A Year of Tentpole Fare
Danny is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At the end of 2011, headlines would have you believe we were seeing the death of movie-going as we know it. A Google search of “movie attendance 2011” displays the following:
- Movie Attendance Way down in 2011
- Movie Attendance Falls to 16-year low
- 2011 Box Office Numbers Down, but Don’t Blame the Movies
However, after a dismal 2011, people are heading back to the movies. Even before this year’s blockbusters, there were glimmers of hope. From early March, this:
Box office is booming despite a lackluster slate of films
After an abysmal year at theaters, moviegoing is back. Through the first two months of 2012, ticket sales have surged 18% over the same period last year. More importantly, attendance is up 20%, even though this year's films appear to be no stronger than last year's.
Now, two months later, people are going back to theatres. In droves.
The Hunger Games had the third highest weekend opening of all time and has generated over $600 million in box office. The Avengers became the first movie ever to generate over $200 million in a single weekend and has joined the exclusive club of movies that have generated over $1 billion in ticket sales. It is currently the fourth highest grossing film of all time (as of 5/23/12).
With all this money being made at the movies, how’s the average investor to profit? There are several options from the studios themselves, to the purveyor of 3D cinema.
Had you invested in Lions Gate (NYSE: LGF) prior to the phenomenon that is The Hunger Games, you could be sitting on a cool double right now. However, investors may still be able to profit. Catching Fire, the next story in The Hunger Games trilogy, is due in theaters in November of 2013 and Mockingjay, the third book in the series, waits in the wings. Keep in mind that Lions Gate is also the proud parent of The Twilight Saga, having purchased Summit Entertainment earlier this year. Breaking Dawn was to be the fourth and final installment of the series but Lions Gate suspects the money making franchise has more to give. They announced their intention to continue beyond the existing storyline and extend the series.
Those with a more diversified view of the world could plunk down their hard earned cash on shares of The Walt Disney Company (NYSE: DIS), the parent of Marvel Studios. Disney bought Marvel for $4 billion in August 2009. After seeing the results of The Avengers, this seems like a steal. Disney is known primarily for their vast empire that includes movies, theme parks, television, cable and the occasional cruise ship. Disney will report the results of The Avengers in their next quarterly earnings statement, though some would argue these results are already baked into expectations.
However, with additional Marvel studios movies to come, Disney could continue to see additional long-term upside. Currently scheduled over the next several years are Iron Man 3, Thor 2, Captain America 2, and The Avengers 2. With the excitement generated by The Avengers, the future looks brighter for each of these franchises, along with television ties-ins, licensing deals, action figures and the potential for future blockbusters. With Disney's marketing savvy and generations of IP management, Marvel’s characters could not have a more heroic benefactor.
Another company benefiting from the abundance of tentpole movies this year and the one I believe provides the most potential for upside is Imax (NYSE: IMAX). Imax is best known for their 40 story mega-theaters and their 3D technology. Imax also produces projector technology that they sell or lease to theater owners. Many of these deals include revenue-sharing agreements, which provide Imax with additional continuing revenue streams. Imax has a theater backlog of 261 theaters in the pipeline and are in the midst of penetrating markets around the globe. Most importantly, they have been at the forefront of the current reemergence of 3-D movies. According to The Wall Street Journal, movie studios are courting Imax to boost the draw of their movies.
Studios are inviting IMAX executives to movie sets and rearranging opening dates to guarantee a release in the company's trademarked theaters, known for large floor-to-ceiling curved screens, grand stadium seating, surround sound, and premium prices….And most importantly, a generation of directors with clout love the way it makes their movies look. Inspired by Mr. Nolan's successful use of the cameras, a group of directors, including J.J. Abrams ("Star Trek"), Brad Bird ("Mission: Impossible—Ghost Protocol") and Michael Bay ("Transformers"), have been increasingly using IMAX to shoot scenes for their movie spectacles.
Being at the forefront of 3D technology and movies like The Hunger Games, The Avengers, Mission Impossible: Ghost Protocol, and the remaining field of this year’s tentpole fare will likely be a boon to Imax. The Dark Knight Rises – whose predecessor, The Dark Knight, currently holds 12th place among all-time worldwide box office – is due in theaters next month. Consumers have shown that they are willing to pay up for quality 3D movies. Some reports indicate as many as 50% or more saw The Avengers in 3D on opening weekend.
For Imax, this looks to be a good year at the movies.
Long IMAX, DIS