Independent Exhibitors Film Bulletin (1959)

htteteificaticn intc TV Production, Purchase Off Their Gun £tcck Wanted aJ Prctyeriti/ "JactctA Film Companies' Profits Seen On Rise in '59 -Value Line A new prosperity is dawning for the motion picture business — not because of any particular revival in theatre attendance, hut through these companies' ancillary activities. The sale of unneeded real estate and theatre properties is bringing new funds into these organizations. In several cases, this money is being used to repurchase common stock, thus enhancing the earning power and asset values underlying the remaining shares. Despite the general business recession, 1958 was another year of rising stock prices. But unlike the mid-Fifties when the bull market totally ignored the movie equities, 1958 saw many of the motion picture stocks outperform the general market. Compared to the 34% increase registered by the DowJones Industrial Average last year, for example, Disney Productions advanced more than 200% in price, Twentieth Century-Fox 83%, Columbia Pictures 68% (adjusted for two stock dividends), Loew's 62%, and American Broadcasting-Paramount Theatres 60%. Why this sudden favor for movie stocks? Not too long ago, many Wall Street experts sternly admonished their clients to avoid them — even at considerably lower prices. Is the motion picture industry, virtually pronounced dead by many a few years back, recapturing its lush days of the mid-Forties? We think not. Last year's theatre attendance was not significantly different from the depressed level of 1955-1957. There is little likelihood of a significant expansion in theatre admissions over the next few years. Rather, the rise in movie equities has probably reflected increasing recognition by investors of the basic facts this Service has been pointing out for the last two years: The sharp post-war decline in theatre attendance was arrested around 1955. Most motion picture companies have since taken time out to restudy and reshape their company policies to a contracted but still sizable market. They have become adapted to the available audience. Moreover, almost all of the companies in this group are in the process of converting their idle assets, very substantial in many instances, into future per share earning power. Loew's, Warner Bros, and Columbia Pictures have cut overhead expenses appreciably in the last two years. Furthermore, they have shifted their production emphasis toward quality films. In 1959, as a result, they are likely to clear the largest earnings in many a year. Also, from sales of unproductive assets, Paramount Pictures and Warner Bros., among other movie companies, have been realizing sizable sums with which they are Also, it is financing diversification into new fields, principally television. The future growth of the TV business appears assured, although it will probably proceed at a slower rate than in the past. The movie companies are well-situated, by virtue of their experience and know-how in the entertainment field, to take advantage of opportunities in this area. Although up substantially from their depressed prices a year ago, some amusement stocks still seem relatively interesting for investment now. reacquiring their own common shares. Twentieth Century-Fox is expected to consummate a sizable real estate sale soon. These capital contraction programs are designed to enhance the effective earning power of each of the remaining shares. Meanwhile, virtually every Hollywood enterprise, instead of just complaining about its recent misfortune or hoping vainly for theatre attendance to perk up, is taking a major step toward diversification. They are entering the television industry. An Untimely Move? At this point, the question is being raised as to whether the motion picture companies have diversified into television at the wrong time. In its December edition, Fortune, a highly regarded business magazine, featured an article which declared, in effect, that the future of commercial television as an advertising vehicle is doomed. The nine-page story, titled "TV: The Light that Failed", says television will fall victim to the inferior quality of its programming and to five other adversities: (1) The broadcasters are in a cost-price squeeze. For the first time the TV industry, notably the major networks, suffered a profit slump in 1957. (2) A buyers' market has developed in TV. The prospects of increasing profits through higher advertising rates are therefore dim. (3) Because it now reaches some 90% of the American population, the television audience will grow much more slowly in the future. (4) The TV rate structure is being weakened because the audience is becoming more selective in what it will watch. (5) An increasing number of sponsors have found that not all TV shows are suitable for advertising their products. It noted that, in 1955, Philip Morris dropped its sponsorship of "I Love Lucy" because the show, although it had a huge audience, was not selling cigarettes. Fortune concluded that perhaps pay-TV, which has no commercials, would be the ultimate solution to improved TV programming. As could be expected, the major television networks, the Television Bureau of Advertising and other segments of the television industry all cried foul play. The Value Line Survey, after Page 6 Film BULLETIN January 19, 1959