Investing June 4, 2009, 3:25PM EST

A Boffo Summer for Entertainment Companies?

The movie biz is expecting better than even 2008's record-breaking summer, probably because in hard times moviegoing is seen as the affordable luxury

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Hollywood is feeling the heat as summer nears. Major entertainment companies such as Walt Disney (DIS), Time Warner (TWX), and Viacom (VIA) have a lot riding on summer film releases, whose box-office take typically represents 40% of annual movie revenues.

That's especially important in an economic downturn. Moviegoing is one of the few discretionary purchases by consumers that have held up during this recession, despite an unemployment rate near 9%, mounting foreclosures, and greater commitment among U.S. households to paying down debt and building savings for a more uncertain future.

Last year, U.S. box-office receipts totaled $9.63 billion, essentially unchanged from $9.66 billion in 2007. Movie attendance dropped by 4.8% but was mostly offset by a 4.4% rise in the average ticket price to $7.18. That's all the more impressive given the sharp drop in consumer spending amid a harsh economic backdrop and the fact that 2007 was a banner year for movie sales, analyst Tuna Amobi said in a recent research report for Standard & Poor's. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

"The traditional thought is that [theatrical entertainment] and going to the movies are a countercyclical market because generally they're lower-ticket items than other forms of entertainment like travel," says Robin Diedrich, an analyst at Edward Jones in St. Louis.

Nightmare on Wall Street

This year's box office is materially better than last year's so far, but analysts aren't clear whether the cause is the trading-down effect—or just better films. However strong box-office receipts were, the stocks of the companies that own the movie studios didn't avoid getting hammered in the past year, along with virtually all other stocks. As a result, most of these media and entertainment names look fairly attractive now and their earnings are bound to improve with the broader economy, analysts say.

This summer's box office could be flat to as much as 5% higher than last year's record-breaking figures, says Jeffrey Logsdon, an analyst at BMO Capital Markets (BMO) in Los Angeles. He expects Paramount Pictures, a unit of Viacom, to rake in the most cash. Big-name releases such as Transformers: Revenge of the Fallen, Star Trek, and G.I. Joe: The Rise of Cobra are sure to be popular and should boost the studio's revenue by 15% to 20% over last summer. Since opening on May 7, the rebooted Star Trek has already earned $200 million domestically, quickly catching up to year-to-date sales for Monsters vs. Aliens, released by Paramount on Mar. 27, and produced by DreamWorks Animation (DWA).

Logsdon believes 20th Century Fox, a unit of News Corp. (NWS) will pull in $750 million this summer on titles such as Night at the Museum: Battle of the Smithsonian, Ice Age 3: Dawn of the Dinosaurs, and X-Men Origins: Wolverine, nearly triple the $267 million it made last summer.