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April 21, 2008

Box Office Turns Up. Finally.

After falling year-over-year, often substantially for eight of the past nine weeks, the weekend box office offered a respite. Led by better than expected openings for the top two films, The Forbidden Kingdom from Lionsgate and Forgetting Sarah Marshall from GE's Universal Pictures, the top 12 films grossed 12.4% more than the same weekend a week ago. Next weekend also looks like it should be a significantly favorable comparison but then the real tough comps start as Spiderman 3 opened the first weekend in May a year ago and was quickly followed by two other $300 million plus blockbusters in Pirates of the Caribbean 3 and Shrek 3. With the box office down over 20% this quarter even following this past weekend, estimates for theatre companies like Regal Entertainment and Cinemark Holdings look too high. Both stocks have held up fairly well over the past two months even as the box office has faded. I think this is a good opportunity to sell remaining long positions ahead of the tough summer comps (particularly in May, July, and August). Short positions could prove profitable although healthy dividend yields and free cash flow provide downside support.

The performance of The Forbidden Kingdom was particularly good news for Lionsgate. According to David Poland of Movie City News and The Hot Blog, the film is the third best opening for an LGF film that wasn't either a Saw or Tyler Perry film. I see both of those franchises as mature. Money makers for sure in future releases but not franchises which can drive growth in the company's theatrical and home video businesses. Broadening its distribution success to other genres is surely a positive for LGF something at least partially reflected in the nice bump in the stock over the past month.

I'll be back in a few weeks with a summer box office preview.

Posted by Steve Birenberg at April 21, 2008 10:49 AM in Box Office