Entertainment spending has steepest drop since Q3 2008 (BW)

By Nancy Tartaglione

In the second quarter of the year, spending on "recreation services" - a category that includes movies, sports and concert tickets, gambling and other services - slipped 4.5%, Business Week reports citing the Bureau of Economic Analysis. The drop was the largest since the third quarter of 2008 and followed a first quarter in which recreational spending seemed to stabilize.

The weak economy may be "resetting" Americans' discretionary spending, Thomas O'Guinn, a professor of marketing at the University of Wisconsin School of Business, told BW. "People are finding places to trim."

Stocks in the small-cap Russell 2000 Entertainment index, which includes Warner Music Group, movie theater owners, World Wrestling Entertainment and Lionsgate among others, have plummeted 31% since the broader market's April 23 peak.

However, although consumers may appear stingier, Standard & Poor's equity analyst Tuna Amobi notes that many large media and entertainment companies, with diverse revenue streams, are benefiting from a revival in advertising.

Box office revenue is still healthy, though. Domestic box office gross in the first half of 2010 rose 2.3% from last year, helped by higher ticket prices for 3D movies.

Yet shares of movie stocks have suffered recently from the realization that 3D may not be the industry's savior analyst Matthew Harrigan told BW. "People are realizing now that [3D] is not a panacea," he said, especially when it comes to "making a bad movie a good movie."