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Hollywood studios unlikely to buy movie chains, even if they can
[LOS ANGELES] When a federal judge terminated the Paramount Decrees on Friday, movie-theatre investors began salivating.
The rule, dating back to 1948, had prevented studios from owning theatres. With that restriction gone, perhaps a buyer would swoop in and acquire one of the ailing cinema chains. Shares of AMC Entertainment, the market leader, jumped as much as 27 per cent. Cinemark Holdings gained 11 per cent.
But it's unlikely that a studio will become a theatre-chain acquirer anytime soon. With most US theatres still shuttered because of coronavirus - and companies like AMC ceding the exclusive rights they had to show new releases - there's less incentive than ever to own a multiplex.
"Studios don't want to buy theatres," said Eric Handler, a media and entertainment analyst at MKM Partners. "They would rather put that money into their direct-to-consumer platforms."
The Paramount Decrees were meant for a bygone era when powerful studios wanted to own the theatres and the talent. "That's just not how the business is run anymore," Mr Handler said.
In the more recent past, a studio might have acquired a cinema chain so it could have more control over where its movies are shown. The idea was to shrink the theatrical window - the months-long period when new movies can only be seen on the big screen. But that would probably just hurt theatres, Mr Handler said, making the asset less valuable to acquire.
And in recent weeks, that window has already started to shrink. A landmark agreement between AMC and Comcast's Universal last month will keep movies in theatres for just 17 days - in return for the chain getting a cut of home-video revenue. AMC said this week that it was having similar discussions with other studios.
Cineworld Group, the world's second-largest chain, slammed that agreement, calling it "the wrong move at the wrong time".
One benefit to buying a theatre chain now is that their stock prices have fallen. With screens dark for much of the year, AMC's shares have tumbled 34 per cent in 2020, putting its market value at US$519 million. The company carries billions in debt, however, which would make an acquisition more costly.
And the cinema industry is fragmented, so even buying AMC wouldn't give a studio much power. Big theatre chains such as AMC, Cineworld and Cinemark account for only about half the market, with the rest being being smaller, independent theatres operators, said Bloomberg Intelligence analyst Amine Bensaid.
"So even if you buy one major chain, you're only capturing a small part of the industry," he said.
The decrees stemmed from antitrust litigation in the 1930s, when entertainment options were limited and Hollywood studios dominated the movie industry. The National Association of Theatre Owners, the trade group representing cinemas, agreed that the restriction was no longer needed.
"The Paramount Decrees were a remedy fashioned for extreme, anticompetitive behavior in the movie industry," the association said in a statement Friday. "Anticompetitive behavior remains anticompetitive under existing antitrust law. This decision simply shifts the mechanism for enforcement into regular, existing channels."
The decision could give theatre owners more confidence to rethink their distribution models with the studios.
But relations are unlikely to get tighter than that. For now, studios buying theatres will remain a one-off thing, Mr Handler said. Walt Disney Co, for instance, owns the El Capitan Theatre in Hollywood, but Mr Handler said "that's a prestige thing". And Netflix owns a couple of movie theatres, but that's meant to ensure that its films get played on a few screens to qualify for Oscar consideration, he said.
And studios would probably rather save their money for content. With streaming services to feed, a company like Disney has other priorities, said Mr Bensaid.
"The singular focus on digital makes the purchase of physical assets improbable, as that capital would be better spent on streaming services," he said.