James Cameron: News Corp's Billion Dollar Man

Hollywood is on fire these days at the box office, having just set records for cinema receipt revenue in 2009 of more than $10.5Billion the trend looked to continue into 2010, and at the center of box office success now stands a single filmmaker: James Cameron.

The latest film from the man behind Terminator, Aliens and Titanic is called Avatar, and it seems like quite a few people have seen it already. $1.0Billion in ticket sales worldwide in only 17 days makes Cameron the only Director with 2 films crossing the lucrative billion dollar mark. His last directorial feature Titanic just happens to be the biggest movie of all time with a box office gross of $1.8Billion.

All good news for News Corp (NWS), as its 20th Century Fox movie division has hit a home run here with the marketing and technical logistics of Avatar, a 3D adventure film based on a far away world showcasing next generation computer generated characters. By no means was this film a sure thing and with reports of ballooning budgets and muted anticipation the execs at Fox certainly had reason to worry. Cameron's eye for visuals and his general audiences flair for story-telling went on to rule the day and 3 weekends into its box office run Avatar remains at number 1, at a time when blockbusters generally open to huge crowds and dramatically fall-off at a clip of nearly 50% each weekend. For Avatar, buoyed by the holiday season, each weekend's drop has been nothing short of remarkable, under 10% in both cases, signaling continued word-of-mouth and repeat business.

News Corp. over the last month, in the lead up to Avatar and its continued success has seen its stock rise 14%, this compares for a 2% rise in the Dow and a 5% rise in the Nasdaq. But there's another success story to come from the Avatar-verse, and that's the pioneers of the biggest movie experience around, IMAX (IMAX). With the stock gaining 23% over the last month, Avatar is to be the biggest IMAX movie to date besting the performances of Transformers: Revenge Of The Fallen and The Dark Knight.

IMAX is being promoted heavily in the media as the best way to fully experience the world of Avatar and this comes as no surprise since the screen and sound systems are amongst the biggest and most powerful in the world. In a technological age in which Hollywood tries every gimmick to get the movie-goer to pay up for the experience it is these event films, these Concorde moments in cinema, the Avatars of film-dom that make the proposition worthwhile. Avatar in this sense is the real deal for Fox and News Corp. and from a business sense, with IMAX 3D commanding between 2-3x the admission price for a regular cinema screen, IMAX is the real deal as well.

Disclosure: Author holds no position in NWS, IMAX

Stock Climb continues, S&P above 900

Despite what should have been a corporate backlash against recently announced plans by President Obama to curb corporate Tax Havens and loopholes, markets brushed off worries with a shrug and kept pushing higher. This sent the Dow to the green by 200 points, while the S&P however was the big winner of the day, climbing higher by 3.3% to finish at 907.

The changing tax rules, which are estimated to bring in $210Billion in additional tax revenue over a decade, are in part a response to the growing easiness by which corporations shelter income with offshore holdings offices in countries with low to nil tax rates. By having these subsidiaries, overwhelmingly popular with Financial Institutions, which ironically are the same ones who have taken most of the $700Billion in TARP bailout money, companies can avoid paying taxes by shifting money around and through other countries. Considering a report from January pegged 83 out of the 100 biggest corporations having overseas "offices" in tax havens, the amount of money in lost tax revenue adds up.

The 2nd part of this change is driven by economics, as incentives are re-created in order to spark employment and investment in the domestic United States. Previous policies and tax incentives had been adopted to spark International Investment, however, the current unemployment situation in the US has made keeping Americans employed a top priority for the new Administration.

In other news, despite the tie up with Italian car maker Fiat, amongst other restructuring plans, Chrysler still anticipates losing nearly $5Billion in 2009, with a minute return to profitability by 2012.

Financials continued to rally again today, despite Fed Stress Test results that are likely to indicate several banks that need additional capital. Amongst those, it is being reported that Bank Of America (BAC) is looking to raise $10Billion in fresh equity capital. The stock today was up almost 20% compared to the Financial sector's gain of nearly 6%.

The summer movie season is getting started, and that means it is the time for the popcorn blockbuster. First up is a continuation of the X-Men franchise from 20th Century Fox, a studio owned by News Corp (NWS). The X-Men comics were created by Marvel Entertainment (MVL), and the first 3 films in the franchise has grossed over $600Million in domestic box office. X-Men Origins: Wolverine tells the origin story of the most famous mutant of the group and despite the sting of a piracy leak, which put an unfinished version of the film on the Internet a whole month before release, the film managed excellent $87Million domestic and $160Million Worldwide box office tallies. The popularity of the character is surely showing among movie fans and this will likely mean a continuation of other Marvel properties that Fox has the license too. Marvel itself also stands to benefit as its license fees are typically tied to box office receipts and up front payments.

So with the March and April rallies continuing to mount, is it time to take some profits? Since March lows, the S&P is up 220 points, or 32%, and with an economic situation just barely showing some glimpses a case can be made that the markets have gotten ahead of themselves. Taking some off the table would be a prudent thing to do for Investors, however any leg down or significant down day is an opportunity as valuations are still attractive and the S&P is just broken even for the year.

Disclosure: Author owns MVL, holds puts in BAC

Rally Continues past April Fools

The 2nd of April, typically a let down day for pranksters has markets rising like the Sun in the East. North American markets had spent March on an absolute tear, had the Madness from the NCAAs spread to the trading floors or was there finally something to be optimistic about?

Well, first and foremost the G20 summit has economists, investors and the media talking, which is always a good thing, especially if what's being talked about is recovery. Not only recovery, but how to get there. The month of April has opened with positive market gains despite a jobs situation in America that if taken by the numbers seems as dire as ever. Jobless claims rose to about 670,000 in America at the end of March, as high a figure as has been seen since 1982, but the G20 leadership, and that leadership's commitment to economic strength going forward has investors optimistic.

The latest reports out of the G20 summit have leaders close to agreements on stricter financial rules, including the use of tax havens, and a planned influx of money to the International Monetary Fund in order to help fight the global recession. This total could reach upwards of $1Trillion based on the unveiling of the plan by Britain's Prime Minister Gordon Brown.

It isn't just the G20 that has been providing the spark of late. In the Auto Industry, one of the hardest hit by the curbing of consumer spending, Toyota (TM) showed a sales increase of 18% in March, compared to February of this year, which led of a Vice President at the company predicting that Toyota has seen and moved past the bottom in slumping car sales. Toyota is up 14% in the last two sessions.

Piracy, a long and hotly debated issue came to the forefront of the press yesterday as a major 20th Century Fox motion picture was leaked online a month before its theatrical release. X-Men Origins: Wolverine, which is a follow-up to the hugely successful X-Men franchise for Fox and its parent News Corp (NWS) and based on the characters created by Marvel Entertainment (MVL), was set to be a summer blockbuster and tent-pole film for the studio. An unfinished, but DVD quality version of the movie somehow found its way around the Internet for fans and commentators alike to have a look. How this plays out in the month ahead is guess-work but bad word of mouth amongst the core fan-base could spell trouble for Fox, which is coming off of an abysmal 2008 movie year.

The first weekend box office for comic book movies depends heavily on the core fan-base and intelligent marketing, but if the movie doesn't live up to expectations and the core fans get to see it in nearly completed fashion a month prior to release, the effects of piracy will be felt harder here than ever before in Hollywood. News Corp, being the giant conglomerate that it is, is unharmed for now as the stock has risen 7% today along with the broader market.

Today's continued bullish sentiment was broad, with seemingly all sectors moving higher. The Dow, which has broken 8000 this morning is joined by its American benchmark brethren with gains of nearly 4% as of this writing. Question is, should investors be cautious for when the Sun sets in the West in the weeks ahead?

Disclosure: Author owns MVL

Time Warner Watching the Watchmen numbers

The movie business is a convoluted animal. Not only is profitability difficult to determine, the corporate structure of studios and production partners, along with a notorious history of skewered accountability on percentage based contracts, makes the exercise painstakingly complex. Add to this the lack of pure-play movie studio stocks (most being owned by conglomerate corporate parents) and the one industry thriving in a recessionary environment is the one most investors can't grasp at.

Box office receipts in the US were a record in January of this year as going to the movies has become one of the cheaper forms of entertainment. An industry showing any kind of growth in this environment will get investors talking, and as March kicks off the Spring season for film the big name studios are shrouded from investment by corporate giants who have increasingly bigger problems of their own.

Warner Brothers is one such studio, with its parent Time Warner Inc. (TWX) struggling in the face of the recession to get substantial interest in many of its properties. Consumer spending declines are hurting the cable, broadband and print businesses as is advertising on its AOL Internet portal. Despite the incredible success of Warner Bros as a studio in 2008, highlighted by the $1Billion worldwide box office haul of The Dark Knight, Time Warner has been unable to carry any momentum as shares have fallen to $7. The move to spin off Time Warner Cable moves TWX into more of a content company in hopes of locking further shareholder value.

Warner Bros. is looking to continue its string of Hollywood successes with an adaptation of the most revered comic book of all time, Watchmen. A Hugo award winning piece of literary work, and one of Time's 100 best novels of the 20th century, Watchmen stands out as a giant amongst superheros in the comic world. The film looks to capture audience minds in the same sense that the Dark Knight did last summer, however its skew towards an older audience and its hard R-rating will likely mute massive commercial success. With Zach Snyder helming Watchmen, critics and fans have had mixed reactions, so it will be interesting to see the staying power and first weekend might Watchmen will carry.

For a film to attain profitability in today's industry the norm is likely to make 2-3 times its production budget. With Watchmen having a budget reportedly about $120Million and a heavy marketing campaign behind it, its take will likely need to be near $300Million for the film to make Warner Bros. any money. So will it? Yes and No, like everything Watchmen, shades of grey to each of its fascinating characters mirror shades of grey in the money trail. No less than 4 companies are a part of Watchmen the film. A very public lawsuit between Warner Bros. and 20th Century Fox (owned by News Corp (NWS)) cut Fox in on some of the box office tally. Warner Bros has partnered with Legendary pictures to finance some of the film, giving cuts of box office money away there as well, and on the International stage, Paramount Pictures (subsidiary of Viacom Inc (VIA)) is handling distribution overseas.

A complex slicing of the pie to say the least, seemingly leaving Warner Bros. out in the cold. But if the film proves successful with audiences, everyone's happy and Time Warner may just get the last laugh. Being the owner of DC Comics, TWX owns the Watchmen graphic novel, and as interest in the film grew, sales of reprints of the graphic novel grew exponentially. With no less than 5 DVD releases for Watchmen on the upcoming slate the decision has been made to profit, and profit frequently, on the one-off film that Watchmen should and will be.

Motion Comics of the Watchmen book, where panels are slightly animated and the story is read through voice acting, has already been released on disc. Following later this month will be the animated Tales of the Black Freighter disc, which includes the Watchmen pirate story within a story literary device. And finally, 3 versions of the Watchmen film, including theatrical, director and ultimate editions. Add to that several books, toys and other Watchmen accessories and you can see Warner Bros is treating this property like a studio tent pole film.

Will it all add up to growth? With revenues of $46Billion, its hard to imagine Watchmen making a serious dent to TWX even with half of Dark Knight's performance, however with the spin off of Time Warner Cable, TWX will become more of a content pure play, and while not simply a "movie studio" it has shown, of the major Hollywood players, to know its audience of late best with recent darker hits like "300", "The Dark Knight" and now "Watchmen".

So, as the Alan Moore and Dave Gibbons magnum opus consistently asks with graffiti engraved surroundings, Who Watches The Watchmen? In this case, certainly Time Warner.

Disclosure: Author holds no position in any companies mentioned.