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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 May 29, 2007 09:10 AM in Box Office