Why Betting on AMC Entertainment Goes Beyond Movies

Is dinner and a movie transforming into dinner at the movies? That is one of the hopes of AMC Entertainment Holdings  (NYSE: AMC  ) , which competes with theater-exhibition operators like Cinemark Holdings (NYSE: CNK  ) and Regal Entertainment Group (NYSE: RGC  ) .

In recent years, entertainment-technology providers like IMAX  (NYSE: IMAX  ) have helped theater operators provide another reason for moviegoers to forgo their home-entertainment systems and visit a movie theater. But since the last time AMC Entertainment was publicly traded in 2004, the movie-theater experience has evolved, and betting on AMC Entertainment today goes beyond movies.

By Cptimes, via Wikimedia Commons

How to truly compare AMC Entertainment to Cinemark and Regal Entertainment
The movie-theater industry generates $14 billion a year in sales and has had 0.9% annual growth from 2008 to 2013. The top-three theater-exhibition operators based on market cap are Cinemark, AMC Entertainment, and Regal Entertainment.

2013 third-quarter earnings for both Cinemark and Regal Entertainment showed that revenue for each increased 19.6% and 17.3%, respectively, despite the fact that movie-theater attendance has been relatively flat for the past several years.

Concession sales are driving revenue and, consequently, net income throughout the theater industry. Because top movie theaters bid for the same movies and keep the same small percentage of box office sales, concessions are what differentiate one company from another.

 

Average Ticket Revenue

Average Concession Revenue

Total Average Revenue Per Attendee

AMC Entertainment 

$9.04

$3.92

$12.96

Cinemark 

$5.92

$2.99

$8.91

Regal Entertainment 

$8.93

$3.58

$12.51

Source: Each company's latest prospectus and earnings reports.

The table above shows that AMC Entertainment is able to attract moviegoers that prefer to watch movies in 3D, IMAX, or RealD premium formats, which demand higher ticket prices. In fact, nearly half of AMC Entertainment's 4,950 screens are either in IMAX or RealD 3D formats.

This is a huge positive for AMC Entertainment since 3D box office sales throughout the industry were nearly the same in 2012 as in 2011, despite fewer 3D film releases.

Additionally, AMC Entertainment's five-year deployment plan to add more alcoholic drinks, full-service dining, and made-to-order options will only help boost its industry-leading average concession revenue in the future.

AMC Dine-In Theatre.  Credit: AMC Website

It isn't necessarily about the movies
In 2012, frequent moviegoers increased to 57% of all movie-ticket sales. This means that those who prefer to see movies when they are released in theaters will continue to do so more often, and as a result, continue to make up a larger portion of all box office sales.

Furthermore, people are starting to ask what is showing at specific movie auditoriums instead of where particular movies are being played. This suggests that movie-theater locations are starting to become landmarks to visit.

AMC Entertainment seems to think so as well. In its prospectus, the company states that after more than nine decades of business models driven by quantity of theaters, screens, and seats, it now believes quality of the movie experience will determine long-term and sustainable success.

AMC Entertainment's 343 theaters comes in third behind Cinemark's and Regal Entertainment's 506 and 576 theaters, respectively.

Why investing in entertainment technology providers like IMAX is risky
Entertainment-technology providers like IMAX are too dependent on specific movie titles. While theater-exhibition operators make money off of concessions, IMAX needs IMAX-compatible films each quarter.

2013 third-quarter earnings showed what happens when the movie titles are not there. During a recent conference call, the company admitted to the lack of blockbuster movies that demand IMAX fans. Revenue fell 36% when compared to the same quarter of 2012.

Currently, IMAX is betting on nine films for 2014, which include hopeful moneymakers like Robocop, Godzilla, and The Hobbit: There and Back Again.

AMC Entertainment in 2014 and beyond
Food, drinks, and other amenities are starting to become commonplace within the entertainment industry. Modern sports arenas have evolved from hot dogs and fries to steak dinners and wine. Similarly, the same evolution is taking place for movies theaters.

Theater-exhibition operators like AMC Entertainment are becoming luxury situations with a middle class price point. Despite the advancements in home entertainment technologies, which include surround sound systems, HDTV's, and even high-definition home-projector systems, it is the luxury and amenities at theaters that will attract business.

Babysitting options may be the next step for theater-exhibition operators. Finding a babysitter is one of the top inconveniences that prevent people from going to the theater. Babysitting alternatives are already offered at gyms and malls throughout the U.S., so the possibility that they are introduced in theaters isn't out of the picture.

The bottom line
Movie titles will always be an important factor for all theater-exhibition operators. However, AMC Entertainment may have a head start against its peers Cinemark and Regal Entertainment in transforming the classic business model from dinner and a movie to dinner at the movies.

In recent years, increases in movie-ticket prices have resulted in a flat attendance. But, if full-service dining and other amenities are added to the mix, attendance may start to rise again, and this would help the bottom lines for all parties involved in the movie-theater business.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 07, 2014, at 8:43 AM, Comedian180 wrote:

    It appears that you are negative about IMAX,yet your associates are and have been quite bullish on the company.

  • Report this Comment On January 08, 2014, at 3:49 PM, mikecart1 wrote:

    Hi Comedian180,

    Thanks for the reply. I just believe that IMAX right now doesn't have the upcoming movies to make investing in it better than the exhibition companies themselves. I can't comment on my associates.

  • Report this Comment On May 08, 2014, at 3:30 PM, emarshall12 wrote:

    Thank you for your post. The chart was interesting because I have seen more of the other two types of theatres over AMC. Will the prices continue to go up in the near future?

    Emily Marshall | http://streamaut.ca/home-theatre-design-installation

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