{"id":4933,"date":"2023-10-24T07:02:04","date_gmt":"2023-10-24T07:02:04","guid":{"rendered":"https:\/\/infundpros.com\/news\/cineplex-cpxgf-the-only-high-value-no-brainer-in-media\/"},"modified":"2023-10-24T07:02:06","modified_gmt":"2023-10-24T07:02:06","slug":"cineplex-cpxgf-the-only-high-value-no-brainer-in-media","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=4933","title":{"rendered":"Cineplex (CPXGF): The Only High Value No-Brainer In Media"},"content":{"rendered":"
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With streaming having disrupted traditional media distribution channels, most of the market’s focus is centered around the players involved in the streaming wars and their path to growth in profitability.<\/p>\n

However, I believe not enough attention is being paid to the secular tailwinds that will propel theatrical media releases through the next decade.<\/span><\/p>\n

Specifically, I believe Cineplex (TSX:CGX:CA<\/span>) (OTCPK:CPXGF) is the optimal public operator for investors seeking to take advantage of this opportunity.<\/p>\n

As this is the company closer to deep-value territory I’ll spend some time also discussing potential sources of momentum that can drive Cineplex’s stock performance in the near term.<\/p>\n

Studios Need Theatrical Releases<\/h2>\n

Decades ago, film and TV production studios could depend on a steady income from multiple content distribution channels including television, theatrical releases, and physical or digital one-time sales.<\/p>\n

Today, it is well known that streaming video-on-demand (SVOD) has changed production studios’ earnings potential. Profits generated through traditional distribution methods have dwindled while <\/span>all SVOD services but Netflix (<\/span>NFLX) have yet to reach breakeven.<\/span><\/p>\n

Impossible Economics of Streaming<\/h3>\n

Studios had an implicit limit on the number of active productions before SVOD services were created. For example, a finite amount of television content would enter production to fill a finite television airing schedule.<\/p>\n

However, since streaming services allow for unlimited and non-linear content consumption, we’ve seen it lead to a boom in active productions to fill libraries of unlimited size:<\/p>\n

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MPA 2021 THEME Report<\/span><\/p>\n<\/figcaption><\/figure>\n

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MPA 2021 THEME Report<\/span><\/p>\n<\/figcaption><\/figure>\n

The return on investment of a TV release could be somewhat clearly calculated since all had advertisements, a limited run time, and since new content replaced old ones within the limited airing schedule.<\/p>\n

However, new SVOD series releases join a huge catalog of content where their individual retention factor or incremental value generated is harder to discern.<\/p>\n

Unfortunately for studios, not releasing new series to SVOD services would be a competitive disadvantage, so they find themselves involved in chasing deteriorating returns.<\/p>\n

COVID: Ultimate Theatrical Release Stress Test<\/h3>\n

While COVID could have catalyzed the fall of theatrical distributors in favor of some non-linear SVOD alternative, the failure of studios’ premium video-on-demand (“PVOD”) experiments confirmed that:<\/p>\n

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  1. Consumer interest in theatrical remains strong<\/li>\n
  2. Studios need theatrical releases to make films profitable<\/li>\n<\/ol>\n

    A notable PVOD experiment was Disney’s (DIS) 2020 release of Mulan in two stages for streaming: first to customers willing to pay a one-time $30 access fee, then broadly released for no fee to all its Disney+ subscribers.<\/p>\n

    The returns generated by this strategy were not disclosed but hotly debated. Yet, then-CEO Bob Chapek is said to have been encouraged enough by the film’s performance to continue with more PVOD releases.<\/p>\n

    Fast forward to a year later, Disney announced their decision to exclusively release their films through exclusive theatrical windows going forward (windowed releases are done at different times for different media like theatrical or streaming).<\/p>\n

    Disney did not chase consumers to put them in theaters trying to recover what could be lost as has been the case with Pay TV.<\/p>\n

    Instead, the strong post-COVID box office driven by unwavering consumers made the difference between the returns it had been seeing on PVOD clear, and the decision to miss out on box office revenues inexcusable.<\/p>\n

    Studios are competing on content volume and the ratio of minutes of content to total budget for movies is incredibly lower than for series. Given this, a direct-to-stream movie flop is harder to excuse when a means of “easy” monetization through theaters remains available to them, unlike for television series.<\/p>\n

    Smooth Sailing Going Forward<\/h3>\n

    2020 and 2021 gave studios a glimpse of what a world without theaters would do to their profitability as PVOD was proven comparatively inadequate.<\/p>\n

    With post-COVID consumer interest in theatrical remains strong, no studio executive is incentivized to reduce focus on windowed film releases as their shareholders focus on proof of stable and growing profitability.<\/p>\n

    Warner Bros. CEO David Zaslav has made this observation explicit by remaining committed to maintaining the theatrical window since post-COVID Box Office data proves demand for theatrical exhibitions remains.<\/p>\n

    Why Theatrical Is Not TV All Over Again<\/h3>\n

    Streaming had an easy upper hand on television: on-demand is broadly superior to linear content distribution:<\/p>\n