US COVID-19 Rate in 'Stark Contrast' to Global Markets, Says Imax CEO

Imax plans to have 1,400 screens in 70 markets open by end of August for Christopher Nolan’s blockbuster Tenet, said CEO Rich Gelfond Tuesday on a Q2 earnings call after regular U.S. trading. After three delays due to COVID-19, Warner Bros. said Tuesday the movie will release in Canada, Europe and Asia on Aug. 26 and in limited U.S. theaters Sept. 3.

“The rising infection rate in the U.S. and other markets stands in stark contrast to the opening of large international markets, where we derive over 70% of our revenue,” said Gelfond: “The U.S. presents a unique challenge for industry that is accustomed to global releases.”

The company’s reopening plan for theaters amid the pandemic “was never going to be perfect and not every place was going to be able to be open at the same time,” said Gelfond. The situation is also fluid, he said. Staggered releases by country are “the next best thing, and it gets the movies out there, it gets people back used to going,” he said. “I think we should expect some temporary setbacks in some markets.”

In July, some 624 Imax screens were open, 40% of the company’s global 1,500-theater network in 81 countries and territories: 409 in China, 172 in rest of world and 43 in North America, primarily in Canada. Per-show Imax attendance in China is at 80% of pre-COVID-19 levels, said Gelfond, while 10% of North America’s 400 theaters are open.

Health and safety of audiences “must be the priority,” Gelfond said, and theaters "should only be open when ready.” He cited areas where the virus “has come under control,” including China, key markets in Asia and Europe “and beyond.” The company’s global network and “relationships with studios, exhibitors and filmmakers around the world puts us in a position to benefit from rolling theater openings as lower risk markets resume operations.”

Masks are “absolutely critical” in theaters, said Gelfond, who positioned theaters as a safer pandemic-era venue than restaurants or stadiums. Social distancing capacity constraints and traffic flow can be managed effectively in theaters, show times can be staggered and food prep can be visible or food can be prepackaged, he said.

The company expects to maintain a “cash burn” under $10 million a month in a “zero revenue environment,” said Gelfond. Local regulations could mean maximum seating capacity of 50% in Imax theaters. Gelfond referenced “some practical issues” under new COVID-inspired rules.

Imax limited reopenings are a “positive incremental step forward,” said the CEO, “but we still have a long way to go.” Theater conventions will change. Early releases won’t be about “huge opening weekends,” with many markets having capacity constraints due to the virus, Gelfond said: Show times and attendance will be spaced across the week, and certain new releases will have longer theater runs than usual, he said. “Not all consumers are ready to come back to theaters.”

Gelfond predicts the theatrical market will move toward premium experiences and blockbuster films, “both key elements of our model.” Imax is insulated from lower and mid-tier movies “that will move to streaming instead of theatrical releases.” Any potential change in theatrical windows won’t affect his firm “as most of our films play for only one week or two weeks,” he said.

On Imax's concern about narrowing of theatrical windows -- after AMC's and Universal’s announcement Tuesday giving AMC 17 days of theatrical exclusivity for releases before going to premium VOD platforms -- Gelfond sees little impact. “We’re a fanboy experience,” he said, saying people want to see blockbusters on an Imax screen.

But with AMC potentially sharing in streaming revenue as part of the deal, “we have to wait to hear what other exhibitors say, what that means,” said Gelfond. Noting Universal doesn’t have a big movie coming out in North America until 2021, “we all have to take a breath,” said the executive. “This isn’t a shocking development, and I don't think it means negative things for Imax.”

Gelfond was bullish on the U.S. movie industry and theaters returning to pre-COVID levels, but he didn’t commit to a timeframe. He compared COVID-19 to the SARS epidemic in the early 2000s that led to theater shutdowns. North America is particularly hard to forecast “because we don't know what cities are going to open up, when,” he said, but “for the right kind of content, and where [consumers] feel safe, they will come out.”

Wedbush expects Imax to resume “impressive top and bottom-line growth,” analyst Michael Pachter wrote Wednesday. But “2021 will have its own challenges,” he said, citing fewer big-budget projects as studios “look to recover post-closures.” Wedbush believes crowds will return to theaters after a COVID-19 vaccine is available, and blockbuster movies on Imax “are largely insulated from the threat of streaming services.”

Revenue plunged 92% year on year in Q2 to $8.9 million. Shares closed down 10.6% Wednesday at $11.22.