AMC Entertainment – US 2022 Box Office Expectations & AMC Stubs List Opportunities

The US box office is tracking at 48% of 2019 levels as of Q3 2021, and Q4 is at 71%. However, Q1 2022 has USD 667m or so through January and February. If you straight-line run rate that, that’s a bit of a retracement back to 42% of 2019 levels. How is the overall market recovering and how does that inform what 2022 might provide?

There’s perhaps a potential change in the mix of genres and types of movies that will be put out, to your point around the state of the film slate. Are there specific genres, P&A [prints and advertising] costs or film IPs that you think are most susceptible to either the PVOD [premium video-on-demand] or SVOD [subscription video-on-demand] windowing where you forgo the theatrical market’s exclusivity? Disney’s Turning Red is going straight to Disney+ as opposed to a theatrical release, for example. When do you think we might get back to a normal film slate where blockbuster and family features are willing to be put back into the theatres because the attendance gets to a point that makes sense for the studios?

For AMC, US attendance was approximately 40 million in Q3 2021, which is still below 50% of 2019 levels. It improved to 72% of 2019 levels when the company exited October. Do 2019 attendance rates seem possible to get back to or even surpass, or is there a permanent reduction to the movie-goer consumer base, and we’ll be operating at below 2019 levels more permanently?

What are your thoughts on how over-screened the US market happens to be?

How do you reconcile the over-screening of the US market with screen count remaining stable for AMC, especially giving it stated that 100% of theatres are open for the US, perhaps 99% in Europe? Is much of that due to the quality of real estate for AMC relative to other theatres, or that many of the closures will occur across mom-and-pop theatres? If the market is over-screened and we’re in an area of trough demand given pandemic elements, why weren’t there screen closures at a more exacerbated pace for AMC?

Q: Aside from attendance, the other factor to consider is the per-patron revenues that can be made, and obviously both sides are facing inflation. Admission for patrons was at USD 11 vs USD 9.50 in 2019, perhaps driven by the mix of premium experiences such as Imax and Dolby screenings. With F&B [food and beverage], it’s USD 7.50 vs USD 5.30, so pretty sizeable growth. How sustainable is growth in either of those categories? Does the mix shift in theatre or screen types bring us back to pre-pandemic admission rate, and is much of the food and beverage inflation due to splurging on that first return to the theatres and there will be a normalisation? On both sides of the coin, is this a fleeting or permanent accretion for per patron revenue?

It seems analysts have a pretty realistic view of box office recovery. We’re not talking about 2022 being an USD 11bn box office figure, but more in the USD 6bn-8bn range. Based on everything we’ve discussed, how do you feel about the reality falling within that goalpost vs outside of it? If it’s outside, do you think it’s more to the upside or downside?

It seems film exhibition costs have actually improved relative to pre-pandemic, which had been 50-55% and actually came down to a little north of 40%. Is much of that due to how stressed the theatre environment is and so studios are throwing the exhibitors a bone, and 40% is not something that’s at all sustainable and might get back to the historical 50-55% split?

It seems there are two levers that are being pulled. One is obviously the windows are getting more flexible and shorter in nature. Many people reference a 30-45 day window, and in some instances it’s not very exclusive. It also seems that blockbusters will increasingly dominate the release slate. Does the historical 50-55% split with studios end up increasing over time to 60% or beyond because it is blockbuster-oriented, or do AMC and other exhibitors have enough leverage at the negotiating table based on the flexibility that’s provided at the windows to hold on to 50-55% or perhaps even lower? Which way might that move towards once the market gets to the new normal that might exist?

How are you thinking about recovery nuance across AMC’s competitors such as Regal, Cinemark and more mom-and-pop players? Has the pandemic provided any opportunity for significant market share shifts among the players?

Could anything drive market share shifts, whether it’s better studio relationships to get that slate back faster, or the aggressiveness around not spending discretionarily on CAPEX? Obviously studios closed and there is a lot of necessary upkeep. If USD 6bn-8bn is the new box office number, once that ensues for 12-24 months, do you expect share to actually change or is that something that’s stable in nature?

Do you expect many of the screen closures to occur among mom-and-pop theatres? Given you’ve mentioned AMC CEO Adam Aron is focused on being the screen leader, would you anticipate acquisitions of foreclosed or distressed assets over the next few years?

How differentiated do you expect A-List as a go-to-market to remain in the market, and how core are the approximately 24 million-some subscribers that do have A-List subscriptions? Is this a low-risk to churn cohort of the attendee base, or do you expect that to be difficult to retain over the longer term?

Why are A-List members accretive to the P&L for a player such as AMC? If you’re paying USD 19.95 a month with the opportunity to go to three movies every week and you’re forgoing the admission fees, presumably the one million or so A-List users are probably surpassing the frequency that make the subscription product cost-efficient to the admin. Is AMC forgoing the upside that could exist, whether it be admission fees, or is that more than made up by the F&B portion of the per caps?

How realistic should we consider AMC’s ability to keep the A-List members within those thresholds? Will it come back to the fact that the actual A-List members themselves are such a small portion of the 24 million-plus AMC Stubs members overall? The company mentions Stubs representing more than 50% of ticket sales. Is it safe to presume that, proportionally, much of that is coming from Premiere vs Insider where it’s not this high concentration of A-List members that are meeting that 14-15 movies per month that are making the AMC business lose their shirt as it relates to film costs? Do you expect that frequency threshold to remain in a place that AMC can continue to make money on the A-List portion of the tiering?

It seems theatres have the opportunity to operate the assets they have as more like venues, similar to how MLB and football stadiums bring concerts into the fold. How much potential is there for alternative use cases, whether it’s concert movies, conventions or live sportscasting? Is that base built off Stubs members, or will many new use cases be disparately different people than the loyal movie-goers that have been core to the AMC business historically?

Are there enough other experiences that you think can more than make up for the USD 3bn-5bn shortfall from the pre-pandemic USD 11bn that might occur to the box office levels from other experiences?

AMC’s deferred rent balance is, order of magnitude, USD 376m. Given that many of the landlords were distressed as well, how are you thinking about the extent to which AMC can turn some of that into permanent vs temporary savings, or maybe the pace at which it needs to give the deferred portions back to the landlords?

Many things are occurring secularly for the theatre business that might transition things, but also we have to keep in mind the extent to which any transformations can occur based on the capital restrictions. Do you expect the AMC business model to look much differently over a 5-10-year horizon?

Do you have any concluding thoughts regarding AMC and the broader US movie theatre industry?