Cinemark CEO Mark Zoradi expects “some contraction” in the movie theater business due to Covid-19, but said his company is not actively pursuing acquisitions or takeovers of leases held by less well-fortified rivals.
“Our No. 1 priority is to rebuild our balance sheet,” he said at the MKM Partners Virtual Investor Conference. “We are going to be very careful in taking cash that we have on hand, of which we have plenty, and risking it with acquisitions where we’re not certain what that particular outlet is going to do in a post-pandemic environment. Until a landlord actually owns a property, it obviously is not appropriate for us to be negotiating with that landlord prior to that moment.”
Zoradi dismissed a report in the New York Post that the company was looking to swoop in on some locations run by troubled competitor AMC Entertainment. “We tried to tell them that was nothing but a rumor and it wasn’t true,” the executive said. The report prompted a sell-off in AMC shares and dinged Cinemark’s stock as well.
“This is not something that we’re not active in and it’s something that we’re going to be very, very careful” in considering, Zoradi continued. “We know there are going to be opportunities, but we’re going to let those opportunities play themselves out a little bit before we would jump into the fray.”
Cinemark is better-off than many other theater owners in terms of its finances. COO and CFO Sean Gamble, appearing alongside Zoradi, said the company had $750 million of cash on hand as of the end of October and predicted it has a cash runway to last into 2022 even if theaters do not reopen. The circuit, which is the third-largest in the U.S., has about 70% of U.S. locations open and 60% of its international sites welcoming moviegoers. The company is banking on about $100 million in tax refunds associated with the CARES Act, Gamble noted.
The executives were asked about the one-two streaming punch in recent weeks from Warner Bros and Disney, which are both redirecting features toward their owned and operated online platforms. Zoradi called the Warner Bros day-and-date decision with HBO Max “shocking,” but said the company had had “enough conversations” with Disney that it did not see anything earth-shaking in its investor day last Thursday.
Zoradi, a longtime former Disney exec who worked closely with the company’s current CEO, Bob Chapek, said he took heart in Chapek’s citation of the $13 billion Disney took in at the global box office in 2019.
Streaming services are “in a mad dash to gain subscribers,” Gamble said. “But what we’ve seen over time is that movies released direct to home have always underperformed theatrical releases.” A theatrical run, he added, “is a way to eventize a movie, it establishes brand, it’s a stamp of quality.”
As the pandemic eases in 2021, he said, streaming players will rethink the rush to release major titles online. “It’s a bit of an anomaly we’re seeing right now,” he said.
Zoradi also sounded a confident note about the future of the exhibition sector, though he does expect “some contraction” to occur. Some small- and mid-sized circuits have already gone bankrupt, he noted, and “a larger player could happen,” a potential allusion to AMC’s precarious state.
“In a post-pandemic era, all the studios, including Warner Bros, will get a renewed sense of how important the theatrical business is,” Zoradi said. “I am a thousand percent convinced that when the coronavirus is more contained and there is a vaccine that people are going to be anxious to get out of their houses. So, I think we’re going to see a return to the business. I don’t know if it’s going to be a return to 100% or 90% of the business, but I do know that people are very anxious to get out.”
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