AMC Entertainment, the world’s largest operator of movie theaters, knows how to grab headlines.
Five weeks ago, CEO Adam Aron announced his company would no longer show films from Universal after that company’s chairman Jeff Shell announced initial strong results for its premium VOD release, “Trolls World Tour.” Now, in making a required earnings statement for the first quarter of 2020, the company said that it questions its own ability to survive.
That sounds dire. However, even if the world’s largest exhibitor is no longer a going concern, that doesn’t necessarily mean that the platform — movie theaters — will follow suit. And there’s another level to this doom and gloom: AMC’s messaging strategy.
AMC is long established as the most vulnerable theater chain. After it announced a complete furlough of all employees, including executives, in March, bankruptcy rumors soon followed. The message conveyed: If you want the biggest platform for Hollywood’s $11 billion industry to survive, we need help and support.
That messaging seems to have worked. The stock hit a 2020 low of $2.47 on March 18; today it closed at $5.45, suffering just a 3.45% drop in the face of announcing that the company may not live to see another day. When a collapse doesn’t happen, it usually means the negative factors have already entered into the stock value, and the market may also anticipate a solution that’s a net positive for investors.
With no certainty when top films return to theaters (July 17 remains the target date for Christopher Nolan’s “Tenet” from Warner Bros.), or if patrons will return in anything close to past numbers, the financial picture is murky. Given the debt it carries, AMC can’t be more optimistic without violating federal regulations for truthfully conveying a company’s position. However, it also reinforces an underlying message to everyone with whom it does business: They need forbearance.
That includes landlords (rent reduction or forgiveness), vendors (delayed or reduced payments and more credit needed), and studios (apart from film rental adjustments, statements recommitting to the theatrical model and continued windows, and need to release top films sooner not later). Its bottom line is: We’re in trouble, but it’s not in your interests for us to go down; for your own good, work with us.
Still, let’s go worst-case scenario: AMC goes under. Significant, certainly, but not unheard of. Top theater chains, some of them the best-known brands — Loews, Cineplex Odeon, General Cinema — disappeared. However, their best theaters survived, just under another name (including AMC’s, which now operates many of these). If the business entity doesn’t survive, its top-grossing theaters likely would.
Similarly, another scary report sounded like a theatrical death knell: China, the world’s second-largest movie market, said as many as 40% of its nearly 70,000 screens (in about 12,400 complexes) might not reopen. Extrapolating this to North America that sounds a decrease that could threaten any chance of recovery.
The reality is different. Not all theaters play the same films, and independent and specialized theaters have different needs and challenges. A look at “Avengers: Endgame” last year shows that even if such massive closings occurred, it might not be a serious issue.
“Endgame” grossed $465 million its first full week in North America. But the difference in performance by theater is startling. It played at 4,290 complexes. The top 60 percent of those theaters provided 94% of the gross. The bottom 20 percent provided just 1.5 percent of the total.
Similarly, the Chinese theaters most likely to close were the older, lower-grossing, often smaller complexes — or even single-screen theaters, as many of the country’s 70,000 screens are not modern. (The same sorts of theaters could be most vulnerable here as well.) That said, if Chinese cutbacks are that significant, odds are it would include a range of screens and not simply the lowest 40 percent.
Exhibition has always been top heavy, with a small number of theaters bearing oversized weight. The top complexes — AMC had more 30 of the top 100 for “Endgame” — would likely fall into someone else’s hands if the company failed. They are tailor-made spaces for specific use; landlords could even find operators to run them and show movies if somehow a circuit-wide takeover didn’t occur.
And in many cases, if theaters closed — even if it were the massive AMC Empire and Regal E-Walk, which are across the street from each other at 42nd and 8th in Manhattan — most of the lost business would likely recoup at other nearby theaters.
What AMC’s statement did reaffirm today is a troubled outlook. Cinemark, the third-biggest domestic chain (and in better overall financial shape than its rival), said that no one should expect a return to normal earnings until 2022. The company, which isn’t as heavily vested in New York and Los Angeles as AMC or Regal — aims to have most of its complexes open by June 19, though with mainly library titles. (CEO Mark Zoradi also suggested more flexibility over windows than AMC or Regal has so far; he also revealed that employees, but not patrons, will be required to wear face coverings.)
It has never been more vital for exhibitors to position themselves for optimal advantage among investors. They are little more prescient about the future than the rest of us, although they’re in a lot more danger.