The first rule of investing is “buy low, sell high.” Right now, few businesses are hitting lower lows than the movie theater industry, which could make it a great time to acquire a distressed asset ahead of a turnaround. That’s been true for the duration of the pandemic, and it’s still true now even as light can be dimly glimpsed at the end of the tunnel. The question is, is there an upside given the uncertain state of the entire film industry, and if so, for what kind of buyer?
These are hard times for the movie theater industry. Domestic ticket sales in the US were down 80% in 2020 to $2.2 billion from a 2019 haul of $11.4 billion, according to Comscore SCOR -2%. You’d have to go back to the early 1980s to find a number that low. And industry leaders fear the hangover may persist even as the cloud of COVID-19 slowly starts to lift with the rollout of vaccines in 2021. Last week, Allan Reagan, CEO of the Flix Brewhouse chain of dine-in cinemas, suggested attendance might be down 15-25% on a permanent basis. That’s a big hit if your only business is exhibiting films.
Cineworld, the UK-based owner of the Regal Cinemas chain, averted bankruptcy by securing a financing deal good for up to $750 million in exchange for a 10% stake in the company. AMC tried to hang tough but eventually tapped Mudrick Capital Management for $100 million to make it through the pandemic – not enough cash to last very long, according to some analysts who suggest bankruptcy could be a better solution for the chain. Cinemark, the third-largest chain, saw a 96% drop in revenue in the third quarter of 2020 but is seen to be in a relatively stronger financial position than its rivals, and has been praised for its reopening plans…
Main image by Devon Breen on Pixabay