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Comeback Kid: Movie Theaters Rebound With a Vengeance

Will movie theaters finally get some respect?

That’s the question exhibitors are pondering as 2018 races toward a record year at the domestic box office — a result that few saw coming. Yet it remains to be seen if cinemas, frequently written off as lumbering anachronisms, will be able to convince investors and analysts that their success represents a trend.

“Moviegoing doesn’t get its due because it’s not the sexy new technology, but the numbers speak for themselves,” said Kyle Davies, president of domestic distribution for Paramount.

Fall hits such as “Venom,” “A Star Is Born” and “Halloween” are powering the domestic movie business to an unexpectedly strong third quarter and positioning the industry to have a very merry holiday season. Theatrical revenues have improved by 10% year over year, and attendance is up 7.7%, a sign that the boom isn’t just attributable to higher ticket prices. More people are actually heading to their local multiplexes.

“Everybody is feeling very good about our business, no question about it,” said Jeff Goldstein, Warner Bros. president of domestic distribution.

The stocks for exhibitors such as AMC, Imax and Cinemark are starting to rebound after seeing their shares nosedive amid investor concern about the lackluster 2017 summer box office. Things had started to take a turn for the worse around August of that year, when popcorn season flops like the “Mummy” reboot and “Transformers: The Last Knight” had the movie business sending out an SOS. It wasn’t until a swarm of superheroes and rogue dinosaurs reentered theaters this year that prospects started to finally look up.

There’s another reason for theater owners’ good cheer. MoviePass, a subscription ticketing service that scored glowing media coverage by taking potshots at the cinema industry — quickly becoming the bête noire of the exhibition crowd — is floundering. Its parent company’s stock is trading at less than 20¢ a share, and there are plans to spin off the service as a separate company. That kind of Hail Mary doesn’t suggest that its financial picture will brighten any time soon.

Yet exhibitors’ good times may not last through Thanksgiving. There’s a chance that the final stretch of 2018 will lack sparkle. Many of the holiday releases arrive without the benefit of an existing franchise and, thus, a built-in fan base. This will be the first December since 2015 that lacks a “Star Wars” installment to boost revenues.

Of course, the movie business has to grapple with some very real challenges. Netflix continues to attract streaming customers with its low-cost packages, siphoning off entertainment dollars that otherwise might have been spent buying tickets. Moreover, foreign markets such as China and Saudi Arabia that once seemed to be promising areas of expansion for exhibitors now seem problematic. China is locked in a trade war with the United States that could limit the Far East nation’s appetite for American media. And Saudi Arabia’s possible state-sanctioned killing of journalist Jamal Khashoggi could be problematic for companies such as Imax and AMC, which have grand ambitions in the Middle Eastern country.

This year’s turnaround couldn’t be coming at a more propitious moment. The rise in the influence of streaming services, along with the collapse of the home entertainment market, means studios have placed a stronger focus on making movies that will score in cinemas. Disc sales plummeted nearly 25% over the past two years, while the decline in physical rentals has dropped 17% in just a single year. With the DVD era stumbling to a close, studios have realized they can’t rely on home-video sales to recoup losses if films fail to connect with audiences on the big screen. “Theatrical release windows are more important to [a studio’s] bottom line than they were a year ago,” said Patrick Corcoran, media director of the National Assn. of Theater Owners.

The success of films like “Halloween” helped third-quarter box office build on summer’s sizzle.
Courtesy of Universal Pictures

Industry analysts remain optimistic that the year will reach record territory even if the fourth quarter does fall flat. And studios still see a way the home stretch can prove profitable. The formula for holiday-season success just might look a little different this go-around. Studios are hoping that instead of one or two films doing the heavy lifting, a handful of offerings over the course of a busy session can help pick up the slack. Ideally, the crowded frame will offer enough diverse choices for filmgoers that cannibalization won’t be cause for concern. Box office watchers believe that family-friendly fare such as “Mary Poppins Returns,” “The Grinch,” and “Fantastic Beasts: The Crimes of Grindelwald” have the best chance of breaking through the noise.

“November and December feel like a bounty of options for moviegoers,” Davies said. “It’ll be a fight for distributors to keep their movies on the screen in this crowded landscape.”

One promising trend over the past few months is how consistently movies such as “The Nun” and “A Simple Favor” have exceeded expectations. “You’ve seen outperformance from every quarter this year in terms of what people expected box office to look like,” said Eric Wold, an analyst with B. Riley FBR.

If that continues, the pileup of movies around holiday season could include quite a few surprise hits — and leave a record under exhibitors’ Christmas tree.

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