AMC Entertainment (NYSE:AMC) devised an innovative recovery plan for its industry by agreeing to dramatically narrow a movie's window of exclusivity from 75 days to 17 days in exchange for a cut of the revenue generated from the film shifting to streaming.
Although the decision was panned by rivals because it cuts into the profits made from the long tail of a film's run at the theater, Cinemark Holdings (NYSE:CNK) is now accepting it as a valid means of survival, though it's more on a movie-by-movie basis than the pact AMC signed with Universal Pictures.
A deal born of necessity
Cinemark just saw its revenue eviscerated in the second quarter as sales tumbled 96% from the year-ago period and profits turned to losses of $1.25 per share.
Despite the theater operator remaining committed to keeping its movie houses open, studios continue to shift their film premieres to 2021, leaving precious few opportunities to lure moviegoers in.
Shifting movies to streaming services and other premier video on demand (PVOD) outlets was a way for the studios to also make money during the pandemic. Yes, they still need theaters themselves to profit, but they have a strong hand in negotiations.
It was Comcast's (NASDAQ:CMCSA) Universal that likely forced Cinemark to acquiesce. The studio's decision to move the screening of F9, the latest installment of the Fast & Furious franchise, to May from April so as not to interfere with the debut of the newest James Bond movie, No Time to Die, meant there was little available to show.
Movies that are still scheduled -- Freaky, which is set to be released on Nov. 13, and The Croods: A New Age on Nov. 25 -- will go to PVOD three weeks later. And though it has an agreement in place with AMC, Universal also made the terms available for other theater operators.
A better financial picture
Cinemark, though, seems willing to accept a piecemeal arrangement with Universal rather than be locked into a contract because it can afford to.
AMC was likely first out of the gate and willing to play ball because it is on the brink of bankruptcy. Despite previously saying it would never show another Universal film in its theaters after the studio released Trolls 2 straight to video at the start of the pandemic, it is in dire financial straits and possibly running out of money by year's end.
Cinemark can be more circumspect, and CEO Mark Zoradi told analysts: "We don't have a specific agreement set on a go-forward basis with any changes to our model, we are taking each movie on an individual film by film basis during this period of time."
Still, AMC's deal essentially narrowed the window of exclusivity for all other theater operators, even though they weren't party to the agreement and got nothing out of it.
A changed environment
For its part, Cinemark says it is also in "active discussions" with other studios, but notes that blockbuster movies will tend to be ones that get longer run times anyway. Zoradi said: "We're willing to create a dynamic window and let (smaller movies) go to home entertainment on a quicker window."
While the deal with AMC gave Universal better standing with theater operators, it can't run roughshod over them. The top five movies last year grossed over $400 million at the box office, setting an impossibly high bar for streaming, pay-per-view, or rentals to get over. Consumers still exhibit discretionary spending power and won't pay up for every film to allow a movie to recoup its investment.
Cinemark has the luxury of picking and choosing its films, but it's also clear that the coronavirus pandemic has created a situation where all theater operators must now consider shortened movie run windows if they want to survive.