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Why AMC is facing financial crisis? Can AMC avoid bankruptcy?

For theater chains 2020 started out with a bang. The opening weekend for Bad Boys For Life starring Will Smith raked in more than 73 Million dollars. Many of those tickets were sold at AMC theaters. The year before the world’s largest theater chain took in nearly five and a half Billion dollars. And was poised for another strong showing in 2020. But the coronavirus pandemic quickly made going to the movies a public health risk. And in mid-march AMC closed all of its roughly 630 U.S locations. But the chronovirus pandemic isn’t the only thing pushing the company onto financially shaky ground.

Birth of AMC

The first movie theaters opened around the turn of the 20th century. And by 1916 there were more than 21,000 movie theaters in the U.S. Most were Nickelodeons ,aimed after the admission price of one Nickel in 1920. The Dubinsky family purchased a theater in Kansas city Missouri. Their company would later be renamed American Multi-Cinema or AMC.

AMC introduced the world’s first multiplex in the early 60s. And 10 years later the company owned 183 theaters in 13 states. Soon after AMC was molding the moviegoing experience into what it is today. Attendance rose in movie theaters in the U.S. as hollywood sort of improved its ability to build these blockbusters. That were rich in spectacle, special effects, AMC played a big role as it was building prominent multiplexes in the 1980s.

Innovations & Big Plans of AMC

AMC was also the first theater to install cup holders and the armrests. And they also promoted the ramped up stadium seating that’s sort of ubiquitous today. But then throughout time you had other introductions of technological advancements like the VCR and you had cable television like HBO. Because of these new at-home options Sumner Redstone who owned rival theater chain national amusements said he planned to put a halt on building new theaters. Not AMC, by the end of the decade it had more than 290 locations. But still only around 1700 of the U.S.’s 23,000 total movie screens in the 90s.

The company rushed to build megaplexes with 16 or more auditoriums faster than any other chain. By the end of the decade it had 2700 screens about half of them in megaplexes. But that building boom put the entire theater industry into debt to the tune of more than five Billion dollars.

Two years later AMC strengthened its balance sheet by selling a quarter Billion dollars of stock to the private equity firm Apollo management. Which effectively took control of the company. The new investors got in just as the industry was hitting its peak of nearly 1.6 Billion theater admissions a year. This marked the beginning of an era of rapid acquisition for the movie chain. In 2005 amc merged with rival lowe’s theaters the roughly four Billion dollar deal created a 5,900 screen theater empire. Then seven years later china’s richest man at the time Wang Zhan Lin put AMC on course to become the biggest movie theater chain in the world. He bought the company for around 2.6 Billion dollars that included nearly 2 Billion dollars in debt.

Problems for AMC

But movie studios were beginning to make bigger demands for theaters to screen blockbuster films. In 2013 before the release of Iron man 3 AMC and rival Regal theaters refused to sell online tickets to Disney’s highly anticipated movie. Typically studios and movie theaters will split ticket revenue 50-50. Studios make the movie, they market. The movie theaters show the movie. AMC and Regal said disney wanted too much of a cut. The three companies eventually reached a compromise but the standoff showed a shift in the power dynamics around hit movies.

This model of creating big event style movies and fewer movies has become the model. Despite fewer movies driving ticket sales the theater giant kept on growing. In 2016 AMC acquired both U.S based Carmic cinemas and Europe’s Odeon and Uci cinemas group. Making it the world’s largest movie theater company but by then movie attendance numbers had flattened exposing a major liability for the industry. Too many theaters and not enough people to fill them.

To keep pace theater chains raised ticket prices but also upgraded their amenities to draw viewers out of the home. This business model worked as long as there were hit movies to sell tickets. In 2017 revenues climbed with the help of such hits as Finding Dory and Rogue One, a star wars story but the next year lackluster box office performance led to declining revenues. And AMC’s share price plummeted add to that another shot across the bow from Disney. It required theaters to commit to giving the studio a record high 65 percent of ticket revenues to screen Star wars The Last Jedi.

COVID-19 Impact

In 2019 AMC screened marvel’s Avengers End Game a record 58,000 times over its opening weekend. Then in 2020 disaster struck the entire industry with the coronavirus pandemic. In march AMC announced it was closing all of its theaters worldwide. It happened at a time when the company was loaded with nearly 5 Billion dollars in debt causing the CEO to sound the alarm.

For now AMC has buoyed itself by reopening over 80 percent of its locations. Although with social distancing guidelines and without many marquee movies and its stock price spiked following the announcement of an effective coronavirus vaccine candidate. But it was still far removed from its highs five years ago. Right now the company is burning through 100 Million dollars a month and faces the possibility of running out of cash by year’s end.