2007's b.o. a tough act to follow

Street projects rough quarters ahead despite buzzworthy titles

Wall Street analysts have been digging into this year's expected film releases to gauge boxoffice trends, and some don't like what they see.

William Kidd at Wedbush Morgan Securities is one of the most bearish, predicting $9.4 billion in domestic boxoffice revenue this year, down 4.6% from 2007. Attendance could be worse — down 7.7%, he said.

Based on his dour prediction, Kidd recently cut his rating and price target on shares of exhibition giant Regal Entertainment.

Steven Birenberg, a money manager specializing in media investments at Northlake Capital Management, agreed that the boxoffice is challenged this year, adding that it's because of an unusual number of blockbusters in 2007.

For example, for the first time, four movies topped $300 million in 2007, compared with just one in 2006.

"Last year's blockbusters outgrossed 2006's blockbusters by $600 million, more than the increase in the total boxoffice of $440 million," Birenberg said. "The only place to move the needle in year-over-year boxoffice is in blockbuster films."

Kidd is worried about this year's first and third quarters, which he said will be down 9% each compared with the same frames last year. The second and fourth quarters should come in flat, he said.

Wherever 2008 ends up, most entertainment giants in the first two weeks of the year were ahead of the boxoffice estimates of Banc of America Securities analyst Jonathan Jacoby. Disney was 7% ahead of his projections, News Corp. was 4% ahead, and Time Warner was 11% in the plus. Viacom, however, was 4% behind his estimates. More up-to-date estimates from Jacoby are expected today.

While four movies earned more than $100 million during last year's first quarter, Kidd expects just two to cross that threshold this quarter: "Cloverfield" and "Horton Hears a Who!"

Plus, he said spillover to the first quarter from movies that opened in fourth-quarter 2007 won't amount to much. "National Treasure: Book of Secrets" should be good for $46.7 million this quarter and "I Am Legend" for $30.7 million. All spillover titles combined will add up to $242.3 million in the first quarter, he estimated.

In comparison, last year's top three spillover titles alone — "Night at the Museum," "The Pursuit of Happyness" and "Dreamgirls" — contributed $262 million to 2007's first quarter.

Thomas Weisel Partners analyst Lloyd Walmsley figured the top 10 first-quarter releases will come in at $939.1 million, 10% lower than the first quarter a year ago.

The problem for the third quarter, on the other hand, is that it is competing with "the best quarter on record," which featured such hits as "Transformers," "Harry Potter and the Order of the Phoenix," "The Bourne Ultimatum" and "The Simpsons Movie." That quarter alone boasted $2.78 billion in domestic boxoffice revenue.

This year's third quarter — even with such projected hits as "The Dark Knight," "The Mummy: Tomb of the Dragon Emperor," "Tropic Thunder" and a sequel to "The X Files" — won't compete, Kidd said.

Moving ahead to what he predicts will be a flat fourth quarter, he noted that it already has been hurt by the writers strike, which has pushed as many as six releases to 2009 or beyond: "Castlevania," "Nine," "Shantaram," "Pinkville," "Ironbow: The Legend of William Tell" and "Angels & Demons." The delay of "Demons," a prequel to "The Da Vinci Code," will hurt most, Kidd predicted.

Making up for those losses, though, is a still-strong slate that includes "Harry Potter and the Half-Blood Prince," "Madagascar: The Crate Escape," "High School Musical 3," "Bedtime Stories" and the next James Bond movie.

The second quarter, which also should be flat, seems particularly strong this year, though like the third quarter it is up against significant competition that includes last year's hits "Spider-Man 3," "Shrek the Third" and "Pirates of the Caribbean: At World's End."

This time, look for boxoffice gold from the likes of "Iron Man," "Speed Racer," "The Chronicles of Narnia: Prince Caspian," "Indiana Jones and the Kingdom of the Crystal Skull," "Get Smart" and "Wall-E."

Based on this, Kidd recently cut his Regal rating to "hold" and his price target to $18. Shares of Regal, which controls 6,403 screens in 539 theaters, closed Friday at $17.25, close to its 52-week low of $16.68. U.S. markets were closed Monday.

The analyst, however, left his "buy" rating intact on Cinemark, based on its cheaper valuation. He nevertheless shaved his $21 target to $17. Shares of Cinemark, which operates 4,430 screens in 392 theaters, closed at $13.86.

Meanwhile, Birenberg, after careful consideration of the numbers — especially a fat 7% dividend yield — concluded that shares of Regal have been punished enough, so he's a buyer.

"The sentiment is way too negative," he said. "This isn't a growth industry but per-capita ticket consumption is stable over the last few decades, so small acquisitions, in-theater advertising, new revenue streams from 3-D or digital projection and ticket-price increases allow the exhibitors to grow modestly."
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