RGC - Regal Entertainment Group

[Guest wellmont]

Any thoughts on this one? looks like there is going to be significant change in this business.

[Packer16]

I have looked at this space and most of the firms have rallied nicely.  At one point I owned Carmike then sols when it was up like 50%.  I currently own Reading which is a theater operator and real estate development co.  The current valuation is about 50% of my FV.

 

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[Parsad]

Guys, please get the format correct for the title on the "Investment Ideas" board, otherwise I start deleting these posts in the future.  Cheers!

[Guest wellmont]

I have looked at this space and most of the firms have rallied nicely.  At one point I owned Carmike then sols when it was up like 50%.  I currently own Reading which is a theater operator and real estate development co.  The current valuation is about 50% of my FV.

 

Packer

 

the reason I bring this up is because lucas and speilberg are predicting massive change for the the exhibition business. I don't think a company that owns thousands of screens in USA is sitting pretty in this scenario.

[Packer16]

Do you have some details?  In media, there always seems to be some threat of change which either does not happen or has much smaller impact then originally thought.  As examples look at radio and TV.  All these firms were left for dead in 2008 but many have recovered nicely.  Newspapers were hurt by the internet but it looks like there may be a partial recovery via paywalls. Alot depends on the timing of the change.  If it happens rapidly then there is danger.  If it happens more slowly then the industry can co-opt the innovation.

 

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[Guest wellmont]

Do you have some details?  In media, there always seems to be some threat of change which either does not happen or has much smaller impact then originally thought.  As examples look at radio and TV.  All these firms were left for dead in 2008 but many have recovered nicely.  Newspapers were hurt by the internet but it looks like there may be a partial recovery via paywalls. Alot depends on the timing of the change.  If it happens rapidly then there is danger.  If it happens more slowly then the industry can co-opt the innovation.

 

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they were part of talk last week. you should google it. they both are predicting massive change. they believe the only time people will be going to the movies is for blockbusters. and they will pay north of $50. movies will be events. regular movies will go to cable and netflix amazon etc. The internet is disrupting the business. it's taking eyeballs away from movies. it's worth reading what they think.

[LC]

I agree but with a caveat: "blockbusters" are different to everyone. I would absolutely to go the movies to see the next Lord of the Rings/Hobbit/<insert Sci-Fi or Fantasy movie here>.

 

I wouldn't bother going to see the next Nicholas Cage/Bruce Willis/Tom Cruise/Brad Pitt action flick.

 

But I realize I am the minority here...but do the action flicks have enough critical mass to make the $50.00 movie theater experience profitable over an entire year?

 

And if this is the case, wouldn't the better investment be selling the "shovels", i.e. the Imax screens/massive speakers & audio tech/whatever widgets they throw in there to convince people it is truly a "$50.00 experience"? Just my two cents.

[Guest wellmont]

I agree but with a caveat: "blockbusters" are different to everyone. I would absolutely to go the movies to see the next Lord of the Rings/Hobbit/<insert Sci-Fi or Fantasy movie here>.

 

I wouldn't bother going to see the next Nicholas Cage/Bruce Willis/Tom Cruise/Brad Pitt action flick.

 

But I realize I am the minority here...but do the action flicks have enough critical mass to make the $50.00 movie theater experience profitable over an entire year?

 

And if this is the case, wouldn't the better investment be selling the "shovels", i.e. the Imax screens/massive speakers & audio tech/whatever widgets they throw in there to convince people it is truly a "$50.00 experience"? Just my two cents.

 

I am not so much interested in picking the winners. I want to make sure that if Spielberg and Lucas are correct, there are going to be some big losers. I believe the losers are going to be the ones with the most screens.

[Guest wellmont]

Do you have some details?  In media, there always seems to be some threat of change which either does not happen or has much smaller impact then originally thought.  As examples look at radio and TV.  All these firms were left for dead in 2008 but many have recovered nicely.  Newspapers were hurt by the internet but it looks like there may be a partial recovery via paywalls. Alot depends on the timing of the change.  If it happens rapidly then there is danger.  If it happens more slowly then the industry can co-opt the innovation.

 

Packer

 

I disagree about radio and newspapers. lots of value destruction. the network TV business is terrible. I remember when CBS ABC and NBC were pristine franchises. Unassailable. Now NBC is buried inside Comcast. Local TV stations are really zero growth businesses that are run for cash flow. Yes these media stocks have done well since 2008, but so have a lot of stocks. They aren't what they used to be. Change has effected them negatively. Lots of families lost a lot of money hanging onto their newspaper business. Radio has been almost totally disrupted. Clear Channel LBO is one of the few from the 2007 vintage that may not work. Their radio business has been pretty lousy.

[Packer16]

I would agree on the surface without looking at the numbers.  These may not be bullet-proof franchises as they have been in the past but they still retain much of their strength (at least enough to generate CFs to make their values not expensive). 

 

All local TV station firms have CFs that have increased by 40 to 100% since 2007 & 2008.  So you had the market thinking along your line, these businesses are done and were priced accordingly (4x to 6x EBITDA).  However, the CFs said something else and you have many TV take-outs at 8 to 10x EBITDA.  So that is the reason these stocks have increase by multiples of 100%s and still may be modestly undervalued.  Look at the reaction when GCI was thought of as more of a local TV play with the purchase of BLC.  Many of these firms have co-opted the internet as a part of their offerings and still have the appeal of mass audiences for local advertisers including politicians.

 

Radio again has some firms with steady or increased CFs since 2007.  These include SGA, SALM and BBGI.  Most firms have lost CFs but they were all priced as though they were in terminal decline despite CFs showing that this was not true.  The three names above and most other names have rallied closer to historical multiples of 8 to 9x EBIDTA.  I think the firms that have a local connection are the strongest.  This surely a cyclical mature business but not a declining business.  There have been large losses primarily in higher leveraged firms.  Clear Channel's issue is not having enough local content.  Many of these firms have co-opted the internet as a part of their offerings.

 

Newspaper CFs have been decimated by the internet but are regrouping at a lower level and I think will increase over time with paywalls.  See WB 2012 letter.  The public firms are priced as though they still in terminal decline and may be undervalued once the turn around the CF declines.  We will see.

 

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[twacowfca]

I would agree on the surface without looking at the numbers.  These may not be bullet-proof franchises as they have been in the past but they still retain much of their strength (at least enough to generate CFs to make their values not expensive). 

 

All local TV station firms have CFs that have increased by 40 to 100% since 2007 & 2008.  So you had the market thinking along your line, these businesses are done and were priced accordingly (4x to 6x EBITDA).  However, the CFs said something else and you have many TV take-outs at 8 to 10x EBITDA.  So that is the reason these stocks have increase by multiples of 100%s and still may be modestly undervalued.  Look at the reaction when GCI was thought of as more of a local TV play with the purchase of BLC.  Many of these firms have co-opted the internet as a part of their offerings and still have the appeal of mass audiences for local advertisers including politicians.

 

Radio again has some firms with steady or increased CFs since 2007.  These include SGA, SALM and BBGI.  Most firms have lost CFs but they were all priced as though they were in terminal decline despite CFs showing that this was not true.  The three names above and most other names have rallied closer to historical multiples of 8 to 9x EBIDTA.  I think the firms that have a local connection are the strongest.  This surely a cyclical mature business but not a declining business.  There have been large losses primarily in higher leveraged firms.  Clear Channel's issue is not having enough local content.  Many of these firms have co-opted the internet as a part of their offerings.

 

Newspaper CFs have been decimated by the internet but are regrouping at a lower level and I think will increase over time with paywalls.  See WB 2012 letter.  The public firms are priced as though they still in terminal decline and may be undervalued once the turn around the CF declines.  We will see.

 

Packer

 

Print media publishing has been our core business, mainly books, but also a local newspaper and magazine. All these businesses reached peak profitability in 2007 despite attrition from the Internet. Then, they hit the wall as the economy rolled over. Our local newspaper was especially affected as the strong population growth in our county evaporated. 

 

Consumer advertising is the main source of revenue for most media.  Book publishing is an exception to the rule.  Newspaper ad revenue is still depressed in our area, about two thirds peak revenue in2007.  Newspaper readership continues to drop year over year.

 

Meanwhile, as with BRK after Warren took over, our investments in public companies have done quite well since year  2000 as the publishing businesses declined.. These new investments are worth many times what the publishing businesses were worth at their peak. :)

 

 

 

 

[Packer16]

twacowfca,

 

Have you seen a decline in rate of loss in subscriptions in your newspaper?  Have you started a paywall?  Do you see any growth or more of a long term decline?  TIA

 

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[twacowfca]

twacowfca,

 

Have you seen a decline in rate of loss in subscriptions in your newspaper?  Have you started a paywall?  Do you see any growth or more of a long term decline?  TIA

 

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Our paper is focused on more or less total market coverage as a semi weekly with two or three issues per week in three editions targeted to different population centers in a two county area.  This focus is incompatible with being a subscription publication.  It's a good, regular newspaper with focus on local news, not an advertizer.