Barron's - USA (2020-10-12)

(Antfer) #1

14 BARRON’S October 12, 2020


may need to reorganize debt in bank-


ruptcy if they can’t kick-start sales


soon. “Consumer behavior was already


shifting toward streaming and smaller


screens. It’s the absolute worst possible


time, crushing movie theaters.”


Some chains are raising funds as


they try to survive the next few


months, when a feared new wave of


Covid-19 cases could put a further


damper on ticket sales for theaters


that are already only partly open


because of health mandates. Beyond


anyone’s reach—or ability to plan—is


an end to the pandemic that would


return business to normal.


S&P Global Ratings sees the situa-


tion as so dire for movie theater opera-


tors that it downgraded the ratings for


four of them and said that it believes a


default, distressed exchange, or re-


demption appears “inevitable” in the


next six months. For the largest chain,


AMC Entertainment Holdings


(ticker: AMC), which it downgraded to


CCC- from CCC+, S&P said that the


chain could run out of liquidity within


six months unless it raises capital or


attendance levels improve. AMC says


it has improved its liquidity.


The National Association of The-


atre Owners, a lobbying group, on


Oct. 8 renewed its call for Congress to


provide aid for cinemas, saying “the


stark reality is that many movie the-


aters will not be able to open again if


they don’t receive government help.”


In the U.S. and Canada, box office


sales this year totaled $1.9 billion as of


Thursday, from 353 movie releases,


according to Box Office Mojo. That is a


sixth of the $11.3 billion in sales last


year from 909 releases, and down from


the record $11.9 billion in sales in 2018.


For the past few weeks, only about half


as many theaters are open compared


with last year, Comscore reports.


The most recent weekly survey of


consumer sentiment by Morning Con-


sult says that only 23% are comfortable


going to a movie theater, and 38% said


that it would take more than six


months to get to that level of comfort.


That may make movie theater oper-


ators a tough sell for investors, even


though the shares are badly beaten


down from the highs they reached this


time last year. B. Riley Securities ana-


lyst Eric Wold says the stocks are so


volatile—and the state of the industry


so unpredictable—that they are “unin-


vestible” right now.


Streaming services for home the-


aters from Netflix (NFLX); Walt Dis-


ney (DIS), which offers streaming of its


catalog with Disney+; and Roku


(ROKU) might be a better nearer-term


choice for investors looking to get ex-


posure to entertainment stocks.


Netflix, whose shares are up about


64% this year, to $532, has its own


releases, with more than a dozen set


for October alone. Roku shares are up


more than 65%, to $224.


Disney is down 15% this year, to


$123, with shares taking a hit with


news of 28,000 layoffs. Now, activist


investor Dan Loeb’s Third Point is


pitching its favored strategy for Disney:


double down on streaming by debuting


new films on Disney+ rather than in


theaters. Loeb argues that this will


keep subscribers on the service longer.


B. Riley’s Wold, however, sees a


brighter future for theater operators.


If they can stay open into early next


year, “they’ll be OK.”


Movie Chains Reel


As Box Offices Bomb


With the pandemic lingering, movie houses are suffering from streaming,


delayed releases, and scarce ticket buyers. Can they survive until 2021?


“It’s a perfect


storm.


Consumer


behavior


was already


shifting


toward


streaming


and smaller


screens...


crushing


movie


theaters.”


Rich Greenfield


M


ovie theater operators


are looking for a Holly-


wood ending.


Slow to reopen amid


the coronavirus pan-


demic, theater chains


are reeling from low


attendance and a lack of new films to


lure moviegoers, as studios continue


to push back premieres. Theaters are


mostly or completely shut down in


New York City, Los Angeles, and San


Francisco—representing about a quar-


ter of domestic box-office sales and the


key markets that studios need to de-


but their big offerings.


“It’s a perfect storm,” says Rich


Greenfield, a media analyst at research


firm LightShed Partners, who says that


theater operators are burning cash and


By LIZ MOYER


Milwaukee-based Marcus (MCS),


with 1,100 screens at 91 locations,


trades around $7.50, a shadow of its


52-week high of $37.39, and is down


76% this year. Marcus has backtracked


and shut down more than a dozen cin-


emas that it had just reopened. It re-


cently raised cash in a convertible debt


deal, which it will use in part to pay


down debt. The company has said that


it can “continue to sustain our opera-


tions well into 2021.”


Cinemark Holdings (CNK), based


in Plano, Texas, with 534 theaters glob-


ally, raised $400 million in a convert-


ible note offering in August. The pro-


ceeds will provide the cushion to get


the company through 2021 smoothly


despite the pandemic, CEO Mark Zo-


radi tells Barron’s.


The company operates under


various theater brands, including


Rave Cinemas and Century Cinemas.


Regardless of shutdowns in parts of


California affecting its ability to fully


reopen, “financially we’re in a good


spot,” Zoradi says. Share are down


74% this year to about $8.60.


Zoradi says that he believes the


industry will survive once it gets past


this crisis. The 2021 release calendar


is shaping up to be a big year, and


people are impatient to return to life


as they knew it. “People have repeat-


edly shown us that they want to get


out of the house and experience the


movies in a big theater environment.”


Shares of Kansas City-based AMC


are down 43% this year. With 11,


screens in 1,000 theaters, AMC has


also gone to market to raise cash in


a secondary stock offering.


Theaters have slowly reopened since


the summer, and AMC last week


pledged to stay open even as British


rival Cineworld Group (CINE.UK)


closed its Regal cinemas in the U.S.,


blaming shutdown orders still in place


in New York City and Los Angeles.


Cineworld CEO Mooky Greidinger


says in a statement that the company


will resume operations “when key


markets have more concrete guidance


on their reopening status” and major


film releases return to big screens.


S&P Global Ratings recently down-


graded Cineworld debt to CCC- from


CCC+ and assigned a negative outlook.


“We anticipate that global cinema


attendance will recover much more


slowly in the fourth quarter of 2020


than we had previously expected and


now expect the impact of Covid-19 on


theater attendance to last well into


2021,” S&P Global Ratings said. Illustration by Jonathan Carlson

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