Market Insight

Enhance, engage and expand: AMC takes its strategy to European and US' sub-urban cinemas

May 15, 2017

Pablo Carrera Pablo Carrera Principal Research Analyst – Cinema, IHS Markit
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Wanda's subsidiary AMC Entertainments Holding ('AMC'), the largest cinema operator in the world by screen count, published record earnings in its first quarterly returns since the completion of the acquisitions of Odeon & UCI in Europe and Carmike in the US in the previous quarter. AMC also completed the acquisition of the Nordic Cinema Group at the end of Q1 although the impact in this quarter's revenues is minor since only three days of activity are included.

With the three acquisitions, AMC controls 1,027 cinemas with 11,247 screens and is present in 15 territories. Additionally, its parent company Wanda also operates cinemas in China and Australia and New Zealand (through the acquisition of Hoyts in 2015), resulting in the control of approximately 14,000 screens or 8.8% of the worldwide screen base. 

AMC's consolidated results reported a total revenue increase of 67.5% to $1,283.4 million compared to the same quarter in 2016. Of this, 77% or $992.2 million originated in the US markets (legacy AMC and Carmike cinemas) whilst 23% or $291.2 million came from the international market (mainly Odeon & UCI). The box office saw a boost in revenues of 69.4% to $817.3 million, whilst the food and beverages revenues rose by 63% to $244.1 million.

In the US, the acquisition of Carmike produced a decline in average ticket price from $9.42 to $9.27, comparing the two first quarters of 2016 and 2017, due to Carmike's lower prices. On the other hand, the spent per patron in food and beverage increased from $4.77 to $4.88. 

AMC also confirmed that the rebranding of all cinemas to AMC is almost completed as well as the multi-branding strategy that will split the US cinemas into AMC Theatres (in large urban areas), AMC Classic Theatres (mid-size and non-urban markets) and AMC Dine-In (full service dining). The strategy is aimed at aligning audience expectations with cost structure, and it is expected that AMC Classic Theatres will only generate 10% of revenues given that they are smaller and attract less audience.

AMC's CEO (and President) emphasised that the implementation of AMC's strategy to boost attendance and spend per patron in the European chains (cornerstone of the acquisitions' plan) has already started with good results, albeit based on a small sample. He quoted two Odeon cinemas in the UK partially with recliner seats that had seen increase of 40% in tickets sold in those seats and 66% in the overall cinema respectively. In both cases recliner seats are sold for a 20% premium. AMC plans to install recliner seats in 2,115 Odeon and Nordic screens in the next five years.

 

Our analysis

AMC's quarterly accounts give little information at this stage about the impact of the acquisitions beyond the initial cost savings from synergies. Now that Odeon and Carmike are integrated in AMC's system and that the renovation of the theatres is under way, we may start to see changes in the coming quarter and will be able to compare with this one.

AMC's strategy is based on three e's: enhance, engage and expand. After fulfilling the latter with the purchase of Odeon, Carmike and Nordic, it is now tackling the other two in the newly acquired cinemas.

In the US, AMC has focused on improving customer experience and engagement to increase attendance and expenditure per cinemagoer. Strategies include installing Dolby Cinema systems (it will add 50 in 2017; they carry a 70% premium), IMAX (recently announced expansion), Prime at AMC (its own PLF format, first one in operation, lower price premium), recliner seats (reported 47% increase in attendance, 7% in average ticket price), new food and beverage initiatives (which bring a healthy 86% gross profit margin) and the Stubs royalty programme (whose members get 3% lower tickets but spend 3% more in food and beverage, which report higher margins).  

These initiatives have led its cinemagoers to pay $9.59 per cinema ticket and spend $4.82 additionally in food and beverage on average in 2016.

Whilst Carmike represents a clear opportunity for AMC to implement these strategies, given the proximity in culture and geography of both audiences (even if Carmike's cinemas were in more sub-urban areas), and the slight underperformance of the theatres, it is a different challenge to do so in Odeon and Nordic territories, with different cultures of cinema consumption.

When looking at current metrics, the opportunity does exist: whilst AMC's cinemagoers spend an amount equal to 50% of the ticket price in food and beverage, this is only 37% for Odeon's audience and 28% in Nordic's. Additionally, screen density (screens per million of population) in Europe is half of that of the US, rendering the screens more valuable as they reach larger audiences. Western Europe also has the highest box office revenue per screen numbers globally, which is also of interest to AMC.

At the same time, these metrics are a reflection of the heterogeneity of consumer behaviour patterns that AMC will find in the 14 territories in Europe. Any strategy will need to cater to them all.

That said, even if it is unlikely Europe audiences will reach the levels of spend per patron of US cinemagoers, there is an audience willing to pay for premium experiences at the right price in Europe and so there is value to be captured. Finally, if these strategies are successful, they will in return increase the perception of the cinema going experience in Europe as a premium one, to which competitors in some or all of the territories will have to react too.

 

Research by Market
Media & Advertising
Category
Cinema
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