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March 11, 2008
Weekend Box Office and Weather Channel Updates
The weekend box office fell by 33% against what is probably the toughest comparison it will face until May. The box office has now declined for 5 straight weekends but remains up almost 7% year to date. Comps may remain negative for a few more weeks but the rate of decline should moderate significantly. Analyst estimates for 1Q08 box office are in a range from a mid-single digit decline to a small gain. As a result, the slump should not cause estimates to fall and earnings misses. And to reiterate, a single month or even a whole year of bad comps does not mean that the box office is facing secular decline. Ticket sales are stable for the last ten years and we are coming off a two year run of higher box office including the all-time record year in 2007. I am glad I sold Regal Entertainment off its good 4Q and guidance increase but I won’t hesitate to buy it back if the current box office slump leads to another round of "the box office dying" stories. The next big film that could improve the outlook is Horton Hears A Who which debuts this coming weekend.
Separately, last week the Wall Street Journal and SNL Kagan provided an update on the sale of The Weather Channel and the Weather.com website. Apparently initial bids were due last week and might be coming in under the hoped for sale price of $5 billion. Among the bidders mentioned were NBC, CBS, Comcast, and Liberty Media. I'd guess that the Liberty Media interest is probably referencing a bid from Discovery Communications. There is logical reason for each of these bidders to be interested. NBC already operates a weather business that could quickly gain scale. CBS is looking to diversify and like other owners of major market TV stations, they are already providing weather services. Comcast is also looking to beef up its content both online and on TV. Comcast.net is a very heavily trafficked portal and weather is an obvious draw for a company that already reaches 24 million homes with TVs. Discovery is the leading content player focused on non-fiction content. I am not sure how this is going to play out but a $4-5 billion transaction is a big deal for the buyer and will set a standard for valuing cable networks at a time when the business is in the news due to the Scripps breakup, the Discovery recapitalization, and Viacom's attempted turnaround. Complicating the ability to draw conclusions about cable networks is the fact that Kagan and others believe that weather.com may be as valuable as The Weather Channel. Look for the winning bidder to see their stock price pressured.
Posted by Steve Birenberg at March 11, 2008 11:34 AM in Box Office
