A lot of moviegoers have been worried about the state of AMC Theatres after the recently released S&P Global report that suggested the brand could deplete all of its cash by mid-summer and may have to close for good. The coronavirus pandemic forced the chain to close its doors and while AMC CEO Adam Aron seemed optimistic they could open again by mid-June, it really seems like it could be the end of the road for the biggest movie theater chain in the states. It all feels very dire but AMC does have an out if they choose to take it.
According to "Deadline", AMC could file for Chapter 11 bankruptcy in the near future which could work in the brands' favor since AMC is saddled with a $4.9 billion debt and is currently valued at $327.3 million. Filing for Chapter 11 wouldn't be the death sentence that it may seem like at first glance because they could still re-open under Chapter 11 as studios and distributors are likely to be deemed by a bankruptcy court as critical vendors. Essentially, movies from studios would be deemed as the primary means that AMC makes money.
The common thought is that AMC likely makes more selling concessions but on average the theater reps 20-25% of a wide release’s opening weekend gross and if it's a particularly big film, that goes up to about 30%. Being the biggest movie theater presence in the states has a lot to do with that since there are 630 AMC locations across America.
Studios also aren't betting on AMC's demise just yet. Also, per "Deadline", AMC is already reaching out to find out what catalog titles are available from the major studios in case a May re-opening is possible. Keep in mind, all of AMC's locations may not try to open that early and it would be determined by how the COVID-19 cases are easing up in particular cities. The reason studios are open to handing out some of their older catalog titles to get the theaters up and running again is because let's say New York or California is still essentially shut down due to the pandemic. A major studio will not want to offer up one of their tentpole titles to test the waters because it would be too risky.
The bankruptcy scenario would not be entirely smooth sailing, especially for all the landlords that house numerous AMC locations. The chain leases 875 theaters (10.1K screens) and owns or partially owns 62 theaters (561 screens) worldwide. In the States, AMC manages or has a partial interest in seven theaters and 73 screens. In order for this to all work, AMC would either have to shed leases or re-negotiate them. For example, mall landlords would likely re-negotiate terms because the theater generates heavy foot traffic to their restaurants and retail establishments. AMC sent out the following to their landlords detailing that they were ceasing to pay rent effective this month:
"This letter is to formally advise you that AMC temporarily suspended operation of all of its theatres in the United States (including the theatre referenced above) on March 17, 2020 in response to circumstances beyond AMC’s control and specifically the COVID-19 pandemic and the national state of emergency declared by the President of the United States on March 13, 2020, and in compliance with various federal, state and local government mandates and directives (including those that now limit public gatherings to no more than 10 people and emphasize social distancing). All other major theatre operators in the United States have also closed their theatres.
As the crisis unfolded and movie studios pulled major new releases (significantly reducing film product), AMC took steps to adapt and remain open. AMC proactively reduced capacity by 50% per the initial CDC guidelines, and then to 50 persons per auditorium per revised CDC. Some of the steps AMC has implemented are: (a) making the very difficult decision to furlough over 25,000 employees in the United States, (b) instituting a reduced pay program for theatre General Managers, (c) placing a hold on discretionary capital expenditures, and (d) making significant cost and personnel cuts at AMC’s corporate offices.
The final step AMC is currently taking directly impacts you. Without revenue from its theatres, AMC will cease paying rent and charges under the lease effective as of April, 2020.
AMC asks for your patience and understanding during this difficult time. AMC intends to reopen its theatres as soon as possible after it is safe to do so. AMC looks forward to getting back to business as usual.
AMC intends to advocate at the federal level for appropriate relief for the theatre exhibition and real estate industries. AMC is willing to discuss with you any suggestions you may have for getting through this crisis and planning for when AMC can reopen and pay rent."
If AMC is to remain open, the brand will likely shed some of its smaller locations. Roughly 200 Classic Theaters, which were former Carmike venues, will likely be the casualties if the chain has to make cuts. Many of these locations are $1 theaters and aren’t big generators for revenue. At the end of the day, while it all seemed like doom and gloom the other day after the S&P Global Report, there are options for AMC and it's just a matter of if the chain will take them. I would hate to see them go since AMC is usually my top choice to see movies followed closely by Arclight. If the Chapter 11 angle is viable, I say take it and hope for the best-case scenario.
Do YOU think AMC should explore the Chapter 11 option?