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Analyst: Movie Rental Revenue to Decline Heading into Christmas

3 Dec, 2012 By: Erik Gruenwedel



Don’t expect much movie rental holiday cheer before Christmas, as major studio releases represent a collective box office down nearly 65% from major releases during the previous-year period, an analyst said.

With studios pushing physical and electronic sellthrough in the fourth quarter through specials and discounts, rental typically takes a back seat in December as consumers focus on packaged media gift giving and new theatrical releases.

And with rental success often predicated on box office appeal, the fact that, taking rental windows into account, there are fewer major rental releases in the weeks before the holidays generating box office tallies of more than $50 million doesn’t bode well.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, said the diminished box office of pending rentals does not bode well for rental channels such as Redbox, Netflix and video stores.

“We expect DVD rentals for the upcoming two-week period to underperform the comparable period last year,” Pachter wrote in a Dec. 3 note.

Meanwhile, the analyst said Netflix has maxed out its potential domestic streaming subscriber growth after converting a majority of the interested video game, smartphone and connected-device market in the United States. As Netflix continues to jettison subscribers from its profitable disc rental business (much of it through corporate indifference) while increasing capital spending on foreign streaming launches, Pachter says the subscription video-on-demand pioneer will be hard pressed to turn a profit in 2013.

“Despite recent commentary from [new investor] Carl Icahn, we see few potential strategic acquirers of Netflix, and think the stock is overvalued,” Pachter wrote.


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