Last week was a rough one for investors hoping to cash in on the multiplex industry. Shares of leading movie theater operators AMC Entertainment (NYSE:AMC) and Regal Entertainment (NYSE:RGC) tumbled 11% and 12%, respectively, as competitive pressures started to mount and value propositions started to blur.
IMAX (NYSE:IMAX) also saw its shares slide 4% on the week. It was spared the same kind of carnage that the two exhibitors suffered, but it's not as if IMAX investors can rest easy. IMAX stock has declined in 13 of the past 15 weeks, shedding more than 40% in the process.
The first shoe to drop was MoviePass -- the multiplex operator that lets members see a movie a day at most exhibitors -- dropping its rate to $9.95 a month. The move sent ripples through the publicly traded theater chains. The new price turned so many heads that its website was down earlier in the week.
MoviePass pays face value for the tickets, so one can argue that giving folks a smorgasbord model will increase box-office receipts. The fear here is that MoviePass will disrupt the perceived value of a theater screening, something that will naturally limit what AMC, Regal, and their smaller peers can charge in the future.
The other shoe to drop was a Bloomberg piece on Friday morning, detailing how deals could be in place for as early as next year for many leading movie studios to sell digital downloads of major theatrical releases as soon as two weeks after they hit theaters. Negotiations continue, and months have passed without the sides agreeing on a beneficial way to push out $30 to $50 premium downloaded movies.
Movie studios are hungry. They're seeing DVD sales dry up and movie house ticket sales have been stagnant. Release windows seem like the next casualty, and that's not going to sit well with multiplex operators.
The market's hesitancy to embrace theater chains in this climate isn't new. If IMAX's 40% slide over the past 15 weeks seems rough, AMC has seen its stock plummet by 55%. Regal may have been last week's biggest loser among the three companies, but it's holding up relatively better with its 29% drop in that time.
The challenges are real. It's not getting any cheaper to run a movie theater, and anything that makes movies cheaper or gives consumers a reason to stay away can result in cruel math for the leveraged multiplex operators. IMAX will suffer if the value proposition for a premium-viewing experience continues to come under fire. All three markdowns will seem overdone in retrospect if the industry can weather the storm, but it would be the beginning of more pain if the model is being irreparably disrupted.