Wall Street: "Make Movie Theatres Great Again"

Good days. Welcome to The Produced’ s very first B-Roll.

This issue discusses about an important matter that is currently happening in the industry, so get settled.

Apparently Every Newsletter Needs an Introduction

The COVID-19 pandemic has altered the film industry and movie-going culture forever.

Almost all the audience are homebodies now, and much prefer spending 48 minutes searching for a show to watch while slurping on ramen in their bed with a bag of Cheetos on the nightstand (although it is valid more than ever). And by the end they still struggle to pick something to watch.

Streaming services are convenient, and perhaps profitable as reasonably priced subscription fees can garner more subscribers, hence healthy cash flows.

Or so you thought.

Wall Street: “Erhm, actually, streaming is not good business.”

Since COVID-19, traditional media companies have gathered their low-budget films out of theaters and onto their streaming platforms to drive subscriber growth. And if one series or first film does well, you know the prequel is well on its way.

And Wall Street did reward these companies for adding more and more users each quarter because more subscribers means more profits, right?

Well, not quite. The sentiment has shifted:

Investors are increasingly raising concerns about the long-term viability and profitability of streaming platforms. Some challenges include:

• Escalating content production costs

• Saturated competition with competing streaming costs

• The need for sustained subscriber growth to justify valuations

And as Sarah Whitten puts it: “[Investors] want more immediate earning growth, not the promise of profit in a few years.”

This means that studios need to re-allocate their budget from creating content streaming platforms to making feature-length films. In short, they need to bring the moviegoers back to where they belong - the movie theater.

Sounds like the big screen got some heavy work to do.

If you think hard about it, even if reading financial reports drains the soul out of you, this concern makes sense.

The subscription-based audience now has increasing demands for new content to be pumped out quickly and in a bundle, so their 48-minute scrolling up and down the Netflix page does not go to waste.

Not only that, high quality, cohesive narrative, and scaled production is simply expected. And to achieve such outcomes need experienced and extremely skilled professionals.

Considering all these factors together, a $12/month subscription is not viable. In other words, it’s just not giving.

A Case of AMC Entertainment Holdings Inc.

According to Roth MKM analyst Eric Handler, AMC Entertainment Holdings Inc is expected to benefit from stronger-than-anticipated box office results, particularly driven by the success of summer blockbusters like "Oppenheimer.”

The firm raised its third-quarter revenue estimate by 35% year-over-year to $1.304 billion and adjusted EBITBA estimate to $161 million. The improved domestic box-office market share is attributed to successful Imax Corp. results.

Following a 1-for-10 reverse stock split, Roth MKM also increased the AMC price target to $5. Despite positive developments, AMC's shares declined 7.1%, and Roth MKM maintained a sell rating due to ongoing cash burn concerns and potential future share issuances to maintain liquidity.

The Big Screen Got Right into Work

Indeed, the big screen is not disappointing Wall Street at all, so hope is in the air.

Here are some recent box-office bombshells:

1. Mean Girls - the musical film adaptation of the 2004 original movie and Broadway show received $83 million globally since January 2024. Its budget cost was $36 million.

2. Anyone But You - a romance comedy premiered in December 2023 with the ear-catching theme song “Unwritten” tallied $126.4 million globally. Its budget cost was $25 million.

3. The Beekeeper - the thriller and action film released in January generated $100 million globally. Its budget cost was $40 million.

Some soon-to-be released films with anticipated high box-office revenue include “Dune: Part Two,” “Despicable Me” and “Kung Fu Panda 4.”

Implications: Hollywood Star System

Looking at the star-studded cast for “Dune: Part 2” with the biggest names in the industry right now, including Florence Pugh, Anya-Taylor Joy, Zendaya, Timothée Chalamet and Austin Butler, The Produced can’t help but wonder if the Hollywood Star System is creeping back into the scene industry.

The Golden Age of Hollywood flourished from mid 1930s and the early 1960s: up to 95% of the U.S population went to the theatres every weekend.

During this era, major studios kept the audience coming back to their movies not because of their well-crafted narrative or compelling plot, but because of their stars (actors and actresses) that breathe life into these stories.

I guess my star would be Michelle Yeoh - I would watch every single film that she’s ever featured in, even if it’s not the best production.

Star actors and actresses’ status quo moved beyond their performance: they had a parasocial relationship with the public. Their appearance, persona, involvement in films were vigilantly monitored. Studios maintained profits by staring them in their motion pictures. Think Marilyn Monroe, Cary Grant, Gene Kelly, or Katharine Hepburn.

Now, it might be impossible to manage star actors/actresses like in the 40s as this century has advocated for celebrities’ authenticity, independence, and autonomy.

But the strategy might remain the same.

If studios need sky-rocketing box-office profits, starring big names is perhaps the smartest first step to take. And investors might encourage it too.

However, it means marginalization is more than likely going to happen. Up-and-coming actors/actresses might never get to play their ballgame. Therefore, the disparity between established movie celebrities and new talents will continue widening.

It also goes without saying: certain forms of discrimination will resurface (although in new generations we trust to keep these studios accountable?)

And will art at the purest essence, maintain its integrity?

So What Now?

You know, it’s interesting. Feels pretty insane to say The Produced and its beloved subscribers is witnessing a cinematic revival: the crossroads of an industry reshaping its identity. Whether you are looking at this matter from an investor or a filmmaker’s perspective, you can’t help but to partake in the conversation.

For investors, this could signify a shift in investment landscape. The return of Hollywood Star System and the move away from streaming services offer a reliable formula for box-office success.

But does it come at the cost of sidelining fresh talent? It is some mental wars investors might have to wage.

For filmmakers, this urges a strike for a delicate balance. They must understand the market’s appetite for star power and big production names while preserving the essence of storytelling that makes art, art.

For movie-watchers on streaming platforms, this means you better watch all the films on Netflix right now. Don’t chew on your watchlist anymore (a note to myself, too).

This deep-dive newsletter issue is not trying to solve the answer because I think we can never truly find a solution. The best course of action is perhaps to buckle up, observe and discuss at lengths everything these things.

After all, the show must go on.

Document of references.

That is it for today. What are your thoughts?

Looking forward to crashing your inbox on Wednesday with our weekly recap newsletter: Roll the Tape.

Stay safe.