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AMC Starts a War It Can Only Lose

By Rick Munarriz – Apr 29, 2020 at 10:55AM

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The country's leading movie theater operator changes his tune, but that doesn't mean a Hollywood ending is in the script for AMC Entertainment.

Drama, plot twists, and fade-outs are no longer limited to being projected on the silver screen at AMC Entertainment (AMC 9.08%). The country's largest multiplex operator is firing a shot at Comcast's (CMCSA -2.04%) Universal Studios after comments made by NBCUniversal chief Jeff Shell following the initial success of Trolls World Tour earlier this month as a digital release, setting the stage for a disaster flick that will play out in the real world.

"As soon as theaters reopen, we expect to release movies on both formats," Shell is quoted as saying in The Wall Street Journal.

AMC is responding by telling the studio that it will no longer license any Universal movies at any of its roughly 1,000 theaters worldwide when it reopens under these terms. It's quite the shot that the struggling multiplex operator is firing. One has to wonder if it knew it was hurling a jagged boomerang when it made the decree.

Reclining chairs at an AMC movie theater.

Image source: AMC Entertainment.

Trolls are everywhere

AMC is picking a fight it can't win, and not just because Trolls World Tour has delivered an impressive $95 million in its first three weeks as a premium video-on-demand release. AMC telling a studio it will no longer screen future releases if they disrespect theatrical release windows is like a kid arguing with a parent about a weekly allowance. It's the parent, not the kid, that dictates the terms here. Other parents are also listening, and they're going to side with the adult here.

Yes, there is some merit to AMC's argument. It's not upset that Comcast chose to release the latest installment of its animated Trolls franchise directly to consumers. When it became clear that movie theaters wouldn't be open in time for the jukebox musical's April 10 theatrical release, Comcast chose to make it available as a streaming 48-hour rental for $19.99 a pop.

AMC gets it. Most studios have responded by simply pushing out release dates, but this was a unique case in which a film already had product tie-ins -- everything from toys to Oreo cookies -- that were already hitting the market. There was too much momentum to try again a few months later. AMC probably wasn't happy about it, but the real concern here is that Comcast's studio arm is now talking about offering high-priced digital rentals the same day movies hit the big screen once theaters open again.

It's surprising to see Comcast raking in $95 million in digital sales, but that could also be a fluke. The shelter-in-place order has families around the world hungry for content. The original 2016 Trolls took in $153.7 million in domestic ticket sales and $346.9 million worldwide, but movie theaters take a piece of that action. There are also theater-specific promotion and distribution costs to consider. If more studios go this route, it might not be as successful in a more crowded market for first-run releases, and we may never again see the kind of captive audience that we're seeing right now for digital rentals.

However, it is AMC that stands to lose more here than Comcast's Universal Studios. Do you really think AMC can survive without Jurassic World: Dominion next year? What happens if other studios decide to band together in support of Universal?

Will AMC even be around to fight the fight? It did recently take on $500 million in new debt to gain another few more months of liquidity, but this is also the same chain that reportedly stopped paying rent at most if not all of its locations this month.

With folks hesitant to head to a closed-in movie theater even after the pandemic passes -- and the inevitable recession to boot -- this seems like an odd time to pick a fight with a content supplier. AMC probably felt it needed to make a statement now before other studios went public with similar release strategies, but ultimately, it's no longer in a position to be calling the shots. The industry is evolving, and the local multiplex might no longer be part of the big picture in the future.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

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