Colorado Shooting Impacts Movie Business

Twelve people are dead and 58 wounded and traumatized. There’s no earthly value assignable to human life, and this article is in no way meant to overlook it. Our love and prayers are with the families of those lost and the survivors forever changed.

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Colorado Shooting and the Movie Business

Like the rest of the nation, theater operators have been profoundly impacted by the tragic events of last Friday morning, July 20, 2012. From the moment James Eagan Holmes entered that theater with his weapons and evil intent, the economics of the movie business changed. I know it seems insensitive to consider economic issues now, but the shareholders of these publicly held companies need to know what has changed and what has not with regard to their own personal financial security.

A similar event occurred overseas a decade ago, but it did not affect the way American theater operators do business. It was in Moscow, Russia, where terrorists entered a theater with conventional weapons and held 850 hostages while making political demands. In that case, it was actually the heavy handed actions of Russian authorities which were directly attributed to the deaths of many movie goers and militants alike. A chemical substance was pumped into the theater to subdue the assailants, but it killed many of them along with hostages. The casualties of that siege were 39 militants and 129 hostages. Strangely, the incident had absolutely no effect on the operations of the American movie house. What happened in Aurora, Colorado, however, could change things forever. At least it should, because in the days of CNN and the Internet, we can be assured that this event has planted a seed within the minds of the enemies of our State, including al-Qaeda.

The immediate economic aftermath of the horrific event produced an outsized decline for the stocks of movie house operators. The shares of the S&P 500 Index fell 1.0% Friday, but the shares of movie houses fell more. Cinemark Holdings (NYSE: CNK), which owns the theater where the atrocity occurred, fell 4.6% in Friday trading. The shares of its peers suffered as well, with Regal Entertainment Group (NYSE: RGC) down 4.4%, IMAX (NYSE: IMAX) off 1.6% and Carmike Cinemas (Nasdaq: CKEC) down 2.3%.

The most obvious and initial impact of the shooting would be a decline in “out of home” movie viewing across the nation. However, that is not likely to be a lasting result, affecting the current quarter perhaps and then fading sharply over each following period. Of course, there will be some people who will not attend a film for a long time or even forever because of the shooting, but that will be a miniscule portion of the population.

For the next few weeks, though, other forms of entertainment might benefit at the cost of the movie houses. Entertainment providers that could benefit would include the likes of Disney (NYSE: DIS), Six Flags Entertainment (NYSE: SIX), Cedar Fair (NYSE: FUN), Boyd Gaming (NYSE: BYD), Penn National Gaming (Nasdaq: PENN), MGM Resorts (NYSE: MGM) and International Speedway (Nasdaq: ISCA). Still, I don’t think it will be a meaningful difference, and general economic softening could very well undermine the entire sector.

In New York City, halfway across the country, the police chief placed officers at every theater showing The Dark Knight Rises. The action was meant to protect against “copy cat crime,” but really just served to reassure citizens of their safety. What it also did was preserve the profits of Time Warner (NYSE: TWX), which owns Warner Bros., the producer of the Batman film that still grossed $161 million over the weekend. Still, movie production companies like Time Warner are at risk this quarter, as are Lion’s Gate Entertainment (NYSE: LGF), DreamWorks (Nasdaq: DWA) and NBCUniversal, which is owned by Comcast (Nasdaq: CMSCA) and GE (NYSE: GE).

The more lasting issue for these companies might come in added costs to keep customers comfortable moving forward. Some of it could be forced by reactionary legislation. I expect we will find more movie attendants within theater showing rooms, adding to the cost of labor for theater houses. Also, we might find airport style metal detectors at the door to help customer comfort levels. Still, I’m not sure if the Aurora event will be the catalyst for the broad adoption of these cost increasing measures, except by legislation. A movie house could differentiate itself as the safe place to watch a film with family by doing so. If a strategy like that worked to take market share, new industry standards would be adopted. This lasting cost impact could destroy market value for the stocks mentioned, because if it becomes necessary, it will more likely destroy economic value than add to it. What we should do is examine what societal flaws might be disturbing the peace within our nation to get to the root of the matter.

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