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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 March 12, 2007 01:40 PM in Box Office