2011 Box Office Hinges on Sequels, 3D Movies

NEW YORK ( TheStreet) -- Analysts expect sequels and 3D releases to generate strong gains at the box office in 2011 after domestic movie sales fell 2.6% to $10.3 billion in 2010 from $10.6 billion in 2009.

Analyst Barton Crockett of Lazard Capital projects that while the first quarter of 2011 will see weak box office sales, the second, third and fourth quarters will see strong gains.

"We see 2011 as one of the most volatile ever for box office, with a very weak first-quarter," Crockett said in a Jan. 3 research note, "driven by tough comps to last year's Avatar."

Crockett says his forecast 13% decline in box office sales in the first quarter will be followed by three "exceptionally strong" quarters, each up in the 13% to 14% range.

In Dec. 2009, Avatar, which was distributed by News Corporation's ( NWSA) Fox studios, brought in $749.8 million domestically and $2.8 billion worldwide, according to data from BoxOfficeMojo.com.

In 2010, production companies relied on sequels and remakes to garner strong box office results. Walt Disney's ( DIS) Toy Story 3 was the highest-grossing movie of the year, bringing in $415 million in North American ticket sales and a total of $1.06 billion worldwide. Total movie ticket sales in North America fell 2.6% to $10.3 billion in 2010 while attendance dropped 8.1% in 2010 compared with a 5.3% increase in 2009.

Analyst Anthony DiClemente of Barclay Capital believes that the box office will recover this year.

"We believe attendance is likely to rebound in 2011 and benefit from a strong summer film slate with plenty of sequels and franchise hits, including Pirates of the Caribbean 4, The Hangover 2, Kung Fu Panda 2, Transformers 3, Cars 2, and the final installment of the Harry Potter franchise," DiClemente said in a Jan. 3 research note.

Crockett also projects that sequels will dominate the box office again in 2011. Part two of Harry Potter and the Deathly Hallows is set to be released by Time Warner's ( TWX) Warner Bros. on July 15, 2011, Viacom's ( VIA) Paramount Pictures will release Transformers 3 in July, Disney is set to release Pirates of the Caribbean: On Stranger Tides and Cars 2 in June, and Summit Entertainment will release the first part of The Twilight Saga: Breaking Dawn in November.

"We currently see no movie released in 2011 approaching the $400 million domestic box office tally that Disney's Toy Story 3 posted over its entire run in 2010," Crockett said, but he predicts that the movie theater sector will benefit from an increase in 3D movie releases.

Crockett said he projects there will be 39 3D movie releases in 2011, up from 24 in 2010. Total 3D box office receipts will increase 57.4% to $4.6 billion, up from $2.9 billion in 2010.

Average ticket prices grew 7.2% in 2010 from a 4.5% increase in 2009, due to an increased number of 3D movies. "We see 3D surcharges rising to 11.4% of domestic box office in 2011, from 7.2% in 2010 and 3.9% in 2009," he said.

Movie theater company Regal Entertainment ( RGC) shares gained almost 3% in Monday's trading on a positive outlook for the movie market. Crockett maintains his hold rating of Regal Entertainment as he predicts that his projected 2011 box office gains will be matched by muted earnings growth due to cost pressures tied to 3D movies.

--Written by Theresa McCabe in Boston.

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