Cinemark Pins Hopes on Summer Recovery, Open to Streaming Titles as Windows Shorten

Cinemark is aiming for a gradual recovery to kick off in the Summer, following a year in which the circuit’s total revenue fell by 79 percent. The third-largest cinema chain in the domestic market finished a pandemic-stricken 2020 with 217 locations in the U.S. after being forced to permanently close 27 underperforming sites. In Latin America, Cinemark ended the year with nearly two-thirds of its circuit back up and running. Today, the circuit has 73 percent of its Latin America cinemas back online, led by Colombia (100%) and Brazil (90%), while markets like Chile (35%) and Argentina (10%) still lag. The circuit is committed to opening six new theatres and 72 screens in 2021 and an additional 13 new locations and 123 screens in the coming years. 

Entering March 2021, Cinemark counts on three-quarters of its domestic circuit in operation, overrepresented in the 45 percent of cinemas in the United States and Canada currently online. The increased presence in relation to the rest of the market is reflected in Cinmark’s market share of the overall North American box office. In the fourth quarter of 2019, the chain represented 7 percent of screens in North America and 13 percent of the domestic market’s total box office. In 2020, Cinemark’s footprint constituted 11 percent of open screens in North America, claiming over 20 percent of domestic box office. 

“While we fully recognize that a portion of this market share growth is due to some competitors remaining closed, we will be aggressive in our attempts to retain a meaningful amount of this share shift on a go-forward basis,” said Cinemark CEO Mark Zoradi during the company’s quarterly earnings call with investors. 

Cinemark has access to a cash runway that extends into the fourth quarter of 2021, accounting the current market conditions and operating restrictions, that could extend into 2022 by including incremental tax refunds it has already applied for. Dipping into those reserves may not be necessary, however, with Zoradi citing the recovery in the APAC region as a promising sign for moviegoing in places where there is control over the virus. 

The CEO doesn’t expect exhibition to fully bounce back in 2021, however, instead seeing the year as a transition to recovery in 2022. 

In order to bounce back, exhibition will need to rely on a consistent release schedule from major studios, something Zoradi believes will come as major cities in the U.S. re-open cinemas after nearly a year of closures. “The number of theaters open and operating is a key consideration in our studio partners decision on release date timing.” he said. “As such, the announcement that New York City theaters can begin reopening is a significant step forward in the recovery of our industry. The New York City DMA alone represents 7 percent of the 2019 North America box office. We also remain optimistic that Los Angeles and San Francisco will be able to reopen in the coming weeks, with those markets representing 8 percent and 3 percent of the industry box office respectively. As theaters in these key markets begin to reopen and the virus is more contained, we expect the volume of new film content will accelerate.” 

Zoradi added, “The single most important thing for studios to leave the content where it is, is if theaters are going to be open–and I don’t blame them. If New York and LA haven’t been opened up, they’re going to be a little bit more cautious. Now that they’re opening up, we are very optimistic that major content is going to stay where it is. The second half is the summer and then moving into the fall, we’re going to start seeing that recovery coming forward.” 

In the meantime, Cinemark has benefited from the success of private rentals, which it brands as Private Watch Parties, to help offset the lack of studio content and capacity restrictions. The circuit has already booked over 150 thousand auditorium rentals, bringing in more than 2 million guests to Cinemark theaters. Rentals represented nearly a quarter (24%) of Cinemark’s pandemic attendance and box office. In the fourth quarter, over half of private rentals were booked to screen library content, led by the 2003 release, Elf. “This library content could be watched for free at home on the sofa, but instead consumers chose to pay $99 to see it in the theater. This reinforces what we’ve consistently stated, people are yearning for normality escape and a fun out of home opportunity, movie theaters provide all that and more in a safe and clean environment,” said Zoradi. 

Zoradi expects to decrease the number of private rentals available to the public as regular demand begins to come back into the market, in order to not have rentals cannibalize traditional box office revenue. “We do an analysis: are we better off selling that auditorium for $100, first round product is $150, or do we think we can make more with consumer demand because we can fill up more seats with the current restrictions?” he said. “As new product comes, especially on high demand Friday nights and Saturdays, we’re going to allocate more screens to regular showtimes because we’re going to be able to put more people in those seats.”

On the Food & Beverage side, Cinemark launched its “Snacks in a Tap” mobile concession-ordering feature in 2020. The program allows moviegoers to order concessions through their phones ahead of their visit and pick them up upon arrival or have them delivered to their seats for a fee. Around 70 percent of Cinemark locations currently feature the “Snacks in a Tap” program, with more expected to adopt it throughout the rest of the year. 

Cinemark is also expecting to be well poised for recovery by leveraging the amenities across its circuit. The chain leads the domestic market’s top circuits with the highest percentage of recliner seating penetartion (64%), has expanded food and beverage menus in three-quarters of its locations, and counts on a robust footprint for its private-label Premium Large Format brand, Cinemark XD, with 278 auditoriums. 

With the rest of the sector facing similar obstacles, Zoradi outlined potential M&A opportunities that could arise as a way to grow the circuit in the coming years. “We are very open to any opportunity that comes our way. Obviously, what is most attractive to us is some kind of takeover of leases, either based on a percent-rent based on overall revenue, or potentially a management fee. That does not mean we wouldn’t do a straight acquisition, but the price is going to have to be appropriate,” he said. “We know what these theaters are worth, we know the kind of cash flow that can come out of them, we do a serious amount of financial analysis. And that’s how we’re going to continue; we’re clearly open to M&A but we’re also going to be very careful as it relates to the amount of additional fixed leases that we would take on in this environment.”

That environment now includes a recalibration of the theatrical exclusivity window, with studios offering different terms and timeframes for films ahead of, or in conjunction with, their home release. Warner Bros.’ day-and-date release strategy, whereby its theatrical releases are made available to the home simultaneously to their theatrical debut, is only expected to be in place for 2021 due to the pandemic. Other studios’ decisions, including Universal and Paramount’s shortened windows, give the circuit confidence it will be able to count on at least 30 days of theatrical exclusivity for all major titles released after the pandemic. 

The changes to theatrical exclusivity have opened the door to more concrete conversations with alternative content providers, including the possibility of booking high-profile titles from streaming companies. The circuit went as far as to test select Netflix titles in some of its locations during the holiday season. 

“We’re in active discussions with Netflix, Apple TV, and others,” said Zoradi. “We’re not talking about quantity, there’s a half-dozen pictures that are really important to some of the streaming services there are either big, important Academy movies or bigger, mid-sized commercial films that we would be interested in playing. We would be open to a shortened window depending on what the financial terms were on that particular particular deal.”

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