AMC Finds the Right Price with WarnerMedia


AMC Entertainment’s revenue fell 89% in its fiscal fourth quarter.


Photo:

Ron Adar / SOPA Images / Zuma Press

WarnerMedia may have bought some peace with the world’s largest theater chain. And that network could take advantage of the good news.

AMC Entertainment AMC 4.37%

It may be better known these days as the second most popular “YOLO stock” after GameStop: AMC shares were up 365% from the start of the year before the company’s fourth-quarter fiscal report on Wednesday afternoon. But those results were never going to justify action. Revenue fell 89% year-on-year to $ 162.5 million.

Like rivals like Cinemark,

AMC’s short-term results are less important than its prospects of reviving an exhibition business after a one-year close. That recovery may be more challenging given that most Hollywood studios now have their own streaming media to feed. AT&T‘s

WarnerMedia took the most aggressive and controversial move late last year by announcing plans to put its entire 2021 movie roster on its HBO Max service on launch day for a 30-day period.

So it was a bit of a surprise that AMC greeted Warner’s incoming movies on their conference call on Wednesday. That included “Godzilla vs. Kong,” which will premiere on March 31. AMC Chief Executive Officer Adam Aron said: “I should probably assume that if we are screening Warner films, we have come to an agreement with Warner that any changes to their strategy are being made in a way that AMC shareholders benefit rather than to be penalized “. He declined to discuss further details, but added later that the concessions would likely appear in the rates AMC pays to rent movies.

Movie rentals are often the highest cost item in a theater. Credit Suisse’s Meghan Durkin estimates that studios typically take 55% or more of the domestic box office in a major release. Display costs consumed more than 50% of AMC’s annual admission revenue during the five-year period before the pandemic. So a break in costs could help the company’s gross margins at a time when it is also facing a much higher debt burden, along with the need to offset property rentals that were deferred by many of its owners. due to the long closure of the pandemic.

It also helps AMC that WarnerMedia has been in damage control mode, as the decision to put premiere movies on HBO Max angered many in the Hollywood creative community. WarnerMedia CEO Jason Kilar told a Morgan Stanley investment conference last week that “we are absolutely developing and producing films for theatrical display,” similar to public statements made recently by the directors of Disney and Paramount. Wedbush’s Michael Pachter surmises that WarnerMedia may be discounting rental rates by as much as 10%. At the right price, AMC will keep the show going.

The coronavirus pandemic closed all AMC theaters for months. But the pandemic isn’t the only thing pushing the company onto financially unstable ground. Photo illustration: Jacob Reynolds / WSJ

Write to Dan Gallagher at [email protected]

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It was featured in the March 12, 2021 print edition as ‘AMC Finds the Right Price with WarnerMedia’.

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