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May 17, 2009

Box Office Up Again But Story is Studios Not Theaters

Last weekend is a good reminder of why box office analysis is not as simple as it seems.

The overall weekend in North America was solid, up 5.4% for the top 12 films according to BoxOfficeMojo.com, the year –to-date comparison remains very strong at +15%. The summer season also remains strong, up 16.9% from the traditional launch on the first Friday in May. Thanks to huge numbers in April, the quarter is up 27.6%. For the theater owners, quarterly numbers are crucial as they directly flow through analyst earnings models to changes in estimates. Estimate change is one of the most reliable predictor of stock price performance.

What made last weekend odd is that most commentary will say that Angels & Demons was slightly disappointing, coming in at $48 million in North America. No one will complain how it lagged the opening for The Da Vinci Code by $29 million, as that was widely expected. But A&D was supposed to open at $55-60 million according to most prognosticators. So for the North America theater exhibitors, the weekend could have been a bit better.

For the studios, there is nothing to complain about. A&D had a huge haul outside the U.S., bringing in $104 million. This is replicating the success of The Da Vinci Code, which did an unusually high 71% of its business outside the U.S. A&D is not going to match the $217 million North American or $540 million international gross of The Da Vinci Code but it is likely headed over $400 million and into very profitable territory for Sony.

Viacom's Paramount studio also has be thrilled with the weekend. Star Trek fell just 43%, with Saturday grosses particularly strong. The data suggest favorable word of mouth and positive reviews are bringing ticket buyers out. Domestically, the film is headed well over $200 million. International grosses are very good so far for a franchise that is very U.S. centric and has played poorly overseas in previous films. There is little doubt Paramount has a winner: the film will be profitable and the franchise has been revived. Even better, despite the fact that Star Trek may gross $200 million less globally than Iron Man, which Paramount distributed in May 2008, the studio stands to make more money on Star Trek.

This coming weekend pits two very big films against one another: Terminator 4 and Night at the Museum 2. The films appeal to very different audiences so both should do fine. The only question is how high they can go. Both should be north of $50 million for the four day holiday weekend. Getting to $70 million each is not out of the question. I've even read some speculation that T4 could be $100 million over the holiday weekend including grosses beginning with midnight Wednesday. T4 is from Time Warner and Night 2 is from News Corporation.

The theaters will probably be happy with Memorial Day weekend despite the tough comp against the $126 million holiday weekend for Indiana Jones and the Kingdom of the Crystal Skull. This year's top two films should match that total and holdovers will likely beat the films in second through fifth place a year ago producing another up weekend.

Nevertheless, comps are stiffening and the box office story is widely known. Thus, I think theater stocks will continue to struggle as they have over the past few weeks. June and especially July will pull back the year to date and quarter to date box office gains leaving investors to wonder what the new catalysts will be for higher stock prices.

As usual, studio owner stocks are hit or miss. There is little direct flow through to financial performance as the movie business is not dominant at any of the entertainment conglomerates. Viacom seems most likely to get a boost thanks to Star Trek and later in the summer Transformers 2. Paramount has struggled for year so renewed strength can help investor sentiment for Viacom. Time Warner has had success with smaller films so far this year but its blockbuster season begins with T4. News Corporation is also off to a decent start this year with smaller films and Wolverine's grosses while not immense are good enough from a profitability standpoint. Night at the Museum is a critical title for NWSA and the early buzz is good. Disney has had a slow start to the year and has a relatively modest release schedule this year. Up, the next film from Pixar, hits theaters the last weekend in May. DIS investors will look ahead to 2010 and the release of Toy Story 3.

Posted by Steve Birenberg at May 17, 2009 07:09 PM in Box Office