People invest in AMC Entertainment Holdings (AMC 6.63%) for a variety of reasons, but I'm only going to address one angle here. Some investors are encouraged by box office results so far in 2022 and have purchased shares of AMC stock accordingly.
However, I believe Imax (IMAX -0.57%) stock is a superior investment compared to AMC stock. There's a lot of nuance in box office data and I believe Imax is on the right side of these nuanced trends. Here's why.
The movie theater industry: It's complicated
After two years of suppressed box office results due to the COVID-19 pandemic, 2022 has been far better for movie theaters. In the conference call to discuss financial results for the second quarter of 2022, AMC CEO Adam Aron said, "The second quarter marked the strongest North American box office since 2019."
To Aron's point, some all-time great movies have come out in the past 12 months. According to Box Office Mojo, several films are among the top-100 grossing movies ever, including Spider-Man: No Way Home and Top Gun: Maverick. This leads some to believe now is the time to bet on the ongoing recovery in the movie business and buy AMC stock.
However, there's more to consider. Domestic box office sales are currently under $5.4 billion through Sept. 9, also according to Box Office Mojo. This is more than 30% lower than gross sales in 2017, 2018, and 2019 measured over the comparable time period.
Where 2022 excels is gross sales per theatrical release. Right now, the domestic box office is averaging about $16.4 million per release, which is a 13-year high. But fewer movies are being released to theaters in 2022 than in years past.
So, the average movie release is performing well. But overall sales are down because fewer movies are coming out.
What the real movie trend is
There are two possible explanations for this trend. Movie studios are possibly still getting back to business and there will be elevated movie releases in coming years. Or there's a new normal: fewer (but higher-quality) annual releases.
Data for 2023 backs up this sentiment. According to The Numbers, a film industry data website, fewer than 100 movies are currently scheduled for theatrical release in 2023. More movies will get scheduled. But for perspective, there were over 900 releases in 2019.
I believe investors should expect fewer movie releases from now on. Legendary directors Steven Spielberg and George Lucas also had the same general impression in 2013 while speaking at an event at the University of Southern California.
After talking about having fewer movies, Lucas said, "What you're going to end up with is fewer theaters, bigger theaters, with a lot of nice things...And that's going to be what we call 'the movie business.' But everything else is going to look more like cable television", according to The Verge's write-up of the event.
What Lucas couldn't envision at the time was the rise of streaming services. Top options like HBO Max and Peacock only launched after the start of the pandemic. And Walt Disney's Disney+ officially launched just months before. These services provide loads of video content and skip movie theaters altogether in some cases.
The proliferation of content for streaming services will likely only continue -- every service needs to provide compelling content to gain and retain subscribers. Direct distribution to the living room leaves fewer movies for theaters than in previous years.
Why Imax is well-positioned
What we're seeing in 2022 is exactly what Spielberg and Lucas predicted nearly a decade ago. Right now individual movies are performing well. There are just fewer releases. And according to a recent report from The New York Times, over 500 U.S. screens have closed since the pandemic began, with more expected this year.
Fewer movies and fewer screens favors a premium theater experience like Imax. Not only are Imax screens sharper and brighter than regular movie theater screens, but they are also much larger.
Imax generates revenue in many ways. But the biggest is through digitally remastering blockbuster films for Imax screens, earning the company a cut of those ticket sales. The second-biggest revenue generator is selling and leasing its movie theater systems to operators.
This allows Imax to benefit from fewer theaters catering to bigger movie releases. And it appears to be working. According to the company, it had just 3.2% domestic box office market share in 2019. In 2021, that surged to 4.4% and sits at 5.1% year to date, perfectly coinciding with the rise of streaming.
Assuming current trends continue -- screens closing, fewer releases, and increased film budgets for streaming services -- I expect Imax's business to outperform AMC's. Whether it's enough to cause Imax stock to outperform the market is a separate discussion. But it's why I would start with Imax when looking for a movie theater investment.