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Hollywood and the stock market

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If you know about movies and the film industry, you can take advantage of that by investing in the shares of studios and producers, particularly at this time of the year when a lot of attention is drawn to the Oscars ceremony, worldwide.

It’s proven that a movie launch has influence on the studio’s stock price. Hollywood giants launch less than 20 movies on average per year, but roughly only a third are profitable. There are many variables that decide which movie is a success and which movie is not, like the argument, actors, directors, publicity, critics and competition. However, frequently it takes only a success hit to substantially impact the studio’s profitability and, consequently, the investor valuation and its stock price.

Of course that the studio’s price behavior reflects the performance or success of the launch of a new movie, with exceptions: a movie that didn’t had significant success but created high expectations on pre-launch (and consequently made the stock price to fall thereafter), and the inverse, a movie with a very high level of success but with previous low expectations (which consequently made the stock price rise).

There are many important variables which determine the success or not of a movie and the studio’s stock price behavior, but winning an Oscar changes the game.

Historical data

Historical data show us that studio’s stock prices not only usually react upwards before the Oscars ceremony, due to investor expectations of a possible victory, as this upward tendency remains positive after the actual delivery of the Oscar.
Last year, Twenty-First Century Fox saw its production “12 Years a Slave” win the category for best film. After rising 5.4% in February, the titles recorded increases of 1.2% and 2.2% in the days following the victory consecrated on March 2 ceremony. The impact of Oscar gains dimension when analyzed within six days, with the shares of Fox going from $33 to $34.34 between the end of February and 6 March. That corresponds to a 4% appreciation on the week after the ceremony.

Fox stock price evolution during the first trimester of 2015 ($)

 fox-stock-2015

But there are other examples. In 2013, “Argo” won the best film nomination and Warner Brothers saw the actions of spending $51.72 to $56.4, equivalent to an increase of 9% in just ten days after the Oscar. Stepping back further into the past it’s possible to keep finding positive reactions to the victory of the golden statuette. The Oscar for “The Hurt Locker” in 2010 allowed the stocks of Summit Entertainment soar 8.9% in the next ten days and in 2006 the award to “Crash” resulted in a rise of 3.1% of Lionsgate’s shares in ten days. In 2005 the best movie “Million Dollar Baby” allowed Warner Brothers progress 2.1% in two weeks.

Hollywood giants

Although 2014 was the worst year in film audiences since 1995 in the United States, the Oscars ceremony glamour always helps to forget the less positive numbers, even if it is only for one night. In addition, it is expected that either the audience or revenues or producing of shares benefit from the ceremony’s results. From the most to the less known, one can find various producers listed in the US capital market. Among the major giants of Hollywood, or subsidiaries that have participated at the Oscars, who returned this year to repeat presence at the ceremony, are:

  • Walt Disney with “Big Hero 6” (nominated for best animated film)
  • DreamWorks with “How to Train Your Dragon 2” (nominated for best animated film)
  • Twenty-First Century Fox with “Birdman” (nine nominations including for best picture) and “The Grand Budapest Hotel” (eight nominations including for best picture)
  • Sony with “Whiplash” (five nominations including for best picture)
  • Time Warner with “American Sniper” (six nominations including for best picture)
  • Viacom with “Selma” (two nominations including for best picture)
  • AMC Networks with “Boyhood” (six nominations including for best picture)
  • Comcast with “The Theory of Everything” (five nominations including for best picture)

Historical data shows that possibly the best is yet to come for these listed companies, not only in terms of revenue but also regarding the stock performance.

 2015 stock market performance of the major Hollywood giants (comparable basis)

 hollywood-stock-performance

Looking at the development on the stock exchange of the eight largest producers of Hollywood since the start of the year you can tell in which the market places its bets. The golden statuette is assigned to Sony that, with gains of more than 22%, appears detached from other rivals. Also with a double-digit rise is Walt Disney: 10%. AMC Networks and Comcast accumulate 8% increases and 2.5% in 2015, respectively. Already in reverse, Fox, Viacom, DreamWorks and Time Warner have negative performances.

But everything can change, not only because of the outcome of this year’s ceremony, but mainly because the US equity markets are experiencing a bull market that has been reflected in recent record highs reached by the S&P500.

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