Barry L. Ritholtz
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Ritholtz Remarks


The envelope please . . .
A Wall Street View of the Oscars
March 21, 2002



Common wisdom has it that the Academy Awards do not present any meaningful way to "play" stocks whose films have been nominated for an Oscar. One recent article, for example, ("Analysts snub Oscar") posits the thesis that "none of this, however, is enough to have a meaningful effect on a stock's price or valuation." was a bit of a challenge to the contrarian in me, so I did a little research on the subject.

That certainly is correct as far as the big media conglomerates in the space are concerned. An Oscar “bump” (typically $30 million in increased box office) will not translate into an increased earnings per share at big cap companies like Sony, Vivendi, Fox, USAI, or AOL.

But as both a film buff and a student of the market, I'm always looking for the exception to the rule. This year, that could be "Monster’s Ball,” put out by a small indie outfit named "Lion's Gate Films (AMEX: LGF) Halle Berry, the female lead, received an Oscar nomination, and was the odds on favorite to come in second behind Sissey Spacek – until the Screen Actor’s Guild Awards. Berry’s surprise victory at SAG – she was the first African American woman ever to receive the SAG award, and could be the first to receive an Oscar – suddenly gave her some positive momentum.

SAG awards (like Director Guild awards) have a high correlation to Oscar success. I'd say its now even money between Berry and Spacek.

Looking at the LGF studios, an Oscar win would certainly have a significant impact ( "Monster's Ball' propels Lions Gate to stardom") Lion’s Gate did 270 million this past year in revenues, and lost about million and change. The company expects to be profitable in the coming fiscal year (April 1, 2002 - March 31, 2003).

Here's the breakdown on Monster’s Ball: It cost a mere $4.2 million to make (Berry worked for a $100,000), plus another $5 million in prints and marketing. Those expenses have already been taken in Q3 and Q4 for this past year. It grossed ~$16 million, so it’s already a profitable picture.

If Berry wins the Oscar, that could be worth another $4 to 8 million dollars in additional box office, and half again in video rentals and DVD sales. Add in foreign distribution, and this sleeper potentially becomes a $30 million dollar picture for LGF.

There are 40 million shares or so outstanding, so the incremental increase on gross revenues translates roughly to about 10 - 15 cents per shares (revenue), and 2 - 4 cents per share in earnings.

Compared with other film companies, LGF is relatively cheap. Since none of them are profitable -- hey, I'm a film buff, and not necessarily a fan of the movie making business model -- we need other ways to compare these companies. LGF trades at about 0.5 sales, and 1.1 times cash flow. Compare that with the much larger MGM studios, which trades at 9.9 times sales, and 2.9 times cash flow.

That makes LGF -- relative to its peers -- reasonably cheap. At $2.44, its worth the longshot to play LGF for either an "Oscar trade," or for longer term speculative growth. Clients of the firm own shares at $2.40 - 2.50 . . .

Although there is an admittedly small sample (this was the 8th year of the SAG Awards), we can still find a few interesting correlations between SAG awards and Oscars. Back of the envelope calculations shpw the highest correlation is in the Leading Actor category, where 6 out of 7 SAG winners, or 86%, picked up the Oscar. The Leading Actress category was somewhat less correlated, with a 5 out of 7 or 71% overlap. Supporting Actresses had the lowest correlation, only 1.5 out of 7 (or 21%) of Sag winners went home with Oscar (1.5 'cause there was tie in 1998). The Best Supporting Actor category did only slightly better, with 2 out of 7 winners (29%).

Correlation between SAG Awards and Oscar Winners
Year Category SAG Winner Oscar Winner Correlation
2002 Leading Actor Russell Crowe ? ?
2002 Leading Actress Halle Berry ? ?
2002 Supporting Actor Ian McKellen ? ?
2002 Supporting Actress Helen Mirren ? ?
2002 Best Picture Gosford Park ? ?
2001 Leading Actor Benicio Del Toro Russell Crowe X
2001 Leading Actress Julia Roberts Julia Roberts O
2001 Supporting Actor Albert Finney Benicio Del Toro X
2001 Supporting Actress Angelina Jolie Marcia Gay-Harden X
2001 Best Picture TRAFFIC GLADIATOR X
2000 Leading Actor Kevin Spacey Kevin Spacey O
2000 Leading Actress Annette Bening Hilary Swank X
2000 Supporting Actor Albert Finney Michael Caine X
2000 Supporting Actress Judi Dench Angelina Jolie X
2000 Best Picture AMERICAN BEAUTY American Beauty O
1999 Leading Actor Roberto Benigni Roberto Benigni O
1999 Leading Actress Gwyneth Paltrow Gwyneth Paltrow O
1999 Supporting Actor Robert Duvall James Coburn X
1999 Supporting Actress Kathy Bates Judi Dench X
1999 Best Picture Shakespeare In Love SHAKESPEARE IN LOVE O
1998 Leading Actor Jack Nicholson Jack Nicholson O
1998 Leading Actress Helen Hunt Helen Hunt O
1998 Supporting Actor Robin Williams Robin Williams O
1998 Supporting Actress Kim Basinger/Gloria Stuart Kim Basinger O/X
1998 Best Picture The Full Monty TITANIC O
1997 Leading Actor Geoffrey Rush Geoffrey Rush O
1997 Leading Actress Frances McDormand Frances McDormand O
1997 Supporting Actor Cuba Gooding Jr. Cuba Gooding Jr. O
1997 Supporting Actress Lauren Bacall Juliette Binoche X
1997 Best Picture The Birdcage THE ENGLISH PATIENT X
1996 Leading Actor Nicolas Cage Nicolas Cage O
1996 Leading Actress Susan Sarandon Susan Sarandon O
1996 Supporting Actor Ed Harris Kevin Spacey X
1996 Supporting Actress Kate Winslet Mira Sorvino X
1996 Best Picture Apollo 13 BRAVEHEART X
1995 Leading Actor Tom Hanks Tom Hanks O
1995 Leading Actress Jodie Foster Jessica Lange X
1995 Supporting Actor Martin Landau Martin Landau O
1995 Supporting Actress Dianne Wiest Dianne Wiest O


--Barry L. Ritholtz

March 21, 2002


Barry L. Ritholtz is the Market Strategist for EKN Securities. At the time of publication, Ritholtz was either long or controlled shares of Lions Gate Film (LGF), although holdings can change at any time.

All data referred to in this article was derived from publicly available sources.

Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to Barry Ritholtz ritholtz@aol.com.


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