The box office had an excellent weekend with the top then films grossing 15% above year ago levels and 16% above the 2004 level. The strength was driven by both a blockbuster opening and good depth. Given the overwhelmingly negative sentiment about the box office, the strength will come as a surprise to many, and will probably be ignored in the press and on Wall Street. I continue to maintain that the weak 2005 box office performance was due mostly to films did not capture the consumers imagination, and secondarily, to the issues of competing forms of entertainment. Consequently, with the stocks of major studio owners all at multi-year lows in terms of valuation, investors should be looking for a potential contrary play to develop. One thing that could help is easy comparisons at the box office from now through early summer. The key beneficiaries of improved investor sentiment toward the movie business are Viacom (VIAB – Paramount), Disney (DIS), Time Warner (TWX – Warner Brothers and New Line), Sony (SNE), News Corporation (NWSA – 20th Century Fox), and Lionsgate (LGF). I am long DIS across my entire client base and LGF in a subsection of accounts. I own both stocks in my personal accounts.
SNE was the big winner this past weekend as Underworld: Evolution opened with $27.6 million, the fourth largest January open ever. The top film on this weekend a year ago grossed just $18.6 million. The real strength this weekend though came from the fact that 14 films grossed at least $3 million, with 11 over $4 million. SNE also saw its holiday release Fun with Dick and Jan gross over $6 million and pass $100 million for its run. Another Sony film, Memoirs of a Geisha brought in almost $3 million to break the $50 million barrier.
DIS continues to enjoy a rebound in its box office fortunes with last weekend’s champ, Glory Road, holding well, falling just 33%. The Chronicles of Narnia: The Lion, The Witch, and The Wardrobe, added another $6 million and now stands at $272 million. DIS will certainly try to milk Narnia to get its domestic gross past the latest Harry Potter film which has finished its run at $284.6 million.
No other studio jumps out at me in terms of investment implications. This week brings Oscar nominations which can boost the fortunes of nominated films. Being long LGF, and also a big fan of the film, I am cheering for Crash to get a long shot Best Picture nomination.