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February 09, 2009

Monday Media Musings: February 9, 2009

Monday Media Musings is back despite battling a major technology crash at Northlake. Servers are back and all the backup systems functioned well.

Box Office Booming in 2009

Americans continue to go to the movies. Whether it is a relatively cheap night, a desire to leave their troubles, or just a hot streak of good films from Hollywood, the theory that movie ticket sales are recession resistant continues to gain credibility.

After a good fourth quarter (+1.5%) against tough comparisons, 2009 is off to a great start. The latest weekend was up 47% for the top 12 films. Every weekend this year is up with the year-to-date gain at 18%.Studios have been trying harder to reduce seasonality which partially explains the strength. January and February used to be a dumping ground. This can be seen by the fact that vs. 2007 the box office is up 43%, vs. 2004 thru 2006 it is up 34-37%.

The most direct winners from sustained box office strength are the movie theaters. Regal Entertainment (RGC) has acted surprisingly well since it cuts is dividend and took the pressure off its balance sheet. RGC still has a 7% current yield. Also benefiting is National Cinemedia (NCMI) which began to rally after announcing a good 4Q and providing better than feared guidance for 2009. NCMI is the dominant player in in-theater advertising, one of the few secular growth segments of advertising.

Among the studios, Fox/News Corporation is off to the best start with four of the top ten films of the year, all of which have manageable production budgets that should make them nicely profitable. Fox had a tough year in 2008 which was reflected in the collapse in NWSA's Filmed Entertainment profits reported last week.

Russians Love Movies

If you think Americans are heading to the movies, get a load of the Russians. Variety recently reported that the Russian box office rose 47% in 2008. Early in the year a strong ruble helped comparison but strength in dollars continued t year end despite the rubles collapse. U.S. studios did well in Russia in 2008 but the #1, #3, and #5 films were all Russian. The best U.S film was Madagascar: Escape 2 Africa which brought in $40 million. To give you some perspective, in the US, Madagascar 2 grossed $180 million. Its total international gross stands at $395 million but should ultimately reach over $400 million. There is no obvious stock market play on the Russian box office but when looking at the Hollywood studios it is important to remember that box office is growing outside the U.S. and often represents more than 50% of a film's total gross.

Digital TV Transition Delayed Until June

After a false start in the House of Representatives, the plan to delay the transition to all digital broadcast TV was approved on its second vote. This is a slight negative for the major cable and satellite TV companies. There may be 6-7 million homes that do not subscribe to cable or satellite and will lose their TV signal in June unless they purchase a converter box of subscribe to a multichannel service. The delay means more of these homes will opt for the converter reducing the opportunity for new subscriptions. The numbers are not huge but in an environment of intense competition, consumer cost cutting, and growing access to and fears about watching TV on the internet any boost to TV subscriptions is helpful. Comcast and Time Warner Cable are probably the biggest losers.

Live Nation and Ticketmaster Discussing Merger

The two giants of the concert business (LYV and TKTM) are discussing a merger. LYV is mostly in the concert promotion and venue ownership business while TKTM dominates online ticketing. LYV has launched its own ticketing service representing a serious threat to TKTM. Both companies are attempting to diversify to provide more services to bands and concertgoers. Concerts have become very important to bands as revenues form albums have suffered from free, illegal digital downloads. This merger is gong to face serious scrutiny in Washington as it will eliminate competition in ticketing. TKTM is already controversial due to its high ticket fees. Artists may not like the merger either as they do not want to be beholden to a single entity for touring. Bruce Springsteen has already come out publicly against the merger. Analysts think the deal could be good for both companies but I am very skeptical any deal can get regulatory approval.

Posted by Steve Birenberg at February 9, 2009 09:59 AM in Monday Musings