Big-screen enthusiasts like myself are thankful to see movie theaters begin to reopen. It's a resurgence that will hopefully be a lifeline for AMC Entertainment Holdings (AMC 0.93%), which was burning through $130 million per month as a result of worldwide pandemic-related closures.
Granted, there's still a long way to go before the theater industry gets anywhere near the attendance levels it counted on before the pandemic. Capacity restrictions in many locations are contributing to that delay.
But with more than 150 million doses of various coronavirus vaccines already administered and millions more promised in the next couple of months in the U.S., people are starting to show some confidence again in going out for entertainment. This is also encouraging movie studios to again start releasing what they hope will be blockbuster films after a year of pausing releases because of the pandemic.
As a result of all this, things appear to be looking up for AMC. But there's still one trend that will make it harder for this theater chain to return to full strength.
Big screens are facing competition from the living room
To boost their streaming businesses and hedge their bets against a resurgence of COVID-19, movie studios experimented this year with simultaneous releases of films on streaming platforms and in theaters (that were still open). If this experiment continues, it will make it difficult for AMC to fully recover.
So far, the experiment has had mixed results. Warner Media (owned by AT&T (T 0.29%)) decided to release its films this year simultaneously in theaters and for a limited time to subscribers of its relatively new streaming service, HBO Max, at no additional charge. Wonder Woman 1984 was released on Christmas day using this model and got great viewership on HBO Max but relatively disappointing box office receipts. Of course, many theaters were still closed then. This past weekend, the studio released Godzilla vs. Kong, and industry insiders were surprised by the stellar box-office opening despite it being available to HBO Max subscribers.
Walt Disney (DIS 0.33%) has been pursuing multiple release experiments in the hopes of finding the right combination in this current situation and no clear successful trend has emerged, at least according to industry analysts. For instance, the animated Disney feature Raya and the Last Dragon earned lackluster numbers at the box office this past week. The movie is also available through the Disney+ streaming service, but at a special subscriber premium of $29.99. No actual revenue figures are available from Disney on how the release performed on Disney+. Past releases using this model have succeeded and have disappointed. Disney has also released feature films simultaneously using a model where it doesn't charge a premium for Disney+ subscribers. This too has shown mixed results.
Warner Media has said it will continue the simultaneous release policy for all of 2021, while Disney is approaching it on a case-by-case basis through the rest of the year.
The simultaneous release trend may seem like a short-term accommodation till theaters fully open, but if movie studios like the results they see from this policy, they may adopt it long term. The financial dynamics (studios typically have to split the revenue earned at the box office with theater operators like AMC) may make the new temporary way of doing things (with less revenue splitting) the permanent way of doing things. This is potentially a bigger challenge for AMC to overcome than the pandemic.
What this could mean for investors
In the near term, AMC will need to deal with reduced attendance -- at least as long as studios are simultaneously releasing films on streaming platforms. Further, studios and theaters negotiate the share of revenue on box-office films. If going direct to streaming turns out to be a viable option for studios, it reduces the negotiating power for theaters. If the simultaneous release experiment fails, the pendulum could swing in the other direction and aid the theaters as studios come to a firmer realization that they need theaters to recoup the large investments made in blockbuster productions.
However this plays out, it will likely have implications for the industry for years to come. As far as making an investment decision, the uncertainties involved right now mean AMC stock is too volatile at the moment. Better to watch from the safety of your couch with a bowl of popcorn and revisit the stock after we see which way this plot will turn.