AMC Entertainment (AMC 1.61%) is counting on movie studios bringing blockbusters to the big screen this summer to get moviegoers back into theater seats. So far, though, that isn't quite happening, which presents a big problem for the theater owner's turnaround.
Even though AMC has used its meme stock status to raise hundreds of millions of dollars, all that cash will do little if moviegoers aren't going to show up. It may not be AMC's fault this is happening, but it doesn't bode well for the company and its investors.
A glass half full
Memorial Day was the hoped-for start of the recovery as it has historically held an important place in cinema as the start of the summer blockbuster season.
That standing has slipped in recent years, even before the COVID-19 pandemic, as studios have broadened their release calendars to include other times of the year. But this Memorial Day weekend was seen as significant simply because most states had reopened, and large swaths of the population have been vaccinated.
Considering all that theaters had going against them, it wasn't a terrible showing. A Quiet Place II smashed expectations with a $57 million weekend open. Yet it also amounted to well over half the entire $100 million theater box office haul for the holiday and the industry's biggest weekend since March 2020.
To put that in perspective, Walt Disney's live remake of the animated classic Aladdin -- which received lukewarm critical reviews compared to the original -- generated $116 million during its Memorial Day weekend debut in 2019.
However, Aladdin also generated more than half of that year's entire Memorial Day box office of $213 million, underscoring the declining fortunes of the holiday to draw in crowds. Also working against theaters was the release of only six new films this year compared to 11 films two years ago, and only about 72% of theaters were open this year, often with limited seating capacity.
Are you not entertained?
That's why many say the weekend was a success and are reading this as a win for AMC Entertainment.
Mobile-device location data from analytics firm Placer.ai notes AMC's foot traffic over the holiday weekend was down 49% from 2019 and 46% from 2018, which is hopeful since the largest theater operator was able to recover over half of the moviegoers it lost to the pandemic.
It also did considerably better than rival Cineworld (CNNW.F), whose Regal theater chains were down over 60% over the Memorial Day weekend compared to 2019.
Of course, AMC was the first operator to reopen its theaters last year while Cineworld refused to do so until studios committed to releasing movies into theaters again. Cineworld didn't begin reopening until it struck a deal with AT&T's Warner Bros. studio to have a window of exclusivity for films and not day-and-date releases, when films are released to theaters and streaming services simultaneously. And that only happened this past March.
Still, the analytics firm found patrons are steadily becoming more comfortable with going to the cinema again.
Between April 19 and May 31, weekly visits to AMC theaters improved from being down over 78% to being down 50% compared to 2019. When viewed sequentially it looks even better with visits down 31% the first week of May but surging 159% higher in the last week of the month.
So it appears the release of a much anticipated movie over a holiday weekend shows there is still latent demand for big-screen entertainment, but it's also worrisome too.
July is another big period for the industry. It's usually the heart of the summer blockbuster season, and not only are there fewer big budget films going to market this year, but a number that are being released are either exclusive to streaming services or are being released simultaneously to theaters and streaming.
Comcast's Universal Pictures, for example, will release to theaters on July 2 the next installment in its Purge franchise, The Forever Purge, but Amazon is releasing to Prime Video that day its tentpole film, the Chris Pratt feature The Tomorrow War.
On July 9, Disney will release the Marvel comics origin story Black Widow to theaters and Disney+, and a number of other films from other studios will get the same treatment. AMC and the rest of the theater industry not only has to combat a reticent audience but also the threat of streaming services siphoning away moviegoers.
A hill too high to climb
AMC Entertainment ended the March quarter with $5.4 billion in long-term debt and another $4.9 billion in operating leases, for which it needs to make $800 million in payments for the remainder of this year. It's got to come up with another $1 billion next year, making it a high financial hurdle to overcome.
Many see the Memorial Day weekend as a sign of a revival for the theater industry, but retail investors should see it instead for what it really is: too little, too late. And they should avoid AMC Entertainment stock the way they'd avoid a big-budget flop.