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October 22, 2006

Fourth Quarter Box Office Off To A Good Start

The weekend box office for the top twelve movies was up 26% vs. last year according to BoxOfficeMojo.com. That makes it four for four so far in October, with the total box office running about 13% ahead of 2005 for the month. The Prestige, from Disney (DIS), led the way with a better than expected $14 million. Strong performance was also seen by The Departed, from the Warner Brothers studio owned by Time Warner (TWX). The Departed fell just 28% and continues to show great legs. Oscar prognosticators feel both of this weekend’s top films will get nominations for Best Picture. Expected to be on top but coming in 3rd with a disappointing $10 million was Flags of Our Fathers from the Dreamworks via the Paramount division of Viacom (VIA). Mixed reviews, lack of start power and possibly war fatigue might have contributed to the soft opening. Before it ever opened, Flags was considered a leading contender for Best Picture due to early buzz and the fact that it comes from Clint Eastwood. Now, many observers feel it might not even get nominated.

The strong start to the box office this quarter is crucial for theater owners as comparisons get really tough starting at Thanksgiving....

While there is a lot of enthusiasm for the depth of this year’s holiday’s slate, industry experts don’t expect any of this year’s releases to exceed $200 million in domestic box office. Last year, there were three such films including the latest Harry Potter release, King Kong, and The Chronicles of Narnia: the Lion, the Witch, and the Wardrobe.

So far, 4Q06 is tracking close to 2004 and 2005 when the pre-Thanksgiving period produced 46-48% of the total quarterly box office. By comparison, last year saw pre-Thanksgiving account for just 42% of the box office. This coming weekend represents a tough comparison due to the huge opening last year for Saw II from Lionsgate (LGF) – Saw III is due in theatres next weekend. After that comparisons ease again until Thanksgiving when the Potter film was released last year.

For this holiday season look for the animated feature Happy Feet and the next James Bond film Casino Royale, which both open the weekend prior to Thanksgiving, to be the leading contenders for box office honors. Eragon, based on the very successful fantasy book series, should also be very popular although it doesn’t open until mid-December.

While analysts are beginning to look ahead to next May’s certain blockbusters of sequels to Spiderman, Pirates of the Caribbean, and Shrek, it is important for the recent box strength to be sustained until Thanksgiving. If that occurs, the overall quarter will be acceptable even if the post-Thanksgiving comparisons are poor.

If the next few weekends are decent, I think investors will look beyond the tough final six weeks of the year. I expect this to occur and consequently, I am sticking with my long position in Regal Entertainment (RGC). In fact, I used the pullback last week following the spike on the announcement of the IPO of its 41% owned joint venture, National Cinemedia, to add to positions for existing and new clients.

For those with a stronger stomach looking to trade in their own accounts, I’d recommend looking at Carmike Cinemas (CKEC). CKEC has met its long overdue SEC filing requirements and is now likely to attract a wider investor base. Additionally, the family oriented fare usually popular at the holidays and next May’s sequels are typically the type of films that perform well in the small and mid-size cities where CKEC maintains their circuit.

Posted by Steve Birenberg at October 22, 2006 05:05 PM in RGC