Analysts push exhibition stocks

Theater biz could have upper hand in VOD scuffle

Despite fear from exhibitors that the launch of a studio-backed premium VOD service will hurt ticket sales, analysts are recommending investors pick up more shares of the big three theater operators: Regal Entertainment, AMC Entertainment and Cinemark Holdings.

“We believe the shares of exhibitors are poised to move higher in the coming months as box office trends improve, the benefit from 3D ticket premiums increases from current levels and they approach being 100% digital,” said Eric Wold and Greg Scott of San Francisco-based Merriman Capital.

The largest chains are threatening to pull trailers and posters for films from four studios — Warner Bros., Sony, Fox and Universal — that would play on the premium VOD service for $30 per rental 60 days after they bow in theaters.

In addition to limiting the number of screens on which pics unspool, Wold and Scott consider those moves “multiple power levers to use against studios,” as exhibs try to keep the major from promoting VOD options while films are still playing in theaters.

As a result, the analysts predict “it is the exhibitors that have the most power to wield, and studios are likely to bend on terms or back down completely — or risk losing their most important release window and a major revenue source,” and that exhibitors will receive better film rent terms on movies slated for release on premium VOD, which would boost profit margins.

“We would not be surprised if premium VOD plans are curtailed” (or limited to non-blockbuster or independent films) “or abandoned completely after all is said and done,” Wold and Scott said.

For the top four exhibitors, film rentals represent as much as 55% of admissions revenues.

For each 1% improvement in film rental costs, Merriman estimates that uptick in terms would add as much as $22 million to Regal, $17 million for Cinemark and $4 million to Carmike’s bottom lines annually.

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