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August 19, 2008

Summer Box Office Update: Better Than Expected But...

It's been awhile since I provided an update on the domestic summer box office. Relative to my initial expectations it continues to shape up well. Since the first weekend in May, Hollywood's official start to summer, the box office is unchanged from 2007's all-time record. Given my expectations, including particularly tough comparisons in July and August, this result is very favorable. Theater stocks have responded with Regal Entertainment (RGC), Cinemark Holdings (CNK), and National Cinemedia (NCMI) rising 15-30% from their summer lows.

Two factors led to the better than expected performance. First, May and June performed strongly with a wide array of films attracting ticket buyers. With three films from May of 2007 bringing in over $300 million, 2008's breadth of successful films was welcome relief. Second, and most importantly, The Dark Knight is headed to #2 all-time in North America with over $500 million. This figure is at least $200 million ahead of the most optimistic estimates. Without that extra $200 million, the summer box office would be down 5%!

Unfortunately for theater stocks, 4Q08 is no longer shaping up as positively as expected....

....Time Warner's decision to move the next Harry Potter film from a November 2008 release to the summer of 2009 is taking a certain $250-300 million film out of the holiday box office. Other major releases will pick up a good part of Harry's ticket sales but the big upside momentum from easy 4Q comps (analyst estimates for 4Q for RGC and CNK call for double digit revenue growth) is now less likely limiting the trading upside I had foreseen for theater stocks late this fall.

For TWX, the move of the Potter film to 2009 is probably a good thing. It provides a nice cushion for 2009 estimates, especially in 4Q09 when DVD sales will hit. Another beneficiary could be Dreamworks Animation (DWA) whose next film, Madagascar 2, will now have more to run with family audiences.

Posted by Steve Birenberg at August 19, 2008 09:50 AM in Box Office