special report by Colin Cieszynski, CFA, CMT, Chief Market Strategist, CMC Markets
16th February 2017: A widely held perception is that a win at glitzy film awards like the Golden Globes or BAFTAs can help to boost box office and DVD revenues for winning films. Ahead of the biggest ceremony of the year, the Academy Awards, Colin Cieszynski takes a look at whether an Oscar can really boost the shares of movie studios.
Within the report Colin discusses:
• The converse relationship between Oscar wins for movie studios and falling share price
• How post-Oscar movie stocks are outperformed by the market in the March rally
• Why the smaller movie studio players are more likely to see a share boost than established studio behemoths
• And why Lions Gate investors could win big themselves if the studio triumphs at this year’s bonanza
It’s long been widely considered that Oscar wins can boost box office returns for winning and even nominated films. However, analysis of results of which studio won the top award of the night, Best Picture, over the last quarter century, suggests that this doesn’t necessarily translate into gains for the stock prices of winning studios. In fact, the opposite appears to be true, that there is often a letdown for Oscar winning studio stocks.
March is usually a strong month seasonally for stock markets. In 19 of the last 27 years, the Dow Jones Industrial Average has gone up in March, rising 1.2% on average. In contrast the S&P 500 Movies and Entertainment index has posted a positive March in only 13 of 27 years for 0.6% average monthly return. In 11 of 18 years, the stock of the studio that won the Best Picture award fell in March.
Last year, however had a mixed result. The surprise win by Spotlight scuppered 21st Century Fox’s shot at a triple crown. Spotlight’s triumph sparked a big rally for the shares of producer/distributor AMC which posted a 16.5% gain in the month after the big win, outpacing the 7.0% gain for the Dow and the sector’s 5.4% gain in the same month. Sentiment toward AMC remained positive through the year. By the end of January, the stock was up 54.8% over twelve months, even stronger than the 20.6% sector gain and 18.6% Dow advance. This action shows that a surprise win at the Oscars can have a really positive impact for smaller and independent studios.
2017 Oscar Best Picture Nominees
This year, there are nine nominees for best picture. Lions Gate with four nominees including high buzz La La Land and Manchester by the Sea appears to have the inside track but as we know, anything can happen. 21st Century Fox is looking for its third win in four years with Hidden Figures, while Paramount has two nominees.
Sadly this year there are no nominated films related to trading and the markets for us to cheer for.
Lions Gate and the Canada – US studio divide
It’s not a secret that a lot of Canadians work for the big Hollywood studios both in front and behind the cameras, both at home and in Los Angeles. Several of the big studios were founded and/or built by Canadians.
What does come as a surprise is that historically there has been a huge difference in market performance depending on whether a Canadian founded or US founded studio wins Best Picture.
Over the last 27 years, the studios with founding or building ties to Canada (Warner Brothers, MGM and Lions Gate) have won Best Picture 9 times while the US built studios (Disney, Fox, Paramount, and others) have won 18 times.
Source: CMC Markets
In the years where a Canadian built studio won, the studio stock has done way better than in the years when a US built stock won, while Dow and sector performance has been weaker. On the other hand, when a US built studio has won Best Picture, the Dow and sector have done better but the studio stock has underperformed.
The last time Lions Gate won Best Picture, in the month of March its stock went up 12.4% while the sector index fell 1.3%. In contrast Fox’s stock fell in the March following its wins in 2014 and 2015.
Based on this analysis, a Lions Gate win could ignite a rally in its share price but it could also be bearish for the broader markets. On the other hand, a win by the other studios could be bullish for the market but perhaps not as positive a sign for the winner’s share price.
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