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TheStreet Open House

Summer Movie Stocks to Watch

Stocks in this article: NFLXCSTRDIS

BOLTING LANDING, N.Y. ( Stockpickr) -- Lions Gate (LGF) recently reported a much-worse-than-expected first-quarter loss. Analysts had expected a gain. There were numerous reasons for the loss. Needless to say, the theatrical movie business is not having a good year.

Someone asked me over on RealMoney Silver, after I mentioned the poor summer box office and lack of compelling summer movies this year, if I had teenage daughters. I have two: One is 17, and the other is 20. They both like to go to movies. In fact, my 17-year-old works in a movie theatre and gets to go to movies with a friend for free. But this summer, she's seen barely any movies -- because there aren't any she wants to see.

The July box office receipts are pitiful. The summer box office used to feed off of hot weather. That was, of course, before air conditioning was widely available and indoor shopping malls became a destination. Spending three hours at an air-conditioned movie used to be worth the price of admission, but it's no longer the most compelling way to beat the heat.

If there is one place that has experienced runaway inflation in a low-inflation economy, it has been the box office; adjusted to ticket-price inflation, things look even worse. According to the Los Angeles Times, in May, The National Association of Theatre Owners reported that the average ticket prices in the first quarter of 2010 were $7.95, up 8% from $7.35 in the same period last year. That's the largest year-over-year increase since the association started tracking quarterly ticket price data in 2001.

More and more people are opting to wait a few months and get movies on DVD through Netflix (NFLX) or rental kiosks such as Coinstar's (CSTR) RedBox, a trend that is certain to continue. Furthermore, with the quality of original series, mini-series and movies that are now being produced for cable, the box office is losing its appeal. This gives balance to companies such as Time Warner (TWX), which also owns HBO, or CBS (CBS), which owns Showtime. Unfortunately, Sumner Redstone left the Paramount movie studios in Viacom (VIA) when the company split Viacom from CBS, a move that I think, in retrospect, Redstone might regret.

After a rush to see 3-D movies in the winter, especially after the success of Avatar, produced by News Corp (NWS), moviegoers are shying away from 3-D movies. The novelty of 3-D may be wearing off, and consumers simply don't want to pay the extra $3 or more to see a movie in 3-D. Many theaters don't give you the choice of 2-D or 3-D, so they are walking away from 3-D-only offerings. I also think that 3-D televisions that are now on sale for home use are going to be a big bust. Smell-o-vision anyone?

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