The return to normal life cannot happen quickly enough for movie theaters and their investors. Actions of Cinemark Holdings (CNK -4.68% ) are down almost 40% over the past year and AMC Entertainment Holdings (AMC -14.90% ) the stock collapsed by almost 70% while fears that the company is a few months away from bankruptcy shook investors.

It’s understandable that theaters struggle amid pandemic lockdowns. However, investors should ask themselves if more change is taking place in this century-old industry. Increasingly, it looks like the underlying business model is starting to suffer disruption, and the latest management announcement from Walt disney ( SAY -1.97% ) is further proof that the industry is collapsing.

The Latest Disney Movie Is Coming To A Home Near You

Disney’s Searchlight Pictures studio releases Nomadic country in theaters in the United States on February 19, alongside the release of its streaming service Hulu. For those who want to live the experience on the big screen, Disney has booked an exclusive three-week release for IMAX (IMAX -5.97% )-brand cinemas from January 29.

This latest move continues to unravel the fragile relationship between studios and theaters. AT&T (T -2.08% ) made headlines last year when he announced that his studio Warner Bros. release its entire list of 2021 films simultaneously in theaters and on its HBO Max streaming service.

While Disney has been more deliberate, it is also moving further and further away from the usual exclusive 30-day theatrical window. Last year, Disney released Forward on Disney + shortly after its theatrical debut, then went straight to the consumer by posting Mulan exclusively on Disney +, and finally released Soul exclusively Disney + on Christmas Day.

There are benefits for Disney theaters Nomadic country Announcement: First, unlike Warner Bros., Disney continues to assess these decisions on an ad hoc basis. Although critically acclaimed, Nomadic country is unlikely to be a major blockbuster. In the short term, Disney will continue to release big budget Marvel movies and Star wars studios with an exclusive theatrical showcase.

Additionally, Disney kept the exclusive three-week window for high-end IMAX theaters. IMAX ticket sales tend to be more lucrative for studios, implying that Disney still sees value in movie exclusivity for the right price. Finally, it’s important to note that AT&T and Disney continue to release films simultaneously in theaters, without abandoning the channel entirely.

Recovery investors misunderstand the risks

Investors are increasingly placing theater stocks on their watch lists as a turnaround, but it’s important to understand the risks. The main argument is that business will rebound once the pandemic is over, but timing is a factor due to potential delays, like reports that the US government has messed up the rollout of vaccines to the population.

However, investor attitude towards problem-solving vaccines ignores the fact that studios are now paying a lot more attention to how they monetize their content. For bigger budget releases, it may make sense to have an exclusive cinema window, but it is likely that other releases will retain the simultaneous release format even after the pandemic is under control.

Either way, these studio decisions will likely have little input from the theater industry. They have little power in this relationship because large cap the studios have become significantly more powerful thanks to mergers and acquisitions, and will have the upper hand in the negotiations.

A theatrical stock looks attractive

Yet not all theater stocks are the same. Bankruptcy now seems ruled out for AMC, as management signals it is close to getting the $ 750 million it thinks it needs to survive the pandemic, but over-indebtedness leaves it little room for error . AMC increasingly uses restructuring terms such as consuming cash, and shareholders are often devastated during a restructuring.

Cinemark is in a slightly stronger financial position, but also has significant debt and would struggle in an environment with more simultaneous exits. However, even if both companies emerge from the pandemic intact, it is likely that there will be a significant decrease in the number of theaters and screens, as unprofitable theaters will be closed. Against this backdrop, surviving theaters should rely less on exclusivity and more on monetizing the experience, which makes IMAX an intriguing company. Note that Disney kept the exclusive window for Nomadic country for IMAX.

Unlike other theater companies, IMAX is more like a lightweight, highly scalable, tech company that licenses its equipment and technology to theaters and studios. In the post-pandemic world, theaters are going to embrace IMAX because moviegoers are willing to pay more for the experience, and studios are likely to push for more IMAX-exclusive launches. IMAX is well placed to emerge from the pandemic and gain market share.

I’m not optimistic about the industry as a whole, but IMAX is the only movie title I would consider at this time.