Wall Street usually shows little love for the movie business with its typically low, and unpredictable, profit margins. But in a combined look at the studio and exhibition businesses this morning, MoffettNathanson Research’s Michael Nathanson and Robert Fishman tell investors that it’s time to take a fresh look — as long as they proceed with caution. They lowered profit estimates for major exhibition chains Regal and Cinemark, citing expectations for weaker domestic summer box office results vs 2013. They project a full-year decline of 1.6% to $10.7B followed by a 5% jump in 2015 to $11.3B and then a drop of 2.6% in 2016 to $11.0B. The analysts appeared more upbeat about the studios. “After several terrible years post the popping of the DVD bubble, we believe the film industry is showing signs of health,” they say. “The combination of fewer releases, greater international focus and lower overhead expenses are all driving studio margins ahead of pre-recession levels. These results show that a good crisis wasn’t wasted in Hollywood.” Revenues fell over the last few years at the big four film studios (Warner Bros, Disney, Fox, and Paramount) as they reduced their output. Yet cash flow margins improved to a little under 12% which is “a tribute to their ability to curb bloated studio expenses.”
BREAKING: Open Road Films CEO Tom Ortenberg has re-upped for another four years through 2018, solidifying the distribution company. Ortenberg founded Open Road in 2011, backed by theater chains AMC and Regal. The move comes after Open Road extended its $100 million credit facility and set premium pay TV deals through Showtime and Netflix. Ortenberg’s deal was to scheduled to expire next year. “Working with AMC and Regal to establish Open Road Films — and growing the company over the past two and a half years — has been the most satisfying and exhilarating experience of my career,” Ortenberg said in a statement. “I could not be more proud of the job our team has done so far and I am looking forward to the future with great excitement.”
In Ortenberg, AMC and Regal got a savvy pro to launch a company designed to acquire and distribute wide release fare. Ortenberg previously served top posts at The Weinstein Company and Lionsgate. Open Road finds itself in an interesting position, given that one of its main wide release rivals, FilmDistrict, is being folded into Focus Features with the ascension of Peter Schlessel to take over the Universal-based prestige film label. It is unclear how that will impact competition, but even if Focus does more genre fare it gives Open Road room to breathe.
Cinemark, which owns the theater where this morning’s shooting took place, is -3.2% in early trading. And others are down as well: The largest chain, Regal, is -3.3%, and IMAX is -1.8%. Smaller chains are also off more than the market. Marcus and Reading are both -0.8%. In addition, companies that serve theaters are being hit. Ad sales company National CineMedia is -1.8% and 3-D technology firm RealD is -0.5%. The one big exception is Carmike. It’s up 2.0% following a Bloomberg report last night that said it could be a takeover target.
Is the price of movie tickets falling? Of course not. It may not look that way in 3Q: The average amount that consumers spent was $7.94, down from $8.06 in 2Q, the National Association of Theatre Owners reports today. But the numbers tend to bounce around from quarter to quarter, due in part to whether there are 3D films compelling enough to lead consumers to pay up for the higher-priced tickets. Last quarter was light, although it included Warner Bros’ Harry Potter And The Deathly Hallows Part 2 and Disney’s The Lion King 3D. The pricing picture becomes clearer when you step back to look at averages over time: The average for the first nine months of 2011 is $7.96, up 1% from all of 2010 and 6% from 2009. Regal also recently reported that its average ticket price was $8.78 in 3Q, up 1.9% vs the same period last year.
Everyone’s reacting today to Greek Prime Minister George Papandreou’s startling decision to hold a referendum on the deal cut last week to save his country’s economy. The agreement is unpopular — lenders would wipe out about half of Greece’s debt if the country accepts austerity measures that would cut social services. The fear is that a Greek default on its debt would have a ripple effect, pulling down other troubled economies.
Media stocks are falling along with the overall market. At mid-day, the Dow Jones Media Index is -1.6%. Sony’s been the hardest hit of the industry’s big guns with shares down 12%. Here’s how the others are faring: Disney -7.6%, Viacom -7.4%, CBS -5.6%, Time Warner -4.5%, News Corp -4.4%, and Comcast -2.4%. Media companies down double-digits include Entercom (-13.4%), IMAX (-11.9%), and Gannett (-10.9%). The only gainers thus far are Time Warner Cable (+2.4%), Regal (+1.9%), Lionsgate (+1.6%), and Pandora (1.1%).
Movie theater chains Regal and Cinemark are taking it on the chin on Wall Street this morning after a weekend of disappointing box office sales — and the close of an even more dispiriting quarter. Regal’s stock price is down about 4.6% in early trading. Janney Capital Markets downgraded its stock recommendation to “sell” from “neutral.” Lazard Capital and Merriman Capital also lowered their cash-flow projections for Regal. And Cinemark is down about 3.5%. Janney Capital changed its recommendation to “neutral” from “buy” — with Lazard and Merriman also cutting their forecasts. Analysts say that the 4.4% increase in box office sales in the second quarter vs. the same period last year fell far short of their forecasts: Lazard’s Barton Crockett expected a 10% pickup, while Merriman’s Eric Wold thought sales would improve at least 11%. And the holiday weekend didn’t lift their spirits. Crockett says that the $182 million generated domestically by Paramount’s Transformers: Dark of the Moon in its first seven days was $29 million less than he expected.
Tom Ortenberg has put together his executive team for Open Road Films, the indie film distribution company launched by theater chains AMC and Regal. As Deadline told you last month, former executive vice president of Worldwide Marketing for Miramax Jason Cassidy is Open Road’s new president of marketing. Ortenberg also named Elliott Kleinberg General Counsel and exec veep of operations and business affairs, Steven Andriuzzo as chief financial officer, and Ben Cotner as senior veep of acquisitions. Deadline also reported that Liz Biber will head publicity, but that apparently hasn’t happened yet.
“These key hires mean that we’re open for business,” Ortenberg told Deadline. “We’re fully operational, and we’ll be out in full force in Tribeca and Cannes shopping for new product.”
Cassidy started at Miramax in 1997. Kleinberg was COO at United Artists; Andriuzzo was at Paramount as senior veep of planning and finance for the domestic home entertainment division, and before that headed corporate finance and was Motion Picture Group controller at DreamWorks. Cotner previously served as exec director of acquisitions and co-productions at the Paramount Pictures Worldwide Acquisitions Group. Before that, he worked at Paramount Vantage and Paramount Classics.
REGAL REBELS! Not So Fast, Film Moguls: Chain Threatens To Reduce Trailer Play Time For Colluding Quartet Of Studios
EXCLUSIVE: I’ve learned that Regal Cinemas has come up with a specific plan to fight that newest scheme by Fox, Sony, Warner Bros, and Universal to keep undermining movie theaters. This is all about that colluding quartet’s plan going into effect as early as this month offering some major pics for a “premium” Video on Demand service on DirecTV at a price point of $30 only 8 weeks after the films’ theatrical release. (The norm is 4 months.) When word about this inconveniently leaked out last week at CinemaCon, the recent Las Vegas convention of studios and exhibitors, theater owners publicly expressed “strong disappointment” but privately went completely batshit. Now I’m told Regal Cinemas has decided to take matters into its own hands. My intel is that the theater chain’s marketing people have just begun warning the marketing teams of the colluding quartet of studios that it’s not going to be business as usual from this point on. Specifically, Regal is threatening to drastically reduce the amount of play time for each of the 4 studios’ movie trailers in every Regal cinema. And since this comes right before the all-important summer movie season, when balmy ticket sales usually account for 40% of the film industry’s annual revenue, it’s a counter-attack with some real power behind it. Because cinema owners allow millions of hours of playing time each year to trailers promoting the movies booked on their screens. In turn, that represents hundreds of millions of dollars that the studios get in free theater promotion. Now Regal is the first of these theater owners to calculate just how much that valuable screen time is worth to the chain’s bottom line and to the studios that have collapsed the release window. The same consideration will no doubt be given to the acres of wall and floor space devoted to posters and standees. As the National Association Of Theatre Owners’ Executive Board noted in their open letter last June 16th, the length of a movie’s release window is an important economic consideration for theater owners when it comes to how widely and under what terms they book a film.
I love the way the 4 studios are shocked, shocked, that Regal would dare to challenge them on this. The studios have been looking to find revenue to replace long-plummeting DVD sales (like deals with Netflix to expand windows on the streaming service), but they keep setting up a showdown with the big exhibitor chains who already are fuming about the low box office numbers during the first quarter of this year. Then again, no one is supposed to dare expose obvious issues relating to collusion, price-fixing, and anti-trust among the Big Media companies whose major studios are supposed to be business competitors.
Some of the colluding quartet’s coming movies probably won’t be hurt if they’re installments of well-known franchises like Fast 5 (Universal), or The Hangover, Part 2 (Warner Bros), X Men: First Class (Fox), Rise Of The Apes (Fox), or Harry Potter And The Deathly Hallows, Part 2 (Warner Bros). But new “original” movies could well be impaired by less trailer play like Green Lantern (Warner Bros), Mr. Popper’s Penguins (Fox), Cowboys & Aliens (Universal), Zookeeper (Sony), and The Smurfs (Sony). It will also cost more to market them since more expensive TV ads will have to run.
Who benefits? Certainly Paramount and Disney which didn’t join the quartet because of oft-stated piracy fears about early VoD which delivers a pristine, high definition, digital copy to thieves months earlier than previously available. Paramount and/or Disney have more than half a dozen summer blockbusters which could enjoy more movie trailer playing time by Regal: Transformers 3: Dark Of The Moon, Super 8, Thor, Captain America: The First Avenger, Pirates Of The Caribbean 4: On Stranger Tides, and Cars 2. Not that they need it because all appear to already have built-in audiences.
Here’s my advice to Regal right now: Don’t threaten. Promise!
The National Association of Theater Owners (NATO) already has bitched about how theater operators “were not consulted or informed of the substance, details or timing of this announcement” and how
Former top Fox exec and Pandemonium producer Bill Mechanic thinks that studios are being short-sighted and will inflict long-term destruction by enlisting in a plan to allow DirecTV to create a premium VOD window. Consumers will be able to pay 30 bucks for a 48-hour viewing window, 60 days after theatrical release, which further erodes the traditional theatrical window. He was interviewed by Bloomberg TV West to respond to a threat by theater chains AMC and Regal to boycott films that go VOD so quickly. I wonder what these shortening windows will do to tweener movies that do OK opening weekend box office business and build by word of mouth. Two current movies, The Lincoln Lawyer and Limitless, have shown surprising resilience. If consumers know they don’t have to wait long to see those films, will they bother going to theaters for anything other than VFX-filled 3D tent poles? AMC and Regal just launched a distribution operation to brand its own product that will show on hundreds of Regal/AMC screens. With battle lines being drawn between studios and theater chains, these chains could further squeeze tweener films by shortening their runs and replacing them with their own product. Here’s Mechanic:
The country’s two largest theatrical exhibition chains, AMC and Regal, this morning officially launched Open Road, a venture that will acquire and distribute films that can play in wide release on about 2000 screens. Distribution veteran Tom Ortenberg will run the company. He expects to have three pictures out starting this fall. “Once we’re up and running, we will be distributing 8 to 10 films per year, and possibly more,” Ortenberg said.
The move had been expected since the Sundance Film Festival in January. Open Road joins a crowding field of companies targeting wide-release finished films. What’s unusual here is that two theater chains are behind what Ortenberg termed a “straight content play.” The two entities control between 5,000 and 6,000 venues each in the U.S. (Regal is slightly larger) and between them are responsible for about 31% of the theaters in the U.S., doing about 45% of weekly business. Theater chains like AMC and Regal have railed as big studios continue to shrink theatrical windows on their event films. This venture gives the chains a little opportunity to push back: When those same studios supply stinkers that barely pack theaters or after their big films are mostly played out and hanging on to squeeze out those final drops of theatrical revenue, AMC and Regal can conceivably allocate screens to its own product. Just recently, AMC and Regal were among the chains that said they would not give screens to films that DirectTV wants to show on VOD four to six weeks after theatrical release.
While the largest allocation of P&A is TV commercials, Open Road product has the potential benefit of in-house promotion for films that will get at least 25% of theater penetration in AMC and Regal theaters. Ortenberg said he was unsure exactly how those promotional opportunities would manifest themselves.
“At its core, Open Road is a content play that recognizes that in many weeks of the year, AMC and Regal have excess capacity in their theaters,” Ortenberg told Deadline. “What’s better than to address this by filling those screens with great movies and stories looking for distribution? These films will be playing in all theater chains nationwide, and we will be competing for the same films that other midsize distribution companies go after. We will be an acquisitions-based company. We will not produce, we will not develop, but we are open to pre-buying from script stage or acquiring a completed film. Within those parameters, we will look for films we can acquire at an attractive price and market and distribute in a cost-effective manner to as broad an audience as possible. My experience shows those pictures will be available.”