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April 19, 2007

Mid-Week Media Madness

Time for a little mid-week Media Madness:

• It appears that David Poland and I aren't the only voices proclaiming that "movie theatres are dying" is a flawed thesis. According to this article, long-time media analyst William Kidd of Wedbush Morgan agrees with us. Bill's report agrees with my thesis that most of the problem in 2005 was bad movies. Bill makes the additional point that trends in 2005's lousy box office were consistent in the US and abroad even though international markets are much less impacted by home theatres and other alternative entertainment options. I have not read Bill's report but one thing not mention in the article is the fact that 2005 faced the unique, likely unrepeatable $370 million box office of Passion of the Christ. Passion account for almost 4% of the total domestic box office in 2004. I have no way of proving it but I think it is fair to say that a significant portion of the Passion ticket sales would not have been made on any other movies released that year. This analyst recommends Regal Entertainment (RGC), a long position in Northlake accounts for over a year, as the best play on the renewed box office strength....

• Clear Channel has received a sweetened bid from its private equity suitors in an attempt to bribe enough shareholders to vote in favor the merger. The new bid is $39, up $.140 over the original bid. I don’t know if it will be enough but I stand by my opinion that shareholders will be very unhappy if the deal fails and the private equity firms walk away. $39 will seem awfully good when CCU is trading at $32 later this year.

• The Wall Street Journal speculated yesterday that Time Warner (TWX) was going to aggressively divest itself of its 84% ownership of Time Warner Cable (TWC). The spin in the article and on CNBC was that TWX management is souring on the cable business do to fears that internet browser based TV is a looming threat to the business model. I call bullshit. The rumored split, if accurate, is because the content and cable businesses within TWX have different financial characteristics. One is a high growth, high capital intensity business, while the other is a moderate growth, low capital intensity business. Keeping them under one roof complicates capital allocation decisions potentially to the detriment of both entities. I think that one of the reasons for buying Adelphia in concert with Comcast (CMCSA/CMCSK) was recognition that the entire cable could be restructured in preparation for a more complete separation. The Adelphia deal was a good way to create the TWC currency and ease the way toward breaking apart two businesses that are incompatible from a corporate financing viewpoint. But let the spinmeisters keep dissing cable. When CMCSA and TWC are making new highs later this year, the cable bulls will get the last laugh.

Posted by Steve Birenberg at April 19, 2007 09:22 AM in Media