Movie Theaters Not Positioned to Survive Extended Shutdown, Says Cowen

The health of the film theater industry “remains very much in question due to COVID-19,” Cowen wrote investors Monday, saying the negative impact of the pandemic will be spread out over several years. But digital consumption should maintain, “if not enhance,” the value of large film libraries, it said.

The near-term impact of COVID-19 will be “far more modest than that suggested by the total shutdown of the theatrical release window,” Cowen said, citing studios' amortization of production costs as revenue is recognized and lack of marketing expenses. A larger concern is “the health of movie theaters themselves,” which aren’t well-positioned to survive an extended shutdown, said the report, noting AMC raised $917 million of new equity and debt capital since Dec. 14.

Traditional media share prices, meanwhile, increased by an average 59% since Nov. 12, and the “significant premiums” afforded to over-the-top video companies such as Netflix and Disney “have invaded the rest of the group.” The worst-performing media stock over the past three months, Fox, is the one with “by far the least-developed OTT strategy,” Cowen said.

The report cited Kagan figures saying traditional pay-TV subscribers in the U.S. dropped 8.6% year on year in Q3, split among cable (minus 4.7%), satellite (minus 13.3%) and telcos (minus 15.8%). COVID-19 appeared to have “moderately accelerated” the cord-cutting trend in Q2, while benefiting OTT services, said the report. “More recently,” it said, “we saw a better-than-expected exodus from the linear TV ecosystem.”

TV advertising is likely to remain “under significant pressure,” said a Cowen ad buyer survey, noting that buyers expect to cut the share of their budget going to TV from 39% last year to 33% in 2021. TV lost an estimated 12% share last year, due largely to the hit from COVID-19 and the interruption in live sports, it said.

Cowen predicts a “relative bounce” this year, with TV advertising growing 3% vs. total ad industry growth of 6%. But an underlying suggested annual share loss of about 8% this year for TV advertising excludes “COVID-related fluctuations.” It projects a total 2019-21 TV share loss of 15%. “The continued shift of viewership to OTT platforms will likely remain a significant pressure point for TV ad inventory and ad revenue,” it said.

Before COVID-19, Cowen forecast the 2020 U.S. box office would fall short of $10 billion, making it the worst year at the box office “since at least 2008.” It now expects theaters to be largely closed until midyear, in part because studios won't want to release their blockbuster movies “into a capacity-constrained footprint.” Studios are applying various strategies for direct-to-consumer movie releases.