2 reasons why Imax and Cinemark were downgraded to ‘sell’ by Goldman as movie theaters attempt a comeback

prague movie theater
Customers wearing protective masks sit apart in observance of social distancing measures inside a movie theater as the Czech government lifted more restrictions allowing cinemas to re-open on May 11, 2020, in Prague, Czech Republic.

  • Movie theater stocks Imax and Cinemark received a downgrade to “Sell” by Goldman Sachs on Wednesday.
  • The bank gave two reasons why the movie theater business could face big headwinds going forward.
  • Shares of Imax and Cinemark both fell by as much as 5% in Wednesday’s trading session.
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Shares of movie theater operators Imax and Cinemark fell as much as 5% on Wednesday after Goldman Sachs downgraded both to “Sell” from “Neutral” in a Wednesday note. The note comes amid an epic surge in reddit-favorite AMC Entertainment, which is not covered by the bank.

The bank gave two big reasons why it sees headwinds going forward for the movie theater industry, namely shortening theatrical windows and growing alternative distribution methods for new movies.

The theatrical window for new movies, or how long until a movie is released on DVD, has shortened from 5.7 months in 1997 to 2.7 months in 2019, according to Goldman, adding that recent press reports suggest the theatrical window will shorten to a 17-30 day window from about 45 days for select movies. “A shortened home video window could negatively impact theatrical attendance,” Goldman said.

Compounding the worries for movie theater operators is the recent rise in streaming new movies as they are simultaneously released in theaters. This trend was catalyzed by the pandemic as film studios were sitting on a slate of movies they couldn’t release in theaters. While more movies will likely return to the theater as the pandemic subsides, consumer behavior likely will not, setting up more upside for original content developed on streaming platforms, Goldman explained.

“We see limited upside to their share prices relative to the rest of our coverage universe and expect the domestic box office recovery to be more limited than what is currently being priced in,” Goldman said.

The bank said that the shift in consumer behaviors over the past year will only add to the ongoing secular decline in movie-going, according to the note.

“We believe that the closure of theaters during the pandemic may have accelerated the secular decline in attendance, hamstringing the box office recovery back to pre-pandemic levels,” Goldman said.

Goldman lowered its 12-month price target to $19 and $18.60 for Cinemark and Imax, respectively, representing potential downside of 19% and 13% from current levels.

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New York City movie theaters will reopen on March 5 at limited capacity, Cuomo says

amc movie theater nyc covid19
A view outside AMC 34th Street 14 movie theater during the coronavirus pandemic on May 14, 2020 in New York City.

  • New York City movie theaters will be able to reopen on March 5 at 25% capacity, Gov. Cuomo said Monday.
  • Cuomo also said assigned seating, social distancing, and other health precautions would be in place.
  • New York City movie theaters have been closed for nearly a year.
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After nearly a year of being shut down, New York City movie theaters are coming back.

New York Gov. Andrew Cuomo said on Monday that New York City movie theaters would be able to reopen on March 5 at 25% capacity, or up to 50 people per showing. Cuomo also said that assigned seating, social distancing, and other health precautions would be in place.

AMC Theatres’ stock was up about 12% on Monday after Cuomo’s announcement. Cinemark was up over 8%.

New York City is one of the last major theatrical hubs to reopen in the US. Los Angeles, another major market, is still closed. The city’s theaters have been closed since mid-March last year due to the coronavirus pandemic, but movie theaters throughout the rest of New York state have already been open at limited capacity.

The National Association of Theatre Owners (NATO), the largest movie-theater trade group, released a statement on Monday saying: “New York City is a major market for moviegoing in the U.S.; re-opening there gives confidence to film distributors in setting and holding their theatrical release dates, and is an important step in the recovery of the entire industry.”

It added: “We look forward to expanding the capacity from 25% to 50% in the very near future so that theatres can operate profitably.”

The pandemic has upended the theatrical industry over the last year. The 2020 North American box office declined 80.3% from 2019 and the global box office fell 71.3%, according to Comscore.

Theaters in the US closed in March for five months before reopening again in August ahead of the September release of Christopher Nolan’s “Tenet.” But major chains like Regal and Cineworld soon said they would shut down all locations in the US and UK again as coronavirus cases continued to soar.

In response, movie studios have sought alternatives to movie theaters, accelerating a shift to streaming. Disney and WarnerMedia have reorganized around their streaming businesses, resulting in layoffs. WarnerMedia-owned Warner Bros. is even releasing all of its new movies this year to HBO Max and theaters simultaneously

Universal, on the other hand, has struck deals with major theater chains like AMC Theatres (the world’s largest) to shorten the theatrical window from the typical 75 days to in most cases just 17, at which point the studio can debut movies on digital-rental platforms.

Experts says Universal’s strategy could be the new normal, even after the pandemic. AMC even touted the plan as a reason to stay open in October as other chains closed.

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