AMC and IMAX Stocks Drop. Roku Rises. How the Netflix-Warner Bros. Deal Could Shake Up Entertainment.

AMC and IMAX stocks moved after Netflix’s agreement to buy Warner Bros. (Justin Sullivan/Getty Images)

Key Points

• Movie theater stocks, including Cinemark and AMC, fell by 5.2% and 2.4% respectively, following news of Netflix’s $83 billion deal.
• The Netflix acquisition of Warner Bros. Discovery’s studio and streaming business could shift film distribution further towards streaming.
• IMAX may benefit from Netflix shortening theatrical release windows, as it often screens major titles for one to three weeks.

Movie theater stocks, including AMC Entertainment Holdings and Cinemark Holdings, took a hit Friday from Netflix’s $83 billion deal to buy Warner Bros. Discovery’s studio and streaming business.

Cinemark dropped 8.3%, IMAX was down 4.1%, and Marcus fell 5%. AMC fell 3%.

The deal would give Netflix the rights to franchises like the DC comics, “Harry Potter,” and “Game of Thrones.” It also raised fears that Warner Bros. content could be pushed onto Netflix’s streaming platform, cutting the number of wide releases and, in turn, hurting theaters.

Cinemark declined to comment. AMC and Marcus didn’t immediately respond to Barron’s request for comment.

But analysts don’t think that worst-case scenario would play out.

Movie theaters may only suffer the impact of fewer or shorter releases later on since Warner Bros.’ theatrical release slate has been negotiated through 2029, analysts at Wedbush Securities said in a note Friday.

Netflix would have to honor those contracts with the theater chains—and it has said it would.

Theater chains have already worked closely with Netflix.

In October, the streaming service confirmed the screening of the “Stranger Things” series finale at more than 500 theaters nationwide. Cinemark and AMC have locations hosting the Dec. 31 event. AMC had a similar partnership with Netflix for showings of the movie “KPop Demon Hunters” on Halloween weekend.

“I am highly confident that there is more to come with our two companies working cooperatively together,” AMC CEO Adam Aron told investors on the company’s November earnings call. “Stay tuned.”

The acquisition could even be a positive for movie theaters, said Mike Hickey, an analyst with Benchmark Equity Research**.**

“The deal is more likely to increase content supply than reduce it, supported by Netflix’s expanded production capacity, WBD’s development engine, and long-term AI-driven efficiencies that should broaden the volume and diversity of films reaching theaters,” Hickey wrote in a research note.

Regulatory pushback also could keep Netflix from shortening release windows, he added.

Shorter windows wouldn’t hurt IMAX. The company, which produces a high-resolution movie format for mammoth screens and uses an intense sound system, usually screens major titles over one to three weeks, the Wedbush analysts said.

On Friday, IMAX responded to Barron’s by pointing to comments that CEO Rich Gelfond made to investors the day before.

On Thursday, Gelfond touted the company’s relationship with Netflix. IMAX, he said, has gone out of its way to work with the streamer. Netflix’s “Narnia” film, for instance, will come out exclusively at IMAX theaters for four weeks next year.

Gelfond also expressed skepticism that antitrust regulators would allow the merger to go through without theatrical releases being part of any deal.

Within the streaming sector itself, investors have also expressed concerns about Roku, whose platform distributes services like Netflix and Warner Bros.’ HBO Max. The main worry is that HBO Max could shut down, reducing the number of platforms hosted on Roku.

Still, Roku stock jumped 6.6%.

“We do not anticipate any winner shutting down HBO Max in the near term, opting instead for a secondary service with bundling options,” wrote the Wedbush team.

A financially healthier studio, the firm added, may also spend more on advertising on Roku’s platform.

Write to Nate Wolf at nate.wolf@barrons.com