AMC Entertainment to Go Bankrupt?
Is this the end of movie theaters? A small breakdown of the industry and AMC.
AMC is set to play the final girl role in its own horror movie, as theaters face an existential crisis. Every year we hear the same song about the looming demise of movies due to a multitude of factors, including rising ticket prices and the growth of alternative forms of entertainment like streaming services that include Hulu and Fubo TV (HA!). But just like the famous last words of an ex, this time will be different. This pandemic is going to take an industry that was already fending off threats and slash it like Scream.
No better movie theater chain comes to mind over AMC Theatres. They represent movie theaters as a whole, and why wouldn't they? They're 100 years old. And the movies they dish out sure do show it. When's the last time a blockbuster film was released? With little to no big-hit films, AMC is suffering from movie attendees that are reluctant to risk their lives to watch subpar films. They are running out of cash and eyeing a bankruptcy move. Happy centennial AMC, here's your present: a kick in the groin.
AMC discussed in their 8-k filing with the US Securities and Exchange Commission that “substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period.” The company is running out of cash, and if it doesn’t find new sources of liquidity (and fast), it will declare bankruptcy. Incredible how just 12 months ago, AMC was generating profits in the billions. Much love, China.
They originally had no plans to force people to wear a mask in their theaters unless the state required them to enforce it. Of course, this was faced with a wave of backlash. I'd imagine it to be a Karen Facebook rant that you'd swiftly scroll over. The very next day, AMC went back on its decision and included a mask policy, along with a litany of other plague guidelines. Enforcing social distancing honestly seems great, I hate sitting next to people.
Even though elbow touching the stranger next to you sucks, what's worse is if AMC goes under, everyone loses. That would implicate a loss of some if not all of its more than 1,000 theaters across 15 countries; poof diminished. This would mean fewer spots for movies to be seen, fewer options for consumers, and less leverage for the theater chains that do survive to negotiate with Hollywood studios over terms of distribution. This could completely wipe out going to the movies as we know it. We already lost Blockbuster, we can't lose movie theaters too.
Optimistically, AMC could survive these next few months if a vaccine is produced and distributed; studios would start to release big movies again, and the day would be saved with theaters breathing life once more. Could totally happen, although they still have streaming services glaring at them in the eyes. The thought of this happening sounds nice, but it's also a very real possibility it doesn't happen and movie theaters wind up being ancient dinosaur fossils we brag to our uninterested grandchildren about. We used to go to crowded, germ-infested factories to watch movies in my day!
- $1.1 billion: AMC's market capitalization around this time last year.
- $325 million: AMC's market cap as of Oct 23.
- 85%: Decline in year-to-date AMC theater attendance compared to 2019.
- $11.3 billion: Total US box office revenue last year.
- $1.9 billion: Total US box office revenue so far this year.
- 15 million: Number of shares of stock AMC agreed to sell Goldman Sachs and Citigroup.
- 0: Number of AMC theaters open in its biggest markets: LA and NY.
It doesn't get better. A dive into their financials shows us that the company lost nearly $2 billion last quarter (before the pandemic, it usually at least broke even). It was already $5 billion in debt before this, in an attempt to renovate theaters and give customers a grandeur experience. As of Oct 16th, AMC resumed operations at 519 of its 598 US theaters, with capacity limited to between 20-40%, depending on location. With zero theaters open in their biggest money-making locations (NY and LA combined for nearly 20% of the company's revenue in 2019) it's a big deal. They've closed their hottest spots and the areas where their theaters are open aren't generating any money.
All that matters right now is liquidity, and they have done everything they can to just keep money on hand and a roof over their heads. I feel you, AMC. They have renegotiated almost all of their leases globally. They have suspended shareholder cash returns, their stock buy-back program, and future dividend payments. They have raised hundreds of millions of dollars in private debt, furloughed employees, reduced salaries, and canceled annual merit pay raises. That's unfortunately not going to cut it, which is why AMC is now looking for additional money to weather the storm. Perhaps government bailout funds could be the answer - although that depends on who wins the election. Many famous filmmakers like Christopher Nolan and Judd Apatow have recently signed letters urging US governments to bail out theaters before the industry is wiped out. Of course! That's what will get McConnell and Pelosi to act fast - a begging plea from the guy who wrote Superbad.
The bright side?
Let's say AMC survives, it will be a whole new world of moviegoing. The company made a deal with Universal pictures, after bitching about the Trolls movie, to drastically shorten the amount of time a movie plays in theaters before it's allowed to hit digital rental services. AMC investors have long hoped a big-spending media conglomerate would buy them out. Their share price soared on the rumor of a buyout by Amazon (spoiler: nothing happened). And while the US box office is lagging, Japan is actually doing quite well, its box office is breaking records. While I've never gone to one, one part of the US theater industry that's #thriving is drive-in theaters. I never thought it'd be so popular again, but this year has seen a surge in attendance considering you can't catch a virus in your car!
I'm rooting for AMC to catapult themselves back into relevancy. Don't you remember going to the movies with your parents growing up? Or that first date with your eventual spouse where you shared a kiss? Do you really want that removed from history? I sure don't. Go and spend your hard-earned cash at the movies. No, this is not an ad. #AMC
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