The box office continued its cooling trend as the top 12 films were down 1.5% for the weekend, according to BoxOfficeMojo.com. This marks the second consecutive down weekend following almost three months of positive comparisons. Year-to-date, the box office is now up 9.9%, well off its peak growth, but still a very good comparison that exceeds analyst comparison for the first quarter entering year.
Next weekend is the final one of the quarter and it should be up big driven by the debut of Monsters vs. Aliens from Dreamworks Animations (DWA). I sense that expectations are coming in a bit. Anything short of $50 million will be a disappointment though that will be enough to drive a positive comp for the total box office. A big opening in the $60 million plus range will be great news for theater stocks and DWA.
April is a notoriously slow month for the box office before Hollywood's summer season kicks off on the first weekend of May. Looking over the release schedule, I think April should comp positively, especially if Monsters vs. Aliens tracks towards $200 million in North America.
As noted, growth this year is unequivocally a positive for theater stocks which responded well when the market rallied. The theme that the box office is recession-resistant is pretty widely accepted now. This should support further gains for Regal Entertainment (RGC) and Cinemark Holdings (CNK). National Cinemedia (NCMI), the leading in-theater advertising company, also benefits from box office growth but the stock is too expensive for new money commitments after more than doubling off its October/November lows.
For the studios, as usual the news is mixed. Time Warner's (TWX) Watchmen now looks like a money loser, tracking to just $100 million domestic and no more than that abroad. Barring unusually high DVD and merchandising revenue, the film looks like it will produce losses in the tens of millions for TWX. Fortunately, the rest of TWX's late 2008 and early 2009 releases are performing quite well so I think estimates are secure. Nevertheless, the full year estimate for the Filmed Entertainment has little cushion now, especially against the tough comp from 2008 due to The Dark Knight....
The early winner with what is shaping up to be a big year, based on easy comps and a strong release schedule, is News Corporation (NWSA). Lionsgate (LGF) is also off to a good start but it needs another good opening for horror film The Haunting in Connecticut this coming weekend to overcome other issues that led to very poor guidance for losses in 2009.
TWX remains my favorite stock among the diversified entertainment conglomerates. TWX will receive its $9 billion dividend from recently spun off Time Warner Cable at month's end followed by a 1 for 3 reverse stock split.
The new TWX is a pure content company with positive operating momentum in 2009 in its two largest business segments, Cable Networks and Filmed Entertainment. AOL and Publishing remain very weak but I think balance sheet strength provides an offset as would a divestiture of AOL which seems more likely given the recent hiring of a new business head from Google (GOOG).