The MOOLA REPORT - June 2011

Buy As You Watch: Interactive Entertainment

Product placement of beverages/food, clothing, cars, and numerous other "must have" accessories and devices in movies, TV shows and other entertainment vehicles like video games is nothing new, but what's coming next is way cool for merchandisers, consumers, and content providers.

Interactive Entertainment is coming, and it's coming fast.  Why just look at a product while watching a show. How about freeze framing, clicking or better still voice or gesture activate, on the product you're interested in, getting a search on that product and all of its particulars, and then deciding to purchase that product/service right then.  Talk about point-of-sale and impulse shopping.  Interactive Entertainment will be the next huge development in consumer spending and advertising/sales of products.  It will transform media devices, like connected TVs into interactive purchasing mechanisms. It gets the technology out of the way.  All content and search become effortless and approachable for everyone. 

This is not years to come technology but it's here now.  It's only a matter of aligning the players.  This fall, Microsoft will be launching X-Box 5. It will be a gesture and voice activated  media controller where all of your content will reside in one place (probably a cloud) and from which any and all types of entertainment will be available via streaming whenever you want it.  And, shortly thereafter, be used as a point-of-sales device.  Microsoft will not be the only one offering this immersive technology,  cable companies, telcos, and others like Apple, Amazon, and Netflix plus the content providers (which will get a piece of each transaction) will partake.
Look for it at a living room near you.

Moola Cinema Stock Chart

                                                        Share Price        Share Price       I/(D) %
                                                            1/1/11                 6/19/11                      
Ballantyne Strong (BTN)                 $  7.77               $  5.04             (35.1)
Carmike Cinemas (CKEC)                   7.72                   6.86             (11.1)
Cinedign Digital (CIDM)                     1.68                   1.87               11.3
Cinemark Holdings (CNK)                 17.20                 20.02              16.4 
Disney (DIS)                                       37.51                 38.04                1.4
Dolby Labs (DLB)                              66.70                 42.70             (35.9)
Dreamworks (DWA)                           29.26                 21.52             (26.4)
Entertainme Prop. Mgnt. (EPR)          46.25                  45.55              (1.5)
IMAX (IMAX)                                    28.07                  29.59                5.4
Natl' CineMedia (NCMI)                     19.91                  16.36            (17.8)
Netflix (NFLX)                                  175.70                245.67              39.8
Regal Cinemas (RGC)                         11.74                  12.48                6.3                  
Real D (RLD)                                       25.92                  24.76              (4.5)
Technicolor (TCLRY)                            3.56                    6.22             74.7
Time/Warner (TWX)                            32.17                  35.13               9.2    

The stock market has not been kind to cinema stocks of late.  The in-cinema advertising companies (Rentrak and Natl' CineMedia) have taken a real beating, as have, those related to 3D technology like, Dreamworks and Dolby.
The large theatre circuits have not fared very well either posting small gains. Carmike Cinemas, our featured stock of the month - see below, is down 11% for the year and I believe it will trend down for the remainder of the 2011.

Featured Cinema Stock of the Month : CARMIKE CINEMAS
Carmike Cinemas is the 4th largest U.S. cinema exhibitor with 240 theatres and 2,241 screens.  All of its screens have been converted to digital cinema and 591 are 3D enhanced.  Headquartered in Columbus, Georgia, Carmike promotes itself as "America's Hometown Theatres" as it has targeted small and mid-sized markets in which to operate.
In March, Penn Capital Mgnt. Co. upped its stake in Carmike and now owns 10.67% of the company. The investment is valued at slightly over $9 million.  Carmike emerged out of Chapter 11 bankruptcy in 2005 and has focused on controlling costs and reducing debt although it appears that their decision to be an early adopter of digital cinema may prove to be, not only costly, but foolhardy.  Carmike's debt currently totals $338 million. Its enterprise value is $409 million.  First quarter revenue was down 22% y/y and its current book value per share is a negative $1.38.
Earning per share are expected to be a negative $2.15 for 2011 and there appears to be no reason for Carmike's operating except to pay off its creditors and large investors.
Outlook:  The numbers speak for themselves.  Carmike has so little management flexibility given its very poor financial condition that adjusting its business model to accommodate the coming media streaming technology is not going to happen.  Coming out of bankruptcy and investing in digital cinema conversion of the entire circuit may have been a fatal decision.  The digital cinema platforms Carmike invested in just a few years ago are now obsolete and have done nothing to enhance presentation or this cinema chain's utilization.  These factors, coupled with the public's apparent fatiguing of 3D movies, does not bode well and I don't envision much upside for Carmike going forward.

Payment By SmartPhone

All cinemas should start accepting admission and concession purchases via mobile payment if they haven't already done so.  Square, a SmartPhone payment system provides small businesses the necessary gear that converts just about any SmartPhone into a credit card swiper and its free!  Users are charged a small transaction fee, which is about one-half the rate of credit card bank fees, and Square accepts all credit cards. Other mobile payment systems offer readers that can be placed in cinemas which scan a bar code displayed on the SmartPhone's  screen.
There are no staff training issues and the public will be moving toward this type of credit payment given the fact that all that is needed is to have your phone at the ready.
iPhones, Blackberries, and Android enabled phones can process payments.  This will have broad usage as all age groups use/have cell phones.  Mobile payments are quicker to process and easier for both customer and vendor.
Don't miss this opportunity.  Provide for mobile payments at your cinema now and get ahead of the curve on this technology!

Best and Happy Movie Going
Jim Lavorato