Fund Investors Have Stake in Summer Flicks
July 21, 2003
People flock to the movies during the summer blockbuster frenzy to flee the stresses of their everyday lives, but in actuality, many mutual fund investors have some portion of their finances staked on the success of the films they are using as an escape.
In most scenarios, investors' retirement and savings will not teeter on the draw of the likes of Warner Bros. Picture's "Terminator III: Rise of the Machines," or Metro Goldwyn Mayer's "Legally Blond 2: Red, White & Blonde." However, many of the world's largest movie studios are subsidiaries of much larger, more diversified corporations that have a prominent place in many portfolios. The summer film push represents 40% of the year's box office, making it a significant time for the industry, according to Exhibitor Relations Co., an Encino, Calif.-based box office tracker.
The Longleaf Partners fund, a $5.87 billion fund, had 6.5% of its holdings in Miramax and Buena Vista Studios' parent The Walt Disney Co., as of the end of last year, according to Lipper of New York. There are currently six other funds with more than a 4% weighting in Disney stock, according to the data. Warner Brothers and New Line Cinema studios' parent AOL Time Warner made up 11.7% of the $23.1 million Rydex Internet Fund as of last September, while it comprised 5.2% of the $16.7 billion Janus fund as of October. Viacom, Vivendi and MGM also all made up a significant percentage of other funds.
Disney said that 26%, or $6.7 billion of its approximately $25 billion in revenue for 2002 were from its Studio Entertainment segment, which includes live-action and animated movies as well as music recordings and other products. AOL did not provide information requested about revenue from its movie units at press time.
While a flop or an Academy Award winner is not going to make or break individual fund investors, the success of a film can have wider implications for a company, according to Fred Siegel, author of Investing For Cowards and president of The Siegel Group, a New Orleans investment advisory firm. While the numbers from an individual film may get diluted in the earnings, the success of a film can help turn the tide for a slumping studio. And many of them have been struggling, he said.
The immediate success or failure of a highly anticipated summer flick will not likely affect the day-to-day summer trading of the studio or parent's stock either, according to Gayle Keck, creator of the Keck's Index, a collection of indexes grouped according to stocks as they relate to holidays, events and life. The Keck's Index: Silver Screen tracks movie related companies. The index is up 12% since the latter part of March, but that lagged behind the 15% gain the S&P has made over that period. While it encompasses the start of the movie season, the market has also been in a post-war rally that has sparked optimism that the economy is recovering from a three-year slump.
Keck said that while "The Hulk" may get people talking about the stocks of the parent company, its success or failure won't lead to major upswings or downturns in the day-to-day movement of the equity. However, it could lead to more talk about the parent company and therefore have a bit more of a buzz around a security. But the true impact lies on the financials and on a longer-term horizon for the studios.
The top 10 films for the weekend ending July 13 grossed $3.11 billion so far this summer, and that is not including totals from mega hit "The Matrix Reloaded," according to data from Hollywoodreporter.com.
Entertainment giant Walt Disney is parent of the studio that recently released "Pirates of the Caribbean: The Curse of the Black Pearl," a movie based on the popular theme park ride. The filmed topped the box office grossing $46.6 million domestically during the weekend of July 11. Buena Vista also released "Finding Nemo" earlier in the summer and that film has grossed $291 million domestically in its first 45 days.
Disney, which is broken down into four basic operating segments, one of them being its Studio Entertainment, can milk significant cash from a blockbuster. There are always action figures of the film's heroes, theme park attractions and food products to be sold, according to Siegel. And then there's DVD and video sales and the potential for a sequel, which has proven popular and successful this year with the likes of "Charlie's Angels: Full Throttle," in addition to a slew of others.
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