With the economy slowly showing signs of a rebound, are Americans leaving the comfortable escape of darkened movie theaters to bravely face the day?
In hard times, more Americans go to the movies, something I reported two years ago in "Indiana Jones vs. the recession" and followed up on in May 2009 with "Potter and Spock vs. the recession." The trend held true through 2009, when box-office take advanced 10% to a record of $10.6 billion. This year started strong as well, thanks to the blue aliens of "Avatar," which hit screens in December and booked most of its record take in 2010.
But we went to the movies less often in May, the traditional start of the summer moviegoing season. The number of tickets sold dropped 19% compared with the previous May, to 110 million. The industry did get one break: In this age of 3-D and Imax, ticket prices are higher, so box-office take was down only 11% to $905 million. But that's still a big drop.
More immediately, the slip has meant trouble for movie-related stocks, which have swooned with the box-office totals and new doubts about the economy. But this could be a buying opportunity -- if Hollywood has another blockbuster summer on the way after all.
In a minute, we'll get to the key films that could save the season and the companies behind those films. But first, here's a look at why this May change is so significant.
Not a good opening
"It's a big deal," says Paul Dergarabedian, the president of the box-office division of Hollywood.com. "May is the month that sets the tone for the summer movie season, and the summer movie season is 40% of the total box office for the year."Many insiders, though, write off the weakness as a temporary plot twist, citing unexpectedly low turnouts for expected smash hits such as "Shrek Forever After" and "Iron Man 2." Memorial Day weekend was particularly bad, as the debuts of "Sex and the City 2" and "Prince of Persia: The Sands of Time" fell flat. It was the lowest attendance for that weekend since 1993.
Those insiders believe the films ahead will get Hollywood's success story line back on track. If they're right, the companies that are best at creating celluloid heroes, such as Sony (SNE, news, msgs), Walt Disney (DIS, news, msgs), Time Warner (TWX, news, msgs), Viacom (VIA.B, news, msgs), News Corp. (NWS, news, msgs) and DreamWorks Animation (DWA, news, msgs), look like blockbuster buys here. If you agree with this argument -- and some analysts do -- you can buy these stocks now and hold on for the hits.
I'd put technology leader Imax (IMAX, news, msgs) and theater companies Cinemark (CNK, news, msgs) and Regal Entertainment (RGC, news, msgs) in the buy category, too, because they'll continue to benefit from the switch to digital technology and 3-D, which let theaters charge more per ticket.
Like any good story line, though, this outcome is far from certain. If you think the summer swoon will continue, it could be time to take any profits you have on these stocks and move on.
"Hollywood had been on a very big winning streak. These winning streaks end," says Larry Haverty of Gabelli Global Multimedia Trust, a closed-end fund that invests in media and entertainment stocks.
Is Hollywood's big run over?
So what went wrong in May?It's possible that, as insiders say, the problem was simply that a few highly anticipated movies disappointed. Another factor blamed by some is rising movie ticket prices. Tickets at some Imax-equipped theaters, which boast bigger screens and better sound, were closing in on the $20 mark in May.
On average, though, ticket prices remain just below $8, not much higher than the $7.50 moviegoers paid last year, according to the National Association of Theatre Owners. And much of that increase is due to 3-D, which consumers seem quite happy to pay extra for.
That suggests something else is at work here: the economic recovery. The theory is that Americans are turning away from movies in favor of other, costlier kinds of entertainment, such as concerts and sporting events, that they had skipped during the recession.
History suggests that the movie industry tends to do well in economic downturns, then see a dud year or two on the other side of a recession. Movie attendance fell 7.3% in 1976 after sharp gains during the recession years of 1974-75. Attendance was flat in 1983-84 and then fell in 1985-86, following solid gains during the recession of 1981-82. From 2003 to 2005, attendance fell each year, after robust attendance growth of 4% and 11.2%, respectively, during the slowdown of 2001 and 2002.
Is this what we're seeing now? "I think it is too early to say," says Patrick Corcoran of the National Association of Theatre Owners. He points out that March was the best March ever for the industry and that April was solid. "It's hard to create a trend out of a few weeks of data."