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