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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 October 3, 2006 09:13 AM in RGC
