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Box Office Update: Medium-Term Outlook Continues to Brighten

Thomas Paulson
Mar 3, 2023
Box Office Update: Medium-Term Outlook Continues to Brighten

Over the past year, we have discussed that the major media companies (Disney, Warner Bros. Discovery, among others) and studios are pivoting their priorities and strategy from solely streaming to giving more consideration to the theatrical window and the exhibition industry– including Cinemark, AMC Theatres, and others. The streaming window doesn’t produce enough revenue for their high production costs resulting in subpar returns. As such, to make the returns work, productions need to generate more revenue from both streaming and theatrical releases, with theatrical getting the “first bite of the apple” and a substantial increase in the subscription price for streaming.

  • More theatrical output (i.e. films) is also needed and this past week, Warner Bros. made a large commitment to that with plans announced for more big budget productions of DC, Lord of the Rings, and Harry Potter films. (We also covered the topic of streaming versus theatrical releases in our update on Disney a few weeks ago.) “Warner Bros. Discovery is a storytelling company, and we are very fortunate to have a huge share of the most beloved and globally recognized storytelling IP in the world, including Harry Potter, Game of Thrones, Superman, Batman, Lord of the Rings, and we intend to take full advantage of these one-of-a-kind franchises across our various platforms…We haven't done a Superman movie in 10 years. We haven't done new Harry Potter content in over a decade. And Lord of the Rings, which is a fantastic franchise. And Andy Jassy was pushing on it at Amazon with a lot of success, but we own those movie rights,” said CEO David Zaslav earlier this week.
  • For 2023, the large studios will release 105 “wide-release” films to theaters, up 20% from 2022 but still well below 2019’s level of 130. Given the pivot from the studios towards theatrical releases, 2024 will likely be up by 10-20 films compared to 2023, and 2025 up a similar amount.
  • Universal plans to release Despicable Me 4, Kung Fu Panda 4, Godzilla & Kong, and more during 2023. Disney has Snow White, Guardians of the Galaxy 3, Capital America: New World Order, Inside Out 2, Mufasa: The Lion King, Deadpool 3, Avatar 3, Indiana Jones, and more. Paramount has Kingdom of the Planet of the Apes and Mission: Impossible - Dead Reckoning.
  • As it relates to theatrical releases in 2023, AMC Theatres CEO Adam Aron stated, “We currently estimate that 30 or more movies will gross more than $100 million domestically in 2023. That compared with only 18 doing so in the just completed 2022. That is an increase in 2023 of about 75% of the number of movie titles grossing $100 million or more.”
  • On its recent Q4 2022 update, Cinemark CEO Sean Gamble stated, “A noteworthy addition to the 2023 film slate since our last call is Ben Affleck and Matt Damon's upcoming movie Air, that Amazon will release exclusively in theaters on April 5. Over the past year, we've indicated that a significant opportunity for our industry is the prospect of streaming companies releasing their more commercial films theatrically. To help build momentum in that direction, we've been testing limited releases with various streamers for several quarters, and we're thrilled that Amazon has now elected to amplify their theatrical ambitions in a big way with Air, including the captivating ad they ran during the Super Bowl. We believe Amazon's move could represent the start of a more substantive entry into theatrical exhibition by streaming companies.
  • We produced a presentation looking at the recovery of the exhibitors during the summer of 2022.  The learnings from that are as follows: (1) Surprisingly, high-frequency patronage (visitors frequenting theatres more than 2 times during summer 2022) outperformed lower-frequency patronage, implying that when there are quality releases, movie lovers return to the theaters; (2) In terms of visits, Cinemark outperformed AMC and Regal by a large margin; that outperformance was driven by better retaining its middle-aged and affluent customers; (3) AMC’s underperformance was driven by substantial losses in key demographic groups and affluent households. This includes underperformance in Texas on a per-market basis, where Cinemark took a lot of visitation market share; and (4) Regal's performance implies that its bankruptcy was the result of its outsized financial leverage position versus an underlying drag by poor-performing theaters and/or markets.
  • For Q4 2022, the overall box office was down -14% as it faced a difficult comp given that Q4 2021 had the releases Spider-Man: No Way Home, Venom: Let There Be Carnage, Eternals, and No Time to Die. As can be seen below, AMC outperformed Regal and Cinemark on a YoY basis, but it faced substantially easier comparisons.
  • For Q4 2022, Cinemark reported domestic revenue down -13%, which was composed of a -20% decline in attendance and a +9% increase in average ticket prices. The increase in average ticket prices was, “despite the inflationary environment we encountered during 2022, consumers continued to actively upgrade to premium large formats and D-BOX motion seats at levels well above pre-pandemic norms,” said Gamble.
  • AMC reported a more subdued -16% decline in attendance during Q4 2022. EBITDA for the U.S. business was positive for the second quarter in a row, but came in at just $7M for the quarter and $60M for the year. This indicates that AMC needs to make a significant improvement in filling its seats to have a sustainable business. Attendance per screen was 4,920 for Q4 2022 compared to 8,690 in Q4 2019, or just under 60% pre-pandemic levels.
  • A new and important test to fill its seats is more dynamic pricing. Aron noted, “ We are testing "Sightline Seating" at AMC in some of our theaters in New York, Chicago, and Kansas City. New York and Chicago because they're big cities in the United States. Kansas City because we're headquartered here, and we ourselves want to walk into our theaters and talk to our guests and gauge their reactions directly and firsthand. The test is being done for a potential nationwide rollout later in 2023. With Sightline Seating...we are charging a slight premium for the most popular seats in an auditorium, but discounting the prices of less popular seats closer to the screen upfront. This is in line with how other sellers price their seats for live theater, for concerts, for sporting events. It's also how we've been pricing movie theater tickets in Europe for many years. We do understand, however, that this is a substantial change to the status quo for U.S.”  We at Analytical Research will be looking at the Sightline strategy and the affected locations.
  • So far in 2023, the box office is showing better-than-expected mojo with Ant Man performing well ($167M domestically after just two weekends) on top of Avatar ($665M domestically, including $88M last weekend), and Puss in Boots (on its way to $200M). Visitation was up around +30% YoY across the category in January and almost 20% in February as shown below.

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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