Summer slump expected to hit movie studios’ earnings

For the leading movie studios, coming off one of the worst summer box-office seasons in recent memory, next year can’t come soon enough.

Theater operators such as Regal Entertainment Group and AMC Entertainment have already reported downturns in both revenue and profit compared with last year, and some of the film studios are also sharing the pain. Entertainment companies are busy reporting quarterly earnings for the months that saw attendance at movie theaters fizzle.

“The summer was very disappointing,” said Tuna Amobi, an analyst at S&P Capital IQ. “This isn’t the quarter where the studios are going to carry the earnings, as they have in other quarters.”

Comcast Corp.’s Universal Pictures saw operating cash flow from filmed entertainment fall 20% from last year, the results of a weak summer slate compared with 2013, when the studio put out the animated smash “Despicable Me 2.” Last week, Sony Corp. reported a loss from its film division.

In the coming days, Wall Street will also see financial results from Walt Disney Co., 20th Century Fox Film owner 21st Century Fox and Warner Bros. Pictures parent Time Warner Inc., followed by Viacom Inc., which owns Paramount Pictures.

The big, diversified entertainment companies that own the studios tend not to rely heavily on the theatrical movies for their profits, and can offset film losses by gains in other business.

But the difficulties come at a challenging time for the larger media industry, which also is grappling with falling television ratings, reduced advertising revenue and rising competition from digital media. This summer’s “upfront” advertising market, when marketers place their orders for commercial spots for the coming season, was weaker than expected.

Operating income for Warner Bros. is expected to decline compared with last year because of a soft slate that included “If I Stay” and “Into the Storm,” according to analyst reports. Analysts are also anticipating a drop in profit from Paramount. Despite big numbers from “Transformers: Age of Extinction” and “Teenage Mutant Ninja Turtles,” the studio has been squeezed by a decline in home video sales.

Not every studio struggled. Analysts expect Disney and Fox, which both had healthy lineups, to contribute income gains from their film divisions.

Burbank-based Disney’s film unit should post a healthy quarter thanks in part to the summer hit “Guardians of the Galaxy,” which has grossed about $765 million worldwide so far. The Fox studio, located in Century City, should get a lift from the hit films “Dawn of the Planet of the Apes” and “The Maze Runner.”

But at the overall box-office in the U.S. and Canada, summer movies grossed $4.06 billion from May 2 to Sept. 1, plummeting 15% from a year earlier, according to the entertainment data firm Rentrak.

The box-office decline took its toll most clearly in the exhibition business, which depends entirely on people making the trek to the theaters.

Regal Entertainment, which operates the nation’s largest theater chain by screen count, posted a 15% drop in sales from last year and profit that shrank 65%. The company also surprised investors by announcing that it would explore a possible sale of the chain. AMC Entertainment, meanwhile, announced a quarterly decline of 9% in revenue and profit that fell 78%.

That sluggishness in the world’s largest movie market was a drag on studios and, to a lesser extent, the companies that own them.

Although movies remain crucial, studios and the media conglomerates that own them increasingly depend on other businesses to fuel profits, including broadcast television networks, cable systems and video games. At several media companies the film divisions account for about a tenth of total sales. They also make money from businesses including home video and television licensing.

Executives and analysts have long made the case that the movie industry is cyclical and a period of struggles can easily precede ballooning sales. They’re already pointing to some encouraging signs.

Solid fall movies including Fox’s “Gone Girl” and Warner Bros.’ low-budget horror film “Annabelle” are helping the overall industry make up ground ahead of likely blockbusters “The Hunger Games: Mockingjay — Part 1” and “The Hobbit: The Battle of the Five Armies.” Now the box office is down just 4% so far this year.

And studio executives are optimistic that they can make up for lost ground this quarter.

Dan Fellman, president of domestic distribution at Warner Bros., said the industry can make up that difference by the end of the year, or at least come very close. “If we can end the year even, or down 1 or 2%, I think it bodes really well for the industry.”

What’s more, 2015 could result in box-office bonanzas with the likes of Marvel’s “The Avengers: Age of Ultron” along with Universal’s “Jurassic World” and Paramount’s “Terminator: Genisys.”

Meanwhile, investors don’t seem too troubled by the summer slump.

B. Riley analyst Eric Wold said investors have already considered the effect of the slow summer and have moved on to 2015 and beyond. Studios Disney and Warner Bros. also have their eyes on the future, having recently announced superhero movies that they’ve scheduled as far in advance as 2020.

“We knew the summer was going to be tough,” Wold said. “We knew it was a weak slate, and a few movies that were expected to do well just under-performed. People have pretty much forgotten about the summer since before it started.”

Still, some experts see box-office trends as a problem for Hollywood. Theaters have been struggling from long-term declines in attendance as fewer consumers visit the multiplex.

“We are increasingly concerned that domestic box-office trends could put pressure on studio results,” said Doug Creutz, an analyst at Cowen & Co.

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