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August 15, 2006

Another Good Weekend For The Box Office

The weekend box office was up again, making it four straight weekends. Eight of the last nine weeks have also been up so the summer continues to shape well as it winds down.

This past weekend was up 5% from a year ago as lots of films did well. Talladega Nights held the top for the second straight weekend, edging up the surprise hit Step Up and World Trade Center. Barnyard and Pirates of the Caribbean: Dead Man’s Chest also contributed to positive comparisons as each held very well declining 38% and 34% from the prior weekend. Also performing reasonably well was the latest horror flick, Pulse.

I’ve strongly advocated that last year’s box office slump was largely the result of movies that did not resonate with the public rather than a sudden loss of interest in attending movies in favor of home video or digital downloads or alternative entertainment options. This summer’s results support my view, especially since the only real blockbuster has been Pirates. Rather than a few films carrying the day, we have seen lots of films performing reasonably well and appealing to all the key demographic segments of moviegoers. And you can’t claim rising ticket prices are the problem. It looks like price increases are only half of the year-to-date gain of 6% in the domestic box office. Attendance is up around 3%.

Unfortunately, this summer’s strength hasn’t helped my long position in Regal Entertainment (RGC). Hope is not lost though....

....as the current quarter could be quite strong as it is up 13% halfway through the frame. If comps hold even the rest of the way, the gain for the quarter will be over 8% (hopes are high for a big opening for the much hyped Snakes on a Plane this coming weekend). If RGC can match the box office, it will easily exceed 3Q estimates which currently show just a 3% gain in revenues. And, mid-September brings another 30 quarterly cent dividend, contributing to the current yield of over 6%.

Looking at the studios, this weekend brought good news to Disney (DIS) and Viacom (VIA, VIA.b). DIS had the surprise hit Step Up which brought in $21 million, almost twice its published production budget of $11 million. It is rare these days for a film to make a profit in the theatrical window when the studio receives about 50% of the domestic box office. Step Up is profitable already and is a testament to DIS’s ability to leverage its broad reach through cable channels, theme parks, and network TV to get audiences to notice its films. Observers are giving special credit to the Disney Channel, which used the phenomenal success of High School Musical and strong ratings for its summer lineup to promote Step Up to its target audience of young teenage girls. DIS executives will also be pleased with the contunied good legs for Pirates, which should pass $400 million in the next week as it winds down toward $420 million in the U.S. and $500 million plus abroad. Again, Pirates is about profits, not just box office statistics.

VIA will be pleased that Barnyard is outperforming expectations and World Trade Center is off to a good start. Both films should be profitable when they hit the home video window. WTC is aimed at adults so te second weekend will be especially important to gauge whether word of mouth can drive the film above expectations. VIA’s Paramount studio has been in a long slump, so any good news is welcome news to shareholders. VIA is dominated by its cable networks, however, and despite recent good results in its latest quarterly report, I remain cautious toward the cable networks business.

Posted by Steve Birenberg at August 15, 2006 11:15 AM in Box Office