AMC Theatres

A CaseStudy of How AMC Became Leaders in the Movie Screening Business

What do you think was the average price of a movie ticket in North America last year? It was $9.11 even though the average ticket price at an AMC theater is $9.55. The average patron spends $5.17 on food and beverages. On Saturday, April 27, 2019, both of those numbers set new records. A lot of people were at AMC theaters watching Avengers End Game. So much so, that AMC sold $2.6M tickets that day. On Friday they recorded their highest single-day food and beverage sales at around $13M. The next day they set a new record when they sold $15M.

AMC has an 84% gross profit margin meaning for every dollar you spend at the concession stand, they’re giving you something that costs them $0.16 and they’re pocketing the other $0.84. We can go further into their finances in a little bit but right now, let’s be clear that AMC is the largest chain of movie theaters in existence. They are the largest in the US, UK, Italy, Spain, Sweden, Norway, Finland, Estonia, Latvia and Lithuania making them the largest in the world. They operate over 1,000 theatres, each having an average of 11 screens, and about two-thirds of their properties are in the United States. They’re in 44 US states and 52% of the US population lives within 10 miles of one of their theaters. They have the number one market share in the two biggest markets. That’s an amazing 44% share in New York and a 28% share in Los Angeles. So the obvious question here is how did they get so big?

AMC Theatres

Stanley Durwood was the brains behind the success of AMC. It all started in 1920. That’s the year Stanley was born but it’s also the year that his father Edward got together with his brothers to purchase a movie theater in Kansas City. Through the 1940s, Stanley, the son, impressively attended Harvard and served in World War II. After the war, he returned back home to become part of his family’s business, which by now had expanded into a handful of locations called Durwood Theatres. In 1960, Edward died and Stanley took over the business. The one thing that Stanley Durwood will forever be known for is inventing, or at least innovating, the multiplex we know today. The multiplex is pretty much the standard for watching movies on the big screen. It’s a place where you typically get your ticket in the lobby and then walk past ten different theaters on your way to find the one that’s showing your movie. That’s a multiplex. It’s a building that houses multiple movie theaters. Today it would be strange to find a building that only shows one movie, but in 1963 that was pretty much the only way to watch movies.

There were instances of co-joint theaters showing multiple movies in one building well before the 1960s but I do believe that Stanley Durwood came up with the idea. He was the first one to implement the concept in a big way. Back in the day, most establishments were having trouble selling out these large theaters for a single movie and started thinking how great it would be if they could somehow divide the space and show multiple movies at the same time. That way the rent and many other fixed costs would stay the same and yet they’d still be selling more tickets and generating more income.

In July of 1963, Stanley Durwood opened his first multiplex and it instantly became a huge part of the business. He continued opening them through the rest of the 1960s. In fact, in 1968, when he incorporated the business he changed the name to American Multi Cinema (AMC). It was a way to reflect the concept of multiple cinemas per building that the company had become known for. By the 1980s people were watching more movies than ever and willing to pay more for their tickets, which made the movie screening industry tremendously attractive. Stanley Durwood and AMC were doing their best to take advantage of this situation. In 1982 they increased their number of screens from 500 to 700 but found themselves in need of more money. If they wanted to continue expanding at this pace, their solution was to sell 12% ownership of the family-owned company to the public. They would then use the money to build more multiplexes with more screens and by 1988 those 700 screens had more than doubled to 1500.

In the 1990s they found themselves a bit overextended. They had trouble turning a profit but they dealt with it in two ways. They not only slowed their expansion efforts but they actually started closing their underperforming locations and consolidated their screens into what became known as a MegaPlex. These are just really big multiplexes. Instead of five to ten screens, these establishments had 20 screens which meant they were even more cost-efficient and had greater potential to bring them back to profitability. They opened their first MegaPlex in 1995 and the rest of the industry quickly followed. When talking about how AMC got so big, up until this point my biggest reason would be that they had a head start. They were seemingly always a step or two ahead of the competition. They technically entered the industry in 1920 which is almost a hundred years ago. In 1963, when everyone else was operating one theater at a time, AMC was the only one experimenting with the advantages of operating multiplexes in the 1990s.

With the MegaPlex, AMC was the first in the industry to provide their customers with that cup holder in the armrest. It was a simple idea that empathizes how cold people’s hands must have been holding ice-cold soda for two hours. They were a smart and innovative leader that wasn’t afraid to take risks and make the right sacrifices to take advantage of potential growth opportunities.

In 1999 Stanley Durwood died of cancer and soon after the industry ran into some trouble. It turned out that AMC wasn’t the only theater chain that saw a growth potential throughout the 1980s. They weren’t the only chain to invest heavily in these MegaPlexes in the 1990s. Later on, there were too many theaters. Everyone seemed to have entered this booming market and it was now oversaturated. Virtually every competitor started facing financial troubles and many of them didn’t make it through. On the other hand, AMC was so big and established that they were one of the fortunate companies that took advantage of the misfortune of others. Example: In 2001, they outright purchased one of their competitors, General Cinemas, in a bankruptcy auction.

This brings us to the next phase of their growth which is attributed to mergers and acquisitions. The movie screening industry has been consolidating. This is evidenced by the fact that in the year 2000 the top four theater chains generated about 35% of total box-office revenue. In 2018, that number was up to 64% and AMC has been a big part of this. There have been some smaller ones but here are some of the key mergers and acquisitions. In 2006 AMC merged with Lowe’s which, right there, made them twice as big by adding about 2200 additional screens. In 2012, AMC themselves were acquired by a massive Chinese company called Wanda Group for $2.6B. Wanda Group is primarily a real estate development company but they have a lot of other businesses including the ownership of a number of Chinese theatres. The stock is arranged in such a way that Wanda Group now owns 50.01% of AMC but have 75.01% of the voting power.

AMC was at about 5000 screens at this point and since they’re now around 11,000 it means they’ve grown more than twice as big over the last few years. In November of 2016, they acquired Odeon which is a larger theater chain in Europe. It cost them $1.2B and added 2200 more screens. One month later they made another similar-sized acquisition when they bought the US chain called Carmike Cinemas for $1.1B. Then the very next year they bought Nordic Cinemas which was the largest theater chain in Northern Europe for $921M. The last 20 years has been a long line of mergers and acquisitions for AMC that has helped to consolidate the industry. That’s how they got so big. But a new question is how do they manage to stay this big? Obviously, their success is dependent on Hollywood releasing big and AAA type movies. Their revenue is the highest in the summer when most blockbusters are released. There’s not much they can do about the quality of movies that are released but there are parts of the experience that they can control. The factors that determine their success over other theaters, in their words is, “We believe it is the quality of the movie-going experience that will determine our future success.”

New York

AMC has tried to improve this experience through a number of ways but their winning endeavor has been with their recliners. They’ve been remodeling their theaters and replacing the traditional seats with plush electric recliners. They do require more room and can result in the loss of up to two-thirds of their seats but those losses are offset by the fact that the renovations on an average drive at 30% to 50% increase in attendance and allows them to raise ticket prices. Right now, they have these new recliners in 30% of their theatres and they expect that to be up to 43% within the next couple years. They also try to drive sales through their concession stands which have new and extensive menu items. Patrons purchasing these items has increased from 64% to 71% over the past seven years. They also have more IMAX screens than anyone else at a 51% market share in the US. Additionally, they have a loyalty program that encourages customers to return by offering them incentives and making them feel like they’re part of an exclusive club. Their club is called AMC Stubbs and it has over 17 Million total members. The membership program has 2 tiers. The Insider Level and Premier level. The Insider is around $15 per year and has a bunch of benefits. Recently, they also introduced an A-List membership tier that is around $20 per month. The A-List was launched in June of 2018 likely as an answer to movie passes since it allows you to watch three movies per week. During the times of cheaper 65″ 4K TVs at home and all available streaming options, AMC has been successful in finding ways to get people to come to their theaters.

The success of AMC mostly comes down to innovations and acquisitions, but there have been other factors that have contributed too. While it seems to be a continuous struggle to remain profitable, they seem to be doing rather well. Although they do have plenty of debt and the future of the industry is so uncertain, they’re confident in staying at the top. They have been there for almost a hundred years and they’ve set some pretty great records too. Will they be able to maintain their composure or will something cause them to fall apart? I’d like to see if Regal Cinemas can give them a run for their money.

Published by

Siddharth Pereira

Digital marketing specialist and exchange investor that is passionate about the internet, technology and everything in between. I work on conceptualizing and implementing online web development projects that provide branding and visibility results to businesses set up in multiple niches.