For movie goers the past couple of years has seen the gamma-powered explosion of comic book movies hitting the big screen, along with a resurgence in sci-fi and fantasy movies. For movie theater chains such as Canada’s Cineplex Inc. (OTC:CPXGF), this led to a windfall of higher revenues as long time fans of various franchises were finally able to see their favorites on the big screen either for the first time or in a new light. Investors turned to Cineplex to take advantage of this wave of revenues given its 78% market share in Canada. 

In Cineplex’s fourth quarter thanks to the release of Star Wars Episode 7 net income rose by 139%, as Star Wars brought in 22% of the quarter’s box office revenues. Many believed that this trend would continue for some time as Marvel reached the two-thirds mark of its current story arc, DC had finally gotten its big screen act together and Star Wars had made its triumphant return. Things looked to be getting brighter and brighter for Cineplex as more and more blockbuster franchise movies were being scheduled for release, I was one of those who believed that this recent surge in fan favorite movies could revolutionize Cineplex.

But then the dark times came, the dark times known as Summer 2016. Following the releases of Captain America: Civil War which made up 15.1% of Cineplex’s box office revenues and The Jungle Book with 14.7% of total revenues, the remainder of the summer fell flat on films which failed to meet expectations. Year to date Cineplex’s best performing film is still Deadpool with 8% of box office revenues followed by Star Wars Episode 7 at 7.1% and Civil War at 6.9%.

An overwhelming run of films which garnered more rotten tomatoes than profits began to hit the screens and the great wave of movie goers which was seen in 2015 vanished. In its Q2 2016 report Cineplex painted a grim picture of its most profitable time of year, as revenues dropped 2% to C$338 million, attendance fell by 14.4%. Net income fell into a black hole and came in 71.7% lower than it did the year before, as it totaled only C$7.2 million (C$0.12 per share). This has dragged year to date net income to C$28.7 million which is 20.4% lower than it was at this time last year.  

The fear is becoming that the bulk of what was supposed to be top grossing movies failed due to poor reviews and reception from fans. This is showing that people are becoming more discerning and more conscious of quality in what they are willing to pay money to see. I’m looking at you Warcraft, Independence Day 2, Dawn Of Justice, Suicide Squad, Alice Through The Looking Glass, etc.

For the stock this could spell some trouble as the movie release schedule is quite bare between now and the release of Star Wars: Rogue One, with only perhaps Dr. Strange as the other potential money-making option. It is unlikely that Cineplex’s third quarter results will paint much of a brighter picture than its second quarter results, but this could create an opportunity. If the stock has a similar drop it could create a good buying opportunity for those looking to take advantage of the coming release of Star Wars: Rogue One and investors could ride out until Q1 2017 and cash out if they wish to avoid a potential repeat of the Summer of 2016 (*insert Imperial March*).