 24 million homes with TVs. Discovery is the leading content player focused on non-fiction content. I am not sure how this is going to play out but a $4-5 billion transaction is a big deal for the buyer and will set a standard for valuing cable networks at a time when the business is in the news due to the Scripps breakup, the Discovery recapitalization, and Viacom's attempted turnaround. Complicating the ability to draw conclusions about cable networks is the fact that Kagan and others believe that may be as valuable as The Weather Channel. Look for the winning bidder to see their stock price pressured.

Posted by Steve Birenberg at 11:34 AM | Comments (0)

March 10, 2008

Studios and Theatres Finalize Plans for Digital Upgrade

Reuters is reporting that theatre chains representing 40% of North American screens and the major movie studios have finally agreed to a financing plan to upgrade 14,000 movie screens to digital and 3-D capable technology. The upgrade will cost about $1.1 billion or $70,000 to $75,000 per screen. Studios, theatres, and other content providers would pay fees to use the newly installed equipment with the fees being passed through to bondholders that would be financing the transaction. Obviously, the current credit markets might make completing the deal difficult but the stability inherent in the theatre business should make this a low risk transaction. Digital and 3-D upgrades are a win-win for theatre and studio owners. Studios will save on storage and distribution by downloading films to theatres. Theatres will get better quality digital images, have the capability to receive non-movie content that might fill seats during slower times, and most importantly sell 3-D tickets at a premium. The success of the Hannah Montana 3-D film earlier this year at $15 per ticket has studios and theatres drooling. Dreamworks Animation is committed to issuing all of its movies starting next year in 3-D. Ultimately, the impact is going to be marginal in an absolute dollar sense but it will be enough to improve the operating growth profile of studios and theatres. I'll take incremental growth any place I can get in mature industries.

Posted by Steve Birenberg at 03:19 PM | Comments (0)

March 08, 2008

Final Wrap-Up of 2007 Box Office

The Motion Picture Association of America (MPAA) released its package of theatrical market statistics for 2007 last week. Most of the data I have already recounted in my many updates about the box office. However, there is some interesting data, especially as it relates to the major movie studios which are owned by Disney, News Corporation, Sony, Viacom, and Time Warner. The data referencing MPAA members only covers studios owned by these five companies but industry box office data includes all studios and all movie releases.

The MPAA data confirms previous reports that the 2007 domestic box office rose by 5.4% to $9.63 billion. This builds on the 2006 gain of 3.5% which broke a three year slump that saw 2003, 2004, and 2005 box office change by -1.2%, 0.5%, and -4.2%, respectively. Also, as I previously noted, ticket sales were up just 0.3% in 2007 so the domestic box office gain was driven by a 5% increase in ticket prices. The ticket price increase accelerated from 2002 thru 2006 when price increases ranged from 2.2% to 3.8%. In the three prior years, from 1999 thru 2001, ticket prices increased rapidly in the range of 4.9% to 8.3%.

Despite rising ticket prices, total admissions in 2006 and 2007 are almost exactly equal to 1997 and 1998. Admissions are down about 10% from the 2002 peak but ten years of unchanged ticket sales with the last two years up by about 2% cumulatively seriously challenges the myth that the box office is dying. This is a critical conclusion as far as analyzing the prospects for theatre and studio owner stocks.

Last year was also very good abroad as the international box office reached an all-time high of $17.1 billion, up 5%, representing 64% of the worldwide box office of $26.7 billion. International box office has doubled since 2001 with growth every year except 2005. Total worldwide box office has risen in five of the last six years and was 60% higher in 2007 than in 2001. Hollywood studios produce their films for a worldwide audience making the growth in international box office over the past decade another dagger in the myth that the movie business is dying.

Completing the 2007 recap, MPAA produced some other statistics confirming data I have previously supplied. The data shows that 2007's record box office was driven by blockbuster films. 2007 had 4 $300 million films vs. just 1 in 2006 and 28 films reached the $100 million blockbuster status vs. 19 in 2006. Growth in the domestic box office in 2007 was driven by the record breaking summer. MPAA notes that the top ten summer movies in 2007 grossed 23% more than the top ten in 2006. The next ten were up an astounding 39% but the third ten fell by 25%.

2007 was a blockbuster driven year which is why 2008 faces difficult comparisons which started last weekend and will extend pretty much continuously through summer. This was the main reason why I sold my multi-year long position in Regal Entertainment. I plan to stay on the sidelines until Regal makes a new 52 week low or we learn that this summer's slate will show better comps than currently expected.

MPAA confirmed one other point I have written about: in 2007, R-rated films did well generating 15% of the total domestic box office, up from 10% in 2005 and 2006. 15% is not an unprecedented level, as it was matched or exceeded in 2003 and 2004, but it does show that records are made when there is depth of interesting movies across all movie going demographics.

The most interesting new data in the MPAA report concerns the cost of making movies and the impact of new media on the movie business.

Download file

The graph on the left shows that for major releases by the five MPAA members the cost of producing and marketing a movie grew by 8% last year to $107 million. The major studios are also starting to dominate the independent business. Each major has started its own independent studio, which are competing with the independents traditionally associated with films festivals like Sundance. The graph on the right shows that the costs associated with these films has skyrocketed and is not too far behind the traditional big budget, widely released film. How the studios are coming to dominate the "independent" business is a topic for another column.

Facing rising production and marketing costs, the studios are increasingly turning to outside financing. Unfortunately, this MPAA data excludes the portion of costs that are paid by outside film financing ventures. David Poland, founder of Movie City News and author of the The Hot Button and , estimates that outside financing would push the actual cost up 30%. The idea behind outside financing is for the studio to slice revenue and costs on a film into lots of pieces to increase predictability on their own piece and give outside investors the ability to match their own risk tolerance to the appropriate investment vehicle (insert your joke about the credit crisis here!).

For the studios, it is these costs which really determine the profitability and growth potential of the movie business....

....As revealed in the historical box office data, the movie business is a lot more stable than most observers assume. From year-to-year, the fortunes of one studio to the next vary widely. Only Disney manages any real stability in revenue and profits thanks to its animation franchise and the reliable secondary sources of revenue it generates including DVDs and merchandise. And even Disney has its share of bad years when its live action films prove disappointing. 20th Century Fox, owned by News Corporation, has matched Disney's success recently, while Paramount (Viacom), Sony, and Universal (General Electric) have lagged over the last few years.

All of the studios are now trying to increase growth and profitability by limiting the number of films they release, developing franchises with high sequel probability, narrowing their focus on genres where they have traditional strength, and tightening overhead costs. Each year different studios will win and lose but with a growing global box office, still growing international DVD business, and the potential for Blu-ray to boost the domestic DVD business, there is reason to believe that the studio segments of the entertainment conglomerates can provide a real boost to financial results and shareholder value in the years ahead.

One other interesting item from the MPAA report is the impact of new media on the movie business. MPAA completed a study asking moviegoers where they had first heard about a movie before seeing it in the theatre. The internet and TV were mentioned 73% and 75% of the time, respectively. Movie trailers, word of mouth and print ads each got around a 50% response. Significantly, among those who research movies online, per capita movie attendance is higher as is going to a movie on its opening weekend.

Not surprisingly, studios have shifted ad budgets online, mostly at the expense of newspapers. Not only are moviegoers spending more time online, but online ad costs remain below print helping studios more effectively market their films. Also contributing to the shift from newspapers to the internet is the ability to build word of mouth through internet campaigns and create the occasional, but by no means guaranteed, surprise hit. Movie ads are big business for Gannett, New York Times, and other newspaper companies, so this trend is another contributor to the secular decline in newspaper advertising revenue.

MPAA concludes its report by producing evidence that the theory that alternative forms of entertainment are hurting ticket sales may not be as solid as generally perceived. MPAA is obviously biased but a study they completed comparing moviegoing to ownership of DVRs, home theatres, iPods, cable and satellite TV, DVD rental services, and movie downloading services shows that those who own or use a majority of these technologies attend 4 more movies per year than those who use these technologies less. A good argument can be made that early adopters with higher incomes and younger demographics are driving the discrepancy and that as the newer services reach a broader audience incremental moviegoing will dissipate. But an equal argument can be made that making movies more accessible and improving the out-of-theatre experience will increase interest in movies.

I think the music industry proves the point because iPods have made music more popular than ever. Moviegoing, however, remains popular, providing a unique experience for the ticket buyer. Music offers no equivalent experience and can be enjoyed more at an incremental cost not far about zero.

December 24, 2007

Box Office Recovery Continues

The box office continued its late year recovery with the three day weekend for the top 12 films rising 40% from a year ago. This strong performance builds the prior weekend’s gain of 37%. As recently as December 13th, the quarterly box office was running down 9.5% but two weekends of strong gains have reduced the deficit to 4.6%. With three films paying very well (National Treasure 2, I Am Legend, and Alvin and the Chipmunks) and another popular franchise to be released n Christmas Day (Alien vs. Predator), the box office should continue to expand vs. a year ago through the end of the year. By year end the quarterly decline may be around 2% and the year to date gain should be greater than 5%. The quarterly results will be at least as good as recently lowered estimates for the theatre stocks imply suggesting that the group could receive a January effect bounce starting any time. I remain long Regal Entertainment.

In other media news, News Corporation announced that it is selling 8 TV stations in mid-size markets for $1.1 billion. These stations have been for sale since mid year so no surprise here. However, I think the sale will remind investors that News Corporation is shifting its asset base toward a higher long-term growth profile. I remain long a small amount of News Corporation, looking to get much longer in the next few weeks as I free up cash from year end and early 2007 trades.

Posted by Steve Birenberg at 07:49 AM | Comments (0)

December 17, 2007

A Legendary Weekend At The Box Office

Proving once again that people will buy tickets when there is appealing in the theatres, the weekend box office rose 38% for the top twelve films according to It's easy to point to home theatres or digital distribution but this past weekend and last summer showed that demand for the movie theatre experience remains robust if the studios release good product.

That was certainly the case this weekend when the top two films massively exceeded expectations. I Am Legend set December box office records with $76.5 million vs. estimates of $40 million. This marks the seventh straight #1 opening for Will Smith who by any measure is now the most bankable star in Hollywood. The #2 film was Alvin and the Chipmunks. The film grossed $45 million, fully three times most estimates.

Entering the weekend the quarterly box office was running down 9.5% but assuming the gain holds through the weekday play dates, the gap should fall to 6% or less. The gap should close further through year end as the almost certain blockbuster National Treasure 2 opens on Friday. That would mean that there are three films pulling in ticket buyers where just one film was popular a year ago.

Year to date the box office is up over 5% despite the poor fall and early winter. This follows a gain of over 4% in 2006, helping to isolate 2005's 6.1% fall in receipts as the exception. Prior to 2005, the box office was up every year since 1992. The same can't be said for ticket sales (those are flat over the past two years) but studio and theatre costs are measured in absolute revenue not number of tickets sold. I stand by my belief that the 2005 drop was a fluke and continues to color the movie business much more negatively than it deserves.

If the rest of the year performs as strongly as I expect, on Wall Street the theatre companies should be the prime beneficiaries. Regal Entertainment, Cinemark, and Carmike are all trading at or very close to 52 week lows. Regal and Cinemark have excellent current yields that provide support. I think the stocks can rally a buck or two from here before year end.

Posted by Steve Birenberg at 08:20 AM | Comments (0)

November 25, 2007

Weekend Box Office Turns Up

A strong opening for Disney's Enchanted, a surprisingly good opening for This Christmas, and decent showing for another 6 to 8 films led the box office to an up weekend following two straight negative weekend comparisons. The top 12 films pulled in 4.4% more than a year ago according to The depth of films finding an audience is important given the poor box office performance so far this quarter with the total take down 10%. The next two weekends represent the easiest comparisons of the quarter so if the quarter is going to turn around the time is now. Besides the depth of films finding an audience this weekend, the release of The Golden Compass on December 7th should boost comparisons.

Enchanted is the first film opening on Thanksgiving weekend to win the holiday box office in five years. Hollywood has been opening anticipated Thanksgiving blockbusters on the weekend prior to the holiday over the past five years. Disney chose to buck the trend and used its brand and a well-reviewed film with appeal to a broad demographic to capture the to spot and bring in $50 million over the five day holiday weekend. Enchanted continues an amazing hot streak for Disney content whether it is films (Pirates of the Caribbean, Wild Hogs, Pixar films, The Game Plan) or Disney Channel Films and TV shows (Hannah Montana, High School Musical). Enchanted could prove particularly rewarding as it will transfer to theme parks, consumer products, Broadway, and sequels.

The other big story form the weekend is the performance of 3D and Digital screens showing Beowulf. is claiming that fully half of the $56 million gross for the film so far has been in non-traditional theaters. Theatre companies are currently upgrading many screens for 3D and several studios including Dreamworks Animation are planning 3D releases in the next few years. Theatres are able to charge a premium ticket price for 3D and analysts find the economics of upgrading screens attractive. In an industry lacking organic growth in ticket sales and facing secular challenges from digital downloads and home theatres, 3D is a potential positive. I am already seeing bullish comments on 3D from theatre company analysts and expect this to be a higher profile theme for the group in 2008.

Northlake remains long Disney, partially due to its content hot streak. Northlake also remains long Regal Entertainment, which currently yields a very safe 6.2%. The rally in the bond market makes this yield very attractive and could setup a trading opportunity if the box office recovers in the next two weeks.

Posted by Steve Birenberg at 05:34 PM | Comments (2)

November 12, 2007

Box Office Struggles Again

The winning streak at the weekend box office didn’t last long. After last weekend saw a string of six straight down weekends snapped, this weekend was back in negative territory. A disappointing opening for Fred Claus from Time Warner's Warner Brothers studios was the primary culprit in an 11% year-over-year decline for the top 12 movies. Most observers had pegged Fred Claus in the $28-30 million range while the current estimate for the weekend is $19 million. This lagging performance offset good holds for last weeks top two films, American Gangster and Bee Movie. Dan In Real Life also had a good hold, dropping just 25%; however, this film is heading toward a $40-45 million gross, great relative to expectations but not big enough to drive overall box office results.

Bee Movie fell 32% and took the top ranking with $26 million. American Gangster dropped 44% and came in second with $34 million. Investors may look favorably on Dreamworks Animation (DWA) since the film was not expected to win the top spot this weekend. Certainly, the performance is good news for DWA but the second weekend 32% decline is actually slightly larger than Over The Hedge, Tarzan, and Chicken Little, three films with similar opening weekend grosses. In addition, these three films ended with a total domestic gross ranging from $135 million to $171 million. Barring unusually good legs, Bee Movie will be lucky to reach the top end of this range. Most analysts had built in a domestic gross of up to $200 million in their models. A $20-30 million shortfall may not seem like much but when you multiply through lower grosses in the international, home video, and TV rights windows it could lead to a meaningful shortfall for DWA relative to estimates in 2008. Unit volumes of the Shrek 3 this quarter are more important to DWA's financial results and share price performance but the fact that Bee Movie looks like it will the end of expectations at best leaves little margin for error for DWA.

There are only a few other items of note in this weekend's box office....

.... First, the performance of Disney films The Game Plan and Dan In Real Life remains better than expected. Second, American Gangster is getting some Best Picture Oscar hype. It may get the nomination but the film it is often compared to, The Departed, fell just 29% its second weekend. And yes, box office does impact the Oscar race. Finally, speaking of Oscars, the latest Coen brothers film, No Country For Old Men had a huge opening on a very limited number of screens. The big number along with stellar reviews, 95% at Rotten Tomatoes, puts it high up in the race the coveted Best Picture nomination.

Despite the lagging box office this quarter, now running down about 9%, I am sticking with my long in Regal Entertainment. I am counting on the 5.8% current yield to support the shares and drive relative performance in a shaky market environment.

Posted by Steve Birenberg at 09:36 AM | Comments (2)

November 08, 2007

Box Office Finally Revives

Last weekend, the domestic box office broke a long slump with receipts rising for the first time in six weeks. American Gangster provided the oomph bringing in a better than expected $43.5 million. Bee Movie also helped with a gross of $38 million although the figure was below expectations of $40-45 million. These two films brought in 78% more than the top two films on the same weekend a year ago but lack of depth at the box office, indicative of weak performances for most films so far this fall, limited the overall weekend gain to just 3%.

Quarter to date the box office is down about 8% but summer strength leaves the year date gain north of 6%. This coming weekend could be a very large gain as last year saw just one new release that did not produce a big number. With the second weekend of American Gangster and Bee Movie and high expectations for family comedy Fred Clause, a significant dent in the negative quarterly comparison is in order. The pickup in weekend comps should generally continue through year end which ought to be enough to keep Regal Entertainment shares and their 5%+ current yield as a top pick in an uncertain market.

The other weekend box office news continues to be generated by Disney's Ratatouille which again won the overseas box office battle. Ratatouille brought in $15 million raising its international gross to $371 million and its total gross to $576 million. Both figures are significantly better than expected. Ratatouille has the lowest domestic gross of the last six Pixar films but it looks like it will pass The Incredibles to become the #2 Pixar film in international markets trailing only Finding Nemo. On a worldwide basis, Ratatouille will finish third among all Pixar films. This is all good news for Disney which should report a strong overall quarter after the close on Thursday.

Posted by Steve Birenberg at 02:16 PM | Comments (0)

October 03, 2007

Fourth Quarter Box Office Preview

Earlier today, I provided a brief wrap-up of the excellent third quarter performance of the box office which rose at least 15%. Looking ahead to the fourth quarter of 2007, the comparison looks fairly easy although the lack of obvious mega blockbusters suggests only a moderate low to mid-single digit gain. For example, admissions revenue at Regal Entertainment is expected up in the mid single digits in the fourth quarter.

Last year in the fourth quarter, the domestic box office grossed $2.2 billion, unchanged vs. 2005. In fact, the fourth quarter box office has not grown since 2004. According to data compiled by Lehman Brothers and, there were seven films released in 4Q06 which grossed over $100 million, led by Night at the Museum with $250 million and Happy Feet with $187 million. In 2006, just 6 films crossed $100 million, while 2004 saw 10 films reach so-called blockbuster status.

Box office pundits expect 8 or 9 films to cross $100 million this year. However, there are no obvious home runs such as the big summer sequels with their built in audience. Among the most anticipated films form a box office perspective are The Golden Compass and I am Legend from Warner Brothers, The Bee Movie from Dreamworks Animation via distribution by Paramount, and National Treasure 2 from Disney.

For theatre stocks like Regal Entertainment, Carmike Cinemas, and Cinemark Holdings, the overall box office performance is a key factor driving the stocks. In theatre advertising company National Cinemedia is also sensitive to weekly box office trends. While I think that easy comparisons should lead to an up fourth quarter for the first time in several years, it does not look to me like there is much hope for a meaningful year-over-year increase. Coming off the big summer, momentum will slow significantly, something which is likely to occur again in 2008 as comparisons get really tough starting in May. Strong third quarter earnings reports and the potential for more dividend hikes, share buybacks, and special dividends, should provide near-term support for the theatre stocks but I am not as optimistic as I was earlier this year when I anticipated the big summer. Although it trades at a slight premium to its peers, I still like Regal Entertainment the best given its current yield of over 5% and the company's history of giving excess cash to shareholders via special dividends.

On the studio front, the key thing to watch is how this year's releases line up against the prior year. I see Disney, Viacom (Paramount), and Lionsgate as having the most favorable comparisons. Time Warner (Warner Brothers and New Line) and General Electric have neutral comparisons, while Sony and News Corp (20th Century Fox) have the toughest comparisons. Below are comments on Disney, Viacom, Time Warner, News Corporation on Lionsgate fourth quarter studio outlooks. I left off General Electric and Sony since those companies other business dwarf their studios.....

....For Disney, there is the potential for a big gain as the company had no $100 million grosser a year ago. National Treasure 2 seems likely to be a big hit as the first film grossed $173 million which is more than Disney's top two films combined in 4Q06. National Treasure 2 is not going to be released until December 21st so much of the box office will slip into Disney's March quarter but that should not dampen the profit potential of the film as it moves through its DVD and other windows during 2008. Industry observers are also high on the fantasy film Enchanted due for a Thanksgiving release. Disney's quarter is off to a good start as The Game Plan was a surprising number #1 this past weekend with a better than expected gross of $23 million. The Game Plan could match or exceed Disney's second biggest movie from 4Q06, Déjà Vu, which brought in just $64 million. While the box office comp looks favorable for Disney, the bigger influence on 4Q at the movie studio will be DVD sales of Pirates of the Caribbean: At World's End and Ratatouille. The comp is really tough vs. Pirates of the Caribbean: Dead Man's Chest and Cars. Further complicating matters is the huge success of Cars merchandise vs. the more difficult to market Ratatouille. Away from the studio things look good for Disney with theme parks, ESPN, and TV broadcasting expected to power the December quarter.

Viacom has already enjoyed a turnaround at Paramount this year which has two $300 million films, Shrek The Third and Transformers, and is the #1 studio so far in 2007. The Bee Movie, like Shrek The Third a Dreamworks release where Paramount distributes, is expected to be one the top grossing movies of the fourth quarter. Beowulf and The Heartbreak Kid are also potential hits. Last year, only Dreamgirls crossed $100 million for Viacom in the fourth quarter so this year is sure to be up. With the turnaround at Paramount aided by the likelihood that Transformers becomes a franchise that the studio has thus far lacked, investors will be more apt to bid up Viacom if ratings improve at its cable channels. However, on its own don’t expect Paramount to drive Viacom's stock price.

Time Warner has several potential hits this quarter including Fred Claus, The Golden Compass, and I Am Legend. I have seen lots of favorable expectations for The Golden Compass. Time Warner had two big films last year with The Departed ($132 million) and Happy Feet ($198 Million). As with Disney, it will be successful films released earlier this year that will tell the tale of the fourth quarter studio financial performance. The latest Harry Potter film, in particular, should sell 15-20 million DVDs this holiday season. A big quarter at the studio won't do much good for Time Warner shares unless confidence returns in the outlook for AOL and Cable, however.

News Corporation's Fox studio does not have any obvious hits set for the fourth quarter and faces a really tough comparison against last year's big hit Night At The Museum which was released on December 22nd and showed great legs in pulling in $250 million. Fox also had a hit last year in Borat which grossed $128 million. Fox does have The Simpson's Movie set for DVD which should be a big seller. Fortunately for News Corporation shareholders, the outlook away from the studio is really good with MySpace, the cable channels, and Sky Italia expected to drive 15-20% gains in operating income between now and the middle of 2008.

Lionsgate has had a tough run at the box office this year but recently released Good Luck Chuck has performed better than expected and looks like it could be the start of a better stretch. Lionsgate will benefit from a Tyler Perry film set for release this month. The two prior Tyler Perry films have pulled in a combined $95 million for Lionsgate but have been released in the March quarter, setting up an easy comparison this year. Lionsgate also brings Saw 4 this Halloween. Saw is the only really successful new horror franchise in the last few years. Horror has suffered through a big slump this year so it will be interesting to see if the Saw franchise has maintained its allure. Saw 2 saw a big jump to $87 million from $55 million for the original but Saw 3 fell back slightly to $80 million. I expect Saw 4 to continue the drop but the franchise should remain very profitable for Lionsgate. The company has a great track record of maximizing DVD revenue and using new releases to sell DVDs of older films. The Tyler Perry and Saw franchises have been great examples. Lionsgate shares have rallied 13% over the past two weeks largely on the back of Good Luck Chuck and optimism on the upcoming film releases. For a trade only, I think there is more room on the upside. Long-term, I do not like the company's complex accounting and volatility in quarterly results, although the company could be sold at ay time for a nice premium to current prices.

Posted by Steve Birenberg at 04:26 PM | Comments (0)

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, 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 02:12 PM | Comments (0)

September 24, 2007

Box Office Update

The weekend box office fell 2% for the top 12 grossing films. This breaks a string of 10 consecutive up weekends. The drop-off vs. last year is less than $1.7 million so it is possible, but doubtful, that when actual results as opposed to estimates are tallied the winning streak will continue.

The box office has also been up ten consecutive weeks, with the week ending July 12th being the last down comparison. Over the 70 days, the domestic box office total just over $2 billion, up 17% or $295 million, from 2006. At times I wonder about my own and others fascination with the box office totals but the bottom line is this is a big business. I follow lots of companies that don’t pull in $2 billion in revenue in a year!

The third quarter which began on June 29th for the theatre companies ends this coming Thursday. If the weekend comparison holds for the full week, the quarter will end up 15%. The year to date total through three quarters will be up 7.8%. As I have noted several times recently, analysts are seeing the big gains and estimates have risen steadily for Regal Entertainment and the other leading theatre chains. Regal shares have bounced back strongly and now sit just 4% below their all-time high, even after paying out $2.90 in dividends this year, including the going ex-dividend for 30 cents the week before last. With interest rates still well below levels of a few months ago, the shares still look attractive with easy box office comparisons continuing in the fourth quarter and a healthy current yield of 5.4%.

While the box office fell short this past weekend, there was good news for a couple of studios. Sony held the top spot with the third installment of the Resident Evil franchise. The film showed little deterioration from the first two installments. Lionsgate shareholders should also be happy as Good Luck Chuck opened to a slightly better than expected $14 million. Lionsgate has had a series of disappointments at the box office so far this year so the shares may respond to some good news.

Posted by Steve Birenberg at 01:15 PM | Comments (0)

September 03, 2007

Summer Box Office Shows Finishing Kick

The summer box office ended with a bang with the best ever Labor Day weekend. Led by the latest edition of Halloween series, the box office for the top 12 films rose 21.6% over last year's holiday weekend. Based on data from, ticket sales for the weekend should be the highest since at least 1982. Halloween provided most of the gas this weekend, smashing the all-time Labor Day weekend record with a better than expected $31 million for the four days. The prior record holder was Transporter 2, which pulled in $20 million in 2005.

I'll have a full recap of the summer box office on Thursday. For now, it looks like the 2007 will be the best ever summer by as much as 8%, coming in $300 million ahead of the prior record in 2004. Using BoxOfficeMojo data for ticket prices, it appears that ticket sales in summer 2007 exceeded 2004 by 2% and may have approached the 2002 ticket sale record.

Quarter-to-date the box office remains up 17%. Analysts are beginning to ratchet up estimates with Regal Entertainment seeing at least two boosts in the last ten days. The shares have responded, rising 5.3% in August and sitting just 2.6% below the all-time high, reached in May and early June as anticipation of a strong summer box office initially peaked....

....Comparisons remain easy for the rest of September in what is usually the second of third slowest month of the year. I expect the 17% quarterly gain to moderate slightly but the news should remain favorable. As investors look at a year-to-date gain of almost 8% and realize this is the second consecutive year of solid growth, sentiment toward theater stocks should continue to improve. I am still looking to sell RGC as it moves to new highs because 2008 comparisons will be very difficult although the shares are likely to remain a solid relative performer given the 5.3% current yield.

Posted by Steve Birenberg at 01:53 PM | Comments (0)

August 28, 2007

Summer Box Office Record Falls

The weekend box saw another gain, rising 4.9% vs. a year ago, the 7th straight up weekend. Quarter to date the box office is now up 16.5% and the year-to-date gain is 7.7%. Gains should continue to moderate now that kids are back in school and studios are no longer releasing potential blockbusters. September is typically the second or third slowest month of the year and studios either dump films thought to be lacking a potential audience or offer fare that is pointed the Oscars and major awards.

Sometime last week, the summer box office surpassed the all-time record of 2004. Manu media outlets are reporting that summer receipts now exceed $4 billion for the first time ever. My own spreadsheet shows the tally at $3.96 billion, up 3% over the 2004 record with the measuring period ending on Labor Day. I started my calculation with the opening of Spiderman 3 on the first weekend in May while others went back to May 1st.

Gross receipts matter because costs inflate with ticket prices. Nevertheless, on the basis of tickets sold, according to Media By Numbers as quoted in the Wall Street Journal, the summer of 2007 only ranks in terms of ticket sales likely to end up around 606 million. The all-time record summer for ticket sales was 2002 with 653 million. The top grossing movies in the summer of 2002 were the original Spiderman, Star Wars: Episode 2 – Attack of the Clones, Signs, Austin Powers in Goldmember, and Men In Black II. According to, the original Spiderman sold 69 million tickets, while Spiderman 3, the top grossing film this summer sold 51 million tickets.

I still like Regal Entertainment as a long trade off the record breaking summer box office....

....Catalysts are lacking now that the big gains every weekend will disappear but the current yield is attractive given the market environment and the fact that estimates for 3Q are rising. RGC can easily pay the dividend and has a leverage cushion on the balance sheet most likely dedicated to future acquisitions. The company has a history of paying special one-time dividends, including a $2 dividend earlier this year with its share of the proceeds from the National Cinemedia IPO. The capacity for a small special dividend exists but it is not something I am counting on.

My thought here on RGC is as a trade. I have owned the stock on behalf of Northlake clients for almost 18 months and would most likely exit if the stock moved to new highs over $23, which is where I believe it would be fairly valued.

Posted by Steve Birenberg at 03:45 PM | Comments (0)

August 20, 2007

Box Office Remains Strong

The box office continues to roar with the top 12 movies up 23% this past weekend. Last week marked the fifth straight up week and the weekend was up for the sixth consecutive time. Gains should moderate from this point forward as all the major releases are now in theatres. However,, gains should continue thanks to expected good legs from a few films.

Superbad, from the same creative team behind The 40 Year Old Virgin and Knocked Up, led the weekend box office with a much better than expected opening weekend of $31 million. Coming in second was Rush Hour 3, which fell an acceptable 55% in its second weekend. In third place showing good legs was The Bourne Ultimatum which fell just 42% in its third weekend. By comparison, The Simpsons Movie fell 55% in its third weekend. In fact, Bourne has grossed just $1.5 million less than Simpsons in one less week. The point is not to denigrate SImpsons but to show that Bourne is showing good legs that will help overall box office comparisons for the next several weeks.

The big story though is likely to be Superbad. Both Virgin and Knocked Up showed very good legs. The success of those films may have set the stage for a more front loaded run for Superbad but with a little competition on the horizon, I expect the film to perform well at least through Labor Day.

Quarter to date the box office is now up 16.6%. The back end loaded summer which I had stressed in many comments over the past two months has come to fruition and the 2004 summer box office record will fall this weekend. With a few more weeks, albeit historically slow ones for movies going, it looks like the old summer record will be exceeded by at least 4%.

This should be good news for theatres stocks like Regal Entertainment (RGC), Cinemark Holdings, and National Cinemedia (NCMI)....

All three found their footing last week. RGC was firm even earlier in the week thanks to the box office and the 5.5% current yield. CNK reported good earnings and initiated a dividend giving the stock a 4% current yield. I still think the shares can work higher in the near-term as estimates seem certain to rise (in fact, as I a type this comment, I received an alert that Wedbush raised its RGC estimates for 3Q to above consensus).

I still expect to use the next push higher in the shares to reduce positions as comparisons will be stiff in 2008 and the end of the summer of the box office season will reduce favorable news flow. But for now, given recent market volatility in both directions, I feel very comfortable with the ability to play offense and defense with theatre stocks.

Posted by Steve Birenberg at 02:06 PM | Comments (0)

August 16, 2007

International Box Office Strength

One of the things I have not stressed enough in my comments on the box office has been the strength of the international box office. According to's international weekend wrap-up, the non-US box office is up 20% year-to-day with summer gains exceeding those of the US. Unlike my domestic box office commentary which focuses on the impact on US theatre exhibitors like Regal Entertainment (RGC) and Cinemark Holdings (CNK), for investors, the international box office is important for the studios that produce and market the films. The top studios are owned by News Corporation, Disney, Viacom, Sony, General Electric, and Time Warner.

The reason the international box office matters is because of the well known escalation in the cost of producing and marketing films. Most major releases cost at least $100 million to produce and market and it is not unusual for these costs to balloon to $250-300 million or more. This data is not readily available and what data exists probably understates the true costs.

Strength in international box office accrues to the benefit of the studios by helping to cover the production and marketing costs with box office receipts (the holy grail of Hollywood!) and providing revenue from sale of DVDs, sales and licensing of merchandise, and the sale of international broadcast and pay TV rights.

According to data at, the international box office has risen from $4.4 billion in 2000 to $9.6 billion in 2006, a CAGR of 14%. During this same time frame, the domestic box office has risen from $7.7 billion to $9.2 billion, a CAGR of just 3%. Looked at another way, international box office was 36% of the total global box office in 2000 but had risen to 51% in 2000.

The growth in the international box office has come from a variety of factors. Economic growth abroad and rising living standards has led to greater consumption of movies in many countries. Distributors have responded by investing in new theatres around the globe including the multiplexes with stadium seating common to the US. Greater marketing emphasis has been placed abroad to tap new markets and films have been produced with international audiences in mind (witness the use of Asian, African, and European pirates in this year's release of Pirates of the Caribbean: At World's End. Local productions have also helped with thriving movie studios existing not just in mature markets like Germany but in emerging markets like Romania....

As with the US market, quality product that interests moviegoers is necessary to drive year-over-year gains. This will become more important abroad as more markets mature. Nevertheless, just as the hype that domestic box office is dead has been put to rest by back-to-back years of strong growth and the soon-to-be all-time record summer of 2007, the idea that the movie studios are in a hopeless situation against rising production and marketing costs and weak domestic growth is a myth that that does not hold up to scrutiny.

Unfortunately for investors, the major studios are small parts of large corporations so growth in the global box office is not something for which direct investments are available. That said, the studios can drive year-to-year results at individual studios which do materially impact earnings and cash flows at individual companies. The success of Disney over the past few years with the Pirates of the Caribbean series, the first picture in the The Chronicles of Narnia franchise, and the Pixar films has been partially responsible for the multiyear double digit operating income growth the whole company has enjoyed. News Corporation's 20th Century Fox studio has alos enjoyed a great multi-year run. On the flip side, a string of poorly received films from Viacom's Paramount studio and Time Warner's Warner Brothers and New Line studios has severely penalized earnings at their parents.

But now Paramount and Warner Brothers are back, ranking #1 and #2 in year-to-date domestic box office. At the a same time, growth is stalling at the Disney and News Corporation where even many successful films in 2007 and 2008 won’t be enough to drive significant growth in their studio segments in this year and next.

Despite the tough comps faced by Disney and News Corporation studios, I still favor these two stocks among the large cap diversified entertainment companies due to continuing to ability to produce double digit operating income growth from other divisions and the most advanced digital and online strategies. That said, decelerating momentum is a tough sell to investors and laggards like Time Warner and Viacom may enjoy accelerating growth thanks in part to their movie studios and the growth of the international box office. That is worth keeping an eye on when evaluating how to allocate your money among the major media stocks.

Posted by Steve Birenberg at 02:36 PM | Comments (0)

August 13, 2007

Summer Box Office Sizzle Continues

Investors continue to flock to the nation's theatres to escape the heat and take their mind off the stock market. The weekend box office rose 29.8% according to based on the gross of the top 12 films. This marks the fifth straight and sixth of the last seven weekends with significant year-over gains. Quarter to date the box office is very healthy with receipts up 17%, while the year-to-date gain has now risen to 7%.

Similar gains should hold through next weekend as there is one remaining picture expected to open strongly, Superbad from the team behind the 40 Year Old Virgin and this summer's surprise hit Knocked Up. In addition, The Bourne Ultimatum is showing good legs and although it opened below expectations at $50 million, Rush Hour 3 will have one more another sizable weekend even with a sharp 60% decline. After next weekend, the year-over year gains should moderate but the summer record is sure to fall and analyst estimates for 3Q admissions revenue at the major theatre chains are sure to be too low.

Regal Entertainment shares have bounced back over 3% from the heavy selling that occurred on Thursday. I still think the shares can bounce further and the 5.5% current yield makes the shares a good defensive investment if the market again suffers heavy losses.

Posted by Steve Birenberg at 03:20 PM | Comments (0)

August 08, 2007

Box Office Strength Continues

It seems as though everyone is going to the movies to take their minds off the lousy stock market. The weekend box office rose 36% as The Bourne Ultimatum earned $70.1 million, the biggest ever opening for a movie in August and the 28th best opening weekend ever. Bourne also had a bigger opening than any James Bond film. This was the fourth straight weekend the box office has been up and follows on the heels of last weekend when the year over year gain was 48%.

Quarter to date, the box office is now up 17% pulling the year to date gain to 7%. August should continue to produce stellar gains as there are still two movies to be released with high expectations: Rush Hour 3 this coming weekend and Superbad the following weekend. The Bourne Ultimatum should also keep pulling in big bucks as it received stellar reviews and plays well to an older crowd, two things which normally provide good legs.

It seems pretty clear now that the "box office is dead" theory was noting more than a myth. July 2007 was the biggest single month ever, pulling in over $1.3 billion and besting the previous best month by more than 12%. I read somewhere that July also ha the most ticket sales for any month since the 1950s but I can’t verify that fact. This summer will easily break the all-time summer record of $3.8 billion set in 2004 with the final total likely over $4 billion. The year to date gain of 7% comes on top of last year's gain of 4.2%and 2007 should market the second consecutive year of higher ticket sales after three straight declines....

All of this is good news for theatre companies including major exhibitors like Regal Entertainment (RGC) . RGC shares carry a current yield of over 5% and 3Q estimates look like they could be way too low. The leading theatre advertising company, National Cinemedia (NCMI) reports on Thursday. I expect their 2Q be less impacted by the weaker than expected 2Q box office as theatre advertising budgets are growing rapidly and should be less impacted by monthly fluctuations in box office. NCMI's report might lead investors to focus on the current box office strength to the benefit of RGC.

Posted by Steve Birenberg at 02:00 PM | Comments (0)

July 30, 2007

The Simpsons Drive Huge Gain at the Box Office

A bull market existed at one place over the weekend: the nation's movie theatres. Thanks to a huge opening for The Simpsons Movie and good holds for all the other top movies, the weekend box office rose 45% vs. the same weekend a year ago. Since June 29th, when the second quarter started for the theatre companies, the box office is up 14.8%. This figure is well above upper single digit gains built into analyst models.

Th box office comparison should remain favorable but with a more modest gain this weekend with the opening of The Bourne Ultimatum and solid performances from holdovers. In 2006, this coming weekend was the last decent weekend for the summer when Talladega Nights opened to $47 million. The rest of this summer faces easy comparisons with a couple of more films to be released that are expected to do solid business.

The box office is on track to comfortably exceed the all-time summer record set in 2004. According to data compiled from by David Poland of, the box office is presently running $220 million, or 6-7% ahead of 2004. Year-to-date, the box office is now up 5.9%, the second consecutive year of strong growth following last year's gain of 4%. This year is also on track for the second consecutive gain in tickets sold following a three year slump. This data should put to bed the "going to the movies is dying" theme.

Movie-going is not a great growth a business but it is a stable business that produces significant free cash flow for the theatre companies. Regal Entertainment (RGC), widely owned by Northlake clients, represents a great way to play the summer box office momentum and the overly negative sentiment on the industry. Regal is also attractive in the currently unstable stock market environment as it has a 5.6% current yield. Regal was up 10 cents on Friday and fell just 7 cents, less than one-third of one percent, combined on Thursday and Friday.

Posted by Steve Birenberg at 08:22 AM | Comments (0)

July 25, 2007

Summer Box Office Update #2

As I expected, the summer box office momentum resumed at the end of June. Since June 29th, the box office is up 11%, ahead of analyst estimates built into 3Q models for the theatres companies. I think the rest of July and August should be able to sustain the gains with some possibility for further gains as the release schedule looks good and early reviews and buzz on upcoming films is favorable.

The renewed momentum should allow theatre stocks to move back to their early summer highs over the next six weeks. Regal Entertainment (RGC), held widely across the Northlake client base should be a primary beneficiary

Coming into the summer, analysts were looking for an upper single digit gain for the season which runs from the first weekend in May through Labor Day. Box office gurus also were expecting the summer to beat the all-time record from 2004 of $3.8 billion. Most of the excitement surrounded the big three May blockbusters, Spiderman 3, Shrek The Third, and Pirates of the Caribbean: At World's End. While none of these films missed analyst estimates, the strength mostly occurred overseas. The combined domestic gross of the films is almost $960 million but I think many prognosticators felt that $1.1 billion was realistic. Two other early June releases also fell short of expectations. Evan Almighty will miss by about $70 million and Oceans 13 will miss by about 45 million

The shortfall of $265 million for these five films soured sentiment on the theatre stocks and cost the box office about 7% versus the record summer of 2004. As a box office and theatre stock bull, I was disappointed but I didn’t get too shook up because I was aware that this was going to be a backend loaded summer.

I had completed an analysis which revealed that last summer there were only two films released in July or August that grossed over $100 million -- Pirates of the Caribbean: Dead Man's Chest reached $423 million and Talladega Nights brought in $148 million. However, for 2007, the gurus expected as many as nine films released from the last weekend in June onward to gross over $100 million and two of those films, Transformers and Harry Potter and the Order of the Phoenix, had the potential to bring in $200 million to $300 million. Fortunately for box office bulls, the recent releases have done very well and as I mentioned buzz is good for the yet to be released films....

Here is a table from which shows how the post-May summer films have performed relative to initial expectations:

Download file

As you can see, the June, July, and August films are shaping up well. This is critically important to the box office thesis given the shortfall from the May and early June films.

When I built that table for the first time, I noted that the June through August blockbusters had the potential to pull in 32% more than the 2006 blockbusters from the same period. At the time, I excluded The Simpsons Movie from the 2007 tally because initial expectations had the film grossing under $100 million. The film is getting favorable reviews and Fox has done a good marketing campaign and expectations have grown considerably. In fact, some gurus believe the film could do over $40 million this coming weekend when it opens. Adding The Simpsons Movie to the 2007 list raises the growth rate for blockbusters this year to 46% with almost all of the gain coming from June 29th and beyond releases.

Obviously, the box office is not growing by 40% as there are other films in theatres besides blockbusters and many of them are getting crowded out by weekend after weekend of major openings. The summer of 2007 is the year of the blockbuster while the summer of 2006 benefited from depth of films.

The bottom line is that despite a slow start, the summer of 2007 is on track to set the all-time seasonal record and the momentum since June 29th could actually improve the next of couple weekends. This should be enough to provide the final upward surge I have been expecting in RGC.

The one remaining obstacle is the second quarter earnings report that contains estimates built on upper single digit rather than 2% gains in the second quarter box office. I think the current box office momentum will trump the probable 2Q miss. In addition, the fact that has pulled back more than 7% from early summer highs means that the 2Q miss might be in the stock.

We'll know more soon as the company reports before the open tomorrow morning.

Posted by Steve Birenberg at 01:40 PM | Comments (0)

July 23, 2007

Summer Box Office Growth Still On Track

The third quarter improvement in the summer box office continued over the weekend but at a slower pace. Led by the new Adam Sandler film, I Now Pronounce You Chuck and Larry, the box office for the top 12 films was up 3.5% according to data from Harry Potter and the Order of the Phoenix came in second followed by the opening weekend for Hairspray. I had hoped for a few million more from the Potter film and Hairspray and a gain in the range of 6-8%. However, things are still shaping up well for this quarter with next weekend looking particularly good when The Simpsons Movie is expected to open to a big number. Some observers are looking for a monster opening in the $40-50 million range for The Simpsons Movie, while last year the #1 movie on the same weekend was Miami Vice which brought in just $25.7 million.

Since June 29th, which will be the start of the third quarter for the theatre exhibitors, the box office is up 11%. Theatre exhibitors begin to report earnings this week with my favorite, Regal Entertainment (RGC), announcing before the open on Thursday. I believe the strength so far this quarter will offset the fact that earnings will almost certainly fall short of estimates in 2Q due to the fact that the box office gained just 2.5% against analyst models that were built an upper single digit gain. Furthermore, the recent rally in interest rates, with the 10-year falling below 5%, makes RGC's current yield of 5.5% a lot more attractive and leaves the shares with good downside protection.

Posted by Steve Birenberg at 09:11 AM | Comments (0)

July 17, 2007

Summer Box Office Back On Track

After a weaker than expected June, the summer box office is now on track for an all-time record. With Harry Potter and the Order of the Phoenix opening at the high end of expectations and transformers showing great legs, the weekend box office for the top 12 films was up 14% according to Since June 29th when Ratatouille opened, the box office is up 12% and the comparisons look favorable for the next four weeks.

For example, this coming weekend will see the opening of Hairspray and I Now Pronounce You Chuck and Larry, two films with the potential to exceed $100 million in domestic box office. Both films could open to $30 million next weekend while Potter earns around $35 million, Transformers pulls in more than $15 million, and Ratatouille earns $10 million. That works out to $120 million for the top five films against $99 million for the same weekend last year. The following weekend brings the highly anticipated The Simpsons Movie with The Bourne Ultimatum and Rush Hour 3 opening on each of the next two weekends.

This is good news for my bullish summer box office thesis and could lead to a nice bounce in the theatre stocks which have pulled back lately while the market has reached new highs. I think the pullback has been driven by the weaker than expected June and the realization that the June quarter estimates for the theatre stocks are too high. Current and projected box office strength should cause investors to look ahead providing a good trading opportunity in Regal Entertainment (RGC). I still think the shares can rise $23-24 this summer which would be a good opportunity to exit the position at a substantial profit and total return.

Posted by Steve Birenberg at 10:55 AM | Comments (0)

June 06, 2007

Summer Box Office Update

The big three summer movies have now each been in theatres for more than two weeks. Together they are on track to gross about $900 million domestically, a huge number by any means (only 23 movies have ever grossed $300 million), but one that is a modest disappointment to many observers including myself.

Spiderman 3 looks like it is headed to $330 million with Shrek The Third heading towards the low $300 million range and Pirates of the Caribbean: At World's End probably finishing between the other two. I think Spiderman and Shrek will wind up about $40 million below where many expected and Pirates may finish $60 million short. These shortfalls are irrelevant to the financial performance of the studios involved (Sony (SNE), Dreamworks Animation (DWA), and Disney (DIS) but they do dampen enthusiasm toward the box office slightly. I think optimism will pick up over the next 8 weeks as comparisons remain pretty favorable.

In an interesting twist, foreign box office for Spiderman and Pirates is running well ahead of the previous films in those franchises even as domestic performance is running 15-20% behind (Shrek will be released in international markets this weekend). In fact, Spiderman 3 will likely end up the highest grossing of the three films on a global basis. This bodes well for ancillary revenue streams from these films and is reminder that international theatrical exhibition is a growth industry for U.S. studios...

Returning to the domestic front, from June 1 onward last year, the summer saw six films released that grossed in excess of $100 million. The Break-Up, Cars, Click, Superman Returns, The Devil Wears Prada, Pirates of the Caribbean: Dead Man's Chest, and Talladega Nights totaled $1.4 billion with Pirates alone bringing in over $400 million. This summer industry observers see as many as one dozen movies still to be released that could reach box office of $100 million including seemingly sure things like Ratatouille from Pixar, the next Harry Potter film, The Bourne Ultimatum, and Rush Hour 3. Fantastic Four, Oceans 13, Transformers, and the just released Knocked Up are also seen as members of the $100 million club.

Predicting movie grosses is always difficult and the rapid fall-off of the initial big three is being chalked up to competition among major blockbusters but I'd be willing to bet that comparisons remain quite favorable for the rest of the summer, particularly after mid-July when the biggest weeks of Pirates 2 are lapped. This is good news for theatre stocks like Regal Entertainment (RGC), Carmike Cinemas (CKEC), and Cinemark Holdings (CNK). Theatre advertising leader National Cinemedia (NCMI) should also benefit. And, of course, the big movie studios including DIS, News Corporation (NWS), Time Warner (TWX), and Viacom (VIA) will be collecting the bulk of the box office receipts. Add those dollars to a bountiful summer abroad and the movie business is in the sweet spot for the next few months. Finally, don’t forget that getting fannies in the seats requires advertising. Movie studios are showing caution in the upfront advertising market due to worries about delayed viewing via DVRs but for right now, TV networks and stations, radio companies, internet portals, and newspapers are likely to get a boost as the studios try to make sure ticket buyers remember which blockbuster is opening which weekend.

Posted by Steve Birenberg at 11:38 AM | Comments (0)

May 29, 2007

Pirates Sets Sail Under Moderate Winds

Pirates of the Caribbean: At World's End performed in line with expectations pulling in $156 million over the Memorial Day weekend to set a new record for the holiday period. However, whisper numbers were higher as many observers, including myself, thought the film could bring in $175-200 million. Most Wall Street analysts were looking for the lower figure so estimates at Disney (DIS) should not be impacted but depending on the second weekend gross, some potential upside in DIS's numbers I was hoping for may be not come about.

Despite the somewhat lower than expected numbers for Pirates and a good but not great second weekend for Shrek, the box office set a Memorial Day weekend record with receipts up 8% vs. last year for the top 12 films. The box office remains on pace for a record setting year with total gross admissions up 7.1% though Monday. Receipts are also running over 4% ahead of 2004, the all-time record year. These figures and a favorable release schedule through June leaves the short-term bull case for the theatre stocks intact. I remain long Regal Entertainment (RGC) and still anticipate the shares can move to $23-24 by the end of June....

Returning to Pirates 3, it is worth noting that the film is running almost dollar for dollar on a daily basis with Pirates 2 which went on to gross $423 million domestically and become just the third film to reach $1 billion globally. Foreign gross for Pirates 3 is off to a huge start with $244 million already compared to $642 million for Pirates 2 and $348 million for the original. Pirates 3 is benefiting from a simultaneous worldwide rollout.

We won’t really know until next weekend's numbers are in how Pirates 3 will stack up against the Pirates 2. Pirates 2 fell 54% in its second weekend but the comparison could be complicated by the fact that it was released in July and its weekday grosses were boosted by the summer holiday. Box office analysts will likely focus on the 54% decline to gauge Pirates 3, especially since the record breaking openings for Spiderman 3 and Shrek 3 have been followed by sharper declines in the second weekends than for the earlier films in those franchises. Pirates 3 will also have to deal with the arrival of two new wide releases aimed at the young adult and adult audience including Knocked Up from the creators of The 40 Year Old Virgin. The film has very good early buzz.

If I had to guess, Pirates 3 will fall short of Pirates 2 which isn’t all that unusual for the third film in a franchise. I suspect Pirates 3 will still get to over $350 million and be the #1 film for the summer. Spiderman 3 is tracking toward $330 million domestically, behind the first two Spiderman films, but will be highest grossing film in the franchise on a global basis due to outstanding global performance. Shrek 3 is headed toward $300 million. This may be considered low making last Monday's spike above $30 the last time Dreamworks Animation (DWA) shares will see the thirties until the fall when The Bee Movie opens on November 2nd.

Posted by Steve Birenberg at 09:10 AM | Comments (0)

May 21, 2007

Shrek The Third Off To A Good Start

Shrek The Third beat expectations this weekend as I thought it would. The total box office of $122 million is the third highest opening weekend of all time behind only Spiderman 3 and Pirates 2. It will fall to fourth next weekend when Pirates 3 likely surpasses Spiderman 3. The weekend box office was up more than 9%and the summer season is off to a great start. Year-to-date the box office is now up 7%. The quarter is also shaping well and comparisons remain favorable next weekend and through June. Regal Entertainment (RGC) closed at an all-time high on Friday and still has some room to run.

Posted by Steve Birenberg at 08:34 AM | Comments (0)

May 18, 2007

Shrek The Third Hits Theatres

The second big movie of the summer season, Shrek The Third, hits theatres today (actually showings began at 10 PM on Thursday night but those will count as opening day and opening weekend totals). No other new films are in wide release this weekend and Spiderman 3 is fading fast – even though it is still headed well over $300 million it will fall well short of the first two installments.

Expectations for Shrek 3 are for an opening around $110 million, well behind the new record set by Spiderman 3 of $151 million set just two weeks ago. My sense is that there is some worry that Shrek 3 may get squeezed between Spiderman 3 and Pirates 3 which opens next weekend and is apparently tracking extremely well.

All three Shrek movies opened on the same weekend. The original opened in 2001 and pulled in $42 million its first weekend on its way to $267 million domestically. On the second Memorial Day weekend, the three day gross matched the opening weekend. The film showed great legs, finishing with six times its opening weekend gross.

Shrek 2 opened on a Wednesday in 2004 and pulled in $21 million the first two days before picking up $108 million on its first weekend. The second Memorial Day weekend saw the gross fall to $72 million on its way to domestic box office of $441 million, good for second all-time if you disregard the gross form the 1997 re-release of Star Wars. Shrek 2 also showed good legs, especially as the era of frontloaded box office receipts was firmly in place by its 2004 release.

Shrek 3 should benefit from the broadening of the audience base as evidenced by the much larger gross of the second film compared to the first. However, early reviews have been mixed to poor which could hurt. The first two films were very well reviewed. Then again, Spiderman 3 met with mixed reviews before blowing away the opening weekend record and beating high expectations.

I think that Shrek 3 may surprise to the upside because expectations have been held in check by its placement between Spiderman 3 and Pirates 3.....

The comparison to a year ago is vs. The DaVinci Code and Over The Hedge which were new releases and brought in a combined $115 million. If Shrek 3 brings in around that much, the comparison should be a good one as Spiderman 3 should bring in another $25 million as much the next films combined a year ago. The box office enters this weekend 5.4% ahead of a year ago and up 6% quarter to date.

Shrek 3 is distributed by the Paramount division of Viacom (VIA) but is still a Dreamworks Animation (DWA) release. Pirates 3 is wholly owned and distributed by Disney (DIS).

Adjusted for the $2 special dividend paid in April, Regal Entertainment (RGC) shares closed at an all-time on Wednesday, up 17% since it went ex-dividend on March 26th. I remain long and think continuing strong box office comparison can push the stock up another 5% or so in the next month as which point I will likely take my sizable total return and go home.

Posted by Steve Birenberg at 02:29 PM | Comments (2)

May 07, 2007

Spiderman 3 Spins A Massive Web

Spiderman 3 blew away the all-time opening weekend box office brining in $148 million in domestic box office. The old record was set last year by Pirates of the Caribbean: Dead Man's Chest which grossed $135.6 million. Look for Pirates of the Caribbean: At World's End to be the new record holder when it opens this coming Memorial Day record. And that little film Shrek The Third due a week from Friday seems on target to open north of $100 million. So much for the death of the theatre business.

Spiderman has also opened in many overseas markets where it similar opening day and opening weekend records. The film has already grossed $375 million globally placing it in 96Th place on the all-time list. Spiderman is ahead of Batman Returns and Beauty and the Beast and just short of last winter's blockbuster, Happy feet, which grossed $384 million globally for its entire run.

We won’t know how high Spiderman 3 is headed until we see mid-week and second weekend box office but with little competition next weekend, the numbers will likely remain huge. A 60% decline would still leave Spiderman 3 with $60 million on its second weekend, which would be good enough for 35th place on the all-time opening weekend list. The biggest ever second weekend belongs to Shrek 2 at $72 million just ahead of $71 million for the original Spiderman. Pirates 2 is 3rd with $62 million on its second weekend a year ago.

My own estimate for Spiderman was $130 million, low but good enough to allow me to reward myself with the closest guess in last week's contest.

Here are a few other interesting facts on the weekend box office. Spiderman 3’s gross of $148 million exceeded the entire comparable weekend from a year ago where all the films in release brought in just $110 million with Mission:Impossible 3 leading the way in its opening weekend at $48 million. The total box office tally for this weekend is $181 million with the $71 million gain moving the quarterly box office from a 5.3% decline to a 3.5% gain. The gain should build considerably this coming weekend when the comparable period a year ago saw just $99 million in box office as the summer’s biggest flop, Poseidon, opened in second place to just $22 million, $5 million behind MI3: Spiderman 3 is likely to beat to beat the combined gross of those two films by at least $10 million next weekend and its weekday grosses will blow away MI3’s from a year ago. There are two new films in wide release this coming weekend that could find moderate interest including 28 Weeks Later, the sequel to the cult hit 28 Days Later, and Georgia Rule, a chick flick with a strong cast that might be good counter programming to the second weekend of Spiderman 3.....

Despite excellent performance so far this year, I think the massive box office momentum in place through the rest of May and June will power shares of Regal Entertainment up another couple of bucks over the next 6 weeks to my $23-24 target. I still expect to be a seller at that level as comparisons toughen in July against last year's release of Pirates 2. Later in the summer comps ease again however against what looks like a strong lineup this year including the third film in The Bourne Ultimatum and Rush Hour franchises. At $23-24, RGC would be trading at 9 times 2007 EBITDA adjusted for its ownership in National Cinemedia (NCMI). I think that it is a full valuation relative to other media stocks, most of which trade at 8-10 times 2007 EBITDA estimates.

Posted by Steve Birenberg at 09:14 AM | Comments (0)

May 01, 2007

Weekend Box Office: Spiderman is Coming

The weekend box office was extremely week, declining 27% against the same weekend a year ago. The total haul of $75 million was the lowest since last the weekend after Labor Day last September. According to, it was the lowest final weekend of April since 2000.

Back-to-back poor weekends leave the box office down 5% so far this quarter and have pulled the year-to-date comparison to up just 3% vs. a year ago. Is it time to be worried about the box office is dead theme re-emerging? NO. Spiderman 3, Shrek The Third, and Pirates of the Caribbean: At World's End are about to come riding to the rescue, kicking off what should be a record-breaking summer (yeah, summer box office starts the first weekend in May).

Next weekend along could bring the quarter back to even and by the time Shrek hits theatres the following the weekend the quarterly and yearly growth comparisons will be looking real good again. Last summer got off to a lousy start with Mission: Impossible 3 and Poseidon opening to $47 million and $22 million, respectively. I guarantee you that Spiderman 3 will comfortably beat the combined openings of those two films on the first two weekends last May. Shrek will do the same. And Pirates will beat the at the time record Memorial Day opening weekend of X-Men by at least 15%.

If you are looking for a little for some guidance an how Spiderman might open, is a great site. Here is a link to the top 125 all-time opening weekends. I am calling Spiderman 3 at $130 million and the combined opening 3-day weekends at $378 million.

Posted by Steve Birenberg at 09:42 AM | Comments (0)

March 14, 2007

Some Data Challenging the "Box Office is Dead" Hype

Not to beat a dead horse but I wanted to follow-up on my post yesterday where I stated yet again that the hype that the domestic box office is dead or dying is off base.

Here is a link to the annual domestic box office performance since 1980 courtesy of Several things jump out when you look at the data. First, a slowdown in growth beginning in 2003 is evident in both total box office and tickets sold. Second, 2005 was a really bad year. I am going to ignore the data that shows the cost to produce a film has risen much more rapidly than the domestic box office revenue. I'll address that in another post focusing on studios as opposed to theatres.

These highlights suggest that some of the bearish hype over the box office is warranted. However, I think several other factors are worth noting. Most importantly, the last few years aren't the first time the box office has slumped. 1985/86, 1990/91, and 1999/2000 each were back to back years where ticket sales fell. Growth picked up following each of those downturns....

Another key point is that the 2004 performance was boosted by the huge numbers from Passion of the Christ. Passion brought in $370 million domestically, finishing third in 2004 behind Shrek 2 and Spiderman 2. Several attempts to tap the same religious audience since Passion have failed miserably. This past holiday season Apocalypto and the The Nativity Story which grossed $50 million and $37 million, respectively, were both considered major disappointments.

For the sake argument, lets' remove $325 million and 50 million tickets from the 2004 box office on the theory that Passion was a one-time item. The box office decline is 2.8% instead of 6.1% and the tickets sold decline is reduced to 5.8% from 8.9%. I'd further argue that despite its R-rating Passion had a below average ticket price since it was very popular among Christian families and there were many reports of Church groups arranging buses to take people to special showings.

If you accept my passionately argued theory, then 2004 becomes just another bad year. Not meaningfully worse than the 1990/91 slowdown or the lousy year in 1985. You still have a pattern of slowing growth but you wouldn’t have the consternation over the box office that exists because you wouldn’t have had all the articles in the Hollywood press and major newspapers and magazines throughout 2005 and 2006 talking about the death of the box office.

I'll be the first to admit that box office growth might be slower in the future than it has been historically due to digital downloads, home theatres, and alternative entertainment. However, the box office isn’t dead and it isn’t dying. It just isn’t as healthy as it used to be. Not a lot different from a lot of other businesses, a lot of us, or the US economy. And it leaves plenty of room for correctly capitalized companies that return cash to shareholders, such as Regal Entertainment (RGC), to be successful investments.

Posted by Steve Birenberg at 09:56 AM | Comments (0)

March 12, 2007

300 is 1 Reason To Be Bullish on Movie Stocks

Did you hear the hype that the domestic movie business is dead? Don’t believe it. I wish I had 300 reasons to tell you why it isn’t dead but I can give you one --- 300.

300 from the Warner Brothers division of Time Warner (TWX) broke box office records opening to $70 million, the best ever for a film that debuted in March. And for the skeptics out there, it also is the best ever opening adjusted for ticket price inflation --- measured by tickets sold, 300 just edged last year's Ice Age 2: The Meltdown and sold 2.5 million more tickets than the #3 March opener of all-time, Ice Age.

300 wasn't the only film to do well this weekend. The second weekend of Wild Hogs from the Buena Vista division of Disney (DIS) fell just 29% from its much better than expected opening weekend. #3 Bridge to Terabithia, also from DIS, fell just 23%. In fact, only two of the top ten films fell by more than 40% and none fell by more than 49%.

I've consistently noted that when there are good films in the theatres appealing to a broad array of moviegoers the box office performs well. The supposed problem for the box office isn’t digital downloads, alternative forms of entertainment, or ticket prices. It is making sure that there is a consistent supply of quality product. Movies are still a preferred form of consumer entertainment and relative to many other nights out aren’t that expensive.

Movies can still be a good business for studios as well.....

300 had a production budget of $65 million. The marketing campaign was large, maybe as much $40-50 million. But TWX has a movie likely to go well north of $200 million domestically enough to recoup production and marketing costs. International box and DVD should allow TWX to make several hundred million in operating profits from just this one film.

The whole movie business is a winner this weekend but several companies get a direct benefit. TWX has put its horrible 2006 box office performance behind it and is set for a big year from its movie studio as 300, another Harry Potter movie, Oceans 13, and DVD sales from Oscar winner The Departed are up against very easy 2006 comparisons. Estimates from the Filmed Entertainment segment should be going up meaningfully.

Regal Entertainment (RGC) is also a winner. The box office is now ahead more than 3% this year and even more for RGC's 1Q07 which includes the final weekend of 2006 which was up 31%. Analyst estimates call for a flat to barely down 1Q07 box office and the remaining March weekends all have easy comparisons and what looks like good product. 2Q07 should also be very good when May brings the third film in the Shrek, Spiderman, and Pirates of the Caribbean franchises.

DIS is also a winner as Bridge to Terabithia is proving to be a nicely profitable film and Wild Hogs looks to be a major hit. DIS apparently is set for another winner the final weekend in March with Meet The Robinsons, an animated film based on the very popular children's book by William Joyce, A Day With Wilbur Robinson. Early tracking on the film is supposedly quite good.

Posted by Steve Birenberg at 01:40 PM | Comments (0)

January 03, 2007

2006 Box Office Wrap-Up

Good breadth of popular movies appealing to all the major movie-going demographics allowed the box office to recover during the holiday season, pulling the fourth quarter to about breakeven with 2005 according to data from

The final weekend of the year, including January 1st, saw box office receipts rise 15%, building on a gain of 6.8% in the prior week. The finishing kick allowed the fourth quarter to overcome a tough comparison in 2005 when three blockbusters (Harry Potter, Narnia, and King Kong) were released between Thanksgiving and Christmas.

For the full year, BoxOfficeMojo reports that domestic ticket sales rose 4% to $9.2 billion. Following the widely discussed weakness in 2005 when ticket sales fell almost 6%, the recovery suggests that the doom and gloom surrounding the theatrical movie business for much of the last two years was overdone. Internet downloads, home theatres, and alternative entertainment options all pose challenges but 2006 shows that depth of decent quality films will still bring customers to theatres....

Regal Entertainment (RGC) shares rallied to a new 52-week high in the closing trading days of 2006 as investors began to look past the tough finish to the year toward two major catalysts in the first half of 2007. First, the IPO of RGC's 41% owned joint venture, theatre advertising firm National Cinemedia, seems set for a 1Q debut. RGC will receive a significant cash infusion from the NCM deal which will be used to enhance shareholder value through some combination of debt reduction, share repurchase, and special dividends. NCM is expected to be good IPO. Second, box office comparisons ease through 2Q07 with three guaranteed blockbusters coming in May 2007: Pirates 3, Shrek 3, and Spiderman 3. Estimates surely reflect these high profile sequels but sentiment toward RGC shares still can improve further as May draws closer.

Movie exhibition is not a growth business but RGC has aligned its financial strategy with the best interest of shareholders by paying out most of its cash flow in regular quarterly dividends which provide the shares with a current yield of 5.6%. With the dividend as support, RGC can be winning investment when investor sentiment towards the movie business becomes less negative. We should be at one of those times now, setting up a potential 15-20% in RGC shares this year, most of which I expect to earn by the middle of May.

Posted by Steve Birenberg at 11:08 AM | Comments (0)

November 17, 2006

Holiday Box Office Kicks Off This Weekend

This weekend marks the start of Hollywood's biggest box office period besides the summer. Led by the wide releases of the latest James Bond film, Casino Royale, and Happy Feet, Warner Brothers latest attempt to break into the big time animation game, Hollywood hopes to add a finishing kick to 2006's rebounding box office performance.

So far this year, the box office up 5.7% against the weak 2005 performance that has had industry observers worried about the impact of home theatres, shorter DVD release windows, high ticket prices, movie downloads, and alternative entertainment options. While I think those worries are overdone, it will be tough for the box office to show growth between now and year end as this year's turnaround actually began this weekend last year when the latest Harry Potter film opened to over $100 million. That was followed by holiday hits King Kong and Chronicles of Narnia: the Lion, the Witch, and the Wardrobe, which grossed $218 million and $291 domestically, respectively....

Another measure of the strength of last year's holiday season is the fact that 58% of the total 4Q05 box office of $2.2 billion was earned from this weekend onward. In 2004 and 2005, the holiday season brought in 54% and 52% of the fourth quarter receipts, respectively.

One more sign of the tough comparison is that the 4Q consensus revenue estimate for theatre industry leader Regal Entertainment presently calls for a decline of just under 1%.

Fortunately for the industry, the first half of the fourth quarter has been pretty solid with receipts up $50 million, or almost 5%. Strength so far this quarter is the result of good depth of well-reviewed product as a number of films have shown strong legs with weekly declines under 40%. Breadth of product will again be relied upon as this holiday season has no obvious $200 million plus blockbusters.

This weekend is a good example of what to expect. Casino Royale and Happy Feet have both received great reviews. The new Bond film has a 95% rating on and the penguins are pulling in a very good 80%. Despite the good reviews, industry estimates call for those two films to do combined business of $70-80 million, far short of the $103 million pulled in by last year's Potter film. Also expected to be strong this week are holdovers Borat (92%), Flushed Away (78%), and Stranger Than Fiction (76%).

The good reviews for Casino Royale and Happy Feet have both films in position to surprise to the upside and take a run at $200 million. If that occurs, the tough comparison for 4Q should not lead to a bloodbath and a return of negativism that dominated box office chatter for much of the past 18 months.

And if we get through the holiday season in decent shape, optimism will rise again in anticipation of next May when three of the biggest franchises of all time, Pirates of the Caribbean, Spiderman, and Shrek, each will be in theatres with the their third installment. 2QO5 had total box office of $2.4 billion. It is likely that those three films alone will produce box office of over $1.2 billion!

Against this backdrop, I am staying long Regal Entertainment. I get paid a 6% current yield which provides downside protection if this holiday season falters and puts something in my product as I wait for next May. RGC shares will also benefit if the highly anticipated IPO of their 41% owned in theatre advertising joint venture, National Cinemedia, goes off as planned later this year. RGC will use its share of the proceeds to deleverage, buyback shares, pay a special dividend, or some combination of the three.

Optimism about the box office will also help sentiment toward the Disney (DIS), News Corporation (NWS), and Time Warner (TWX), each of which owns one of Hollywood's major studios. These companies benefit mostly from DVD and merchandise sales. Disney and News Corp have been very successful at the box office this year but Time Warner has struggled mightily. Happy Feet could set the stage for a turnaround at Warner Brothers that will help reinvigorate overall corporate growth at Time Warner next year.

I think shares of all three of these conglomerates will continue to work higher. I am long DIS across my client base and have selected holdings of NWS and TWX. My order of preference is DIS, NWS, and TWX.

Posted by Steve Birenberg at 02:42 PM | Comments (0)

October 03, 2006

Third Quarter Box Office Wrap

Following three straight weekly declines, the box office rose 6.6% vs. a year ago this past weekend. The weekend is actually the first one of the fourth quarter. Consequently, I wanted to look back at the completed numbers for the third quarter.

Despite the weakness exhibited in the final three weeks, the third quarter still held onto a good gain, up 8.2% vs. a year ago. The strength was driven early in the quarter by the massive global success of Pirates of the Caribbean: Dead Man's Chest, while Talladega Nights: The Ballad of Rick Bobby picked up the baton in August (I guess all the Hollywood execs will be looking to greenlight films with semi-colons for next summer!)....

Looking just at films released during the third quarter by the major studios, Disney (DIS) was easily the biggest winner thanks to Pirates which pulled in $420 million of the studio’s total of about $560 million. Not to be overlooked, especially from a profitability standpoint are the companies two other major releases in the quarter, Step Up and Invincible. Adding in Cars, which was the #2 movie of the summer, DIS is poised for a big holiday season for highly profitable DVD sales.

The other winning studio for third quarter releases was Sony (SNE), which had Talladega Nights leading the way to over $350 million in gross receipts. SNY had a lot of success earlier this year and is the leading studio so far in 2006.

Fox, owned by News Corp (NWS) had a weak quarter of releases but enjoyed hits early in the summer with X-Men: The Last Stand (those damn semi-colons again!) and The Devil Wears Prada.

Paramount, owned by Viacom (VIA), enjoyed a good quarter with Jackass: Number Two (there they are again!), World Trade Center, and Barnyard: The Original Party Animals (not again!). Following a long dry period, Paramount's success will come as a relief to VIA shareholders. And don’t forget the Paramount's early summer release of Mission: Impossible 3 (sorry, had to get one more in).

The worst performer among the major studios during the third quarter and the summer was the Warner Brothers division of Time Warner (TWX). The company has a series of flops from a box office and profits standpoint. I suspect this is widely noted by investors at this point, so beyond the possibility of worse than expected 3Q06 results in the Filmed Entertainment segment and another lousy quarter in 4Q when DVD sales will lag, investors are probably looking ahead to 2007 when easy comparisons and a strong release schedule lead by the next films in the Harry Potter and Ocean's Eleven franchises are due to hit theatres. Prior to 2007, Warner Brothers might have a hit on its hands with its animated musical about singing and dancing penguins, Happy Feet. Don’t believe me that penguins might strike Hollywood gold again….watch these trailers.

Finally, there could be some upside relative to consensus for Regal Entertainment (RGC) in the third quarter as the current consensus has year-over-year revenue growth of just 3.3%. I suspect investors are ahead of analysts as RGC shares have rebounded nicely since the swoon following slightly disappointing 2Q06 earnings but a good report might be enough to push RGC shares firmly into the $20s, especially given the 6% current yield against the recent bond market rally.

Posted by Steve Birenberg at 09:13 AM | Comments (0)

August 15, 2006

Another Good Weekend For The Box Office

The weekend box office was up again, making it four straight weekends. Eight of the last nine weeks have also been up so the summer continues to shape well as it winds down.

This past weekend was up 5% from a year ago as lots of films did well. Talladega Nights held the top for the second straight weekend, edging up the surprise hit Step Up and World Trade Center. Barnyard and Pirates of the Caribbean: Dead Man’s Chest also contributed to positive comparisons as each held very well declining 38% and 34% from the prior weekend. Also performing reasonably well was the latest horror flick, Pulse.

I’ve strongly advocated that last year’s box office slump was largely the result of movies that did not resonate with the public rather than a sudden loss of interest in attending movies in favor of home video or digital downloads or alternative entertainment options. This summer’s results support my view, especially since the only real blockbuster has been Pirates. Rather than a few films carrying the day, we have seen lots of films performing reasonably well and appealing to all the key demographic segments of moviegoers. And you can’t claim rising ticket prices are the problem. It looks like price increases are only half of the year-to-date gain of 6% in the domestic box office. Attendance is up around 3%.

Unfortunately, this summer’s strength hasn’t helped my long position in Regal Entertainment (RGC). Hope is not lost though.... the current quarter could be quite strong as it is up 13% halfway through the frame. If comps hold even the rest of the way, the gain for the quarter will be over 8% (hopes are high for a big opening for the much hyped Snakes on a Plane this coming weekend). If RGC can match the box office, it will easily exceed 3Q estimates which currently show just a 3% gain in revenues. And, mid-September brings another 30 quarterly cent dividend, contributing to the current yield of over 6%.

Looking at the studios, this weekend brought good news to Disney (DIS) and Viacom (VIA, VIA.b). DIS had the surprise hit Step Up which brought in $21 million, almost twice its published production budget of $11 million. It is rare these days for a film to make a profit in the theatrical window when the studio receives about 50% of the domestic box office. Step Up is profitable already and is a testament to DIS’s ability to leverage its broad reach through cable channels, theme parks, and network TV to get audiences to notice its films. Observers are giving special credit to the Disney Channel, which used the phenomenal success of High School Musical and strong ratings for its summer lineup to promote Step Up to its target audience of young teenage girls. DIS executives will also be pleased with the contunied good legs for Pirates, which should pass $400 million in the next week as it winds down toward $420 million in the U.S. and $500 million plus abroad. Again, Pirates is about profits, not just box office statistics.

VIA will be pleased that Barnyard is outperforming expectations and World Trade Center is off to a good start. Both films should be profitable when they hit the home video window. WTC is aimed at adults so te second weekend will be especially important to gauge whether word of mouth can drive the film above expectations. VIA’s Paramount studio has been in a long slump, so any good news is welcome news to shareholders. VIA is dominated by its cable networks, however, and despite recent good results in its latest quarterly report, I remain Posted by Steve Birenberg at 11:15 AM | Comments (0)

July 18, 2006

Disney Pulls Back But Its Not Due To Pirates

Pirates of the Caribbean: Dead Man's Chest (POTC) continues to rule the box office. Nevertheless, Disney (DIS) shares have sold off since the movie was released. I wouldn’t chalk that up to any disappointment over the film, however.

In the early part of last week, before catching a downgrade on Thursday, DIS shares actually outperformed the market. I'd suggest that was the trading action related to the movie. Since then, I think the downgrade (built off the belief that street estimates for DIS EPS growth in 2007 are too high) and geopolitical tensions drove the shares lower. The quick strengthening in the dollar also probably contributed as DIS is sensitive to international travel at its Orlando theme park.

I maintain my view that 2007 results will not disappoint. Continued margin expansion at the theme parks, growth at ESPN, a solid upfront for ABC, and the flow through of profits from DIS very successful winter 2005 thru summer 2006 movie slate provide enough upside to meet consensus estimates. I think this fundamental strength will be evident when the company reports its June quarter. Recent sellers, shorts, and downgraders will regret their positions come the August 9th reporting date. One signal I could be right is that DIS shares finished up yesterday despite a second downgrade. I helped a tiny bit by adding DIS to a new client account.

Going back to the box office....

POTC fell about 54% last weekend from its record setting opening weekend, a performance that gives little guidance to box office observers who are trying to gauge its legs. A drop of 60% plus would have been a reason for concern while a drop of 40% would have put the film in the running for #2 all-time behind Titanic and ahead of Shrek 2. I standby my assumption that the film will gross over $400 million domestically.

Based on early international box office reports, a total of over $500 million abroad seems in the cards. In fact, with the film still only open in about 1/3rd of its foreign markets, Variety speculated the international haul could exceed $600 million making POTC the third ever film to cross $1 billion worldwide (Titanic, $1.8 billion; Return of the King, $1.1 billion).

Despite a solid weekend for POTC and in line openings for the two new films, Little Man and You, Me, and Dupree, total weekend box office fell for the first time in 8 weekends. The decline of 7% is nothing for box office bulls to be alarmed about. Last year, two of the summer's most popular movies, Charlie and the Chocolate Factory and Wedding Crashers both opened. Additionally, not be lost is the fact that the prior weekend was up an astounding $70 million, or 46%, from a year ago, and this past weekend was up 7% from 2004.

Year-to-date box office is up over 6%, implying attendance growth of about 3% this year for the supposedly dying theatre business. That myth will suffer another blow this weekend when I expect comparisons to return to positive territory. This continues to bode well for Regal Entertainment (RGC), whose shares have performed very well relative to the market's decline. I guess I'm not the only one who sees value.

Posted by Steve Birenberg at 01:38 PM | Comments (0)

July 10, 2006

A Look at Records Set By Pirates of the Caribbean

The numbers for Pirates of the Caribbean: Dead Man's Chest (POTC) are truly enormous even in an era when studios, theatres, and moviegoers have become used to huge opening weekends. Over at The Hot Blog, David Poland has referred to these big opening weekends and lesser legs as "front loading." All the comparisons below are against other films that have been impacted by front loading.

• POTC had the largest opening weekend ever with $132 million, beating the four year old record of Spiderman by $18 million.
• POTC had the largest 3-day opening ever beating last May's release of the final Star Wars film, Revenge of the Sith, by $8 million. Sith opened on a Thursday.
• POTC earned $100 million in just two days, the first film ever to reach that level.
• Friday's one day haul of $55 million was the largest ever single day, beating the opening of Sith which pulled in $50 million. POTC also had the 5th biggest single day ever on Saturday and the 27th biggest single day on Sunday.
• POTC is just the 6th film to bring in over $100 million in its first three days. The others are Sith, Spiderman, Matrix Reloaded, Harry Potter and the Goblet of Fire, and this summer's X-Men: The Last Stand. Interestingly, four of those movies were released in May (the Potter film opened in November). Compared to other movies opening in the true summer months of June, July, and August, POTC just crushed anything. The largest ever June opening is the third Harry Potter movie, Prisoner of Azkaban with $93 million. The largest ever July opening prior to POTC was Spiderman 2 with $88 million. The largest opening in August belongs to Rush Hour 2 with $67 million. At first I was surprised that May was so dominant for opening weekends, but upon reflection the fact that kids are still in school forces ticket sales to weekends. Also, there are fewer entertainment alternatives in May and less folks on vacation.

Other records on the horizon for POTC could include the 4-day and 10-day records of $158 million and $236 million both held by Sith. Also, keep an eye on the one week record of $192 million held by Spiderman 2. The fastest film ever to $200 million is Spiderman 2 in just 8 days. Sith is the fastest ever to $300 million in 17 days. Six films have made it to $400 million with the record for getting there fastest belonging to Shrek 2 in 43 days.

How high could POTC go? The first film released last summer opened at $46 million but showed amazing legs to stay in the top ten for ten weeks and earn $305 million. There is precedent for sequels outperforming their originals, most notably Shrek 2, which earned $441 million versus $267 million for the original. I think the latest POTC and Shrek 2 have some similarities in that both franchises became much more popular due to the success of their DVDs. Both also have very brad popularity across all key movie going demographics.

Of the five previous films to open to $100 million or more, their total domestic gross ranged from $235 million (X-Men) to $404 million (Spiderman). These five films grossed anywhere from 2.3 to 3.5 times their opening weekend. For POTC, that would lead to a box office of $300 million to $462 million.

Posted by Steve Birenberg at 09:02 AM | Comments (0)

Pirates Provides Big Boost To Box Office

Pirates of the Caribbean: Dead Man's Chest (POTC) blew away even the most optimistic estimates and broke all opening weekend records pulling in $132 million in just three days.

All by itself, POTC would have made for a successful weekend for the movie business, but not be overlooked is that the other films in the top ten also performed well. Second place Superman Returns fell 57% vs. its opening weekend but that is really not that bad considering the huge numbers for POTC. All the other films in the top ten fell between 40% and 50% except for Cars which fell just 30% and continues to show good legs. Overall, the weekend box office rose 42% according to estimates supplied by The year-to-date box office is now up over 6%, which means that attendance has rebounded to positive growth despite all those home theatres, downloads, and alternative entertainment options.

I stand by my thesis that the death of theatrical movies is an invalid assumption. This creates investment opportunities for studios that are having successful years and movie exhibitors. Disney (DIS) is the best play among studios as the company looks like it will get the top two spots at the summer box office with POTC and Cars (yes- the "disappointing" Cars seems headed for over $235 million and second spot). POTC, also a DIS film, is sure to finish #1. And don't forget last winter's success for Chicken Little and The Chronicles of Narnia. Profits from these four films will flow to DIS over the next year.

Among exhibitors, I remain happily long Regal Entertainment (RGC), which should benefit from the recovering box office through good financial performance and expanding valuation. A 6% current yield and a history of special dividends is nice support while I wait for the shares to move up to my target of $23-24.

The coast is clear for DIS and RGC but comparisons do toughen this coming weekend when Charlie and the Chocolate Factory and Wedding Crashers opened very strongly a year ago. DIS reports August 8th and obviously is dependent on far more than the success of its movie studio.

Posted by Steve Birenberg at 08:57 AM | Comments (0)
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