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‘M3gan’ box office success sets the stage for a scary good year in horror

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A lifelike doll programmed to be a child’s greatest companion and a parent’s greatest ally turns murderous in Universal Studios and Blumhouse’s “M3GAN.”

Universal

A fashion-forward, murderous doll is ringing up big bucks at the box office.

“M3gan,” the newest release from the Universal Studios and Blumhouse collaboration, will end up with more than $100 million globally. It’s the latest success in a string of lucrative theatrical runs for the horror genre.

While Hollywood’s big-budget blockbusters typically get the most attention, the consistently strong performance of scary movies at movie theaters is good news for the cinema industry.

The pandemic fundamentally altered how and where consumers view entertainment. To be sure, people have returned to theaters, but not in the same volume as pre-pandemic times. Additionally, fewer theatrical releases have resulted in a smaller overall box office in the last year. The domestic box office reached $7.5 billion in 2022, better than $4.58 billion collected in 2021, but down around 34% compared to 2019.

Films like “M3gan” collectively add incremental value to the box office. In 2022, the horror genre accounted for around $700 million in domestic ticket sales, according to data from Comscore. While that figure is down compared to pre-pandemic levels, it indicates persistent demand for spooky entertainment as the theater business rebounds.

Horrifying but good

Paramount and Universal were the top contributors of horror content last year. Paramount’s “Smile” sold $105 million in tickets domestically and $217 million globally. Its newest installment in the Scream franchise took in $81 million in the U.S. and Canada and $137 million worldwide.

Universal’s “Nope” generated $123 million domestically and $171 million globally, while “The Black Phone” scored $90 million stateside and $160 million worldwide. The studio also released “Halloween Ends,” leading to $64 million in domestic ticket sales and $104 million globally, even though it hit streaming service Peacock the same day.

Ethan Hawke stars in Blumhouse and Universal’s “The Black Phone.”

Universal

Additionally, Disney‘s Searchlight Pictures released “The Menu,” which snared $38 million domestically and $70 million worldwide.

Notably, Disney and Marvel Studios’ “Doctor Strange in the Multiverse of Madness,” which features horror elements, was not included in the tally. The film generated $411 million during its run in the U.S. and Canada and nearly $1 billion worldwide.

“We’re in the middle of horror’s new golden age,” said Shawn Robbins, chief analyst at BoxOffice.com. “It’s a genre that has ebbed and flowed in past decades but one that’s always evolved, maintained commercial appeal, and helped introduce new filmmakers to the world.” 

Here are several titles to expect from the horror genre in 2023:

  • Universal’s “Knock at the Cabin” — Feb. 3
  • Paramount’s “Scream VI” — March 10
  • Sony’s “Insidious: Chapter 5” — July 7
  • Warner Bros.’ “The Nun 2” — Sept. 8
  • Neon’s “Cuckoo” — Sept. 29
  • Universal’s “The Exorcist” — Oct. 13
  • Lionsgate’s “Saw X” — Oct. 27

Scaring up dollars

Blumhouse, a producer of “M3gan,” has revolutionized the horror genre in the last decade, turning small budget flicks into huge box-office returns. The studio has been responsible for the profitable and popular “Paranormal Activity” films as well as the Academy Award-winning “Get Out.”

“Paranormal Activity,” which was released in 2009, had a budget of just $15,000 and went on to make more than $107 million in the U.S. and nearly $200 million worldwide

Following that model, “M3gan” was made for just $12 million and is on its way past $100 million. Already, Universal and Blumhouse have greenlighted a sequel due out in 2025.

Still from Universal and Blumhouse’s “M3GAN.”

Universal

Last year, most wide-released horror films had a budget of between $16 million and $35 million. The only outlier was “Get Out” director Jordan Peele’s “Nope,” which carried a $68 million production budget. Films with smaller budgets mean don’t have to generate blockbuster-size ticket sales in order to turn a profit. Those economics also help to make horror films one of the most consistently well-performing genre of all time.

For example, consider “Skinamarink,” an experimental horror film out of Canada, which cost $15,000 to make and has gone on to generate more than $1 million at the box office.

“At the heart of its sustainability has been a generational turnover of young audiences that drive many of these movies at the box office, a pre-pandemic constant that’s picked up right where it left off as post-pandemic moviegoing has rebounded,” Robbins said.

Unlike fans of comic book films, who can be easily turned off by an unfaithful adaptation of their favorite character, horror fans don’t seem to mind if the film isn’t totally up to par. So long as the movie had some good scares and was seen as a fun experience, they’ll be back for the next installment.

Additionally, in the last two decades, the quality of the horror genre has greatly improved, due in large part to support from indie companies such as A24 and Neon, as well as distribution from streaming services such as Netflix, Hulu and Peacock.

“A systematic, incremental increase in the quality of horror films, a genre that was once considered the smash and grab, take the money and run, open on Friday, close on Sunday genre, has now, with the creative vision of amazing production companies and brilliant filmmakers, earned respect of critics and audiences alike,” said Paul Dergarabedian, senior media analyst, at Comscore.

“M3gan,” for example, currently holds a 95% “Fresh” rating on Rotten Tomatoes.

“The genre and its audience are invaluable to the industry ecosphere, and 2023’s promising release slate looks to help maintain that status quo,” Robbins said.

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal has a partnership with Blumhouse and owns Rotten Tomatoes.

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Southwest forecasts lingering losses as bookings slow in wake of holiday meltdown

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Travelers check in at a Southwest Airlines ticket counter during the busy Christmas holiday season at Orlando International Airport on December 28, 2022 in Orlando, Florida.

Paul Hennessy | Anadolu Agency | Getty Images

Southwest Airlines said Thursday it expects its holiday meltdown to continue to weigh on its bottom line, but said it still expects to be profitable this year.

Southwest shares sunk nearly 5% Thursday, trading at roughly $35.

The carrier reported a net loss of $220 million in the fourth quarter after the travel chaos drove up expenses and cost it millions in revenue during what was expected to be the busiest travel period since before the pandemic.

“Thus far in January 2023, the Company has experienced an increase in flight cancellations and a deceleration in bookings, primarily for January and February 2023 travel, which are assumed to be associated with the operational disruptions in December 2022,” Southwest said in a quarterly report.

Analysts had been anticipating a per-share profit of 19 cents for the first quarter, based on estimates compiled by Refinitiv.

The Dallas-based airline said booking trends look positive in March, however, and it forecast first-quarter revenue up 20% to 24% over last year with capacity up 10%. It also estimated fuel and other costs would be higher than it previously estimated.

Southwest’s fourth-quarter loss compares with a $68 million profit during the same period in 2021. Its record revenue of $6.17 billion was up more than 22% from a year earlier.

Here’s how Southwest performed in the fourth quarter, compared with Wall Street expectations according to Refinitiv consensus estimates:

  • Adjusted loss per share: 38 cents vs an expected loss of 12 cents.
  • Total revenue: $6.17 billion vs an expected $6.16 billion.

The airline said the mass cancellations hit its pretax results by $800 million, in line with its estimate earlier this month of a hit between $725 million and $825 million.

Southwest canceled around 16,700 flights between Dec. 21 though Dec. 31 after severe winter weather swept through the U.S.

While rival airlines had largely recovered around Christmas after the winter weather, Southwest’s technology was unable to process all the flight changes and crews had to call the carrier to get rescheduled. The carrier decided to scrap most of its flights in the following days to reset its operation, CEO Bob Jordan said earlier this month.

The carrier has been processing tens of thousands of refunds and complex reimbursements for travelers who booked flights on other airlines to get to their destinations.

The Transportation Department is investigating whether Southwest’s schedules over the holidays were “unrealistic,” a spokesperson said late Wednesday.

Despite the rocky end of the year, Southwest reported a $539 million profit for 2022. That’s still down 45% from a year earlier, however.

For the full-year 2023, it plans to expand flying as much as 17%, post another profit and expand margins, echoing the upbeat outlook shared by rivals like American, Delta and United.

Southwest’s executives will hold a call with analysts and media at 12:30 ET. They are likely to face questions about any additional costs and political fallout from its missteps as well as an update on technology updates that aim to prevent another meltdown.

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Inflation is cooling, but prices on many items are going to stay high for months

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A shopper checks out the egg section at the Publix at Winter Park Village, Tuesday, Jan. 17, 2023.

Joe Burbank | Orlando Sentinel | Tribune News Service | Getty Images

Inflation may be cooling. But, for most Americans, the price of a cup of coffee or a bag of groceries hasn’t budged.

In the months ahead, the big question is whether consumers will start to feel relief, too.

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Over the past few months, many of the key factors that fueled a four-decade high in inflation have begun to fade. Shipping costs have dropped. Cotton, beef and other commodities have gotten cheaper. And shoppers found deeper discounts online and at malls during the holiday season, as retailers tried to clear through excess inventory. Consumer prices fell 0.1% in December compared with the prior month, according to the Labor Department. It marked the biggest monthly drop in nearly three years.

But cheaper freight and commodity costs won’t immediately trickle down to consumers, in part due to supplier contracts that set prices for months in advance.

Prices are still well above where they were a year ago. The headline consumer price index, which measures the cost of a wide variety of goods and services, is up 6.5% as of December, according to Labor Department data. Some price increases are eye-popping: The cost of large Grade A eggs has more than doubled, while the price tags for cereal and bakery products have climbed 16.1%.

“There are some prices, some goods for which prices are falling,” said Mark Zandi, chief economist of Moody’s Analytics. “But broadly, prices aren’t falling. It’s just that the rate of increase is slowing.”

Retailers, restaurants, airlines and other companies are deciding whether to pass on price cuts or impress investors with improved profit margins. Consumers are getting pickier about spending. And economists are weighing whether the U.S. will enter a recession this year.

Sticky contracts, higher wages

During the early days of the Covid pandemic, Americans went on spending sprees at the same time that factories and ports shuttered temporarily. Containers clogged up ports. Stores and warehouses struggled with out-of-stock merchandise.

That surge in demand and limited supply contributed to higher prices.

Now, those factors have started to reverse. As Americans feel the pinch of inflation and spend on other priorities such as commutes, trips and dining out, they have bought less stuff.

Freight costs and container costs have eased, bringing down prices along the rest of the supply chain. The cost for a long-distance truckload was up 4% in December compared with the year-ago period, but down nearly 8% from March’s record high, according to Labor Department data.

The cost of a 40-foot shipping container has fallen 80% below the peak of $10,377 in September 2021 to $2,079 as of mid-January, according to the World Container Index of Drewry, a supply chain advisory firm. But it is still higher than prepandemic rates.

Food and clothing materials have become cheaper. Wholesale beef prices dropped 15.6% in November compared with a year ago, but are still historically elevated, according to the U.S. Department of Agriculture. Coffee beans fell 19.7% in the same time, according to the International Coffee Organization’s composite global price. Raw cotton’s cost plunged 23.8%, according to Labor Department data.

However, to protect against unpredictable spikes in prices, many companies have long-term contracts that set the prices they pay to operate their businesses months in advance, from buying ingredients to moving goods across the world.

For example, Chuy’s Tex Mex locked in prices for fajita beef that are lower than what the chain paid last year, and it plans to also lock in prices for ground beef during the third quarter. But diners will likely still pay higher menu prices than they were last year.

Chuy’s plans to raise prices about 3% to 3.5% in February, although it has no more price hikes planned for later this year due to its conservative pricing strategy. The chain’s prices are up about 7% compared with the year-ago period, trailing the overall restaurant industry’s price hikes.

Similarly, coffee drinkers are unlikely to see a drop in their latte and cold brew prices this year. Dutch Bros. Coffee CEO Joth Ricci told CNBC that most coffee businesses hedge their prices six to 12 months in advance. He predicts coffee chains’ pricing could stabilize as early as the middle of 2023 and as late as the end of 2024.

Supplier contracts aren’t the only reason for sticky prices. Labor has gotten more expensive for businesses that need plenty of workers but have struggled to find them. Restaurants, nail salons, hotels and doctors’ offices will still reckon with the cost of higher wages, Moody’s Zandi said.

A shortage of airplane pilots is among the factors that will likely keep airfares more expensive this year. The price of airline tickets have dropped in recent months but are still up nearly 30% from last year, according to the most recent federal data.

However, Zandi said, if the job market remains strong, inflation eases and wages grow, Americans can better manage higher prices for airfare and other items.

Annual hourly earnings have risen by 4.6% over the past year, according to the Bureau of Labor Statistics — not as high as the consumer price index’s growth in December.

Yet in some categories, softening demand has translated to price relief. Several hot pandemic items, including TVs, computers, sporting goods and major appliances have dropped in price, according to Labor Department data from December.

Budget pressures for families

Top retail executives said they expect families’ budgets will still be under pressure in the year ahead.

At least two grocery executives, Kroger CEO Rodney McMullen and Sprouts Farmers Market CEO Jack Sinclair, said they do not expect food prices to drop anytime soon.

“The increase is starting to moderate a little bit,” said McMullen. “That doesn’t mean you’re going to start seeing deflation. We would expect to see inflation in the first half of the year. Second half of the year would be meaningfully lower.”

He said there are some exceptions. Eggs, for example, will likely become cheaper as as Avian flu outbreak recedes.

Over the past two years, consumer packaged goods companies have raised prices of items on Kroger’s shelves or reduced packaging sizing, a strategy known as “shrinkflation.” McMullen said none have come back to the grocer to lower prices or step up discounting levels from a year ago. Some are keeping aggressive prices, as they play catch-up after margins got squeezed earlier in the pandemic or as they sacrifice volume for profits, he said.

At Procter & Gamble, for example, executives plan to increase prices again in February. Prices on P&G’s consumer staples like Pampers diapers and Bounty paper towels have climbed 10% compared with the year earlier, while demand slipped 6% in its latest quarter.

In other cases, companies are still dealing with factors that contributed to inflation. For example, farmers are raising cows, but have fewer than before the pandemic, and grains and corn are less plentiful as the war in Ukraine continues, according to McMullen.

“If before you were spending $80 and now you’re spending $90 [on groceries], I think you’re going to be spending $90 for awhile,” he said. “I don’t think it’s going to go back to $80.”

Utz Brands CEO Dylan Lissette echoed that sentiment back in August, telling investors that list prices usually don’t fall even when costs come down.

“We don’t take something that was $1, move it to $1.10 and then a year or two later, move it to $1,” he said.

Instead, food companies such as Utz typically offer steeper and more frequent discounts to customers as costs drop, according to Lissette, who was once in charge of pricing Utz’s pretzels and kettle chips.

Over the next few years, companies may reverse “shrinkflation” packaging changes that result in cheaper snacks on a per ounce basis. And two or three years after that, shoppers may see the introduction of new value pack sizes, Lissette said.

Retailers’ ace in the hole

But retailers may be able to speed up that timeline. They can use their own, lower-priced private brands, such as the peanut butters, cereals and laundry detergents that resemble the well-known national brands.

Kroger last fall rolled out Smart Way, a new private brand with more than 100 items like loaves of bread, canned vegetables and other staples at its lowest price point.

McMullen said the grocer already planned to launch the private label, but sped up its debut by about six to nine months because of shoppers’ interest in value amid inflation. And he added, if a national brand loses market share, they’re more likely to get aggressive on discounts — or even permanently lower the price.

Zandi, the Moody’s economist, said while customers may grow frustrated, they are not powerless. By choosing competing brands or opting for items on promotion, they can send a message.

“Businesses do respond to shoppers,” he said. “If consumers are price-conscious, price-sensitive, that’ll go a long way to convincing businesspeople to stop raising prices and maybe even provide a discount.”

— CNBC’s Leslie Josephs contributed to this story.

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Walmart raises minimum wage as retail labor market remains tight

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An employee arranges beauty product gift boxes displayed for sale at a Wal-Mart Stores Inc. location in Los Angeles, California.

Patrick T. Fallon | Bloomberg | Getty Images

Walmart said Tuesday that it is raising its minimum wage for store employees to $14 an hour, representing a roughly 17% jump for the workers who stock shelves and cater to customers.

Starting in early March, store employees will make between $14 and $19 an hour. They currently earn between $12 and $18 an hour, according to Walmart spokeswoman Anne Hatfield.

With the move, the retailer’s U.S. average wage is expected to be more than $17.50, Walmart U.S. CEO John Furner said in an employee-wide memo on Tuesday.

About 340,000 store employees will get a raise because of the move, Hatfield said. That’s roughly a quarter of Walmart’s 1.3 million workers who work in the field, driving trucks, packing up online purchases and serving in stores.

The retail giant, which is the country’s largest private employer with 1.6 million employees, is hiking pay as part of employees’ annual increases. It comes as retailers continue to grapple with a tight labor market, despite thousands of job cuts at prominent tech companies, banks and media organizations.

In the employee memo, Furner said the wage hike will be part of many employees’ annual increases. Some of those pay increases will also go toward store employees who work in parts of the country where the labor market is more competitive, the company said.

Walmart is sweetening other perks to attract and retain employees, too. Furner said the company is adding more college degrees and certificates to its Live Better U program, which covers tuition and fees for part- and full-time workers. It is also creating more high-paid roles at its auto care centers and recruiting employees to become truck drivers, a job that can pay up to $110,000 in the first year. 

This story is developing. Please check back for updates.

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