'07 b.o. a record in waiting

Report: Sequels, 3-D will spur exhibs

Boxoffice coin in the U.S. ought to tip the scales at slightly less than $10 billion this year, an all-time record, followed by a couple years of anemic growth as higher ticket prices offset slightly declining attendance.

That's the word from Wedbush Morgan Securities, which issued a 40-page report Friday on the state of the exhibition industry. Wedbush concludes that the dour predictions of new technologies dooming the movie theater were overblown and reiterates that it was the poor quality of movies that caused exhibition revenue to stagnate, or worse, from 2003-05.

"Consumers are showing, through their continued attendance, that pay-per-view, DVDs and streaming media may be increasingly close substitutes for a movie-watching experience, but they are not as close of a substitute for an evening out," Wedbush analyst William Kidd wrote.

Consumers with the most entertainment gadgets and services also are the ones who go to movie theaters most often, according to Nielsen Entertainment/NRG data.

For example, among moviegoers who see an average of 10.5 films in theaters each year, 46% of them are Netflix subscribers and 68% have a home theater. Among those who see just 7.1 movies in theaters each year, 16% subscribe to Netflix and 16% have home theaters.

The ultimate movie-watching experience is the theater, according to 63% of moviegoers, while only 37% prefer the home.

Last year, the U.S. boxoffice grew 5.5% to $9.5 billion, reversing a downtrend. This year, Wedbush expects it to rise 5.2% to $9.98 billion, surpassing the record $9.54 billion set in 2004.

Like 2004, this year will boast movies featuring such lucrative characters as Spider-Man, Shrek and Harry Potter. Three other upcoming sequels, "Evan Almighty," "National Treasure 2" and "The Bourne Ultimatum," also had predecessors last seen in 2004.

Also helping this year's movie crop to outdo 2004, Wedbush predicts, will be "Pirates of the Caribbean: At World's End," "Ratatouille," "Transformers," "The Simpsons Movie" and "His Dark Materials: The Golden Compass."

Plus, the price of a movie ticket might rise about 50 cents from where it was in 2004, judging from recent trends, and there's no evidence suggesting that such a rise will keep people from theaters.

May and June, in particular, with so many potential blockbusters being released in succession, presents "a high-class problem for exhibitors," Kidd said. "Even avid moviegoers could find it difficult to go to the movies for six weeks straight."

Kidd said that, in hindsight, it should have been obvious that it was poor films causing a boxoffice slump of late, more than it was the fault of new technologies that encouraged home viewing of movies.

He cites such evidence as weaker composite film-critic ratings for 2003-05, plus the fact that the slump during those years also plagued parts of the world where new technologies weren't much of an issue.

"When the international markets struggled in tandem with the domestic markets, we felt it was an overt sign that film quality was an issue," he said.

Often-noted challenges to the exhibition industry, such as shrinking distribution windows and VOD, shouldn't do as much harm as previously thought, as long as the quality of movies remains high, Kidd said.

Other initiatives that ought to keep the revenue flowing to exhibitors, Kidd said, include in-theater advertising and 3-D movies, the latter of which is being championed by several prominent film executives, like DreamWorks Animation CEO Jeffrey Katzenberg.

Kidd also calls "novel" an idea from Walt Disney Co. CEO Robert Iger of selling DVDs of family titles right in the same theaters where those movies are playing, and cutting exhibitors in on the revenue. Such a plan could cause exhibitors to warm to the idea of a collapsed DVD window, under the right circumstances and for the right titles.

All this bullishness is causing Kidd to recommend investors buy stock in Regal Entertainment Group. Shares of the nation's largest theater chain closed at $20.82 on Friday, and the analyst has a $24 target on them. And last week, Soleil Research Associates upgraded their opinion of Regal shares to a "buy," in part based on their expectations of big boxoffice this year.

Investors and analysts with renewed confidence in the sector also have encouraged public offerings of other exhibitors. Scheduled for April 23 is the IPO of Cinemark Holdings, owner of the nation's No. 3 movie-theater chain, and AMC Entertainment is also expected to go public this year.