Cowen and Co’s Doug Creutz advises investors today to “call a ‘time out’” on Big Media stocks in a break with the prevailing view on Wall Street that an upcoming round of mergers could help companies, or at least not hurt them. He fears that Fox’s bid for Time Warner will lead to “a land grab for content assets.” And companies that need cash for acquisitions probably won’t continue to repurchase shares and pay big dividends — strategies that have helped to keep investors interested in traditional media. The analyst says he now takes a ”more negative view” of Big Media, and downgraded Fox (to underperform from outperform), Viacom, and Time Warner (both to market perform from outperform). “Historically, this group has been uninvestable when M&A activity has been significant.”
Creutz observes that when Fox CEO Rupert Murdoch has had dealmaking on his mind “the shares of his company have underperformed the market.” And the analyst says he’s “not a believer that a combination with Time Warner would create significant value.”
It’s too risky to bet on traditional media, Creutz says, especially at a time when their stock prices are “near multi-year highs.” The advertising slow down in Q2 “feels like it was a little worse” than previous soft patches. It could become “a more significant negative” if the economy weakens. The pay TV cash cow could be threatened as “new over the top [Internet] distribution appears to be opening the door for insurgent content providers to potentially take market share.” And Creutz notes that the “dismal” … Read More »
UPDATE, 7:05 AM: Add Cowen & Co’s Doug Creutz to the list of analysts lowering their revenue estimates for How To Train Your Dragon 2 – and DreamWorks Animation — after the film’s second weekend. Today he cut his domestic box office forecast for Dragon 2 by 28% to $180M — less than the previous film’s $218M. And he dropped his international BO projection by 11.9% to $495M. The upshot: DWA should end 2014 with a 7 cent per share loss, not the 28 cent profit he had anticipated. While bulls look ahead to higher TV revenues and lower film costs in 2016, “given recent film performance and an upcoming film slate that has few obvious winners, DWA still appears to us to be a relatively unappealing stock,” he says.
PREVIOUS, Monday PM: The stock price fell 4.2% to $23.44 today after a second lower-than-expected weekend for How To Train Your Dragon 2, for a 16.2% drop since the Friday before the film opened. Dragon 2 generated $25.3M at domestic box offices, down 49% from its opening weekend, for a total of $95.1M. With this trajectory, the film “will likely miss our 6-week est. of $230M,” Wells Fargo’s Marci Ryvicker says. B. Riley’s Eric Wold cut his domestic forecast by 36% to $175M, and his international by 20% to $400M. As a result, the analyst trimmed his target price for DreamWorks Animation shares from $37 to $32. He cut his revenue estimate for the company’s current fiscal year by 5.5%, and cash flow forecast by 14.8% to $109M. Even so, Wold says that “international trends … Read More »
How To Train Your Dragon 2’s lower-than-expected $50M domestic box office in its opening weekend left many DreamWorks Animation shareholders feeling burned. The company’s stock price is down 12.2% in early trading as several analysts lowered their box office estimates for the film – which they’d hoped would help DWA recover after it took writedowns on three of its four previous releases. Cowen & Co’s Doug Creutz called Dragon 2’s performance “somewhat 2-thless” – he figured it would come in closer to $60M — and lowered his ultimate worldwide box office estimate by 20% to $650M. If Dragon doesn’t “significantly grow box office,” then it’s “fair to ask if there are any implications about the strength of DWA’s brand.” Sterne Agee’s Vasily Karasyov says he expects Dragon 2 to gross $180M domestically, nearly 20% below the Street’s pre-opening consensus, and 17% below the gross for the first film. That kind of performance from a sequel to a hit would worry investors “given that 3 of the 7 films scheduled for release through the end of fiscal 2016 are sequels, including How To Train Your Dragon 3.”
But others say it’s too early to judge. B. Riley & Co’s Eric Wold says that animated films typically have long runs in theaters – and notes that Dragon 2 was well received in reviews on Rotten Tomatoes. He sees the $50M opening weekend “as a glass half full and will both monitor domestic trends over the coming weeks relative to our projections … Read More »
Lionsgate Sees Future Profit Gains
Lionsgate predicts a 25% increase in profits over the next three years and says not to worry about stock price drop. Deadline's David Lieberman reports.
With its growing array of franchise films and TV series, Lionsgate revenue should increase by 25% over the next three years, while TV revenues increase more than 50% with a profit margin doubling to about 14% in 2017, CEO Jon Feltheimer told analysts this morning. Execs have “greater confidence that we can continue to accelerate” the pace of value creation. And shareholders should benefit: “It’s our intention to increase the dividend on a yearly basis,” Feltheimer said as Lionsgate continues to repurchase shares and make profit-generating acquisitions.
Related: Lionsgate Says It Will Ramp Up Brand Extensions Including New Game And Exhibition For ‘Hunger Games’
Investors were eager to hear management’s forecast after last night, when Lionsgate released disappointing earnings for the first three months of 2014. Its share price slipped more than 11% after the market opened this morning. The new forecast offers “some suggestion of what investors can expect once the Hunger Games franchise has run its course,” Cowen & Co analyst Doug Creutz says. But Wunderlich Securities’ Matthew Harrigan notes that investors seem to be “reverting to [a] ‘show me’ mode.”
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That’s the eyebrow raising conclusion Cowen and Co’s Doug Creutz reaches today in a bracing in-depth analysis of Disney‘s profits. The analyst has been cool on Disney for years and remains so even as company shares touch new all-time highs (including one today). But he says that ESPN has been its “primary driver of growth over the last 10 years” and fueled “the expensive transformations that Disney has undergone since Bob Iger assumed the CEO role in 2005.” Despite the much-heralded outlays for Pixar, Marvel, and theme park upgrades, returns on invested capital (ROIC) during the past decade for the other broadcast, movie, digital, and theme park businesses “have been pretty pedestrian.”
Related: Disneyland Raises Ticket Prices – Again – And Suspends SoCal Pass Sales
Creutz says he has been trying to make this kind of analysis for about three years but was stymied by the scant details Disney offers about ESPN’s profits. He thinks he found a good work-around, though, by assuming that the sports net looks a lot like near-pure-play cable network companies including Discovery, Scripps Networks, and Viacom (where Paramount’s earnings “are a pittance compared to the cable network contribution”). That leads him to believe that ESPN consistently delivers a ROIC of about 48% because it “can set prices for its customers, and to a certain extent, for its suppliers” at the sports leagues. Pay TV subscribers pay about $5.50 a month for ESPN, even if they never watch it. Read More »
UPDATE, 1:01 PM: Investors seemed to sour on the numbers over the course of the trading day, with DreamWorks Animation closing at $29.05, -1.4%. Sterne Agee’s Vasily Karasyov joined the company critics saying that Mr. Peabody & Sherman “is on track to generate $310M in global box office, which would translate into an $84M write-down.”
PREVIOUS, 8:43 AM: The $32.M weekend domestic box office for Mr. Peabody & Sherman was lower than the $43.7M average for DreamWorks Animation‘s recent original films, and less than most analysts anticipated. But it was strong enough to leave the basic debate over DreamWorks Animation’s stock intact with shares up less than 1% to $29.74 in morning trading. Cowen and Co’s Doug Creutz leads the naysayers, dropping his price target for DWA to $21 from $35. Following losses for Turbo and Rise Of The Guardians, he says “the company has been piling up an increasingly alarming film body count over the past few years.” Calling P&S “just another dog,” he predicts that the film will merely break even: He’s concerned that it will struggle in the U.S. with school spring breaks delayed by the later than usual date for Easter (April 20). In addition, in seven other markets (UK, France, Argentina, Germany, Mexico, Russia, and Spain), P&S “opened 37% below The Croods and 22% below Turbo.”
Others are more hopeful. Stifel’s Benjamin Mogil acknowledges that that the domestic opening was softer than expected, but adds that its “A” rating at CinemaScore means that “the next two weeks Read More »
DreamWorks Animation shares are down 13% in early trading this morning after last night’s disappointing Q4 report that included a $13.5M writedown for Turbo, a film that CEO Jeffrey Katzenberg previously said would be profitable. The weak performance added to analyst concerns that DreamWorks Animation’s Mr. Peabody & Sherman may also fall short of investor expectations after March 7 when it’s released in the U.S. Here’s the early line following last night’s report and conference call:
- Sterne Agee’s Vasily Karasyov (“Underperform” rating on DWA with a price target of $17 a share): Peabody & Sherman‘s opening numbers in the UK and France “look soft while the production cost is $18M higher than that for Turbo, increasing the probability of another write-down,” he says. The film based on the classic TV animated characters will generate $160M at domestic box offices and $280M abroad, he projects, but after losses for Turbo and Rise Of The Guardians “the risk is squarely to the downside.”
- Janney Capital Markets’ Tony Wible (Buy, fair value estimate $39): He projects $125M at U.S. box offices for P&S after a $25M opening weekend. Even so,
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If you missed Deadline’s top film stories this week, check them out here:
UNIVERSAL SHAKEUP: Adam Fogelson Out, Donna Langley Sideways, Jeff Shell In, And Ron Meyer Up As Studio Taken By Surprise
By Mike Fleming Jr – BREAKING… SHOCKER! In a shocking development, Adam Fogelson will exit his post as Universal Pictures chairman, with Jeff Shell taking over Universal Studios. Ron Meyer is becoming the sole vice chairman of NBC Universal through 2017, and Donna Langley has been promoted chairman of Universal Pictures.
‘Insidious 2′ Stuns As Sept’s 2nd Biggest With $41M For Year’s 2nd Best Horror Pic; De Niro’s ‘The Family’ Forgotten For $13.9M
By Nikki Finke - No surprise that a genre scarer did so well on a weekend frontloaded by Friday The 13th… Read More »
The stock is down 7% midday as investors try to determine how much, or little, DreamWorks Animation can expect from Turbo following its weaker-than-expected $31.1M domestic opening weekend box office results. “Investors will probably shoot first and ask questions later given the domestic performance,” says Stifel analyst Benjamin Mogil — who just lowered his domestic box office estimate for the film by 33.3% to $90M with international -9.1% to $300M. Everyone acknowledges that the overseas results will be key. Turbo won’t open in China until the end of Q3, and won’t hit most of Europe until Q4. As a result, Cowen & Co’s Doug Creutz says he doesn’t expect DWA to announce a write-down for Turbo when the company releases its Q2 earnings in two weeks — although “a write-down remains possible over the next few quarters.” He just lowered his earnings estimate for the company’s fiscal year by 11.1% to 64 cents. Sterne Agee’s Vasily Karasyov warns that DWA may have to take a $19M write-down in Q4, as he lowered his domestic estimate for Turbo to $70M from $160m. If he’s right, he says, then it may suggest that the company has larger problems that could jeopardize next year’s original releases Peabody and Sherman and Happy Smekday. Lazard Capital’s Barton Crockett is more hopeful. He just raised his international box office estimate for Turbo by 10% to $351M observing that this weekend’s results in countries including Russia, Mexico, Brazil, Argentina … Read More »
Yahoo CEO Marissa Mayer danced on a tightrope this morning as she tried to explain the logic behind her company’s $1.1B agreement to buy social network site Tumblr. She told analysts in a conference call that the companies will work together, but separately. They appeal to different audiences, but she says they can complement each other. And since Yahoo is “all about brands” and advertising, it can gin up sales on Tumblr even though it has a history of being ad averse — and tolerant of porn. “We need to have good tools for targeting” ad messages, Mayer says. While it’s important for Tumblr to be “true to their voice,” the companies can “monetize [it] in a way that’s tasteful” while showing advertisers “the benefits of [Tumblr's young] demographics and the huge volume of users and traffic.” Tumblr’s 26-year-old founder and CEO David Karp — who Mayer called “one of the most inspiring entrepreneurs I’ve ever met” — underscored the cultural differences in a blog post this morning. Promising that “We’re not turning purple,” he ended his brief news announcement saying “fuck yeah.” Mayer vowed to “let Tumblr be Tumblr” operating “under the Tumblr brand and David’s vision” from its base in New York. Yahoo will help with the infrastructure, but won’t put its brand on Tumblr’s site. The connection “will be largely invisible to users.” She says it shouldn’t be hard to gin up ad sales at the social network, which just began to accept them a year ago. “Of the top 10 Hollywood studios, all use Tumblr to promote movies,” she says. “Tumblr views itself as a home for brands.” For example, Yahoo could “work with [Tumblr] bloggers who want ads.” She acknowledges that the businesses have different psychographics — Yahoo audiences are older than those at Tumblr where the average user is 25. “I would expect any ad units that we create [there] would be native and follow the form and function” of the site, Mayer says. Read More »
Herzog & Company has brought Nicole Zien on board as Head of Development, Original Programming. The former CMT Senior Director of Development & Production has been charged with expanding the Killing Lincoln and Gettysburg production company’s further reach into nonscripted series and specials, across all platforms.
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UPDATE (ADDS DETAIL): After Earth, The Lone Ranger, R.I.P.D., and World War Z are among the “most notable candidates” to join the ranks of “several high-profile failures” from the major studios that Cowen and Co’s Doug Creutz predicts this morning. He worries Summer 2013 has “the most crowded release slate in recent memory” and could produce at least eight underperformers. Creutz has been making these domestic predictions for five of the past seven years. Here are his latest studio-by-studio prognostications:
Disney is at risk, Creutz says. He agrees Iron Man 3 will be a hit and projects domestic box office of $350M, and Pixar’s Monsters University should do well to the tune of $250M, but if The Lone Ranger bombs it could “sustain the perception that Disney’s film studio has some serious problems away from the Marvel-Pixar axis.” He expects Lone Ranger to generate $120M domestically but says it’s “a strong contender for an early write-down.” Westerns typically don’t play well overseas, he notes, recalling how even Will Smith’s star power couldn’t save 1999′s Wild, Wild West.
The analyst also forecasts that Paramount is “likely to have a one-up-one-down summer” with Star Trek Into Darkness probably making $250M and World War Z nowhere near that. He predicts just $85M for World War Z, which “had a troubled production” forcing a delay from the original December 2012 release date. It’s also up against Man Of Steel, and he says ”buzz has been elusive for the film, as we think … Read More »
The film’s performance is a big deal for DreamWorks Animation investors following the $87M writedown the company took for its Christmas release Rise Of The Guardians. But Cowen and Co’s Doug Creutz this morning joins the growing ranks of company followers who say that they’re pleasantly surprised by the performance of The Croods, the comedy about a pre-historic family on a road trip. The analyst raised his international box office estimate nearly 44% to $308M. What’s more, he lifted his forecasts for the studio’s future films noting that DWA’s first release distributed by Fox provides “increased confidence” that the partnership “will meaningfully improve overseas performance.” Although Creutz continues flash a yellow light “neutral” for DreamWorks Animation as an investment, he lifted his earnings per share estimate for this year about 49% to 58 cents adding that his “bias on the stock is now leaning to the positive side.” The second-weekend performance of The Croods did a lot to reassure analysts. Janney Capital Markets’ Tony Wible raised his domestic box office estimate to $152M from $116M. Wells Fargo Securities’ Marci Ryvicker said that the weekend’s “low decay of 39.3%” from the opening weekend puts it “on track to beat our prior 6-week est. of $115.0M.” Read More »
It’s hard to recall the last time a studio had so much riding on the performance of a single film. Following the $87M writedown for Rise Of The Guardians, and other setbacks, DreamWorks Animation is “a very hated stock on Wall Street,” Janney Capital Markets’ Tony Wible says. Short-sellers control about 24% of the outstanding shares. Just one analyst rates it a strong buy while five rate it “hold” and five classify it as either “sell” or “underperform.” Investors question whether the company can thrive as the market for family fare becomes more competitive. Since DWA only releases about two films a year, there are few opportunities to shape the company’s story. That leads us to The Croods: The consensus among analysts is that the film will generate a little north of $40M at domestic box offices this weekend, ultimately leading to a gross of $160M domestically and $290M abroad. “If they do below $40M, then people will be disappointed,” Wible says. “And north of $50M will be really good for these guys.” The Street’s cautiously optimistic. DWA shares are up 9.8% over the last month. Here’s a sampling of analysts’ estimates and commentary while they wait for the results: Read More »
It appears so according to an intriguing report out today from Cowen & Co analyst Doug Creutz. His conclusion comes from a 12-year comparison he’s been making of the total number of tickets sold domestically each year vs the average scores that voters on Rotten Tomatoes give to the 50 most widely released films. He has found a consistent correlation — attendance was high in years when Rotten Tomatoes scores were high — for every year except 2011 and, now, 2012. The two years had the highest average Rotten Tomatoes scores in the period he studied, but below-average ticket sales. Although Creutz recognizes that’s not conclusive evidence of a trend, it leads him to suspect that “the domestic demand curve for movies has meaningfully shifted down since 2010.” That’s worrisome: In a year of less popular films “ticket sales could drop well below any level we have seen in the last 12 years….This would certainly represent a bit of a catastrophe for the industry (including exhibitors) and would certainly get the attention of Hollywood executives.” He estimates that theaters sold 1.38B tickets in 2012, down from 1.44B in 2009 and 1.41B in 2000. Although box office revenues have increased over the decade, to $10.8B last year, that “has been made possible entirely through increasing ticket prices.” What accounts for the apparent disconnect between movie quality and attendance? Creutz says it could reflect consumer resistance to rising ticket prices, and improvements in home entertainment … Read More »
Studio moguls always feel that they need their tentpole releases to succeed. But they rarely have as much riding on a single film as DreamWorks Animation CEO Jeffrey Katzenberg will on March 22 when he releases The Croods. His company’s dreary Q4 financial report yesterday, which included an $87M writedown on its Christmas release Rise Of The Guardians, set the stage. If The Croods is a success, then investor concerns about the company “will fade,” Lazard Capital Markets Barton Crockett says. But a miss “would amp concerns about a creative crisis, and the big cash drain that results when movies misfire.” Good box office sales may not be good enough. Barclays’ Chris Merwin says the company needs “an exceptional performance” — he expects Croods to generate $150M domestically, and $300M overseas. Forecasts like his are important for investors who are wondering whether this is a good time to buy DreamWorks shares — which are down 3.4% so far today, and -26% since November 2 when it hit a 52-week high of $21.99. In Wall Street terms, the company seemed to take a “bath” yesterday with its Q4 report. It took $165M in writedowns, resulting in a far bigger than expected loss. Read More »
National Geographic’s Killing Lincoln premiered to a network record-breaking 3.4 million viewers last night. Based on Fox News channel host Bill O’Reilly’s book of the same name, the show is the first original factual drama from the network.
(WASHINGTON, D.C. — February 18, 2013) National Geographic Channel’s Sunday night premiere of KILLING LINCOLN – the network’s first original factual drama – proved to be the perfect way to honor President’s Day Weekend with stellar ratings that averaged a whopping 2.6 HH rating – tied for the second highest HH in network history – and a 1.1 P25–54 on Sunday, February 17, at 8 p.m. ET/PT.
KILLING LINCOLN also averaged 3.4 million persons 2+ over the entire two-hour premiere, the highest total viewership in NGC’s history!
Furthermore, the 1.1 P25–54 is the highest rated P25-54 since the premiere of SEAL Team Six: The Raid on Osama bin Laden in November 2012 (1.4 P25-54), and is more than 175% higher than NGC’s Sunday 8–10 p.m average so far this year (.4 P25–54).
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This is one of several findings out today from a survey of 50 ad buyers that Cowen & Co says helped it to update and expand its coverage of Internet and New Media stocks. The advertisers are upbeat about 2013, seeing overall U.S. spending grow 4.6% vs 2012. That’s pretty good considering how much the election and Olympics boosted this year’s sales. But the additional dollars will mostly go to digital media — and especially those that appeal to smartphone and tablet owners. Digital will account for 33.5% of next year’s spending, up from 28.7% this year, Cowen analyst John Blackledge says. Meanwhile, TV’s market share will fall to 39.3% from 41.4%. The company notes that “TV consumption has remained static at 12-13 hrs/week” from 2004 to 2010. “Only Internet consumption has increased, from under 6 hrs/week in 2004 to 13 hrs/week in 2010.” The big surprise, though, is how eager advertisers are to spend on mobile. Cowen projects that smartphones, tablets and other portable devices will account for 26% of digital ad sales in 2018, up from 9% this year. But the firm says its survey suggests that the forecast may be too conservative — and that mobile could account for more than half of all digital ad sales in six years. That should concern moguls because Cowen says that “mobile ad dollars come at the expense of traditional ad mediums (TV, print, radio, etc).” Google is … Read More »
Talk about scratching the Surface. Microsoft CEO Steve Ballmer inadvertently dinged his company’s launch campaign for its Surface tablet by telling France’s Le Parisian in an interview that sales are “starting modestly.” To be fair, he added that critics’ response to the device was “phenomenal” — and that initial sales were limited because the tablet is still just available online and at a few stores. Still, his tempered comment, along with his refusal to project potential sales, contributed to a 2% drop in Microsoft’s stock price this afternoon. The company has a lot riding on the tablet, which includes Microsoft Office programs and can be paired with a keyboard cover to function like a conventional laptop computer. Strong sales “would come as a positive surprise to investors and demonstrate [Microsoft's] relevance in this important market,” Cowen & Co analyst Gregg Moskowitz says today. Read More »