AMC had a pretty good quarterly report today. Box office – and ticket admissions did better than expected. Not so surprisingly Adam Aron took a few shots at MoviePass – a service he would love to see go away as it threatens AMC in a way they don’t like and don’t fully understand. Aron seems to revel in the better than expected Ticket and Box office numbers beat for the quarter, while also tacitly acknowledging that MoviePass was a significant driver of his business. While at the same time trying to deny the popularity and acceptance of MoviePass, all while trying once again to throw the company business model under the bus. Desperately, and probably stupidly, wishing they entire thing would just go away.
First, let’s just take a look at some of the numbers here.
As you can see, US Market Attendance was actually down to 61.5M from 68.8M. Aron raised ticket prices from $9.27 to $9.78. All underlying Aron’s strategy of reducing seats, upgrading some of AMC theaters and get more money out of every moviegoer. It is his strategy to actually REDUCE moviegoing. And I give him credit there! – he has achieved his goal of fewer people going to his theaters.
Now – here are some quotes from the conference call, that demonstrate how far a CEO can delude himself from a near-term reality he must face. And that is, like it or not, MoviePass success at AMC, has become the success of AMC. That is, Aron can’t have one without the other. He knows it and is having a harder and harder time dancing away from it.
From Today’s Conference Call
And then I guess I hate to be the one to go here, but I am surprised we haven’t hit on subscription this late into the call. Any color you can provide on what subscription services going to add to the quarter? And then any thoughts on how you see that evolving now that we see a new entrant into the subscriptions game as well, I guess?
I have been waiting for that question the whole call. So thank you for asking it. We have had a very successful subscription program for three years in the United Kingdom, called Limitless in the Odeon circuit. And our views about subscription have not changed 1iota since the August press statement that we put out on the first day of movie passes, in my opinion, ridiculous price reduction. We said go back and look at our statements. We said that there’s nothing wrong with subscriptions programs. They can be quite positive actually if they’re done rationally and intelligibly. But they have to be done at a price that is sustainable. And it was our view that 995 for up to 30 or 31 movies a month is not enough money to spread around MoviePass, Hollywood studios and theater operators, so that Hollywood can make quality movies and theaters can operate quality theaters.
Fast forward to today, in March and April, MoviePass paid AMC $12.02 per ticket on hundreds and hundreds and hundreds of thousands of tickets each month, hundreds of thousands of their subscribers came through AMC theaters to enjoy our product. They did so at a frequency of 2.62 times in March and 2.75 times in April. Now, I took the calculator out and I multiplied 2.75 times $12.02, and I got to a number that was considerably larger than 995. So just as we were hearing that — the MoviePass price point was unsustainable in August, we have the same questions today. And apparently we’re not alone in that view. Our doubts are now shared and articulated by MoviePass’s orders.
OK, Aron – we know you hate MoviePass! – you have made that very clear, and you hate that it has a model that can result in lower prices and you refuse to acknowledge that the lowering of price can result in higher demand – even as it seems to be showing up in your theaters and driving better than expected attendance numbers at your theaters. (Hitting my head against the wall now!) But at the end of your statement, you now claim that your doubts are now “shared and articulated by MoviePass orders”?! And you back it up with no data whatsoever? And what do you mean by “shared and articulated by MoviePass’s orders?” I mean seriously, what do you mean? Are you saying MP subs are down? Because that is a pretty bold claim – given MP has not backed down from their sub growth #’s at all. Or is Aron saying that AMC is seeing fewer ticket sales from MP? That seems counter to his other previous claims of hundreds and hundreds of thousands of tickets. Is it just me, or does it seem like Aron has a hard time splicing all of this BS together to a coherent argument on why MoviePass sucks, other than he hates it, and does not believe in lowering prices to drive up demand?
Aron also states that MoviePass is paying $12.02 per ticket while also claiming in AMC’s own reports that the average ticket price is $9.78. I am starting to smell a rat here. How could MoviePass be paying more than $2 over AMC’s average ticket price? Particularly when MP does not allow for 3D or Imax viewing? Something stinks here. Either Aron is lying, or he is knowingly ripping off MoviePass. I don’t see how either of these things can last. I know some will say the price difference is for regional higher prices where MP is more dominant, but I don’t buy that argument, not when you take out 3D and Imax.
Now – if MoviePass paid for “hundreds and hundreds and hundreds of thousands of tickets each month” what would have been the result had MoviePass aggressively redirected those subscribers to other theaters?
Let’s do some conservative math on that statement against the reported numbers. Since we Aron won’t give a real number beyond hundreds and hundreds of thousands. I will pick some conservative numbers to work with.
If you assume that MP brought in the mid-range of “100’s of thousands” of tickets each month, at the $12.02 price point Aron claims. If you add to that a conservative Halo effect of 20% (For friends who go with MP subscribers that probably would not have done otherwise) That would amount to about $23M in tickets sold by MP in the QTR. A significant amount for the company to be sure. If you add to that the average $5.04 concessions the company claims, it amounts to another $9.6M. This is all VERY conservative estimates. And the total estimate here would be just over $32 Million for the QTR that can be DIRECTLY attributed to MP. And for those people who say that these people would have gone to the theater anyway without MP, I say, you are nuts and delusional to think that way. The data is absolutely 100% clear MP customers double their movie consumption after signing up with MP.
|MP Tickets Sold||Halo Effect 20%||Total Ticket Sales||$ 12.02||$5.04|
|Feb||600,000||120,000||720,000||$ 8,654,400.00||$ 3,628,800.00|
|March||500,000||100,000||600,000||$ 7,212,000.00||$ 3,024,000.00|
|Totals||1,600,000||320,000||1,920,000||$ 23,078,400.00||$ 9,676,800.00||$ 32,755,200.00|
The question is would this relatively small estimate of increased revenue make a difference to AMC’s results. And the very clear answer to that question is absolutely yes!! In a very big way. AMC posted earnings of 14 cents per share, topping the Wall Street consensus estimate of 9 cents per share by 5 cents per share. Net earnings were $17.7 million for the period. That’s right net earnings were $17.7 Million. So does $32 Million of additional revenue make a big difference to AMC?! I think the answer is obvious. Without MoviePass AMC almost certainly would have missed Wall Street consensus, and instead of seeing a nice lift in stock price, they likely would be getting crushed in tomorrow’s trade.
And for those who say, you can’t just add that additional revenue straight to Net Earnings, I say, you must consider that MP sells perishable inventory that AMC likely would not have otherwise sold. Meaning a HUGE amount (almost all of it) goes straight to higher profits for AMC.
So while Aron continues to hope that MoviePass goes away, he also must secretly be thankful that MoviePass is saving AMC’s bacon by goosing their numbers. Aron can’t seem to wrap his head around the idea that a whole lot of people would like to see more movies at a more reasonable price. He is blind to his own strategy of raising price, reducing audience, and slowly killing off all but the most passionate theatergoers.
I have seen this movie before, where the old laboring incumbent just can’t wrap their heads around a new business model that is likely much better for them. The disrupter just keeps charging forward, and finally deals a crippling blow to the old guard. AMC is now very vulnerable to MoviePass, Aron knows it, and it is why his statements continue to get more bizarre and more paranoid. The more Aron continues to bash MoviePass, the harder it will be for him as CEO of AMC to walk back his comments and do a deal with MoviePass under his watch.
I believe MoviePass is nearing or already at a point where they could do serious damage to any one of the major chains by seriously reducing consumption at any one of them for a sustained period of time. That is a nightmare scenario for Aron, who has come out swinging hard against MoviePass and shows no intention to back down.
I expect a showdown soon enough!