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May 25, 2009

Holiday Box Office Fizzles as Tough Comps Take Their Toll

Facing a very tough comparison driven by the $126 million open for Indiana Jones the Kingdom of the Crystal Skull a year ago, the weekend box office put in a reasonable performance, up 1.4% for the top 12 films for the 4-day holiday weekend. Analysts will give the weekend a pass but it fell modestly short of expectations as Terminator Salvation brought in just $54 million, as much as $20 million short of expectations. A slightly better than expected performance for Night at the Museum: Battle of the Smithsonian, #1 at $70 million, another strong hold for Star Trek, and an acceptable hold for Angels &Demons made up the difference.

I've been warning for weeks that box office comps were set to stiffen. I expect another tough comparison next weekend when the latest Disney/Pixar film, Up, opens against last year's big hit Sex and the City. Sex and the City's opening weekend of $57 million is right in the range of recent Pixar films including $63 million for Wall-E last summer and $47 million for Ratatouille in 2007.

The box office remains up 14% year-to-date and up 22% for the current calendar quarter but the gains seem likely to continue to moderate. As I warned, theater stocks began to reflect the tough comparisons a few weeks ago and have pulled back 10-20% off their highs with the exception of Carmike Cinemas which is being supported by takeover speculation since Mark Cuban filed an ownership interest in mid-April.

According to several recent analyst reports, theater stocks tend to lag the market in the summer in atypical "sell the news" strategy during the strongest season for the business. I think that will be the case again this year as comps continue to stiffen especially in July when The Dark Knight opened a year ago and gross over $500 million. Two July films this year have the potential to reach $300 million, Transformers: Revenge of the Fallen and Harry Potter and the Half Blood Prince. Neither looks set to reach anywhere near $500 million, however, which makes it unlikely the rest of the summer will support the year-to-date box office gains.

Taken together the two films will support international box office comparisons as each could bring in $700-900 million globally against the $1 billion worldwide gross for The Dark Knight. This will not help the theater stocks which are almost completely domestically driven.

At the studio level, the weekend was good for News Corporation which controls Night At the Museum and Viacom which has Start Trek. Angels & Demons is only doing OK business in North America but the international performance is quite strong so Sony has little to worry about from a profitability perspective. Terminator Salvation is split between Time Warner (North America) and Sony (International) so even if the film ends up disappointing the blow to profits for either company should not be too large. Time Warner was hoping to relaunch the franchise, much as Viacom did with Star Trek, but the opening weekend makes that look like a long shot. Overall, Time Warner's 2008 box office performance is a modest disappointment but fortunately, the company has a sure thing in Harry Potter coming this July.

Posted by Steve Birenberg at May 25, 2009 05:26 PM in Box Office