Profits More Important to Movie Studios than Box Office

The box office boom is clearly a plus for theater owners who collect about 45% of ticket revenues and get more high margin concession sales. For studios, the boom is not clear cut. It depends on which studios are producing the hits and most importantly, the profitability of individual films and the overall annual slate.

UBS analyst Mike Morris, a buddy of mine, noted in a report this week that the 1Q box office gain of 9.5% was generated by 109 films vs. 158 in 1Q08. Clearly, studios are trying to cut slates, save money on production and marketing, and cut overhead. I think the new approach offers modest potential to improve profit margins and consistency but it is mostly a reflection of the new reality of lower DVD sales and uncertainty over future digital revenue streams.

NWSA and DIS have been best historically. TWX has been mediocre but seems to have learned some tricks in the last 18 months. VIA lags. LGF is a pure studio but has had issues with controlling costs as its slate has grown and bigger budget films have been added.

Comments

[asdw:]

I think studios need to focus on reducing talent compensation instead of reducing the number of films produced in a given year. The reason is simple: the movie business is risky, no one can predict what will be hot and what will fail; ergo, you need to have a lot of chances at the plate to score the coveted home run.

Marketing costs must be also addressed. Perhaps day-and-date will help.

Apr 13 12:01 AM

[Steve Biren...:]

Thanks for commenting, asdw.

I recently wrote about movie star salaries on my blog: www.northlakecapital.c...

I generally agree with you but the issue is how the stars are paid. Studios need to eliminate gross points off the top and get actors to take part of back end profits. That will help margins and better align interests. This trend appears underway. Studios also need to do a better of matching budgets to realistic box office and DVD expectations.

Apr 13 12:37 PM