NEW YORK -- In its biannual Movie and Entertainment Industry Survey published Friday, Standard & Poor's Equity Research Services cautioned investors about the "numerous issues facing movie studios" and their business challenges this year.

However, the report also points out some easier growth comparisons that Hollywood faces in 2006 and "a strong slate" of film releases that could boost the summer boxoffice, including Paramount Pictures' "Mission: Impossible 3," the Walt Disney Co./Pixar's "Cars," Disney's "Pirates of the Caribbean 2: Dead Man's Chest," Warner Bros. Pictures' "Superman Returns" and "Poseidon," DreamWorks Animation's "Over the Hedge," Sony Corp.'s "The Da Vinci Code," as well as 20th Century Fox's "X-Men: The Last Stand."

Otherwise, S&P's report offered mainly bleak views on current movie business trends, referencing various data points that industry observers have described as red flags and signs that growth will be harder to come by in the future.

After a 6% decline in the 2005 boxoffice, there is a possibility for further attendance erosion coupled with only moderate average ticket price increases, analyst Tuna Amobi said.

In addition, the saturation of the U.S. home video market seems set to result in declining DVD sales for 2006 and lower contribution margins, something that has caused increasing concern, he said.

Early trends for 2006 point in the direction of lower home video revenue for studios. For the recently ended first quarter of the year, home video sales decreased 4.3% and consumer spending on rentals fell 4.4%, according to estimates last week by Home Media Retailing (HR 4/6).

That comes on the heels of a weak full-year 2005 for video purchases and rentals; S&P reports that total spending for all video sales and rentals in 2005 fell 1.1% from the previous year. New release title prices were down to $18.70, and catalog titles to $13.82 on average from 2004. Home video sales accounted for $16.1 billion, and rentals (including sales of used videos) accounted for $7.8 billion last year.

"U.S. consumers spend nearly three times as much on videos to watch at home than on movie theater tickets," Amobi said, painting an even bleaker outlook for exhibitors than for studios.

Preliminary estimates from Adams Media Research found a third consecutive year of declines at the boxoffice in North America, with a 6.2% dip in boxoffice receipts to $9 billion for 2005.

A problem plaguing studios and exhibitors is increased competition for consumers' attention from emerging media platforms, the S&P report pointed out.

In a brief video clip to sum up his views, Amobi said the recent boxoffice success of 20th Century Fox's "Ice Age: The Meltdown" is a sign for the "relative immunity" of CGI-animated film fare given current market challenges.

Nonetheless, S&P doesn't see all animation producers benefiting the same way. For example, Amobi has a "buy" recommendation on shares of Disney "due to the benefits of its acquisition of Pixar and a strong slate of films." He cites the summer's release of Pixar's "Cars" as one example.

At the same time, S&P has a "strong sell" rating on shares of DreamWorks Animation, citing a lack of major catalysts and management's comments after a disappointing fourth-quarter earnings report.

"The movie business is in the midst of a transition," Amobi said. "We believe declining theater attendance could be a secular trend. Additionally, flattening DVD sales, rapid technological advancements and evolving consumer habits are forcing movie studios to reinvent traditional business models."

He adds that rising production and marketing costs increasingly weigh on a studio's bottom line. As a result, "we deem caution is warranted on the implications of these business trends for the industry," Amobi said.