What I was hoping for was a consistent story. What I was hoping for was a collective industry voice that would say, “We have these challenges that need to be addressed and these are the measures we are taking in order to address them.” Nothing was forthcoming and there seemed to be little cohesion rising out of the industry. Okay, so it’s every man for themselves and we had better start bailing and bailing fast.
Enter AMC. On June 3rd, in its 8K filing with the SEC it made the following statement, “Due to these factors, substantial doubt exists about our ability to continue as a going concern for a reasonable period of time.” This statement exploded globally and cast a shroud of deep doubt over the vitality of the movie exhibition business as a whole. Since then, analysts globally have been down grading the perceived viability of movie going. This is one of the key dangers of being publicly listed, 50% of your business is running movie theaters and the other 50% is attempting to satisfy Wall Street and the SEC.
When a company or industry is in peril, and there is no doubt exhibition is on the ropes, it is the practice of accountants to add this form of statement to an audited set of financials. The fact that this statement was in the body of an 8K was telling. If one looks back on the pattern of behavior exhibited by Adam Aron, the CEO of AMC, this falls within a pattern. The problem is that this time he is taking the whole industry with him.
Mr. Aron likes to wave his arms in public and also likes to negotiate in public. In my way of thinking you should never ever let them see you sweat if you can avoid it. My perspective on this is that this 8K was placed squarely on the feet of Kansas based EPR Properties.
AMC made up nearly 18% of EPR’s revenue last year, or about $124 million. On March 17, 2020, AMC said it would shutter every one of its US based locations in response to government restrictions. That led the largest motion picture exhibition circuit on the planet operator to furlough the entirety of its executive staff, including Amos. A short time after that it stated that it would cease paying rent. As a result, EPR was forced to take a write down of $115 million.
Previously AMC had projected that a $500 million private debt offering would allow it to keep in business until November and Thanksgiving. What is odd is that even though AMC had declared to have the money in order to stay in business, EPR was still writing off the rents due, a prudent business decision would have been to keep the rents on the books and defer them and as a result not devalue your company. I feel that there is something else afoot.
I understand fully protecting yourself, I fully understand looking after your shareholders interest. What I cannot understand is why you would further plunge a whole industry sector into doubt in the process. As a matter of grace, you should define the rationale for making such statements and as well let the world know that because you are in this kettle of fish, it does not mean the industry as a whole is. To be a true leader one has to keep his own house in order while not disrupting your neighbors. Last year Adam Aron took home a paycheck of $9.76 million.
When Aron takes issue, he lashes out in the press such as was the case of the Trolls 2 VOD release. When Universal announced its intent to release Trolls 2 on various streaming platforms, Aron lashed out “Effective immediately, AMC will no longer play any Universal movies in any of our theaters in the United States, Europe or the Middle East.” While I certainly can empathize with AMC’s anger and disappointment, I do not think that prudence is being applied by negotiating in the press.
Over at Cinemark, a steadier hand is on the tiller. Mark Zoradi, in contrast to Mr. Aron, takes a far more prudent approach to negotiation. In response to Aron’s outburst Zoradi issued the following statement, “We negotiate window and release dates in a business setting as opposed to press settings because we think these are private negotiations,” he went on to say “We believe the exclusive window is important to the theatrical experience, and are careful about undue change to that.”
“Based on the enthusiastic response to the film, we believe we made the right move. In fact, given the choice of not releasing ‘Trolls: World Tour,’ which would not only have prevented consumers from experiencing the movie but also negatively impacted our partners and employees, the decision was clear,” said Jeff Shell, CEO of NBCUniversal. Universal further stated that it is their final decision to release movies at movie theaters or VOD, when necessary.
A week ago Wall Street analysts upgraded AMC stating that the threat of bankruptcy had gone away. This week Adam Aron decided to throw a grenade down the pants of the exhibition industry. Thanks pal.
