Cinema stocks fall as re­ceipts show de­cline, outlook turns weaker

$1.3 bil­lion in value of four chains erased after AMC’s neg­a­tive fore­cast.

Austin American-Statesman - - BUSINESS - By Anousha Sak­oui and Emma Orr Bloomberg News

Hope is fad­ing for a feel-good end­ing at the U.S. box of­fice.

After sev­eral months of flops like Warner Bros.’ “King Arthur” and EuropaCorp’s “Va­le­rian,” movie stu­dios and the­aters are be­gin­ning to ac­knowl­edge that their streak of record-set­ting ticket sales may be com­ing to an end.

AMC En­ter­tain­ment Hold­ings, the world’s big­gest cinema chain, laid out a worse-than-pro­jected outlook for the North Amer­i­can box of­fice last week.

That an­nounce­ment dragged down shares of the­ater stocks, wip­ing out $1.3 bil­lion from the value of the top four cinema op­er­a­tors in North Amer­ica since Aug. 1. Even with a new “Star Wars,” a Marvel su­per­hero movie and the se­quel to “Blade Run­ner” on the docket for the hol­i­day sea­son, the box of­fice is un­likely to make up for a “se­vere hit” in the third quar­ter, ac­cord­ing to Bloomberg In­tel­li­gence. To date, re­ceipts are down 2 per­cent in 2017, and AMC is pro­ject­ing a 1.5 per­cent de­cline for the full year.

The con­cern is that the slump isn’t just a run of bad luck. Cinema op­er­a­tors have man­aged for years to keep in­creas­ing sales by rais­ing ticket prices amid stag­nant at­ten­dance, but a sharp drop in film­go­ing would make that harder to sus­tain.

And the tried-and-true for­mula of churn­ing out big-bud­get se­quels and cin­e­matic uni­verses pop­u­lated with su­per­be­ings seems to be wear­ing on film­go­ers. Movies fea­tur­ing once-re­li­able draws Jack Spar­row, the Trans­form­ers and the Mummy did poorly in the U.S.

Mean­while, com­pe­ti­tion is heat­ing up. Net­flix and other dig­i­tal dis­trib­u­tors are cre­at­ing more orig­i­nal movies, and con­sumers have more de­mands on their at­ten­tion than ever, from Snapchat to YouTube. Fur­ther ex­ac­er­bat­ing the trend, stu­dios are ex­pected to push for a new pre­mium video-on-de­mand win­dow this year.

It’s pos­si­ble that Hol­ly­wood could re­verse the trend next year, when a new movie about Han Solo, an “Avengers” film, and se­quels to “Dead­pool” and “Juras­sic World” are sched­uled.

“This is very typ­i­cal of the movie busi­ness,” said Paul Sweeney, an an­a­lyst at Bloomberg In­tel­li­gence. “You could make the ar­gu­ment that the slate for next year looks re­ally good, which should grow the mar­ket next year in North Amer­ica. That part’s a cycli­cal thing, and it’s likely to come back.”

And movie-the­ater op­er­a­tors Re­gal En­ter­tain­ment Group, Cine­mark Hold­ings Inc. and Imax Corp. aren’t fac­ing the same level of pres­sure as AMC, which is car­ry­ing al­most $5 bil­lion in debt after ex­pand­ing its em­pire to Europe, with ac­qui­si­tions in the U.K. and Swe­den.

Con­trolled by Chi­nese bil­lion­aire Wang Jian­lin’s Dalian Wanda Group Co., AMC has be­come the poster child for China’s in­cur­sion into Hol­ly­wood. Con­cern that Dalian Wanda’s in­ter­na­tional in­vest­ments may wane is adding to AMC’s trou­bles. “With China crack­ing down on fund­ing for AMC’s ma­jor­ity share­holder, Dalian Wanda, the cinema chain faces murky prospects given its high debt level and appetite for global M&A,” wrote Geetha Ran­ganathan, a Bloomberg In­tel­li­gence an­a­lyst.

AMC said last week that it will cut jobs and plans to write off its in­vest­ment in Na­tional CineMe­dia LLC, re­sult­ing in a loss of as much as $178.5 mil­lion. The com­pany also will pur­sue “strate­gic pric­ing” — pos­si­bly se­lec­tively charg­ing more for hot tick­ets or of­fer­ing dis­counts to fill seats — and cut back on in­vest­ments in im­prove­ments to its the­aters, such as re­clin­ing seats.

The big shadow hang­ing over the in­dus­try is whether stu­dios will push to shorten the time be­tween the­ater and home re­lease of their movies, from the stan­dard three months to within weeks after the­ater at­ten­dance has dropped off.

The con­cern is that such a pre­mium video-on-de­mand of­fer­ing would give con­sumers less in­cen­tive to go see a movie in the­aters, know­ing they could watch it at home within weeks.


Cus­tomers wait to buy con­ces­sion items at a Re­gal Cin­e­mas movie the­ater in Los An­ge­les in April. Re­gal En­ter­tain­ment Group isn’t fac­ing the same level of pres­sure as AMC, which is car­ry­ing al­most $5 bil­lion in debt after ex­pand­ing in Europe.

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