'Avatar' lifts News Corp. estimates

Investors sighing with relief that $400 mil film didn't bomb

Na'vi equals money to News Corp. shareholders.

The stock is up 5% since "Avatar" opened and 12% since reviews first hit the Internet.

But go back to the beginning of December, when worries of a bulging budget and even thoughts of writeoffs subsided on Wall Street -- replaced by enthusiasm over a gathering buzz -- and News Corp. stock is up a whopping 20%.

That blows past every other conglomerate during the same time frame: Time Warner hasn't budged, Viacom is up 1%, Disney is 7% higher, CBS is up 11%, and Sony is up 14%.

Even though a single movie rarely is enough to move the needle on any of these behemoth entertainment companies, Wall Street can't ignore the fact that what could have been a massive failure -- given a budget that analysts peg at about $400 million -- is, in fact, a home run.

After divvying up the revenue with partners and exhibitors, "Avatar" already has turned a profit for News Corp., parent company of 20th Century Fox. And that, said Miller Tabak analyst David Joyce, is before any other windows start to contribute to cash flow.

Michael Morris of UBS said "Avatar" will contribute $100 million in operating income in the quarter from distribution fees and profit participation.

"The incredible performance of 'Avatar' is unlikely to sneak up on anyone," he said. "However, we believe the full economic impact to News Corp.. still remains underappreciated in current estimates."

Shares of News Corp.. traded, but didn't quite close at, a 52-week high of $16.67 on Thursday. On Friday, the stock closed at $16.42.

Stocks of smaller film companies such as Lionsgate and DreamWorks Animation routinely move up and down based on boxoffice performance. It's quite rare, though, to get a noticeable reaction from the giants.

Time Warner, for instance, didn't seem to benefit in the near term when "The Dark Knight" was becoming the second-biggest domestic boxoffice performer in history.

It's possible, though, that films from director James Cameron represent some sort of exception, judging from "Avatar" and, a dozen years earlier, "Titanic," which Fox and Paramount jointly distributed.

On Dec. 19, 1997, the day "Titanic" opened, stock in News Corp. was at an adjusted $9.90. Six weeks later it was 19% higher.

Hal Vogel of Vogel Capital Management points to other examples of single movies driving stock action: "Jaws" in 1975 moved shares of MCA, as did "E.T. The Extra-Terrestrial" seven years later. "Star Wars" sent shares of 20th Century-Fox Film Corp.. into orbit. More recently, though, the immediate impacts are much more muted, as with Time Warner's Harry Potter films, Disney with hot Pixar releases or Sony when "Spider-Man" was setting records.

"Most of the conglom shares today are much, much more sensitive to advertising trends, macroeconomic features, cable industry conditions, etc.," Vogel said. "Even the largest of today's films aren't as relatively important as these other factors."

Even so, he said, " 'Avatar' has indeed been creating some buoyancy for News Corp.. stock over the last month or so."