Don't look now, but 2012 may quietly become the biggest box office year of all time. Sometime this weekend we should pass 2011's gross box office, and if The Hobbit: An Unexpected Journey is a big hit, we could pass 2009's box office record of $10.60 billion.
The strong box office numbers come despite a decade-long decline in ticket sales. Film studios are adjusting to a new world of bigger blockbusters, digital media, and more demanding movie customers. So here's where the movie industry stands as we reach the end of 2012.
Box office record is in sight
Through Dec.10, the domestic box office was at $10.06 billion with three full weekends left. The record of $10.60 billion set in 2009 is within reach if the movie business has even a decent December. The Hobbit should push us over the top if its performance is even close to that of the Lord of the Rings Trilogy, which history says it will be.
Despite the fact that we're approaching the record, ticket sales are still way down from their peak, which has to be concerning for anyone in the movie business. In 2005, 1.57 million tickets were sold at the box office, and as of Dec. 10 we are only at 1.27 million tickets. Alternate entertainment options are taking away from the box office that was once a go-to for consumers.
The good news is that higher ticket prices have made up for the decline in ticket sales. Consumers are willing to pay extra for a premium experience like the big screens from IMAX (NYSE:IMAX) or a 3-D showing from RealD (UNKNOWN:RLD.DL), especially for big blockbusters.
Blockbusters were a smash hit
Now, more than ever, blockbusters dominate the landscape in Hollywood. Three films released in 2012 are in the top 13 movies of all time domestically: Marvel's The Avengers, The Dark Knight Rises, and The Hunger Games. Last year, Harry Potter and Transformers were the top films, so not only are individual movies more important, franchises are playing a larger role in what we see on the big screen.
Studios like Disney (NYSE:DIS), Time Warner (NYSE:TWX.DL), and Lions Gate Entertainment (NYSE:LGF-A) are focusing on bigger films because that's where the money is. As the movie business becomes more international, the blockbuster will continue to grow in importance because the payoff continues to grow. The average blockbuster now generates about 60% of its box office revenue from international markets, and as emerging markets like China and India grow, this number will as well.
How to play the trends
So, how should investors play the coming box office record and the other trends I've discussed here?
Betting on studios themselves can be a roller-coaster ride that's dependent on the success or failure of a single film or franchise. Lions Gate, Time Warner, and even animation studio DreamWorks Animation (NASDAQ:DWA) simply don't provide consistent returns for investors, which can cause stocks to swing wildly, as the chart below shows.
I'd much rather play the industry by betting on the blockbuster with IMAX and play the diversified assets of Disney for studio exposure.
IMAX, in particular, will benefit if the box office grows, and has growing exposure to international markets. The challenge for both of these stocks is that big films make or break a year. The Avengers will help make 2012 a good year for both Disney and IMAX, but who knows if there's a hit that big in the wings for 2013?
Like the movie business, movie stocks can be boom or bust depending on the whims of consumers.
Fool contributor Travis Hoium owns shares of Imax and has the following options: short DEC 2012 $24 calls on Imax. The Motley Fool owns shares of Walt Disney and Imax. Motley Fool newsletter services recommend Walt Disney, DreamWorks Animation, and Imax. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.