Analyst: Lackluster Weekend Box Office Could See Studios Further Delay New Releases

With Warner Bros.’ Tenet generating $30 million at the domestic box office over two weekends, and Disney’s Mulan almost surpassed by a local sci-fi film (The Eight Hundred) at the Chinese box office, the jury remains out on the state of the theatrical market’s return to normal from the coronavirus pandemic.

The third-quarter domestic box office is trending down 96.8% quarter-to-date to $101.1 million compared with the previous-year period, as theaters nationwide only recently began re-opening — and at reduced capacity. The latest box office weekend was 89% lower than the comparable weekend last year, according to industry figures.

The sluggish re-start, coupled with a majority of screens still dark in major markets New York and California, suggests studios will reconsider bowing major new releases in any great numbers in the near future, according to Michael Pachter, media analyst with Wedbush Securities in Los Angeles.

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Indeed, Warner just pushed back again the theatrical bow of Wonder Woman 1984 from Oct. 2 to Dec. 25 — more than a year after the sequel’s original launch date. Subsequent release dates included June4 and Aug. 14.

Sony Pictures Entertainment CEO Tony Vinciquerra last week told an investor event the studio would delay all major releases until 2021.

“What we won’t do is make the mistake of putting a very, very expensive $200 million movie out in the market unless we’re sure that theaters are open and operating at significant capacity,” Vinciquerra said.

Pachter says that trend will only grow as nervous studios contend with wary moviegoers and local government restrictions.

“We think the relatively lackluster second theatrical week for Tenet juxtaposed with the difficulty Disney has faced with Mulan has made film releases seem like a risky business in the current environment,” Pachter wrote in a Sept. 14 note.

The uncertainty is bound to increase pressure on studios to shorten the 90-day theatrical window and seek alternative distribution channels such premium and transactional VOD. The COVID-19 era has produced unusual circumstances (and opportunities) for studios, including dabbling in direct-to-consumer distribution.

The ongoing interest for at-home content could impact long-term decisions by studios regarding which content they send to theaters and which goes direct to streaming platforms, according to Pachter.

“This is particularly compelling for the studios that have launched or will soon launch their own subscription/ad-supported streaming video platforms,” he wrote.


Analyst Eyes ‘Embarrassing’ Opening Weekend for Christopher Nolan’s ‘Tenet’

Hollywood may be slowly going back to work as the coronavirus pandemic ebbs and flows across the country, but don’t expect a groundswell of content to be flooding distribution channels, including movie theaters and digital in the short term, according to Wedbush Securities analyst Michael Pachter.

Speaking Sept. 2 on the virtual OTT.X 2020 Summit, Pachter said studio and TV production across Hollywood has been at a standstill since mid-March due to the pandemic, which he said translates into exhibitors, pay-TV and over-the-top video distribution struggling to fill the void with fresh content.

At the same time, the analyst does not have high hopes for this weekend’s major new releases: Warner Bros.’ Tenet and Disney’s Mulan — the latter debuting Sept. 4 exclusively for $29.99 on “Premier Access” behind the Disney+ paywall.

Michael Pachter

Pachter said that despite AMC Theatres re-opening 70% of its domestic screens, COVID-19 worries among exhibitors will limit seating capacity, undermining the fiscal impact of Tenet from The Dark Knight director Christopher Nolan.

Pachter doubts the movie will generate more than $50 million at the weekend domestic box office, which begins Sept. 3. The film generated $53 million over a five-day (Aug. 26-30) period across 41 countries outside the U.S. and China.

The movie is projected to match last weekend’s international box office take with the movie opening in China, Russia, Serbia, Slovenia, Nigeria and Ghana. Domestic projections hover around $20 million.

The analyst said Tenet is getting distribution via 2,000 screens in the U.S., compared with 3,700 screens for Nolan’s most-recent major release, Dunkirk. Pachter said Tenet performed comparably to Dunkirk internationally, with the 2017 film generating $50 million its opening weekend in the U.S.

“Pent up consumer demand with 50% [social distancing seating] capacity and 60% of moviegoers afraid of dying [of COVID-19]. Yes, I think [Tenet] will be a [U.S. box office] embarrassment,” Pachter said.

Meanwhile, premium VOD, which has seen some studios (notably Universal Pictures) bypass theatrical distribution, delivering direct-to-consumer access to movies, generated a lot of attention after Universal’s Trolls World Tour sold more than $100 million digital transactions during the early days of the pandemic.

Disney, which has for years eschewed PVOD for the traditional theatrical window, surprisingly opted to distribute Mulan direct-to-consumer after the film’s repeated theatrical debut delays. Pachter questions how many consumers will opt to pay $30 for a movie they could arguably rent two months later for $5.99.

“Studios that are trying [PVOD] are just starting to figure out how a [direct-to-consumer] release impacts downstream revenue, and whether or not this will be worthwhile to use as a distribution method in the future,” the analyst said. “What may work well in the current [COVID-19] environment may not meet the same high-water marks in a normal environment. I think, generally speaking, most Disney films need the theatrical release to maximize profits, and I don’t see this changing.”

At the same time, the analyst remembered asking former Universal Pictures Home Entertainment boss Craig Kornblau why the studio didn’t offer a $30 monthly all-you-can-stream subscription plan similar to HBO.

“Why would we do that?,” Kornblau responded. “There aren’t that many movies.”

Pachter believes people would pay out of laziness, maybe watching 10 movies a month. But the analyst says studios are run by executives afraid of change and losing their jobs — not forward thinkers.

“That’s why guys like [new WarnerMedia CEO] Jason Kilar and [ex-TikTok boss] Kevin Mayer depart,” he said. “Maybe [Kilar will] convince AT&T CEO John Stankey to change.”

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That said, Pachter has praise for upstart SVOD platform Disney+, saying the platform is inexpensive compared with Netflix and Amazon Prime Video, and filled with content suitable for the entire family. He projects Disney+ will reach 150 million subscribers, attracting lower-income households — driven in large part by the service’s catalog of more than 600 programs.

“Bundled together with ESPN+ and Hulu makes Disney+ a no brainer,” he said. “It’s wholesome content, Marvel stuff aside.”

As expected, Pachter has the most concern for Netflix in the COVID-19 era. A longtime bear on the SVOD pioneer, Pachter said Netflix is running out of original content.

“Netflix cannot stay on this hamster wheel without as much content as it had in the past,” he said. “Everybody that has content locked up will get [consumer] eyeballs. Netflix will lose eyeballs.”

Analyst: Netflix Could Lose 2 Million Subs Quarterly Without New Content

Throughout the coronavirus pandemic Netflix has shattered the odds and competition attracting more new subscribers in six months this year than it did for the entire 2019. The service ended June with more than 190 million subs worldwide.

Retaining those subs is another story — and challenge. While subs flock to market pioneer Netflix in droves, keeping them entertained without a steady supply of fresh content is problematic in a COVID-19 era that has effectively shuttered or significantly slowed content production.

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Michael Pachter

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, says Netflix has very high levels of consumption per subscriber (an average of 30 to 40 hours per month pre-pandemic and likely 50 to 60 hours per month now). In contrast, most of Netflix’s competitors have much smaller subscriber bases (Disney+ at an estimated 75 million, Hulu at an estimated 35 million, and the other competitors significantly lower). While a high level of consumption is desirable, it drives a need to constantly replenish the content consumed, and Netflix’s extraordinary level of consumption multiplied by its large subscriber base suggests to Pachter that some meaningful percentage of subscribers will drop Netflix before a large quantity of new content can be produced.

Specifically, the analyst believes Netflix could lose upwards of 2 million subs per quarter going forward without a significant return to normalcy within the studio industry to create content. Netflix is projecting 2.5 million new subs in the third quarter (ending Sept. 30), while Wall Street is projecting 5.27 million.

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“We suspect that this [sub decline] phenomenon has already begun and led to the company’s lackluster guidance for Q3 net sub additions,” Pachter wrote in an Aug. 24 note. “Once the pace of its delivery of new content begins to wane, we expect Netflix to see higher churn and much slower subscriber growth.”

While production slowdowns affect all streaming video services, with many operating on the studio coat tails of corporate parents, content shortages at NBCUniversal’s Peacock and WarnerMedia’s HBO Max are less severe due to their respective deep catalogs of content.

All of Netflix’s competitors are similarly disadvantaged. None will be able to produce content at a meaningfully faster pace than Netflix, and all streaming services will be challenged to produce new content for the first half of 2021. This is likely to create a competitive disadvantage for Netflix, Pachter says, given that the company’s library of owned content is relatively thin, while its competitors have been producing original content for decades.

“Of course, [Netflix] can bid for library content, but its competitors are similarly likely to bid on the same content, driving up the cost of library content and contributing to a return to negative free cash flow next year,” Pachter wrote.

Netflix ended Q2 free cash flow positive for the second consecutive quarter, at $899 million compared to negative $594 million in the previous-year period. Wall Street cares about free cash flow since it is a way of looking at a business’s finances to see what is available for distribution among all the securities holders, including investors.


Best Buy Stock Up Ahead of Quarterly Fiscal Results

Shares of Best Buy inched higher in early trading Aug. 24 as the nation’s largest consumer electronics retailer is set to release second-quarter financial results on Aug. 25.

Best Buy, which is one of the largest home entertainment packaged-media retailers, saw sales of DVDs, Blu-ray Disc, 4K Ultra HD Blu-ray movies, music CDs and related media increase 9.5% in the first quarter, ended May 21, compared with the previous-year period.

Best Buy continues to fill the need for stay-at-home consumers, in addition to remote-schooled children and college students.

Wall Street firm Raymond James upped Best Buy’s price target to a near market-high of $135 from $100. A price target is Wall Street’s estimation of the future price of a company’s security, which includes investment products, stocks and bonds.

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“We believe in [Best Buy’s] fulfillment capabilities, high mix of essential items, and well positioned peer services should propel [chain] to gain further market share during the COVID-19 induced retail shakeout,” analyst Matthew McClintock wrote in a note.

McClintock believes Best Buy has ample liquidity to aggressively make investments in the near-term to drive future market share opportunities over the long-term.

Wedbush Securities media analyst Michael Pachter Best Buy’s management team has found innovative ways to exploit the favorable trends within the current work-from-home/learn-from-home/play-from-home environment.

“We applaud Best Buy for its many accomplishments, not least of which is achieving the difficult financial targets it has set for itself year after year,” Pachter wrote in a note earlier this year. “We now have more faith in its ability to successfully navigate this uncertain period.”

Theatrical Storm Clouds Grow Darker

With Disney and Warner Bros. further delaying or pulling tentpole movies from theatrical distribution, exhibitors took another headshot in their efforts to jumpstart the moribund box office.

AMC Theatres, the nation’s largest exhibitor, along with Regal Cinemas and Cinemark, had counted on Disney’s live-action Mulan and Warner Bros.’ Tenet from director Christopher Nolan to send consumers wearing masks back to the cineplex. But both movies are effectively removed from distribution until the ongoing coronavirus pandemic is better controlled.

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Many states, including box office epicenter California, have refused to allow theaters to re-open due to surges in virus infections. AMC had counted on a July 15 re-opening, which was then pushed back to the end the month, and then into August. AMC generates about 70% of revenue from U.S. screens.

The Q2 domestic box office ended down 99.9% year-over-year to $3.69 million, as most domestic theaters remained closed throughout the quarter.

Cinemark began its first wave of re-openings on June 19 with three Dallas-area screens, and added two more in the Dallas area on June 26. These theaters remain open on a very limited weekend schedule, while the remaining re-opening phases Cinemark had planned have been delayed.

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“We think these re-opening dates may again be delayed given various regional spikes in COVID cases throughout the U.S. and further release slate delays,” Michael Pachter, media analyst with Wedbush Securities in Los Angeles, wrote in a note.

Pachter does not expect attendance levels to begin to normalize until the end of the year at the earliest. Indeed, with 30% of moviegoers in the 50+ age group and another 30% between 30 and 50 (according to MPAA), “a significant portion of moviegoers are not going to be bold enough to return to theaters,” according to the analyst.

“Losing a substantial portion of this demographic, and especially their children, could drive studios and exhibitors to delay more releases until there is a vaccine,” Pachter wrote.

AMC is attempting to avoid bankruptcy as it burns through cash ($275 million in Q1) with little revenue coming in. Earlier this month many of AMC’s holders of $2 billion in long-term debt told the chain it was in default.

AMC Entertainment Holdings July 27 announced an agreement that will see the chain issue about $1.46 billion of New Second Lien Notes to lenders in the U.S., and £495.8 million to lenders in the U.K.

Meanwhile, the Rose Bowl parking lot in Pasadena, Calif., was filled over the weekend with motorists who paid to watch catalog movies presented by Tribeca Film Institute’s Drive-In summer campaign.

Analyst: Box Office Trending Down 71%

Despite optimism on behalf of some national theatrical chains, the 2020 box office continues to be hammered by the effects of the coronavirus pandemic mandating closure of most screens in the United States and worldwide.

New data from Wedbush Securities in Los Angeles contends the box office through the first half of the year is down 71% from the same period in 2019 — a trend that won’t improve anytime soon as studios further delay new releases due to ongoing spikes in COVID-19 infections.

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Indeed, the second-quarter box office flatlined down 99.9% year-over-year to $3.69 million, compared with Wedbush’s most-recent estimate down 99.4% year-over-year, as most domestic theaters remained closed throughout the quarter.

While major chains such AMC Theatres, Regal Cinemas and Cinemark are eyeing qualified return to normal with Warner Bros.’ Tenet on Aug. 12, followed by Disney’s Mulan on Aug. 21, senior media analyst Michael Pachter believes consumers will remain reluctant to frequent cineplexes until their is a virus vaccine or downturn in infections.

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“While there are clearly many who are eager to return to some level of normalcy, there are still many more who we think will remain reluctant to attend the movies before there is a vaccine, or if the transmission rate falls significantly before then,” Pachter wrote in a note. “Simply stated, we do not expect attendance levels to begin to normalize until the end of the year at the earliest.”

Regardless, AMC reportedly has staved off possible bankruptcy in a deal The Wall Street Journal reported with a private equity group.

AMC Theatres Delays Re-Opening to July 30

AMC Theatres has pushed back re-opening 450 theaters in the United States from July 15 to July 30. The nation’s largest exhibitor had planned to jumpstart operations in about two weeks following a government-mandated shutdown in March due to the coronavirus pandemic.

But with Disney and Warner Bros. pushing back releases Mulan and Tenet, respectively, due to upticks in COVID-19 infections in California, Florida, Texas and Arizona, AMC decided to hold off.

CEO Adam Aron says the chain has invested tens of millions of dollars in sanitization protocols, including acquiring high-tech air purification systems for theaters.

“We continue to devote extraordinary resources into our plan to operate our theatres with a hyper commitment to the safety and health of our guests and associates,” Aron said in a previous statement.

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Wedbush Securities media analyst Michael Pachter doubts moviegoers are in a rush to go the cineplex without a vaccine.

“As we face a potential spike in cases nationwide after some seemingly premature re-opening schedules in addition to nationwide protests, we are less sanguine … that enough of the population will risk their health to support the current release slate schedule starting in July,” Pachter wrote.

Analyst: Studios, Exhibitors Will Shrink Theatrical Window

With the success of Universal Pictures’ PVOD release of Trolls Word Tour, and the studio’s plan to distribute future theatrical feature films concurrent with digital retail, Wedbush Securities media analyst Michael Pachter contends a compromise between studios and exhibitors resulting in a shorter theatrical window is coming.

With studios reportedly making 80% on a movie’s digital release compared with 50% for theatrical, the incentive to go direct-to-consumer is financially appealing. At the same time, theatrical revenue and home entertainment marketing for major movie franchises such as “Fast & Furious,” “Star Wars,” “Mission: Impossible,” “James Bond” and “Spider-Man,” among others, is immense.

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Universal’s next major PVOD release, The King of Staten Island from director Judd Apatow, is slated for June 12. And Disney is expected to release smaller movies on its Disney+ SVOD platform.

“We very much believe in the value of the theatrical experience,” Disney CEO Bob Chapek said on the recent fiscal call. “But we also believe that either because of changing and evolving consumer dynamics or because of certain situations like COVID, we may have to make some changes to that overall strategy.”

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Pachter said he views Disney’s tepid approach to transactional VOD as limited in the long-term. He says Disney’s switch will spark further debate and negotiations on the existing theatrical windows and revenue share agreements.

“What we expect is that the exhibitors will make some small concessions on the windows or revenue share for these smaller films that would otherwise go to PVOD, so that all parties can maximize profitability, but the exhibitors cannot bend on simultaneous releases or they will go out of business,” Pachter wrote in a June 8 note. “The studios do not have any incentive to push the exhibitors out of business, and we believe that a mutually beneficial arrangement can be found before the studios begin releasing new content to theaters later this year or in 2021.”

Pachter: People Aren’t ‘Dying’ to See a Movie in Theaters

NEWS ANALYSIS — Wedbush Securities media analyst Michael Pachter remains bearish on the movie theater business, arguing exhibitors’ aggressive plans to re-open screens during a lull in the coronavirus pandemic is wishful thinking.

A return to moviegoing would in turn help studios market retail sales of DVD/Blu-ray Disc and digital titles — despite the fact home entertainment has fared well during the pandemic due to a larger segment of population being housebound.

Specifically, Pachter is talking about Cinemark, which plans to re-open select screens on June 19, with a national re-opening slated for July 10. Plano, Texas-based Cinemark Holdings, which closed all of its theaters on March 18 due to the virus, operates 554 theaters and 6,132 screens in the U.S. and Latin America.

“People may be eager to visit the theaters once they feel safe doing so, but we think it is unlikely crowds will return to any semblance of normal before a vaccine is widely distributed, particularly in urban and suburban markets,” Pachter wrote in a June 3 note.

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Cinemark June 3 reported first-quarter (ended March 31) domestic admissions revenue per screen was down 25.7% from the previous-year period — and up slightly (0.7%) from the domestic industry box office decline of 25.4%. For the full quarter, Cinemark attendance fell 29% to 27.9 million, while the average ticket price increased by 4% year-over-year.

In Cinemark’s Latin American circuit, admissions revenue per screen declined 32.1% in Q1, which included a 16% negative impact from currency translation and a 26% year-over-year decline in attendance per screen.

Pachter contends that with 30% of moviegoers older than 50 (according to the MPAA in 2018), a significant portion of middle-age consumers are not going to be bold enough to return to theaters. In addition, about 40% of moviegoers are under 30 years of age and losing a portion of this demo could result in studios and exhibitors delaying more releases until a vaccine is found.

“As we face a potential spike in cases nationwide after some seemingly premature re-opening schedules in addition to nationwide protests, we are less sanguine than Cinemark management that enough of the population will risk their health to support the current release slate schedule starting in July,” Pachter wrote.

He estimates the domestic industry box office will end 2020 down 97.8% from 2019, with most domestic screens likely remaining closed beyond the end of the quarter.

“Theatrical exhibition is in the middle of a perfect storm,” Pachter wrote. “Theater closures not only deplete cash reserves and sources of liquidity, but may alter consumer behavior indefinitely.”

HBO Max Launches — With More Than 10,000 Hours of Content

WarnerMedia’s much-hyped subscription streaming video service, HBO Max, launches today (May 27) as the most-expensive over-the-top video platform ($14.99) and last to join a crowded SVOD market dominated by Netflix, Amazon Prime Video, Disney-owned Hulu and Disney+.

“Today we are proud to introduce Max — a dream that was created and nurtured by an incredible team of talented executives who dedicated the last year-and-a-half to making it a reality for consumers nationwide,” Bob Greenblatt, chairman of WarnerMedia Entertainment and Direct-to-Consumer, said in a statement.

The service, which will include a less-expensive ad-supported option, bows with more than 10,000 hours of content targeting as wide an audience (kids included) as possible — unlike traditional HBO, HBO Go or HBO Now.

Among the movies featured on the new service: all eight films in the “Harry Potter” franchise.

“There’s got to be more frequent [viewer] engagement,” John Stankey, who will soon succeed Randall Stephenson as AT&T CEO, said during Max’s media unveiling last October.

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That means HBO’s “True Detective” and “Game of Thrones” viewership has to expand to include families seeking libraries of Looney Tunes, Merrie Melodies and Hanna-Barbera content, in addition to re-runs of “Friends,” which WarnerMedia paid $425 million to itself (Warner Bros. Television) for exclusive streaming rights. A big-budget reunion special episode was put on hold due to the coronavirus pandemic shuttering production.

Backed by a $4.8 billion war chest over the next several years (relatively small compared with Netflix’s reported $17 billion spend this year alone), with plans to secure 50 million subscribers by 2025, Max is setting itself a high bar for achievement — or failure.

Max is also appealing to DC comics fans with pledges to release every “Batman” movie on the platform, in addtion to Aquaman and Wonder Woman, among others. This strategy puts Max at odds with DC Universe, the $8 monthly streaming service that features a slew of original series. Currently only “Doom Patrol” is migrating over to Max.

“The competition is actually more about content than anything else, and whatever’s on Max is not going to be available to Netflix or Disney+,” said Michael Pachter, media analyst with Wedbush Securities in Los Angeles.

Pachter contends that with the HBO brand already available to about 140 million households, it’s just a matter of time before a percentage of them migrate. Max is now available to existing HBO and HBO Now subs at no extra cost.

Pachter said the only question is how many households will keep pay-TV in a global recession due to the coronavirus pandemic.

“My guess is that conventional HBO loses a lot of subscribers (probably 5 million) over the next year or so, while Max adds two to three times that many, so net, they probably grow from 140 million to 150 million subs,” he said.

Indeed, HBO Now direct-billed subs, as well as those who are billed through Apple, Google Play, Samsung, Optimum and Verizon Fios Internet get access to Max at no extra cost, with the Now app automatically updating to the Max app on supported devices.

Current HBO subs who are direct-billed through AT&T, AT&T TV, DirecTV, AT&T U-verse TV, Cox, Hulu, Optimum, Spectrum, Suddenlink, Verizon Fios TV and select independent cable, broadband, and telco providers through the NCTC like WOW!, Atlantic Broadband, RCN and MCTV, among others, also have access to Max at no extra cost.

All that is required is downloading the Max app and then electing to access the service on supported devices or via desktop and log in using an existing provider’s username and password.

Notably missing from Max’s debut: distribution via Amazon Fire TV (and Amazon Prime Channels) and Roku — the latter with more than 40 million subs. The platforms have traditionally been key for third-party OTT launches — including HBO Now, which generated much of its 8 million sub base through Amazon and Roku.

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Amazon and Roku typically take a cut of subscription revenue, in addition to keeping control of user data, among other conditions.

“While we don’t typically comment on specific deal terms or negotiations, the fact is that in this instance while we believe that HBO Max would benefit greatly from distribution on Roku at launch, we do not currently have an agreement in place,” a spokesperson for the streaming media device manufacturer told Lightshed Partners’ Richard Greenfield earlier this month.

“These guys are going to divide up the [pay-TV] world … I expect some to count ‘only’ domestic subscribers [in the beginning], so it’s going to be noisy,” Pachter said.