When Marcus Theatres’ projectors whirred back to life last year after going dark for months while the nation cloistered against a deadly virus, they illuminated a new landscape in the entertainment industry.
The theater business was put on hold during the COVID-19 closures, but the movie business was not. Film companies pushed back some releases but transitioned many other premieres to streaming services such as Disney+ and HBO Max, toppling the exclusive first access that cinemas had enjoyed for decades since people first began watching movies at home.
Milwaukee-based Marcus Theatres, and its hospitality parent company Marcus Corp., endured deep financial distress that has only recently started to reverse course. Marcus is the fourth-largest cinema operator in the United States, and as of late September, more than 90% of its 1,106 screens in 91 locations across 17 states had reopened, with discount cinemas constituting most of those remaining closed.
It’s been the most turbulent period in industry history, and challenges remain – the first-run competition from streaming services foremost, but also lingering concerns about COVID and its impact on moviegoing. Nevertheless, Marcus management is confident in its business going forward. Industry analysts foresee theaters regaining their catbird seat with new releases soon, with Marcus particularly well positioned for a recovery. “There is a great deal of enthusiasm about the industry,” says Rolando Rodriguez, chairman, president and CEO of Marcus Theatres.
EMERGING FROM DARK TIMES
Patrons began a steady return to movie theaters throughout the summer and into fall, spelling needed relief for Marcus Corp. In addition to Marcus Theatres, the company has a lodging division that owns and operates 18 hotels, resorts and other properties in eight states.
“The good news is our business is recovering, but we’ve certainly been impacted by the pandemic,” Marcus Corp. CEO Greg Marcus told a crowd gathered for a Milwaukee Press Club luncheon in September. Marcus Corp. was losing about $10 million per month during one stretch in 2020 when most of the businesses were forced to shut down or cut back on operations, Marcus says. Total revenue for 2020 was $237.7 million, down 71% from $820.9 million in pre-pandemic 2019. “Our businesses are based on people getting together, and we were closed,” he says.
During the second quarter of 2021, Marcus said ahead of the official corporate earnings release, the company’s earnings before interest and taxes climbed to within $1 million of breaking even. In that period, Marcus Theatres continued to benefit from pent-up demand for out-of-home entertainment, resulting in positive financial momentum, though Greg Marcus says he doesn’t expect a full recovery until 2024.
Strong box office showings for Free Guy and Paw Patrol over the summer proved that consumers wanted to return to watching movies on the big screen, Marcus says.
The increasing confidence in Marcus Theatres has been fueled, in part, by a recent reversal by movie studios that has them once again releasing more movies exclusively in theaters for a weeks-long window before they become available through home video outlets.
Since the COVID-19 pandemic forced movie theaters across the country to close, film companies have focused on alternative distribution options. Even after theaters began reopening, studios continued to use hybrid release strategies, including a practice known as “day and date,” in which studios release movies to streaming services and theaters simultaneously. Theater operators have been vocal in insisting that the strategy doesn’t work for them or the studios.
“Their grossing potential becomes very limited on the heavy investments they have,” Rodriguez says. “Up until the last few months, most of the theaters were operating on limited schedules. Now we’re back to full schedules and you have been starting to see the film companies releasing films with a proper window. They recognize the importance of the theatrical launch. It’s economically very beneficial to them.”
In addition to eating into box office profits, films released directly to streaming services encourage rampant piracy, Rodriguez says. “You can get a crisp copy right off your television set,” he says. “That’s a big economical challenge for the film companies.”
Still, high-profile day-and-date releases are not going away. Warner Bros. is releasing The Matrix Resurrections, the first film in the blockbuster sci-fi series in 18 years, to theaters and HBO Max simultaneously in December.
But after months of watching movies in the solitude of their own homes, movie buffs have been returning to the big screen in increasing numbers. For good reasons, Rodriguez says. “It’s a great way to experience something surrounded by people in a social environment. We are social beings,” he says.
Viewing a movie in a cinema is an experience that can’t be replicated at home, says Greg Marcus, who has starred in the company’s welcome messages before movie previews begin. “You also realize that your phone’s not on, nobody’s bothering you, and the screen is enveloping,” Marcus says. “I don’t care if you have a 170-inch screen in your house, you’re not going to top my 45-foot screen in my medium-size theater.”
THE ANALYST VIEW
Exclusive windows for theater operators are expected to return as the norm again in 2022 and beyond, according to a recent research note from Eric Wold, an analyst with B. Riley Financial in Los Angeles who covers Marcus Corp. and the film industry at large. “Over the past couple of quarters, we have seen box office results that demonstrate consumers are willing to return to theaters for a quality film slate – especially if there is not an option to remain on their couches” for free or premium streaming services, wrote Wold.
Attendance at movie theaters could return to pre-pandemic levels during 2022, even though initial projections showed that likely wouldn’t happen until the following year, Wold notes. “I would not be surprised if increased comfort amongst moviegoers (from a wider distribution of the vaccine, especially with children) and a widespread embrace of exclusive theatrical windows play into the strongest film slate on the horizon for years,” he wrote.
Amenities offered at Marcus’ movie theaters are likely to have an added effect on the company’s ability to rebound from the pandemic-fueled financial woes that have hampered the industry, according to research analysts James Goss and Patrick Sholl at Barrington Research Associates in Chicago.
Marcus offers significant food and beverage options including the company’s Movie Taverns, they note in a recent report. Patrons have purchased concessions at a higher rate that, along with the performance of recent releases, underscores a strong desire among a segment of the population for a return to movie theaters, they write.
Marcus also has a very high percentage of theaters with luxury recliner seating, as well as the company’s proprietary Ultra-Screens and SuperScreens. Theaters with such large-format screens “have benefited from the slate of blockbuster releases and consumer appetite for a premium experience,” Goss and Sholl say.
Rodriguez gathered with other theater executives in August at Caesars Palace in Las Vegas for CinemaCon to discuss the state of the industry. Although theater operators are still licking their wounds, an air of optimism prevailed.
The Marcus Theatres chief served on a CinemaCon panel with Patty Jenkins, director of Wonder Woman 1984, which was released for streaming 10 days before it premiered in theaters last Christmas.
“I told her I watched that film on the small screen at home, and then I saw it in one of our theaters,” Rodriguez says. “Whoever watched it at home missed the grandeur of that movie altogether. When you are watching something on a 40-foot to 70-foot screen with other people around, you experience all the dynamic aspects of that film. The color behind it, the sound effects. That can’t be replicated, no matter how good your system is at home.”
Rodriguez, who is also chairman of the National Association of Theater Owners, spoke at CinemaCon about the high stakes tied to the release of Walt Disney Co.’s Shang-Chi and the Legend of the Ten Rings, which debuted exclusively in theaters on Labor Day weekend. The film shattered the record for highest-grossing film ever for the four-day weekend, generating $90 million in the United States and Canada. Rodriguez says that strong showing offers proof to film companies of the importance of theatrical exhibition and a desire by moviegoers to fill cinemas.
Windows of exclusivity without competition from streaming will be critical for theater owners and operators like Marcus, even if they are shorter in a post-pandemic world, movie exhibitors say. “Exclusive release periods remain vital to the survival and success of the theatrical experience,” National Association of Theater Owners President and CEO John Fithian said in an address delivered at CinemaCon. “Theatrical windows won’t be what they were before, but they can’t be what they were during the pandemic, either. What the future holds is up to our members and distributors to decide, but let us be clear about one thing: Simultaneous release does not work. For anyone.”
A steady flow of strong movies released with theater exclusivity is essential to “the profitability of the entire movie ecosystem,” Fithian said.
Despite growing optimism, theater operators still have worries about the immediate future of the industry, with lingering COVID concerns among the most stressing. The situation has Marcus continuing to emphasize safety and cleanliness at its theaters, Rodriguez insists.
“We encourage our associates to get vaccinated,” he says. “If they aren’t vaccinated, they are wearing masks. And you see the sanitation stations that are everywhere in our theaters. But I’m convinced the most progress will come from vaccines. It’s not just about movie theaters, it’s about restaurants, retail and going to work. It’s about us making sure we get this thing behind us and learn from it.”
Pictures in Motion
Here’s how the pandemic has affected some major movie industry stocks. Share prices are at market close of third quarter (Sept. 30, 2019, and Sept. 30, 2021).
The Marcus Corp. (Theatres, hotels)
2021: $17.45 ↓
The Walt Disney Co. (Studio, theme parks, Disney+ streaming)
2021: $169.17 ↑
2021: $610.34 ↑
AT&T (Warner Bros. studio, HBO Max streaming)
2021: $27.01 ↓
AMC Entertainment Holdings (Largest US theater company)
2021: $38.06 ↑
Cinemark Holdings (Theaters)
2021: $ 19.21 ↓
SOURCE: Yahoo Finance