The Capitalist Investor - Episode 56

Are moving theaters going extinct? What will it take for a movie theater to survive? What will the value proposition need to change to? In this episode of The Capitalist Investor, we talk about how the COVID-19 pandemic impacted this industry. We touch on where the stocks are at, the bombshell that Warner Bros. dropped, and whether or not we see a recovery coming. If you’re a movie buff, don’t miss this one!

Outline of This Episode

  • [1:06] Is this the death of movie theaters as we know it?
  • [3:55] The shift toward home movie theaters
  • [4:42] Has Hollywood lost its glamour?
  • [6:05] Movies going straight to streaming
  • [10:33] What will things look like moving forward?

Are movie theaters going extinct?

The entire COVID pandemic has decimated movie theaters. Derek used to watch all of the big movies in theaters every year. In the middle of the pandemic, it was near impossible to get to a movie theater. Studios had to decide how they were going to release movies. Wonder Woman and Tenant were supposed to come out in the summer. Warner Bros. Studios decided to launch Tenant in August and pushed Wonder Woman to Christmas.

They decided to release Wonder Woman in theaters—and simultaneously on HBO Max. Two weeks after that announcement, they announced they will do this for their entire 2021 lineup. They’re shifting direct-to-consumer. Why? Because who knows if things will be 100% open in 2021. Even worse—what will the demand look like?

Plus, how many decided to upgrade their home movie setup? How many people purchased a screen and set up surround sound? Did they invest in comfier furniture? Will those people ever go back to a movie theater? Has Hollywood lost its glamour?

The shift from movie theater experience to in-home streaming

The 4th Matrix movie, Space Jam, Suicide Squad, and Godzilla vs Kong are all coming out on HBO Max. Disney’s Mulan went straight to streaming on Disney Plus. They also released Frozen 2, Hamilton, and the last Star Wars movie that route. Moving forward, Disney announced that they’re going to focus their energy on streaming services.

They released Mulan for a $30 pay per view—and it worked. 29% of Disney Plus households paid for Mulan. What would have been about $261 million at the box office was $70 million in streaming. The name of the game is all about gaining subscribers. Toward the beginning of December, Disney was up 7% year-to-date, even with most of their parks non-operational.

Warner Bros. didn’t want to take the chance of only releasing the movies in theaters, so they decided to boost their streaming service. Not everyone is happy about it. Christopher Nolan said all of the talent in the industry was blind-sided by Warner Bros. announcement.

Movie theaters must evolve—or go extinct

Will the movie theater business downsize? Is this a temporary shift? Nicer movie theaters have been reducing capacity for years while simultaneously raising the customer experience. The nicest movie theaters offer dinner and drinks. That is what it’s going to take for a movie theater to survive. They have to innovate and find a good value proposition for the viewer. Just showing a movie and selling candy isn’t going to cut it anymore. It will need to be a full-blown customer experience for it to work.

AMC—which is down 45% year-to-date—dropped 18% in one day after the news that Warner Bros. was sending all of their 2021 movies to streaming. Cinemark is down 56%, IMAX is down 27%, and Marcus theaters is down 61% year-to-date. IMAX was down less than other theaters because they provide a different experience. If you can provide an overall experience—and not just show a movie—I think you can survive.

We don’t see an immediate bump back up once things reopen. The new valuations are in line with where they should be. With home improvement trends and unlimited content at your fingertips, it will be tough for movie theater businesses to get back to normal. The ones that innovate will survive, those that don’t will go extinct.

Resources & People Mentioned

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