If you haven't seen a movie in a theater in the past six months, you are not alone. That is one of the reasons that movie theaters are facing an uncertain future. Earlier this month, Cineworld Group (LSE: CINE), the parent company of Regal Cinemas, announced it plans to shut down both its U.S. and U.K. theaters.
AMC Entertainment (NYSE: AMC) filed an update with the Securities and Exchange Commission this week that paints a bleak picture for its future. In the wake of recent announcements of major movie premiere postponements, AMC has indicated that it doesn't see a long financial runway. The Form 8-K says, in part, that "given the reduced movie slate for the fourth quarter, in the absence of significant increases in attendance from current levels or incremental sources of liquidity, at the existing cash burn rate, the company anticipates that existing cash resources would be largely depleted by the end of 2020 or early 2021."
AMC notes that other competitors have decided to close, which is also exacerbating the problem. Its future plans include finding additional sources of liquidity, including additional renegotiations with landlords, the sales of company assets, and potential joint ventures. AMC has said that 83% of its U.S. theaters are open and that it has served over 2.2 million people since reopening, but that's down 85% from a year ago.
Movie theaters are in a tough spot; it's cheaper to keep theaters closed, but to keep them closed means no revenue at all. AMC has over 8,000 theaters, making it the biggest movie theater chain in the United States.
AMC's current situation is also bad news for a few retail REITs. AMC is STORE Capital's (NYSE: STOR) seventh-largest tenant and it is the single-largest tenant of EPR Properties (NYSE: EPR). These two REITs may be just some of the landlords that AMC will reach out to to renegotiate leases.
What's next for movie theaters?
A COVID-19 vaccine could save the future of movie theaters, but a new round of closures could push many movie theater brands beyond the point of no return. Movie theaters were already closing at a rapid rate before the pandemic as the rise of streaming and higher-quality televisions made going to the theater less appealing.
The National Association of Theatre Owners is taking action, starting a Save Your Cinema campaign that asks consumers to send support letters to Congress in favor of aid for movie theaters. The campaign is designed to pressure Congress to take action and pass legislation to help movie theaters, including an expansion of the Paycheck Protection Program or a relief program specifically aimed at aiding movie theaters.
Should all efforts fail, it's likely that some landlords may need to look at new revenue streams for these spaces. A movie theater is a unique piece of real estate. It's easy to swap in new stores in many retail spaces, and even restaurants can be converted once a new tenant signs a lease. Movie theaters, however, are an entirely different proposition. However, there are a few options, some of which have been tested out in the past and some that are uniquely appropriate for our current climate.
Fewer guests, more revenue: One option for some movie theaters is to adopt a model where moviegoers can order dinner or drinks. This may require permits or licenses in some areas.
Church: A trend that has been in place since movie theaters started to fall out of favor nearly two decades ago is to rent them out to churches for weekly services. In fact, Cinemark (NYSE: CNK) has a section on its website that makes it easy for congregations to reserve theaters for church services.
Corporate events: Many movie theaters allow corporate rentals during off-hours, especially early mornings before the first shows begin. This has never been a huge revenue driver for theaters, but if business travel isn't an option, it's possible that local movie theaters could help fill that gap. Renting a movie theater is often cheaper than booking a hotel meeting space.
Sports and esports: Livestreams of sporting events are sometimes held in movie theaters. If stadiums remain at low occupancy, streamed events could help give sports fans the joy of a shared experience. The rising trend of esports could also bring fans into theaters.
Other options that would require more reconfiguring include turning movie theaters into grocery stores or gyms. Another possibility would be to use them as fulfillment centers. Their position inside malls and in large urban areas makes the real estate valuable, although the cost of conversion may be prohibitive in some cases.
In many ways, the pandemic has accelerated trends that were already in motion. Independent cinemas have been struggling for many years, and only the larger chains have been able to survive. Now, even those may need to get much smaller in order to survive.