Will Summer Movies Heat Up Media Stocks?

by Lawrence Meyers | March 8, 2013 7:15 am

Summer is still a ways off, but for media companies that make movies, it can’t come soon enough.

Overall movie attendance has declined by some 15% over the past decade, as consumers get fed up with sub-par content and have learned they can find the content on the Internet, which comes on-demand and is cheaper. Nevertheless, movie studios still produce blockbusters to make up for all the other films that fall flat with audiences.

Lots of those films hit the big screen during the hot summer months as well. The first weekend in May until Labor Day generally accounts for 40% of the film industry’s annual ticket sales. That means there’s a lot at stake for the big companies behind coming summer films … right?

Not so fast.

A quick look at some of this summer’s hottest films reveals immediately who the biggest players in the space are: Walt Disney (NYSE:DIS[1]), Viacom (NYSE:VIA[2], VIAB[3]) , Time-Warner (NYSE:TWX[4]) and Comcast (NASDAQ:CMCSA[5]). Take a look:

Viacom could have a winner on its hands with Star Trek since the series has a built-in following and J.J. Abrams has command of the franchise. Time-Warner, on the other hand, is dealing with a few wildcards. Pacific Rim‘s success will be entirely dependent on how good the storytelling, while Man of Steel could easily be amazing … and just as easily be terrible.

Still, the truth is that none of these movies are going to make or break any of these companies for one simple reason: They are huge, diversified conglomerates. Each company has insulated itself from too much risk, barring a complete meltdown in all divisions.

In fact, Lionsgate (NYSE:LGF[6]) is the film company that relies the most on specific franchises, partly because it’s smaller than its rivals. The Hunger Games and Twilight have boosted the stock incredibly[7] over the last year. It doesn’t have any big releases this summer, though, as the second installment of The Hunger Games is slated to come out in late November.

Nevertheless, as I’ve always said when it comes to entertainment, there is a stock to buy here: Disney. Sure, Disney has two solid bets on its hands with Monster’s University and Iron Man, as previous track records for Pixar and Marvel prove. But that’s just a glimpse into one compelling reality: You get broad diversification across a classic media conglomerate that has made three fabulous acquisitions with LucasFilm, Marvel and Pixar. Heck, you get exposure to great movies, along with a piece of the action across all media platforms.

If you’re more interested in the movie-side of things, though, another approach is to stick with the exhibitors[8].  Regal Entertainment Group (NYSE:RGC[9]) is a rich cash-flow business that pays a nice dividend. It’s not as diversified as Disney but, because it has more risk, it also has more potential upside.

All in all, summer movies may not be enough move the needle on these stocks, but that doesn’t mean there aren’t some hot picks in the mix.

As of this writing, Lawrence Meyers was long DIS.

  1. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  2. VIA: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIA
  3. VIAB: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIAB
  4. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  5. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  6. LGF: http://studio-5.financialcontent.com/investplace/quote?Symbol=LGF
  7. boosted the stock incredibly: https://investorplace.com/2012/11/think-twilight-will-be-big-for-lgf-just-wait/
  8. stick with the exhibitors: https://investorplace.com/2013/01/the-risky-business-of-betting-on-the-box-office/
  9. RGC: http://studio-5.financialcontent.com/investplace/quote?Symbol=RGC

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