Theaters Are Being Abandoned. Time to Sell?
Movie theaters have struggled to explain significantly lower attendance rates that have plagued the industry this year. Let's take a look at some of the proposed explanations.
Ticket prices, while mind-blowingly high, did not deter moviegoers in the start or middle of the economic slowdown that began in 2008. In fact, escapism helped bring an increase in movie attendance. Ticket prices have gradually increased in the years since 2008 but hardly enough to explain a 6% year-to-date drop in attendance.
How about home entertainment? Flat screens and high-definition surround-sound speakers have been getting bigger and cheaper every year. It's no longer a bank-busting endeavor to outfit a living room with theater-like sound and picture quality. Even 3-D televisions have hit the market, allowing consumers to add that final modern-viewing touch.
Perhaps this is the cause, but sales of plasma and LCD flat screens have been up for years, and 3-D sets haven't exactly been flying off the shelves, so why would the effects only be seen now?
As for content, Rick Aristotle Munarriz of The Motley Fool writes "This is the year, after all, in which we got the eighth and final installment in the Harry Potter movie series. Other popular franchises -- Transformers, Cars, Pirates of the Caribbean, The Hangover -- kicked in with fresh sequels." How could such cash-cow blockbusters fail to bridge an attendance gap?
And as for content to play on home entertainment systems, the bridge between movie and DVD releases has been growing shorter every year. Services like On Demand, Netflix, and Hulu offer a wide range of film and television options.
Still, "streaming services such as Netflix and Hulu have also been more popular for television shows than movies, largely because studios aren't allowing their freshest retail releases to be made available on all-you-can-stream websites."
One explanation that hasn't been offered is a drop-off at the concession stand -- a serious profit driver for theaters. Are consumers still as willing to pay $4 or more for soda as they were in pre-recession days? And perhaps the content just isn't what it used to be to convince moviegoers they simply can't wait for it to hit DVDs, and that transportation, ticket prices, 3-D fees, and concession prices are all worth the trip.
So we were curious, which companies have exposure to this trend? For ideas we looked at companies in the movie-producing industry trading on U.S. stock exchanges. (Click here to access free, interactive tools to analyze these ideas)
1. Cinemark Holdings (NYS: CNK) : Market cap of $2.18B. Cinemark Holdings and its subsidiaries engage in the motion picture exhibition business. Share price as of Oct. 21 at $19.29. Offers a good dividend, and appears to have good liquidity to back it up -- dividend yield at 4.39%, current ratio at 2.4, and quick ratio at 2.35. The stock has gained 15.24% over the last year.
2. Regal Entertainment Group (NYS: RGC) : Market cap of $1.96B. Operates a theater circuit in the United States. Share price as of Oct. 21 at $13. The stock is a short-squeeze candidate, with a short float at 16.48% (equivalent to 9.48 days of average volume). The stock has lost 2.62% over the last year.
3. DreamWorks Animation SKG (NYS: DWA) : Market cap of $1.54B. Engages in the development, production, and exploitation of animated feature films and characters worldwide. Share price as of 10/21 at $19.3. The stock is a short-squeeze candidate, with a short float at 16.88% (equivalent to 9.1 days of average volume). The stock has lost 43.85% over the last year.
4. Lions Gate Entertainment (NYS: LGF) : Market cap of $983.51M. Engages in the motion picture production and distribution, television programming and syndication, home entertainment, family entertainment, new channel platforms, and digital distribution activities. Share price as of Oct. 21 at $7.29. Relatively low correlation to the market (beta = 0.62), which may be appealing to risk averse investors. The stock has lost 3.24% over the last year.
5. RealD (NYS: RLD) : Market cap of $547.52M. RealD licenses stereoscopic three-dimensional or 3-D technologies internationally. Share price as of Oct. 21 at $10.26. The stock is a short-squeeze candidate, with a short float at 17.42% (equivalent to 7.84 days of average volume). It's been a rough couple of days for the stock, losing 5.43% over the last week.
Interactive chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
At the time this article was published Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data from Finviz.Motley Fool newsletter services have recommended buying shares of DreamWorks Animation SKG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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