Summer blockbuster season is starting early this year. The release of "Doctor Strange in the Multiverse of Madness" ushers in a line-up of big movie franchises that should have no trouble filling theater seats through the dog days of summer. Even better, the buzz that builds at the box office should help stoke viewer interest for streaming services when these titles land there, new research suggests. In the weeks ahead, Tom Cruise will head back into the "danger zone" with a long-awaited sequel to "Top Gun." Then, Universal will reunite the original "Jurassic Park" trio of Jeff Goldblum, Sam Neill and Laura Dern in "Jurassic World: Dominion," while "Lightyear" will bring Pixar back to movie theaters with an origin story for a much-beloved "Toy Story" character. And that's just the start. "Our investment view continues to be that theatrical releases are key to franchise building, and that franchises are more important than ever to both driving studio cash flows and minimizing churn at streaming services," said Benjamin Swinburne, an analyst at Morgan Stanley, in a research note this week. But it might be too soon for cinema operators to do a victory lap, he warned. Part of the problem is that while young — and mostly male audiences — have returned to theaters in droves, moviegoing is still lacking a balance from other types of films and audiences. And loyal, frequent moviegoers have yet to return to their pre-pandemic rates of attendance. For that reason, some studios are still selling smaller films to streaming services, a decision that is seen as the best way to monetize those projects. One example is the sale of "Shotgun Wedding" to Amazon for Prime Video. But those deals are going to continue to hurt box office receipts. In a research note published in late April, MKM Partners analyst Eric Handler said he tracked 30% fewer movies, on average, between April and December, compared with the same time periods in 2017-2019. "So far in 2Q22, we have finally started to see the return of families and female audience with the relative success of Paramount's 'Sonic the Hedgehog 2' and 'The Lost City,' Swinburne said. While pandemic delays meant some films shifted into 2023, the pipeline of summer flicks has improved from last year in its scope. This means studios will be able to better gauge whether women and families are willing to continue to trek out to the theater more regularly. One test of this will come in mid-July when "Where the Crawdads Sing," an adaptation of a popular Delia Owens novel, and "Paws of Fury: The Legend of Hank," an animated samurai movie, hit theaters. These aren't established franchises, and studios will want to see if these types of movies can find an audience. Morgan Stanley expects that over the long term, about 80% of 2019 audiences will come back to the theater. Behind this outlook is an expectation that tentpole films will be fully recovered by next year but the few small-to-mid budget films out there will still struggle, Swinburne said. "We acknowledge an 80% recovery could prove conservative if box office headwinds today were more about lingering pandemic concerns rather than structural changes to the demand and supply dynamics of the moviegoing business," he wrote. Box office can boost at-home viewing According to Swinburne, movie distribution models are still in flux. Based on conversations at the recent movie theater industry conference, CinemaCon, he expects few studios to release films in theaters and on streaming services at the same time. Swinburne said those at the conference were arguing that a successful box office run can boost overall demand for a film on a streaming service rather than a day-and-date release. The example that was cited was Warner Bros. ' "The Batman." The film tallied about $760 million in ticket sales during its exclusive run at theaters, he said, but it generated more interest on HBO in its first week than recent day-and-date releases, including "The Suicide Squad," "Wonder Woman 1984," "The Matrix Resurrections" and "Dune." The analyst said he thinks the right mix in today's landscape is having key movie franchises, a deep library of films, talent relationships, global distribution and a streaming platform. This means the best positioned companies are Disney , which he rates an overweight; Comcast's NBC Universal (overweight), Paramount (equal weight), and WarnerBros. Discovery (equal weight). On Friday, Disney shares hit a 52-week low of $108.30. The stock has lost more than 28% in 2022. Comcast's stock is down about 20% this year. It too hit a 52-week low on Friday when fell to $39.47 intraday. "However, we would not be surprised to see EW NFLX, along with Amazon and Apple move into this theatrical/streaming model at scale over time," he said. Swinburne said the risk-reward is improving for Netflix and Warner Bros. Discovery after both stocks sold off over the past month. As of Friday's close, Netflix shares are down nearly 70% year to date, while Warner Bros. shares have tumbled nearly 25%. Both stocks also hit 52-week lows on Friday. Movie theaters must focus on experience He is maintaining an equal weight rating on Cinemark but said the chain is in a good spot because of the investments it made prior to the pandemic to add recliner seats and laser projectors. Cinemark shares closed Friday at $15.18, about 45% below Swinburne's $22 price target. On Friday, Cinemark reported first-quarter revenue growth that topped estimates, driven by higher admission and concession sales. The average ticket price is now about 10% above 2019 levels, and guests are spending about 27% more than they did before the pandemic, on average. Despite the better-than-expected performance, shares ended the day flat against the backdrop of broader losses in the market . Movie theaters will need to continue to improve the experience of watching a film outside the home, including putting a greater focus on alternative content and high-quality screens, sound and projectors, according to Swinburne. He noted that loyalty programs can help operators gain greater awareness of consumer patterns, and often these subscribers are the chain's most valuable customers. He noted that the most active moviegoers also tend to be among the biggest consumers of streaming content. Several industry analysts said they expect marketing spending will need to rise to bring patrons back to the theater. But, if the economy slows as the year progresses, movie theaters could find themselves in a good place. "Moviegoing has proven historically counter-cyclical as consumers opt for less expensive leisure activities during challenging economic times," Swinburne said. Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC.
Doctor Strange in the Multiverse of Madness
Courtesy: Marvel Studios
Summer blockbuster season is starting early this year.