It's been a tough year for movie theaters. In the spring, theaters were largely shut down when the coronavirus outbreak exploded, since they were easily classified as nonessential. And while theaters have, in many parts of the country, since been allowed to reopen, they're still dealing with occupancy limits and sanitation requirements that severely eat into their bottom line.
But even if those issues were overcome, there's still another major problem theaters have been grappling with: There haven't been any movies to screen. Hollywood has been delaying production on new releases, leaving movie theaters starved for content. It's not shocking, then, that many theaters are currently in the midst of a cash crunch.
It's these unfavorable circumstances that make a recent Warner Bros. announcement extremely problematic for the industry. The entertainment giant recently shared that it plans to stream all of its 2021 movie releases on HBO Max at the same time they hit theaters. Films in the pipeline include Matrix 4, Dune, Space Jam: A New Legacy, and The Suicide Squad.
Now on one hand, the fact that Warner Bros. expects these releases to happen in 2021 is a good thing. But offering them in streaming form right away is a major blow to movie theaters, many of which are already hanging on by a thread.
Can movie theaters absorb this latest hit?
Not shockingly, shares of movie theater operators AMC (NYSE: AMC) and Cinemark (NYSE: CNK) dropped more than 15% following the Warner Bros. announcement. In recent years, movie theaters have already faced steep competition as streaming services have become more ubiquitous. But if new releases streaming instantly becomes the trend, many consumers will no doubt seek to forgo the theater experience in favor of savings and a comfortable couch (though initially, moviegoers may flock to theaters after months of being cooped up at home during the pandemic).
So far, none of Warner Bros.' competitors have plans to release films in theaters and on streaming services simultaneously, but that doesn't mean more won't seek to follow suit.
Either way, this news comes at a terrible time. Recently, Cineworld Group (LSE: CINE), the parent company of Regal Cinemas, announced plans to shut down its U.S. theaters, citing a lack of content as a big driver of its decision. Meanwhile, AMC is in a terrible spot financially, and recently, the company announced that if current conditions don't improve, it could run out of cash by early 2021.
The Millionacres bottom line
Of course, if movie theaters start closing, it won't just be bad news for stockholders -- real estate investors could get hurt, too. Real estate investment trusts (REITs) that derive much of their revenue from movie theaters and entertainment could get slaughtered if theaters start dropping, and malls that house these theaters could get battered as well.
An uptick in Hollywood production, coupled by a quick deployment of an effective coronavirus vaccine, could help movie theaters dig out of their current hole. But all of that needs to happen fairly quickly, given the way theater operators risk blowing through their cash reserves.