Box Office Boom Continues, But for How Much Longer?

by: Steve Birenberg, CFA

The box office boom of 2009 continued last weekend with the top 12 films up 30% vs. a year ago. Led by another surprisingly large opening in the #1 Spot, the weekend was also helped by decent openings for other newcomers and good holds for hits form earlier this year. Year-to-date the box office is up 15.7%. All data is taken from

Theater owner stocks have surged and studio owner stocks have benefitted from the unanticipated gain in ticket sales this year. Theater owners Regal Entertainment (NYSE:RGC), Cinemark Holdings (NYSE:CNK), and Carmike Cinemas (NASDAQ:CKEC), and cinema advertising leader National Cinemedia (NASDAQ:NCMI) are all up huge this year. Time Warner (NYSE:TWX), Viacom (NYSE:VIA), and News Corporation (NASDAQ:NWSA) are among the studios off to the best start this year. The gains have been consistent from week-to-week and profitability of the film slate for the studios appears to be surprisingly good. SNL Kagan has positive profit estimates on many of this year's films. The only film likely to have produced a meaningful loss is Watchmen but the losses are spread among three entities (TWX, VIA, and third party financing) and should not noticeably impact film studio profitability in 1H09.

Not to throw cold water on the fire, but comps toughen considerably this coming weekend. Last year May saw huge openings and decent legs for Iron Man and Indiana Jones 4 and a surprisingly large gross for Sex and the City. The only May film from a year ago to significantly underperform was The Chronicles of Narnia: Price Caspian.

This summer season kicks off next week with X-Men Origins: Wolverine. Ghosts of Girlfriends Past should also pull in big bucks. The next weekend brings Star Trek, a prequel that remakes the franchise and has very good early buzz. Angels and Demons comes the weekend of May 15th followed by Night at the Museum 2 and Terminator Salvation for Memorial Day weekend. The latest film from Disney/Pixar (NYSE:DIS), Up, arrives the last weekend of May. This is an impressive lineup which seems like it should at least hold its own against May 2008 but comps seem sure to slow which may spell an end to the upside for the theater stocks.

If you were fortunate to get long on these stocks earlier this year and can book gains of 50% or more, I'd definitely take at least a little off the table.

Disclosure: Time Warner is widley held by clients of Northlake Capitla Management, LLC including Steve Birenberg's personal accounts.