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Can AMC Theatres Survive the Pandemic Without Bankruptcy or Downsizing Theaters?

America’s largest theater chain will continue to fight off bankruptcy next year, and failure could change the exhibition industry in a big way

Whenever movie theaters reopen next year and blockbusters return after months of pandemic delays, a major question will be whether the recovery will be enough to pull AMC Theatres back from the brink of bankruptcy — or from shuttering or selling off venues to survive.

Since the start of the pandemic in mid-March, revenue for the U.S.’s largest theater chain has collapsed by a staggering 92% compared to the same period in 2019. The company’s stock, already struggling at the start of the year at $7.46 per share, closed at $2.59 on Tuesday as the company has fought to maintain enough cash flow to cover operating costs and a debt burden that stands just under $5 billion.

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For now, the company has said it has enough cash reserves to get through at least the end of January, but will need at $750 million to remain viable through 2021. But the situation is precarious enough that on Monday the company’s majority stakeholder, Beijing-based Wanda, pushed for a change to the structure of the board of directors’ voting process to reduce the possibility of a hostile takeover.

AMC did not immediately respond to requests for comment.

Ideally, AMC could see a burst of needed revenue if vaccination efforts become widespread enough to persuade studios to release big-budget movies in the second quarter — and skittish consumers to return to theaters. That would allow films like Disney/Marvel’s “Black Widow” and Universal’s “F9” to become the first tentpoles to welcome millions of moviegoers back to theaters; and if the success of films like “Demon Slayer” in Japan are any indication, a popular four-quadrant blockbuster combined with a pent-up desire to return to theaters and other public activities could help AMC and other chains get back on their feet quickly.

But this best-case scenario is not guaranteed or without caveats. And industry insiders are expecting that much of 2021 will see theaters having to adhere to capacity limits in auditoriums, mandatory mask wearing, and possibly limits on concession sales. All of these are expected to have an impact on box office and revenues.

“Whatever business we see in 2021 isn’t going to be anywhere near normal,” Comscore analyst Paul Dergarabedian warned. “There could be a strong rebound in public interest in going back to the movies but the recovery period will be going on months after the vaccine is made available to the public. It probably won’t be until 2022 that we are able to get a grasp on what long-term impacts the pandemic truly had on the box office.”

Even before that, AMC needs to find the cash flow to ride out the first few months of 2021 until blockbusters return. The company recently raised $100 million in debt financing, but that’s still not enough to get it through a Q1 period that will be marked by a handful of indie Oscar hopefuls like “Nomadland,” Disney’s “Raya and the Last Dragon” (which will hit PVOD on the same day), and several Warner Bros. films that will be released day-and-date for HBO Max subscribers. Such a thin slate, combined with the lack of a publicly available vaccine, will mean that AMC likely won’t see much more revenue in February or March than what they are seeing in this pandemic-choked holiday season.

Nor will AMC be able to get help from the Save Our Stages initiative, the $15 billion federal stimulus fund created for independent movie theaters, concert venues and other small entertainment businesses that was included in the Congressional package passed this week. The chain is too big to qualify for aid under the legislation.

So what happens if AMC does declare bankruptcy sometime in 2021? For the studios, little would change. While a prolonged wait for reopening could result in hundreds if not thousands of smaller theaters closing their doors for good, there’s too much money at stake to keep big-box theaters from going dark for too long.

“There is low risk of theaters being shuttered beyond the shakeout of the little guys, and we should end up with somebody running the 75 to 80% of screens that remain,” WedBush financial analyst Michael Pachter said. “The studios don’t care if it’s AMC or a private equity firm, as long as there is a place to exhibit newly released films. If the private equity firm goes bankrupt, another will step in and operate if there is demand. It’s like saying that if a restaurant in your neighborhood closes, should you be worried about the availability of prepared food.”

Exhibitor Relations analyst Jeff Bock thinks that the presence of a vaccine and the possibility of blockbusters returning in Q2 may be enough for AMC to convince creditors to give them enough equity to survive Q1, but reorganization is still likely. “AMC will probably have to sell off the lowest performing locations,” Bock said. “It may even be something they’ll have to propose in order to get that equity. Places in smaller markets might be sold, or maybe theaters in major markets that aren’t performing as well as nearby competitors.”

That could provide opportunity for rival chains like Cinemark to expand their reach. Unlike AMC, which is in its current predicament because of a recent acquisition spree for chains like Odeon Cinemas in the U.K., Cinemark was in a solid enough financial position to withstand the pandemic and may be able to expand its theater infrastructure.

Cinemark has a way to go to surpass AMC’s screen count — it has 5,974 screens in North America compared to AMC’s 7,967 — but 2021 might provide the best chance at dethroning AMC as the nation’s largest chain. (Regal currently stands at No. 2, with 7,211 screens.)

“If Cinemark sees an opportunity, they could add more locations just before blockbusters return,” Bock suggested. “It may be that at the end of this, Cinemark becomes the No. 1 chain in the U.S. instead of AMC, and I think AMC will be OK with that if it means they still survive through next year.”

Jeremy Fuster

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