Box office experts agree that going to the cinema won’t go away. The pastime is cheap, fun and can drive billions in ticket sales. In the past two weeks, the domestic box office has set records in ticket sales for the era of the pandemic, a welcome sign of recovery for the industry.
It is a particularly promising signal for AMC to who have raised roughly $ 2 billion in cash over the past six months and plans to use part of the fresh funds to acquire additional theater locations. The best scenario is that the audience continues to watch movies on the big screen, and with more market share, AMC will reap the benefits of those ticket sales.
As AMC continues to add more theaters, it is looking for high performing venues that were abandoned during the pandemic and may have to divest some of its underperforming theaters too.
Speaking to Jefferies, Ownby said America was “checked”. Before the pandemic, there were around 40,000 screens. The bottom 15% of these locations only generated about 5% of the box office, Jefferies said in a research note Monday.
Ownby, who worked for Regal from 1999 to 2018, suggested that a healthy screen count would be 32,000 to 35,000.
His thesis is in line with others in the industry who saw a decline in cinema attendance even before the pandemic. These analysts assume that this trend will continue.
“I don’t know if we can sustain the kind of audience we’ve had in the past,” said Doug Stone, a box office advisor and former theater operator. “Personally, I don’t think we’ll ever go back to that [levels] in 2019. “
For the past two decades the highest number of tickets sold was 1.6 billion. That happened in 2002. In 2019 the number of visitors was around 1.2 billion. Cinema owners have kept ticket revenues high through price increases.
“I think you’re going to see a reduction in the seating, if not the screens,” said Stone. “I think you will see more luxury-based entertainment. I think you will see these huge 30-screen complexes dry up, either reduced or turned into some kind of luxury location.”
Over the past decade, cinemas have increasingly equipped their locations with adjustable seats to make the cinema experience more attractive to the audience. With these improvements, movie theater owners can also charge more per ticket.
These seats are much larger than the stadium seating that is being ripped out. With these renovations happening across the industry, theater chains are actually reducing the number of seats available per performance.
Adam Aron, CEO of AMC, said some of the money was raised from recent stock sales will go towards theater improvements. These upgrades would likely be paid for in cash, which means AMC would not add more than $ 5 billion in debt to its debt. The same applies to new theater rentals or purchases.
While some box office analysts see a long-term payoff for this strategy, others believe AMC should make debt settlement a top priority.
“AMC should focus on deleveraging rather than acquisitions,” MKM Partners’ Eric Handler said in a research note Tuesday. “In our view, with a stabilized balance sheet, AMC would be best served if it used its newly raised capital to reduce its sizable debt burden of $ 5.5 billion rather than pursuing acquisitions.”
Insiders like Ownby and Stone have questioned whether AMC can generate positive cash flow in the short term. They say it might be a better use of AMC’s funds to pay off debt now, even if the bulk of it won’t fall due for three to five years.
“Management has been given an unforeseen opportunity in the recent wave of (fanatical) retail investors that has driven stocks well above historical valuation levels,” said Handler. “We believe that the best way to serve shareholders is to repay debt.”
AMC’s stocks are up more than 478% last month and are up 2,600% this year with AMC’s rise forces short sellers to abandon their bearish positions. The stock was up 9% in early Tuesday trading.