Box Office Bomb: Silver Screens Go Dark in Pandemic

As movie theaters nationwide fade to black, there's greater uncertainty now more than ever as to when, or if, they’ll fully come back


It’s one bad scene after another for movie theaters, with no red carpets or fancy premieres in sight. 

Regal Cinemas, the second largest theater chain in the country, temporarily closed 536 locations on Oct. 8, without a set date to reopen. The decision came days after the National Association of Theatre Owners and major film creators — including Martin Scorsese, James Cameron and Ron Howard — requested a federal bailout for the exhibition industry, saying nearly 70 percent of small and mid-sized movie theater companies will be forced to file for bankruptcy or close permanently.

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“Absent a solution designed for their circumstances, theaters may not survive the impact of the pandemic,” the industry leaders said in a letter to Congress.

Less than a week later, President Donald Trump tweeted.

“I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill …” 

Trump appears to have changed his mind, and restarted negotiations since that tweet, according to media reports. But uncertainty and further delays to new stimulus would be another blow to the movie theater industry, which has been floundering since the shutdowns started nearly seven months ago. And there’s still little hope, if any, of a rebound coming anytime soon.

Patrick Collins is a distressed retail and bankruptcy attorney at Farrell Fritz who represents landlords, some of whom have shopping centers with movie theaters. He said they are struggling to figure out what to do with those tenants.

“When you’ve got a dark movie theater that probably hasn’t paid rent for some time, and you’re being told for this particular chain, Regal, that they’re going to close again, you wonder how long could this possibly go on, and if they’re ever coming back,” he said. “Are they ever going to reopen? … Assuming I have the right to evict them — which also in New York is almost impossible at the moment — do I do that, or do I stick with them? I think that’s what’s on landlords’ minds at the moment.”

Similar to retail and hospitality, the shutdowns have severely marred the movie theater industry. The letter requesting federal aid explained that revenue dropped 75 percent in the second quarter for 93 percent of theater companies. And the road to reopening is still uncertain and arduous, as movie theaters are slated to be one of the last sectors to reopen in places like Los Angeles, San Francisco and New York — markets that represent nearly one-third of yearly box office sales.

But unlike the other sectors that are suffering, movie theaters are facing a devastating product shortage. The shutdowns upended releases for almost 100 major studio films, with companies such as Disney, Universal and Warner Brothers pushing premiere dates into 2021 and 2022. Because many areas that are open have restrictions like 25 percent capacity limits, studios don’t want to release films when so much depends on box office sales. Thus, even when theaters reopen, they likely won’t have any new films to show for the foreseeable future.

“That’s particularly daunting,” Collins said. “That’s a double whammy. In certain areas, you can barely open … And then in some instances you don’t have a product. That’s a big problem.”

Sandy Sigal is CEO of Newmark (NMRK) Merrill Companies, which owns and operates shopping centers and retail properties in three states, some of which include theater chains like AMC, Regal, and Regency. He said delays in New York and L.A., along with the pushback of releases, creates a “chain reaction” that “starves theaters” of content, leading to further viability issues in places where theaters can open.

“Uniquely, movie theaters are dependent upon a uniform opening schedule, as being open in just one market or several markets does not justify the release of a major movie,” he said via email. “The costs for a studio to release, market, and roll out a movie requires a significant amount of theaters to be open across various markets.”

Warner Brothers took a chance with Christopher Nolan’s Tenet film that seemingly backfired. The film’s release was delayed three times until Labor Day weekend, when Hollywood hoped it would be a catalyst to reignite the box office. But the movie was a flop in domestic sales by pre-pandemic standards, and signaled it’s still too early to gamble with major releases. So studios pushed even more release dates.

The pandemic issues have also simply persisted much longer than originally anticipated. For instance, when the closures started in March, Cineworld CEO Mooky Greidinger said three to four months of not paying rent wouldn’t be a big problem, and that the U.K.-based company, Regal’s parent firm, aimed to reopen in July. Now, after almost seven months without consistent revenue, the firm was forced to announce the temporary closure of those 536 theaters across the U.S.

“The prolonged closures have had a detrimental impact on the release slate for the rest of the year, and, in turn, our ability to supply our customers with the lineup of blockbusters they’ve come to expect from us,” Cineworld said in a statement. “As such, it is simply impossible to continue operations in our primary markets.”

Despite having little product to sell, AMC, the nation’s largest chain, announced on Sept. 30 that it was on the cusp of having more than 80 percent of its U.S. theaters open, following the reopening of 12 theaters in Michigan beginning Oct. 9. But opening doesn’t guarantee an audience, and the company said it would need to hit 75 percent capacity by the end of the year to survive without additional sources of capital. AMC also announced it lost $561 million in the second quarter, and that revenue was down 99 percent. CEO Adam Aron said it was “the most challenging quarter in the 100-year history of AMC.”

Cineworld lost more than $1.6 billion since April, according to media reports. Greidinger lamented that major markets like New York still lack guidance as to when they’ll allow movie theaters to resume operations, even though indoor dining and other sectors have at least partially restarted. With major markets closed, studios will continue to balk at releasing blockbusters that draw the most sales, even if a few more theaters open elsewhere.

“[T]he fact that there has been no evidence to date linking any COVID cases with cinemas, we have not been given a route to reopen in New York, although other indoor activities – like indoor dining, bowling and casinos were already allowed,” Greidinger said in a statement.

B. Riley FBR analyst Eric Wold said another stimulus package from the federal government isn’t as important for the industry as getting places like L.A. and New York to consider advancing movie theaters to reopen.

“[San Francisco] is closed, L.A. is closed, (Gov. Andrew) Cuomo in New York is not being reasonable, and so you’re seeing all these films get pushed out and out and out,” Wold said. “As long as you just continue to push films out, the industry outlook is bleak. They’ve got liquidity that will keep them OK for a while depending on who it is … but until we get clarity on those markets, there really is not visibility right now for the space to recover.”

The governor’s office explained to Commercial Observer that they will make a decision on reopening theaters when public health experts believe the industry can re-start safely.

“This industry remains closed, as it presents the challenges of creating congestion at points of ingress and egress, and customers sitting for long periods in an enclosed space with the potential for activities such as eating and drinking that require a mask to be removed,” the office said in a statement to CO.

California’s tiered system for reopening the economy provides more of a plan, but it isn’t concrete or very encouraging. For example, L.A. County is in the first of four tiers — indicating high coronavirus spread — and movies are only allowed outdoors. At best, it takes at least 21 days to advance from one tier to the next, at which point, L.A. could allow theaters to operate with a 25 percent capacity limit. But so far, L.A. has not met the metrics needed to advance to the second tier, meaning it’s stuck until conditions improve. Even when L.A. eventually makes it to the fourth tier, movie theaters would still be limited to 50 percent capacity. 

But Wold noted the capacity limits aren’t a deal-breaker, or as detrimental as not being able to open at all.

“If you’re at 50 percent, and you’re full-ish over the weekends, you can shift some people into other days during the week … you can be fine,” he said. “But at this point, they really have to hope that some of these markets start to see the light and open up for them. Otherwise there won’t be an industry left.”

Wold pointed to China as an example. The country reopened theaters with a 30 percent capacity limit in July, then 50 percent in August, and then 75 percent in September. 

“They’re in the middle of their national holiday week, and ticket sales are up year over year, even with a 75 percent restriction,” he said. “So, you can do well at 50 percent, assuming consumers adjust their movie-going habits a little bit.”

But there’s also not much hope that box office numbers will return to normal until there’s a vaccine. Michael Pachter, an analyst at Wedbush, told CNBC that the theater industry won’t fully recover until a vaccine is widely available, which means likely not until sometime between April and July of next year. 

Movie theaters are also undergoing industry-wide sea changes. On one side, they’re battling streaming and digital services — which not only continued unabated since the pandemic, but have benefitted from people staying home and looking to at-home entertainment to pass the time. And more major movies could end up on a streaming service that were intended for the big screen. In September, Disney shook Hollywood when it decided to skip movie theaters and premiere Mulan on its new streaming service due to closed theaters.

In addition, AMC and Universal Pictures made a deal to shorten the theatrical window for certain movies to as little as 17 days, compared with the average 90 days for big Hollywood films. After that time, Universal can sell content on demand and give AMC some of the revenue.

Those trends and changes instill even more doubt in landlords about how theaters will survive. Collins said for landlords, it’s not as easy as evicting a movie theater company that’s not paying rent and simply replacing them with another tenant. That’s because the space is so unique.

“The first thing you would look for would be to bring in another movie theater operator,” he said. “But given that what’s affecting Regal is affecting all the other ones, that’s not likely. So you’re faced with a big space to deal with, and it’s usually configured differently […] You may already have a number of vacancies in your shopping center or mall from other retail tenants that suffered during the pandemic. So it’s going to be tough for landlords dealing with this situation.” 

Sigal of NewMark Merrill said the harder part is providing support to tenants who need the traffic a theater generates to survive.

“We have been providing alternative marketing, drive-in movies, and pop-up events to provide traffic support until things normalize,” he said.

Collins added that some landlords are trying unconventional measures to recover rent, like bringing lawsuits in federal court instead of state court. Wold said he doesn’t expect a wave of movie theater bankruptcies, but he does expect more permanent closures. 

“I think they’ll use this opportunity even more so, maybe to play hardball with landlords and try to get better terms, or at least push out lease payments,” he said. “In terms of full bankruptcies, I think we’re still early on that.”

Plus, Wold said, large chains such as Cinemark and Marcus Theaters have financing in place to keep them afloat even if their theaters shutter. That buys the industry—and its landlords—some time. 

“AMC is in a more precarious position,” Wold said. “But if we can get some movement in these major cities before the end of this year, and get a film slate that’s relatively stable, I think we’re OK.”


Update: This story has been updated from the print version to include additional commentary.