Cinema stocks fall as receipts show decline, outlook turns weaker
$1.3 billion in value of four chains erased after AMC’s negative forecast.
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.