Theaters and a Case of ‘Long Covid’
While the industry survived, its operators did not get out unscathed. For instance, Regal Cinemas filed for Chapter 11 bankruptcy in mid ’22 and ultimately closed around 50 locations in the U.S. Many smaller independent operators faced a similar fate, with several closing a portion or all their locations due to the headwinds that commenced in early ’20. Overall, the industry – which like most retail concepts was overbuilt – shuttered >5% of its footprint since the pandemic hit.
However, there are several reasons to suggest that peak closures are behind us. First, Hollywood is not going anywhere, and production companies are far more likely to focus on high-budget theater releases where the ROI is greater versus at-home content. Second, many streaming platforms are not profitable. Lastly, tech giants Apple and Amazon have both committed $1B to cinematic content (not streaming) in the next few years.
While there may still be closures, these are expected to be underperforming and/or cap-ex-starved theaters. Box office revenue remains ~20% below pre-Covid levels thus far into ‘24 but has improved following the release of blockbuster hits such as Dune: Part Two and Deadpool & Wolverine, which broke records. Box-office revenue is estimated to end ’24 around $8.5B and $9.8B in ’25 (13% below ’19).
Investors and critics alike will be eagerly watching as movies continue to hit the big screens, as the success of such releases will seemingly dictate the fate of many theaters across the U.S.
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