A New York judge granted the U.S. Department of Justice the authority to repeal the Paramount Decrees. The Paramount Decrees prohibits a movie studio from owning movie theaters.
This means that studios can, once again, own movie theaters. It opens up interesting possibilities for companies like MGM, Universal (NASDAQ: CMCSA), Sony (NYSE: SNE), Amazon (Nasdaq: AMZN), Walt Disney (NYSE: DIS), or Netflix (Nasdaq: NFLX) who could acquire movie studios to show their content. AMC's (NYSE: AMC) stock spiked 30%, following the announcement, as it could be an acquisition target.
Theaters Are Dying
AMC's market cap is $488 million, so it wouldn't be a major expense for Disney, Netflix, or Amazon. In its last quarter, AMC lost $500 million. Cinemark Holdings (NYSE: CNK) is the only other major movie theatre stock. Both are down over 80% in the last couple of years.
Before the coronavirus, movie theaters weren't exactly a thriving business. The industry has gone through major consolidation over the past few years. People's home viewing experience has continued to improve, and streaming services means the content is abundant.
They've also been one of the biggest victims of the pandemic, as theaters were shutdown. People have been slow to return due to the risks of spending time indoors. Theaters have higher costs and lower revenue with increased cleaning and keeping open seats between people.
Repeal
The Paramount Decrees was established as studios that owned theaters would refuse to show movies by competing studios. Judge Analisa Torres explained that theaters or studios refusing to show a movie or a studio refusing to let a theater play a movie was unlikely in today's environment.
Additionally, standard antitrust laws would have to apply to any merger. In her ruling, Torres said, "The Court finds that changes to antitrust administration, in particular, the HSR Act, provide federal antitrust agencies with notice and opportunity to evaluate the competitive significance of any major transaction between a movie distributor and a theater circuit, which suggests the low likelihood of potential future violation."
Notably, the Paramount Decrees didn't apply to companies that were formed afterward.
Negative Trends
The one drawing card for theaters in recent years has been that they were the place to watch movies first. However, even this may be changing, as Disney is releasing Mulan on Disney+.
Additionally, many studios are selling their movies directly to streaming services rather than take the risk of a theatrical release which is even more salient during the COVID crisis. Universal made a deal with AMC that will let the studio sell its movies-on-demand, 17 days after theatrical release. All of these factors mean decreased revenue and a smaller footprint. Theaters may be caught in a negative vortex, where studios don't want to put their movies in theaters because they fear that enough people won't go there. And theaters can't attract people if movies are available through streaming or on-demand, where it's cheaper and without any health risks.