A semblance of normal life is slowly returning to China. People are heading to work, visiting malls, and even shopping at the wet markets that were among the places where coronavirus was first identified. But one gathering place remains closed: the cinema.
With movie theaters shuttered worldwide, it’s an early and ominous sign of the difficulties the industry will face even after the lockdowns lift. An enclosed space accommodating hundreds of patrons is ill-suited to the social-distancing requirements that are likely to remain in place for months.
U.S. box-office sales are expected to plummet 96% in the second quarter, according to Boxoffice Pro, a period that typically heralds the start of summer blockbusters. That follows a 23% decline in receipts in the first three months of 2020, according to Bloomberg Intelligence.
All of this is particularly bad news for Chinese real estate tycoon Wang Jianlin, who spent billions of dollars building one of the world’s biggest cinema operators. His closely held Wanda Group owns Wanda Film Holding, the top theater chain in China, and controls AMC Entertainment Holdings Inc., the largest in the U.S.
On Wednesday, Wanda Film reported a preliminary first-quarter loss of 550 million yuan to 650 million yuan ($92 million), compared with a profit of 400 million yuan a year earlier. It attributed the results to the shuttering of all movie theaters because of the virus. AMC furloughed employees and cut pay for top executives to conserve cash. It closed all venues in mid-March.
AMC said on Thursday it planned to sell $500 million of first-lien notes due 2025, in part to increase liquidity, sparking a 37% rally in the company’s stock in after-hours trading. Wanda group’s property unit also sold 5 billion yuan of notes on Thursday, according to people familiar with the matter, in its first domestic offering in almost three years.
Wang’s fortune has tumbled by about a fifth to $14 billion this year, according to the Bloomberg Billionaires Index. Wanda Film stock has dropped 17% in 2020 as of Friday in Hong Kong, while AMC shares fell by about two-thirds this year as of the close of regular trading Thursday in New York.
Wanda acquired AMC in 2012 for $2.6 billion as part of its expansion into entertainment. It subsequently acquired Nordic, Carmike and Odeon & UCI Cinemas.
The pandemic is punishing others in the industry, including New York billionaire Charles Cohen, who bought the Landmark chain in December 2018 from Mark Cuban and the U.K.’s Curzon Cinemas a year later. Both went dark in March, as did Alexander Mamut’s cinema chains in Russia. Shares of Cineworld Group Plc tumbled more than 75% this year and Cinemark Holdings Inc. is exploring financing options. Many were already struggling with high debt and declining attendance.
“The dramatic global impact of the coronavirus has created a turbulent environment that is changing daily and dramatically affecting everyone,” Cinemark Chief Executive Officer Mark Zoradi said in a statement at the end of March. “We are not generating any revenue while theaters are closed, yet still must meet financial and contractual obligations.”
With movie-lovers stuck at home, streaming services like Netflix Inc. are experiencing record demand with “Tiger King,” a documentary about a big-cat trainer who goes by the name of Joe Exotic, attracting 34.1 million U.S. viewers in the first 10 days after its release. Netflix shares have surged 32% this year through Wednesday, boosting the fortune of co-founder Reed Hastings by almost $1 billion to $5.2 billion. The stock climbed again Thursday to a record high, adding 3.5% at 1:15 p.m. in New York.
China was poised to eclipse the U.S. as the world’s largest movie market in 2020, until the coronavirus eruption wiped out almost all ticket sales since the Lunar New Year holiday in late January.
Wanda Group’s overseas movie business now faces similar stresses. Three analysts downgraded AMC to a sell in April, according to data tracked by Bloomberg.
“AMC is in a worse position than Cinemark because its debt load is so high,” said Michael Pachter of Wedbush Securities. “Other chains like Marcus own their real estate, so they don’t have to pay rent and can ride out the pandemic.”
Even after the crisis passes, the industry faces an uncertain future. While some analysts predict U.S. theaters will have soft reopenings in the third quarter, China’s experience suggests that might be optimistic.
Sporting events, exhibitions and the opening of entertainment facilities including cinemas are still banned, China’s Center for Disease Control and Prevention said Wednesday. And it isn’t clear how many theater-goers will return once the restrictions lift.
“There is not only uncertainty as to when theaters will be allowed to reopen,” said Eric Wold, an analyst at B. Riley FBR, “but also what the film slate will look like and how consumers will react.”
–With assistance from Kelly Gilblom, Shirley Zhao and Alex Sazonov.
This article was provided by Bloomberg News.
