Tuesday, March 3, 2009

In Downturn, Americans Flock to the Movies (But Don't Bet on It)

This is off topic but I had the Cowles Comission's Common-Stock Indexes: 1871-1937 open for a quick post on Warren Buffett's derivatives exposure and thought "what the heck".
From the New York Times:

Hollywood could get used to this recession thing.

While much of the economy is teetering between bust and bailout, the movie industry has been startled by a box-office surge that has little precedent in the modern era. Suddenly it seems as if everyone is going to the movies, with ticket sales this year up 17.5 percent, to $1.7 billion, according to Media by Numbers, a box-office tracking company.

And it is not just because ticket prices are higher. Attendance has also jumped, by nearly 16 percent. If that pace continues through the year, it would amount to the biggest box-office surge in at least two decades....

...Historically speaking, the old saw that movies do well in hard times is not precisely true. The last time Hollywood enjoyed a double-digit jump in attendance was 1989, when the unemployment rate was at a comfortable 5.4 percent and the Gothic tone of that year’s big hit, “Batman,” seemed mostly the stuff of fantasy. That year, the number of moviegoers shot up 16.4 percent, according to Box Office Mojo, a box-office reporting service.

In 1982, theater attendance jumped 10.1 percent to about 1.18 billion (the top seller was “E.T.: The Extra-Terrestrial”) as unemployment rose sharply past 10 percent. Then admissions fell nearly 12 percent, an unusually sharp drop, in 1985 (the “Back to the Future” year), as the economy picked up — suggesting that theater owners have sometimes found fortunes in times of distress, and distress in good times.

Academic research on the matter is scant. One often-quoted scholarly study by Michelle Pautz, of Elon University, was published by the journal Issues in Political Economy in 2002. Over all, it said, the portion of the American population that attended movies on a weekly basis dropped from around 65 percent in 1930 to about 10 percent in the 1960s, and pretty much stayed there....MORE
A quick look at the Cowles Theaters and Motion Pictures sub-index* (price series P-55, page 152) shows the index bottoming at 46.0 in October of the 1921 bear market, a Roaring 20's high of 150.6 in January 1929 and a depression low of 5.1 in March, 1933.

Although the business held up fairly well in the first year of the depression, they ended up a bit worse than the general market. Between th '29 high and the '33 low they lost 96% vs. the DJIA's 89% fall.
The stocks declined despite the common (and erroneous) perception that motion pictures were a resiliant business. From Film Encyclopedia:
...The industry had enjoyed a period of prosperity in the 1920s, building luxurious movie palaces and, from 1927 on, cashing in on the novelty of the newly developed technology of talking films. Between 1930 and 1933, however, movie attendance dropped from around ninety million admissions per week to sixty million admissions, and average ticket prices dropped from 30 cents to around 20 cents over the same span. Industry revenues dropped from $720 million in 1929 to $480 million in 1933, while total company profits of $54.5 million in 1929 gave way to total company losses of $55.7 million in 1932....
There are two problems with the business as an investment.
First, similar to the investment banks, when times are good the profits belong to the employees. When times are bad the losses belong to the shareholders.
Second, there are no pure plays among the six majors:

Columbia/Tristar and MGM/UA are owned by Sony.
Disney is a conglomerate.
Paramount is owned by Viacom
Warner Brothers is owned by Time-Warner
Universal is owned by General Electric
20th Century Fox is owned by News Corp

*Sub-index components are listed on page 474:
Paramount Publix
Fox Film
Fox Theatres
Stanley Co.
Warner Brothers
Twentieth Century Fox