The Update Issue: The Box Office Rebounds... But Not for Everyone

By Berna Barshay

Wednesday, July 7, 2021

F9: The Fast Saga’s box office haul marks the post-pandemic return of the blockbuster…

The ninth installment of the Fast and the Furious franchise from Comcast’s (CMCSA) Universal opened to a strong (for pandemic times, at least) $70 million domestic box office the weekend of June 25, and this weekend, it reached the milestone of $500 million in global ticket sales. It was the first new release to hit that mark since 2019.

An interesting note about this release… The Chinese box office was by far most critical in the film hitting the half-billion-dollar milestone. As of this weekend, F9 has grossed $204 million in China, 165% of its U.S. running total of $123 million. The Chinese opening weekend was also almost twice the size of the U.S. one – racking up $136 million in sales.

The global success of F9 is a promising sign for the movie theater business and an encouraging signal of things getting back to normal, at least here in the U.S. and over in China and other parts of Asia. As Variety explained…

After a delayed summer blockbuster season, the movie theater industry is encouraged by the in-theater assemblage for F9. Though attendance across the globe hasn’t returned to pre-pandemic levels, and many movies have been struggling to sell tickets at all, the turnout for F9 has proven that audiences will show up to their local multiplex – for the right movie.

Also doing well at theaters was the thriller sequel from ViacomCBS’s (VIAC) Paramount, A Quiet Place Part II, which came out on May 28 and is currently the highest-grossing movie of the year in the U.S. at $145 million… at least for a week or two until F9 catches up, or this weekend’s highly anticipated release from Disney’s (DIS) Marvel, Black Widow, comes out.

The success of F9 is a relief after the box office disappointment of the musical In The Heights, the film adaptation of Hamilton scribe Lin-Manuel Miranda’s Tony-winning debut Broadway musical, which many thought would be the first post-pandemic summer blockbuster.

But In The Heights, from AT&T’s (T) Warner Brothers, did just $11.5 million domestically on its June 10 opening weekend – a big letdown versus the $20 million or more that folks in the industry expected. Despite terrific reviews, its total haul after almost a month in theaters is just $26 million.

Much ink has been spilled over why the film performed so poorly at the box office despite the association with the wildly popular Miranda – beloved for Hamilton, his Internet-viral appearances on The Tonight Show With Jimmy Fallon, and the songs he penned for Disney’s 2016 hit Moana.

Among the possible explanations is that the source material was less familiar than Hamilton’s, which was a big hit on streaming for Disney+ last July 4 weekend. Also unfamiliar were the film’s stars. It’s always a difficult decision for the makers of movie musicals whether to go with stage stars with legitimate song and dance chops versus pop stars or movie stars who can get by. (Anyone remember Ryan Gosling’s singing in La La Land or Russell Crowe’s in Les Misérables? If so, that’s unfortunate.)

In the battle of the box office, usually the proven moneymakers win. An alternate version of In The Heights starring Selena Gomez and Bad Bunny, with J. Lo and Ricky Martin playing the parental generation, is a cringeworthy thought to us Broadway fans, but perhaps would have generated more box office gold.

I watched In the Heights with my family on Sunday night. And while we all loved the film, my husband turned to me and said, “Yeah, I can see why it bombed.” We both thought the movie was incredible… but also extremely specific to not only the New York City experience, but life in one particular neighborhood, which might make it hard for people living far from the hustle and bustle of New York to relate. There’s also a fair amount of Spanish in the film – mostly in the choruses – which could be off-putting to folks that aren’t used to hearing foreign languages in movies or in their daily lives.

But there may be one other explanation…

Did WarnerMedia’s decision to stream the film on HBO Max the same day it hit theaters hurt In the Heights?

It’s a good question. We’re in the middle of an unprecedented experiment, and one that will have major implications for not only movie theaters, but also for studios, TV networks, and billboard companies that make a mint promoting new releases.

But it turns out we can’t actually blame In the Heights’ stumble on its HBO Max availability…

According to streaming data aggregator Samba TV, about 693,000 households watched In the Heights on HBO Max for at least five minutes during its opening weekend. If each household had two viewers and all of them had gone to the theater at the average U.S. ticket price of about $9, then In the Heights might have done an incremental $12.5 million on its opening weekend for a total of $24 million, which would have been more respectable, but not a huge hit. And it’s a big leap to say that all those households – many of which may have watched for only five minutes – would have ponied up $18 apiece to see something that they opted for at the marginal cost of $0.

Further evidence that the simultaneous streaming on HBO Max isn’t responsible for In the Heights bombing: Warner’s Godzilla vs. Kong had a respectable $32 million opening back on the weekend of March 24, a time when COVID-19 was much more prevalent and vaccination rates were much lower. Despite the less auspicious release date, it has since racked up $101 million domestically.

The fact that simultaneous streaming isn’t the culprit in the failure of In the Heights should be a relief for Disney, which has its big-budget, would-be-blockbuster Black Widow opening this weekend (after I’ve lost count of how many delays). Black Widow will also be available on Disney+ as a premium video on demand (“PVOD”) title – meaning that subscribers will have to pony up an additional $29.99 to watch the film, but once they pay, they can watch it as many times as they’d like.

Disney already tried this hybrid “theater plus PVOD” release with Cruella, its latest live-action entry in the 101 Dalmatians franchise. That film did $27 million at the box office during its four-day opening weekend and likely another $21 million or so on PVOD, with about 700,000 households estimated to have streamed it. A total of $48 million on opening weekend was a good result for that film… and Disney is clearly hoping the strategy works out for Black Widow, where the stakes are higher – expectations for opening weekend box office are in the $80 million to $90 million range.

The movie exhibition business is clearly healing, but not out of the woods yet…

While F9 and Quiet Place have done great, they’re still being graded on a curve. As movie site Screenrant explains…

F9 opened to a post-pandemic high $70 million, prompting Vin Diesel to pronounce ‘cinema is back,’ and the movie has gone on to become the fastest post-pandemic movie to hit $100 million, which is certainly a good sign for theaters in need of a massive attendance increase; however, while it’s a post-pandemic high, the last four Fast and the Furious movies have done it faster, with Fast and Furious 6, Furious 7, and Fate of the Furious all breaking $100 million their respective 3-day opening weekends.

While most box office analysis might adjust proportionally to account for the pandemic drop, unfortunately, the cost to make the movies and cost to operate a theater doesn’t get special post-pandemic consideration.

On top of that, theater attendance had been in decline for almost 20 years before the pandemic hit, and it’s going to be quite the climb back to a healthy movie theater business. I agree with Screenrant here…

This means for theaters to truly recover, they need to not just get back to pre-pandemic levels, but pre-pre-pandemic levels, and with shrinking ticket sales, shortened theatrical exclusivity windows, and ever tougher content competition, that’s a tall order and may not be possible without a dramatic rethinking of the theatrical experience.

As I’ve pointed out previously, theater chain AMC Entertainment’s (AMC) enterprise value (“EV”) is up 6 times from pre-pandemic levels due to its status as a “meme stock.” It’s hard to get excited about the movie theater stocks, at least for fundamental reasons… I’m not going to venture a guess about what happens next with this short squeeze!

However, it’s good to see the movie business coming back… even if I will be taking a pass on movie theater stocks at the current quotes.

In the mailbag, a reader writes in about a company known for operating in a different corner of the media space…

Have you gone back to the movie theater yet? If so, how was your experience? And if not, why not? Has anyone that used to go to movie theaters decided to abandon them post-pandemic because of a new home theater set up or getting used to watching movies at home? Share your thoughts in an e-mail to [email protected] and take my one-minute summer movie quiz here.

“Dear Berna: Congratulations on the launch of your paid newsletter! Incidentally, I was happy to see I owned one of the stocks you recommended in the initial launch publication. Moreover, I love the price points offered because I can trade those stocks via options for higher economies of scale than, say, just picking a random stock from the non-existent hat, like Apple (AAPL).

“Speaking about tech stocks (and onto your poised questions), the only form of ‘kicking the tire’ I have done was my investment in Facebook (FB). After the IPO (I was still in my teens!!), I found the stock ‘too expensive.’ Of course, lacking any analytics and/or education behind that belief (How could I?), it did fall. I purchased a moderate amount of shares (250) at $19 and have held them Ad Infinitum (and have ‘sold’ and then rebought immediately to raise my cost basis and save charitable amounts on my tax bill). At today’s prices, a good investment by any standard.

“Had I not personally (or via connection) known an ‘insider’ (part of the first ten employees at the startup and a college buddy of Mark), I wouldn’t have bought the shares. Now that this person works in venture capital, anything his firm invests in, I buy once the company hits the open market.

“Finally (a rather pithy submission this time around), I have a question about a particular stock: Playboy (PLBY). I’ve not read or found anything notable by the media (main or off-street), but the stock has been going bonkers since its IPO, and I wondered if it was overvalued? I recall reading on the Reddit boards that ‘apes’ were buying the stock just because, as one member put it, ‘I like and watch porn.’

“I wondered if it has reached ‘meme’ status, and if possible, could you add some insight? Slightly have buyer’s remorse because I could have entered at $17 but lost my nerve after reading about the stock on WallStreetBets.

“Again, congrats on your first paid newsletter. All the best.” – Seth R.

Berna comment: Thanks for the kind words, Seth. And congratulations on your excellent investment in Facebook shares, and at such a tender age. Well done!

It’s funny you should mention Playboy, because I had a one-on-one meeting with the company’s CEO, Ben Kohn, back in mid-January this year at a virtual conference. Back then, the company was Mountain Crest Acquisition (then trading under the ticker MCAC), a special purpose acquisition company (“SPAC”) that had cut a deal to acquire Playboy, but the deal hadn’t closed yet.

I actually got off the Zoom and immediately bought MCAC shares, which were trading under $12 at the time. It’s been the biggest winner for me this year, and I sold the majority of my position when the stock got ahead of itself in April. Its spike to nearly $60 per share also coincided with the peak in non-fungible tokens (“NFTs”), since people were excited about Playboy mining its intellectual property (“IP”) of iconic images to make and sell NFTs.

NFTs weren’t a part of my original thesis. I was attracted to the stock because of its lucrative and low-capital-intensity licensing business, selling its bunny and other logos to slap on apparel and other consumer items. The brand is hot in China and catching fire at home as well, and licensing is a great business. Playboy is also rolling up the highly fragmented sexual wellness space (sex toys and erotica) and putting its brand on these products and other “racy” products like cannabis-related items. I think this is a good play as well.

It’s funny that the WallStreetBets crowd got excited over the stock due to Playboy’s history making porn, because the company is out of the media business now. The physical magazine is shut down. Playboy is a consumer products company now… and this is actually a better business model.

I had planned to sell my personal shares so that I could include Playboy as one of the first recommendations in my new Empire Market Insider newsletter, but the stock ran away from me before we could launch. The timing just didn’t work out for the newsletter, which was unfortunate.

By the time I was picking the names to launch with in May, PLBY shares were in the mid-$40s and not an attractive buy. I didn’t want to stretch to buy them. They’re trading around $35 now. I don’t think they are incredibly overvalued here, but I wouldn’t buy them either. They’re trading around where my original target was, before I had ever heard of NFTs.


Berna Barshay
July 7, 2021

Whitney Tilson
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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to more than $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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