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Movie Theater Stocks Plummet on Premium VOD Concern

According to a recent report by Bloomberg, the Hollywood studios (film makers) are thinking of implementing a new business scheme. The strategy involves making newly released movies available for home viewing at a premium within as little as two weeks of its screen debut. The news has sent shockwaves across the movie theater (exhibitor) industry straight away as it will destroy their exclusive right of offering any newly released movie in theater alone in the first 90 days.

Several film studios are negotiating about a path-breaking business model in which film makers will be able to offer movies to online video streaming services for a premium of around $25 - $50 extra as rent. Stagnant home video sales have compelled film makers to think about a new strategy to offer more avenues to consumers.

Major film studios like Warner Brothers and Universal Pictures have announced that they are in discussions with movie theater chains for a new premium home window. Notably, this is not the first time that film studios are considering a quick home video release option. However, everytime the theater owners have argued that they need to be compensated for the risk that would pose to attendance. Exhibitors’ businesses have to run with overhead costs, taxes to pay, venue rentals, labor laws and parking space guidelines.

Naturally so, the concern over losing exclusive rights offering new movies has taken a toll on major U.S. movie theaters’ stock prices. Share prices of companies, namely, Carmike Cinemas Inc. CKEC, AMC Entertainment Holdings Inc. AMC, IMAX Corp. IMAX, Regal Entertainment Group RGC and The Marcus Corp. MCS were down 2.9%, 7.9%, 10%, 9.2% and 3.5%, respectively, in the last week.  While Carmike, AMC Entertainment and IMAX currently carry a Zacks Rank #3 (Hold), Regal carries a Zacks Rank #2 (Buy) and The Marcus sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance of Major Movie Theater Stocks

Year-to-date, the Zacks categorised Leisure and Recreation Services Industry (of which movie theater industry is a part), has registered a negative growth of 10.21%. In contrast, barring IMAX, all four above mentioned movie exhibitors have registered impressive growth in the same time period. The Marcus, Regal and AMC Entertainment and Carmike have witnessed 57.62%, 14.26%, 34.38% and 44.73% growth in stock price, respectively. Only, IMAX registered a negative growth of 12.63% year-to-date.

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MARCUS CORP (MCS): Free Stock Analysis Report
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