Thanks for all the positive feedback. It's nice to share ramblings of the minutia I spend most of my work day thinking about.

I'm in corporate accounting and finance on the theater side of the business. Most of what I shared can be derived from SEC filings for the majors (AMC, Cinemark, Regal, etc.), although Regal is now a subsidiary of Cineworld with UK filing requirements.

It's been painful to watch the last 9 months unfold. The relationship between the studios and the theaters has been generally positive over the years. The pandemic has really brought about uncertainty in the industry. OK, that's painfully obviousl. What isn't so obvious is whether the knee-jerk reactions of the studios has made sense. As I stated above, Disney has never been shy to put the theatrical experience high on their priority list. WB has demonstrated, correction...AT&T has demonstrated, that they don't really have a clue how the theatrical window is a kick-start to the downstream revenues. The canibalization of the VOD, instead of theatrical release followed by VOD, really doesn't make any sense. They are completely limiting their upside for a decent slate of films for 2021. At this point, the industry's best scenario when it comes to WB is cooler heads prevailing and bringing back the theatrical window with a deal similar to Universal (if the initial box office ins't above a certain threshhold, go ahead and release to VOD in X days).

The following, in my opinion, is the best path to blue skies for the industry:

• WB rethinks their strategy and moves to a deal similar to Universal. The simultaneous streaming and theatrical release is canibalization for the studio/parent company and a cut for the theaters. Theaters will negotiate lower rent terms, but the studios ultimately will be less incentivized to put out decent product.
• AMC files for bankruptcy. Yes, I said it. Their current financing structure (and the fact that they are almost completely drained of cash) just says that any form of support without a bankruptcy restructure means they'll be starting out further and further behind. And such a move would need to be quick so that structuring is complete before the blockbusters hit.

• Along with AMC preserving their theater counts, other smaller chains and individuals can keep running (or get swooped up and reopened by other investors). Fewer operating theaters decreases the potential upside of a blockbuster. If the upside diminishes, then streaming becomes a more attractive option.
• There is a reckoning among the streaming giants, and quickly. Membership for HBO Max, Disney Plus, Netflix, etc. has ballooned as people are stuck in doors. It makes the idea to just throw content into the mix more enticing (studios don't necessarily have to write-down their investments in the movies). Hopefully the subscriber base re-sets as people start paring back their spending. With a decrease in revenue on the streaming/VOD side, it will hopefully make the exclusive theatrical window more attractive.

Sorry, TLDR...I know. Just the musings of a guy with hopes the industry can survive. The move-going experience has been a significant part of our history as a country. In fact, it drives the industry world-wide as no other country has product that can rival Hollywood product. In fact, Bollywood represents less than 50% of the film box office in India.

OK...I'm done.

Super interesting stuff, thanks for sharing. You've found a place where people find your rambling really insightful

I'm curious, how would the margins/business model of theaters like Alamo and the like differ from the big chain theaters, or not significantly?

jimscott85 said:

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Sorry, TLDR...I know. Just the musings of a guy with hopes the industry can survive. The move-going experience has been a significant part of our history as a country. In fact, it drives the industry world-wide as no other country has product that can rival Hollywood product. In fact, Bollywood represents less than 50% of the film box office in India.

OK...I'm done.

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Absolutely NOT TLDR! Very informative and helpful. Thanks so much for spending the time to write it.

fig96 said:

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Super interesting stuff, thanks for sharing. You've found a place where people find your rambling really insightful

I'm curious, how would the margins/business model of theaters like Alamo and the like differ from the big chain theaters, or not significantly?

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Without full access to the financials for Alamo, it's really hard to say. A few thoughts:

• Tickets - They may have some better margins overall on tickets simply because they do a lot of special "anniversary events" and independent film showings that generally have lower film rental. They aren't nearly as focused on the blockbuster films, which of course cost more per patron for film rental.
• Concessions - I'm guessing their margins here are tighter than most venues with traditional concessions (popcorn, candy, soda). Food costs alone are just simply going to be higher for even a burger as compared to the retail price.
• Aside from the concessions margin, which I generally only think about product costs, they are going to have higher wages for the servers, food prep, etc.
• They don't show "advertisements" before films. While that may be a nice grab for some folks, it's a hit to the bottom line compared to the bigs or generally any other chain/individual that gets advertising revenue. The two major players here are National Cinemedia (where AMC, Regal and Cinemark were founding members) and Screenvision. They take in advertising revenues, show the ads on the screens at your local theater, and then pass on a portion of the advertising proceeds to the theater owners. It's a nice gimmick to say you don't show ads, but the lost revenue upside can be HUGE when you have high attendance during blockbuster seasons.
• Location, location location...With many of their core locations in Austin and then several in other high-rent locations, it's a squeeze on the bottom line. You are dependent on relatively high attendance to clear fixed cost hurdles, and I do know Alamo is basically selling souvenirs for cash at this point.
• The oddball here is franchising. I'm not sure of their franchise structure and whether that is providing significant cash flow. If you have a great brand and you can depend on your franchisees, the lower risk and overhead cost of just taking in franchise fees can be a significant upside. I just don't know enough about Alamo's scenario.

Studio Movie Grill would transform a shut down gentlemens club into one of their locations if they thought they could make it work. The issue here is lower quality that comes with it. They aren't trying to be an Alamo. They're filling the niche "I want a date night but I don't have time for dinner AND something else AFTER". But they seem to be filling that at a lower price point with what appears to be lower rent locations.

My general view is that the more you try to cram into the movie-going experience, the harder it is to maintain a respectable margin. Higher food costs, payrolls, rent, etc. make it a tougher hurdle to profitability when times get hard.

Let me just say that my views are based on a decade at one chain and observation/comparison to the other chains and the industry as a whole from where I stand. I do try to be unbiased, but I'm more than sure it's still in some of my ramblings. And I could be way off here and there, but if I am, it's simply because there's a fact pattern or situation I don't know about or haven't come across.

WB did everyone a favor putting WW84 on HBO max

TCTTS said:

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Wow. If no one expected WW84 to have low box office when you could stream it in your home the same day, then they are morons.