Box Office Math, Algorithm Failure, and Movie Stocks

Posted: July 3rd, 2014 | Author:

A little number-crunching on the relationship between box office totals and the stocks of media companies owning studios leads to a wild lesson in just how meaningless some of the  entertainment press headlines on the so-called success of the large investments made by the studios on their tentpoles and other films. The increasing importance of global movie markets like China and the obtuse studio system of accounting and write-offs, along with a host of other factors, keeps the business of linking weekly box office wins and immediate stock performance a tricky business. A study in wretched failure below:

 

Stock Returns YTD of Major/Minor Film Studios

20th Century Fox (FOXA) +1.5%

Warner Brothers (TWX) +1.7%

Disney/Buena Vista (DIS) +13.1%

Sony/Columbia (SNE) -2.1%

Universal (CMCSA) +5.0%

Lionsgate (LGF) -8.0%

Open Road Films (via RGC and AMC) +14.9%

Fox Searchlight (FOXA) +1.5%

Relativity Media – IPO expected in 2015.

 

Correlation of stock returns and studio variables

Box Office GrossA negligible relationship between total box and stock direction exists. The correlation limps in at +0.10463.

Box Office Market ShareA flimsy, bordering on meaningless correlation.

Market Share Gain/LossFox picked up share in 2014, while Disney fell off.  Nothing to see with correlation to stock price, however.  Move on.

Number of Movies ReleasedInterestingly, the strongest negative correlation of all the variables.

Number of Weeks with #1 FilmMore meaningful than box office tallies, but not enough alpha to trade on.

Predicted Oscar NominationsWad up and throw away.

Critical ReviewsLess meaningful than generating long-lasting hits and slightly more relevant than the number of letters in the film’s title.

Social ReviewsCinemaScore ratings and Rotten Tomatoes scores are a great indicator of the legs a movie will have at theaters, but don’t move the needle on the stock return Richter scale. 

Sequel %Not of predictive value.

High budget %Just OK as an indicator of stock returns. A correlation coefficient of -0.28737 isn’t too much to get excited about (1=perfect correlation, 0 = neutral, -1 = negative correlation) – but in this motley bunch of variables it stands out. No surprise – a low high-budget film percentage is optimal.

Average box office per movieAgain nothing to get a stats wizard hopping excited, but a correlation of +0.23245 shows some relationship between stock performance and studios which keep their film slate at a reasonable level to smooth out the average take.

Opening weekend take as percentage of production budget: Wow, this category seems like a winner, but it’s a tease. It can’t even scratch out a 0.25% correlation.

Rentrak numbers: Dumping some Rentrak data in a spreadsheet and running some correlation analysis isn’t going to give anyone an edge on a hedge fund. There’s some reason to think that the follow-through numbers from Rentrak are significant as they relate to DVD and streaming sales but the correlation to stock price is only mildly higher than opening weekend numbers.

 

It’s nearly a clean sweep of correlation misfires to the point that chaos theory almost seems to reign. Part of the issue is that the movie studios are only a part of the story for the profits at the parent companies. Also, the window on the stock performance might need to be lengthened as studios are known to play with their own reporting. But jeez – hits do matter. Disney franchises from Marvel and Lucasfilm are a major part of the company’s future earnings profile, especially as other segments such as consumer products and theme parks stand to benefit from box office juggernauts. Though trading Lions Gate (LGF) before or after the debut of one of the studio’s films is a dangerous game, where would it be without Hunger Games (1-4) and Divergent (1-3)? After Relativity Media goes public as a pure-play studio stock will it to be subject to the same vagaries?

 

If you put Nikki Finke in the same room with a quant trader maybe we could get answers.

 


World Cup 2014: Google Assists ESPN FC

Posted: June 15th, 2014 | Author:

Google is giving a nice assist to ESPN by sending searchers with World Cup queries directly to the ESPNfc soccer site with a click. The action marks the first time Google has sent searchers directly to a third party with which it maintains a commercial relationship ahead of search results or paid advertising. A large embedded ESPNfc video playback option on the Google search page pushes down other organic search results to give ESPN some prime online real estate during the most highly-watched sporting event in the world.

What to watch: The cozy relationship between the Disney (DIS) sports juggernaut and Google is interesting to media analysts with Disney sharing more than a little DNA with Apple (Steve Jobs Trust, Pixar).  Where Disney shakes out in the battle for the rights to online TV content is critical to which platform might disrupt the pay-TV model.

 

Sources: Re/code.net, ESPNFC.com, Seeking Alpha

 


Let’s Talk Hydrogen Cars

Posted: June 6th, 2014 | Author:

Hyundai (HYMLF) plans to deliver its first hydrogen fuel cell-powered SUV in California next week. The launch comes despite the limited hydrogen refueling infrastructure in the state. The Japanese automaker is making a splash into hydrogen on its view that hydrogen-powered fuel cell vehicles rep the next generation of zero-emission electric vehicles.

Outside of the automobile industry, companies including FedEx (cargo tractors) and AT&T (server farms) have also been dabbling with using hydrogen despite the lack of a national pipeline. Critics says demand could reach a tipping point if more companies jump in too quick.

What to watch: If Hyundai’s launch of a SUV hydrogen goes over better than expected it could be a positive for FuelCell Energy (FECL), Ballard Power (BLDP) and Plug Power (PLUG). It also adds another layer to the engaging Toyota (TM)  vs. Tesla Motors (TSLA) debate.

 

 


The China Box Office Juggernaut Rolls On

Posted: May 23rd, 2014 | Author:

Analysts project China’s box office haul for this year will reach $4.49B to mark a 24.7% increase from last year’s level. U.S. films have performed extraordinarily well in China this year, led by Captain America: The Winter Soldier with a $116M gross. Godzilla opens in two weeks with expectations for a smashing run. Major Hollywood studios have walked a tightrope between adjusting scripts and sensibilities for Chinese regulators and keeping creative control. In a sign of the times, DreamWorks Animation’s Tibet Code is reported to have been greenlighted by the cultural czars in the country.

What to watch: The sizzling growth of China’s box office will provide a significant boost to a number of media companies in the region. Though interference from Beijing and rampant piracy is a risk for studios, the consumer appetite for Hollywood content has been voracious enough to keep profits flowing. A number of companies are poised for a second leg of growth as distribution hits new channels in China. At the top of the list:

 

Disney (DIS)The studio’s superhero films have played well in China. Shangai Disney will help boost franchise potential.

DreamWorks Animation (DWA)Via its Oriental DreamWorks joint venture

IMAX (IMAX)  - Powered by wide acceptance (150 screens and growing) and plans for at-home theaters across China

Lions Gate (LGF)Assisted by a  potentially lucrative VOD deal with Jiaflix

 

Sources: The Hollywood Reporter, Seeking Alpha, Box Office Mojo, The Wall Street Journal

 

 


The Godzilla Trade Set to Soar

Posted: May 17th, 2014 | Author:

Early reports indicate the Godzilla trade is paying off as consumers spend hundreds of millions on the 60-year old monster franchise.

 

Godzilla smashed estimates for its opening day with an estimated box office haul of over $38M. The weekend forecast is now for a $98M take vs. $65M-$75M prior and a total gross of $136M for the flimsy 1998 Matthew Broderick Godzilla. Media analysts note Warner Bros. (TWX) and Legendary Pictures delivered a near-perfect marketing message which teased movie-goers without saturating them to the point of boredom. A CinemaScore of B+ indicates Godzilla might stay on its legs for a while in the U.S. and easily eclipse The Lego Movie (also Warner Bros.) for the top U.S. gross of 2014. Early indications are that a high mix of moviegoers are paying up to see the film in the IMAX (IMAX) 3D format.

 

What to watch: Theater operators (CKECCNKRGCMCSRDIAMCDCIN) will get a definite boost with the strong weekend traffic, while Time Warner’s Q2 just got a little more exhilarating through the giant lizard’s exploits. Streaming and on-demand revenue will also pour in for Time Warner during Q3, while consumer product tie-ins could stretch to the holiday season.

 

Sources: Box Office Mojo, Deadline, Seeking Alpha

 


Fast-Casual Disrupters Pei Wei and Zoe’s Kitchen to the IPO Scene

Posted: May 16th, 2014 | Author:

Zoe’s Kitchen and Pei Wei could be the fast-casual superstars of 2014 with both the chains on-trend and having plenty of markets left to penetrate. While Zoe’s launched an IPO last month in an effort to raise capital to grow, Pei Wei is still under P-E control as a part of P.F. Chang’s,  although a public launch isn’t out of the question. Pei Wei (Pan-Asian) and Zoe’s (Mediterranean) each have a chance to dominate within their concept category, but they also face tricky margin challenges as they work out speed of service and input cost challenges. So far, investors have backed Zoe’s as a growth story:

 

Post-IPO scorecard: Zoe’s Kitchen ZOES +15.2% vs. Starbucks (SBUX) +3.2%, Chipotle (CMG) -6.4%, Panera Bread (PNRA) -10.1%, Noodles (NDLS) -10.6%, Potbelly (PBPB) -11.3%

 

What to watch: Zoe’s and Pei Wei have plenty of upside potential with both chains having less than 200 stores open. Though not as clean and simple of a concept as Chipotle, as a momentum bet they look like the best in the sector.

 


The Pixies: Where Indie Still Meets Chaos

Posted: May 16th, 2014 | Author:

Pixies

 

The Pixies released their first studio album in 20 years. Though Kim Deal is no longer part of the alternative rock foursome, the tracks from Indie Cindy capture the same irreverent Pixies style from the Surfer Rosa days.

 

The derangement that more than anything else — more than the quiet/loud dynamics, the shrieking mania, the surrealistic imagery — made the Pixies the Pixies remains firmly in place.

 

- The Boston Globe review on April 29, 2014

 

For those scoring at home the Pixies have now released the following albums: Surfer Rosa (1988), Doolittle (1999), Bossnova (1990), Trompe le Monde (1991), and Indie Cindy (2014).

 


Chobani IPO buzz picks up again

Posted: May 14th, 2014 | Author:

move last month by Chobani to relocate to Delaware looks like an indication the company may file an IPO in the U.S. The company took in $750M from P-E firm TPG earlier this year, but denied reports it was prepping for a public debut.

This time around execs with Chobani just went with “no comment” when asked about the Delaware strategy. A public launch by Chobani could help it create new growth channels, including yogurt-inspired stores. It also would give it a little more muscle to take on advertising heavyweights such as General Mills (GIS), Danone (DANOY), and Muller-PepsiCo (PEP) in the yogurt space.

 

Sources: Seeking Alpha, The New York Post

 


The Lunar Tetrad and Number Crunching the Apocalypse

Posted: April 18th, 2014 | Author:

This week’s blood moon has created quite the buzz with astronomers, preachers, and media outlets all covering the celestial event breathlessly. What’s interesting is that the hype is just getting started. A lunar tetrad -  four total lunar eclipses in a row, with no partial lunar eclipses in between, each separated from the other by six lunar months – is in the works. This has the end of days people excited.

 

“And I will show wonders in Heaven above and signs in the Earth beneath, the sun shall be turned into darkness and the moon into blood before the coming of the great and awesome day of the Lord.” - Acts 2:19-20

 

The Apocalypse watchers say that the lunar tetrad is a sign that economic calamity and war in Israel is upcoming. They point to events in history which they say line up with the moon’s friskiness.

 

What to watch: A little number crunching shows the odds might not be with the preachers. A rough tally shows wars in Israel since its post-WW2 creation in 1948, 1956, 1967, 1973, 1982, 2000-2005,  2008-2009, and 2012. Significant negative stock market events occurred in 1946-1949, 1956-1957, 1961-1962, 1966, 1968-1970, 1973-1974, 1987, 1989-1991, 2000, 2007-2009, 2010 (flash crash). That covers a lot of numbers on the Apocalypse roulette wheel without the big event happening. No need to prep the bunkers,  just enjoy the lunar tetrad.

 

 


Supreme Court Handicapping: Aereo vs. the TV Broadcasters

Posted: April 18th, 2014 | Author:

Aereo gets its day in the Supreme Court next week as it takes on a powerful group of broadcaster companies (DIS, CMCSA, CBS, FOXA) and the U.S. Solicitor General’s office. The tech company offers customers a service that delivers over-the-air broadcast content through Internet-connected devices. Aereo utilizes individual remote antennas to get around paying retransmission fees – a concept that has broadcast companies just a little hot and bothered.

 

Legal experts are deeply divided on which direction the court will rule in what could be a landmark case for the media industry. Justice Ginsburg is expected to side with the broadcasters and agree that Aereo violates copyright law, while Justice Breyer is tapped to side with Aereo. The other 7 justices are considered a bit of a tossup.

 

What to watch: A win by Aereo could lead to a pricing war in the pay-TV industry (CHTR, CVC, TWC) due to the low monthly fees ($8-$12/month) it charges to customers. A thriving Aereo could also prompt one of the major providers (DTV, DISH) to unbundle its network packages to move to a la carte pricing. Content providers (DISCA, AMCX, VIAB, SNI, TWX, CRWN, MSG) will be watching the developments closely.

 

The Wildcard: On the margins, Netflix (NFLX) doesn’t seem to have a lot of skin in the game with Aereo not a direct competitor. However, a disruption in the pay-TV industry away from the cable/satellite bundled network model could help the company with its scale giving it an edge on the streaming side of the industry.

 

Sources: Seeking Alpha, The Hollywood Reporter

 


The Elusive Chobani IPO

Posted: March 29th, 2014 | Author:

TPG is the lead bidder to win a minority stake in Chobani. An investment from the P-E firm will valuate Chobani at close to $2.5B, according to sources. Chobani has become a dominant force in the greek yogurt category, but took a mild PR hit last fall when Whole Foods Market snubbed it. The company has still carved out a formidable market share lead over brands from General Mills (GIS), Danone (DANOY), and Hain Celestial (HAIN). Retail analysts think a Chobani IPO would attract strong interest from investors due to its powerful brand recognition and loyalty. The yogurt juggernaut denies that any IPO talks are in the works, but the public’s appetite for greek yogurt could make a public offering of at least some shares irresistible.

Leading greek yogurt brands: Chobani, Dannon, Yoplait, Oikos, Fage, Stonyfield, The Greek Gods

Fast fact: Nielsen data indicates Greek now accounts for 54% of dollar sales for yogurt in the U.S. – compared to just 4% in 2008.

What to watch: TPG might get the first bite at Chobani shares, but the public could get their turn later this year or next.

Via Reuters and Seeking Alpha

 


Here Comes the Starbucks Venti Beer

Posted: March 21st, 2014 | Author:

Starbucks (SBUX) plans to sell alcohol in the evening at thousands of its stores. The revelation came from COO Troy Alstead during an interview with Bloomberg. The company says testing of the concept at select stores has gone very well.

What to watch: Starbucks outlets located near movie theaters, restaurants, and areas with an active nightlife are more likely to be tapped for alcohol sales.

The bottom line: The initiative could help Starbucks boost  same-store sales and margins at participating stores. With the company pledging that it won’t raise prices this year,  longer store hours and higher average ticket prices are the easiest route to sales gains. Cutting-edge advances with Starbucks’s mobile payment program could also be a sales driver.

Betting on coffee: Starbucks trades at $77.52 vs. the 52-week range of $56-$82.50. The P/E ratio on SBUX is very high, but so are the firm’s growth opportunities in global markets, consumer products at grocery stores, and mobile payments.