Vista Group isn't expecting any significant reopening of cinemas in China until early April.
That's even though some cinemas in that country have reopened already following the closures forced by the coronavirus crisis.
Chief financial officer Matt Cawte told BusinessDesk the reopenings are only in "isolated pockets" within major cities.
• Vista shares plunge on downgraded annual revenue growth
• Premium - Vista: The $1b Kiwi blockbuster you've probably never heard of
• NZ shares fall as Vista sinks on slowing sales growth
• Premium - Continuous Disclosure: Vista Group promises movie magic, A2 Milk in the spotlight, Mainfreight's hard yards
Those that have reopened are practising "social distancing" by only ticketing every second seat, a practice being called "a checkerboard pattern."
"I think it's too early to tell on any major reopening and it would be very modest in terms of numbers of cinemas," Cawte said.
Last month, Vista said it had "paused" the planned purchase of an additional stake in Vista China until the impact of the coronavirus crisis became clearer.
In December, the cinema and movies software company announced it would lift its stake in Vista China to 62 per cent from 47.5 per cent by buying an additional 14.5 per cent from fellow shareholder Beijing Weying Technology Co. It expected the transaction to settle in the first half of 2020 after gaining approvals from Chinese regulators.
The transaction valued Vista China at 500 million yuan, or $112.8 million with the yuan at 4.4331 to the kiwi dollar, and last year's agreement followed protracted negotiations.
In August 2018, Vista paid $7.7 million for a 7.9 per cent stake in the China venture which took its holding to 47.5 per cent.
Cawte said Vista is hoping the impact of the coronavirus crisis will be short.
"Hopefully, when we look back on this uncertainty in a year's time, it was the short impact that we thought it would be," he said.
A report on Vista by UBS analyst Phil Campbell published this week noted that cinemas in Mexico closed for a month in 2009 because of a Swine Flu outbreak. The box office in that country had recovered to be down just 1.5 per cent for that year.
Vista China is a relatively small part of Vista. Its revenue fell 7 per cent to $19.2 million in 2019 and made a small operating loss while Vista's group revenue rose 11 per cent to $144.5 million.
Vista's core business, supplying technology to 20-plus screen cinema complexes, claims about 51 percent of the global market outside of China.
It added 857 new sites in 2019, including 143 sites through the Chinese associate company, taking total sites to 8,059.
According to Boxofficepro.com, the virus's impact on box office has been largely limited to China, Japan, South Korea and Italy, but said the steep downturn in those markets has already dented the global box office outlook for 2020.
Campbell said global box office is expected to be down about 10 per cent because of the crisis but that followed a record year in 2019 when global box office rose 6.5 percent to US$42.5 billion.
He's assuming no cinema closures in the US or UK and no major impact from streaming.
"If cinemas were closed in the US or UK, it would put severe pressure on Vista's customer base," Campbell said.
The expected weakness in 2020 isn't a structural decline. The US and China are the two biggest cinema markets, together accounting for more than 50 per cent of revenues.
China's box office rose 5 per cent in 2019 with growth accelerating to 13 per cent in the second half, he said.
While new subscription models in the US are proving very popular, box office for 2020 is estimated to be about US$11 billion, down from US$11.9 billion in 2019.
"There is evidence that increasing streaming penetration has impacted US cinema attendance but the rate of impact has slowed in the last five years as Netflix US subs growth has slowed."
Netflix streaming movies could have accounted for up to US$400 million, or 3.5 per cent of US box office in 2019, Campbell said.
Netflix had wanted to show The Irishman in cinemas but AMC, the largest US exhibitor, apparently wouldn't agree to a 45-day rights window.
"Disney has no plans to change its 90-day rights window which should ensure the theatrical market is not impacted materially."
Campbell is assuming that cinemas in China will reopen in June or July and that box office will grow by about 10 percent, although annual box office will be down about 30 per cent.
He has estimated that less than 10 percent of Vista's revenues are directly linked to the global box office but said the health of exhibitors is an important driver of the company's revenues.
"Firstly, success of the box office, underpinned by attendance, improves exhibitor, distributor and studio profitability," he said.
"Secondly, cinema software is linked to screen growth which is linked to exhibitor capex.
"Thirdly, a move to a 'cultureplex' with multi-screen offerings and more food and beverage options drives more complexity for exhibitors which require more sophisticated software to manage the software experience.
"And lastly, studios and exhibitors require more customer data to improve pre-production research and post-production marketing."
Vista shares have fallen 48 per cent since last August when the company shocked the market with a first-half result that was well below expectations.
Campbell has upgraded his recommendation on the stock to a "buy" from neutral and values it at $3.65.
However, his downside scenario, if the coronavirus crisis intensifies in the UK and US, resulting in no screen growth and the deferral of cinema spending on IT and if Movio Media suffers from advertising cuts, is that the shares could fall to $2.
The stock closed at $2.789 yesterday.