Even as other industries brace for a recession, the theatrical film business is undergoing a reversal, delivering strong numbers after two years of crisis.
Turnstiles are again spinning at theaters after going still amid the pandemic. While the industry is still absorbing changes that will likely define the business for years to come, studios are steadily increasing their theatrical release titles, providing analysts with some clarity on how a box office recovery will pan out.
"If expectations were for things to start normalizing again this summer, which was an optimistic outlook, then we're meeting that expectation, even exceeding it," Box Office Pro chief analyst Shawn Robbins said.
It's Hollywood (again), baby
Box office gross crested the $3 billion mark in early June, over 3x the same period in 2021, according to data from Kagan, a media research group within S&P Global Market Intelligence. The most recent case for recovery is the newest installation in the Jurassic World franchise. "Jurassic World Dominion" opened over the weekend of June 10 to $145.1 million, making it one of the top-grossing films of 2022.
The performance of "Jurassic World Dominion" followed just two weeks behind the $126.7 million opening of "Top Gun: Maverick." The No. 1 film of 2022, "Dr. Strange and the Multiverse of Madness," opened in early May to $187.4 million, a number that was undeniably a blockbuster for any year, pandemic or not. The $134.0 million early March opening of "The Batman" foreshadowed the triumphant return of nine-figure debuts.
The flurry of activity had box office analysts updating projections and investors reconsidering cinema stocks. Neither theater operator Cinemark Holdings Inc. or theater technology company IMAX Corp. has been immune to the selloff that has defined 2022 markets, but both have outperformed broader indexes. Cinemark shares were down 10.6% for the year through June 16, and IMAX traded 15.5% below where it closed in 2021. For the same period, S&P 500 lost 23.1% and the Nasdaq was off by 29.1%.
AMC Entertainment Holdings Inc., the nation's largest theater operator, has been volatile during 2022's market correction. Through June 16 it shed 56.7% of its market capital. But the company has long been trading independently of its fundamentals after the "meme stock" craze catapulted the ticker in 2021.
Premium-format valuation
For IMAX and Cinemark, some equity analysts believe the current valuations are a good entry point, battered as they were by the pandemic when theaters were forced to close or operate on a very limited supply of films. Both carry average analyst ratings in the "outperform" territory, according to data compiled by S&P Global Market Intelligence, with IMAX carrying a particularly strong outlook.
"The stocks have sold off more than they should under the circumstances," Wedbush Securities analyst Alicia Reese said of Cinemark and IMAX. "The trends have not been reasonably reflected in the share prices overall, particularly IMAX."
The films at the leading edge of recovery are all large, experience films that outperform in premium-format auditoriums like IMAX's. Reese and other industry observers believe this trend will continue to define moviegoing.
"'Jurassic World Dominion' ... provides, in our opinion, another powerful demonstration of the importance of the IMAX premium format with the global box office recovery," B. Riley Securities analyst Eric Wold said in a June 13 note on the company.
During their most recent earnings calls, both Cinemark and AMC executives said ticket sales for IMAX and other premium-format screens were growing faster than average ticket sales, and both companies would grow their investments in premium format auditoriums.
"That is the future of this business right now: premium format," Robbins at Box Office Pro said.
Women and children last
However, while theaters may be able to charge higher ticket prices on IMAX screens, the trend toward the kind of science fiction and action titles that fill those screens underscores lingering uncertainty elsewhere in the business.
Superhero films largely appeal to pandemic-resistant millennial and Gen Z demographics that skew male. The recovery of other demographics — family audiences and older audiences — remains uncertain.
"The family content needs to rebound meaningfully still," Reese said.
"Lightyear," a new installment in the Toy Story franchise, has a shot at a nine-figure opening during its June 17 opening weekend, according to forecasts from Box Office Pro, but studios are only hesitantly putting such family titles exclusively in theaters. "Lightyear" will be a bellwether for a more detailed picture of the theater recovery.
The $72.1 million opening of "Sonic the Hedgehog 2" in April was "a big development for the industry," Robbins at Box Office Pro said, and the performance of "Top Gun: Maverick" was also "encouraging" as it largely drew Gen X and older crowds, Reese said. But analysts and investors will be watching older and younger demographic groups to gauge their readiness to return to theaters.
Clean slate
An inconsistent and muted film slate is also challenging the strength of the recovery.
"I think the big difference is the spacing between blockbuster debuts. Typically we'd have a big movie every week in the summer. That's not the case," Kagan analyst Wade Holden said.
The recovery of nine-figure openings began in December 2021 with the opening of "Spider-Man: No Way Home," and moviegoers had to wait three months for "The Batman" to again hit that level of hype. After the March opening of "The Batman," it was another two months before the next blockbuster opened the summer season with "Dr. Strange and the Multiverse of Madness."
"Top Gun: Maverick" and "Jurassic World Dominion" have managed to prop up the summer between May and June, but if "Lightyear" performs in the lower range of forecasts, there will be about a month before the next nine-figure opener is expected with "Thor: Love and Thunder," according to estimates from Box Office Pro.
"This whole year is sort of a barometer of recovery and how comfortable people are going to the movies," Holden at Kagan said. "It seems like on a weekly basis people are getting more comfortable."