AT&T's (T 0.09%) Warner Bros. studio also committed to releasing its entire slate of films to theaters and streaming this year. If more studios follow suit, the trend could put a serious crimp in the theater industry's ability to rebound quickly.
While AMC's stock has taken a 33% haircut this week, the doomsday scenario that drop is signaling is not likely. The cinema owner's shares may still be overpriced, but it's not for the reason the market is giving. In fact, AMC is very likely on the road to recovery.
Potential lost profits
Day-and-date releases like those by Disney and Warner Bros. do present a problem because the practice dilutes the ability of cinema operators to lure moviegoers back to the theater. Even if they offer films as a high-cost, pay-per-view (PPV) showing for subscribers -- as Disney did with both Mulan and Raya and the Last Dragon -- it's still a revenue drain for theaters.
A $30 PPV showing for a whole family is cheaper than the cost of the same number of movie tickets. Theaters also lose high-margin concession stand sales. Streaming also has the potential to further condition people to expect big-budget films to be released to their television rather than to the big screen.
Yet the studios are also fighting among themselves to establish their new streaming services as the go-to place for movies. Disney surpassed 100 million subscribers in a year, and this has set the bar pretty high for competing services. Directing a number of must-see films to the streaming outlets first -- or to theaters at the same time -- serves to prop up the headline numbers early. But the strategy is not necessarily sustainable or even desirable.
A dual strategy might not be best
People want the big screen experience, and studios would do consumers and their bottom lines a disservice if they made streaming the primary delivery option.
Warner Bros. certainly seems to recognize that as it just guaranteed Regal theater owner Cineworld (CNNW.F 4.14%) a 45-day window of exclusivity for its movies beginning in 2022. That's arguably a better deal than AMC and Cinemark (CNK 2.86%) got from Comcast's (NASDAQ: CMCSA) Universal Pictures for a three-week window for certain movies and a cut of the revenue generated by the film's release to streaming. Cineworld will be able to benefit from the long tail of a movie's run at the theater, including that vital concession stand revenue.
AMC and Cinemark should at least tangentially benefit alongside Cineworld since whatever films will be in Regal theaters won't be on a streaming service.
Of course, there's no guarantee going to streaming will pay off. Disney's experience with Mulan and Raya has been less than stellar, though not a losing proposition, and its live-action remakes haven't exactly been critical successes. Dumbo has a 42% Rotten Tomatoes score; Lion King has a 55%; Aladdin, 57%; and Maleficent: Mistress of Evil, 39%. Has anyone been clamoring for a Cruella de Vil origin story?
Disney+ also has one real hit so far, The Mandalorian, and even that has been bruised by its firing of Gina Carano, the actor playing the popular Cara Dune character.
There may be less for AMC to worry about here than meets the eye.
A marquee display
Consumers are also proving they want to get back into the theater. Data from location data analytics firm Placer.ai shows visits to AMC theaters surged during the first two weeks of March. Visits were down just 58.9% and 47.9%, respectively, compared to declines of over 80% in November, December, and January.
Also, despite its availability on Disney+, Raya is still exhibiting sustained support at the box office. After getting off to a sluggish start with just $8.3 million at the box office, it lost only 5% in its third weekend and has taken in over $23 million in North America.
Perhaps most importantly, California theaters are open again, albeit with much reduced seating capacity. It is the biggest movie market in the country. Last weekend the state accounted for 9% of all the revenue generated in total North American box office sales, even with all the restrictions it's imposed on theater attendance.
AMC says it expects to have 99% of its theaters open again by the end of this month, which is perfectly timed for the release of two other highly anticipated films, Godzilla v. King Kong and Nobody, starring Bob Odenkirk, best known for his Saul Goodman character in Breaking Bad and Better Call Saul.
Ready to roll
Yes, AMC Entertainment still has hurdles to get over in its battle with studios supporting their streaming services, and the theater operator's stock is still way overpriced following the Reddit rally in January and the volatility that followed.
But AMC's business remains intact; its financial footing is more secure; and it has the pieces in place to finally begin its recovery. I wouldn't be buying its stock at these levels, but investors bailing out because Disney is releasing a couple of films to streaming is the wrong reason to exit. Besides, they'll miss out when it is time to get back in.