May 12, 2021

Godzilla v. Kitty

During the last year, those divining the future of moviegoing have toggled between extremes, at times forecasting its rapid demise, only to reverse course and portend a jubilant rise from the ashes of the pandemic.

Few observers have adopted a hold position on the future of cinema. For me, it is a wait-and-see approach as to whether the theatrical market will actually return to pre-pandemic levels of revenue and attendance.

The COVID-19 pandemic has altered a number of industries, damaging some while accelerating others. Among the former have been entertainment exhibitors. A reliable $10-12 billion business from 2008 to 2019 fell to record lows in 2020. In fact, the theatrical business had its highest gross in 2018 at $11.9 billion and lowest in 2020 at $2.2 billion.

#SaveYourCinema, #SavingAMC, and other hashtags have been tweeted and retweeted over the last year. Key partners of the theatrical experience, NATO (National Association of Theater Owners), DGA (Director’s Guild Association, and MPA (Motion Picture Association) have all joined in the movement to save the American theatrical experience. Major Hollywood talent joined the chorus, as well, declaring that “Movie theaters are a vital part of American social life.”

In true Hollywood fashion, a savior appeared. Seen over the skyline of Wall Street on the fourth of May was not a large ape climbing a skyscraper, but a small plane with the banner “AMC to the Moon.” The redeemer, it seems, was a much less intimidating protagonist: a kitty.

“Theaters Are Dead!”
COVID-19 infections hit record heights in the U.S. at the end of 2020. Exhausted by safer-at-home restrictions, many Americans ventured out of the house during the Thanksgiving break, with dire results; in December, U.S. COVID-19 deaths reached an all-time high. That same month, the theatrical industry’s Grinch, Jason Kilar, announced that WarnerMedia would release its entire 2021 theatrical slate day-and-date on its struggling streaming service HBO Max. Experienced Hollywood observers had seen this film (stock price declines) before with MoviePass, and viewed WarnerMedia’s move and the effect on AMC as an ugly sequel.

These factors were a double-sized lump of coal in AMC’s Christmas stocking, and shares fell to a low of $1.98 on January 5. It seemed the end was nigh for moviegoing in the U.S.

The Kitty that Roared
Oddly, AMC shares rose to a high of $13.26 at the end of the month. What happened? The kitty roared. The Reddit community that caused such a stir with GameStop had picked AMC as one of its targets. Even AMC CEO Adam Aron was caught off guard. He was “completely oblivious” to GameStop and the resulting Reddit movement. “I had never heard of them.”

Although this statement seems as unlikely as skyscraper-sized monsters, the stock rally was a shock to all. The Reddit forum and the mania drove AMC stock up 467% in 72 hours, allowing AMC to slash its debt load by $600 million. This cash injection helped AMC remain solvent as the U.S. began large-scale vaccinations.

March Madness
Much of the credit for the rallies that saved both AMC and GameStop are given to the retail investor. It is the same little guy (i.e., the same demo, 20-30-something males) that are attracted to action movies. Godzilla v. Kong opened on March 31 and earned $49 million during its opening 5-day weekend, making the film a rare sequel success of a big-budget flop. Its predecessor, Godzilla: King of Monsters bombed in the summer of 2019 with a $110 million domestic take, whereas Godzilla v. Kong has a cumulative gross of $93M domestically as of May 9. In case anyone in Hollywood didn’t know, it was also available via streaming for 31 days on HBO Max. In this case, G v. K was all upside when compared to King of Monsters, which had similar box-office receipts but did not grow the number of WarnerMedia’s HBO Max subscribers.

Lurking in the Shadows, in a Good Way
In early May, streaming giant (and therefore by definition the mortal enemy of theaters) Netflix announced plans to expand its theater-first business by releasing Army of the Dead with a 7-day window to Cinemark. On May 14, Army of the Dead will open nationwide in 250 major theaters, with streaming availability to launch a week later on May 21. Smaller circuits such as Harkins, Landmark, and Alamo will also carry the film, bringing the total count to 600 theaters, Netflix’s largest theatrical release yet.

Netflix believes “fans will love seeing [this film] in an immersive, cinematic environment with larger than life sight and sound technology.” In other words, even Netflix understands that films of this type are best enjoyed not via streaming on the living-room TV but on the big screen with hundreds of other viewers sharing the experience. For those that prefer to wait a week and watch the movie via streaming, that’s fine as well, but this type of film is best seen in a movie theater uniquely equipped to deliver a truly immersive experience.

Further positive news for the theatrical exhibitors came from AMC rival Cinemark. On May 7, Cinemark announced agreements with Warner, Disney, Paramount, and Sony to establish windows between theatrical and home entertainment releases. (A separate deal had been reached in November 2020 with Universal.)

“Theaters Are Back!”
Since the success of Godzilla v. Kong, other action films such as Mortal Kombat and Demon Slayer: Mugen Train have claimed post-pandemic victories, spurring many Hollywood prognosticators to claim that “Theaters are back.” Wall Street for the moment seems to agree, as both AMC and Cinemark stock prices rose despite worse than expected Q1’21 results.

That being said, during the same week, another company from the streamer-verse, Roku, announced a record quarter and an over 11% stock rise on the first day, considerably more than either AMC or Cinemark. Since these two parallel universes will continue to collide, I’m opting for paper hands instead of diamond hands.

Stick with TDG to Stay in front of the Curve.

Douglas Montgomery is a 15+ year veteran of the Entertainment Business. His time with Warner Bros. was spent analyzing, and living the incredible changes from the VHS era, to DVD and finally Streaming.

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