Cinemas Reel from Delayed Film Releases

Movie Theater Shares Stumble

As studios suspend more film releases or opt to stream them, cinemas are feeling a heightened financial strain. Regal-owner Cineworld Group, the second-largest movie theater chain in the world, announced it is closing all 536 of its theaters in the United States. The company will also suspend operations at 127 theatres in the United Kingdom. The combined closings will leave roughly 45,000 workers unemployed.

The announcement follows the second postponement of the new James Bond film, “No Time to Die.” The movie has now been delayed by a full year—it was first scheduled for release in April 2020. It’ll now appear in theaters in April 2021. The James Bond film is not alone. Over the past several months, many studios released hit films like “Mulan” and “Trolls World Tour” on digital platforms, bypassing cinemas altogether. Cineworld CEO Mooky Greidinger compared the empty movie theaters to a grocery store without food. “We cannot operate for a long time without a product,” Greidinger said.

Like many companies that depend on large in-person gatherings, Cineworld has had a rough year. September’s mid-year financial report saw revenue decrease by 70% compared to 2019. As the market opened on Monday morning after the announcement, Cineworld shares fell by 57%. AMC Entertainment (AMC) shares also fell 11.2% yesterday.

Theater Chains See Ripple of ‘Tenet’ Disappointment

The announcement highlights theaters’ dependency on creative output from production companies. As studios delay releases in an attempt to wait out the pandemic, movie theaters are forced to do the same. Only one major motion picture has been released in theaters since the start of the COVID-19 pandemic. That was “Tenet,” which spurred the reopening of major movie theaters owned by Regal, AMC Entertainment, and Cinemark (CNK) in August. Warner Bros. (T) repeatedly delayed the release of “Tenet” until a majority of American movie theaters could reopen under COVID-19 safety guidelines.

“Tenet” underperformed by all measures. While the movie cost $200 million to make, it earned a mere $45.1 million at American and Canadian box offices. The film could be found at about two-thirds of American theaters when they reopened in August. Those theaters were forced to open at reduced capacity and with stringent new cleaning routines.

Those precautions failed to reassure consumers in the North American market, where films have earned over $11 billion per year for the past five years. Overseas, where COVID-19 case numbers were lower, “Tenet” fared better, earning $262 million at the international box offices so far.

However, studios weren’t completely comforted by the moderate success of “Tenet” abroad. After the film’s disappointing North American release, Warner Bros. pushed the release of “Wonder Woman 1984.” Disney (DIS) also delayed the release of 10 new films.

What’s Next for the Theater Industry

The Regal Cinemas closure casts a relatively long shadow over the film industry as the coronavirus pandemic continues. Most American movie theaters closed in March, and while many theaters reopened in August for the “Tenet” release, theaters in Los Angeles and New York City are still closed.

Citigroup (C) analysts say the industry is experiencing something of a domino effect. Studios are hesitant to release big films because audience numbers are so low, but audience numbers will remain low until there’s big content that draws people to theaters. Cineworld Group is calling the Regal Cinemas closure temporary, but the National Association of Theatre Owners said that if studios keep delaying releases and theaters are forced to remain empty, the United States could lose up to 69% of smaller theaters.

Over half of the entertainment and arts industry’s workers are still on furlough, and many hope the Regal Cinemas closure will put pressure on legislators to provide the industry with more economic relief money. Cineworld’s CEO has written to Andrew Cuomo, New York’s governor, to ask that theaters be allowed to reopen—especially as indoor dining restarts in New York City. Additionally, on September 30, filmmakers and cinema owners wrote a letter to legislators asking for financial relief that could help make sure theaters will re-emerge after the pandemic’s end.

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Video Game Stocks Filling the Entertainment Void

Big Wins Over Time for Console Producers and Game Publishers

With most Americans still stuck at home and delays in film releases and other entertainment options, there’s never been a better time to be in the video game industry. Research firms like IDC expect video game sales to hit $45.6 billion this year. That’s 19% growth for 2020, a year that has been harsh for many sectors of not only the media industry, but the economy at large. Gamemakers like Activision Blizzard (ATVI), Electronic Arts (EA), and Take-Two Interactive Software (TTWO) have witnessed their stocks rise by almost a quarter as more gamers download, subscribe, and purchase their games.

Content providers haven’t been the only ones benefiting from the trend. In fact, industry leaders like Sony (SNE) and Microsoft (MSFT) saw an increase in sales even before the onset of the pandemic. About every six or seven years, the two companies release new consoles which have helped bring in new customers, better games, and rapid growth for hardware and software makers alike.

It’s possible to trace the rising stocks of video game publishers back to those launches. Taken together, Activision, Electronic Arts, and Take-Two’s stocks ballooned by a remarkable 1,700% over the past two decades. For comparison, the S&P 500 grew by 330% in that same time.

Looking Forward to Upcoming Launches

With that as a backdrop, it's important to note both Microsoft and Sony plan to launch new video game consoles next month. Players and investors are already aware that there is an order backlog. When Microsoft launched pre-orders of its Xbox Series X and Sony did the same for the Playstation 5, the new consoles sold out within a day. Those who are lucky enough to get their hands on the new Playstation and Xbox will find faster load times, a better online experience, and improved graphics from a technology called “ray tracing,” which improves realism in computer graphics.

For the game publishers, the new launches justify a price bump. Instead of selling games for a standard $60, somewhere around 35% of new games will likely start selling for $70 by 2021. If this price point isn’t a deterrent, investors think this could push share prices even higher. Some analysts even expect the publishers to get higher multiples of forward earnings estimates than Apple (which gets 30 times earning estimates) as they release new games.

For Activision specifically, analysts say that having two new confirmed games in development should reassure investors that growth will continue. This stability—along with expected growth after Microsoft and Sony release their new consoles—could translate into Activision shares trading at a premium.

Mobile Gameplay Opens Up New Markets

While new consoles will likely help growth, Microsoft is also focusing on creating a subscription model and lowering the cost of entry. In November, it’ll be possible to play new Xbox games on older, less expensive machines for between $25 and $35 per month.

Mobile game sales also deserve their moment in the spotlight. As Activision, Electronic Arts, and Take-Two start to focus more on subscription and mobile gaming, their growth might become even more reliable. That’s because mobile sales don’t rely on expensive consoles. Instead, anyone with a smartphone can become a recurring customer.

“If you can play a game on 200 million consoles, that’s one thing, but if you can play a game on four to five billion smartphones, that’s a much bigger number,” said Dan Niles, a hedge fund manager who focuses on the tech industry. “That’s where things get interesting.”

Activision is a great example of a company that still relies on console games, but also sees a huge amount of revenue from mobile games. In 2016, they purchased King Digital, the company responsible for the very popular mobile game “Candy Crush.” In 2019, a third of Activision’s revenue came from games made by King Digital. Analysts only expect that kind of mobile growth to continue.

RV Sales Surge as Americans Hit the Road

RVs Emerge as Safe Pandemic Travel Option

Since the COVID-19 pandemic began, many Americans have hit pause on travel by plane, train, and bus. Sharing small spaces with strangers in transit and then checking into a hotel room has lost its appeal for many routine travelers. But one mode of transportation doesn’t require a hotel room or a communal air pocket, and it’s coming back into fashion—recreational vehicles ( RVs).

RVs sales have surged in 2020, a year that’s handed many industries shutdowns, supply chain hiccups, and a dwindling customer base. In fact, the Recreational Vehicle Industry Association expects RV sales in the United States to swell by 4.5% this year. That would mean 424,400 units sold.

What’s more, that same group expects RV sales to rise even higher in 2021 to hit the best numbers the industry has ever seen. As RVs rise in popularity, 2021 could see sales spike by 19.5%—adding 507,200 more recreational vehicles on the road.

Camping World Holdings Innovates to Attract the ‘RV-Curious’

The uptick in interest is not solely related to experienced RV-owners buying new RVs during the pandemic. Analysts say they’ve seen new buyers enter the RV market over the summer.

Camping World Holdings (CWH), a company that owns RV dealerships, is hoping to take advantage of the RV-friendly market to expand its offerings and draw in new customers. At an investor meeting in mid-September, Camping World’s CEO and chairman said he hopes to see earnings rise from an adjusted $460 million to $490 million over the next five years.

Camping World is already a leader in RV sales, but the company also plans to use this growth to break into new markets. Next spring, Camping World aims to launch the “Airbnb for RVs,” where customers will be able to rent RVs from each other. The company also plans to create an algorithm so people can more quickly and easily get quotes for reselling used RVs.

Post-Pandemic Outlook for RV Sales

The country’s largest RV producers, Thor Industries (THO), which makes Airstream and Keystone, and Winnebago Industries (WGO), seem to agree that RV sales will continue. A surge in summer sales of RVs brought these companies back from their early-pandemic lows. Still, analysts suggest these RV producers aren’t out of the woods. Labor shortages and more supply-chain issues could hurt their margins in the coming year.

The question now is whether the new set of customers will stick around after the pandemic ends. If accelerated progress is made on the coronavirus vaccine and treatment front, more people might be eager to get back on planes and hit international destinations. However, even if a cure or drug is developed, it might not be readily available to the general public, which could keep customers stateside, favoring RV-type travel. Ultimately, it may depend on how long the pandemic lasts and how well companies like Camping World succeed in broadening their offerings for new buyers.