Movie Theaters Need Windows Tweaks To Entice Studio Product, Wall Street Analyst Says; Stocks Fall Amid Estimate Cuts

Movie theater stocks slid further on Friday as Wall Street analysts lowered their outlook due to COVID-19 and AMC’s CEO called on New York Gov. Andrew Cuomo to open theaters in New York.

Shares in AMC, Cinemark, National CineMedia and Reading International all slid between 1% and 3% on a day when stocks overall posted modest gains. Imax Corp. was unchanged and Marcus Corp. rose a fraction. The major roadblock for theaters is continued closures in New York in LA, with no end in sight. More bad news came Friday when Canadian authorities said Toronto, a major North American market, is closing its theaters due to an uptick in coronavirus infections.

The gloomy fall outlook prompted two veteran exhibition analysts to trim their financial estimates and price targets for several companies, though they did not lower their ratings. Eric Handler of MKM Partners still rates Cinemark a “buy” but shaved $3 off his 12-month price target of $15. (Shares closed Friday at $8.51.) AMC is a “neutral” for Handler, but he cut his 2020 revenue estimate nearly in half, to $1.255.6 billion from $2.215.3 billion.

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“Unfortunately, the lack of clarity towards a business resumption will likely continue into, at least,
December,” Handler wrote in a note to clients. “The one saving grace for theatres, at least in our opinion, is studios have not found a financially viable, alternative distribution window to compensate for the lost box office dollars.”

MoffettNathanson’s Robert Fishman called on theaters to meet media companies and streaming platforms halfway in order to cope with a 2020 that has been emptied of tentpoles.

“Despite the lack of near-term tentpole releases until at least the end of November, we would recommend reaching agreements with studio partners on alternative windowing strategies to help ease the decision making process for studios to bring back their movies,” Fishman wrote in a note to clients.

Netflix, seen as a force of destruction for theaters, could wind up playing a key role in tiding them over until a full U.S. recovery from the pandemic can begin, the analyst suggested. The streaming giant has remained at odds with major theater circuits, which have banned The Irishman and other broad-appeal films given Netflix’s insistence on a reduction in the customary exclusive theatrical window of 11 weeks.

“Likely related to the broader windowing conversations, maybe theater owners should finally strike a deal with Netflix, Amazon and other SVOD services to create a lifeline to get more product on the movie screens,” Fishman wrote.

In a CNBC interview Thursday, AMC CEO Adam Aron also emphasized innovative approaches to release patterns. He pointed to the company’s groundbreaking agreement with Universal Pictures, which enables the studio to move releases into streaming or VOD windows after as little as 17 days in theaters. Five upcoming Universal releases on the release docket between now and Christmas will fall under that agreement, Aron said, which will give his company a much-needed lift. “We think it’s the right decision to stay open,” unlike rival Regal Cinemas, whose U.S. locations were shuttered by parent Cineworld, he said.

“I would rather that blockbuster movies be out now rather than be delayed,” Aron continued. “We are in the new-car business and there have not been a lot of new cares on the showroom floor… We do need blockbuster movies.”

Aron added his voice to that of Cineworld chief Mooky Greidinger, urging New York Gov. Andrew Cuomo to open theaters in the state, saying AMC was now open in 43 of 45 states where it has theaters. He said Cuomo has done a “brilliant job getting things under control,” but “it’s time to open movie theatres across New York.”

Given that COVID cases are rising in parts of New York state, including Manhattan, Aron said a California model would be fine. “California has given a statewide clearance to open provided the local conditions are right … It’s now a county-by-country decision across California. We have opened up in parts of California and not in other parts and that is recipe that we should see in New York.”

Aron noted that millions of ticket buyers across the U.S. and Europe have attended movies at AMC sites since they reopened over the summer. There have been “no reported [coronavirus] incidents at any AMC theaters … If there was ever a time that people needed to be amused and entertained … it’s right now.”

As bleak as 2020 may be, forecasting beyond this year is a complicated task. Streaming services like Disney+, HBO Max and Peacock offering studios a new release outlet, though streaming releases don’t compare with the billions of dollars in revenue that have come from theaters. The degree to which other companies follow Disney in re-routing movies from theaters to streaming will have a bearing on the box office recovery in the next few years.

Fishman sees grosses in 2020 plunging 81% from the $11.4 billion taken in last year. “Looking out over the next two years, factoring in the studio supply and potential consumer demand issues mentioned above, we currently forecast the 2021 box office will remain depressed at 35% below 2019 (or $7.4 billion) before growing 23% to $9.1 billion in 2022, but still 20% lower than 2019,” he wrote.

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