Movie theaters are shuttering during the coronavirus pandemic, and it's not just because of safety concerns and state-imposed restrictions. For many, the decision boils down to not having any new films to screen.
In early October, Regal Cinemas, which is owned by Cineworld Group (LSE: CINE), announced plans to close down all of its U.S. theaters for the foreseeable future. The reason? A glaring lack of content. (It was perhaps the announcement of the newest James Bond movie being postponed to April 2021 that set Regal over the edge.)
Of course, Regal isn't the only movie theater chain in this predicament. Customers won't come to the movies if there are no movies to watch, and with Hollywood delaying film releases left and right, theaters are in a tough spot. As such, so are the REITs (real estate investment trusts) that depend on movie theaters for revenue.
But not all movie theaters are struggling during the pandemic. In fact, some independent movie theaters are managing just fine because they're not dependent on Hollywood like major theaters are.
Could movie theater chains take a lesson from smaller theaters?
Independent movie theaters tend to screen lesser-known independent films that cater to a specific audience. The locations are also smaller in size and cheaper to operate. Movie theater chains, by contrast, are unlikely to get away with using independent films to draw an audience. The typical moviegoer doesn't want to read subtitles; he or she wants action, romance, or the other hallmark features of a major Hollywood production.
But what movie theater chains can do is copy independent theaters' model of being less reliant on new Hollywood films. Instead, they can seek to revert to the classics and screen older movies that have long been fan favorites.
Some theaters are already trying it out. AMC (NYSE: AMC), for example, is letting customers rent out an entire movie theater for as little as $99 to watch older releases. Newer movies cost more, and the price tag varies by location. But if more theaters get on board, it could be just the thing to get them through the ongoing crisis.
Will customers bite?
There's a good chance they will. Avid movie fans who are tired of being cooped up at home and limited to their streaming services' current selection may be more than willing to fork over some money to see a classic on the big screen, all while chomping down on buttery popcorn and other traditional theater fare. Of course, with movie theaters being forced to operate at limited capacity, their revenue intake won't be as substantial as in a non-COVID world. But if the numbers work out and movie theater chains are able to turn a modest profit by screening older films, then a reduced revenue stream is no doubt preferable to no revenue at all.
Right now, things aren't looking too good for movie theaters and the REITs that derive revenue from them. If movie theaters want to survive the pandemic, they'll need to prepare to get creative as Hollywood productions continue to stall.