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Wednesday, April 20, 2011

CMG Moola Report - April 2011

WITH THE U.S. BOX OFFICE DOWN OVER $600 MILLION (19.8%) YTD THE CINEMA INDUSTRY - from studio mogul to usher - is praying that the summer line-up of films (which starts in May) will produce a tsunami of back-to-the-cinema moviegoers.

YTD Box Office As of 4/15/11      Rio - which broke a string of anemic box
       ($ millions)                            office weekend tallies - is, hopefully, an omen
   This Year - $2,537                     of greater things to come.  Hollywood has over
   Last Year - $3,164                     150 films scheduled for summer release and the
   Decrease  - $627 (19.8%)          roster looks strong. Moola's favorite picks:  
Thor, Bridesmaids, Pirates of the Caribbean, The Hangover II, Everything Must Go, X-Men, Green Lantern, Bad Teacher, Transformers, Captain America, Harry Potter, Crazy Stupid Love, and one or two sleepersWe've got our fingers crossed!

                            CMG STOCK INDEX UPDATE

                                               Share Price       
                                            1/1/11      4/18/11        Chg.   

Ballantyne Strong                $7.77        $6.72        $ (1.05)
Carmike Cinemas                  7.72          7.12           (0.60)
Cinedigm Digital                    1.68          1.88            0.20
Disney                                   37.51         41.35            3.84
Dolby                                    66.70         44.48        (22.22)
Enter. Properties Trust         46.25         46.13         (0.12)
IMAX                                    28.07         30.99          2.92
Netflix                                  175.70      241.55         65.85
Natl' Cinemedia                     19.91        17.00         (2.91)
Rentrak                                  30.16        22.80         (7.36)
Regal Entertainment             11.74        13.57          1.83
TimeWarner                          32.17        35.59          3.42
Technicolor                             3.56          4.89          1.33

Excluding Netflix and Technicolor, the stocks in the CMG index have taken a beating this year bucking the overall stock market which has been on a general uptrend with some sectors seeing double digit earnings growth and corresponding share price increases.

Netflix is the obvious anomaly in the index and points to where the cinema industry is headed. Internet streaming looms large in the future and content may again be King , as there will be many more avenues for distribution as the future unfolds.  Stymied by distribution concentration over the last decade the studios have had a tough go as content distributors ruled. Now the screw is turning the other way. High speed streaming fosters a myriad of distributors and places content providers back in the driver's seat.


Dolby develops and sells audio and video products specific to the entertainment industry.  Its product line is vertically integrated and supports film production, television broadcast, and music production.  Its competition ranges from large entities, such as Sony and NEC to smaller firms like QSC and DTS

Its share price as been on a steady downtrend over the last 52 weeks, going from a high of just over $70 to its current trading range of $45.

Management cut its 2011 outlook recently, citing lower licensing revenues due to lower worldwide PC sales.  Current estimates call for 2011 sales to reach $965 million up from 2010s $878 million level, with EPS at $2,71 vs. $2.47 last year.

Dolby's problem, which is not unlike many other tech driven companies, is in its ability (or lack thereof) to keep pace with products and collaborations in a very quickly evolving digital domain. For example, PC sales will continue to fall as smart phones and tablets act as surrogates for the once dominate PC.

Dolby's competition is changing as well.  Management must contend with an ever increasing array of data streaming and content distribution companies, while addressing tightening margins as they fend off  competitors while continuing product innovation.  Dolby must rely on its old and trusted markets while entering new ones with a variety of new players - not an easy task.

CMG's Outlook For Dolby

Dolby will maintain a steady-state. Share price will hover in the $40-50 range until the market perceives a breakout either due to a technological edge or a strategic collaboration which  drives revenues.  It must concentrate on its  core revenue base, but as its share price reflects, steady-state is not rewarded and it must broaden its scope as the entertainment industry transitions to a web based distribution structure.  Dolby could be viewed as a valued acquisition or merger candidate given its licensing and solid, core business revenue streams.  

Moola Speaks Out: Washington Needs A Wake Up Call

A napping Joe Biden during Obama's economic oratory and snoozing air traffic controllers are an unfortunate metaphor for our government's overall manama attitude to the country's economic woes.

The United States, according to the Federal Reserve, is valued at $60 trillion. The current debt totals $14.3 trillion or over 23% of the country's  net worth.  Unfortunately for us the debt is increasing at a rate 4X that of the economy.

Given the situation and the Government's unrealistic solutions - the
Republicans say their fix-it plan will cut the debt by $5.8 trillion in 10 years, while Obama and the Democrats say their plan would whittle the debt down by $4 trillion in 12 years - can anyone, with even a smidgen of real-world savvy, buy this nonsense !  10 Years? 12 Years?  And we would still be (at best) $8 - 9 trillion in debt. 

Adhering to the Washington crowd's proposals to fix the fiscal dilemma is akin to placing our nation with an endless Sisyphean burden.  The U.S. economy is currently running in sand and staying the present course will produce one of two bad things, either: inflation ( fed by easy money and spending) will run rampant; or stagflation (where prices rise without corresponding economic growth) will kick in. Either way both Wall Street and Main Street lose.  

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