With hits like Dune: Part Two, Godzilla x Kong: The New Empire and Kung Fu Panda 4, the domestic box office may finally be shaking off the ashes from the double strikes, now counting close to $1.8 billion, with moviegoing gaining momentum.
We told you quite early — at last year’s CinemaCon — that the strike clouds were bound to send a monsoon across the business, and indeed they did.
But despite the theatrical business’ increasingly robust expectations for late summer and beyond — many peg Marvel Studios/Disney’s Deadpool & Wolverine as the breaking of the dam — things have felt a bit touch and go, and there’s been much chatter that exhibition is set for a reckoning; that mid-level exhibitors are bound to fold into each other, and even that the No. 1 circuit AMC Entertainment, which is saddled with about $4.8 billion in debt, is bound for bankruptcy.
Not so — or not anytime soon
To riff off Mark Twain, the reports of AMC’s death have been greatly exaggerated. Alamo Drafthouse is shopping itself and has been for some months, and for a high price, Deadline hears. But no major exhibitors are expected to fold — at least just yet. Studios bosses were expecting shoes to drop by this point in time as circuits do not have the Covid bailout money to account for losses from the strikes.
From what we hear, there aren’t any exhibitors behind in rental payments to major studios.
Save unforeseen events, and assuming the release schedule truly revives and the box office cooperates, the industry could emerge on the other side. Again, this not Covid, which pushed Regal parent Cineworld into bankruptcy in the fall of 2022. It re-emerged last year a private company, having shed most of its debt and a number of theaters.
“Can you imagine if AMC filed for bankruptcy to do a reorganization of its theaters? The retail investors would riot,” exclaimed one Wall Street insider.
AMC itself should have gone belly up more than once. It survived Covid intact thanks in large part to retail investors who piled in, making it a meme stock second only to GameStop. CEO Adam Aron did a brilliant job cultivating this group and the company’s shares surged to more than $600 in June of 2021 at the height of the frenzy, allowing AMC to sell stock and raise a much-needed cash cushion. The price has long since come back to earth (at about $3 at Friday’s close), which Wall Streeters consider a fair price. The company continued to raise cash last year, however, using some to pay down debt, which is its biggest problem (until earnings rise), and to maintain the cushion amid the strikes. A few weeks ago it said it plans to sell more — $250 million worth of stock.
Many retail shareholders whose stakes gets diluted each time more stock is issued remain disgruntled, so that honeymoon has been over for a while despite many of them holding the stock. There’s enough agia that Aron felt he needed to justify his newly reported pay package in post on X on Friday, something other entertainment CEOs never do.
“Our draft proxy shows I was awarded AMC stock in 2023 (that I can not sell any time soon) valued using SEC required methodology at $17.9 million. At yesterday’s closing share price, it is actually worth $1,345,000. So my compensation — valued presently — was $16.5 million less,” he wrote.
Sources generally noted the benefits of bankruptcy to any circuit since it allows them to close underperforming theaters and drop lousy leases. Distribution insiders say AMC could afford to shed 100-150 theaters and it would only help the bottom line. Of course, but there’s a big cost to bankruptcy — a lot of people get hurt, shareholders are wiped out — and Aron has proved himself “able to pull rabbits out of hats,” a few people noted.
The looming issue for AMC debt-wise is the $2-plus billion that comes due in 2026. The exhibitor will need to renegotiate with lenders, and likely push out the maturity. It has lenders who have been supportive of the company in the past.
“The major point worth making on AMC is that they are hyper-aware of the debt they have coming due. They need to prepare for that. And they have done an exemplary job re-negotiating the terms of a lot of their debt payments,” says Alicia Reese of Wedbush Securities.
Any upside in the box office would benefit AMC disproportionately since it has the largest Imax footprint and much of moviegoing is gravitating to premium formats. Like other exhibitors, it’s seeing higher concession revenue and exploring alternative content. It pushed into distribution last year with concert films. Taylor Swift: The Eras Tour delivered a punch to the global box office (a majority of that stateside) to a starved theatrical schedule last fall. The exhibitor, which also released Renaissance: A Film by Beyoncé, has said it hopes to do more.
So studios bosses might be looking at AMC cockeyed, but Wall Street is more sanguine. “It can certainly “limp along for a while,” says Roth MKM analyst Eric Handler, who has a sell rating on the stock. Ratings agencies Moody’s and S&P both seems to agree, though they also both called the debt capital structure untenable in the long term.
AMC reduced the principal balance of its debt by $448 million last year. Free cash flow was negative $149 million for the fourth quarter. After equity raises last year, the company ended 2023 with a $885 million in cash. Plus another $250 million-worth, if it gets it, AMC can pull through to the fourth quarter when strong tentpoles like Joker: Folie à Deux, Venom: The Last Dance, Red One, Gladiator 2, Moana 2, Sonic the Hedgehog 3 and Mufasa arrive. The recent stock sale announcement spooked the market a bit, but Aron has said on numerous earnings calls that in a volatile industry it’s crucial to be prudent and have cash on hand.
Not to say the company and others in the space are worry-free — far from it. One industry insider insists the current exhibition infrastructure is designed for a box office of $11 billion-$12 billion — not the $9 billion high since Covid, meaning the pace of wide releases will need to ramp up. “It’s either more movies or less screens,” they say. And the general sense is that there are and perhaps will continue to be fewer releases. Consumer habits have changed since the pandemic.
Ratings agency Moody’s, in a report on AMC earlier this year, called North America over-screened with the current 40,000-45,00 screens probably needing to shrink to 20,000-30,000, saying “the industry will eventually have to shrink to bring supply into equilibrium with moviegoing demand.” AMC has reduced its theater count to 904, from 1,000 back in 2019, it said.
“Most of the industry’s reduction will likely occur in smaller metropolitan markets or among mid- to lower-tier cinema operators as weaker players exit or get acquired by larger operators that consolidate and restructure the industry,” Moody’s wrote. “As leases on theater properties come up for renewal, we expect exhibitors will exit underperforming locations.”
AMC’s ancillary businesses include branded popcorn sold in retail stores, and its own branded candy. It invested in a silver mine a few years ago. It continues to get a licensing fee from Sauda Arabia movie theaters it sold in early 2023. These won’t really move the needle. The company’s debt, like Cineworld’s, was swelled by a string of acquisitions. That’s had some wondering if an asset sale might be an option to pay down out a big chunk — maybe Odeon Cinemas in the UK. Others say yes, there are occasional theater sales, but prices are very low. No one wants to sell at the bottom.
In regards to more concert movies, the question remains how profitable they were for AMC. Sources figure a 4% rental on both Eras Tour and Renaissance, the latter of which underdelivered at the domestic box office with a final $39M domestic take despite a notable $21.8M opening.
In terms of the AMC experiment with The Eras Tour release into cinemas, one exhibition exec says, “It’s important to stress that our business is movies, not Taylor Swift concerts. They’re great to have but it did a fraction of what Dune would have done had it stayed on the weekend.”
“Barbie was the biggest Warner Bros movie in 100 years — how much evidence do people need to show that our customers are desperate for movies?”
As more tentpoles arrive on marquees, the anticipation is that theatrical will boom again.
“The hope is that January and February were the slowest months of the year,” says Reese. March popped a bit. April depends on Civil War, which is eyeing a $20M opening. “The rest of the tentpole films throughout the year look really strong. The fourth quarter will be much better, and sail into a really strong 2025.”
Splashed Wells Fargo in a recent note upgrading the third-largest circuit Cinemark to buy from sell: “Movies Are Back.”
