Movie Theater Chains Reeling Even as Summer Flick Season Begins

Memorial Day weekend is the start of what traditionally has been the prime movie viewing time of the year, the “Black Friday” for Hollywood. But the disappointing openings for the fifth installment of the Pirates of the Caribbean series and the critically savaged R-rated “Baywatch” have industry observers concerned.

Investors are too.

Publicly traded movie theater chains AMC Entertainment Holdings Inc. (NYSE: AMC) and IMAX Corp. (NYSE: IMAX) touched 52-week lows in intraday trading Wednesday, feeling pressure following a weak Memorial Day weekend at the box office. The box office brought in Only $176 million came in over weekend in North America, its lowest take in 18 years.

Depending on how potential blockbusters like “Wonder Woman’” perform — that motion picture opens on Friday — the falloff in box office over the Memorial Day holiday might not be a one-off. Like its brethren in brick-and-mortar retail, the drop in movie theater revenue suggests the theater-chain business model might be obsolete, a victim of greater availability of content across platforms, in-home entertainment and the decline in relevance of the movie theater. The disruption that has upended retail, music and publishing industries is reshaping the motion picture industry.

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Hollywood is coming off a year it would like to forget. In 2016, 1.3 billion tickets were sold, according to motion picture industry data tracker The Numbers, a slight decline from the previous year. Total box office of $11.25 billion was virtually unchanged.

Leawood, Kansas-based AMC says on its website that it has 1,027 theaters and 11,247 screens and claims to operate 22 of the 50 highest-grossing theaters in the United States.

AMC’s first-quarter earnings plunged 70% to $8.4 million from $28.3 million. During the period, the company recorded merger and acquisition expenses of $26.2 million. Credit Suisse has downgraded the stock twice this year and now rates the shares at Underperform.

IMAX, based in Canada and the United States, has 1,226 theaters in 75 countries, according to its website. IMAX is all in on the theater concept — the company increased its theater network in the first quarter by 160 from a year ago.

Profitability at IMAX is getting squeezed. Gross margin for joint revenue-sharing arrangements in the first quarter was 67.3%, compared with 82.0% in the prior-year period, reflecting lower box office performance. IMAX reported first-quarter 2017 revenue of $68.7 million and net income attributable to common shareholders of $100,000.

Credit Suisse lowered its rating for IMAX to Neutral from Outperform earlier this year.

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