The return to life as normal can't occur fast enough for movie theaters and their investors. Shares of Cinemark Holdings (CNK -1.82%) are down nearly 40% in the last year and AMC Entertainment Holdings (AMC -1.03%) stock has collapsed nearly 70% as concerns the company is months away from bankruptcy have rattled investors.

It's understandable theaters would struggle in the midst of pandemic lockdowns. However, investors should ask if a more consequential shift is afoot in this century-old industry. Increasingly, it appears that the underlying business model is starting to become a victim of disruption, and the most recent announcement by management at Walt Disney (DIS 0.34%) is further proof the industry is unraveling.

Empty seats in a movie theater with one having a mask on the back.

Image source: Getty Images.

Disney's newest movie is coming to a home near you

Disney's Searchlight Pictures studio is releasing Nomadland in U.S. cinemas on Feb. 19, concurrent with the release on its streaming Hulu service. For those who want the big screen experience, Disney retained an exclusive three-week release for IMAX (IMAX 0.49%)-branded theaters starting on Jan. 29.

This latest move continues to unravel the fragile relationship between studios and theaters. AT&T (T 0.33%) grabbed headlines last year when it announced its Warner Bros. studio would release its entire slate of 2021 movies simultaneously in theaters and on its HBO Max streaming service.

Although Disney has been more deliberate, it is also increasingly migrating away from the customary 30-day exclusive theatrical window. Last year, Disney released Onward on Disney+ shortly after its theater debut, then went direct-to-consumer by releasing Mulan exclusively on Disney+, and finally released Soul as a Disney+ exclusive on Christmas day.

There's some upside for theaters in Disney's Nomadland announcement: First, unlike Warner Bros., Disney continues to evaluate these decisions on a one-off basis. While critically acclaimed, Nomadland is unlikely to be a major blockbuster. In the short run, Disney will continue releasing big-budget films from the Marvel and Star Wars studios with an exclusive theatrical window.

Additionally, Disney retained the three-week exclusive window for higher-end IMAX theaters. IMAX ticket sales tend to be more lucrative for studios, so this implies Disney still sees value in the theater exclusivity for the right price. Finally, it's important to note both AT&T and Disney are continuing to release movies concurrently in theaters, not abandoning the channel altogether.

Turnaround investors misunderstand the risks

Investors are increasingly putting theater stocks on their watch lists as turnaround plays, but it's important to understand the risks. The biggest argument is that business will bounce back once the pandemic is over, but timing is a factor because of potential delays, like reports that the U.S. government has bungled the rollout of vaccines to the populace.

However, the either/or investor attitudes on vaccines resolving things fails to take into account the fact that studios are paying much more attention now to how they're monetizing their content. For bigger budget releases it might make sense for an exclusive theater window, but it's likely other releases will retain the simultaneous release format even after the pandemic is brought under control.

Regardless, these studio decisions will likely have little input from the theater industry. They have little power in this relationship because large-cap studios have become significantly more powerful through mergers and acquisitions, and will have the upper hand in negotiations.

One theater stock looks appealing

Still, not all theater stocks are the same. Bankruptcy seems to be off the table for AMC now as management is reporting it is close to securing the $750 million it believes it needs to survive the pandemic, but the debt overhang gives it little room for error. AMC is increasingly using restructuring terms like cash burn, and equity holders are often wiped out when a restructuring occurs.

Cinemark is in a slightly stronger financial position, but also has significant debt and would struggle in an environment with more concurrent releases. However, even if both companies come out of the pandemic intact, it's likely there will be a significant decrease in the number of theaters and screens, as unprofitable theaters will be shuttered. Against this backdrop, the surviving theaters would have to rely less on exclusivity and more on monetizing the experience, which makes IMAX an intriguing company. Notice that Disney retained the exclusive window for Nomadland for IMAX.

Unlike the other theater companies, IMAX is more akin to a light-asset and highly scalable technology company that licenses its equipment and technology to theaters and studios. In the post-pandemic world, theaters are going to embrace IMAX because moviegoers are willing to pay more for the experience, and studios will likely push for more IMAX-exclusive launches. IMAX is well-situated to come out of the pandemic and pick up market share.

I'm not bullish on the overall sector, but IMAX is the one theater stock I'd consider right now.