You wouldn't expect the annual movie industry awards to be a red flag for AMC Entertainment Holdings (AMC -1.04%) shareholders, but that's how things played out when the nominations for the 94th Academy Awards were announced on Tuesday. Half of the year's 10 candidates for the coveted Best Picture award were available on a leading streaming service when they premiered last year. All five of the nominees for Best Actor were in films that were on streaming services at the same time as their multiplex runs.
It gets worse. All but one of the Best Picture nominations failed to crack $37 million in domestic ticket sales. The outlier -- Dune -- was freely available on HBO Max the day it premiered on the big screen. This isn't problematic at first glance. The Academy of Motion Picture Arts and Sciences and its nearly 10,000 voting members tend to favor artsy fare that doesn't necessarily click with mainstream audiences. All seven of last year's highest-grossing films in the U.S. were the superhero or action films that rarely garner Oscar nods outside of the visual effects category. However, it does matter based on how exhibitors are struggling to fill their theaters outside of the sparse high-profile blockbusters they're getting.
There's a problem here. Multiplex operators and their investors better hope someone writes up a Hollywood ending soon.
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AMC stock has moved sharply lower in each of the past five months. It was trading lower in February before a 10% surge on Tuesday bumped it into positive territory. Even with the healthy one-day advance, AMC stock has fallen 77% since peaking in early June of last year.
The industry itself had its domestic successes in the latter half of last year. Shang-Chi and the Legend of the Seven Rings shattered Labor Day weekend records. Spider-Man: No Way Home has become the fourth-highest-grossing film of all-time. The problem for exhibitors is that -- as with a one-hit wonder -- there's a lot of filler in the playlist. It's pretty bleak outside of the rare blockbusters.
In the old days, a hit flick was great for other studios. A tentpole release would draw crowds to the local multiplex, and if it sold out they would settle for another movie. We're not seeing that anymore. Big releases aren't selling out beyond select screenings during premiere weekends, and the need to reserve seats ahead of time has resulted in fewer people showing up to a screening without tickets to be told a showing has sold out.
A few decades ago -- when movie theaters had just a couple of screens -- a single hit every couple of months would be fine. These days many of AMC's largest theaters have dozens of screens to fill in a single building. One blockbuster isn't enough, especially when anything that isn't an action or superhero movie seems to be flopping. The widespread availability of legal streaming options and the omicron variant aren't helping, but it's a problem that could linger for some time.
AMC has played this challenging hand about as well as it possibly could. It stayed open in the second half of 2020 when its largest rival shut down operations for a few months. It has dramatically increased how much patrons are spending on concessions by introducing mobile ordering and broadening its menu. It's also been strategically picking up shuttered theaters once operated by rivals. There is no doubt that AMC is picking up market share right now, and it's increasing its ability to monetize its captive audience. The problem is that getting a thicker slice of a thinning pie isn't a very encouraging business model.
The trend is not the industry's friend right now. Oscars season used to be the time of year when the leading chains would bring back the nominated films for an encore run, nabbing incremental revenue during a seasonally sleepy time of the year. These days the films can be freely streamed at home, and folks aren't paying up to be in a theater unless it's the kind of movie that has to be seen in a room with dozens if not hundreds of cheering strangers. Year-to-date ticket sales are brutally below where they were two and three years ago at this time.
The good news is that the pipeline is rich with the kind of films that should fare well for AMC and its fellow movie theater stocks. They won't win Oscar nods, but they will win ticket sales. Right now that's the only award that matters for AMC investors.