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March 22, 2009
Box Office Cooling Won't Last Much Longer
The box office continued its cooling trend as the weekend was down 1.5% for the top 12 films according to BoxOfficeMojo.com. This marks the second consecutive down weekend following almost three months of positive comparisons. Year-to-date, the box office is now up 9.9%, well off its peak growth, but still a very good comparison that exceeds analyst comparison for the first quarter entering year.
Next weekend is the final one of the quarter and it should be up big driven by the debut of Monsters vs. Aliens from Dreamworks Animations (DWA). I sense that expectations are coming in a bit. Anything short of $50 million will be a disappointment though that will be enough to drive a positive comp for the total box office. A big opening in the $60 million plus range will be great news for theater stocks and DWA.
April is a notoriously slow month for the box office before Hollywood's summer season kicks off on the first weekend of May. Looking over the release schedule, I think April should comp positively, especially if Monsters vs. Aliens tracks toward $200 million in North America.
As noted the growth this year is unequivocally a positive for theater stocks which responded well when the market rallied. The theme that the box office is recession resistant is pretty widely accepted now which should support further gains for Regal Entertainment (RGC) and Cinemark Holdings (CNK). National Cinemedia (NCMI) , the leading in-theater advertising company, also benefits from box office growth but the stock is too expensive for new money commitments after more than doubling off its October/November lows.
For the studios, as usual the news is mixed. Time Warner's Watchmen now looks like a money loser, tracking to just $100 million domestic and no more than that abroad. Barring unusually high DVD and merchandising revenue, the film looks like it will produce losses in the tens of millions for TWX). Fortunately, the rest of TWX's late 2008 and early 2009 releases are performing quite well so I think estimates are secure. Nevertheless, the full year estimate for the Filmed Entertainment has little cushion now, especially against the tough comp from 2008 due to The Dark Knight....
The early winner with what is shaping up to be a big year based on easy comps a strong release schedule is News Corporation (NWSA). Lionsgate (LGF) also is off to a good start but it needs another good opening for horror film The Haunting in Connecticut this coming weekend to overcome other issues that led to very poor guidance for losses in 2009.
TWX remains my favorite stock among the diversified entertainment conglomerates. TWX will receive its $9 billion dividend from recently spun off Time Warner Cable at month end followed by a 1 for 3 reverse stock split. The new TWX is a pure content company with positive operating moment in 2009 in its two largest business segments, Cable Networks and Filmed Entertainment. AOL and Publishing remain very weak but I think balance sheet strength provides an offset as would a divestiture of AOL which seems more likely given the recent hiring of a new business head from Google (GOOG).
Posted by Steve Birenberg at March 22, 2009 02:21 PM in Box Office
WHAT DO YOU THINK OF THE TIME WARNER STOCK PURCHASE SHORT TERM AND IN TERMS OF CETV'S EVENTUAL FUTURE?WILL LAUDNER RETAIN CONTROL OF THE COMPANY? WHAT EFFECTS WILL THIS STOCK PURCHASE HAVE ON CETV'S IMMEDIATE DEBT PROBLEM AND WILL IT PRECLUDE THE NEED TO CLOSE THE BULGARIAN AND UKRAINE STATIONS DURING THIS SEVERE RECESSION?
Posted by: MP at March 23, 2009 09:23 AMI am still digesting this news but I think it backstops the stock at $10-12 and leaves upside to $30-40 over the next few years.
It was unrealistic that the stock was going to back to $50-100. that is less likely now due to dilution but given the unfortunate the company was in due to circumstances beyond their control this is a decent option.
Questions now are what will be done in Ukraine and Bulgaria, when will ad sales pick up, and how much will costs be cut this year.
Anyone who has held this far should hold as downside has been drastically reduced. Very short-term upside seems limited unless we get positive answers to questions just posed.
Bottom line is the stock is in much better shape than it was just two weeks ago and long-term chances for a double or triple are high.
Posted by: Steve at March 23, 2009 09:37 AM