This biweekly newsletter lists key events in the movie rental and exhibition industries for the period between June 4 and June 17, including notable rental releases, box office figures and recent company-specific news.
Movie Rental Industry
Key Redbox (NASDAQ:CSTR) releases this year (with domestic box office total in millions from ww.boxofficemojo.com):
o 6/12: Journey 2: The Mysterious Island ($102), John Carter ($72), Chronicle ($65), Ghost Rider: Spirit of Vengeance ($52), The Grey ($52), Good Deeds ($35); No notable releases the week of 6/5.
Key Redbox releases last year* (with domestic box office total in millions from www.boxofficemojo.com):
o 6/7: True Grit ($171), Just Go With It ($103)
o 6/14: Battle: Los Angeles ($84), The Rite ($33)
*estimated release date
Over the next two weeks, there are four notable releases, compared to none last year, classifying notable releases as those that grossed over $50 million in domestic box office. We expect the upcoming two-week period to outperform the same period last year. In our previous biweekly, we stated that Redbox had chosen not to release two Warner Bros. titles during the two-week period: Sherlock Holmes: A Game of Shadows, as well as Disney’s John Carter. Redbox did, in fact, release John Carter one week later, so Redbox revenues likely performed approximately in line with the same period last year. Also, Redbox released the Sherlock Holmes sequel on June 19, which we expect to be the primary contributor to outperformance during the coming two-week period.
On June 5, Coinstar (NASDAQ:CSTR) announced an exclusive five-year agreement with Seattle’s Best Coffee, part of Starbucks Corporation (NASDAQ:SBUX), to open new Rubi coffee kiosks in the U.S., with plans to end the year with 500 kiosks. We believe the coffee kiosk opportunity could generate as much as $0.65/share when fully penetrated, and potentially even more. With respect to other diversifying ventures, we expect the Verizon JV to launch in 2H:12, and we suspect Coinstar’s “new Redbox venture”, slated to be entertainment-oriented, will involve event ticket kiosks.
Netflix (NASDAQ:NFLX) shares weakened on forecast of back-end-loaded subscriber growth and continued negative press since Q1 earnings, declining 38% since April 20. Netflix’s 2H net adds guidance is unrealistic, in our view, and will likely come in closer to 6 million than 7 million for the full year. Negative press and mounting competition have also impacted shares.
April domestic box office ended down 9.0%. The Hunger Games was the number-one movie in April, after its lateMarch release. Also notable was the re-release of Titanic in 3D, having earned $57 million during April. We expect studios to continue re-releasing mega-blockbusters in 3D due to the lift they provide to typically slower periods.
May domestic box office ended down 1.3%. The Avengers was the runaway blockbuster in May, breaking the opening weekend record and surpassing expectations, with $532 million domestically during May. However, Pirates of the Caribbean: On Stranger Tides and The Hangover Part II both earned ≈ $150 million during the end of May last year, while Men in Black III earned only $83 million during the end of May this year (MIB3 has earned $155 million to-date).
We expect Q2 box office to be down 1.9%. June month-to-date box office is tracking up 3.8% with Madagascar 3 in the lead, while quarter-to-date box office is tracking down 2.5%. Even with our lowered Q2 box office estimate (up 1.9% prior), we may still be optimistic. Cars 2 (released 6/24/11) earned $90 million during June last year, and we expect Disney’s (NYSE:DIS) Brave (6/22/12) to perform at or above this level over a similar timeframe. Transformers: Dark of the Moon (6/29/11) and Bad Teacher (6/24/11) together earned over $100 million during June last year. Six titles are slated for the end of June this year, although none are expected to be major box office hits. Our estimate implies that the six titles together can outperform the Transformers sequel and Bad Teacher. If our optimistic assumptions do not hold, then we will likely revisit our Q2 estimates for our covered exhibitors, Regal, Cinemark, and Carmike.
Expect continued weakness in Brazilian box office to be offset by smaller Latin American markets. We have concerns regarding recent Brazilian box office performance, given its size in relation to Cinemark’s (NYSE:CNK) international segment, but note that the company’s smaller international markets are performing well and will likely offse weakness in Brazil.
Michael Pachter is an analyst at Wedbush Morgan.