The purpose of this report is to give historical context to the movie theater industry as it attempts to reopen with the release of the movie Tenet. We’ll first cover the state of the industry prior to the pandemic, and then go in to how they shut down, what Hollywood and business owners were able to do to compensate, when and how they decided to reopen, and how the release of Tenet might be what the industry needs to get back on track. After the publication of this report, expect weekly updates on foot traffic numbers and important circumstances in a similar vein to the other reports on this website.
The theater industry has been on the decline long before the pandemic, with strong competitors emerging with the rise of streaming services. There are three large competitors in the US that compete for space within states: AMC, Cinemark, and Regal Cinema (parent company being Cineworld). AMC reported a net loss of $149M in the year of 2019, Cineworld-the parent company of Regal Cinema, reported a net loss as well at £180M ($240M). Cinemark was the only company of the big 3 that was able to scrape together a profit for the year of 2019, earning $26.3M.
The companies were forced to constantly innovate and evolve in order to compete with streaming services. Late 2019 and early 2020 saw the release of Disney+ and HBO max, touting 50M and 36M subscribers today respectively. Netflix is an established streaming service, putting movies online since 2007, with 182 Million subscribers it dominates the online video market. Movie theaters have been forced to innovate new ways to get moviegoers out of their house, shifting towards creating an “experience” instead of just displaying a film.
By March 8th, the amount of daily new cases in the US was over 4,000 and movie theater foot traffic was down 25%. President Trump declared a state of emergency on March 13th. Following that announcement, Regal and AMC significantly reduced the amount of people allowed into theaters. That Monday of next week, March 16th, AMC Theaters and Regal Cinemas stated that their theaters would be temporarily closing. That next day, Cinemark followed suit and closed all of its sites.
Though the main 3 chains closed, there were a few states that didn’t mandate a complete closure of theaters. This meant that smaller unincorporated movie theaters remained open in some states, as well as drive-in movie theaters. This led to at worst an 80% decrease in theater foot traffic.
Movie Delays and Streaming Platform Releases
Movie producers were left with two options for releasing movies with theaters closed: they could stream their movies or delay them until theaters reopened. Many films opted to delay their films, some for up to one whole year after their original release date. Companies that opted to stream them instead did so in order to promote their streaming platform, such as Disney/Pixar with their release of Onward and Mulan.
Drive In Theaters
Drive in theaters gained popularity during the pandemic, allowing viewers to watch films from within the safety of their own vehicles. While new movies weren’t released for drive in theaters, they played old classics and fan favorites during the summer to relatively good results.
On August 14th, Walmart partnered with the Tribeca Film Festival to set up drive-in movie theaters in their own parking lots at over 160 locations nationwide. Admission to these movies was free and a schedule was posted on their websites for showings up until October 21st.
Earnings Q2 2020
AMC and Cinemark released their Q2 earnings ending in the month of June at the beginning of August. They both reported a nearly 66% decrease in year-to-date revenues. AMC reported this year was “this was the most challenging quarter in the 100-year history of AMC.” AMC reported that they had extended most of their maturities until 2026. Cinemark emphasized cash burn and liquidity, reporting a $50 Million cash burn for the month of June, with $500 Billion in liquidity. Both companies ceased all capex until further notice.
AMC stock dropped 59% in the four weeks during the height of the pandemic and is now down 20% YTD. Similarly, Cinemark stock dropped 62% in the four weeks during the height of the pandemic and is now down 63% YTD.
Testing The waters
After more than 6 months of being closed, the three major theater chains announced that they would be opening in mid August. AMC reopened on August 20th, while Regal and Cinemark reopened on the 21st. Without any Hollywood releases slated, these theaters instead showed retro films at a steep discount.
The similar timeframes for these chains to reopen is no coincidence. The weekend of August 21st was two weekends before the USA release of the first movie to come out of Hollywood to theaters in over six months. Tenet, a film by Christopher Nolan was released on Sept. 3rd in the USA. Theaters used the two weeks prior to gauge customer interest and enact safety protocols within their premises. These safety protocols involved the typical – enforcement of mask wearing, extra sanitization measures, and enforcement of social distancing. A theater specific measure that these companies took was utilizing every other row of seats within the theater and leaving a seat between parties. This kept customers at least 6 feet apart, even while viewing a movie.
Tenet opened to moderate success. As of the time of writing this report (Sept. 14th), Tenet grossed $29.5 Million in ticket sales domestically and $177 Million internationally. While only earning 7 million more than it’s production value of $200Million would normally be considered a failure in Hollywood, given the context these returns show that there is a considerable portion of the consumer base that is ready to return to theaters. While many films are postponed until at least 2021, there are still a few big films slated for release in the last few months of 2020: Wonder Woman 1984, the newest installment of James Bond, and Black Widow are all created with large budgets slated to release in the next two months.
Though the film industry is in a rougher shape than it ever has been, do not expect any major upheavals in the industry due to the pandemic. Hollywood seems to be slowly growing confident in releasing their films again, and theater companies poised themselves well to last through the coming months as consumer confidence slowly grows.