Regarding the AMC Stubs A-List frequent moviegoer program, AMC Entertainment CEO Adam Aron today declared himself a “proud papa celebrating the arrival of the newborn and looking forward to years and years of joy.”
Aron delivered the comments on a conference call with Wall Street analysts following the announcement that the world’s largest exhibition chain had beaten estimates with its second-quarter results. The quarterly numbers painted a much rosier picture than this time last year, when the domestic box office was headed for a summer slump and the company posted a sizable loss.
Aron was particularly upbeat on news that the premier VIP A-List program had logged more than 180K paid enrollees in just five weeks. What’s more, he said that 40% of the subscribers were new clients rather than existing AMC Stubs members. “That bodes well for incrementality.” This comes after a weekend that saw upstart MoviePass suffer outages and drastic changes to its model.
Aron was bullish on A-List’s prospects, but steered clear of uttering the name of the company that must not be named (but it rhymes with “class. “) “We can’t be rolling in 150,000 subscribers a month. Remember that other company claims to have three million at the one-year mark. But out number was through last Friday, and since last Friday we have added over 30,000. Over 30,000 in four days is a pretty brisk pace, so I think it does demonstrate that we got into the marketplace at a time when we can take advantage of all this demand that seems to be out there for buying tickets the new way.”
Overall, with A-List, AMC Stubs counts 15.8M U.S. households as members. Aron said he was confident that the $19.95 monthly price tag for A-List, which offers a choice of every movie in every format at every U.S. AMC location up to three times per week, “is right at AMC. It’s more than double what anyone is charging and we’ve still had (181,000) sign-ups so the price seems to be working for the consumer.”
He allowed, “Of course, our launch program is our launch program. We will carefully be monitoring all the various levers within AMC Stubs A-List and modify over time to make the most sense for our guests and our shows… We really do know what we’re doing here and we’re off to a great start. We will continue to manage with profitability in mind.”
He added, “We are not at all worried about any fall-off in our visitation or revenues because of problems others have in the marketplace because we launched A-List and because the consumer response has been so strong. We think we’ve created a vehicle and put it into the marketplace and we can take defectors and bring them into our fold and have them continue to enjoy moviegoing.” On the other hand, “had we had our head in the sand, we might have been at some risk.”
Aron said that for every one million enrollees in A-List, the thinking is the program — net of all cannibalization and net of what goes to the studios — will see $15M-$25M of incremental EBIDTA based on 2.5M visits per month.
“Some people speculate we did this as a competitive response,” Aron scoffed. “Given the compelling enrollments in just a few weeks, this program will be a permanent feature.” It won’t however be the biggest part of the business, rather “Most of the economics of AMC are going to be sold one ticket at a time in the future, just as in the past.”
Looking at the offshore business, Aron reiterated something he had told me in June, that there has not yet been a decision on an IPO in Europe where AMC acquired the UK’s Odeon cinemas group in 2016 and also owns Nordic Cinema. Today he said, “We’re certainly preparing for it and taking all the steps needed if we choose to pull the lever.” There are “a lot of reasons to do it,” but others that aren’t so enticing. “It would return a lot of cash to the parent. On the other hand, it would make running our business more complicated.”
Aron said that despite Europe’s “anemic first half” in 2018, “I think longterm, Europe will grow faster than the U.S.” He also credited the European acquisitions with helping get the foot in the door to Saudi Arabia. “It gave us demonstrated experience in being able to manage across 15 countries. So when we met with Saudi Arabia, we could say the company had a lot of experience in being sensitive to local cultures, business practices.”
As he has from early on, Aron contended that Saudi expansion is “going to be very profitable for AMC.” But he dialed back a bit on the timetable he’s previously set out. “We have been talking about 30-40 cinemas in the first 3-5 years and 50-100 by 2030.” Now, he says, it’s more like “50-100 in the foreseeable future.” It’s going to “take us a while to get going. We have one theater open in Saudi Arabia and we may end up the year at one. Next year there may only be three or four. But once we get into 2020, that’s when we can be really cranking. It depends on how quickly construction and negotiations with landlords can take place.” But AMC, he contends, “is way out in front.” With Saudi’s sovereign wealth fund putting up the lion’s share of the investment, Aron said, “I could not be more upbeat about what Saudi Arabia is going to mean for profitability.”
The focus on the Kingdom and AMC’s existing business means it’s “not going crazy looking at other territories because there is already so much on our plate and so much opportunity for us to choose from within our current world. We want to deleverage, want to invest in our theaters… Never say never, but right now we’re focused on the 16 countries that we’re in.”
On the subject of AMC’s investments in its acquisitions and upgrades affecting cashflow, Aron noted, “Had we been a static company and not acquired Odeon or Nordic or Carmike, we’d be a point of close to being done upgrading.” But Carmike and the European cinemas have runway ahead. “So, we’re investing hundreds of millions. When do we stop and just come back down closer to maintenance levels and put the cashflow back into our pockets? I’d remind that the investments are producing very high returns so we think business is already generating dramatic free cashflow which we’re then deciding what to do with. Some we return to shareholders in dividends, some in buybacks, some is deleveraging the company. But otherwise we’re putting it back into the company because the financial returns are so attractive. It should be appealing to the street that we still have opportunities.”
Overall, Aron had said earlier in the day, “It is finally time for the sky-is-falling-in cynics to admit that they misinterpreted a brief slump in moviegoing last summer. Our industry is flourishing and strong, and the prospects for AMC are enormously bright.”
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