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Analyst Predicts More Movie Misery Until 2022 As Theater Chains Reduce Operations, Warn Bankruptcy Risk

The bad news for the movie business keeps piling up, enough that B. Riley analyst Eric Wold further cut his box office forecasts for both this year and 2021, before suggesting something of a return to old levels in 2022.

But in the meantime, the pandemic pinch that left theaters shut for months and Hollywood studios rescheduling most of their slates into next year or beyond continues to batter the business.

The latest news includes U.K. exhibitor chain Vue saying it will partially close a quarter of its screens during the week. The chain said in a statement that it will close 21 of its 87 theaters Tuesday through Thursday, beginning next week, “to ensure that our business is financially well-placed to withstand the uncertainty ahead.”

The move is similar to one by British competitor Odeon. Cineworld, which also owns the No. 2 U.S. chain Regal, took an even more drastic step, closing all its U.K. and U.S. locations for the next several weeks.

The situation is even more grim for B&B Theatres, the sixth-largest chain in the United States. The company warned that it was a few months away from bankruptcy if it doesn’t receive new content or government aid.

No. 1 U.S. chain AMC issued a similar warning last summer, then restructured its debt, cut a landmark revenue-sharing deal with NBCUniversal, and said it planned to issue 15 million new shares of stock. In response to the Cineworld closures, AMC said last week that it would keep theaters open and strive to open more, depending in part on potential revenues from that NBCU deal.

But the situation is ugly overall for the industry. Cineworld’s closure announcement came soon after MGM pushed back the newest James Bond movie, No Time To Die, until April of next year. Other studios pushed back fellow blockbusters Black Widow and Dune into next year soon after.

As a result, the Q4 film release schedule is “increasingly barren,” wrote Wold, the B. Riley analyst. He said the situation has been made worse by continued uncertainty over when theaters will reopen in New York, Los Angeles and San Francisco, and under what capacity restrictions. All three metropolitan areas are major film markets in normal times.

“Even though we had already been projecting a 70-percent year-over-year decline in domestic box office revenues in 2020, we are lowering that projected decline even further to 80 percent,” Wold wrote in a research note. He also cut his prediction for 2021, predicting it’ll be down 20 percent from 2019 levels, before mostly rebounding, to within 10 percent of 2019 in 2022.

Given the sector’s continuing uncertainties and vast financial challenges, Wold warned that investors “need to be increasingly selective with the exhibition space given both news flow volatility and liquidity concerns.”

He accordingly cut price targets on several big theater chains –AMC to $4.50, Cinemark to $11, Imax to $18, and Marcus Corp. to $21 – as well as theater advertising giant National CineMedia
NCMI
, to $5.

The next notable Hollywood releases aren’t due until Thanksgiving week, following the weak debut of Warner Bros.’ Christopher Nolan blockbuster Tenet in early September. Warner continues advertising the film as “the biggest movie in the world” a month after its release.

This past weekend it finally slipped out of the No. 1 spot in domestic box office, bringing in just $2.1 million to fall behind Robert De Niro-led family comedy The War with Grandpa, which debuted to what normally would be a terrible $3.6 million.

Tenet has grossed $48.3 million in the United States, far below expectations for a Christopher Nolan film, especially one that cost an estimated $200 million to create, and tens of millions more to market. It’s done somewhat better internationally, but the worldwide gross remains a disastrous $323 million.

The issues with a lack of product last week led MoffettNathanson analyst Robert Fishman to suggest chains consider cutting content deals with streamers to get access to some movies. One possibility is more revenue-sharing deals over premium video-on-demand releases, similar to what AMC and NBCUniversal did.

“Theater owners should consider finally striking a deal with Netflix
NFLX
, Amazon
AMZN
and other SVOD services as a lifeline to get more product on movie screens,” Fishman wrote in a report last week.

Fishman predicted this year’s domestic box office will drop a stunning 81 percent, deflating to just $2.1 billion.

PwC partner CJ Bangah said last week the sector may even “slightly underperform” the grim numbers in the consulting giant’s annual media and entertainment outlook, which project a 65-percent drop in global revenues.

Rich Greenfield at LightShed Partners has repeatedly suggested in recent months that Hollywood studios are missing a chance to build audiences for their own streaming services by not shifting their backlogged pipeline of blockbusters into online releases. Failing to do so, he suggests, is ceding a huge opportunity to Netflix.

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