“There is no way to sugarcoat this for the theater operators,” said one Wall Streeter as exhibition stocks plunged Thursday on WarnerMedia’s bombshell – a reimaging of its entire 2021 release slate that hit an exhibition industry already teetering on the brink.
Cinemark shares– up earlier in the session — lost nearly 22% of their value by the close on news that Warner will direct the entirety of its films next year exclusively to HBO Max for a month before releasing them to theaters. AMC Entertainment, the biggest and most financially strapped, was down 16%. Marcus lost 13%, Imax 8%, National CineMedia 5%. That was the opposite direction of the overall market, which ended higher.
“This raises the bar for all streamers… If enough major studios make this change, it could become permanent,” even if it’s the wrong decision for studios long term given the outsized impact of the theatrical window, he said. It’s got investors wondering if Walt Disney may toss out a similar bomb at its hotly anticipated investor day next week.
In an interview with Deadline, WarnerMedia CEO Jason Kilar said he’s committed to exhibition and the decision was purely pandemic related. But several analysts interviewed Thursday saw the move as largely AT&T/HBO Max and Wall Street driven. “It signals that AT&T clearly recognizes investors are going to reward them more for gaining subscribers for HBO Max than any other metric within the company,” said Eric Handler of MKM Partners. (AT&T shares firmed 0.48%.)
HBO Max has been slow out of the gate and at circa 8.6 million activated subscribers hasn’t swapped out all the HBO subs who could jump on for free or attracted a wave of newcomers to the service. At $14.99, it is at the high end of the streaming price range and given its roots in HBO as a premium pay-TV add-on, it hasn’t been able to do any Disney- or Apple-style deep discounting. In a crowded streaming market, high-end titles from Godzilla vs. Kong and Mortal Kombat to In The Heights, Space Jam: A New Legacy, Dune, and Matrix 4 —could drive growth, especially at no extra charge for subscribers.
The telco and media giant AT&T also is loaded with a mountain of debt (about $149 billion) so the gambit is risky. “If you take all of your films in 2021 and do a simultaneous window, it is highly doubtful that they will be able to attract enough subscribers to compensate for the lost theatrical revenue. Are they still going to spend $100 million or $200 million to market the big films? Losses incurred from HBO Max could be massive next year,” Handler said.
But it’s really theaters that are left cold. They will lose the first month of a film, usually around 90% of its theatrical revenue.
“Maybe you see it at home and say it looks like something great to watch on an Imax screen or a big screen. There is still something special about going to the movies. But this is certainly a disincentive,” said one analyst.
It’s true that with the vaccine coming in the first half of the year it will take a while to trickle down to the general population and many moviegoers may still be reluctant. “Everyone we talked to in the medical community suggests that this will persist in terms of consumer behavior and the medical situation for a bit of 2021, if not all of 2021,” Kilar told Deadline.
Still, coronavirus vaccines are coming. The Croods: A New Age had a surprisingly strong theatrical run over Thanksgiving weekend. Warner movies all go to HBO anyway, so the studio didn’t have to worry about windows, this analyst noted asking, “Why couldn’t they do this through June 30, and then revisit things?
“If I was a private [theater] company wondering, do I put a little more cash into my business to make a go out of or close my doors, this would make the decision,” he said.
AMC Entertainment announced several months ago it only had enough cash to stay solvent through late this year or early next. It recently sold 50 million shares and its Baltic theaters. On Thursday morning, it filed with the SEC to sell another 200 million shares with the stock trading at about $4 – a price that might be hard to get now (it closed at $3.63). The highly levered chain, the nation’s largest, has been trying, with the rest of the industry, to outrun the pandemic but keeps getting thrown curveballs.
“I would have liked to hear what Adam Aron screamed out when he read this,” said one Wall Streeter referring to AMC’s chief executive. Publicly, he said, “Clearly, Warner Media intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max start up.”
One prominent film financier told Deadline he thinks Warner’s move was short-sighted but logical given recent Wall Street trends. “The market is rewarding streaming. These large media companies are trying to be opportunistic and do what will help them get through this period. They’re doing what they feel they have to do.”
And he’s optimistic the picture will change significantly as vaccines roll out and the pandemic starts to subside in 2021.
“There’s nothing to replace the kind of meaningful economic activity that a theatrical release provides as a movie gets established,” he said. “A year from now, conditions will be completely different, so I don’t think we can sit here today and say it’s the end of theaters. There is so much demand from people to get together. You see it every day.”
Talent, he added, will likely compel theatrical releases to return with greater force after the pandemic. Netflix, whose stock dipped 1% Thursday, could find itself in an interesting position when it comes to giant movies like Extraction or The Old Guard. “Could those movies have been bona fide theatrical titles? Absolutely,” one producer told Deadline. “Going forward, you could see more legitimate playtime for those Netflix and Amazon films in the larger circuits.”
Prior to the pandemic, AMC, Cinemark and Regal all declined to make deals for Netflix films after the parties sought to negotiate an exclusive theatrical window shorter than the standard 78 days. Cinemark, which has reached an agreement with Universal allowing films to go to non-theatrical release after three to five weeks depending on their gross level, also set an intriguing test with Netflix. Kurt Russell-Goldie Hawn holiday film Christmas Chronicles 2 hit the streaming service just a week after its November 18 debut on Cinemark screens.