Cinemark Embraces "Dynamic" Theatrical Windows, Posts Steep Revenue Drop

Cinemark CEO Mark Zoradi
Matt Winkelmeyer/Getty Images

Cinemark CEO Mark Zoradi

Quarterly revenue at the cinema giant dropped from $821.8 million to $35.5 million amid the pandemic.

Cinema giant Cinemark Holdings swung to a loss for the third quarter due to the financial hit from the coronavirus pandemic, but said it was "encouraged" by the reopening of its U.S. circuit and its impact on its liquidity.

"The company began reopening domestic theatres in June 2020 and international theaters in August 2020, following new health and safety protocols," Cinemark said in its earnings update. "As of Sept. 30, 2020, the company had 252 domestic and 15 international theaters open to limited hours, showing library content and some new releases."

The company, led by CEO Mark Zoradi, posted a quarterly loss of $147.6 million, or $1.25 per share, compared with a profit of $31.4 million in the year-ago period, or 27 cents a share. Adjusted results before interest, taxes, depreciation and amortization, another profitability metric, swung to a loss of $128 million. Revenue dropped from $821.8 million to $35.5 million.

Zoradi on a morning analyst call discussed ongoing negotiations with the major Hollywood studios about shortening the theatrical window, an industry term for the length of time a film screens exclusively in theaters. But he showed no support for the reduced 17-day theatrical window that fellow exhibitor AMC Theatres and Universal Pictures struck in their own agreement.

He instead championed the concept of "dynamic theatrical windows," where tentpoles get longer movie theater runs than mid-range budget films. "It allows a studio to monetize a movie quicker, because it won't be in theaters as long," Zoradi told analysts.

He wouldn't be drawn on whether dynamic windows would resemble the landmark deal between AMC Theatres and NBCUniversal, under which Cinemark is expected to get a share of downstream revenue and allow exhibitor and studio partners to row in the same direction.

Zoradi on earlier analyst calls had voiced criticism of the AMC and NBCUniversal deal as Cinemark looked to protect the traditional theatrical window. The historic Universal-AMC agreement allows studio movies to be made available on premium video-on-demand after just 17 days of play in cinemas, including three weekends.

That shatters the traditional theatrical window of nearly three months before studios can make movies available in the home. Zoradi said he was negotiating with the major studios individually about shortening the theatrical window, with an eye to exclusive agreements with each film supply partner.

The Cinemark boss would not be specific about how many days he would accept for a shortened theatrical window as he championed the concept of dynamic theatrical windows. Another wild card for Cinemark is streaming platforms, which are benefiting as traditional movie-goers shelter at home amid the pandemic.

Zoradi said his circuit would be open to playing streaming movies as Netflix and other digital platforms bring their films to the big screen on a case-by-case basis. "We're open to having discussions. It will always come down to the rental terms and the number of days of the exclusive release," he told analysts as he pointed to necessary terms and conditions.

Cinemark, the third-largest circuit in the U.S. behind AMC Theatres and Cineworld's Regal, said that for the third quarter ended Sept. 30 that attendance fell to 1.9 million patrons, admissions revenue reached $14.9 million, and concession revenue dropped to $9.1 million.

Zoradi and other Cinemark execs on the analyst call also focused on how the company is maintaining liquidity amid pandemic headwinds. The circuit has around 90 percent of its domestic theaters and 40 percent of its Latin American venues operating, but at a reduced capacity and with a lack of Hollywood tentpoles to draw in movie-goers.

Cinemark is burning through "slightly" less cash after reopening its theaters, Zoradi told analysts, but screens in key markets like Los Angeles and New York City have yet to open, thwarting efforts to get the major studios to stop delaying tentpole releases, or sending them to streaming platforms.

Zoradi told analysts that the ramp up of the exhibition industry would now extend into the first half of 2021 amid the pandemic and content shifts and production delays for Hollywood movies. He added a "normalized cadence" for the industry would only come in 2022.

Cinemark's cash burn is currently put at $75 million a month, and a $65 million cash burn to keep operating is projected for 2021. The company told analysts that its "cash runway" will run to the fourth quarter of 2021, and extends into 2022 with tax refunds anticipated.

S&P Global Ratings recently downgraded its credit rating for Cinemark, citing delays in Hollywood tentpoles reaching the multiplex amid the pandemic. "Theater attendance will likely remain weak and large tentpole releases delayed until there is a viable treatment or vaccine for the coronavirus that allows for the end of social distancing," it said.

Cinemark said last month it has no plans to close its U.S. cinemas again even as Hollywood studios continue to delay their tentpoles amid the ongoing pandemic.