AMC Theaters: Remaining Relevant in the Digital Age?

How changes in movie-viewing driven by digital technologies have negatively affected theater chains like AMC.

Digital technologies are disrupting many companies within the movie business, but perhaps none more than the theatrical exhibitors. This post focuses on the largest theatrical chain in the US, AMC Theaters, and how it is struggling to keep up with seismic digital shifts in the industry.

Value Creation

AMC aims to provide the best possible movie-going experience for its customers. They concentrate on a number of areas to make this possible. First, they exhibit high quality, in-demand films from top studio suppliers. Key to this relationship with studios is the theatrical exhibitors’ right to show films first and during an exclusive timeframe (before any other digital platforms). Second, they have best-in-class sight and sound systems installed in their theaters. This means they’ve invested in the highest quality technology like IMAX and Dolby to deliver the best audiovisual experience possible. Third, they have concentrated on enhancing the theatrical experience beyond the screen to include comfortable seating, mobile ordering, bars, lounges, and a variety of concessions.

Value Capture

AMC Theaters captures value from their customers in two ways: ticket sales and concessions. Interestingly, tickets prices do not vary by film. This means that a large tent-pole movie such as The Dark Knight will be priced the same as an unknown, independent romantic comedy even though they differ drastically in production cost and demand. AMC Theaters splits ticket sales with the studio/distributors of each film (usually about 50-50, depending on the deal). Concessions are 35% of total revenue and a huge profit contributor as AMC garners 86% gross profit margins on food and drink (see this and more data here).

Changing Digital Trends

A few key trends spawned by digital transformation of the movie industry are threatening the current business model of AMC. They include:

  • Change in Content Viewing Habits: The digital age has delivered content on demand from providers like Netflix and Hulu which has shifted the way people consume films. People are now used to watching what, when, and where they want – something not conducive to AMC’s model of outside-the-home, minimal choice, appointment viewing.
  • Explosion of Entertainment Options: With phones, tablets, video games, sports, concerts, etc., there are so many entertainment options. AMC now needs to compete with all of them when a customer is deciding what to do in his/her leisure time.
  • Shortening Theatrical Windows: Content owners (studios) now have many ways to monetize their films beyond the theatrical window. Other windows include VOD, DVD, SVOD, and TV. Theatrical has historically always been the first window, and performance at the box office has informed the prices content owners can garner in subsequent windows. This is still true, however as studios aim to maximize profits across all windows, some have started to give less respect to the length and exclusivity of the theatrical window. This means that people are less likely to go to the theater, because they know they can just see it on-demand in a few weeks. Not good for AMC. Some in the industry are even talking about moving to “day-and-date” release where movies will be available in-home on the same day they are released in theaters, just at a higher price.

The impact that these digital trends have had on AMC’s and the theatrical exhibitor business has been decreasing attendance and decreasing cultural relevance of the theater.

AMC’s Reaction and Why It Might Be a #Loser

To counteract this drop in attendance, AMC has focused on improving the movie-going experience, creating loyalty programs that incentivize theater usage (AMC Stubs), and looking at new ways to price tickets. They have focused on IMAX and 3D – trying to create experiences that cannot be replicated in the home. They have also favored large tent-pole movies that people feel the need to see on a big screen. Another core strategy has been to enhance the movie-going experience with reclining chairs, better and more varied concessions, and social gathering elements like lounges and bars.

AMC is currently focused on incremental and modular innovation when a radical innovation (direct-to-consumer digital delivery of content) has taken place in its industry. What they should be more focused on is architectural innovation – working on where they fit into this new landscape, and how to use their existing brand to stay relevant. Put simply, perhaps they should be focusing more on partnering with studios to creating exclusive, first-look, premium digital delivery platforms than on the plushness of their seats and recipe of their mozzarella sticks, because the young millennials may not be coming in anyway.

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8 thoughts on “AMC Theaters: Remaining Relevant in the Digital Age?

  1. Totally agree — it’s not an extreme shift enough to supersize chairs, which seemed crazy when it was all about getting volume/ticket sales in the space. I don’t think the super luxury format is going to work out very well as screens continue to get bigger and better as well and as some people start caring less about feature length experiences and turn to other content instead.. AMC is very protectionist about allowing “day and date” releases but the studios are slowly starting to work around them. I think Screening Room, Sean Parker’s start up to allow day and date releases in the home, will become popular in the coming years. It already has some huge filmmakers, like Peter Jackson of Lord of the Rings, saying that they think it is a good idea for the industry as a whole! I believe that system costs $200 for the hardware, and then $50 per movie. Which, if you’re a family or a parent taking 10-14 kids out on a Saturday, seems like a pretty decent idea.

  2. I LOVE THIS. Im glad someone wrote about the movie-going experience, which is completely broken in my point of view. As a consumer, sometimes it feels like they don’t even want you there from a customer service perspective. The theater smells weird, concessions expensive and limited, you have to pay a fee to buy tickets online, etc. With streaming options widely available, I could see their position as an entertainment option collapse. We have attempted to see Hidden Figures twice this month and both times retreated to our living room watching Westworld on HBS GO 🙂 But I wonder if they have such great economic arrangements with the content producers/big movie studios that most movies still go through movie theaters first…

  3. Annie – really enjoyed your post! As someone who has visited the Fenway (Regal) Cinema which utilizes the large, comfy chairs to attract viewers, I had not put much thought into the idea that the chairs and thus higher ticket price is an effort to offset the lower volume of visitors. Interesting.

    I know your post doesn’t touch on cinemas internationally, but I would be curious to know if you have a thought about the fact that construction of cinemas has been exploding in China in recent years. Do you see this as an attempt for cinemas to counter the loss of revenue in America with that of China? Is this construction potentially already a loss given that move towards technology all over the world? Thanks for your thoughts!

  4. Hi Annie,

    Wonderful post. Well done! The mozzarella sticks at the end made me hungry… 🙂

    I think you’re on to something when you write, “perhaps they should be focusing more on partnering with studios to creating exclusive, first-look, premium digital delivery platforms”. Do you mean work with studios to create something like a Netflix service, but for new movie releases? If so, that’s an interesting concept! But what would stop studios from simply working with platforms that already exist (e.g. Netflix or Amazon)?

    Also, while I love the idea of AMC focusing on “architectural innovation”, I wonder if there is still hope to revive the theater-going experience. The biggest inhibitor to going to the theaters, for me, is the price – it’s so expensive these days! I feel like my grandparents in thinking, “I remember when you could see a matinee for $5”. Those were the days. Anyways, what if the seats were cushy, spread out, and you could dine-in, AND the tickets were $7.50. Would you still not go to the theatres? Just wondering!

  5. I think this is extremely interesting. I can’t help but draw parallels to Blockbuster and their success after netflix and redbox came about. I wonder if as mentioned in earlier cases (Samsung) as large tv prices come down and image quality continues to go up, the last real advantage that a movie theater has goes away. It was very understandable to want to see something “on the big screen” when your home television was an analog 20 inch black and white with rabbit ears. I think the decision will get a lot harder when your alternative to a movie theater is a 60″ 4K OLED with much cheaper snacks!

  6. Great post! When people talk media disruption, they usually don’t touch on movie theaters first. While your suggestion to focus on “digital delivery” platform for films would be ideal for consumers, I think this would be difficult to achieve as movie theaters and film studios do all they can to defend the lucrative distribution moat the current film ecosystem has put in place. An alternative innovative approach could be to incorporate cutting edge technology into theaters — perhaps some AR/VR hardware and content initiatives? Would love to hear what you think.

  7. Great post, thanks for sharing! I found the theater attendance graph particularly interesting, as it seems that actually more people went to movie theater after 2010 than before yet frequency dropped, assuming average ticket price held still, as per capita admissions decreased by a larger proportion than total admissions did. I wonder if this is also driven by movie theater’s strategy shift as you mentioned that AMC favored larger tent-pole movies. Another interesting question would be if the size of total entertainment industry (includes every choice you mentioned) actually grew while each type of player grabbed a smaller slice of pie. If yes, every player needs to think about adjusting its operation strategy then.

  8. Hi Annie – I thought you’d be interested in this article which was just published on Variety: http://variety.com/2017/film/news/warner-bros-kevin-tsujihara-1201981417/

    It looks like Warner Bros. is moving ahead with pursuing an early window strategy that would allow certain films to be available for home entertainment about two weeks after theater release. The thesis behind this strategy is that with a larger number of tentpole / franchise films dominating the box office, independently-branded adult dramas are having a lot of trouble making money in theaters. By releasing certain types of films like adult dramas after a two week window, Warner Bros. believes that they will be adding incremental studios revenue while avoiding cannibalization of box office.

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