Thesis for theaters stays strong as WW1984 posts best pandemic era weekend ever
WW1984 (released Friday (Christmas)) posted a $16.7mm opening weekend, the best ever for a pandemic era movie. Expectations for this movie were all over the place. This CNBC article estimated $10-25mm in weekend revenue, so WW1984 comes in near the midpoint for that range (and come on analysts, you can’t put out a range where the max is 2.5x the min). However, other estimates had this at $10-15mm, so depending on who you ask, WW1984 nicely beat expectations.
First, let’s comp this against Croods, the previous higher water mark for movies in the pandemic era. Readers of this newsletter will remember that Croods: A New Age was also a nice win for the theater bulls. Wonder Woman did 60%+ more in box office revenue and had less theaters open during the release. Additionally, more theaters closed from November to December and WW1984 did better than Croods.
This comparison may seem slightly apples to oranges as WW1984 definitely was a more anticipated film than Croods. However, remember that WW1984 had to deal with a dual release on HBO Max. The early returns suggest to me that people aren’t ready just yet to drop going to the movies to pay $15 a month for a new streaming service. While WarnerMedia reported “record” streaming numbers on HBO Max, it’s too early to tell how many subscribers joined specifically because of WW1984 or what numbers for WW1984 at the box office would’ve been without the dual release. It is also clear at this point that using the streaming service and seeing the movie aren’t the same thing.
The HBO Max rollout was far from perfect. A pirated version of the movie was leaked prior to Christmas, which may have hurt HBO Max. HBO Max also had a number of bugs this weekend that prevented some users from streaming the film. The issues with the release remind me of a quote from IMAX CEO Richard Gelfond on a recent earnings call on the value of the theater experience:
So in terms of the risk of consumers not coming back, I think you could theorize about a lot of things. But I don’t really see it. You have to remember that China shut down several months before the U.S. And I think Japan did, too. So if you look at the net time, it’s not going to be all that different than it was here, first thing.
Second thing is, I’ve said it and it’s a little bit of a sound bite, but I don’t think 8 months does 100 years of consumer experiences. And I think it’s not just a bigger screen or more transport of — it’s something you share with friends, it’s something you talk about around the — whatever the new version of the water cooler is. I think you tweet about it, you text about it. It’s a social cultural experience.
And I think people are not going to have to experience cultural things on their couch with their — whoever they happen to live with. I think that’s part of the human nature. I mentioned this before, but I went to Pompeii, and they have theaters from I forget how long ago. I just don’t think human nature changes because there’s a thing called the streaming service. And remember, there were lots of changes. There was television, there was radio, there’s all kinds of things. I should use the opportunity to remind people that 2019 was the biggest year in North American box office history.
This may seem controversial to many of you, but it’s my opinion seeing a movie in theaters is less friction and more fun for the casual consumer than streaming. No login or password required; no monthly subscription; no streaming glitches. You get to go somewhere when you see a movie, and with upgrades theaters have made in the last decade, it’s usually a premium experience with leather seats, beers, high quality sound and picture and more. The bet I’m taking with $NCMI, $IMAX and $CNK is that consumers don’t view movie streaming services and movie theaters as competing services because they’re not substitutes.
I’ll be watching how WW1984 performs in the week ahead. I think it’s going to be a nice boon along with Croods for Q4 earnings for the movie theater names. This will be the first quarter theaters were consistently doing $1mm/day in box office revenue per day per Box Office Mojo (note the website hasn’t updated for WW1984 in the daily numbers as of this writing).
Remember that from Q3, NCMI stated that it is cash flow breakeven at 45% of 2019 revenue and Cinemark shared that its open theaters are cash flow positive. IMAX will likely post the most impressive quarter – from its third quarter call:
In fact, we expect to generate positive free cash flow in the current month of October and to be breakeven on average for the fourth quarter and through Q1 of 2021.
If the company is breakeven when only 40% of theaters are open and studios are withholding tentpole films, I’m looking forward to how they do with 80% of theaters open and a few blockbusters dropping. When I first wrote about movie theaters, my analysis mostly focused on cash burn and liquidity. Cash burn appears to be going down as consumers come back to theaters. With rates at near zero and investors hungry for assets, I remain confident any of the theater names I’ve talked about could raise liquidity in this environment.
