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AMC’s aggressive post-pandemic strategy can be rewarded

On June 1, 2021, a sign was hung outside the AMC Theater in Skokie, Illinois.

Scott Olson | Getty Images

People are finally back in the cinema. Over the weekend, domestic box office revenue attracted movie fans with a wide range of movie titles and set a record for ticket sales during the pandemic era.

These box office revenues show that movie theaters are recovering a year after they were forced to close. The news is welcomed throughout the industry, but it may be particularly good for AMC Entertainment, which has made many bold moves to lay the foundation for its own renaissance. The ultimate success of AMC depends on the bet that the public will continue to watch movies on the big screen, rather than watching many of the streaming services that have grown in popularity over the past year.

The world’s largest cinema company has raised approximately $ 2 billion in cash, primarily from the sale of shares, over the past six months. AMC CEO Adam Aron said he plans to consider several acquisitions with new funding, including the acquisition of ArcLight and Pacific theaters that will not resume after the pandemic. We will also consider paying off some of our $ 5 billion debt, reducing interest costs, and paying millions of dollars of unpaid rent.

Aaron was able to raise cash as the volatility of its stock, which has become popular among individual investors trading so-called meme stocks, continued. AMC’s share price rose more than 18% on Monday, spurring last week’s rise. The company’s share price has risen nearly 2,600% since January as short sales have given up their bearish position due to the AMC’s surge. By noon on Monday, AMC was the most actively traded stock on the market.

If consumers continue to watch movies, AMC will be able to connect more places to greater sales. However, these same theaters can put a heavy burden on their cost structure if the demand accumulated to leave the house is met and ticket sales are exhausted.

“Let’s run the table”

“I think AMC is doing the right thing,” said Tom Nunan, a lecturer at the UCLA School of Theater Film and Television and founder of the production company Bullseye Entertainment. ..

“There’s no doubt that the reason I say so is that Americans want to keep the option of going to the movies,” he said. “That is, an experienced movie like AMC. It’s good for the theater to run a movie-watching experience, and for the time being, I think AMC has made a bet that “run a table, become the owner of a much larger theater.” Larger theater tenant. “

Prior to the pandemic, the industry had raised $ 11 billion in ticket sales in North America.

Eric Wald, senior analyst at B. Riley Securities, said in a survey that there are only a few weeks left until the second quarter, with domestic box office revenues down about 75% compared to the same quarter in 2019. He said it was a prospect. A memo published on Monday.

He wrote that the first quarter was down about 90% compared to 2019. Mr. Wald reiterated the forecast that sales would decline 35% in the third quarter and 20% in the fourth quarter compared to 2019 levels.

“More importantly, we are pleased to see similar demand levels and higher-than-expected box office revenues for both horror and family films after domestic box office revenues surged with a few action-oriented films. “We have emphasized the need for a wide range of box office revenues across all film genres in order to bring box office revenues back to pre-pandemic levels or higher.”

According to comscore data, the weekend’s domestic box office revenue was $ 66 million, the second highest sales from Friday to Sunday since the pandemic began. He is the current record holder with $ 80.2 million in revenue last weekend when A Quiet Place Part II and Cruella debuted.

During the two weekends, the total number of theaters open to the public in North America increased from 70% to 75%, comScore reported.

Next week, “In the Heights” and “Peter Rabbit 2: The Runaway” will arrive at the theater. Box office analysts and cinema owners are keen to see these two features significantly increase traffic to cinemas, especially as coronavirus restrictions continue to be relaxed.

Paul Durgaravedian, Senior Media Analyst at Comscore, said: “And for now, it seems like a good bet.”

He said these unique in-theatre experiences are essential to the prosperity of cinemas, especially due to intensifying competition from streaming services that provide “great content to consumers.”

Beloved theater

The theater is at the heart of AMC’s strategy. Aaron has returned to M & A, making the company the largest theater chain in the United States, while other companies in the AMC situation may prioritize debt repayment next year. Aaron added Carmic, Odeon and Nordic shortly after taking office as CEO in 2015.

To be sure, AMC has no plans to acquire the company that was running ArcLight and Pacific screens. We are working with a landlord who has leased several places to those theaters. The only purchase made by AMC is when Decurion, which owns ArcLight and Pacific, sells its wholly owned property.

Nunan said this was a good start for AMC. These chains are especially loved in California, and landlords are actively looking for cinema tenants to fill these spots.

AMC is likely to pay the acquisition costs in cash, so there is no increase in debt. This was part of the company’s strategy, Aaron said in an interview Thursday with Trey Collins, the host of YouTube’s Trey’s Trades channel.

AMC representative declined to comment further, noting that CNBC referred to the company’s previous securities filings and recent interviews.

Habit changes

Of course, it’s unclear if the audience’s desire to return to the cinema will be short-lived.

“It all depends,” said Sean Robins, chief analyst at BoxOffice.com. “There may be a short burst of demand buildup, but spectators and theaters need multiple tent poles a month. To get back to normal box office levels, consistent releases from major studios More and more will be needed. ”We have a chance to see development this summer and hopefully we can build momentum for the second half of this year.”

“In 2022, there’s a robust movie that could easily break the record if this year leaves the footsteps needed for recovery,” he said.

The dynamics between the movie studio and the theater are also fluid. Streamers, who enjoyed the smash hit traffic during the Covid-19 pandemic, have also begun acquisitions. Netflix has purchased the rights to the following two “Knives Out” sequels, and Amazon is now the owner of MGM, which owns the James Bond franchise.

“We’ve basically trained people not to go to the movies for the past year,” said box office consultant and former theater operator Doug Stone.

Still, the economics of a blockbuster movie only work through box office. That’s why the studio postponed many films during the pandemic. Disney’s “Black Widow” and “Eternals”, Warner Brothers. “The Suicide Squad” and Universal’s “F9” are just a few of the features that have been postponed until movie fans can return to the theater in large numbers. These movie franchises have been around the world in the last decade. The box office generated billions of dollars.

Mr. Nunan said he expects movie studios to inevitably try to manage more box office directly. Last year, a law prohibiting movie studios from owning a theater was withdrawn.

“AMC is betting that they will be the monopoly of the major theater owners,” he said. “To get a quality theater, you need to work through us. . “

Disclosure: Comcast is the parent company of NBCUniversal and CNBC.

AMC’s aggressive post-pandemic strategy can be rewarded

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