Regal Entertainment hopes to boldly go where others have rarely gone on the backs of potential blockbusters like Interstellar. Image: Paramount Pictures
Shares of movie theater operator Regal Entertainment (NYSE: RGC) are up nearly 10% since management announced on Monday October 27, 2014 that it was considering "strategic alternatives," the usual corporate-speak for wanting to shop the company to the highest bidder.
With potential blockbuster movies like Interstellar from Viacom's Paramount Pictures and 21st Century Fox's Birdman hitting the screens now, and a bevy of nine new action hero movies from Disney's Marvel comics due out in the future, theater operators are feeling good about the future. They certainly need some cheer because the summer was one of the worst for the industry in a decade.
RGC Revenue (TTM) data by YCharts
Regal's third quarter earnings showed revenues down 15% from the year ago period while nearly two-thirds of its profits were gutted from the bottom line. Yet with movie sequels to Avatar, James Bond, and Star Wars all due out over the next few years there's a heightened sense that the industry could see a boom again, and Regal may be wanting to strike while interest is high.
Lions Gate Entertainment (LGF +0.00%), for example, has recently been approached about doing movie deals and even a possible buyout, and China's Wanda Group acquired AMC Entertainment (AMC +2.04%) for $2.6 billion two years ago, but IPO'd it last December and it might eye Regal as a quick way to grow. Although possible, a Regal-AMC tie would also undoubtedly invite antitrust scrutiny because the two of largest movie theater chains would be joined together.
AMC has almost 5,000 screens in 344 locations while Regal operates over 7,300 screens in more than 570 theaters, many in overlapping markets. And both have faced scrutiny over their industry dominance.
A case brought against Regal by independent operators alleging it colluded with big Hollywood studios to give it exclusive showings of movies was tossed out for lack of evidence, but a similar charge has been leveled against AMC, and the Justice Dept. is reportedly reviewing the entire matter.
Carmike Cinemas (NASDAQ: CKEC) or Cinemark Holdings (NYSE: CNK) are two others who could also use the opportunity to increase their footprint and industry heft as Carmike has 253 theatres with 2,670 screens and Cinemark operates 488 theatres with 5,609 screens
That interest and a lineup of potential blockbuster movies could yet make Regal a rich prize, even at a time when fewer people are actually going to the movies.
Earlier this year The Wall Street Journal reported ticket sales in 2013 fell 1.5% to 1.34 billion from 1.36 billion, and since 2004 have tumbled almost 11%, even as box office receipts are up 17%. Yet over the May to August summer season, the industry witness a near 15% drop in receipts from last year as rising competition from streaming video and home entertainment systems continue to keep theater operators under pressure.
Can Matthew McConaughey provide enough thrust to Regal Entertainment's valuation? Photo: Paramount Pictures
Consider the rise of Netflix (NFLX +2.25%) as a content producer, which announced earlier this month it was getting into the movie business through a partnership with IMAX (IMAX 0.61%) to produce a sequel to "Crouching Tiger, Hidden Dragon," and then planning a four-picture deal with Adam Sandler.
While the IMAX deal is problematic enough as the timetable between a movie's release and when it shows up on on-demand services will narrow further from the already shrinking window of exclusivity -- in fact it's expect the movie will premiere together on the same day -- the Sandler pact is simply bypassing theaters altogether and going directly to streaming. Netflix's announcement suggests that the era of the DVD and Blu-ray disc are all but over, meaning investors in Redbox's owner Outerwall ought to take note.
Before that calamity strikes, however, there will still a brief golden period to profit from the releases of Interstellar, Birdman, and Big Eyes, the Tim Burton biopic of Margaret Keane, who produced popular prints of big-eyed children in the 1950's, but whose artistry was assumed by her husband. The Weinstein Company production chronicles their story and with a Christmas Day release scheduled, analysts are anticipating a big showing.
This is the chance Regal Entertainment needs to cash in on the movie release schedule, and probably explains why it made the red carpet announcement when it did.
