The 2-Minute Thought: Secular Decline . . . or Not?

Do people still go to movie theaters?  And will they keep going in the future? It’s a tough question because 2017 was a really tough year for theaters.  Bloomberg wrote that 2017 was the worst year for movie ticket sales in the U.S. in over two decades.  The Atlantic called last summer “Hollywood’s summer from hell.”  And The Economist said in December that even the new Star Wars film, The Last Jedi, wouldn’t be able to reverse the American retreat from cinemas.  Americans, it wrote, were buying 30% fewer tickets than they were in 2002.

That sounds very bad, and that sentiment was everywhere.  It made the argument against movie theaters very easy: Teens and millennials weren’t interested in going to see movies at theaters.  Netflix and other on-demand options made it too easy to stay at home.  Beyond movies, there were too many things competing for our attention on all our devices.  And then there was this looming threat called premium video on demand or PVOD, this idea that studios would work together to allow people to watch blockbusters at home at the same time as their theatrical release. 

On the other side, the argument in favor of movie theaters was very hard.  But movie exhibitors vigorously pressed their case.  They continued to do so even in the worst of times last year – even when box office receipts fell 12% in July and then a stunning 36% in August.

Movie theaters were not dying, the big theater companies said.  It was true that the current slate of movies wasn’t bringing in the crowds.  But just wait.  The people would come when the blockbusters came.  And theaters weren’t standing still either.  They were evolving and making themselves better.  They were bringing in luxury recliner seating, premium screens, high quality food, and craft beer to create a heightened experience. 

No one pounded the table harder than Adam Aron, CEO of AMC Entertainment, the biggest movie exhibitor in the world and the one with the most depressed stock.  Over and over on quarterly calls, he disputed what the press was saying.  He said theaters had a great future.  He cited surveys showing teens and millennials coming to theaters in good numbers for the right movies.  He admitted 2017 was bad, but then said 2015 and 2016 still were record years for theater revenues.  And he added, “You know, as you look back, Netflix, smartphones, and iPads were all around in 2015 and 2016. . .”

Is it possible Aron was right?  Well, at least in the first quarter of 2018, he was able to say that he might be.  Thanks to a series of record-breaking blockbusters, theaters are looking pretty good.  Revenues were up.  And the PVOD concept?  That’s in retreat now.  The thinking is that it’s complicated and won’t be coming in the near term.  AMC’s stock is up 11% this year, and the analyst community is pretty bullish with 6 buy recommendations, 6 holds, and 0 sells.

Does the good quarter mean theaters aren’t in secular decline?  Of course not.  We just don’t know, and we may not know for a long time.  But we should at least be open to the idea that the easiest opinion to reach for – the one we see everywhere in the news – may not be the best opinion.   

Please note: The 2-Minute Thought will be on break next week and will return May 24.