AMC Entertainment CEO Adam Aron is “paying attention” to potential obstacles to its $1.1 billion (including debt) buyout agreement with Carmike Cinemas — including its debate with shareholders who believe the price is too low.
But the AMC chief remains “optimistic” that the deal will close by year end, he told analysts in a conference call to discuss Q1 earnings. If it does, then AMC — owned by China’s Wanda Group — would become the world’s largest exhibition chain.
With Carmike, AMC would have lots of theaters in Florida, Georgia, Illinois and Texas — which may concern antitrust officials.
Without going into detail, Aron says that when he made the deal “we wholly expected that we’d come out divesting some number of theaters where the local competition across the street and down the block is too close for comfort, and we’re working with the Justice Department” to sort through specifics.
The CEO declined to comment on The Screening Room, a proposed service that would provide first run movies still in theaters to home viewers willing to pay a steep price. Although AMC is believed to be open to the concept, which would share some revenues with theaters, it’s “still just an idea” that Aron would prefer to discuss privately with partners “rather than fighting it out in the press.”
Broadly, though, he says that “AMC believes in windows and is willing to talk with our studio partners about being creative around the edges.”
Aron also steered clear of the debate over clearance deals, where large chains negotiate to have exclusive rights to show certain films in a community. Smaller rivals say that’s anti-competitive, and the Justice Department is investigating. Last month Fox said it would stop agreeing to them.
AMC negotiates these deals in “less than 30 theaters.” and has “lots of people who clear against us,” Aron says. As a result he’s “fine with Fox’s announcement” and “indifferent” about the outcome of the dispute. “This might be a positive for AMC.”
For the most part, analysts quizzed him on AMC’s Q1 report ahead of the market open; its shares declined 4.6% in early trading.
AMC’s $28.3 million in net income was up 361% vs the period last year on revenues of $766.0 million, up 17.3%. The top line fell a little short of Wall Street’s expectation for $769.3 million. But earnings at 29 cents a share were well ahead of the 21 cents they anticipated.
The comparisons were complicated by AMC’s acquisition in December of Starplex Cinemas. Without that, the chain’s attendance per screen would have been “in line” with the industry. The quarter also included a $3 million gain from sale of its stake in RealD which was bought by Rizvi Traverse Management.
With Starplex, which now accounts for about 6% of AMC’s screens, attendance increased 14.5% to 51.2 million. The average ticket outlay increased 0.8% to $9.42; Starplex prices typically were lower than AMC’s. But concession spending was up 6.3% to $4.76 per person, a record for AMC.
AMC attributed much of its Q1 improvements to its initiatives to outfit theaters with recliner seats — which command premium ticket prices. Aron also talked up the performance of Imax and other large screen venues, which also command high prices.
The CEO says he’s still “bullish about our prospects” for 2016. Box office sales in Q2 and Q3 face “challenging comparisons” with last year, but the full year movie slate “offers us great promise.”