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May 24, 2006

Memorial Day Box Office

My friend and fellow money manager, Doug Kass, is making a good call to short Dreamworks Animation (DWA) on the back of less than stellar box office for Over The Hedge. There are no catalysts for DWA unless the film does surprisingly well this weekend. Short of buyout rumors becoming reality I see little upside and 10% downside.

Doug is also betting the over the weekend box office X-Men: The Last Stand (X3). Again, I think he is right. The opening weekend could be large. From what I gather buzz on the film is good, although early reviews aren’t nearly as favorable as they were for the first two films. The plot seems to advance the series by exploring the mutants more fully which should help keep X-Men a fresh franchise. Also helping is the fact that the last X-Men movie was released in 2003. The disappointing Mission: Impossible 3 had to overcome a six year hiatus from MI2. Finally, teens drive the box office and the fan base for X3 is teens....

X2 opened with $85 million in 3,741 theatres, according to BoxOfficeMojo.com, easily beating X1's opening. X2 opened on the first weekend in May whereas the current installment gets Memorial Day, usually a very good weekend for movies. I have to think that experts will be calling for X3 to match or exceed its predecessor. Remember Sunday is a full weekend day on Memorial Day weekend. I think $100 million for the 4 day weekend is a definite possibility.

For the overall box office, the weekend looks promising with good numbers likely from The Da Vinci Code, which performed strongly on Monday, and Over The Hedge, in addition to the big opening for X3. The comparison is fairly tough, however. Last year on Memorial Day, the final Star Wars movie did $70 million and new releases Madagascar and The Longest Yard did $61 million and $58 million, respectively. If Da Vinci and Over The Hedge drop 30% helped by the long weekend, even a $100 million opening for X3 would leave the top 3 films short of the top 3 from a year ago.

Nevertheless, I think a strong opening for X3 and decent holds for Da Vinci and Over The Hedge will leave box office observers and analysts in a good mood with the Cars opening just two weeks away, followed by Pirates of the Caribbean a month later. I know I've said this often recently but this is a good summer to be long Regal Entertainment (RGC) to play overall box office strength and Disney (DIS) to play what may turnout to be the two most popular movies of the summer.

X3 is from Fox and won’t likely move the needle for News Corp (NWS) shares.

NASCAR fans will get a mass sneak preview of Cars this week when the film is shown on a giant screen at Lowe's Motor Speedway as part of the racing circuit's Coca Cola 600 weekend. For you non-NASCAR fans, this is the equivalent of the Indy 500 weekend for NASCAR's giant fan base in its home of North Carolina. For us DIS longs, it better be good!!!

Posted by Steve Birenberg at May 24, 2006 11:21 AM in DIS