No one is going to feel the sting of Walt Disney's (NYSE:DIS) massive reorganization like your local multiplex operator. Disney's decision to optimize the monetization of content means that it will continue to prioritize direct-to-consumer streaming channels over theatrical releases, and that's not good for AMC (NYSE:AMC) and its smaller peers.
There is no company quite like Disney when it comes to feeding exhibitors a steady diet of box office blockbusters. Disney was the studio behind all six of this country's highest grossing films last year. It's the hit factory that movie theaters need to keep cranking out Marvel, Lucasfilm, Pixar, and Disney movies on the big screen. Unfortunately for AMC that big screen is now shrinking all the way down to the flat screen in consumer living rooms or the mobile device that folks are cradling in their hands.
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We'll look back in a few years to dissect the moment when the corner multiplex died. Earlier this month it could've been when MGM's No Time to Die -- the latest installment in the James Bond franchise -- bumped its November release into next year. It was shortly after that when Regal Cinema parent Cineworld Group decided to close all 543 of its movie theaters in the U.S., as well as all of Cineworld's cinemas in the U.K. and Ireland.
AMC didn't flinch at losing Bond's bond. That was one franchise with a single release every few years, but there was more bad news to come. November was also when Disney's Pixar would be releasing Soul in theaters, but last week the House of Mouse decided to forgo theatrical distribution and offer the film to Disney+ subscribers at no additional cost come Christmas Day. Now it remains unclear what Disney will do with all of the tentpole releases it has pushed into multiplex debuts for 2021. How many upcoming films will still hit the silver screen? How many releases will pan for gold as premium video on demand releases the way Mulan did last month? How many less ambitious projects will it decide to bronze as Disney+ premieres to attract and retain digital subscribers?
The game is changing, and the same multiplex industry that tried to play springtime hardball when Trolls World Tour topped $100 million in digital sales shortly after the pandemic hit is suddenly behind on the pitch count in the fall. There is no joy in Dudville.
The pieces are starting to fall quickly now. A lot has happened this week, even before Disney shocked the multiplex ecosystem shortly after Monday's market close. Hours before the announcement we saw B. Riley Securities slashing its price target on AMC shares and William Blair deciding to suspend coverage of the stock completely until the uncertainties start to clear.
On Tuesday it was AMC's turn to speak, and it wasn't pretty. It warned that while it has reopened nearly 83% of its theaters across the country -- 494 of its 598 locations -- attendance is down 85% since it fired up its projectors again. The scary part of that metric is that this was with the Hollywood-hyped Tenet hitting theaters last month. Most of the other major 2020 releases aren't hitting a multiplex near you until next year or are bypassing theatrical distribution altogether.
AMC warns it will face a liquidity crisis by the end of this year or early 2021 if ticket sales don't pick back up. If this were a different industry, rival Cineworld shutting down its Regal chain would've been an opportunity. Unfortunately for AMC, chaos isn't a ladder. Chaos is a fireman's pole that only goes in one direction. Regal bowing out and smaller players on the brink of bankruptcy will only scare more movie studios into shutting off the content spigot. AMC may have fewer competitors right now, but with media stocks reinventing the distribution game right now it's a death sentence. AMC is now stuck with old or obscure movies that folks don't want to see in an enclosed movie theater where people don't want to be.