IMAX - Earnings Call - Q3 2020
October 29, 2020
Transcript
Operator (participant)
Good day, and welcome to the IMAX Corporation Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I would now like to turn the conference over to Mr. Brett Harriss. Please go ahead, sir.
Brett Harriss (Head of Investor Relations)
Thank you. Good morning, everyone, and thank you for joining us on today's Third Quarter Earnings Conference Call. On the call today, to review the financial results of Rich Gelfond, Chief Executive Officer, and Patrick McClymont, Chief Financial Officer. Megan Colligan, President of IMAX Entertainment, and Rob Lister, Chief Legal Officer, are also joining us today. Today's conference call is being webcast in its entirety on our website. A replay of the webcast will be made available shortly after the call. In addition, the full text of our Third Quarter Earnings Press Release and the slide presentation have been posted on our Investor Relations section of our website. At the conclusion of this call, our historical Excel model will be posted on the website as well. I'd like to remind you of the following information regarding forward-looking statements.
Our comments and answers to your questions on this call, as well as the accompanying slide deck, may include statements that are forward-looking in that they pertain to future results or outcomes. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to our SEC filing for a more detailed discussion of some of the factors that could affect our future results and outcomes. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During today's call, references may be made to certain non-GAAP financial measures.
Discussion of management's use of these measures and the definition of these measures, as well as reconciliations to Non-GAAP financial measures, including Adjusted Net Income, Adjusted EPS, and Adjusted EBITDA as defined by our credit facility, are contained in this morning's press release. With that, let me now turn the call over to Mr. Rich Gelfond. Rich.
Rich Gelfond (CEO)
Thanks, Brett, and good morning, everyone. Thank you all for joining us today. The IMAX Global Network gives us a unique window on the world in these unprecedented times. Despite the continued challenges the pandemic presents for Hollywood and the movie industry, we're seeing a strong rebound in many markets around the globe, with Asia in particular exceeding our best expectations. Thanks to the resurgent Asian box office, particularly in China and Japan, as well as continued growth in our theater network and strong cost management, IMAX continues to make significant cash flow improvement and stabilize its strong financial position. We believe we remain among the best-positioned companies in the industry to manage through this situation. We're the only geographically diversified global platform for theatrical blockbuster entertainment.
Our financial position gives us years of runway to manage through the current downturn, and our flexible premium model makes IMAX uniquely suited to thrive as the pandemic accelerates the evolution of the theatrical business. In the U.S., many industry observers continue to ask, "Will audiences return to theaters after the pandemic?" By virtue of our global network, we at IMAX already know the answer, and it is a resounding yes. We are seeing fans eagerly returning to the movies where theaters are open, the virus is under control, and audiences feel safe.
Today, I'd like to discuss our success in Asia since theaters have reopened and the positive signs we're seeing in the market, an update on our strong financial position, and finally, the long-term impact of COVID on the exhibition industry, particularly in North America, and why we believe IMAX is largely insulated and perhaps even likely to benefit from many of the disruptive trends. First, let's take a look at China. Since reopening in late July, China has generated more than $1.7 billion of total box office. Average weekly grosses at the overall Chinese box office are at approximately 70% of second half 2019 levels, despite continued capacity limitations that were only recently raised to 75% and a lack of Hollywood film releases, which typically accounts for more than a third of the overall Chinese box office.
More importantly, IMAX's average weekly box office since reopening has rebounded to approximately 95% of our average weekly box office in the second half of 2019. IMAX has recovered more quickly than the industry, not a surprise given we catered to the most passionate and engaged moviegoers. In the context of a challenging global environment, the strong reopening highlights China's thriving film industry. China's 70,000 theaters, many in new, impressive complexes, have opened with big-budget, local-language productions that increasingly rival Hollywood's. IMAX has leaned into these long-term trends and built a strong brand in China, and by the numbers, we're leading the box office recovery in China.
Overall, IMAX has delivered $66 million at the Chinese box office since reopening, representing an approximately 4% market share, up from 2.8% in the second half of 2019 and in line with full-year 2019 market share levels, despite the delay of multiple Hollywood tentpoles, which typically account for 70% of IMAX China's box office. Our fans have been among the first back to the multiplex. We've gained market share and continued to expand our brand into local-language releases. We had a huge success with The Eight Hundred, the first local-language title shot entirely with IMAX cameras, which earned approximately $18 million in IMAX and became a top 10 Chinese film of all time at the general box office. The Eight Hundred now was in that record territory despite being released to theaters constrained at the time by 50% capacity limitations.
Earlier this month, IMAX also delivered a record-breaking box office performance for the October national holiday in China. Overall, IMAX box office for the holiday week was $18 million, up 23% over last year. The holiday was headlined by an animated feature, which earned IMAX's best opening weekend for an animated film in China and second-best opening weekend for a local-language film. While China has far and away been the leading market, as theaters have reopened, IMAX has seen encouraging signs in other places in the world. Japan, South Korea, and Taiwan have all opened strongly, with IMAX gaining market share despite the lack of major Hollywood releases. Since the July 15th premiere of the South Korean hit Peninsula, IMAX has earned more than $55 million in local-language box office.
In fact, in just the past three and a half months, IMAX has delivered almost half the local-language grosses it did in the entire year in 2019, which at the time was a record-breaking year for us. We achieved this despite significant capacity limitations across all the key local-language markets. Recent highlights include Japan's Demon Slayer, which in its first two weekends set new records for the top two highest-grossing weekends ever for IMAX in Japan, earning more than $6 million in box office to date. It outgrosses movies such as Star Wars movies, Frozen, not just local-language titles, any titles ever released in Japan. The film was the first released in our new Five-Picture Slate Agreement with Japan's Toho Pictures, a long-standing exhibition and distribution partner for IMAX that has seen significant success at the box office, including last year's breakout hit Weathering With You.
Our next film with Toho debuts in November. Overall, IMAX will have no fewer than 10 local-language releases in the current quarter across China, Japan, and Russia, and we have promising releases lined up in Japan and China for early next year, including the lucrative Chinese New Year holiday. Again, we continue to diversify our global network geographically, and in terms of content, we are leaning into that diversity as we anticipate the North American box office and Hollywood releases will take a while to come back online. Where we are fully open for business around the world, we're seeing that audiences are eager to return to theaters. Now, turning to financial strength, and we have the staying power to be ready for audiences as they return. Turning to our financials, we continue to be very well-positioned to manage through this challenging period.
Patrick will discuss our financials in more detail in a moment, but we currently have $305 million in cash, and we've continued to reduce our monthly cash burn thanks to our flexible asset-light model. In fact, we expect to generate positive free cash flow in the current month of October and to be break-even on average for the fourth quarter and through Q1 of 2021. On the last call, we mentioned that we expected our cash burn in a zero-revenue environment to be less than $10 million per month. Now, with the reopening of portions of our network, most notably in China and the resumption of installations, our average monthly free cash flow decline for the third quarter was less than $4 million, or a total of $12 million for the entire quarter.
Furthermore, given the delayed release of Hollywood titles, we decided to temporarily furlough 30% of our global workforce outside of China to further reduce our ongoing operating costs. While it was a very difficult decision to furlough our loyal workforce, we expect these cost reductions to generate approximately $1 million in monthly cash savings. In China, our headcount remains unchanged as the team works to service our fully open and our operational theaters. Now, I'd like to turn to discussing the industry. While we at IMAX feel very confident in our financial position, there's clearly some uncertainty around the future of the North American theatrical industry.
While the challenges facing the North American theatrical business are unique, we believe that the impact of COVID is not unlike what any number of industries are currently experiencing, where the pandemic acts as an accelerator to secular or disruptive trends that were already enhanced. We believe IMAX is very well-equipped to manage through this evolution and may very well benefit in the long run. First, let's look at exhibition. There is no doubt that the continued delay in the Hollywood slate and theater reopenings will have a significant impact on our exhibition partners, particularly North America and certain parts of Europe, where many exhibitors are highly leveraged with large fixed costs. There's some speculation that this could result in a contraction of the industry, again, particularly in North America.
In light of this, it's important to remember that IMAX screens are almost exclusively housed in the most productive and profitable multiplexes. In North America, for instance, IMAX accounts for approximately 450 out of a total of roughly 42,000 plus screens, and in 2019, about 85% of IMAX's box office was generated in the top 20% of North American complexes. In North America in 2019, only 5% of IMAX's box office was generated from the bottom 65% of multiplexes ranked by revenue. In other words, approximately 3,500 North American mid-to-low-performing multiplexes out of 5,400 could disappear overnight, and we believe that it would have no material impact on our business. The approximately $375 million in domestic box office that we produce in a typical year is what we should produce, even if the industry shrinks around us.
In short, should the industry contract, our theaters are not the marginal theaters, and our consumers are not the marginal consumers. In fact, based on our preferred locations and premium product, if feasible, we could gain market share in any such scenario. Furthermore, should any of our partners be forced to restructure in bankruptcy, we are covered by master lease agreements, which give us significant protection in the context of any restructuring. During the early 2000s, much of the exhibition industry went through bankruptcy after the megaplex building boom of the late 1990s. Though smaller at the time, IMAX was not impacted. Our partners chose to continue to operate their IMAX screens. Finally, we grant our partners an exclusive IMAX geographic zone.
Should a partner decide to reject their master lease agreement with IMAX, we have the option to move our equipment to an alternative operator after demonstrating whatever the box office potential was in that particular area. I'd like to talk a little bit about windowing, streaming, and the shift to blockbusters. There's also much speculation about how the studios will adapt, whether we'll see an industry-wide shrinking of the theatrical window, more releases moved to streaming platforms, and multiplexes becoming limited to showing just blockbusters. First, despite the further delay in theater reopenings, we're encouraged to see that, with a few exceptions, most major blockbusters continue to be delayed rather than moved to PVOD or streaming.
That includes every film currently on the slate that was filmed in IMAX or includes IMAX DNA, from No Time to Die, which was moved to 2021, to Wonder Woman 1984, which for now is scheduled for Christmas 2020. The theatrical window remains an important financial and marketing component for major tentpole films, and as I've said, to date, PVOD has been a failed experiment as an option for big-budget blockbuster films. Even if we do see a shrinking of the theatrical window, this would have little impact on IMAX. Films typically play in our network for one to two weeks at most before we move on to the next blockbuster debut. Likewise, the shift to blockbusters in theatrical distribution benefits IMAX. We're very much in the blockbuster business.
As blockbusters move to streaming platforms with potentially shorter windows, the need for studios, filmmakers, and streamers to event-size their content will be even greater. IMAX has proven itself as the primary platform to curate blockbuster content. The top-grossing 30 films account for only 55% of the overall industry box office, but 85% of the global IMAX box office. Finally, our experience in China, as well as markets like Japan, South Korea, and throughout Europe, has proven that audiences do return to the movies where theaters are open and people feel safe, and as they return, they're coming back to IMAX in greater numbers than before on a percentage basis. This underscores our position and strength of our brand. We are a premium experience with a premium segment of the market.
To conclude, we believe IMAX remains well-positioned to manage through this crisis and continue to thrive well into the future. We're the only global distribution platform for theatrical blockbuster entertainment. We have a unique, diversified geographic footprint and content portfolio, which enables us to generate cash flow even as the release of Hollywood films is on pause. We have the financial strength to endure, withstand, and even capitalize on industry disruption and be ready for our audiences when they're ready to come back to theaters. We have a remarkably strong pipeline of blockbuster content ahead. Our brand and the IMAX experience have been in strong growing demand around the world. This unique, privileged position we built in the ecosystem gives IMAX a firm footing in difficult times, and we look forward to continuing our success, driving new opportunities for growth, and creating value for our shareholders.
Thanks again for joining us today, and please continue to do everything you can to stay safe and healthy. With that, I'll turn it over to Patrick.
Patrick McClymont (CFO)
Thanks, Rich. Good morning, everyone. I'd like to take this opportunity to once again thank all of our teammates who have helped the company manage through this difficult period. Their commitment, sharp focus, and flexibility are essential and appreciated. With the delay of the late 2020 Hollywood titles into next year and the resulting closure of some theater chains, a global reopening of the industry appears unlikely this year. As a result, the company recently implemented additional cost reductions. In October, we made the difficult decision to furlough a portion of our workforce, which we expect to further reduce costs by approximately $1 million per month.
We expect this to better position our business in the short term during this ongoing period of uncertainty while also maintaining flexibility to snap back quickly as theaters reopen around the world. While the delayed industry reopening in certain markets is clearly a difficult development, IMAX is well-positioned to manage through a longer but still temporary period of reduced box office activity as well as any resulting industry challenges. We continue to benefit from a solid balance sheet, an asset-light business model, and a globally diversified network of highly productive screens. First, let me address our balance sheet. We ended the quarter with $305 million of consolidated cash on our balance sheet, including $229 million of cash at IMAX Corp and the balance at IMAX China.
Since our network closed in late March, our free cash flow ran at an average use of $7 million of cash per month from April through September 30th. We accomplished this without the company reducing headcount through furloughs or layoffs. The trend for free cash flow improved more recently as we averaged a $4 million use of cash per month in the third quarter, substantially better than the zero cash revenue burn estimate of under $10 million per month we discussed on our last call. During the quarter, incremental cash generated from the reopening of theaters, particularly in our largest market, China, as well as increased installation activity drove lower cash burns. We expect these trends to continue, and with additional cost reductions made in October, we expect our monthly cash flow for both the fourth quarter of 2020 and the first quarter of 2021 to be approximately break-even.
Moving on to this quarter's results, total revenue in the third quarter was $37.3 million, down 57% versus last year. The IMAX Technology Network gross margin was essentially break-even on revenue of $11.4 million. Our network revenue was characterized by the partial reopening of our theaters through the quarter. We started the period with most of our theater network closed and benefited from the reopening of major markets in late August and September. As of today, about 1,000 screens or 65% of our network is open. Network results were driven primarily by high indexing from Tenet, as well as the release of Chinese local language titles, most notably The EightHundred. The IMAX Technology Sales and Maintenance segment reported revenue of $23.7 million, down 37%, and gross margin of $9.4 million versus $18.4 million of gross margin in the previous year period .
The decline in revenue and gross margin was driven by lower installation activity in the quarter. We installed nine STLs versus 14 and one hybrid system versus four in Q3 of 2019. While installations were lower, we are pleased to see both installation and signing activity improve from Q2. We added 18 new systems to the network despite COVID-related closures and industry uncertainty. It remains clear that our partners understand and value our systems and continue to invest in the IMAX experience. Maintenance revenue of $5.8 million declined from $13.7 million in the prior year period but increased sequentially from essentially no revenue in Q2. As theaters opened through Q3, we began to recognize contract-recurring maintenance revenue. SG&A, excluding stock-based compensation of $19.5 million, declined sequentially from the $23.3 million of expense reported in the third quarter of 2020 and was also down nearly $5 million year over year.
I'm sorry, that was sequentially versus the second quarter of 2020. SG&A benefited from cost actions we took at the beginning of the pandemic, as well as a $2.1 million benefit from government subsidies associated with COVID-19 relief, $1.7 million of which was allocated to SG&A. This benefit was offset by $4.5 million of costs normally allocated to cost of goods sold and assets, but which remained in SG&A this quarter due to low activity levels. Adjusted EBITDA for the quarter was right around break-even, down from $32.4 million in the previous year period. Net loss attributable to common shareholders for the quarter was a loss of $47.2 million or a loss of $0.80 per share, while adjusted net loss was $44.6 million or $0.75 per share versus a gain of $0.21 per share last year.
Our results this quarter include some unique items I would like to address. Given ongoing uncertainty with the exhibition industry, we recorded a $23.7 million or $0.40 per share valuation allowance against our deferred tax asset. We also took a $5.7 million write-off to various film assets given timing uncertainty surrounding the reopening of theaters and the release of these films. Finally, we took a $3.9 million reserve provision for expected credit losses, reflecting a reduction in the credit quality of the theater receivables balance. Moving to CapEx, in the third quarter, we spent $1.4 million on capital expenditures. Remember, typically, most of our CapEx is driven by the installation of theater systems under our joint revenue-sharing model. That activity is at reduced levels in the current environment.
Capital allocation, we suspend IMAX share repurchases due to the uncertainty associated with theater closures and the amendment to our credit facility, which prevents any further IMAX Corporation-level repurchases until we return to compliance under our original senior secured net leverage ratio covenant. IMAX China did not repurchase any shares this quarter. To wrap up, although the pace of recovery is slower than we would like, we are encouraged by the results we've seen to date. In markets where the virus is under control, people return to the movies. We have a strong balance sheet. We're in a good spot in terms of cash flow, and we have an excellent position in the marketplace. IMAX represents the pinnacle of immersive out-of-home entertainment. As the industry reopens in more markets around the world, IMAX is well-positioned to excel. With that, I'll turn the call back over to Rich.
Rich Gelfond (CEO)
Thanks, Patrick, and Operator will open it up for questions.
Operator (participant)
Yes, sir. If you would like to ask a question, please press star one now on your telephone keypad. If you are using a speakerphone, please ensure your mute function is turned off to allow your signal to reach our equipment. If at any point you would like to remove yourself from the queue, you may press star two. Again, please press star one now to ask a question. We will pause for a moment to allow everyone the opportunity to queue for questions, and we will take our first question from Eric Handler of MKM Partners.
Eric Handler (Managing Director and Senior Research Analyst)
Yes, thank you very much and good morning. I wondered if you could talk about your installations a little bit. Are all the installations right now, are those just taking place in Asia, or are there other markets where you're doing installations? And I assume the installations is why you're pretty much going to be at a break-even level. You've got some good visibility in Q3, I'm sorry, in Q4 and Q1 of next year. Maybe you could talk about maybe some expectations for the number of installations in each of those upcoming periods.
Patrick McClymont (CFO)
Sure. Good morning, Eric.
Eric Handler (Managing Director and Senior Research Analyst)
Good morning.
Patrick McClymont (CFO)
In terms of where, it is predominantly in Asia. We've had a fair level of activity in China. We've had activity in Japan as well. And so for the most part, the installation activity right now has been focused in Asia. It broadens a bit as we get into the fourth quarter. And then in terms of level of activity, we're not in a spot right now where we're providing any guidance just due to the uncertainty in the marketplace. What we will say is that it's following the typical pattern that we have. And so activity has ramped up over the course of the year, and every year our heightened activity is in the fourth quarter. That will be the same this year. And then it'll slow down again in the first quarter. And yes, you're right.
We have thought about what our installation activity looks like and how many of those come with revenue and what that means, and that is part of how we get to the cash flow break-even in Q4 and also in Q1.
I just want to add that. Eric, I just want to add to that that several of the installations are scheduled for Saudi Arabia this year, and that's been a market that's performed exceptionally well before the pandemic as well as since it's open.
Eric Handler (Managing Director and Senior Research Analyst)
Great. And then just as a follow-up, as we think about just in modeling your maintenance revenue, obviously you're doing well in Asia, but other parts of the world are having some issues. Are you going to continue charging maintenance revenue in Europe and North America even though there's really not much box office to be generated?
Patrick McClymont (CFO)
Yeah. I think the simplest way to think about that one is if the theaters are open and our partners are operational and we can provide the service, then we'll continue to charge maintenance. And so right now that's the 1,000 theaters that I talked about. It'll be a bit of a moving target. As more opens, we'll be able to charge more. Some regions close down, it'll trend down a little bit. But you should just think about what our historical average maintenance across the network is. And right now that's at 1,000 units that are open.
Eric Handler (Managing Director and Senior Research Analyst)
Great. Thank you very much.
Operator (participant)
Thank you. We will take our next question from Mike of Goldman Sachs.
Hey, Rich, hey, Patrick. Thanks for the question. It was encouraging to see the box office share gains in China. I was wondering if you could elaborate on that a little bit more and talk about some of the reasons why you think you're gaining that market share. And then I have a quick follow-up.
Rich Gelfond (CEO)
We've done some studies, Mike, that indicate that I'm not sure if we did them in China, but we've done them around the world that indicate that because IMAX is a known branded experience, that people are more likely to return to IMAX theaters than regular theaters. I think like other branded entertainment, people trust the brand. So I think that's one reason. Another reason I would say is the types of content that were released were more blockbuster sort of content. As you know, consumers associate IMAX with blockbusters. So I think those are part of the reasons. I have to tell you, we were somewhat pleasantly surprised by what happened in Japan. I didn't go through the numbers in the scripted part, but as we mentioned, we had the record weekend, the opening weekend of Demon Slayer, which was 2.3 million.
And that was something like 18% over the record we'd ever had before. And then the second weekend was $2 million, which is a very small drop. And also, you looked at our market share actually went up in the second weekend. So I think it may also have something to do, and again, this is not empirical in any way, that after people have been cooped up and they've been watching TV and streaming and whatever it is, when they get out, they want to do something really special, not just go to a small screen, which is a marginal improvement over what they do at home, but they want something that really transcends the ordinary. And they can't travel out of the country. They can't travel to a lot of places. Makes them feel somewhat transported, and IMAX does that.
That's conjecture, but I'm pretty sure I'm right about it.
Patrick McClymont (CFO)
Just to ask as well.
Thank you.
;Mike, The Eight Hundred is a movie in China that did particularly well during the quarter. That was filmed with our cameras. And as we typically see, when we've got DNA, we do higher indexing. And that movie did particularly well for us.
Great. Thank you. That's really helpful. It was also helpful to hear about if a theater operator rejects a Master Lease Agreement, you can move to alternative operators. I was just wondering if you could talk a little bit about whether or not this has happened in the past and how quickly you could move equipment if you need to. Thank you.
I mean, we've never had the experience of someone rejecting a Master Lease Agreement, and as a matter of fact, we saw when kind of a bad situation in the exhibition space in 2000, almost every theater was reaffirmed, so we really don't have experience about it. But what I was alluding to in the prepared remarks, Mike, were where you have data on what the location did across the street. So we're saying if you had a profitable location, it would be pretty easy to convince someone else to go into that, to go in across the street or whatever it is because you already have a built-in market. It's not speculative, but we don't have data about it now.
Thank you very much.
Operator (participant)
Thank you. We will take our next question from Eric Wold of B. Riley Securities.
Eric Wold (Managing Director and Senior Research Analyst)
Thank you. Good morning. Just a couple of questions on kind of the slate as you look into next year. I guess given somewhat rapid changes in the slate almost on a daily basis, as well as your earlier comments, Rich, that consumers are associating IMAX with blockbusters. How flexible do you want to be on the slate into next year? I mean, would you move quickly to put smaller or kind of mid-level titles on your screens to fill gaps, even if you can only do it kind of maybe on a break-even basis? Or is it better to keep the slate somewhat open?
Rich Gelfond (CEO)
Eric, I think when you look at next year, it's a little bit of an embarrassment of riches. So if films were to move into starting at the beginning of Q2 next year, I think we only have one or two places where we could actually put films right now. And one of the issues I think the studios are going to face is there's not a lot of room in the schedule to put them. So I think it's not about filling in with mid-level movies, which historically we've done if we had to keep the theater's program. I think there's not a lot of room. And also my expectation, Eric, is that when theaters open, they're going to pretty much open. So it's not going to be like last time where there was only one movie and things moved around.
So I really think it's the opposite problem, how we're going to manage to curate and fit in all the content that's there. And I should add, you didn't ask this, but I'm sure you would have, as a follow-up, which is because of the pandemic, production was halted on a number of projects. But most of what's scheduled now for 2021 is in the can or is in the editing room. So the big movies like Top Gun and Fast and Furious and the Marvel movies, those are all pretty much shot already. There are some in production today like Mission: Impossible and Avatar and some other things. But I just think when it opens, there's going to be a lot of blockbuster content.
Eric Wold (Managing Director and Senior Research Analyst)
Okay. And then a follow-up on that. Given kind of the crowded film slate in a positive way next year with everything kind of moving in there and only have a few slots open, have there been instances where you previously contracted a film to do multiple weeks on your screens, but now with the movement, they won't have that? So you'll have a lot more curtailed kind of windows for films on IMAX. And is that actually a plus in your mind given that you have basically the opening weekend for much tighter film slate?
Rich Gelfond (CEO)
When people use IMAX cameras to make a film, and we recently put out a release announcing an expanded camera program and more films shot with our cameras, we give them more weeks to play more of a slot, both as an incentive to use the cameras and because those films typically index higher, so it gives them more playtime. However, all of the films that we schedule are around a certain date, so when you move to another date, they don't have a contractual right to two weeks or three weeks around that date, but we're trying to do the best we can to protect really important movies, especially those that used our cameras and especially those with filmmakers and talent that we're close to, so we're doing our best, but the contractual rights aren't really implicit because the dates have moved.
Eric Wold (Managing Director and Senior Research Analyst)
Understood. Thanks, Rich.
Operator (participant)
Thank you. We will take our next question from Chad Beynon of Macquarie Group.
Hey, guys. This is Aaron on for Chad. Thanks for taking my question. Thanks for your comments on China. I was wondering, could you talk about what you saw, especially during Golden Week? Did you see any kind of differing trends in between the tier one and two cities versus three to five?
Patrick McClymont (CFO)
I can't comment specifically on that week, but we did a fairly detailed analysis on how each tier, tiers one through five, rebounded after the pandemic in China and what our results found. And we were somewhat surprised because we thought it might be that the tier one and tier two cities rebounded more quickly than the lower tier cities. But the extent of rebound was pretty much uniform across all tiers. So it was, again, I'll say it was somewhat surprising to us. And so by way of example, in tier one, if a city did X in 2019, it came back to 0.95X this year. And then if we looked at the fifth-tier city, it was very similar results within a margin of error. So it was pretty uniform.
Okay. Great. That's helpful. And do you have a sense of what % of the 70,000 Chinese screens are open? And can you talk a little bit about what you're seeing with other premium large-format openings in China?
Rich Gelfond (CEO)
Yeah. So it's about 99% of IMAX screens are open and about 90% of the country is open. I don't exactly know what premium large format is. I know people call themselves that. I know what IMAX is. But in China, whatever that category is, is a very small category. And we've looked at some of those reopenings, and they have not captured their past market share to the extent IMAX has. We studied that.
Okay. Great. Thanks very much.
Operator (participant)
Thank you. We will take our next question from Mike Hickey of Benchmark Company.
Mike Hickey (Equity Research Analyst)
Hey, Rich, Patrick, Brett.
Good morning, guys. Congrats on your success in Asia. Nice to see the rebound there. I guess the first question is, when you think about the U.S. market, sort of broader question is what needs to happen to sort of kickstart this market again? And within that, you have New York, New York, and LA that I think are still shuttered. Of course, you have offices in both those key markets. So curious as much as you can, Rich, just your view on how close we are. Maybe I missed it this morning. That'd be embarrassing. But how close we are to those markets starting to open? And then when you look at Wonder Woman '84 here, how confident are you or not that this can be a Christmas release? And I have a couple of follow-ups. Thank you.
Rich Gelfond (CEO)
Sure. So to kickstart the U.S. market, I think the first thing you need is people feeling safe to go to cinemas. And there are kind of three parts of that. One, the government has to open the area. Two, it has to really be safe. And three, people have to feel safe. So in terms of the reopening, pretty much the whole country is open, except, as you said, New York and California. In New York, Governor Cuomo opened the theaters outside of New York City, subject to certain infection levels this past weekend and subject to 25% capacity limitation. So New York is starting to reopen. And I think put aside where the future goes, let's pretend the virus stays where it is. Today, as long as areas are below a certain level, I think those will reopen. And over time, capacity limitations will increase.
In terms of California, most of the state is open, but Los Angeles is not open, and that's subject to the Mayor Garcetti. The Governor of California has delegated that responsibility, and I was out in LA last week, and I have to say, people are really somewhat skeptical as to what the pace of reopening would be there. I'm sure you just read the articles about the opening of Disney and other theme parks out there, so that's a hard one to predict, and again, I would layer over that, obviously, the increased level of the pandemic in the U.S. and abroad, so very, very difficult to predict, so the first thing I said was government. The second thing I said was the theaters being safe.
The theater industry, I think, was a little bit cautious at the beginning, but has really done a good job of putting in safety protocols. So whether that's wearing masks in the theaters or whether that's lining up in certain lines to go in and other lines to go out and how their employees act and the handling of concessions, I think it's become safe. And I think it's in very good shape. And then the third element, which is people feeling safe, that's a harder one. I just found out yesterday I was talking to the CEO of our China subsidiary where it's public, but that we own a large stake in. And I didn't know this, but he said people in China don't wear masks. In theaters, they do, but walking on the streets, they don't wear masks.
Despite the conspiracy theorists, the restaurants are full there, and occupancy at hotels is going up. It's a place where they feel safe. When that happens, I really don't know. That relates to your next question. How close are we to normalcy in the North American market? Unfortunately, the headline is, "I don't know." My instincts are, given the increase in the rates of infection and given what's happened in other countries, it's probably going to be a while off before people in North America feel safe. I just think it was handled differently here with leadership at a lot of different levels than it was in different countries. I'm not optimistic that it's imminent. Your last question, which is related, the Wonder Woman question, I just don't know.
When I was in California, I met with some of the people involved. And these are very serious people with very serious approaches to these things, like how's the movie going to work, how are they going to help cinemas, all kinds of issues, marketing, health, public regulation. And I think they hadn't made their minds up yet. I think they were integrating all those factors. So I think we're going to have to wait and see.
Mike Hickey (Equity Research Analyst)
Thanks, Rich. The second question is sort of being the opportunity maybe for some of these blockbusters going to streaming. I know you had some great comments on your view of how that initial experiment went. It didn't sound great. But I guess recently, we saw the No Time to Die Bond film potentially being shopped to streaming services for sort of a rumored $600 million. Ultimately, it looks like that deal didn't work. But I'm just sort of curious, as you think about that exercise overall, what it could mean to some of these bigger films that have been delayed.
Rich Gelfond (CEO)
First of all, I wouldn't believe every rumor I read in the papers. I read it and I heard it. I was very skeptical. The Broccoli family owns the rights to No Time to Die. It's a franchise. I was skeptical that whether that was real or not, but I'm not in a position to comment on that. Virtually every blockbuster, with a few exceptions, has rescheduled itself for a theatrical release next year. I could spend a lot of time on this, but I'll just spend another minute on it. Last week, when I was in LA, I met with filmmakers. I met with probably half of the studio heads. I talked to different people in the industry. Nobody thinks that a streaming model only works for blockbuster releases.
So in the short run, you might get a shot of subscribers, which will make a good headline for a while. But when you look at last year, this is my favorite example, Disney did $11 billion in revenue from box office around the world. Maybe you have a different pencil than I do, but I just don't see how you get to $11 billion. And that was just the theatrical part. That didn't include merchandise, secondary rights, add-on. Usually, the general number is that you put a multiplier on that, maybe of up to two times. So it's just difficult for me to see for blockbusters of how that model works. For non-blockbusters, I could see mid-level movies going to streaming. You don't pay the marketing costs, or you can take advantage of the marketing costs in a different way. You can target audiences.
But the first reason is I don't think the model really works. The second reason is I think you need a theatrical release to promote a streaming release. So I don't think that big-time filmmakers want to see something, by the way, I'll get a little bit technical, but you shoot a movie differently for a theatrical release than you shoot it for a streaming release in the home. And I don't think filmmakers that are shocked by a theatrical release are going to say, "Yeah, sure, fine. Put it on the television. That's good with me." And then you add to that, I think a lot of what a theatrical release does, even today, it's a trailer for other windows. And as I said before, I think it's likely that that window shrinks in some way.
But I think you don't promote big event movies with movie stars and sound and special effects in the way that works for the industry. I mean, Disney's made a lot of their success by being geniuses at using the theatrical platform across channels and ending up with theme park rides. I mean, they've monetized them in some brilliant ways over the years. And I don't think people are going to abandon a proven method. I don't want to be redundant on this. There may be tweaks to windows and other things. But I think that theatrical release is a crucial part of the revenue stream. And I think during COVID, two things happened. One is the real issues of theaters not being open and people not going. So it made sense for those companies to go to streaming with some of their non-blockbuster titles.
But I think the other thing that happened is the narrative right now. And as you heard during my remarks, I know the narrative isn't correct about the future of streaming versus the future of theatrical. I think people just want to take advantage of the current narrative. But I have no doubt that the theatrical release is going to be integral, maybe even more so and maybe even more so the IMAX component of it to the chain that results in streaming.
Mike Hickey (Equity Research Analyst)
Thanks, Rich. Good stuff. Good luck, guys.
Operator (participant)
Thank you. We will take our next question from Jim Goss of Barrington Research.
Jim Goss (Managing Director and Senior Research Analyst)
Thanks. Good morning. I'm wondering if you could talk a little more, Rich, about the Japan slate deals and the expected impact on your footprint transactions in Japan. And sort of in a related area, are there other countries in which indigenous film slate makes sense beyond U.S., China, Japan, South Korea, where you might be able to do something similar?
Rich Gelfond (CEO)
So the slate deals, as I mentioned in my remarks, was five pictures, Jim. I think three or four are identified, and one is to be determined. Maybe Patrick remembers the name of the next one. But the next film is a very highly anticipated film in Japan. And I would say I have no idea what the box office will be. But it was even a title that was more important to us than Demon Slayer, which was the film we just did that set records. And that next one is supposed to come out in about a month. And we're very encouraged because Toho is one of our leading theatrical partners there and also partnering with them on the film side further solidifies the relationship. So it's a very positive thing for us.
In terms of other countries, Jim, again, I try and separate out the COVID period from the normal period, which we can't predict when it'll come. But during this period of time, it made sense to do slate deals. but we haven't lost sight of the fact that one of IMAX's primary revenue generators is Hollywood films released on a global basis. So we don't want to run ahead and make local film slate dealss that will interfere with our potential global strategy. I think it's going to depend country by country. And I think certainly during this period of time, it makes sense to do things like that. But I really couldn't predict what we do in the future.
Jim Goss (Managing Director and Senior Research Analyst)
Okay, and in terms of the construction program, has the COVID experience had any impact on your desire to either go with sales-type lease agreements versus joint revenue sharing?
Rich Gelfond (CEO)
By the way, first, I forgot to answer the second part of your last question, which is on the theater network in Japan. I would think the Film Slate and maybe more importantly, the success on our indexing. I don't remember the numbers, but the per-screen numbers over those two weekends were extremely high. If I recall, they were around $50,000 per theater, Jim. I think that's going to catch people's attention. I do think it'll help us grow the network in Japan. In terms of has it influenced the kinds of deals we do, I'd say in the short term, it has because we're in a position where we want to maintain what we talked about on this call, which is our neutral cash flow position over the next six months going through the pandemic.
So during this period of time, it has made us less reluctant to install JVs now and more different kinds of deals. But again, let's see what happens coming out the other side before we say how long-term that policy is.
Jim Goss (Managing Director and Senior Research Analyst)
Okay. One last thing.
Megan Colligan (EVP)
Oh, sorry. Just to jump in, this is Megan Colligan. The next film up is Stand By Me on November 20th. Just so you have that.
Rich Gelfond (CEO)
Thanks, Megan.
Jim Goss (Managing Director and Senior Research Analyst)
The last thing I was going to ask was I wondered if the increased viewing in-home has impacted how you've approached your IMAX/DTS relationship?
Rich Gelfond (CEO)
I'll start, and then I'll turn it over to Patrick. I'd say, Jim, we've always thought that our brand was kind of underutilized and that we have a wonderful global brand in the theatrical space and out-of-home entertainment, and we've worked very hard to try and transition into something in the home, and during the pandemic, I think we've said before, while we've been shut down, I think we've been doubling down and figuring out ways that we might leverage our brand assets in the home better, and it's accelerated that, but in terms of specifically the enhanced DTS relationship, Patrick's been managing that, so why doesn't he respond?
Patrick McClymont (CFO)
Sure. I think what's happened, most of our content partners are now in the streaming business. They have some SVOD platform. And so the pandemic obviously has resulted in more consumption of content. That's aligned with people launching their new subscription-based programs. And IMAX Enhanced can add a lot of value to that. So what I would say is our dialogue with our partners who are now in the streaming business about how we can integrate IMAX Enhanced into those platforms has picked up meaningfully during the crisis, which is good because we think that that's an area where we could actually help them differentiate their content and deliver better experiences to their customers.
Brett Harriss (Head of Investor Relations)
So, operator, let's take one last call.
Operator (participant)
Yes, sir. We'll take our last question from Alexia Quadrani of J.P. Morgan.
Alexia Quadrani (Managing Director and Senior Analyst of U.S. Media Equity Research)
Hi, thank you. It's Alexia Quadrani. Rich, you made very good comments, I thought, on the fact that with China and some other markets, the reaction to the virus was different than it was in terms of the government's commitment here and some other places around the world. And they were able to kind of get back to the theatrical opening theaters, I think, at a different pace than what we're seeing here. And I'm curious, with that in mind, is there just a risk that the consumer sort of gets used to consuming content in a different format because it just takes too long to kind of get back to a normalized theatrical experience? And therefore, it's kind of harder to get back to the way we were. And then just a quick follow-up. I know we're running out of time.
On the slate for 2022, I mean, if things keep getting pushed, I guess how crowded does that already look?
Brett Harriss (Head of Investor Relations)
So in terms of the risk of consumers not coming back, I think you could theorize about a lot of things, but I don't really see it. You have to remember that China shut down several months before the U.S. And I think Japan did too. So if you look at the net time, it's not going to be all that different than it was here. First thing. Second thing is I've said it, and it's a little bit of a soundbite, but I don't think eight months undoes 100 years of consumer experiences. And I think it's not just a bigger screen or more transportive. It's something you share with friends. It's something you talk about around whatever the new version of the water cooler is. I think you tweet about it. You text about it. It's a social-cultural experience.
And I think people are not going to experience cultural things on their couch with whoever they happen to live with. I think that's part of human nature. I mentioned this before, but I went to Pompeii, and they had theaters from I forget how long ago. I just don't think human nature changes because there's a thing called a streaming service. And remember, there were lots of changes. There was television. There was radio. There's all kinds of things. And I should use the opportunity to remind people that 2019 was the biggest year in North American box office history. So I think that's really remote. But let's even say to the extent it's true, I think with shorter windows, the people who really want to see it in a movie theater, they'll be sort of compacted into that shorter period of time, whatever it is.
So there'll be enough to certainly support IMAX, which has one or two-week runs, and support whoever plays it during that period. And then people who choose to stream it, they'll have plenty of runway to do that also. So I don't really think that's a factor for us. In terms of 2022, as I said, production has started to reopen in a number of places. You have to remember that because things were closed, there's a lot of films in the can that are going to push into 2021. So I don't really see a significant change in 2022 from where I sit now. Like I mentioned, that Mission: Impossible was in production. They're filming two movies at once, one released in 2021, one in 2022. That's pretty far along. Well, that's in the middle of shooting. You've got Avatar, which I think is now scheduled for 2022.
Jim has resumed production at a pretty rapid pace in New Zealand. I don't really think that's going to be an issue, Alexia.
Alexia Quadrani (Managing Director and Senior Analyst of U.S. Media Equity Research)
All right. Thank you very much.
Brett Harriss (Head of Investor Relations)
Okay. Thanks.
Rich Gelfond (CEO)
Thank you. We have no further questions. I would now like to turn the conference back over to CEO Rich Gelfond.
As I mentioned a few times during the call, I was in LA last weekend, and I met a lot of interesting people with different perspectives. I really needed it from a headspace point of view because all of us sitting in our home offices on our Zoom or on our telephone all day, it's hard to get perspective. Whatever people thought about the industry, whatever they thought about streaming, whatever they thought about exhibition, it was kind of unanimous that people felt that IMAX would come out of this in a better position because of the experience we provide and what that's going to mean to the entire ecosystem. When you combine that with the results we've seen in places where we're open, it was a much-needed wake-up reminder for me.
But I really do feel that obviously this situation has been terrible for the world from a health point of view, economic point of view. Obviously, it's really unfortunate that we had to furlough some employees. And I feel really bad about that. But I do think the combination of our financial strength and where we're positioned, we're going to come out of this in a very good place. So thank you all for participating.
Operator (participant)
Thank you, ladies and gentlemen, for your participation in today's call. You may now disconnect.