(Bloomberg Opinion) -- During a pandemic, the close quarters of a movie-theater auditorium are among the last places anyone would want to be. Already, the outbreak of the novel coronavirus has led cinemas in northern Italy and all across China to temporarily shut their doors. The reality is that soon U.S. exhibitors such as AMC, Regal and Cinemark may have to do the same — or suffer a massive decrease in patrons anyway. Studios are even starting to delay film releases, with MGM and Universal Pictures announcing Wednesday that they will postpone the opening of the latest James Bond movie, “No Time to Die,” from next month until November.

There’s still a lot of uncertainty about how badly the coronavirus will spread and what it will do to the economy. But what is clear is that the disruption couldn’t come at a worse time for the U.S. movie-theater industry in particular, where AMC Entertainment Inc., Cineworld Group Plc (Regal’s parent company) and Cinemark Holdings Inc. together control nearly half the cinema screens and ticket sales, according to the Motion Picture Association of America. That’s in addition to theaters they operate in Europe and Latin America. 

The U.S. box office fell about 5% last year to $11.3 billion, even with Walt Disney Co.’s record-shattering release of “Avengers: Endgame,” the highest-grossing film of all time, and a handful of other big features. In fact, Disney — thanks to “Endgame,” “The Lion King,” “Toy Story 4,” “Frozen II,” “Captain Marvel” and “Star Wars: Episode IX—The Rise of Skywalker” — almost single-handedly propped up the box office. And still, it was unable to surpass 2018’s record ticket sales, or even the total for 2016, according to Box Office Mojo. 

Theaters were already bracing for the sudden deluge of streaming-video services, which have been spending like mad on original content. New offerings from Apple Inc., AT&T Inc.’s WarnerMedia, Comcast Corp.’s NBCUniversal, Disney and so on may result in more people reserving trips to theaters only for the big blockbuster films worth venturing out to see. WarnerMedia’s HBO Max is set to launch with a catalog of Warner Bros. movies in May, while NBCUniversal’s Peacock service coming next month will draw from its own film library. Disney+ has already managed to sign up more than 25 million subscribers, and Netflix Inc. has signaled that it’s stepping up film investments after receiving 24 Oscar nominations, including for “The Irishman,” “Marriage Story” and “The Two Popes.” 

As Disney turns its attention to streaming, it also doesn’t have as large of a must-see theatrical film slate this year, having pushed off “Avatar 2” to 2021 and the next “Star Wars” to 2022. Even before the coronavirus outbreak, Rich Greenfield, an analyst for LightShed Partners, was predicting a double-digit drop in the domestic box office. A more selective consumer means there’s more pressure on the top 10 films to drive attendance, according to his Jan. 6 report. “As we look at the overall film slate for 2020, we simply do not see the excitement that will drive top 10 attendance,” Greenfield wrote. 

Disney’s perhaps most-anticipated release is the live-action remake of “Mulan,” which is set in ancient China and features an all-Asian cast. As of Wednesday, teasers for the film were still promising a March 27 opening. That said, a delay may be inevitable with Chinese theaters still closed and U.S. theaters starting to give off that petri-dish vibe.

The multiplex cinema companies are coming off of a spending spree that’s saddled them with debt. AMC made a pair of $1 billion acquisitions in 2016, buying Carmike Cinemas in the U.S. and Europe’s Odeon & UCI. Cineworld took over Regal for $5.9 billion (including debt) in early 2018. They've also made expensive upgrades to their venues, adding more luxurious reclining seats and better food and drink options. AMC, which like the others is rated below investment grade by credit agencies, had $10.1 billion of net debt as of December. That was six times last year’s adjusted Ebitda.

AMC also posted a net loss for the fourth quarter and slashed its dividend. The company, controlled by Chinese billionaire Wang Jianlin, assured listeners on the Feb. 27 earnings call that it has no theaters in Asia, though it did close some in Italy as a precaution. CEO Adam Aron said it should “be calming” that none of AMC’s debt comes due until 2024 and later, and that those securities are “covenant light.” 

There are more than 40 confirmed cases of Covid-19 in Washington state, where Cineworld operates more than 300 screens, AMC has 181 and Cinemark has 73. Likewise, in New York state, where there are now 13 confirmed cases, Cineworld has more than 500 screens, followed by AMC at 308 and a little more than a dozen for Cinemark. For AMC and Cinemark, the biggest U.S. market is Texas, while Cineworld’s is California. 

“Health-related epidemics, such as flu outbreaks, could cause people to avoid our theatres or other public places where large crowds are in attendance,” read Cinemark’s latest 10-K filing, part of a list of boilerplate-type risks that most people might gloss over during normal times. Now that risk has become very real. So much for all those costly theater renovations if nobody can even attend. 

--With assistance from Elaine He.

To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.net

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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