Movie Stocks: Key Events Shareholders Must Know

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

This biweekly newsletter lists key events in the movie rental and exhibition industries for the period between December 17 and December 30, including notable rental releases, box office figures, and recent company-specific news.

Movie Rental Industry

Key Redbox releases this year (with domestic box office total in millions from www.boxofficemojo.com):

o 12/21: Total Recall ($59), Resident Evil: Retribution ($42), Premium Rush ($20).

o 12/24: The Dark Knight Rises ($448), ParaNorman ($56), Trouble with the Curve ($36), The Words ($11).

Key Redbox releases last year* (with domestic box office total in millions from www.boxofficemojo.com):

o 12/20: Midnight in Paris ($55), Colombiana ($36), Warrior ($14), Straw Dogs ($10).

o 12/27: Apollo 18 ($18), One Day ($14).

*estimated release date

Over the next two weeks, there are five notable rental releases compared to three last year (notable releases are those that grossed over $50 million in domestic box office).  DVD rentals for the upcoming two-week period should significantly outperform the comparable period last year, as this year’s big releases totaled over $600 million in domestic box office, compared to ≈ $400 million for last year’s notable release. In addition, The Dark Knight Rises was among the new releases in the prior twoweek period, likely leading to substantial outperformance over the same period last year.

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Redbox Instant by Verizon (NYSE:VZ) launched its public beta this month. At our California Dreamin’ conference held earlier this month, Coinstar provided commentary about Redbox Instant by Verizon, after a morning press release finally provided additional details regarding the service. We think the most important  takeaway from the presentation was management’s explicit statement that Coinstar (NASDAQ:CSTR) will not be required to fund minimum payments to the content providers, with Verizon absorbing the downside risk should the service prove to be unpopular. Coinstar will risk only its capital contributions up to a maximum of ≈ $158 million should the service not succeed, and we expect total Coinstar capital contributions to be no more than 20 – 30% of this figure.

Few catalysts remain for Netflix (NASDAQ:NFLX). We continue to believe that domestic streaming growth will slow in 2013, as Netflix has already converted the vast majority of potential streaming subs on mobile devices, consoles, and smart TVs into paying subs, and the company faces competition from the Redbox Instant service. Consensus estimates for domestic earnings power appear overly skewed in favor of domestic streaming, which we think generates  ≈$1.20/share, and we believe that Netflix’s DVD business (≈$3.00/share) will decline as international expansion (a loss of  ≈$4.20/share) continues, making profitability in 2013 unlikely. Despite recent commentary from Carl Icahn, we see few potential strategic acquirers of NFLX, and think the stock is overvalued.

Exhibitor Industry Analysis…