Analyst: Here's why Warner Bros' HBO Max bombshell won't be the death knell for movies

Alexandra Canal
·3 min read

On Thursday, Warner Bros. (T) shocked the media landscape by announcing plans to air all of its 2021 movies on HBO Max — the same day the films hit theaters.

Shares of the major theater chains plummeted on the news, as fears rippled across the industry that cinemas aren’t just dying — they’re being “murdered” at the hands of COVID-19 and the at-home streaming boom.

But is it really the end of the industry as we know it? Maybe not quite yet, according to one analyst.

“We don’t think the industry is dead, rather we think [streaming and theaters are] playing very well together,” Macquarie Analyst Chad Beynon told Yahoo Finance.

“If we take a look at the results of 2018 and 2019, movie theater revenue and profits were significant for the five major studios,” Beynon said. He added Disney’s (DIS) box office performance was especially impressive, with over $11 billion generated in 2019.

For platforms like Disney, the movie-going experience “is really the first channel of these later channels like theme parks, characters and at-home content,” he explained.

“So we still think the theater experience and economic model make sense for the studios, especially for the blockbusters,” he added. “I don’t think you’ll be able to replace those revenues and profits in the at-home market alone.”

‘Urgent dialogue’

Just this past week, AMC filed with the SEC to offer 200 million shares in order to raise $844 million to avoid bankruptcy
Just this past week, AMC filed with the SEC to offer 200 million shares in order to raise $844 million to avoid bankruptcy

However, the immediate threat facing theaters is very real, and time is running out for chains like AMC (AMC) to avoid bankruptcy. Just this past week, the company filed with the SEC to offer 200 million shares in order to raise $844 million.

But the filing was quickly overshadowed by WarnerMedia’s announcement, which Beynon said now “adjusts the risks of investing at this point.”

AMC CEO Adam Aron released a statement on Thursday night, saying, “Clearly, WarnerMedia intends to sacrifice a considerable portion of the profitability of its movie studio division, and that of its production partners and filmmakers, to subsidize its HBO Max startup.”

He added: “We will do all in our power to ensure that Warner does not do so at our expense. We will aggressively pursue economic terms that preserve our business. We have already commenced an immediate and urgent dialogue with the leadership of Warner on this subject.”

In the interim, AMC might have to adjust its post-COVID return as specialized, higher-end experiences could reign supreme.

“I think consumers — particularly in this industry — will pay for service and higher quality and that’s something that IMAX (IMAX) and some of these other players have done well,” Beynon said.

“This whole industry has changed in terms of what’s being offered to the consumer — luxury recliners, food and beverage options — and IMAX is the luxury bar here,” the analyst noted.

“They’re doing well in China and Japan and we’ve seen consumers flock back to those screens because they’re choosing to go there over other products in the market. I think that will be the same case in the U.S.,” he added.

IMAX shares rebounded from its Thursday losses — closing nearly 4% higher at Friday’s close whereas AMC continued to lag in the red, ending the week down over 3%.

“AMC has a mix of higher-end and lower-end products but I do believe when consumers come back and have the opportunity to go to the big screen, they’re going to choose quality and service over anything else,” Beynon concluded.

Alexandra is a Producer & Entertainment Correspondent at Yahoo Finance. Follow her on Twitter @alliecanal8193

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