Invest & Profit From Movies – Part 2 of 2

In Part 1, we saw how investing directly in the media conglomerate, which holds the movie production studio, does not necessarily mean you profit directly from the movie-making business. As a case study, we took a look at The Walt Disney Company, where movies only make a small portion of the conglomerates revenues. In this post, we will take a closer look at investing in companies running movie theatres and screenings instead of production studios as a way of profiting from this segment of the entertainment industry.
A night out for watching movies will cost only $10-$12, so it appeals for the whole spectrum of the demographics since it provides everyone with quality entertainment including the frugal-minded person. This form of inexpensive entertainment makes it attractive to the masses. The movie theatre business is one of the segments of the economy which went fairly unscathed during the recent financial crisis, as it was considered a robust business even under recession conditions.

For the movie theatres businesses, profits margins from the ticket sales are fairly limited. The real profits, about 85% (source), come from the concession stands where popcorn is reported to have been marked up by 1,275% (source). More recenrtly, what used to be simply popcorn, pretzels, candy and cola concession stands has now expanded to full blown fast food options with immense markups as the movie theatre companies are constantly trying new products to push movie-goers to spend money. Lots of movie theatres Ive been to recently (run by Cineplex Inc) have started offering hotdogs, burgers, pizzas, chicken wings etc with huge markups.

The Players

The five largest movie theatre chains in N. America by sites and number of screens are:
Company Name
Ticker
Sites
Screens
Market
Cap
Quote
Current
Yield
Regal Entertainment RGC 580 7,367 $3.03B $19.45 4.32%
AMC Entertaintment Private 483 5,894 ~$2.6B N/A N/A
Cinemark Theatres CNK 298 3,895 $3.89B $33.74 2.96%
Carmike Cinemas Inc CKEC 232 2,242 $538M $23.38
Cineplex Inc CGX 133 1,438 $2.64B $42.02 3.43%
I am currently invested in Cineplex Inc (see My Holdings) which has a healthy yield  of ~3.5% and is one of the duopoly (other one being AMC threatres) of movie theatres across Canada. Movie theatre business provide you to profit from the movie industry even though most of the profits are made from the food sold at these locations because of people driven to the movie theatres.

Do you invest in movie theatres? What are your thoughts on this investment strategy for exposure to the movie business?

Disclosure: I am long CGX.

Invest & Profit From Movies – Part 1 of 2

A question that has crossed many investor’s minds: How do I invest in Hollywood and profit from the movie-making business? Movies makes hundreds of millions of dollars just on opening weekends, some go on to make over a billion dollars worldwide. Money pours in from box office sales, DVD/BluRay/Online sales & rentals, merchandise and toy partnerships with manufacturers and fast food restaurants, games based on the movies etc. A lot of investors have considered exposure to this aspect of the entertainment economy in order to get a piece of the pie. It is good quality entertainment for both the rich and the frugal minded and available to the masses. Afterall, its innate in every human being: seeking entertainment.

This is Part 1 of 2 posts that covers investment aspects of the movie-making business. Normally, there is no direct way of investing in and profiting from the movie industry unless you directly get involved with a movie’s production. Even investing in the movie-maker studio does not give you a great exposure for movies per se (as we will see later in this post) since the major studios are part of bigger conglomerates that are the media giants. The following are the major players in this market:

  • Universal Studios: Owned by Comcast/NBC
  • 20th Century Fox: Owned by Fox/News Corp
  • Walt Disney Pictures: Owned by The Walt Disney Company
  • Paramount Pictures/CBS Films: Owned by Viacom/CBS
  • Warner Bros: Owned by Time Warner
  • Columbia Pictures: Owned by Sony

This means if one movie does good or even great, the overall return on investment during a quarter or year is small comparatively speaking. The major studios and their respective parent corporations are listed in an older post where I compared dividends and growth: Dividend Comparison – Media.

Case Study: The Walt Disney Company (DIS)

If we take a conglomerate such as The Walt Disney Company and look through their latest (Q4 FY2013) earnings report, the annual revenues from Disney’s segments are:
  1. Media Networks:  $20.36B. This segment is comprised of a vast array of broadcast, cable, radio, publishing and digital businesses which includes the Disney/ABC television group and ESPN Inc.
  2. Parks & Resorts: $14.09B. This segment includes 11 theme parks and 44 resorts in N. America, Europe and Asia.
  3. Studio Entertainment: $5.98B. This is the segment involved in production of movies, music and stage plays.
  4. Consumer Products: $3.56B. This segment includes revenues from licensing agreements to manufacture, market and sell toys, apparel, books and fine art.
  5. Interactive: $1.06B. This segment includes mobile and console games, online virtual worlds and other online endeavors.
The Studio Entertainment includes Disney, WaltDisney Animation Studios, Pixar Animation Studios, Disneynature, Marvel Studios, Lucasfilm and Touchstone Pictures, the banner under which live-action films from DreamWorks Studios are distributed. This segment also includes music production and live theatre events. It is clearly obvious that the impact of one single movie on a company’s annual revenue is comparatively minuscule – which explains why the impact on the studios profits from movie/music piracy is negligible, even though RIAA would have you think otherwise.

The movies that contributed to the Studio Entertainment revenue ($5.98B) over the past year are: Brave, Iron Man 3, Monsters University, Oz The Great and Powerful, Wreck-It Ralph, Planes, Cinderella Diamond Release and Lone Ranger. Not listed here in the revenues as part of the $5.98B are revenues from Walt Disney’s music business and live theatre events.
 
Investing in production companies may seem like a direct exposure to the movie-making business, but it is only a small drop in the ocean that makes up the media conglomerate. In case of Disney, the studio entertainment segment makes only 13% of the total revenue. In Part 2 of the post, we will cover a better way of investing and profiting from the movie business.
Disclosure: None

Dividend Comparison – Media

Media companies have an immense power to reach large populations and influencing them. There are many different kinds of way people consume and entertain themselves – from radio to television to movies, music, vacation resorts etc. The surprising part of this whole mass media empire is that it is only a handful (6-8) of companies who control over 90% of the market share. These companies are truly conglomerates in their own sense.Earlier this year, Comcast bought full stake of NBC Universal from GE earlier this year for $16.7B and I have been thinking of looking into the various entertainment and media companies as a potential investment. Following are the media giants and their dividend comparison.

The Media Giants

Company Name
Ticker
Market
Cap
Quote
P/E
Yield
Payout
Ratio
5-yr
DGR
Comcast/NBC CMCSA $117B $44.68 18.83 1.75% 27% 41.74%
21st Century Fox
News Corp
FOX
NWSA
$70B
$8.6B
$30.92
$14.93
11.92
5.18
0.56%
1.14%
7%
NA
9.1%
NA
Walt Disney DIS $120B $66.98 20.35 1.12% 23% 16.4%
Viacom
CBS Corp
VIA
CBS
$35B
$32B
$72.41
$52.89
17.58
19.86
1.66%
0.91%
27%
18%
NA
-13.99%
Time Warner TWX $57.5B $61.70 19.02 1.86% 33% 7.86%
Sony SNE $22.4B $22.19 95.26 1.25% 64% 3.66%

Subsidiaries

A table of subsidiaries below shows the extent of each company’s empire. Each company has a major stake in various fields of the industry.
Comcast/
NBC
Fox/
News Corp
Walt Disney
Viacom/
CBS
Time Warner
Sony
Broadcast TV NBC Fox ABC CBS,
The CW (50%)
The CW
(50%)
Cable
USA Network,
SyFy, Bravo, E!
FX, National
Geographic
ABC Family,
A&E (50%),
Disney Chnl
MTV,
Nickelodeon,
Comedy Central,
Showtime
TNT, TBS,
HBO
Movie Universal Studios 20th Century
Fox
Walt Disney
Pictures
Paramount Pictures,
CBS Films
Warner Bros Columbia Pictures
Theme park/
Resorts
Universal Parks
& Resorts
Walt Disney
Parks & Resorts
Nickelodeon
Resort Orlando
Parque Warner
Madrid (5%)
Publishing Wall St Journal,
The Times
Marvel, Disney
Publishing
Simon & Shuster DC Comics,
Time, People,
Sports Illus
News MSNBC Fox News ABC News Now CNN, HLN
Business CNBC Fox Business
Sports NBC Sports Fox Sports ESPN CBS Sports NBA TV
Recod label Fox Music Disney Music CBS Records Warner Music Sony Music
Internet iVillage, Fandango,
Hulu (32%)
News Corp. Digital
Media, Hulu (36%)
Disney Interactive,
Hulu (32%)
MTV News Media,
CBS Interactive
Flixter (32%) Sony Online
Entertainment

Disney and Comcast (esp after NBC Universal acquisition) are the largest conglomerates of the mass media industry with market caps of $120B and $117B respectively. The two companies also look very well diversified across the businesses. They have attractive 5-yr dividend growth rates, but the yields are quite low (<2%). The yields are not attractive enough for me to initiate a position, but I will continue to keep an eye on these two.

Disclosure: None.

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.