UPDATED with closing stock prices. The Department of Justice revelation Monday of its plan to roll back decades-old regulations governing studios and movie theaters pushed beleaguered exhibition stocks higher Tuesday as investors saw the upside of the move.
On Wall Street, shares in AMC Entertainment, the No. 1 theater owner, gained 6% in the first part of the trading day before returning to near break-even and closing at $8.48, up a fraction. Cinemark also rose a fraction to $34.31; and Imax — not in most respects an exhibitor, but seen as a proxy for theater chains — climbed 3% to $21.51. On the London Stock Exchange, Regal Cinemas owner Cineworld added more than 4% to finish at $199.25. Regal, AMC and Cinemark together control roughly half of the 40,000 screens in the U.S.
Makan Delrahim, head of the DOJ’s antitrust division, outlined his thinking on the Paramount decree of 1948 in a speech to the American Bar Association in Washington. He said the rules have become antiquated, with the theatrical window less prominent than it was when the rules were established decades ago, before megaplexes, streaming and Big Tech. Delrahim’s regulatory team will be moving to undo the decree in the coming days, incorporating a two-year “sunset period.”
The National Association of Theater Owners fears independent theaters could suffer from the change, but Wall Street analysts view the rollback as fundamentally good news for major chains. While the original decision in 1948 separated studios from theaters, it’s not the case that they would automatically be drawn back together in the absence of rules preventing joint ownership of distribution and exhibition assets. Nevertheless, the mere existence of new options for theaters is a positive in the view of Wall Street.
AMC shares have fallen to a multi-year low in recent weeks as it and other major circuits have faced new threats from streaming services. The official stance of theater owners is that streaming is actually good for business, with data indicating heavy streaming consumers are also frequent movie ticket buyers. AMC recently launched its own on-demand streaming service for home and mobile movie rentals.
But deep-pocketed tech companies — notably Netflix, Amazon and Apple — have been taking aim at the traditional movie window. Netflix in particular has gone on a movie offensive of late, releasing The Irishman, Marriage Story and other titles in limited theatrical runs. The streaming giant negotiated unsuccessfully for theatrical engagements shorter than the typical 11-week window. As it has battled for its place in the box-office picture, Netflix has also taken control of the Egyptian Theater on Hollywood Boulvard and is in talks for a long-term lease of the Paris Theater in New York.
After decades of withstanding innovations such as television, video tape and the internet, movie theaters remain vulnerable. Even if they don’t combine with studios, finding new ownership configurations could help circuits stay financially viable.
“Although we would not anticipate that acquiring a theater circuit would be on the top of the strategy road maps for the major film studios – especially with the increasing focus on the growth opportunities and recurring revenue potential of streaming subscriptions – we cannot completely rule out the possibility of this driving additional industry consolidation,” B. Riley’s Eric Wold wrote in a note to clients.
Eric Handler of MKM Partners, told Deadline he was a bit more circumspect about the notion of M&A activity resulting from the DOJ move. “The Paramount decree is outdated,” he said, but “I don’t think much will change if the regulations are eliminated. There are a number of what-ifs but both sides need each other.”