National CineMedia Inc.NCMI

Morningstar Rating

Stock Research and Analysis

by Larry Witt, CFA

National CineMedia is well-positioned in an industry that is growing, consolidating, and has high barriers to entry, but many risks remain.

NCM develops, produces, and distributes an entertainment and advertising program that is played before feature films at movie theaters. Read more

Bulls Say

Movie theaters deliver what advertisers desire; a young, affluent, and engaged audience. Also attractive for advertisers is the ability to tailor advertisements to movie genre, rating, time, and region.

Through exclusive contracts with the movie theater chains, NCM and its main rivals, Screenvision, control more than 90% of the market. This creates high barriers to entry for competitors.

The movie theater industry has been consolidating for a number of years. Because NCM is aligned with the largest chains, the company should have access to more movie screens in the future.

NCM uses the digital equipment provided by the movie theaters. Therefore, it can expand its business with very little capital. Read more

Bears Say

NCM took on a significant amount of debt as part of its recapitalization. The company might have trouble paying its interest expense if operating profits decline significantly.

NCM's founding members still control the company's board of directors and are entitled to cash distributions before common shareholders.

NCM's fate is partially tied to box-office trends and the health of its partners, factors that NCM cannot control.

NCM derives 90% of its revenue from advertising, a highly cyclical industry. Read more

Strategy

NCM's short-term goal is to introduce more advertisers to cinema advertising and to educate them on the ability to reach their target demographic. NCM hopes that as companies realize the benefits of cinema advertising, increased demand for its services will lead to increased inventory utilization and higher rates. Read more

Management

Kurt Hall serves as CEO and chairman, roles we believe should be split. Before taking the top position at NCM, Hall was the co-chairman and co-CEO of Regal Entertainment Group, one of NCM's founding members. NCM's chief marketing officer, chief technology and operations officer, and general counsel were also formerly employed by Regal. Read more

Profile

National CineMedia develops, produces, and distributes an entertainment and advertising program, FirstLook, which is played before feature films at movie theaters. The company sells the advertising inventory to national, regional, and local advertisers. Read more

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