markets-hub.com

There’s been a flurry of stories about how macroeconomic conditions are affecting the day-to-day activities of consumers. High gas prices prompt people to drive less or avoid longer vacations, while other pinches reduce consumer confidence or make people think twice before buying an unessential new outfit, car, or house. But one area of the economy may be avoiding the impact of a possible recession: the movies.

If true, this would not be without precedent. Attendance levels reached their peak during the Depression, driven by the allure of escapism and fewer entertainment alternatives. On Tuesday, analysts at Morgan Joseph argued that movie attendance and revenue were “bucking the trend,” showing themselves to be “somewhat recession resistant.”

The firm cited results from last weekend, which made 22% more than the equivalent week in 2007. Of course, this needs to be taken with an ocean’s worth of salt. The weekend saw the $62.5 million debut of Disney-Pixar’s “Wall-E” in first place and Universal’s “Wanted,” earning $51.1 million, in second place. Strong results to be sure, but in using comparisons, it’s as important to consider the previous year; The top two films a year ago were Disney-Pixar’s “Ratatouille” ($47 million) and Fox’s “Live Free or Die Hard” ($33.4 million).

This year’s Pixar release had an adorable love struck robot as its lead, who tested off the charts in audience response. Ratatouille starred a cartoon rat, not the most beloved animal to anchor a film. While “Live Free or Die Hard” was part of a well-known series, the previous entry was 12 years old, and there was no real desire for a continuation. “Wanted,” on the other hand, was a fresh franchise based on a popular comic book series. In short, it was the films themselves that drove the gross, not macroeconomic conditions.

Morgan Joseph noted that this past weekend represented the fifth consecutive period that beat its counterpart of 2007. True, but this doesn’t signify much. Memorial Day weekend was 14% below 2007 levels (it was the worst gross for the holiday in five years), and it was headlined by “Indiana Jones,” one of the most eagerly-anticipated films of this or any other year. Other weeks saw declines of as much as 28% from the prior year, hurt as unexpected flops (”Speed Racer,” “Prince Caspian“) failed to measure up to last year’s blockbusters (”Spider-Man 3,” “Shrek 3″ and “Pirates of the Caribbean 3″).

Currently, the year-to-date 2008 box office is 2.3% above the same point in 2007. But when higher ticket prices are factored in (which Morgan Joseph doesn’t do), the premium is much diminished, meaning attendance rates are steady with last year or down slightly. So while the firm argues that the year-to-date improvement “seems to be improving, despite apparently weakening economic conditions,” it’s not quite accurate and the two aren’t necessarily related.

The firm is right about one thing: most of 2007’s top movies had already came out by this time last year. This year still has “The Dark Knight” and the sixth “Harry Potter” film to look forward to. These could indeed put the current year safely over 2007 levels, but there have been so many ups and downs this year so far that it’s just too close and early to tell.

The 2008 summer box office has provided audiences with a number of memorable battles. Iron Man fought his nemesis, another man in iron, while the Incredible Hulk provided some variety by fighting another hulkish being. Elsewhere, Indiana Jones battled Russians, and characters in The Happening faced the hellish prospect of Mark Wahlberg acting. But the most interesting battle of the season is occurring behind the scenes, as 2008 fights to top the amount of money brought in during box office 2007. So far, it’s neck and neck.

After some early success that provided a healthy cushion against last year, subsequent weak weekends eroded that premium until it was finally depleted. But not all hope was lost, as a strong June got its game on and sent comparisons crying home to momma. After last weekend, when “The Incredible Hulk” made its debut on top, 2008 regained its position over 2007, having made 0.2% more. This is too small a premium to matter; especially when one considers that attendance levels are lower this year (higher ticket prices create the boost from last year).

Given the neck-and-neck nature of the two years, the question remains whether there will be enough strength in the rest of the summer to rebuild a cushion that could last through the year. There remain some major films yet to be released, notably “The Dark Knight,” but this upcoming weekend is one of the biggest question marks.

Two major films are being opened that will likely play to similar audiences. Warner Brothers is releasing “Get Smart,” a spy comedy adapted from an age-old TV show. The film has some star power and is being well (and extensively) marketed as equal parts action and comedy. Goldman Sachs expects a debut in the high-$30 million range.

The other new release is Paramount’s “The Love Guru,” which will have to fight “Get Smart” for the comedy-seeking audience. While Guru has a bigger star in Mike Myers, it has also received horrible, scorched-earth reviews that may limit repeat viewings. Goldman puts Guru’s debut around $25 million.

These lower key releases show that this weekend is not considered a crucial one for the season. But it still may eke out a win over the comparable one in 2007, given the continuing appeal of such recent releases as “Kung Fu Panda,” “Sex and the City” and of course, “Iron Man,” which recently became the first film of the year to make more than $300 million.

Marvel Entertainment’s green machine is set to roll into theaters this weekend, as its latest feature film from a stable of comic-book characters hits the big screen. Oh, and there’s a bulked-up angry chlorophyll-colored guy in it.

“The Incredible Hulk” opens June 13 and is expected to earn $50 million to $60 million in its first weekend, based on early buzz and word of mouth.

That figure implies a domestic box office of about $150 million, according to Drew Crum, an analyst with Stifel Nicolaus. After attending an advanced screening of The Hulk, Crum said, “it can hit this target.” That would make it easily the top film of the weekend, with competition coming from “Kung Fu Panda”’s second weekend and the release of “The Happening”.

JPMorgan forecasts a $50 million opening weekend for Hulk. If the film clears $120 million at the domestic box office, Marvel will lose $24 million, JPMorgan said, and if “The Incredible Hulk” makes $150 million, Marvel will see a $34 million profit.

The buzz for the movie has “improved markedly over the past few weeks,” said analyst Doug Creutz of Cowen & Co., who expects the film to make $55 million in its opening weekend.

“One of the factors which impressed us the most about the film at our screening was the degree to which the film ties in to other Marvel properties, such as ‘Iron Man’ and ‘Captain America,’ ” Creutz said. “Marvel is clearly building towards its planned ‘Avengers’ film in 2011.”

And they have more in store, no doubt. As Marvel points out, it has 5,000 characters in its library.

Good news on the American box office front this weekend. After some recent weakness, and a May that brought in 11% less than May 2007, a few recent releases have given the industry a B-12 shot of energy.

While obviously it’s too early to make any definite predictions about how films will fare (after all, look at the unexpectedly weak performance of “Prince Caspian” and the amazing upside surprise of “Sex and the City”), things are looking mighty fine in the near-term. “We believe the recent performance of the movie slate supports our view that the 2008 box office outlook remains solid,” wrote Soleil Securities.

Leading the pack this weekend was the DreamWorks Animation release “Kung Fu Panda”. Audiences lined up in droves, giving the film a very healthy $60 million debut. With some positive reviews, audience members taking their entire families (likely several times) and a lack of competition for family-friendly content, there looks to be a lot more money to be made before it eats, shoots and leaves theaters.

In second place, and appealing to a different audience, was the Sony release “You Don’t Mess with the Zohan”, an Adam Sandler comedy aimed at teenagers. The film made $40 million in its debut weekend, which BMO Capital Market described as “significantly outperforming expectations.” While the film’s performance in coming weeks depends on word of mouth, it should still easily break $100 million domestically.

Losing about half its audience in its third week, the latest entry in the “Indiana Jones” saga pulled in $22.8 million, good enough for third place. The film has made a total of $253 million and is now the 43rd highest-grossing film of all time. (Ironically, the film Indy displaced when it entered the top 50 was “Raiders of the Lost Ark”, released in 1981 when ticket prices were much lower.)

“Sex and the City”, last week’s crown wearer, fell in its second week, losing about 63% of its audience to make $21.3 million.  Nonetheless, after having pulled in $99.3 million, Sex should become an immensely profitable item, which doubtlessly suggests franchise potential.

All told, the top 15 films made a total of about $171 million, up a powerful 30% from the equivalent week last year. And the upcoming slate isn’t without potential. Friday sees the release of Fox’s thriller “The Happening” and Marvel’s “The Incredible Hulk”. Early tracking suggests that Hulk could gross more than $60 million in its debut, and of course, there’s no need to remind anyone of how well the last Marvel release went.

From here on out, all bets are off. New Line’s romantic comedy “Sex and the City” burst onto screens in its debut weekend, landing atop the list with a huge gross and deposing Paramount’s “Indiana Jones” in an unexpected upset. The “Sex and The City” film, based on the popular HBO series of many years ago, grossed an astonishing $55 million in its debut, far beyond even the most bullish of expectations.

Deutsche Bank said the film would be “highly profitable for Time Warner considering the modest $65 million budget.” Given the opening, this is almost a foregone conclusion. The debut represents the highest opening ever for a film headlined by women (2001’s “Tomb Raider” was the previous record holder), made more notable by the limited male appeal and the film’s R rating. Reports said the audience was about 85% female, with many large groups attending.

It shouldn’t be too surprising that women can bring this kind of power to the screen; recent studies have suggested that women could make up a significant percentage of the population. The only surprising thing is that Hollywood hasn’t been more aggressive in courting this group (though counter-programming is common).

While mega-movies like “Indiana Jones” and “Iron Man” do have their legions of female fans (and at least one major female role), the last major movie that was primarily pushed toward women was “What Happens in Vegas” from three weeks ago. That film, despite a comparatively limited marketing push, easily lapped the action extravaganza that was the big-budget mostly-man-romp “Speed Racer”, making $95.4 million so far, compared to Racer’s $34.2 million.

“Sex and the City” could inspire studios to focus more on women. Given the proven spending potential of the group and the generally smaller budgets required (”Indiana Jones” carried a budget more than $100 million than that of “Sex and the City”), it’s just smart business.

“Indiana Jones” dropped 58% in its second weekend, making a mediocre $46 million. While a 58% drop isn’t unheard of, the pedigree of the cast, crew and source material had some theorizing that it would maintain more of its audience. The culprit appears to be limited repeat viewers, who remain a driving force of the success of “Iron Man” (the film grossed $14 million in its fifth weekend, bringing its total to a strong $276.6 million).

The bronze medal went to Rogue Pictures’s “The Strangers”, a horror cheapie that made a solid $20.7 million in its debut - impressive given that horror films haven’t performed too strongly lately.

The top dozen films grossed a total of $164.8 million, up an encouraging 28% from the same weekend last year. However, the total 2008 box office remains 3.9% below the same week in 2007, despite higher ticket prices. Next week sees the Sony release of Adam Sandler in “You Don’t Mess With the Zohan” and Dreamworks Animation’s “Kung Fu Panda”. Zohan, Panda, Sex and Indy will all appeal to largely different audiences, so there will be room for all in what should be another strong weekend.

Given that 2008 isn’t even half over, it’s obviously too soon to make any final judgments about how the box office will compare to 2007. At the same time, all signs are pointing downward.

This past weekend saw the release of Paramount’s “Indiana Jones and the Kingdom of the Crystal Skull”, arguably the most eagerly-awaited film of the year, and yet the weekend was unable to approach the figures made last Memorial Day (or any of the past five Memorial Days, for that matter).

The top 12 films were down 14% from last year, and the year-to-date total is off 1.4%. This gap would be a lot wider if not for early strength. So far, the second-quarter box office is off 7.6% from 2007. These dismaying numbers widen when 2008’s higher ticket prices are considered. Accounting for that, 2008 attendance is down 5% so far in 2008 and 11% in the second quarter.

The ability for 2008 to top 2007’s level depends on the remaining summer films, but the slate looks weak. Upcoming is a new Pixar movie (”Wall-E”), the annual Adam Sandler comedy (”You Don’t Mess with the Zohan”), and Will Smith as a superhero in “Hancock”. There is also the return of the Incredible Hulk in his film and Batman in “The Dark Knight”. They’ll all make money, but no one is expecting even Batman to top Indiana Jones. As RBC Capital Markets put it, “the summer movie season will basically be ‘over’ by July 4.” Typically, major films are released (and major money is made) through the start of August.

All that aside, you can’t argue that Indiana Jones didn’t give it his all. It accounted for more than half the total box office, pulling in $151.1 million (including Thursday preview shows and the contribution from Monday’s holiday). With international grosses, it has made an astonishing $311 million in less than a week, making it more than doubly profitable.

The weekend’s miss was largely thanks to the fact that no other film contributed to the total in a significant way. As expected, “Prince Caspian” didn’t approach the amount made by “Shrek the Third” last year. Disney’s second entry in the Narnia series placed second over the weekend, making $28.6 million, down 48% from its debut.

Third place went to Paramount’s “Iron Man”, which made a still-strong $25.7 million in its fourth weekend. With a $257.8 million cumulative gross, it makes sense that RBC described the superhero film as “the only true blockbuster so far.”

Next week’s winner will no doubt be Indiana Jones again, and by a lot, as the widest release is the film adaptation of “Sex and the City”, which doesn’t have universal interest like Indy and isn’t playing to the same audience anyway. But Crystal Skull is facing some bad word of mouth, and its audience could erode quickly. Its performance next week could be the best benchmark to gauge the potential performance for the rest of the year.

This weekend sees the release of what is arguably the most anticipated film of the year, which resurrects one of the most beloved action heroes of all time.

The film is, of course, Paramount’s “Indiana Jones and the Kingdom of the Crystal Skull”, which stars Harrison Ford as the legendary whip-cracking, hat-wearing archeologist. The level of devotion to the Indy series is in the stratosphere, which neutralizes any erosion of the fan base created by the 19-year gap since the last installment. If anything, that gap could help Crystal Skull as there has been time for fans of the 27-year-old series to span generations.

Those who were taken to “Raiders of the Lost Ark” by their parents in 1981 now have children of their own to take. This is the biggest cultural event to hit screens since “Star Wars: Episode I” in 1999.

A colossal debut is almost guaranteed, given the interest, upcoming holiday, and lack of meaningful competition. Last week’s “Prince Caspian” was met with a muted debut, while “Speed Racer” limped in the week before that. The only film to outperform so far this season has been “Iron Man”, another Paramount release, that is now entering its fourth week. With a market saturated in advertising, the critic-proof Indiana should have no trouble at the turnstiles and might even break some records in the process. BMO expects a debut in the range of $135 million to $150 million, excluding the Thursday preview shows.

And yet … will that be enough to offset recent lagging box-office tallies? In the equivalent weekend last year, the debut of the third “Pirates of the Caribbean” film earned a huge $153 million (including Thursday grosses) - an impressive sum considering that behemoth “Shrek the Third” was just entering its second weekend.

Indiana Jones “should be able to gross above last year’s contributions from ‘Pirates’,” BMO Capital Markets said. “However, the weekend’s expected No. 2 film, ‘Prince Caspian,’ will not match the $67 million earned by ‘Shrek’ last Memorial Day weekend.”

In other words, last year saw “Pirates” and “Shrek” working together to make one of the biggest weekends of all time. This year, the task of beating equivalents falls almost solely on Indy’s broad, heroic shoulders, a steep challenge even with higher ticket prices. Soleil Securities speculated that the total box office this weekend could be down a full 11% from the $244.3 million made by the Top 10 last Memorial Day weekend. Even though he single-handedly saved the world from Nazis twice, this may be one battle Indiana Jones can’t win.

The movie box office was dealt a major blow this weekend, as what was considered one of the most highly anticipated films of the summer season was met with what essentially amounts to audience indifference.

For the prospects of the box office at large, this is troubling indeed. “Prince Caspian”, Disney’s second entry in the “Chronicles of Narnia” franchise made its debut with $56.6 million, far below the $73 million debut that analysts at JPMorgan anticipated. It is also $9 million less than earned by the debut of “The Lion, the Witch and the Wardrobe” (part one of the series) in December 2005. When 2005’s lower ticket prices are taken into account, the decline is even more striking.

Disney executives must be nervous. They spent a lot of money positioning “Narnia” as the heir apparent to the “Harry Potter” or “Lord of the Rings” fantasy series, but now, the odds of this are ironically just that - a fantasy. The pricey film should easily turn a profit once international figures are tallied, but what was once thought of as a potential cash cow now looks more like a cash warthog, which isn’t quite as impressive.

Speaking of impressive, audiences continue to be seduced by amorous song of Paramount’s “Iron Man”, which posted an incredible $31.2 million in its third weekend, good enough for second place. The mega-movie is flying past all expectations and gaining street cred as The Film to Watch if you want to be cool in front of your friends. The comic book adaptation has banked a domestic total of $222.5 million and should easily wind up as one of the top films of the year.

Of course, that sort of distinction would mean more in another year, when the box office at large is something to boast about. The top dozen movies pulled in $125.5 million over the weekend, down a miserable 27.7% over the comparable week last year, when “Shrek the Third” arrived with a bang.

The total year-to-date figure is off 0.1% from this point in 2007, but so far the summer period has produced one stellar performer (”Iron Man”) and two potential duds, creating fears for the rest of the season. While it is too early to make a final judgment on “Prince Caspian”, last week’s “Speed Racer” downshifted heavily in its second weekend, losing 59% of its audience. The expensive Warner Bros. made a rather embarrassing $7.6 million in its second lap, creating a meager $29.8 million total.

The current view of the box office is dour, but this could all change next week, when “Indiana Jones and the Kingdom of the Crystal Skull” is released. The Hyperbole Committee considers this the most important event of all human history ever, so if the film is met with Caspian-ian results, Hollywood may just as well close up shop forever.