Specialist
Former SVP at Cinemark Holdings Inc (Cinemark USA Inc)
Agenda
- Operating environment for AMC (NYSE: AMC), Cinemark (NYSE: CNK) and Regal Cinemas (LON: CINE) – potential impact of increased coronavirus cases on product delays and theatre closures
- Longer-term screen and real estate rationalisation needs based on attendance declines
- Retrofit and upgrade NPV analysis – factors for location selection, ROI uplift curves and downside risks
- Outlook for H2 2021 and beyond – downside scenarios and potential wildcards
Questions
1.
What trends or drivers should we be focusing on in the exhibition industry for the next 12-18 months?
2.
What would happen to attendance levels if simultaneous day-and-date release became the norm? It seems Warner Media is considering reverting from that strategy at least in 2022. Would it come with a permanent reduction in theatre attendance vs peak 2019 levels if a company such as Disney continued to do that?
3.
You mentioned exhibitors are not operating at peak attendance and how that impacts the food and labour costs. Could you break that down costs more broadly in terms of what is fixed vs variable? Last week, Cinemark reported flat-ish EBITDA in Q2 2021, despite being down 65% on attendance. How might margin levels degrade as attendance levels begin to pick back up?
4.
The Delta variant has been in the press due to increased cases. What is the risk of some Q3 or Q4 2021 releases being delayed until 2022? Could theatres close again?
5.
What are your expectations for US box office recovery by the end of 2021? There are various estimates around how to track recovery. Boxoffice Pro puts the growth receipts at USD 4.5bn-6bn, while AMC management talks about exiting Q4 with 2019 levels cut in half.
6.
Do you think USD 4.5bn as a potential baseline for 2021 US box office receipts could be improved upon in subsequent years, or could further deteriorate? How are you thinking about product schedules, ticket pricing leverage and attendance levels? How might the US box office market normalise on a per-year basis?
7.
How might the recovery pace differ across key players such as AMC, Cinemark and Regal?
8.
What are your recovery expectations for niche players such as Marcus Theatres that is tagged on to the lodging side of things or even some of the long-tail mom-and-pop shops? Do you expect more material bankruptcies around those kinds of business?
9.
Which US regions are out- or under-performing in 2021 and what does that mean for that recovery line aside from asset quality?
10.
Which customer groups are the main laggards to the kind of attendance that clients would experience? Would you say a large portion are families with young children and senior citizens? Which theatregoer segments could be last to return?
11.
AMC and Universal set up a 17-day window on a release basis. What might that imply around what occurs at max for attendance levels? Does that apply a 20% haircut, given the leakage that would occur in the weeks that they’re missing out on?
12.
How much does pricing power exist on a per-ticket basis? Where can exhibitors drive revenues through tickets or F&B? Cinemark is talking about record levels for F&B revenue per capita. Where can it get the revenue per capita to outweigh attendance level declines?
13.
Do you think heightened F&B sales are sustainable into 2022 and 2023, or is this due to a return to theatre buzz, where theatregoers are just splurging on that first visit?
14.
How do you think about Imax as a partner and a business model in the industry? We discussed how blockbusters might be the key movie type that gets distributed through theatres long term. Do you think that would benefit Imax? It’s hard to gauge whether or not premium experience will stick around given it comes with an additional cost for exhibitors
15.
Which exhibitors such as Imax, AMC, Regal and Cinemark to assess how over-screened the market is given screen rationalisation has lagged attendance declines to date? Do some have higher premium auditorium mix that will see less screen declines?
16.
What factors play into considering whether to renovate vs offer half back to the landlord vs shutting down completely and searching for a new location? You mentioned that location is important, but what drives the factors around what you might do with the property at the end of the lease term?
17.
You mentioned 10,000 population per screen on a nationwide basis. What happens when you condense it down to what most people consider a drive that’s reasonable to a theatre, say within 15-20 minutes? Do many theatres achieve that healthy population per screen when we shore down the radius?
18.
Could you suggest a typical cost of remodelling a theatre on a per-theatre or per-screen basis? To what extent do you expect landlords to contribute towards remodels now vs historically?
19.
Do you expect landlords to contribute to renovations? Does that differ by region or landlord type? Has the extent to which they might contribute changed now vs pre-pandemic?
20.
What are your thoughts on the fade rate of incremental ROI post-opening? How sustained is the honeymoon phase for a reopened theatre and the uplift that comes with it? Does it normalise or start to decline over time? What uplift might come from a new theatre location or renovated venue?
21.
What do you think about commentary around theatres being able to survive on maintenance CAPEX over time? What would actually be a catalyst to returning to these growth projects?
22.
Would you say that we’re past the heightened maintenance CAPEX period in the sense that theatres were under-utilised or unused for so many months? How much does that differ for an exhibitor such as Regal who might have been slower to reopen?
23.
Do you expect a huge inflection in one quarter on the maintenance side if an exhibitor waited too long and attendance didn’t return to bring positive cash flow, or do you think maintenance CAPEX will slowly grow on a positive trend line?
24.
What are your expectations for any strategic optionality between studios and exhibitors longer term in light of the Paramount Decree reversal?
25.
Could a company such as Netflix or Amazon acquire a chunk of theatres in certain locations or are they more likely to make a really big stake for a portfolio-wide purchase? At what scale would you expect them to acquire into the exhibition industry?
26.
How do you expect the industry to shake out for the next 1-2 years? Could you highlight any potential wild cards and your big winners and losers?
