Movie theater operators and the movie industry are marking time to see how the summer slate performs as Q1 2024 and early Q2 2024 have been soft due to the scant number of wide releases. (This stems from last year’s strikes.) The current release, Kingdom of the Planet of the Apes, is running soft with a Week 2 decline of 55% weekend-over-weekend. Given the limited number of releases, the Q1 2024 box was down 6% in dollars and 10% in attendance. In our preview, we said that Cinemark outperformed Regal and AMC, in the U.S. AMC's U.S. business reported a 6% decline in attendance, a 3% decline in screens, and a 2% decline in revenue. By contrast, Cinemark reported a 6% decline in attendance, a 2% decline in screens, and a 5% decline in revenue. AMC is driving more pricing and its attendance figures are ahead of Placer estimates because of outperformance in its theaters in dense, multi-storied buildings (urban core). Smaller operator Marcus Theaters reported a 17.5% decline in attendance, which is the case for smaller operators (down double-digits in aggregate) across the country.
For Cinemark and AMC, the attendance declines led to EBITDA declines and a cash burn for the quarter. One would expect that smaller operators faired relatively worse given their more considerable attendance decline. As such, the exhibitor industry desperately needs a strong second half of 2024, which we don’t see materializing until Q4 based on the release schedule. AMC’s financials are more stressed than Cinemark’s, and as such, they have been more aggressive in bringing alternative programming to its theaters, including last year’s highly successful Taylor Swift and Beyonce concert films. For Q2 2024, Billie Eilish’s concert film premiered in theaters on May 16-17.
Beyond Q4 2024, the earnings results and outlooks from the studios (Disney, Warner Bros., etc.) offer important clues on the box office’s medium- to long-term. Disney (with Marvel, Lucas, Pixar, etc.) was the number one studio pre-pandemic at 33% market share. Unfortunately for the exhibitors, Disney is still in retrenchment mode on releases as it tries to get the quality and “perfection” right, which we again heard about from Disney CEO Bob Iger at a conference appearance last week. As we've discussed before, the problem for the movie industry is that all the big studios are held in media conglomerates, which are seeing their major cash generator, the cable networks, be eviscerated by cord cutting. It was that business that provided the cash for producing a large volume of big-budget film productions. Yes, Disney and Universal capture synergies between the films and parks; the others do not have parks. For perspective, Warner Bros. Discovery’s EBITDA was down 20% in the quarter. It’s film segment produced $184M in EBITDA, whereas cable networks generated $2.1B, or over 10x the contribution. Segment cable network profits were down 8% and most analyst expect that figure to continue to melt away. Stemming from the merger between Warner Bros and Discovery, the business still has a colossal $43B in debt, against $19B in equity, and 4.1X net leverage, i.e. a large millstone around the neck.
Paramount is daily in the business and industry press, with three suitors circling: Skydance, Apollo, and Sony. The suitors are only interested in the Paramount film business as there are no synergies with the cable and broadcast (CBS) networks. The film industry stars (Tom Cruise and James Cameron) back Skydance with the hope that it will enact less cost-cutting than the others. Paramount’s TV business produced $4.8B in profits last year; the film business lost $120M and analysts do not forecast profits from the film business in the medium term. As such, for any of these suitors to get a return on investment, there needs to be material cost cutting.
As it relates to shopping centers, historically movie theaters were considered an important component of reinforcing relevance and traffic. Given the above, we may be reaching the point where that perspective needs to be reconsidered. Yes, there are many centers where the theater remains an important part of the offering and highly relevant. Others, not so much.
A much-loved film from our teen years was Mallrats, which opening in 1995, which was filmed at the Eden Prairie Center, west of the Twin Cities. In the center is an older theater which we have created a custom point of interest (POI) called "EP Theater". We’ve tried to isolate theater attendance by selecting over a 1-hour dwell time. Additionally, we were generous in our POI boundary. We’ve also matched it against the ShowPlace Icon Theater in St. Louis Park (17 miles away); that theater is relatively new. The visit cadence for both venues matches and the surge shown in the chart below was last year’s Barbenheimer phenomena, but the ShowPlace Icon does 5.5x more visits on a relative basis.
As mentioned, some of the Eden Prairie theater screens goes back quite awhile. Theater upgrades are an important contributor to remaining relevant with movie theater goers. Relevant programming is another. When using Placer's “Favorite Places" feature for Theaters and Music Venues cross-visits, we were surprised to see the Orpheum Theater (downtown Minneapolis) at number four for both. That suggests co-marketing and co-programming opportunities for both parties, the theaters and the Orpheum.
Another difference between the two is trade area density and drive time. The EP Center has a substantially larger and less dense Potential Market Trade Area at 8.5K visits per square mile versus 23.1K for The West End. As such, the EP Center has a broader set of competition for household budgets and time. 35% of its 2x visitors are within 5 miles; by contrast, it's 50% for The West End.
