Shareholders of News Corp. (NWS) are probably happy this Monday as two of the company's films -- Avatar and Alvin and the Chipmunks: The Squeakquel -- did very well over the three-day holiday weekend.
James Cameron's Avatar topped the charts at domestic theaters, pulling in an estimated $75 million, according to Box Office Mojo. If the project can continue to attract moviegoers in large droves, as well as propagate a lot of repeat business, then it should break even before it hits other distribution channels.
Of course, it's almost impossible to determine the exact minimum that the highly expensive film needs to make since the general public is not privy to the structure of the deal backing the investment. But as I discussed previously, I would imagine that a worldwide gross of $900 million might be sufficient. So far, the sci-fi fantasy has taken in over $600 million. And it still has a ways to go in its run.
Then we have Alvin and the Chipmunks: The Squeakquel. It came in third, behind Time Warner's (TWX) Sherlock Holmes action flick. The funny little creatures took in roughly $50 million from Friday through Sunday. Its total gross since opening is well over $70 million. Indeed, News Corp. dominated the Christmas crowds.
Coming in fourth was It's Complicated, distributed by General Electric's (GE) Universal. Viacom's (VIA) Up in the Air occupied the fifth spot.
Avatar is a big hit, but for the sake of long-term investors in the media space, let's hope that studios don't try to follow Cameron's example. Expensive investments in movie projects are inadvisable because of the risks involved.
I've followed Disney's (DIS) studio problems for quite a long time now, since I own the stock. Over the years, the company has tried strategy after strategy to increase returns in that department. So far, the results have not been rewarding. It all boils down to how much money is spent to produce and sell a reel of celluloid. As far as I'm concerned, no media conglomerate has hit the right formula yet.
At this point, following this week's box office results, I find Disney somewhat interesting as a trade as the rally in the shares could be getting a little long in the tooth. Time Warner is slightly compelling from a valuation perspective. But I wouldn't rush to buy any stock this week. The holidays always mask the conviction levels of the traders and the institutional buyers since volume tends to be lower. Once the new year arrives, we'll have a better sense of what's happening in the markets at large.
Disclosure: I own Disney, GE; positions can change without notice.