Even if the box office picks up where it left off, that’s not an especially great place to be.
Day traders are trying to #SaveAMC. So says the hashtag they’ve been flooding social media with alongside other Reddit-friendly labels such as #Stonks and rocket emojis. In late January, it seemed to be working: Shares of AMC Entertainment Holdings Inc., the world’s largest motion picture exhibitor, surged more than 500%, propelling the company’s market capitalization from the millions into the billions.
This is the same flavor of investing that’s consumed GameStop Inc. and produced other nostalgic, rage-against-the-financial-machine bets. While AMC’s spectacular rally didn’t last, Reddit enthusiasts were at it again last week, a sign that this will be a recurring trend:
To the Moon
That's where Reddit users say they want to see AMC's stock, and for a moment it seemed to be on its way
Source: Bloomberg
Perhaps unlike “GameStonk,” beneath the AMC hype is a more honest-to-goodness investment thesis. The stock’s bulls are part of a chorus of movie fans who believe theaters will spring back once vaccines make it safe. Many people do feel emotionally invested in the fate of cinemas.
That cohort is being thrown a bone this week, with New York City’s exhibitors finally allowed to welcome patrons again after being shut down for the better part of a year because of the pandemic. It’s certainly a relief to investors and employees of theater circuits such as AMC, which teetered on the brink of insolvency. Not only that, it’s a ray of hope for the broader quarantined population, signaling that we are almost out of these unthinkably dark times. The ability and desire to enjoy a movie safely with strangers in a large auditorium is a symbolic goalpost of sorts.
Morning Consult has been tracking this goalpost: As of Feb. 20, three in 10 U.S. adults surveyed said they are comfortable returning to the movies, a number that’s been rising and was highest among Republicans and younger generations. That said, a slight tweak to the question — When would you feel comfortable going to a movie theater? — produces an insightful breakdown: Almost a third said it would take more than six months, while an additional 23% said they didn’t know or didn't care.
Will We Rush Back?
More than 2,000 U.S. adults were asked when they'd feel safe enough to go to a movie theater, but many didn't even have an opinion:
Source: Morning Consult weekly survey, Feb. 20
It’s why investors should heed caution when using movie theaters as a gauge of the broader recovery. Even if the box office picks up where it left off, that’s not an especially great place to be. The pre-pandemic state of the industry was full of debt and beholden to a single company: Walt Disney Co.
Related Reading: We Have Learned to Live Without Movie Theaters: Tara Lachapelle
Disney’s share of the domestic box office increased to 33% by 2019, with AT&T Inc.’s Warner Bros. in a distant second place at 14%. This occurred as more people reserved trips to theaters for only the biggest films best suited to the cinematic experience. The pandemic didn’t cause this, and so there’s no reason to think it will end with vaccines.
Disney's World
The company's share of the North American box office was catapulted by former CEO Bob Iger's dealmaking
Source: The Numbers
Note: For space, not a complete ranking. 20th Century Fox, not shown, was also acquired by Disney in 2019.
Some say there is much pent-up demand and point to the incredible resurgence in China’s box office. The idea is that once it’s safe here, lots of Americans will be eager to get back to theaters, too — as well as restaurants, sporting events, vacations. I don’t disagree. But in the case of the movies, audiences may build to reassuring levels before eventually tapering off, the way they have gradually in North America for years. About 200 million fewer box-office tickets were sold in the region before Covid than two decades earlier, even as gross ticket sales in monetary terms climbed from about $7 billion to $11.3 billion in 2019. Six Disney films dominated that year, and only two other studios cracked the top-10 list, one of which was Warner Bros.
Warner Bros. is putting all of this year’s movies on its streaming platform HBO Max the same day they hit the big screen, including “Godzilla vs. Kong” in March and “Dune” in October. And Disney may be undermining theaters another way: The company greenlit 10 Marvel and “Star Wars” series each that will debut on the Disney+ app. While these studio giants would much prefer the higher profit margins of the box office, they can’t ignore the shift to streaming. EMarketer predicts that by the end of 2024, fewer than half of U.S. households will subscribe to traditional pay TV. Meanwhile, the declining cost of giant flat-screen TVs and other equipment is encouraging the home-viewing trend, with some consumers going so far as to create their own movie-theater setups.
Theaters vs. Streaming
Netflix's U.S. and Canada business is bigger than the entire local box office
Source: Bloomberg, Box Office Mojo, The Numbers
If enough people weren’t already spending at AMC for it to stay profitable — the company’s debt interest expense has outstripped operating income since 2017 — then it’s hard to feel optimistic about its viability in the age of streaming. In all likelihood, there will be fewer theaters even if they don’t go away entirely. AMC said Jan. 25 that it was able to secure $917 million of financing to stave off bankruptcy and keep its operations going through at least July, or potentially for the rest of the year should attendance levels steadily increase. Here’s what credit-rating agency Standard & Poor’s wrote in a report later that day, though:
Even if [AMC] makes it past July 2021 and survives the coronavirus pandemic's impact on operating performance, it will carry unsustainably high leverage and face significant deferred interest and lease costs that it will likely be unable to pay. ... We forecast that cinema attendance and global box office revenue will be more than 50% lower in 2021 compared with 2019 and will not recover to pre-COVID-19 levels until 2022, if ever.
Movie theaters carry many fond memories and their cultural importance may run even deeper than that. It’s just that the number of people touting the silver screen seems to exceed the number who actually regularly go to the cinema. After an initial flurry of films and possible post-Covid pop of moviegoers making up for lost time, the industry may struggle with a shortage of both. That’s a harder trend for Reddit to reverse than a declining stock price.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net
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