Draggin 'Dragon' vs. 'Avatar' and 'Alice', A 3D Sector Watch (DWA, NWS, DIS, IMAX, RGC, CNK)
DreamWorks Animation SKG Inc. (NYSE: DWA) is supposed to be the secondary winner off of the “Avatar” and “Alice in Wonderland”
trend toward 3D movies. This weekend was the launch of the 3D movie “How to Train Your Dragon” from DreamWorks and its $43.3 million box office unseated “Alice in Wonderland” as the top movie in theaters. The problem is that some were hoping for $50 million in the opening weekend, and DreamWorks is paying the price in its stock this morning. The reason here goes far beyond a ‘sell the news’ reaction.
This movie will also may impact on new releases from News Corp. (NASDAQ: NWS) and Walt Disney Co. (NYSE: DIS). Of course, it will be important for IMAX Corporation (NASDAQ: IMAX), and Regal Entertainment Group (NYSE: RGC) and Cinemark Holdings Inc. (NYSE: CNK).
“Dragon” reportedly cost DreamWorks roughly $165 million. The WSJ noted that about 56% of the “Monsters vs. Aliens” gross came from 3-D screenings in March of 2009 out of a total $59.3 million on its opening weekend, but noted that 68% of “Dragon” sales were from 3-D ticket sales. That is a disappointment considering that many movie theaters have just put in price hikes to help pay for the 3D projectors and the new digital projector formats. William Blair has DreamWorks under review and noted that the firm may trim as much as $0.40 to $0.60 from its expected $2.59 EPS this year.
News Corp. (NASDAQ: NWS) released Avatar on December 18 and it hit the $1 billion mark in box office receipts in
early January. News Corp.’s stock was at $15.63 on the launch date, but it had also run up from under $14.00 at the start of December in anticipation of the blockbuster film giving it a free few-hundred million in earnings. News Corp. is now a $17.00 stock. It will be interesting to see if the April 22 DVD launch of Avatar will add yet another bump as a one-time payment will allow for unlimited viewing at home.
Walt Disney Co. (NYSE: DIS) saw ‘only’ $17.3 million in estimated weekend sales for “Alice in Wonderland,” but this Disney film has now grossed over $600 million since its launch. With Thomson Reuters consensus estimates at about $37.5 billion for its fiscal 2010, the company is very broadly diversified from any one film.
The issue is that DreamWorks Animation SKG Inc. (NYSE: DWA) is now effectively a 3D pure-play, or at least will have the benefits of all titles being 3D. DreamWorks’ shares were at $39.88 on the Avatar launch date, and it was at $34.60 on December 1…. by the end of last week the stock was peaking up at $44.00 and change ahead of “Dragon.” So it is of little surprise that shares are selling off. But when you add in a “sell the news” AND a disappointing movie take, you now have a 9% drop back down to $38.95. That takes away all of the after-buying from the hype of “Avatar” impacting 3D sales.
A big issue here is going to be the price hikes. Some expect this to help and that the hikes of as much 25% will not hit movie sales. Some are skeptical. A quick take here is that at some point this becomes a luxury good rather than a staple entertainment spend. Taking a family of 4 to see a 3D IMAX film of a hot new movie could effectively end up running almost $100.00 after you include gas, parking, drinks, and snacks at the theater.
Dreamworks’ weakness is having no impact on IMAX Corporation (NASDAQ: IMAX), as its shares are up 2% at $17.44. The 3D movement and the increase in ticket prices is still a gamble and unknown for a consumer that is just coming off the Great Recession. IMAX seems to be able to support its sales regardless because it is still in few enough venues that it can sell out its 3D IMAX seats for hot new movies. That might not hold true for regular 3D movies and traditional movies all over the nation.
Regal Entertainment Group (NYSE: RGC) is down 3% at $17.43 and its 52-week trading range is $10.58 to $18.49. Cinemark Holdings Inc. (NYSE: CNK) is down almost 3% at $17.70 and its 52-week trading range is $8.63 to $18.47.
DreamWorks will have to hope for a better launch of the ‘final’ Shrek in May.
JON C. OGG