Box office revenue is down so far this year, but analysts expect it to finish roughly even with last year’s record $11.4 billion

The slate of films set for release in the fourth quarter looks solid enough to pull the 2017 box office tally up and make it roughly flat compared with last year, according to analysts at Morgan Stanley.

Analysts led by Ben Swinburne upgraded shares of cinema chains Regal Entertainment Group RGC, -1.70%  and Cinemark Holdings Inc. CNK, -0.58%  to equal weight from underweight on Thursday. 

“Regal and Cinemark shares have lagged the market year to date thanks to a disappointing summer box and [premium video on demand] concerns,” Swinburne wrote in a note to investors. “We think fears of the implications of the former are overdone and of the latter reasonably priced in.

“Despite the recent outpouring of negative headlines on the box office and movie business, we expect the 2017 box office will finish roughly flat against a record 2016.”

Hollywood had its worst summer movie season — the first weekend in May through Labor Day — in a decade. It was the first sub $4 billion revenue summer since 2007.

Time Warner Inc.-owned TWX, +0.07%  Warner Bros.’ “It” adaptation then had a record $123.1 million September opening, and ultimately led the box office to a record breaking $696.1 million for the month of September.

With one of the year’s most anticipated films in “Blade Runner 2049” coming this weekend and the subsequent releases of “Thor: Ragnorok,” “Justice League,” “CoCo” and Walt Disney Co.’s DIS, -0.04%  “Star Wars: The Last Jedi,” Swinburne expects fourth-quarter box office revenue to be about 15% ahead of the same quarter a year ago.

Box office revenue is down more than 5% in the year to date, but analysts expect the year to finish roughly even with last year’s record $11.4 billion in box office revenue.

Heading into 2018, however, Swinburne is much less optimistic about the comparisons for the first quarter, expecting it to be up about 1% compared with the first quarter 2017.

Early next year could also see some studios offering premium video-on-demand, or releasing new films for home video just weeks after they open in theaters. This would likely be a boon to studios, but the level of uncertainty as to how many and which studios will take part, as well as what role exhibitors will play makes it difficult to evaluate the risk.

“We see PVOD as an interesting opportunity for studios and believe we may see some initial offerings in early 2018,” Swinburne wrote. “At a minimum, the PVOD risk will be an overhang which could impact multiples. Ultimately, there may be little to no cannibalization of moviegoing from early window releases.

“In a worst-case scenario, we see an 8% decrease in attendance by year three as a result of PVOD.”

Another looming risk to movie theaters that analysts are watching is MoviePass, the subscription service allowing moviegoers to see a movie a day for less than $10 a month.

B. Riley analyst Eric Wold wrote in a note to clients on Thursday that, “the long-term opportunity for MoviePass to boost overall attendance trends and movie consumption for the box office industry has been misunderstood.”

New concerns surrounding MoviePass, however, have to do with the company’s ultimate goal of leveraging its subscriber base to demand a percentage of theater admissions and concessions revenue.

Wold wrote that recent concerns were simply a headline distraction for weak box office trends.

“While we do not disagree with the notion that MoviePass could negotiate a share of revenues as ‘compensation’ for driving incremental traffic to specific theaters and the industry as a whole, we disagree with the one-sided view that exhibitors will ultimately suffer under this plan -- and believe that recent analyses coming to this conclusion are flawed,” Wold wrote.

Shares of Regal Entertainment have declined nearly 18% in the year to date, while Cinemark shares are down close to 2% and shares of AMC Entertainment Holdings Inc. AMC, -5.30%  are down nearly 53%. By comparison, the S&P 500 index SPX, -0.11%  is up 14% in the year and the Dow Jones Industrial Average DJIA, -0.01%  is up almost 15%.