Theater price hikes ‘could force some people to sit on their couch instead', analyst says
Macquarie Group Senior Analyst Chad Beynon joins Yahoo Finance Live to discuss the expectations for Sunday’s nights Oscars, the box office’s struggles to reach pre-pandemic levels, top theater picks for 2023, and the outlook for the film industry.
JARED BLIKRE: And with the 2023 Academy Awards just around the corner, we're pulling in to focus the future of the movie theater scene and what's at play for the box office in the year ahead. Here to reel in all the details is Chad Beynon, Macquarie senior gaming, lodging, and theaters analyst, along with Yahoo Finance's Alexandra Canal. Thank you for being here today, Chad. Let me just ask you, what are your expectations for Sunday?
CHAD BEYNON: Sure. Thanks, Jared. Thanks Allie.
Expectations-- well, obviously as you just talked about, I think viewership has increased. There's a good mix in terms of the big blockbusters and then also kind of the specialty art house types of movies.
So my expectation is after March Madness Selection Sunday at 6 o'clock, I think there's going to be a lot of people that kind of stay over, continue to watch TV into the 8:00 Oscars and obviously a red-carpet show prior to that.
In terms of winners, I'm not going to state my picks there. I have been able to see a lot of these movies, and I think we are seeing people continuing to go back to the theater, and that was evidenced in the January and February results.
ALEXANDRA CANAL: And, Chad, let's pick up on that. You say people are going back to the theater, but you did trim your forecast for 2023 box office revenues by 10% to $8.4 billion. What was the biggest driver in that decision, and when do you think the box office can reach those prepandemic levels again, if at all?
CHAD BEYNON: Sure. Yeah, I'd say in terms of blockbuster quantity, we're going to be back to about 85% of prepandemic in 2023. A lot of that is more weighted to the second, third, and fourth quarter, but it's nice to see that the amount of product has kind of recovered here. 2022 was back to about 65%. So we have a nice year-over-year increase.
Really, our move in terms of estimates has really been on the specialty art house, nonblockbuster movies. We're just not seeing the results, as you kind of mentioned at the outset, with some of these movies that really received good ratings but just aren't getting the same footfall and admission revenue as we had seen in prior years. So we took a little bit more of a conservative view on those nonblockbusters, which usually account for about 40% of total box office for the year.
ALEXANDRA CANAL: Variable pricing has been a big conversation on both Wall Street and main street. We actually spoke to IMAX CEO Rich Gelfond earlier this week. He said he's not a fan. What do you think? Do you think this could add incremental revenue for theaters, or is it too risky of a bet given the macro environment right now?
CHAD BEYNON: Yeah, it's a good question. It is tricky because you're essentially penalizing the people that are kind of keeping the business intact. These are the core moviegoers who kind of show up, you know, 6 to 12 times per year to see some of the great product that's out there. So to penalize them just in the higher inflationary market, you know, at times doesn't seem great.
There's certainly markets and times where they're able to increase pricing. A lot of the improvement versus 2019 has come through pricing. Some of the companies have the subscription model or a discounted model where you do get, you know, a set number of movie-attendance opportunities in a month or a year, and you can go in at a 10% to 20% discount.
I'm not a huge fan of the dynamic pricing, obviously, with everything that's going on with the consumer. What we have seen in prior recessionary cycles is this industry holds up. But this is a tricky one if you continue to raise pricing. That kind of could force some people to decide to sit on their couch instead of coming out to see some of these movies on the big screen.
JARED BLIKRE: And I want to ask you about AMC and how you're seeing all of this play out with the company. You recommend the stock with an underperform, $7.61 price target. And a critical meeting this Tuesday. Shareholders are going to vote in a special meeting on whether or not to increase the amount of authorized shares and also do a 10 to 1 reverse split. Anything there that you think might be eye catching or significant?
CHAD BEYNON: Sure. Thanks, Jared. Well, first off, we really like where IMAX is positioned here. We have a $22 price target. Our second favorite pick is Cinemark. We have a $15 price target. Stock has moved here over the past couple of weeks.
In terms of AMC, I mean, look, they are continuing to do things that helps their cash-flow position or cash position, as I should say. Raising equity would certainly be one of those items.
In terms of the performance, you know, we're kind of lukewarm in terms of what they can generate in '23, '24. Allie, you asked if the industry will get back to prepandemic levels. In our model, we don't have that happening. In 2024, I think we have it getting back to about still a 10% or 15% decline versus prepandemic levels. So for a company like AMC with higher inflationary labor and utility costs, higher rents, and overall lower margin, it's just hard for us to justify anything other than our current rating.
In terms of the upcoming meeting, we want them to win. We want every company in the space to survive, to thrive, to continue to offer this to consumers nationwide and worldwide. So we're hoping that this does work out, but it's been a very difficult position just because of the debt and the lease obligations that they have on their balance sheet.
JARED BLIKRE: Chad, I'm pulling for them too. Hope they pull it out in the end. And thank you for all your insights here. Macquarie's Chad Beynon along with Yahoo Finance's Allie Canal.