Top Exhibitor AMC Reports Q3 Weakness Amid Studio Merger Talk

AMC Theatres

UPDATED with executive comment, 4 PM: With questions swirling about the possibility of Fox and Disney merging their film studios and some TV assets, AMC Entertainment reported third-quarter results that showed weakness that the company blamed on the “quantity and subject matter” of Hollywood movies.

Revenue of $779.8 million represented a 51% gain from the year-earlier period, but net earnings of $30.4 million swung to a net loss of $42.7 million.

CEO Adam Aron said the results, which beat Wall Street estimates, were not surprising. “We have been predicting weakness in the third quarter industry box office, due to the quantity and subject matter of the films that were scheduled to be released,” he said. “Not surprisingly, our foreshadow was accurate. In a high fixed-cost, low variable-cost business, this has led to lower EBITDA generation for AMC in the third quarter of 2017.”

Aron was not asked about the reports of a Fox-Disney tie-up during the 90-minute AMC conference call with Wall Street analysts.

Echoing sentiment from rival circuits, Aron said the company is bullish on the fourth-quarter slate, citing Disney’s Thor: Ragnarok and Star Wars: The Last Jedi as key titles. “When Hollywood and international moviemakers offer appealing movies, Americans and Europeans will pour into our theatres in huge numbers and pay top dollar to do so. In our view, the weakness of the summer box office is not indicative of a long-term trend, especially immediately after 2 1/2 years of record box office performance and just before what we expect will be strong and robust consumer demand through year end. We are similarly confident and excited about the film slate that is coming in 2018 and again in 2019.”

During the conference call, which he kicked off with a 12-point, 40-minute presentation articulating the bull case for the company, Aron said fourth-quarter grosses “could be close” to record territory, but he stopped short of making any ironclad predictions.

AMC noted the steps it has taken in the past three months to bolster the company’s prospects for the coming years, seeking to reduce leverage and improve liquidity and also refocusing capital allocation to high-return projects, including renovations of former Carmike theatres and key Odeon sites.

The exhibitor also said it had begun testing a dynamic pricing scheme similar to what Regal Cinemas announced last month, and is also looking at discounts for front-row seats at certain shows. It has also set plans to put retail shops in 35 locations next year that will sell studios’ movie-branded merchandise — a test that will see if the retail offering can capitalize on ticket-buyers’ excitement while they are in a captive environment.

Touching on another hot-button issue in exhibition, AMC said it will redesign its website to enable it to allow visitors to stream firstrun movies — a step toward facilitating premium video on demand. “We’re not suggesting PVOD will actually happen, but if it does, having this capability on our website will enable us to take advantage of it,” Aron said. Pressed later by analysts, he said he sees two scenarios for PVOD: Either it is dead, or it will boost AMC profits.

The Last Jedi will be the top-grossing movie of 2017, Aron predicted. As to a Wall Street Journal report about exhibitors’ anxiety over onerous terms being implemented by Disney for the film, Aron shrugged. “You didn’t see AMC whining to the Journal,” he said. “I think I was quoted in that article saying Star Wars was going to be a gift from heaven.”

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