Exhibition companies can’t catch a break on Wall Street. Shares in the three major chains are getting hammered today after Morgan Stanley’s Benjamin Swinburne warned that studios consider premium VOD a “risk worth taking.”
Regal Entertainment is down 4.2% in afternoon trading, and touched a 52-week low, while AMC Entertainment dropped 3.7% and Cinemark is -2.5%.
That continues a downturn for the sector that began in May. Investors reacted in part to lower-than-expected domestic box office sales for films including The Mummy, The Fate of the Furious, Alien: Covenant and, this past weekend, Despicable Me 3.
The other big concern is that one or more Hollywood studios soon will introduce premium VOD, giving home viewers an opportunity to watch new releases within the 90-day window when theaters usually have them exclusively.
Studios are willing to shake things up because their home video revenues are “flat to declining due to increasing competition from the explosion in high-quality TV” led by Netflix, Swinburne says.
He adds that studios are “under more pressure than the market generally appreciates, with overall returns elevated by Disney’s unprecedented profits.”
Indeed, he adds, “the desperation level in Hollywood is at new highs” making an effort to introduce PVOD “almost inevitable.”
Viacom’s down 3.2% this afternoon, touching a 52-week low, with Disney down 1.8% and Lionsgate off 1.6%.
Wedbush Securities’ Michael Pachter has a different view, seeing investor fears as overblown — and creating a buying opportunity.
Although it’s “no longer a given” that the 2017 box office will exceed 2016, “we think it is still likely that a robust Q4 release slate will drive the year higher for a third consecutive year of full-year box office growth,” he says.
And theaters can overcome any threat from PVOD. They “have implemented various upgrades to their theaters including seating upgrades, concessions upgrades, as well as theater-level upgrades which are undoubtedly driving higher revenue,” he says.
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