AMC Theatres: Rebooting a Franchise
By: Adrian Cheng
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Opening Credits
From its humble beginnings as a family-owned theatre in Kansas City, AMC Theatres (AMC) has traversed through the hallmarks of the hero’s journey to earn its status as the largest theatrical exhibition company in the world. Equipped with over 10,000 screens in 11 countries, AMC primarily generates income through its in-theatre offerings. Exhibiting feature films licensed from distributors and selling on-site concessions collectively accounted for 90.6 percent of AMC’s revenue in 2023 (USD 4.8 billion). Following the onset of the COVID-19 pandemic, Streaming Video-on-Demand (SVOD) services such as Netflix, Tubi, and Disney+ have enjoyed an aggressive rise in adoption. Unfortunately, the growth of these notable industry disruptors has caused customer preferences to shift rapidly away from theatrical exhibition. With the sustainability of its core offerings being called into question, AMC is seeking innovative opportunities to extend its brand beyond the silver screen.
Tubi or Not Tubi
AMC has explicitly stated that its future success relies on its ability to continue generating profit and maintain its dominant market position in the cinema industry. Despite its historical industry dominance, AMC has been unprofitable for the past 4 years. Considering the in-person nature of movie theatres, it is unsurprising that AMC’s most considerable net loss within this period was recorded during the COVID-19 pandemic; in 2020, AMC reported a net loss of USD 4.589 4.589 billion, a staggering decline of 2977.87 percent in net earnings compared to 2019. This drastic downturn was primarily attributed to a significant drop in ticket sales during the pandemic.
However, AMC has experienced a steady increase in its annual earnings since 2020; in 2023, it recorded its lowest net loss since the pandemic's start at $397 million. With audiences adjusting to a post-COVID lifestyle, AMC still struggles to recover its pre-2020 revenues, especially given the aggressive rise of SVOD. Many customers, even those who previously frequented AMC theatres, have become accustomed to the convenience, affordability, and vast selections touted by streaming services. Consequently, the American theatre industry is projected to grow at a 1.4 percent CAGR over the next five years while SVOD is poised to grow at 7 percent. The rise of these streaming services poses a significant threat to theatrical exhibition's sustainability and long-term growth potential. In particular, this rapid evolution in customer preferences has hindered AMC’s ability to keep theatre-goers in their theatres.
AMC’s revenue model is driven by customers spending on a film-by-film basis rather than an upfront subscription fee. In addition, requiring customers to travel to brick-and-mortar locations requires high customer involvement. Theatres are powerless against SVOD’s competitive advantages—cost-effectiveness and convenience. To accelerate recovery to pre-COVID performance and fortify the company’s competitive moats for long-term sustainability, AMC has employed strategies to drive value in areas that SVOD providers cannot compete against. In light of this, AMC has begun to explore options for revenue diversification, which drive value from the irreplicable experiential aspects of moviegoing.
The 2023 introduction of AMC’s prepackaged snack line for retailers—“Perfectly Popcorn”—is one of the company’s most recent attempts at diversification. This foray into adjacent opportunities that capitalize off AMC’s established brand and capabilities illustrates a precedent for the company’s exploration of unique growth opportunities. The success of “Perfectly Popcorn” even compelled Netflix, their leading SVOD competitor, to launch a competing product—“Netflix Now Popping”. More recently, AMC has announced that it has committed to a multi-chain investment project valued at $2.2 billion; the overarching goals of this project are to enhance the quality of theatrical presentations and support the development of innovative and enticing on-site amenities. By appealing to the moviegoer experience, AMC competes against the influences of convenience, affordability, and film selection on customers' decisions when choosing between streaming a film or going to the theatre.
While this strategy will effectively convert former theatre-goers who need coaxing to return to cinemas, it will require supplementary efforts to convince new leads. In a discussion about the increasing quality of SVOD content, Oscar-winning actor Will Smith explains that “there are things that people just aren’t going to leave their homes for anymore.” Many customers do not avoid theatres due to a preference for SVOD. Instead, there is a foundational disinterest in tn-person programming at cinemas. Diversifying content and experience offerings may be the leap forward that expands AMC’s total addressable market and enhances its ability to survive in an era of streaming providers like Netflix and Hulu.
Out of the Woods?
In 2023, AMC surprised the film industry through an unprecedented move; in collaboration with Taylor Swift, AMC both distributed (through its new distribution arm, AMC Theatres Distribution) and exhibited her concert film, TAYLOR SWIFT: THE ERAS TOUR. By acting as both the distributor and exhibitor of the film, AMC collected a higher-than-average share of box office revenues without having a third-party distributor reduce their margins on ticket sales. Through this approach, AMC captured 43 percent of the film’s earnings, with the remaining 57 percent collected by Swift’s team, allowing AMC to retain $112.5 million of the film’s total earnings. Following the film's success, AMC Theatres Distribution further experimented with this business model by releasing a concert film in partnership with Beyoncé—Renaissance, A Film by Beyoncé. AMC CEO Adam Aron stated that “all of [the $1.1 billion revenue increase in the fourth quarter of 2023] is attributable to [AMC] having shown these two movies in [its] theatres in the U.S. and internationally.” Unsurprisingly, AMC expressed a subsequent desire to explore other distribution opportunities which partner with other leading musical acts. A survey conducted by Fandango, an American cinema ticketing service, suggested growing interest among theatre attendees towards non-film events at movie theatres, further confirming customer demand and potential financial upside in theatrical concert- and artist-oriented films. Leaning into potential synergies between live entertainment and cinema-esque environments is an innovative extension of the AMC brand that enhances the irreplicable movie-going and experiential value proposition while hedging against evolving customer preferences towards SVOD.
Renaissance
AMC should partner with Live Nation Entertainment (Live Nation) to co-create a hybrid production model. In this model, they would jointly produce live events for a catalogue of major artists and distribute concert films for those artists and live events within AMC theatres.
Live Nation, composed of Live Nation and Ticketmaster, is an American live event promotion and production company. It also provides various services and supports executing these events, such as ticketing solutions through Ticketmaster. As the world’s largest live entertainment producer, it generated $22.7 billion in revenue and $734 million in profits. Both AMC and Live Nation have expressed interest in exploring opportunities that expand market reach, carry strong long-term growth potential, and have demonstrated historical profitability. By jointly producing major concerts, AMC can generate awareness among live event attendees and encourage conversions within this market, especially if AMC can successfully emulate the live concert experience with surround sound and high-fidelity visuals. Additionally, producing and distributing live concerts and artist films in AMC theatres can benefit Live Nation by exposing moviegoers to the enjoyment of attending immersive live events and promoting conversions towards future event attendance. With concertgoers being 76 percent more likely to be willing to attend movie theatres and theatre attendees being 70 percent more likely to attend concerts, this partnership is a mutually beneficial opportunity for both parties to drive mutual conversions from customers who share enthusiasm for experiential entertainment in theatres and live shows.
Live Nation’s willingness to increase customer monetization through brand growth and precedent of strategic partnerships with companies in adjacent markets, such as Great Canadian Entertainment, indicates high-potential buy-in to this joint venture. Further, Live Nation Productions, a division of Live Nation, has historically produced feature films, such as being a significant co-financier of The Weeknd’s fictional companion film to his eponymous upcoming album Hurry Up Tomorrow, a contract which they secured through years as a solutions provider for the Weeknd’s tours. Expanding into live entertainment is a unique opportunity for AMC and Live Nation to leverage one another’s competitive moats to capture adjacent, high-potential opportunities with a historical track record for success.
Utilizing Live Nation events as a base for new customer acquisitions and conversion becomes key to addressing AMC’s incessant customer churn and retention woes. A partnership with Live Nation is a mutually beneficial proxy for cross-selling cinema experiences centred on peoples’ favourite artists at AMC theatres to attendees of Live Nation concerts and shows. By building a dual experience across AMC theatres and Live Nation shows, both companies build acquisition and conversion opportunities in a larger pool of customers. As AMC found a slight bump through its Taylor Swift and Beyoncé tour movies, it can find its renaissance through dozens more such films. With enhanced social awareness through co-branding with Live Nation events, expanded in-theatre experiences for when a fan watches a movie on their favourite artist, and cross-selling opportunities across live shows and in-theatre movies, the co-production of symbiotics live shows and in-theatres movies on the dozens of artists out there is a lucrative business opportunity for AMC to rebuild the moviegoing experience and recover to their pre-COVID high. As its renaissance, AMC embraces its competitive moats exclusive to the moviegoing experience to bring the fan experience from live show to in-theatre, revigorating customer engagement with AMC theatres and re-normalizing the moviegoing experience in the face of streaming platforms.
To Be Continued…
As customer preferences have strayed away from AMC and into the arms of streaming behemoths like Netflix, doubling down on AMC’s unique moviegoing value proposition through building a seamless experience across concerts, shows, and eventually films in-theatre is a path of least resistance towards long-term sustainability. Just as the AMC revolutionized the cinema industry decades ago with angled seats and integrated cup holders, leaping to innovate further and integrate itself into the concert and show experience cements AMC as a perpetual part of the entertainment experience in the U.S.
