Apple sent shockwaves across the streaming world on Tuesday after it unveiled the pricing and release date on its Apple TV+ streaming platform alongside the reveal of the trailer for See, an original series starring Jason Momoa.
At just US$4.99, the cheapest offering among a now very crowded video-streaming scene, many analysts experienced “positive sticker shock” (if that’s a thing), and the inclusion of a free year of Apple TV+ with the purchase of select Apple products sounded like the last nail in the coffin for Apple’s streaming peers.
Cineplex (TSX: CGX), the former market darling that got caught in the middle of the video-streaming wars, shed 1% on the day and is once again sporting a dividend yield that’s above the 7% mark.
In many prior pieces, I’ve warned investors that Cineplex would be a casualty of the content arms race. And now that Disney+ (Walt Disney’s streaming platform) and Apple TV+ release dates and pricing out of the way, I suspect prospective investors enticed by Cineplex’s valuation are holding off until they can witness a full quarter where the movie theatres co-exist with the new wave of video streamers.
Given a full month of Apple TV+ is about half the price of a movie ticket (not considering expenses that’ll be spent at the fattening concession stand), I find it hard to believe that Cineplex will be able to get bums in seats, unless it drastically slashes ticket prices (and not just on Tuesdays).
While I don’t think the movie theatre is going the way of the dodo bird, I do see Cineplex as one of the worst value propositions for Canadian content consumers who are not only heavily indebted, but will be less likely to increase their budget for discretionary spending in a sluggish economy, unless there’s a rare must-see film like the latest Star Wars movie.
Moreover, given theatrically released Disney productions like Star Wars: The Rise of Skywalker will be Disney+ bound from to get-go, I find it more likely that content consumers will be willing to wait it out, rather than paying up to go to a theatre. In essence, the box office may have lost a bit the Disney magic in an era of Disney+, and that doesn’t bode well for Cineplex’s theatre business.
Fortunately, management is firing on all cylinders with its diversification away from the box office and towards its media and amusement segment. This segment is the key to Cineplex’s long-term success, and I find it encouraging that it’s picking up traction. Although such progress is not yet significant enough to offset any imminent pressures that’ll be faced by the box office segment, I am a fan of the nearly decade-low valuation and the dividend, which recently got a boost to $1.80 per year.
Moreover, most analysts have now lowered the bar such that flat year-over-year attendance growth would be enough to send the stock soaring. While I do see continued attendance decline amid the recent heating up of the video-streaming wars, I think investors with a decade-long time horizon could stand to do well with the massive dividend that isn’t going anywhere.
As Cineplex continues its diversification efforts while potentially finding creative ways to get bums back in seats, the dividend is more likely to increase again that be reduced.
Stay hungry. Stay Foolish.
