Few industries have been hobbled by the coronavirus pandemic as much as movie theaters.

Cruise ships have been docked for safety; casinos (sometimes referred to as cruise ships on land) are particularly vulnerable to spreading the disease. But movie theaters may be in an even worse position than those sectors, and AMC Entertainment (NYSE:AMC), the world's largest theater operator, is particularly at risk. 

The company warned in early June that its ability to continue as a "going concern" was in substantial doubt, an admission that the company could be forced into bankruptcy. Even before the pandemic hit, its financial position was weak, as the company had $265 million in cash and nearly $5 billion in debt. It also lost $149 million on a generally accepted accounting principles (GAAP) basis, and the company paid out a generous dividend, making it more vulnerable to the current crisis.

Like other struggling companies, AMC has been forced to furlough staff, cut back on expenses, and take on more debt to survive the pandemic. But beyond its financial challenges, the company and peers like Cinemark (NYSE:CNK) face other obstacles that could make a full recovery essentially impossible. Let's take a look at a few of them. 

An AMC multiplex in California.

Image source: AMC Entertainment.

Studios are calling the shots here

Movie theaters don't operate in a vacuum. They work closely with studios like Walt Disney (NYSE:DIS) and Comcast's Universal, screening movies on a fixed schedule according to industry standards known as "windowing," or a set of time intervals that determines how much time must pass before a movie shown in theaters can become available on DVD, on-demand, or through streaming. The windowing standard was already under pressure before the pandemic thanks to streamers like Netflix (NASDAQ:NFLX) that want movies to become available simultaneously in theaters and at home -- something theater operators like AMC have vigorously opposed.

With theaters now shut down, studios are bypassing the big screen entirely, making them available to audiences at home. ViacomCBS's Paramount Studios sold The Lovebirds, originally set to hit theaters on April 3, to Netflix, which released it in May. Jon Stewart's Irresistible was set to hit theaters on May 29 but was instead released on-demand at the end of June. AMC even had its own spat with Universal Studios after the studio said it would release future movies on a day-and-date basis, or simultaneously in theaters and at home after Trolls World Tour exceeded expectations in its at-home release during the pandemic. AMC responded by saying it would ban future Universal movies, and the two parties have been negotiating since. Universal's move shows that day-and-date protocol may make better business sense for studios in the future, and that would seriously damage the theater operators.

Reopenings are uncertain

AMC closed its theaters back in March as much of the country went into lockdown mode. In June, it announced a grand reopening of most of its theaters on July 15 ahead of the release of Tenet, Christopher Nolan's sci-fi thriller, and Walt Disney's Mulan on July 24. However, with coronavirus increasing across much of the country in recent weeks, Warner Bros. has twice pushed back the release of Tenet, which is now set to premiere on Aug. 12, while Mulan was pushed back to Aug. 21.

In response to those announcements, AMC delayed its reopening until July 30, which underscores again that the theater chain is beholden to the studios. In order for the reopenings to be successful, the company needs buy-in from both studios and audiences, and that may be difficult while the threat of the virus still lurks. If case counts are still at high levels at the end of the month, the reopening could be delayed again, or if audiences refuse to come back, studios may go back to the direct-to-home route. Pixar released Onward in the first weekend of March and had a disappointing haul at the box office as audiences may have been scared away by the pandemic.

Malls are in trouble

The classic mall day of shopping for new threads, grabbing a bite to eat in the food court, and catching a flick upstairs was already becoming a relic before the pandemic hit. Now, no other retail space is more poorly positioned during the crisis than malls and shopping centers, which are enclosed indoor environments with stores that can't easily offer curbside pickup and are vulnerable to blight, as anchor tenants like J.C. Penney file for bankruptcy and other mall-based chains trim their footprints.

A large number of movie theaters are located in malls, and with the whole mall ecosystem under pressure from the pandemic, a number of malls will close and traffic will decline, which will likely lower movie theater audiences as the convenience of shopping, eating, and being entertained isn't what it used to be in the smartphone era. 

While movie theaters still have the ability to draw audiences to a shopping center, retail stores are the core business in the mall, and those stores are suffering badly during the pandemic.

What the future holds

If the pandemic drags on, which seems likely with the U.S. reporting about 50,000 new cases daily now, AMC may have to further delay reopenings, putting it in a deeper financial hole. That makes an eventual bankruptcy almost certain. Last year, the company paid about $340 million in interest, which will only increase with the recent borrowings. Considering it was already operating at a loss, the business won't be sustainable with that kind of interest in a post-pandemic world that favors streamers and at-home viewing. 

The theater industry in general will need to adapt and give customers a reason to come into theaters instead of watching Netflix at home. Small chains like Alamo Drafthouse have embraced this, selling food and drinks during the show to make a night at the movies a more complete experience.

However, for AMC to make such a maneuver would require an infusion of capital the company simply can't afford. Pandemic or not, it's at a serious competitive disadvantage going forward.