Analysts snub Oscar
Everybody likes a good movie, but don't invite Oscar to your portfolio party.
March 8, 2002: 12:32 p.m. ET
By Staff Writer Victoria Zunitch
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NEW YORK (CNN/Money) - Are you hoping to pick stocks based on Oscar winners? Don't do it, analysts say. You might gain insight into the quirky business of Hollywood by following awards, but analysts say that any financial boost a movie might get from an award is too small to take into account when picking stocks.
Yes, awards can boost a movie's revenues, analysts grant. For the movies in the most prestigious award categories -- director, picture, best actor, best actress -- the "Oscar effect" of a win can add anywhere from 10 percent to 20 percent to a film's revenues, says Jeffrey B. Logsdon, analyst at Gerard Klauer Mattison & Co. But most of the time, analysts assume, small revenue gains are absorbed by the extra cost of marketing to the Academy for a win.
In the long term, awards can boost revenues incrementally in the post-theater DVD, pay-per-view or video-on-demand markets, says David Joyce, analyst at Guzman & Co. He even allows that there might briefly be "an aura" around the stock of a company that wins handily at the Oscars, but only if the win is a surprise -- and most analysts disagree.
None of this, however, is enough to have a meaningful effect on a stock's price or valuation. Richard Greenfield, analyst at Goldman Sachs, says the firm recommends against clients making any decisions about stocks based on awards.
The Academy of Motion Picture Arts and Sciences announced the nominees on Feb. 12. The five candidates for best motion picture of the year are: "A Beautiful Mind," produced by Vivendi Universal (V: down $0.62 to $41.38, Research, Estimates) and Dreamworks LLC; "Gosford Park," produced by USA Networks Inc.'s (USAI: up $0.59 to $30.79, Research, Estimates) USA Films; "In the Bedroom," produced by Walt Disney's (DIS: down $0.01 to $23.75, Research, Estimates) Miramax; "The Lord of the Rings: The Fellowship of the Ring," produced by the New Line Cinema studio of CNN/Money's parent, AOL Time Warner (AOL: up $0.60 to $26.45, Research, Estimates); and "Moulin Rouge," produced by News Corp.'s (NWS: up $0.44 to $29.87, Research, Estimates) 20th Century Fox.
"The Lord of the Rings" received the most nominations, 13, the second-highest number after the 14 garnered by 1950's "All About Eve" and 1997's "Titanic." There were no true surprises in the major-category nominations, although Rene Zellweger's inclusion in the "Best Actress" category for the comedy "Bridget Jones's Diary" departs from the Academy's habit of traditionally honoring actors in dramas.
Benefits and costs
That's no reason to buy these stocks or sell those that have been snubbed, analysts caution. For one thing, the 10 percent to 20 percent revenue bump that Logsdon figures comes with a top award means a lot less on an after-cost basis.
Goldman's Greenfield figures the average cost of producing movies is more than $70 million, and the average cost of marketing that movie is an additional $50 million to $60 million. But award wins don't lower those costs, and analysts even assume that marketing budgets are a few million dollars higher for Academy-targeted marketing. This means that any award-related revenue bump has little effect on the movie's bottom line and even less effect on the parent company's bottom line.
"The reality is, in a day and age of entertainment conglomerates with market values from anywhere from $30 (billion) to $150 billion, it's really a minuscule contribution to the financials - which really drive valuation," Logsdon says.
Greenfield cites "Harry Potter and the Sorcerer's Stone" as an example. He contrasted parent company AOL Time Warner's revenues of about $40 billion annually with the movie's total box-office revenues right before the nominations were announced: more than $905.4 million as of Feb. 5, according to Box Office Guru. Even if Harry Potter won a major-category award (it wasn't nominated in the major categories), Greenfield argued that there's no way to tell how much of subsequent box-office revenue should be credited to pre-existing demand and how much to the award.
After the statuettes go home, Guzman's Joyce thinks about how an award might add to revenues in the post-theater market, but he doesn't quantify the effect, and he doesn't raise or lower numbers when a movie wins an award. Virtually all major studios are part of large companies that have a diverse set of revenue and cash flow characteristics, he says, so at any one time, one will be weak and another will be strong. That means he pays a lot more attention to other factors.
Investors interested in movie revenues need to tune in long before Oscar's emcee is chosen. The size of a movie's box-office take is usually obvious long before awards time, when marketing begins, says Joyce. So if there were any effect on a stock's price from a movie's success, he says, it would occur long before awards season.
Lessons to learn
Stock-picking aside, Oscar can be a good tutor in the ways of Tinseltown.
For those simply interested in which movie earns the most money, an Oscar win can sometimes make a difference. "Sometimes there could be movies that are neck and neck, and that could tilt the balance," Joyce says.
A habit of winning Oscars can be read two ways, analysts say. It can mean that a company makes a lot of good movies - or it can mean that it's more focused on vanity and glory than it is on making money. Logsdon says it's not uncommon for people to spend millions of dollars in promoting a film that has award potential in the most prestigious categories just because of the revenue bump that can be achieved - bottom line notwithstanding.
"It's almost meaningless, and it's almost more for ego than for anything else," says Paul Kim, CFA and analyst at the New York securities research firm Kaufman Bros. 
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